AUSGROUP: 1HFY2018 net profit of A$7.2m surpasses FY2017

AusGroup has been shortlisted as a contractor on MSP Engineering's Lithium Talison project. Above: Tianqi Lithium Australia Pty Ltd lithium hydroxide processing plant project at Kwinana. (Photo: MSP Engineering) AusGroup's diversification from oil & gas to mineral resources has turned out well. It posted its 5th consecutive quarter of profitability in 2QFY2018. Net profit attributable to shareholders amounted to A$7.2 million during the first two quarters of the financial year 2018, 53% more than what it generated for the whole last year (FY2017: A$4.7 million).  "We are now diversified into iron ore and lithium markets," said CEO Shane Kimpton at its 2QFY2018 results briefing on Wednesday (14 February). In the oil & gas and mining sector, if you don't deliver safely and work with clients on safety and environmental issues, you don't get your next job. – Shane Kimpton  CEO (NextInsight file photo) "There is a lot of investment by China in lithium plants in Western Australia," said Mr Kimpton. The Group's performance in 2QFY2018 has been robust, signaling that its recovery is on track. Highlights of 2QFY2018: Group revenue was A$150.1 million, up 41.3% year-on-year (yoy). Net profit attributable to shareholders was A$4.1 million, up 267.7% yoy. Work in hand amounted to A$356 million as at 31 December 2017. Debt servicing burden reduced by 11.3% to A$3.3 million. Secured more than A$200 million in extension work on Ichthys LNG project. Became shortlisted as a contractor on MSP Lithium Talison. Increased scope of work under its master services contract for Chevron's Wheatstone project in Western Australia. Shell Prelude FLNG project going on well. Extended Woodside fabrication contract for specialist piping work.

*6-month change
For more info, refer to its 1HFY2018 media release here.

Shareholders at AusGroup's 1HFY2018 results briefing congratulated the management for delivering a stellar set of results. (Photo by El Lee)
In 2016, the Group breached financial covenants for its S$110 million Multi-Currency Notes. It successfully negotiated with the Noteholders to extend the maturity of the Notes to 20 October 2018. The debt restructuring arrangement included an option to extend the maturity date to 20 October 2019, subject the approval of the Noteholders. At this week's results briefing, Mr. Kimpton, Managing Director Eng Chiaw Koon, and CFO Christian Johnstone addressed investor concerns about its options for the debt that will be due this October.

“We are confident our Noteholders will support us as long as our restructuring terms do not cause them any financial loss," said MD Eng Chiaw Koon. 
(NextInsight file photo) Q: What is your strategy in event that the Noteholders do not approve the extension of maturity date?

Two years ago, KPMG negotiated on our behalf with the Noteholders to restructure the debt so that there will be no financial loss to the Noteholders.

Back then, the Notes were unsecured. It was clear that if the Noteholders pulled the plug on us, they were likely to receive nothing out of the entire exercise.

When we extended the maturity date of the Notes by two years, Port Melville was collateralized as security for the Notes.

We asked for two years in the hope that this was sufficient time for us to ramp up its operations to generate sufficient revenue to pay down the debt.

Alternatively, a cashflow accretive port could be sold at a better price.

Eight months ago when Shane joined us, the port had no fuel offtake business because we were short of working capital.

Today, the port looks much more promising and we have secured fuel offtake agreements. We believe that it has a good chance of turning around.

Our cash position today does not allow us to meet our debt obligations by this October.

"We are likely to renegotiate the debt repayment timeframe to one that we can fulfill," said CFO Christian Johnstone. (NextInsight file photo)

We are talking to legal and financial advisors on our options to restructure the Notes to extend the maturity date by another three to five years.

A significant number of oil & gas players have already taken the same debt restructuring route because this industry is very short of working capital.

We have received positive feedback from our institutional Noteholders, and the experience of our financial advisors, as well as other oil & gas players that have restructured their debt.

The feedback indicates that the Noteholders will support us as long as our restructuring terms do not cause them any financial loss.