AUSTIN ENGINEERING LIMITED — Annual Report 2007

Aug 22, 2007

AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2007

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Results Excluding Gain on Sale of Properties in 2005/2006 : Revenue Net Profit After Tax Attributable to Members Including Gain on Sale of Properties in 2005/2006 : Revenue Net Profit After Tax Attributable to Members	Year to 30 June 2007 57,499,585 up 18% from 4,977,228 up 207% from 57,499,585 up 18% from 4,977,228 up 15% from	Year to 30 June 2006 48,882,661 1,619,926 48,882,661 4,351,084

Brief Explanation of Movements in Revenue and Net Profit

The increase in underlying revenue and net profit after tax for the year ended 30 June 2007 over the comparative period is principally due to strong performance from the existing businesses, a full year’s contribution from the Kaldura Industries operation and the addition of the Austbore business in Mackay. The Company has also continued to benefit from the strong demand for its range of JEC products, including dump truck bodies and excavator buckets, as now manufactured in the Company’s Western Australia and Queensland operations.

Dividends and Dividend Reinvestment Plans

	Amount	Amount	Franked Amount	Franked Amount
	per Security		per	Security
Final dividend paid for the financial year ended 30 June 2006	2.0			2.0
Interim dividend paid on 30 April 2007 for the financial year ended 30 June 2007	0.5			0.5
Final dividend declared for the financial year ended 30 June 2007	3.5			3.5
Record date for determining entitlement to the final dividend		7 September 2007
Date for payment of final dividend		12 October 2007
There were no dividend reinvestmentplans in operation duringtheperiod.

Net Tangible Assets per Security

Net Tangible Assets per Security
		Year to	Year to
	30	June 2007	30 June 2006
Net tangible asset backing per ordinarysecurity (cents)		22.5	25.0

Control Gained Over Entities Having a Material Effect

The Company finalised and settled on the acquisition of the business of Kaldura Industries in Mackay on 7 July 2006 for a purchase price of $5.55m. The Company also finalised and settled on the acquisition of Austbore Pty Ltd in Mackay on 3 April 2007 for a gross purchase price of $10.5m, excluding a deferred component of $0.5m, which will be payable to the previous owners of the Company upon the achievement of a pre-determined earnings target in the 2007/08 financial year.

Associates or Joint Ventures

The company has a 50% interest in the Majan Aluminium Services Company, formed for the purpose of manufacturing aluminium busbars for the Sohar Aluminium Company, which is constructing a new aluminium smelter facility at Sohar in Oman.

Audit

This report is based on financial statements that are in the process of being audited.

AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITITES

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2007

COMMENTARY

Overview

The 2006/07 financial year has been a key period of consolidation and development for the Company in accordance with the strategic direction outlined by the Board at the 2006 annual general meeting.

In early July 2006, the acquisition of the Kaldura Industries business in Mackay was completed. The acquisition and integration of Kaldura Industries was an important step in the establishment of a presence in the Mackay region, which is generally recognised as being the main hub for servicing the engineering needs of the central Queensland coalfields. In early April 2007, the Company further established its presence in the Mackay region through the acquisition of Austbore Pty Ltd, an established business specialising in the provision of machining and overhaul services to the resources industry. The Company can now offer, from these Mackay-based facilities, a “one-stop” shop for fabrication and complementary maintenance, repair and machining services. This is in addition to the services that it can provide from its existing facilities in Brisbane and Perth.

The Company’s West Australian operation continued to enjoy very high levels of activity, with productive capacity being utilised predominantly for the manufacture of dump truck bodies and excavator buckets. The buoyant market conditions resulted in orders being secured for multiple-quantity batches of dump truck bodies which enabled the operation to take advantage of bulk steel buying power. In addition, the robotic welding systems enabled the operation to increase product throughput in times when skilled labour continued to be in short supply. The operation secured a record level of revenue in the financial year.

The change in productive focus and work mix for the Brisbane operation that began in the previous financial year was completed during the year. ‘JEC’ product lines (dump truck bodies and excavator/loader buckets) now account for approximately 85% of all revenue. A wide variety of these products have now been built and a number of orders from new customers in the mining industry were secured, increasing the size and diversity of the operation’s customer base. Significant advances in the use of technology were also made during the year, resulting in increased workshop capacity, productivity and opportunities for higher product margins. The use of technology has also helped to reduce the impact of the skill shortages that continues to be experienced by the industry in general.

