AusGroup records poor 2010 result

Perth-based engineering and fabrication company AusGroup has recorded a $111.5 million fall in revenue for the 2010 financial year.

AusGroup has blamed lower activity in the first three quarters of 2010 and client delays on some projects for the drop from $478 million to $367 million.

"Additionally, the strong Australian dollar against the US dollar and most Asian based currencies continues to impact the competitiveness in the Australian Fabrication and Manufacturing business," AusGroup said in a statement.

The Group's profits also fell from $71.5 million to $44 million.

The decrease was blamed on lower margins on projects post the global financial crisis and provisions for an estimated loss on a WA construction project.

Despite the poor results in 2010, the Group expects tender activity to increase strongly in the second half of the 2011 financial year in Western Australia.

AusGroup is listed on the Singapore stock exchange.

See company statement below:

AusGroup Limited ('AGL' or 'AusGroup' or the 'Group') today announced its results for the three/twelve months ended 30 June 2010 ('4Q FY2010/ FY2010').
Revenue decreased from AU$478.2 million in FY2009 to AU$366.7 million for FY2010 due to lower activity in the first three quarters of FY2010 and client delays on certain projects. Additionally, the strong Australian dollar against the US dollar and most Asian based currencies continues to impact the competitiveness in the Australian Fabrication and Manufacturing business.

Revenue for 4Q FY2010 increased by 4.3% to AU$123.2 million due to the increased activity levels in the oil and gas and LNG sectors as well as the increased activity levels in the mineral resources sector in the Australian Major Projects segment.

The Integrated Services segment benefited from the acquisition of Modern Access Services (MAS) (Acquired in 4Q FY2009), which contributed AU$61.6 million to revenue.

The Group's gross profit declined from AU$71.5 million in FY2009 to AU$44.0 million in FY2010 with gross profit margin declining from 14.9% to 12.0%.This decrease is due to lower margins on projects post the global financial crisis and provision for an estimated loss on a Western Australian construction project.

Operating expenses (comprising administrative expenses, marketing and distribution expenses and other operating expenses) increased marginally by 4.9% to AU$36.9 million in FY2010. This increase was mainly due to the inclusion of expenses related to the acquisition of MAS which was acquired in the last month of FY2009.

Impairment costs for FY2010 were AU$4.7 million. Since the previous review, Cactus Engineering & Trading Pte Ltd (Cactus) has experienced further declines in revenue and margins, and business has remained challenging due to slow demand for the Singapore based fabrication and machining services from the upstream oil and gas sector. After careful review and evaluation, the Directors are of the view that it is appropriate to impair all the remaining goodwill associated with the acquisition of Cactus.

The Group's net profit attributable to equity holders for FY2010 decreased by 89.2% to AU$2.4 million.

The net cash generated from operating activities for FY2010 was AU$37.3 million. The Group's cash and cash equivalents stood at AU$26.4 million as at 30 June 2010 and the Group has a net cash position.

Outlook
The Group continues to observe strong margin pressures and reduced activity levels across all its operations when compared to pre global financial crisis level (September 2008). The Group expects activity levels to remain challenging in core markets at least for the first half of FY2011.

The Group's tender activity is expected to increase strongly in the second half of FY2011 in Western Australia. This assumption is based on current client project development
information.

As a consequence of improved tendering activity, the Group anticipates tendered margins to improve from current low levels to more normal levels in the second half of FY2011.

The flow on from these improved margins into improved earnings will not be realised until FY2012.

The Group's fabrication and manufacturing businesses will continue to be challenged due to low activity levels and ongoing strong competitive pressure from low cost country
competitors.

The longer term outlook for the Group's Western Australian markets - particularly in oil and gas (LNG) and iron ore sectors remains strong. Excluding impacts related to global market uncertainty, the Group anticipates a steady build up in demand for its services from the second half FY2011 into the FY2012.

The Group has work in hand to the value of AU$362 million (as at 31 July 2010).
Dividend
The Board has proposed a final cash dividend (tax exempt) of 0.64 Singapore cents per share, subject to approval at the Group's next Annual General Meeting.