AUSGROUP: Turning the corner with rising order book

AUSGROUP reported a dismal AUD11.9 million in net loss for FY14 (ended June) but it said that, after adjusting for one-offs, it would have achieved a net profit of AUD11.5 million instead.

As shown in the chart below, the one-offs include losses and write-downs on two projects amounting to AUD26.4 million.

On the positive side, there was a recognised profit of AUD14.5 million from the sale of its fabrication yard in Tuas, Singapore.

one-offsFY14

Adjusted profit of AUD11.5 million = Reported loss of AUD11.9 million + one-off items (in green) -- one-off gain from a sale of property (in grey). Source: AusGroup

Nonetheless, the company did suffer from revenue falling 48% to AUD302.4 million due to plunging capex by the minerals and resources sector in Australia.

3stuart-kenny

Stuart Kenny, CEO and MD of AusGroup.
NextInsight file photo"It's our lowest revenue in a number of years and we think it's the lowest it's going to be for a number of years going forward," said MD and CEO Stuart Kenny at a results briefing last Friday (Aug 29).

Shifting its strategy from construction services for the mining sector to the oil & gas sector and asset maintenance contracts, AusGroup ended the year with a healthier order book of AUD376.4 million, up from AUD260.3 million of a year earlier.

Out of this orderbook, about AUD300 million are contracts from the oil & gas sector with the rest from the minerals and resources sector.

AusGroup leaves FY14 behind with a stronger balance sheet after raising funds from a placement of its shares, and refinancing of its loans and securing fresh bank guarantees. A second placement of shares took place to fund business expansion plans with Ezion Holdings.

As a result, AusGroup's total borrowings have decreased from AU$30.0 million to $19.6 million while gearing has reduced from 17.3% to 10.0%.

"We are now well positioned to take advantage of opex (operating expenses) opportunities before us in the oil and gas sector, longer-term projects that give us a longer term view of our revenue," said CFO Gerard Hutchinson.

Asked about the risk of losses similar to those reported in 1Q recurring for the contracts on hand, Mr Kenny explained that those losses related to complex piping and mechanical work in an existing plant. There is no such work in the current orderbook nor in the tenders that AusGroup has submitted for future work, he said.

Acquisition of Ezion units

A major development of AusGroup's business is taking shape -- the acquisition of Ezion Offshore Logistics Hub Pte Ltd (EOLH) and Teras Australia Pty Ltd for an aggregate of AUD44 million (SGD 55 million) in a share-cum-cash deal in the proportion of S$14 million and S$41 million, respectively.

The sale and purchase agreement with Ezion Holdings was inked on July 23, and AusGroup will seek shareholder approval at an EGM soon.

EOLH Tiwi, a subsidiary of EOLH, is engaged in the business of operating a port and a marine supply base providing administrative, storage and logistics support to various vessels, including those from oil and gas projects in the region. However, it is still in the process of setting up the port and the marine supply base and has yet to fully commence operations.

The businesses of the targets and AusGroup are complementary but not in competition. (See also: AUSGROUP forays into marine logistics with acquisition of Ezion port)

"That taps into our customer base, and expands the range of services we can offer to our customers -- and we believe these services will produce much higher profit margins," said Mr Kenny.

Eng_Chiaw_Koon_7.14 Eng Chiaw Koon, director of special projects at Ezion, has recently been appointed to the board of AusGroup.
NextInsight file photo.AusGroup will expand into the business of providing onshore and off-shore marine services, including but not limited to marine logistics services and related support services in the Northern Territories and Western Australia.

Business enhancement aside, Ezion Holdings will emerge with 17.83% of the enlarged share capital of the company, up from the 6.9% it acquired through married deals in April this year.

Ezion is well-established in the oil and gas industry and its business includes the provision of onshore and off-shore marine logistics and support services to the oil and gas industries.

Ezion is the controlling shareholder of AusGroup, which is a rarity among Singapore listcos in not having, for some time now, an individual -- especially senior management -- who owns a stake of more than 5%.

Ezion's stake would rise further if it exercises, within the next five years, 110 million options that it was granted in June this year. The exercise price is S$0.3675 per option.

As part of the AusGroup-Ezion collaboration, and reflecting Ezion's already No.1 shareholder position in AusGroup, Eng Chiaw Koon, Director of Special Projects at Ezion Holdings, was appointed as a non-independent, non-executive director of AusGroup in July this year.

AusGroup's Powerpoint materials are available on the SGX website.

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AUSGROUP: Turning the corner with rising order book

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