results better than first glance, page-7

Hi Sagh,
The guidance today was that 2H EBIT would be in line with 2H last year - EBIT, not NPAT - this was in both the Results Announcement and the Results Presentation. This is a downgrade from their previous guidance on 21 August.

Based on this latest guidance, FY EBIT will be around 23.5M. From this you have to deduct interest, tax and losses from discontinued operations. These deductions for 1H already total 5.3M, so the only way NFK will achieve a full year NPAT of 18.5M is if they don't pay any interest or tax in 2H and there are no further losses on discontinued operations.

Realistically, this isn't going to happen. Interest and tax will be at least the same as 1H and possibly more. My estimate of 13.5M is more realistic than any of the above, and possibly on the high side.

Of most concern is the degradation in margins, both gross margin and EBIT margin - they are continuing to decrease, not stabilise. This is where the lack of profitability is coming from. They are either quoting projects at a much lower margin, or they aren't managing projects to achieve quoted margin. And the problem is getting worse.

I'm sorry to see NFK in this position - hopefully they can do something to turn it around.