Civmec aims to build on growth through continued cost management, maintenance segment boom

CONSTRUCTION and engineering services provider Civmec is on a roll.

For its first quarter ended September, the Australia-headquartered company reported a 7.3 per cent year-on-year increase in net profit of A$15.2 million (S$13.4 million).

Its top line grew in tandem to A$245.1 million in Q1, from A$228.3 million in the year-ago period.

The company has posted higher full-year net profit for the past four consecutive years, with earnings jumping from A$6.1 million in FY2019 to A$57.7 million in the FY2023 ended June.

The key to Civmec’s consistent earnings growth, according to chief executive and co-founder Patrick Tallon, is careful attention to cost management.

“Cost is fundamental to what you want to make in profit,” said Tallon.

“In Australia, in particular, the cost of ... staff and labour is probably our biggest cost. It’s at least 50 per cent or more of the cost, compared to other nations where the labour cost is less,” he added.

“So we spent a lot of time making sure people have the correct processes, the systems (and) the correct training as much as we can (provide) to be able to perform their job as efficiently as they can.”

Expanding capacity

Civmec provides a range of services across three major segments: construction work involving structural, mechanical and piping work; structural concrete work; and some electrical work.

It also manufactures equipment used in shipbuilding and provides maintenance work in refractory and industrial insulation, among other things.

In November 2022, Civmec broke ground on construction of its new engineering, manufacturing and maintenance facility in Port Hedland in Western Australia.

A year later, the new site is now fully operational, featuring a workshop and an office facility of approximately 5,000 square metres (sq m).

The facility will serve as a centre for maintenance support in the Pilbara region, and allow the company to provide specialised fabrication and maintenance services locally in Port Hedland. These include structural repairs, modifications and rotable item maintenance.

Tallon said the company had chosen to build a facility there for its prime and strategic location – in close proximity to mines as well as some major iron ore exporters.

Sitting on 50,000 sq m of land, the new facility is expected to support the company’s verticals across segments.

Civmec is also eyeing another piece of land in Gladstone, Queensland, where it already has a facility that supports the maintenance works it provides.

The acquisition of this land is still subject to regulatory approval. When completed, however, the new addition could signify a potential new area of growth for Civmec – in the liquefied natural gas (LNG) space.

Tallon noted that numerous LNG trains pass by, transporting the natural gas that has been cooled to a liquid state to and from Australia’s 10 liquefaction facilities.

“While we’re not involved in that type of work right now, they have an area for growth for us where we think we can actually get involved in that energy space … (sometime) down the line,” he said.

Shifting operations

Meanwhile, analysts are positive about dual-listed Civmec’s plans – announced in late October this year – to redomicile from Singapore to Australia.

UOB Kay Hian analysts John Cheong and Heidi Mo believe the move would allow the company to clinch more projects in Australia, as the Australian government and corporations increasingly introduce assessment criteria for local corporations.

“In particular, this may bolster Civmec’s chances of contributing significantly to defence projects brought about by (Australia’s) 2023 Defence Strategic Review,” they said.

The group has an order book worth A$1.1 billion as at end September – up nearly 18 per cent from the year before.

In its Q1 update, the company said it expects its order book to grow further, as tendering activities remain strong across all sectors.

In particular, Tallon is most optimistic about growth from the company’s maintenance arm.

He believes that the segment is one that would give the company the most “immediate return”, given that Civmec had just launched its new facility in Port Hedland, near the mining companies that it gets most of its maintenance business from.

“We’ve built the projects, we built the plant,” Tallon said. “So we’re hoping that we can actually deliver maintenance cycles for the clients in that space.”