Civmec Q2 earnings triple, upside from major projects expected

CONSTRUCTION and engineering group Civmec on Tuesday posted a more than tripling in net earnings to A$4.26 million (S$3.96 million) for its second quarter ended Dec 31, 2019.

Its bottom line was helped by reduced administrative costs and finance expenses. Net profit margin of 5 per cent for the quarter was also up from 1.7 per cent for the same period in FY2019, due to the nature of the projects undertaken.

Earnings per share for the quarter was 0.85 Australian cent, compared with 0.25 cent a year ago.

This was despite its sales revenue coming off 37.7 per cent to A$84 million, but the group said this was simply "due to the timing of commencement of new projects".

For the six-month period, earnings rose 38.7 per cent to A$8.07 million, while revenue declined 50.4 per cent to A$166.2 million.

The company on Tuesday said it anticipates that revenue will continue to increase in the second half of FY2020, as major projects underway continue to ramp up.

This includes the delivery of Australia's largest lithium hydroxide plant being built in the south-west of Western Australia for specialty chemicals company Albemarle, and the full vertical delivery of the primary crushing and ore processing facility for Fortescue Metals Group's new Eliwana Mine being constructed in the Pilbara region of Western Australia.

In addition, the group's new 53,000 sq m (usable floor area) assembly and sustainment facility being built in Henderson is now structurally complete, with the internal fitout underway.

"Delivery of the new facility, able to accommodate large vessels and modules for construction and sustainment, is on schedule for commencement of the next phase of the Royal Australian Navy's Offshore Patrol Vessel programme. Under the programme, consolidation of the remaining 10 vessels will move from South Australia to Western Australia later this year, providing a sustained revenue stream for the group until 2029," it said.

Its ability to grow revenue until year-end FY2020 will also be helped by its expanding client base in the delivery of specialised maintenance and turnaround services for the metals & minerals and oil & gas sectors, the company added.

Civmec CEO Patrick Tallon said: "Pleasingly, during the first half of this financial year, strong cash generation from operations has enabled us to further reduce debt."

Cash and cash equivalents as at end-December 2019 were A$21.6 million, decreasing from A$33 million as at end-September 2019, due to the continuing development of the facility in Henderson, payment of dividend and continued debt reduction. Overall long-term liabilities decreased to A$129.2 million as at end-December 2019 from A$141.2 million as at end-September 2019 as a result of the repayment of A$11.2 million of debt.

"With an order book of A$765 million as at Dec 31, 2019, the forward tendering outlook is positive, with significant opportunities identified... In the marine and defence sector, the federal government's commitment to undertake its minor naval vessel continuous build programme and sustainment of these vessels at Henderson will provide construction and through-life support opportunities going forward," Mr Tallon added.

In June 2018, Civmec had said that it was steering into shipbuilding with a major A$4 billion deal clinched with its joint-venture partner, German shipyard Lürssen, to build a fleet of 10 offshore patrol vessels for the Australian Navy. Back-of-envelope estimates at the time showed that about A$400 million to A$500 million will be accrued to Civmec over the next decade. This recurring revenue comes on top of its turnover from existing building projects for the oil and gas, metals and minerals, and infrastructure sectors.

Civmec is dual-listed in Singapore and Australia.