The Kaldura operation in Mackay experienced a very good level of productive activity during the year, with productive capacity concentrating on the assembly of dump truck bodies for a major OEM as well as the repair of components and assemblies for large mining customers. The operation mitigated the impact of the shortage of skilled labour by recruiting immigrant labour during the year.

The new Austbore operation was successfully integrated into existing operations and it also experienced a very good level of productive activity during the post-acquisition period of April to June 2007. Productive capacity was largely utilised for the repair and overhaul of mining-related assemblies, including track frames, shovels and other components as well as on-site machining services. The operation produced a financial result for the three-month period above internal budgets set before acquisition.

The Oman project, being the production of busbar assemblies for the Sohar Aluminium Smelter in Sohar, is progressing after a slower than expected start. Productive output is currently being increased and the project is due for completion in February 2008. Profit for this project will be accounted for in the 2007/08 financial year.

Result for the Financial Year

Revenue was $57.5m for the year to 30 June 2007, against $48.9m for the previous year, representing growth of 18%. This increase reflects a full year’s worth of contribution from the Company’s operation at Kaldura Industries in Mackay, which was acquired in early July 2006 as well as three month’s worth of contribution from Austbore operations, which were acquired at the beginning of April 2007. The Company also continued to benefit from strong demand for its JEC product range, including dump truck bodies and excavator buckets, which are now manufactured at the Company’s operations in Western Australia (Perth) and Queensland (Brisbane).

Earnings before interest and tax (‘EBIT’) increased to $7.3m, up 173% from $2.7m (excluding a gain on sale of properties) in the previous financial year. The increase in profitability was mainly attributable to favourable market conditions, as evidenced by the growth in revenue, and productivity improvements following the introduction of robotic welding systems in Perth and Brisbane. EBIT for the financial year also included $0.3m of costs associated with the sale of properties as incurred in the previous financial year.

Profit after tax increased to just under $5.0m, up from $1.6m (excluding the effect of the gain on sale of properties) in the previous financial year, an increase of 207%.

Financial Position

Net assets increased from $9.9m to $18.6m, up $8.7m from the previous financial year. The increase in total assets was due to three principal factors - cash flow generated from profitability during the year, assets acquired as part of the acquisition process of Kaldura Industries and Austbore and funds received from shareholders pursuant to the completion of the Shareholder Share Purchase Plan in late June 2007. Net assets at the end of the financial year included $9.6m of goodwill arising on acquisition of the Kaldura and Austbore businesses during the year.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITITES

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2007

COMMENTARY

Financial Position (Cont’d)

The levels of working capital at the end of the financial year were consistent with the level of business activity in the period leading up to the end of the financial year and included the net assets of Austbore.

Debt and Capital Raising

At the end of the financial year, the balance sheet included three principal sources of debt - $4.9m of short-term bank debt associated with the purchase of Austbore, $1.2m of residual bank commercial bills arising from previous business acquisitions and $2.8m of finance lease and hire purchase obligations related to plant and equipment acquisitions. Shortly after the end of the financial year, the $4.9m of short-term bank debt was eliminated following the completion of a $6.9m capital raising programme.

The capital raising programme announced in May 2007, comprising a Shareholder Share Purchase Plan (SPP) and Placement, was successfully completed, raising a total of $6.9m. The SPP was supported by around 43% of shareholders and raised $4.6m. The issue of the shares for the SPP was completed on 5 July 2007. The Placement raised $2.3m and the funds were received on 11 July 2007 with the issue of shares being completed on 12 July 2007.

Cash Flow and Liquidity

Net cash flows from operations were $3.7m during the year, after payment of just under $3.2m of income tax which included $1.5m of residual tax payments from the previous financial year. Operating cash flows for the year, excluding the effect of these residual tax payments, were $4.7m against $4.5m for the previous year, which included a significant advance payment for a major project at that time. Whilst there was an overall net $5.6m cash outflow for the year, most of this reflected the acquisition of Kaldura Industries which, as highlighted in the financial report for the previous financial year, was paid for from free cash resources at that time.

Free cash resources at the end of the financial year totalled $8.3m, of which $2.0m was offset against short-term bank debt associated with the purchase of Austbore. These cash resources included $4.6m of funds received from the SPP before the end of the financial year.

