What: After a rough 12 months which saw shrinking earnings, margins and a share price that dropped by 57%, investors finally get a look at mining services operator, Ausenco Limited's (ASX: AAX) interim report to see if the situation is salvageable.
Highlights:
- Revenue decreased by 28.9% to $184 million
- Profit attributable to shareholders dropped 42.2% to $2 million
- No interim dividend this period
- Net tangible assets of $0.36/share (down from $0.52/share in the pcp)
- Highly impressive safety performance continues with 3.37 injuries recorded per million hours worked
- Underlying EBITDA margin of 2.5%, down from 8.4% previously
- Total borrowings of $55.1 million
- Gross cash position of $24.1 million at 30 June 2014
- $36 million reduction in costs
So What?
Weak trading conditions and delayed decisions from clients have seriously impacted Ausenco's profitability over recent reporting periods.
The group's huge global diversification has not provided as much resilience as would be expected, with Asia Pacific/Africa revenues dropping 50%, and declines across most other branches of the business (Environment/Sustainability, Minerals/Metals, Process Infrastructure, Corporate and Regional Services).
This decline has been assisted by weaker foreign currencies (USD and Argentine Peso) which reduce Ausenco's AUD-denominated earnings.
One bright spot from the entire report was the group's renewed focus on Oil/Gas services, revenue from which rose 224% during the prior corresponding period and is expected to keep growing.
With oil/gas businesses booming both domestically and abroad this kind of exposure is a strong plus factor in any evaluation of Ausenco.
As an interesting aside, well-regarded ASX investor IOOF Holdings Limited (ASX: IFL) holds a moderate stake in Ausenco (around 8.8% presently) and routinely trades its position up and down by a percent or so.
It's difficult to evaluate the intent of this holding, although an optimist might conclude it is a small vote of ongoing confidence in Ausenco's potential.
Now What?
Senior management believes that the worst is behind them, with activity expected to pick up in 2015. I quote:
'The number and value of Ausenco's new opportunities across all lifecycle phases are at record levels reflecting positively on the Group's globally diversified business.'
That may be so, but in light of slim margins and weak performance across almost all divisions last year, I would counsel investors to wait for further reporting periods before making an investment decision.
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