AusGroup 2Q FY2011 Earnings at AU$3.1 million

11 February 2011

AusGroup Limited (‘AGL’ or ‘AusGroup’ or the 'Group') today announced its results for the three/six months ended 31 December 2010 (‘2Q FY2011/ 1H FY2011’).

“The first half has continued to be challenging for our Group, however the results are broadly in line with our previous statements. We are encouraged by the better than expected performance in our Integrated Services and Fabrication & Manufacturing businesses which was offset by two challenging contracts in our Major Projects business.

Our focus is on rebuilding a quality order book and a progressive improvement in business margins over the forward looking 12 month period.

The project pipeline in Minerals, LNG and Oil & Gas is strong and we are well positioned across all of these sectors” – John Sheridan, CEO / Managing Director.

Revenue for 2Q FY2011 increased by 87.6% to AU$160.9 million due to the increased activity levels in the Oil & 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 scaffolding related revenues increased as a result of the increased activity levels in the Oil & Gas and LNG sector.

Revenue for 1H FY2011 increased by 87.2% to AU$298.8 million due to increased activity in the first half of FY2011 in the Oil & Gas and LNG sectors.

The Group’s gross profit increased by 4.2% in 2Q FY2011 to AU$14.5 million, however gross profit margin declined from 16.3% during 2Q FY2010 to 9.0% during 2Q FY2011. The margin decrease was due to margin pressures on tendering activities during the Global Financial Crisis (’GFC’) as well as recognition of an estimated loss on a construction contract. The 2Q FY2010 was positively affected by the timing of variation approvals on several Australian projects.

The Group’s gross profit increased by 11.3% in 1H FY2011 to AU$26.7 million with gross profit margin declining from 15.1% during 1H FY2010 to 9.0% during 1H FY2011. This decrease was due to the general decline in margins seen across the industry following the GFC and the recognition of estimated losses on two construction contracts.
 
The other operating income decreased by 17.4% to AU$2.0 million in 2Q FY2011 mainly due to decreased profit on the sale of assets. This has been offset by increased operating lease income. Supplier rebates, previously reported as income, have been more appropriately included in the cost of assets acquired.

The other operating income for 1H FY2011 increased by 7.3% to AU$4.1 million mainly due to increased operating lease income associated with the MAS operations.

Operating expenses (comprising administrative expenses, marketing and distribution expenses and other operating costs) for 2Q FY2011 increased by 11.1% to AU$11.0 million driven not only by the indirect salaries and staff recruiting costs reflecting higher activity levels experienced by the Group during 2Q FY2011, but also by the impairment arising from the write off of a trade debtor that was placed under administration. This has been partially offset by the higher utilisation of staff who were costed directly to projects in 2Q FY2011.

Operating expenses for 1H FY2011 increased by 18.9% to AU$21.7 million due to increased indirect salaries and staff recruiting costs, impairment arising from the write off of a trade receivable, increased salaries and incentives payable to MAS staff.

The Group’s net profit attributable to equity holders for 1H FY2011 decreased marginally by 0.3% to AU$5.1 million.

The net cash generated from operating activities for 2Q FY2011 was AU$5.1 million. The net cash generated from operating activities for 1H FY2011 was AU$0.9 million. The Group’s cash and cash equivalents stood at AU$26.3 million as at 31 December 2010 with a low net gearing of 2.4%.

Outlook

The Group is continuing to witness a strong increase in enquiries and forward looking tender activity which is expected to continue into FY2012. This assumption is based on current client project development information.

As a consequence of improved tendering activities, the Group anticipates tendered margins to improve to more normal levels in 2H FY2011. The flow on benefit from any such improved margins into improved earnings is only expected to be realised from FY2012.

The outlook for the Group’s Fabrication & Manufacturing businesses should also improve on the increased activity levels, however this part of the Group’s business will continue to experience ongoing competitive pressure from low cost country competitors.

The Group is continuing to see a reduction in the levels of uncertainty around the timing and development of some key resource projects, particularly in Western Australia.

The improved outlook around project opportunities in Western Australia has resulted in increasing concerns around the availability of project staff and labour to execute the number of projects now being considered by the Group’s clients.

The longer term outlook for the Western Australian markets – particularly in Oil & Gas (LNG) and Mineral sectors - remains strong. The Group continues to anticipate a strong build up in demand for its services from 2H FY2011 into FY2012.

The Group has work in hand to the value of AU$212 million at end December 2010.

Additional Information

• Investor Briefing Presentation - 11 February 2011
• Financial Statements and Dividend Announcement for Second Quarter Ended 31 December 2010