Essa records $1.6m profit for FY10

Belmont-based Essa has posted a $1.6 million 2010 financial year profit turning the company's profits around after an $800,000 loss last year.

The company said restructuring the business and reducing costs played a significant part in the turnaround.

The improved profit was achieved despite Essa incurring non recurring costs of $869,000, impairment of goodwill of $328,000 and losses from discontinued operations of $418,000.

The directors of Essa declared a fully franked final dividend of 1.75 cents per share.

The company's net cash balance was $8.5 million at June 30.

In a statement Essa said the global economic outlook remains cautious and challenging for 2011.

"These conditions and their effect on both the global resources industry and the demand for Essa's products make it difficult to forecast future activity levels," the statement said.

"Nonetheless, the positive signs of recovery in the market are evident and from both an operational and financial perspective Essa is now better placed as a result of the measures taken in FY2010."

See full company statement below:

The Directors of Essa Australia Limited ("Essa" or the "Company") are pleased to announce net profit after tax attributable to members ("NPAT") of $1.629 million for the year ended 30 June 2010 ("FY2010") compared with a loss of ($0.800) million recorded in FY2009. The profit improvement was achieved despite expensing non recurring costs of $0.869 million, impairment of goodwill of $0.328 million and losses from operations that are now discontinued of $0.418 million.

Essa responded quickly to the difficult market conditions that it faced throughout most of FY2009 and well into this year by focussing on restructuring the business, reducing costs and maintaining a strong financial position. The benefits of these actions, together with the stabilisation and recent improvement in market conditions, resulted in a significant improvement in profitability in the second half of the financial year ("2H2010").

NPAT in 2H2010 increased to $2.291 million compared with a loss of ($0.662) million in the first half of the financial year ("1H2010"). The 2H2010 performance was boosted by the favourable timing of several project deliveries and overseas contracts.

Essa's sales revenue of $28.627 million in FY2010 was down 8.3% from $31.227 million in FY2009. However, the improvement in market conditions and a consequent increase in customer orders is evident from the sales revenue of $18.378 million generated by the Company in 2H2010 compared with $10.249 million in 1H2010.

Earnings per share from continuing operations ("EPS") was 3.92 cents for FY2010, compared with (0.02) cents for FY2009. EPS before the impairment of goodwill was 4.39 cents.

A stand out feature of the result was the generation of cash flow from operations of $3.476 million as a result of improved profitability and working capital management. Essa increased its net cash balance to $8.555 million as at 30 June 2010 (16.4 cents per share) from $5.356 million at the same time last year. This was achieved despite the significant reorganisation needed during the year to maintain the Company's competitive advantages and position the business for future growth.

Dividend
The Directors of Essa are pleased to declare a fully franked final dividend of 1.75 cents per share. The Record Date for determining entitlements to the dividend is 24 September 2010, with the dividend to be paid to shareholders on 11 October 2010.

The reinstatement of dividend payments reflects Essa's strong cash position and the Board's confidence in the future performance of the Company. Subject to the Company's performance, the Board intends to resume paying both interim and final dividends in FY2011.

Review of Operations and Performance
During the Global Financial Crisis, Essa's global mining customers deferred orders as they curtailed capital expenditure and reduced excess inventory levels. However, it was pleasing to note the rebound in Essa's sales from the depressed levels of the 1HY2010 as the economic environment stabilised and improved in 2H2010.

Overall sales of sampling and sample preparation equipment were down from $27.231 million in FY2009 to $25.935 million in FY2010, a decline of around 5%. Essa's wear and spare parts and standard equipment product segments experienced sales declines of 5% and 30% respectively in FY2010 compared with the previous year. Sales for sampling equipment in FY2010 were 50% higher than FY2009.

The expansion of the Brazilian operation progressed well and operated profitably in 2H2010. Sales revenue from Brazil was $2.947 million in FY2010, up from $0.464 million in FY2009 whilst the operation was being established.

STACE Pty Limited ("STACE"), Essa's specialist maritime repair and testing services and engineered fabrication subsidiary, contributed revenue of $2.692 million and a net profit before tax and impairment of goodwill of $0.013 million for FY2010. Although this result was significantly lower than FY2009 (comparative sales of $3.996 million and net profit before tax of $0.193 million), in light of the economic climate and strong competition, the Board regards the result as satisfactory despite the impairment of some of the goodwill associated with this subsidiary.

Essa is involved in the final stages of acceptance testing of automation systems supplied to a major laboratory group. As previously reported, the Directors believe the Company will not incur any further substantial liability in this regard.

Outlook
The present global economic outlook remains cautious and challenging. These conditions and their effect on both the global resources industry and the demand for Essa's products make it difficult to forecast future activity levels. Nonetheless, the positive signs of recovery in the market are evident and from both an operational and financial perspective Essa is now better placed as a result of the measures taken in FY2010.

Essa continues to manage actively the turnaround in its performance and further business initiatives will be undertaken in FY2011. The Board is pleased that the restructuring has significantly reduced the operating cost base of the Company and improved its efficiency. In particular, management has targeted improved returns from overseas markets and automation project development in which Essa has made a substantial investment in recent years.

The Directors believe that profitability for FY2011 will exceed that achieved for FY2010.