Essa posts $800,000 loss

Mining, sampling and laboratory equipment producer, Essa is making further improvements in efficiency and implementing cost reductions in response to posting a net loss of $800,000.

After providing for one-off impairment and write-offs relating to automation systems contracts, and suffering falls of almost 25 per cent in sales over the past year, the company's profits fell by more than 117 per cent.

The company's involvement with disputes relating to automated systems supplied to major laboratory groups have not yet been completely resolved.

One dispute involving ALS Labratory Group centres around a refund request for the amount of $637,067.

A contractual dispute between Essa and SGS relates to an outstanding amount of $3.2 million, of which $1.8 miilion was in trade receivables and $1.4 million was fwork in progress.

The board of Essa resolved to impair or write-off a pre tax total of approximately $3.9 million (comprising work in progress and trade receivables) in relation to these matters as it believes that the likelihood of recovering is doubtful.

The company is continuing to work towards the resolution of the major outstanding matter.

Total revenue was $33.2 million, down 25 per cent from $44.2 million in 2008.

Essa said the effects of the economic downturn were particularly noticeable in the second half of the financial year leading the company not to declare a dividend for 2009.

Full announcement below:

ESSA FY09 RESULTS
Essa recorded an underlying net profit after tax of $2.397 million for the year ended 30 June 2009, a decrease of 46% over the previous corresponding period. After providing for one-off impairment and write-offs relating to automation systems contracts, the reported net loss after tax attributable to members was $0.8 million. Total revenue for the period was $33.2 million, down 25% from $44.2 million in 2008.

The Company has resolved not to declare a dividend for 2009.

A summary of Essa's results is presented below:

Full Year Accounts Summary
Year ended: June-09 June-08 Change
($'000) ($'000)
Total revenue 33,241 44,187 (24.8%)
EBITDA* 3,645 7,785 (53.2%)
Depreciation and amortisation (994) (939)
EBIT* 2,651 6,846 (61.3%)
Net interest received 31 52
NPBT* 2,682 6,898 (61.1%)
Tax expense (285) (2,436)
Underlying NPAT
attributable to members* 2,397 4,462 (46.3%)

Automation systems write-offs (3,197) -
(after tax)
Reported NPAT attributable (800) 4,462 (117.9%)
to members

EPS - cents (weighted) (1.53) 9.11 (116.8%)
- cents (non-weighted) (1.54) 8.85 (117.4%)
DPS - cents - Interim - 2.0
- Final - 3.25
- Total - 5.25
Franking N/A 100%
* Before automation systems write-offs and after minority interests

Review of Operations and Performance

The Global Financial Crisis had a considerable negative impact on Essa during 2009, resulting in a 25% decline in total revenue and a significant decline in profitability compared with the corresponding period last year. The effects of the downturn were particularly noticeable in the second half of the financial year.

Essa's high margin wear and spare parts and standard equipment product segments each experienced sales declines of almost 30% in 2009 compared with 2008. Essa suffered from significant changes in customer ordering practices as customers managed down their excess inventory and deferred orders for replacement parts. Sales for sampling equipment in 2009 were 20% lower than in 2008 as customers reduced capital expenditure on additional sampling capacity.

As reported in the 1HY09 results and subsequent ASX announcements, Essa was also involved with disputes relating to automated systems supplied to major laboratory groups. One of these disputes has now been resolved mutually, however the largest of these matters is still outstanding. The Board resolved to impair or write-off a pre tax total of approximately $3.9 million (comprising work in progress and trade receivables) in relation to these matters as it believes that the likelihood of recovering is doubtful. The Company is continuing to work towards the resolution of the major outstanding matter.

The result was also affected by a number of one-off non-recurring items including: restructuring costs (approximately $0.4 million); losses associated with an overseas shipment (approximately $0.3 million); and exchange rate losses (approximately $0.2 million). Further costs in relation to the establishment of both the Brazilian and European offices were also incurred during the period.

STACE Pty Limited ("STACE"), Essa's specialist maritime repair and testing services and engineered fabrication subsidiary, contributed revenue of $3.99 million and a net profit before tax of $0.192 million for 2009. Although this result was significantly lower then 2008, in light of the economic climate and strong competition, the Board regards the result as satisfactory.

On 1 July 2008, Essa announced the sale of a 25% shareholding in STACE to senior management of STACE for an amount of $0.55 million. The restructuring of Essa's interest in STACE was undertaken to align the interests of Essa's shareholders with STACE's senior management team, providing the management with a strong incentive to grow the business in future years.

The timing of tax payments and the working capital requirements associated with the Company's overseas operations negatively affected operating cash flows during the year. Nonetheless, Essa still generated cash flows from operations of $1.695 million in FY09. Stringent working capital management and cash generation will remain a priority over coming months

Management has responded quickly to the difficult operating environment, making further improvements in efficiency and implementing cost reductions as required. These measures include:

 outsourcing of manufacturing and fabrication at lower costs;
 reduction in staffing levels, with the number of employees presently at 100 compared with 135 (excluding contractors) last year;
 cost reductions in all areas, particularly in areas that do not contribute to sales revenue;
and
 renegotiation of supply contracts.

The Company continues to manage the position actively and its restructuring programme will continue in FY2010.

The ongoing restructuring of operations has significantly reduced the operating cost base of the Company and improved its efficiency.

Essa is well placed to take advantage of any improvement in business conditions and achieve improved returns from the overseas market initiatives and automation project development in which it has made a substantial investment in recent years.