re: Ann: Managing Director's Address to S... I went to the AGM...

re: Ann: Managing Director's Address to S... I went to the AGM this morning and was satisfied with what the directors presented. They were very confident of the $14M profit forecast. The expected EBIT margin for 2012 is lower than previous years however may increase depending on project timing.

EBIT margin was 9.1% and 8.9% in 2010 and 2011 FY’s but only 6.7% forecast for 2012. The reasons given were increased competition and project timing. The 2012 forecast has a higher degree of uncompleted projects than previous years. They have a couple of large projects nearing completion but profit isn’t booked linearly - a larger proportion is booked at the end of the project. The projects are expected to close early FY2013 but if any finish earlier than FY12 profit will be higher (they’re not banking on this in their forecast).

If we assume that half of the margin degradation is due to increased competition and half to project timing, this gives an effective EBIT margin of 7.8% or an "underlying" NPAT of $16.3M - lets say $16M - these are my assumptions and figures, they weren’t proposed by the directors. But if I’m close, then there is around $2M in “undeclared” profit for FY12 which will fall into FY13.

This ties in with other comments made by the directors
- they expect FY13 margin to be “more back towards the normal 8 plus”
- they are currently bidding on a lot of projects which will commence FY13 and are happy with how they are positioned in the bids
- through their industry links and reputation, they are able to focus on higher margin projects where a premium is willing to be paid for performance
- they expect healthy growth in revenue and profit for the next couple of years and after that they are focusing on continued growth by diversification in both industry and geography - that is, not by chasing low margin work.

Linking the comments together, I am expecting a very good FY13 result - continued underlying growth plus a profit boost from a higher than normal project completion - an EBIT margin of 8.5% on 300M revenue (no growth) gives NPAT of $17.8M, an increase of 27% on the forecast FY12 result.

These are just my assumptions - please DYOR.