Found this bit of information. Hope there is some good news in the reports. If anything the GFC has helped a company like this as big business looks to cut back on all wastage of time and money to maximise the bottom line. Like this story. Good luck to holders....
Microequities is an Australian financial adviser specialising in in-depth research of listed "micro caps" - those companies of low capitalisation too small to register on ASX indices or to attract research coverage from leading stockbrokers. In June Microequities hosted its Rising Stars conference, at which selected companies presented their wares. FNArena was invited to attend, and over a period of time is providing conference highlights. This is the second in the series.
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QMastor (QML) presented at this year's Microequities conference, but the company also presented at last year's conference. To that end, readers unfamiliar with QMastor are directed to Micro Cap Rising Stars - QMastor (2008) published this time last year, for an extensive company profile. What follows is an update.
In the first half of FY08, as noted in its 2008 presentation, QMastor posted earnings of 0.93c per share on a profit of $373,000. Its order book was full, and its confidence strong. In the first half of FY09, QMastor posted earnings of 2.66c per share (up 187%) on a profit of $1.07m. A 1c dividend was paid.
This time last year, bulk commodity price contracts had just been renegotiated for the greatest price jumps in history. All commodity prices were strong, and the Reserve Bank had hastily increased its cash rate in an attempt to quell runaway Australian economic growth. Iron ore producer Fortescue Metals was arguing with BHP Billiton and Rio Tinto about being provided with access to their precious Pilbara rail lines, and east coast coal producers were shackled by a lack of rail cars and bottlenecks at the ports. There were empty coal ships lined up from Newcastle to Palm Beach.
In July 2008, the commodity bubble burst when the oil price peaked and began to fall. By September, the whole world had fallen apart as the US-centric credit crisis became the Global Financial Crisis. Commodity prices collapsed. The coal ships stopped coming. Smaller mining ventures went to the wall.
QMastor's vision is "to be the leading bulk materials management information systems and services provider to the global mining, port, power generation and other bulk commodity industries". QMastor sells mining and material management software and provides ongoing service. One might be forgiven for assuming FY09 would be a shocker for the company, and that its positive growth story of FY08 would take a severe hit. But instead, QMastor has increased earnings per share by 187% year-on-year in the first half.
One of the reasons there is growing confidence in an economic recovery across the globe, hopefully beginning later this year, is due to general inventory management. Once upon a time recessions were exacerbated, or even caused, by an excess of inventory in the economy. Widget sellers would be forced to keep several days or weeks of inventory on hand in order to cope with vagaries of demand, and also to stay ahead of inflation in the boom times. When the economy turned, retailers, wholesalers and producers were stuck with widgets they could not sell. This meant orders stopped and discounting of existing stock followed, creating deflation.
With the exponential growth in computing power, software creation, and the instantaneous global information network created by the internet, inventory management has since become a fine art. Widget sellers boast of their "just in time" inventory management systems, in which orders are satisfied expediently without the need to carry excess stock. From the raw materials to make the widgets, to the production process, to transportation and sale, widget stock management has been efficiently streamlined. This means that while rapid destocking was occurring across the globe in late 2008 and early 2009, inventory levels have been rapidly reduced to a minimum. This has given economists confidence that the shocking global GDP contraction numbers of the first quarter will not be repeated. Retailers, wholesalers and producers will have to start placing orders again, and data already suggest this is happening.
The business of digging rocks out the ground, processing them, putting them on rail cars for port and then on a slow boat to China, has not, however, kept pace with the evolution of widget management. For many mining operations, logistics management has only moved from pen and paper to an Excel spreadsheet purpose built for each operation. It's not just about inventory management, it's about the whole supply chain. A widget is a widget, but not just any old rocks can be sent off to Chinese customers, or anyone else. And the rocks have to be "handled" several times. Coal, for example, must meet certain specifications to satisfy global contracts. The industry estimates that 20% of all coal marked for export does not actually meet such specification. And that's just about inefficient management.
In short, QMastor provides purpose-built software for bulk material management which is 80% generic and 20% tailored to specific customers. QMastor provides mining companies with the opportunity to cast off their old piecemeal logistics systems like a clapped out back-hoe and move into the twenty-first century of the efficient management of rocks. Qmastor systems are now contracted to manage over 550 million tonnes of global bulk commodity movements per annum, which is more than all of the Australian coal industry.
Having moved out of its R&D phase last financial year, QMastor's plan was to expand its range of service and its global footprint. To that end, the company has sold its first port management software and its first software to a major US mining operation over the course of FY09.
New sale highlights in FY09 include sales of software to both the Newcastle and Dalrymple (Mackay) coal ports on Australia's east coast, and to two large iron ore ports in Western Australia. Software has been sold to the Vale Inco nickel operation in New Caledonia, and to Jim Walter Resources in the US. QMastor is confident the latter will provide the much needed window into the lucrative North American market. QMastor has opened new offices in Perth, Mackay and South Africa and they are all producing revenue.
FY09 has also seen the launch of QMastor's new Horizon advanced planning and scheduling software, used for processing plants, vessel/berth scheduling and transportation and stockyard scheduling. The software has only been available for three months, but has already been adopted by OneSteel, the Newcastle coal port, the two iron ore ports in WA and Jim Walter Resources.
The cost of "demurrage" - the scourge of every bulk material exporter - is the total cost of chartering a vessel not just to travel from A to B, but the time spent at A and the time spent at B. Those coal ships parked off Newcastle for weeks did so with the meter running. While the queues were caused by inadequate port infrastructure, the greatest part of additional demurrage cost is due to inefficient scheduling. In recent months, the port of Shanghai has witnessed Newcastle-style queues as ships laden with iron ore and copper jostle for an unloading schedule slot.
This time last year, QMastor had no debt and held plenty of cash in the bank to exploit potential acquisitions while at the same time bursting with organic growth. In FY09, the company has made a significant acquisition in Coal Link Australia, previously recognised as the country's leading coal management system provider. The acquisition cost $3.5m, leaving plenty of cash in the tin to foster organic growth. QMastor recognises the need to push for scale, and to make the company "sizeably bigger". However, further capital raising will only be considered for the purpose of an opportunistic and accretive acquisition.
While QMastor has appeared to have weathered the GFC quite effortlessly, the second half of FY09 has featured a slowing of activity, prompting the company to also now look inward and "seriously" at costs. QMastor is nevertheless on track to meet previous FY09 earnings guidance of 3.25 to 4.0c per share.
QML Price at posting:
38.1¢ Sentiment: LT Buy Disclosure: Held
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