AusGroup's newly-appointed CEO Shane Kimpton discussed how the resource infrastructure services provider has been benefiting from projects by oil & gas majors in Australia at its FY2017 results briefing on Monday (28 August).
The Group posted net profit of A$2.4 million for 4QFY2017 compared to a loss of A$165.5 million in 4QFY2016. |
Financial Highlights |
FY2017 |
yoy change |
Revenue |
A$435.0m |
-7.6% |
Gross profit |
A$44.7m |
29.8% |
Gross margin |
10.3% |
3ppt |
Net profit attributable to shareholders |
A$4.7m |
n.m. |
Cash reserves |
A$33.9m |
53.2% |
Total borrowings |
A$150.7m |
-15.9% |
For more info, refer to its FY2017 media release here.
Below is an excerpt of the replies provided by Mr Kimpton, Managing Director Eng Chiaw Koon and CFO Christian Johnstone to investor questions at the meeting.
Q: Why did your gross margin in 4QFY2017 narrow slightly (to 7.8%) compared to the previous quarter?
In 3QFY2017, we had a contract with an improved gross margin due to its closure. We make provisions for every contract before it is closed.
If the provisions are not utilized, we write them back when the contract is closed. Gross margin was steady for 1Q, 2Q, and 4Q compared to 3QFY2017, which increased due to the contract closure.
Q: What is the breakdown for your cost of sales?
We are a labour intensive business rather than a capital intensive business. About 70% of our cost is on labour. A relatively small portion is on raw materials. When we employ people, it is for a specific project. When that project is completed, we release the labour pool specific to that project from engagement.
Stock |
5c |
52-week range |
3.6c - 6.3c |
Market cap |
S$72.1 m |
PE (ttm) |
8.6x |
Dividend yield (ttm) |
-- |
1-yr return |
11.1% |
Source: Bloomberg |
Q: What’s behind the 4QFY2017 cash flow from operations (A$1.8 million vs 4Q2016 A$7.6 million)?
Previously, we had challenges in getting clients to reimburse costs arising from variation work in the appropriate timeframe.
Some of our contracts have payment terms of 45 days. We are changing our payment terms to be due within 21 days. We have made progress in our discussions with clients and our negotiations to convert their payment terms is coming to a closure.
During 4QFY2017, one of our major contracts was converted to be cost reimbursable. That will improve our cashflow going forward. Before the conversion, there was a build-up of claims because of the reactive nature of the work and the project was behind time. We will only see the benefit of the conversion from 1QFY2018.
Q: Your work-in-hand is now about A$420 million. How much of that do you expect to recognize as revenue by June 2018?
As a rule of thumb, about 70% of the work is delivered within one year of securing the contract.
Apart from that, part of our work-in-hand also reflects a long-term maintenance contract for Chevron. About 80% of that will be recognized in the current financial year.
Q: What is your revenue split between oil & gas and mining?
85% to 90% of our revenue comes from the oil & gas sector. About 10% to 15% is from mining. We probably need to balance that out as we go forward.
Q: What is your strategy for meeting your obligations for the A$110 million bond that will be due in October 2018?
The bond maturity date was extended from October 2016 to October 2018. It might get extended again to October 2019. One other option might be to convert the note to equity.