Renewable arm impacts GRD H1 earnings

A loss of over $9 million from its waste renewable division has impacted Perth-based engineering company GRD Ltd’s half-year earnings, which slumped to a loss of $438,000.

The company said today its Global Renewables division, which aims to maiximise the recovery of resources from municipal solid waste stream, had incurred significant technical and business development costs in Australia and the United Kingdom.

Its Eastern Creek waste management facility also suffered a loss.

The division reported a half-year loss before interest and tax of $9.021 million, down from the previous corresponding period’s profit of $1.6 million, which included a $9 million contribution from the financial closure of the Lancashire waste project.

"While the result from our Global Renewables division is disappointing, it reaffirms our previously stated strategy to restructure this part of our business," chief executive Cliff Lawrenson said.

"We are currently seeking a strategic partner for Global Renewables and discussions are underway with several interested parties both in Australia and the United Kingdom.

"We are on track for a conclusion of this process by year end."

Overall the company reported a half year net loss of $438,000, a sharp fall from the previous corresponding period’s net profit of $6.5 million.

The stand out player within the group was engineering and project delivery business GRD Minproc which delivered a record profit before interest and tax of $18 million, up 42 per cent while revenue was up 15 per cent to $125 million.

Overall group revenue was up eight per cent to $135.6 million while cash held at the end of the period increased from $37 million to $42.5 million.

The board has declared an interim dividend of three cents per share unfranked.

Below is the media release.

GRD Limited (ASX:GRD) today announced strong growth in the company's flagship engineering and project delivery business with GRD Minproc achieving a record first half profit before tax of $17.9 million.

The result represents a 43% increase compared with the same period last year. GRD Minproc recorded strong earnings growth with revenue of $125.4 million, up from $109.3 million in the corresponding period last year.

GRD Group Chief Executive Cliff Lawrenson said the growth was driven by the continued strength of the resources sector and GRD Minproc's outstanding project and study performance.

"The foundation for this result has been progress on both the Tenke Fungurume Project in the Democratic Republic of Congo and the Lancashire Waste Project in the United Kingdom, while the company is also beginning to establish a niche in Western Australia's growing magnetite iron ore sector."

"We also have a very strong pipeline of work with 15 secured definitive feasibility studies, this compares with six at the same time last year."

Mr Lawrenson said the company's African office continued its excellent growth in size, contribution to profit and project spread. The Brazil operations had expanded both capabilities and client base, while the strategic decision to open offices in Brisbane and Santiago was also bringing results.

"The Brisbane team is building up a strong study book with companies such as Rio Tinto and recently won their first project contract on PanAust Limited's Phu Kham Copper/Gold Operation in Laos," Mr Lawrenson said.

"The Santiago office is gaining momentum and recently secured the study for the Angostura Gold Project in Colombia, one of a growing number of opportunities in the highly prospective Andean region."

The contribution of GRD's engineering division was in contrast to the performance of the company's waste-to-resources business Global Renewables, which recorded a first half loss of $9.0 million before interest and tax.

Contributing to the result were revenue constraints at Eastern Creek and costs associated with lower diversion and technical developments at the Facility, as well as the business development programme in the company's UK market.

"While the result from our Global Renewables division is disappointing, it reaffirms our previously stated strategy to restructure this part of our business. We are currently seeking a strategic partner for Global Renewables and discussions are underway with several interested parties both in Australia and the United Kingdom. We are on track for a conclusion of this process by year end," Mr Lawrenson said.

"An issue of particular frustration is that, while the technical performance at Eastern Creek has been positive and despite ongoing discussions with waste providers, we are not receiving fair market revenue for the waste being processed. If we were to receive fair market revenue, Eastern Creek would be making a profit. In comparison, the contract for the Lancashire Waste Project provides a more realistic gate fee and target diversion rate. We are redoubling and broadening our efforts in regard to Eastern Creek.

"It is clear that the UR-3R Process® is an internationally recognised advanced waste treatment solution that provides a major climate change benefit when compared with landfill."

Continuing profit before tax of the Group for the half year ending 30 June 2008 was $0.3 million.

This result compares to $1.2 million underlying profit in the previous period. An additional one-off profit item of $9.0 million from the financial close of the Lancashire Waste Project was recorded in the previous period, producing a reported profit of $10.2 million.

The GRD Board is pleased to announce an interim dividend of 3 cents a share, unfranked.

"We look forward to the continued strong contribution by GRD Minproc and it is clear from these results that the engineering and project delivery business provides an excellent springboard for GRD's future profit growth as we implement the restructure of Global Renewables."