Ann: Half Yearly Report and Accounts , page-18

It was a good report, well written and providing some insight into the nature of the profit forecast and their thoughts regarding cash-flow.

Positives that I could see were

1. Cash-flow management - sounds like the 3rd quarter will be a steady quarter building more cash-flow before embarking on another step-change in growth in the 4th quarter. The cash-flow for the half doesn't seem to crash hot (as we knew from the quarterlies) but this appears to be a result of the heavy investment in working capital required in the first quarter to achieve this growth.

2. Strong NPAT performance. We will need to see further substantial improvement in the NPAT margin in order to meet $16.5 mil forecast on $150 mil revenue. Given their stage of growth I think the required margin expansion is possible.

3. Balance sheet is improving, another couple of quarters of strong cash-flow and their balance sheet will start to look quite strong.

4. Disclosure & Explanation of profit forecast - This is extremely helpful disclosure by the directors, I wish all companies would do as much. I think its very difficult for an EPC company to forecast profit 12+ months out, especially given the world economic woes that have flared up recently. Given this, I think it is understandable if projects are delayed and profit is pushed back into 2013, as long as they inform investors quickly and thoroughly.


Negatives that I could see

1. Maxx acquisition - no real explanation of why this acquisition fell over. AZG already paid part-settlement in shares (see note 6) so what is the go there.

2. Reed Resources project delayed - this was known as Reed Resources had stated as much in their company presentations. However, it would not have hurt AZG to make a release about this rather than mentioning it in the half yearly.

3. Restatement of accounts - Good to see they corrected them, though it does reduce the net assets by around $5.5 million. Let's hope thats a one off, first strike.

I noticed a few other minor things that require clarification but overall I am quite impressed with their progress. The market is invariably hard to forecast, but this 'should' see a strong performance today - my call is 22.5 cent finish with 24 cent high.