Capital Expenditure

Capital expenditure totalled $1.4m in the 2006/07 financial year. During the year, the Company commenced a number of capital expansion and redevelopment projects, the most significant being a $3.5m expansion of the Kaldura Industries operation in Mackay. The expanded facility will increase the operation’s capacity by 60% and will enable it to lift heavy components and assemblies of up to 90 tonnes, compared to 25 tonnes at present. The expansion is well underway and is expected to be complete by the end of November 2007. At 30 June 2007, $0.3m had been expended on the project, financed by existing cash resources.

The Company also expended $0.3m on a new robotic gantry-mounted welding system for the Brisbane operation, which was successfully introduced in the first half of the year. This new system has provided significant improvements in productive efficiency and product quality. Expenditure on this system was also funded from existing cash resources.

Dividends

In line with the improved financial performance during the year, the Company paid a maiden, fully-franked, interim dividend of 0.5 cents per share on 30 April 2007. In addition, the Company has declared a fully-franked final dividend of 3.5 cents per share in respect of the financial year 2006/07. The total dividend for the year, 4.0 cents per share, represents a 100% increase from the 2.0 cents per share dividend paid for the previous financial year. The record date for entitlement to the final dividend for the year is 7 September 2007, with payment being on 12 October 2007. The final dividend has not been provided for in the preliminary financial result for the year ended 30 June 2007.

Outlook

The Company enters the 2007/08 financial year with another record order book and, as outlined in its comments to the market in April 2007, forecasts EBIT for 2007/08 to be in excess of $10m. Conditions within the mining and resources business sector are expected to remain buoyant in the coming years.

Very good levels of productive activity, particularly in the Western Australia operation, are envisaged flowing from a strong demand for the Company’s product range and capabilities. In response to this, the Company will increase productive capacity in Western Australia by leasing a workshop facility adjacent to its existing operation. Finalisation of the contractual aspects of the lease is underway and the Company expects to commence operations in the additional facility in September 2007.

The expanded workshop facilities at Kaldura in Mackay are expected to be complete by the end of November 2007 and marketing initiatives are underway to grow the business further and to realise increased revenue opportunities from the coordination of business activities with Austbore.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITITES

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2007

COMMENTARY

Outlook (Cont’d)

In summary, the key objectives for the 2007/08 year are:

• Growth and diversification through acquisition;

• Further implementation of the Company’s technology to reduce costs and increase output;

• Revenue growth in Perth and Mackay through capacity increases;

• Acquisition of new product lines;

• Establishment of additional overseas operations.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY STATEMENT OF FINANCIAL PERFORMANCE

FOR THE YEAR ENDED 30 JUNE 2007

Revenues from continuing operations Gain on sale of properties Raw materials and consumables expenses Employment expenses Subcontractor expenses Occupancy and utility expenses Depreciation and amortisation expense Other expenses Borrowing expenses Profit before income tax Income tax expense Profit attributable to members of the Parent Entity Earnings per Share: Excluding gain on sale of properties in 2005/2006: Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Including gain on sale of properties in 2005/2006: Basic earnings per share (cents per share) Diluted earnings per share (cents per share)	Notes	2007 Economic Parent Entity Entity $ $ 57,499,585 54,578,194 - - 57,499,585 54,578,194 (19,589,817) (18,880,051) (23,162,098) (22,361,256) (315,034) (219,190) (1,790,374) (1,710,693) (1,147,514) (1,007,689) (3,992,131) (3,833,244) (406,389) (373,095) 7,097,062 6,192,976 (2,119,834) (1,857,893) 4,977,228 4,335,083 12.45 11.74 12.45 11.74	2006
			Economic Entity
	2 3 4 4 4 4		$ 48,882,661 3,901,654
			52,784,315 (21,099,188) (16,837,930) (3,007,861) (1,029,100) (876,286) (3,199,401) (539,609)
			6,194,940 (1,843,856)
			**4,351,084 **
			4.07 3.94 10.93 10.57

The accompanying notes form part of this preliminary statement of financial performance.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

PRELIMINARY STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2007

Current Assets Cash assets Receivables Inventories Other Total Current Assets Non-Current Assets Property, plant and equipment Investments Intangible assets Total Non-Current Assets Total Assets Current Liabilities Payables Interest-bearing liabilities Current tax liabilities Provisions Total Current Liabilities Non-Current Liabilities Interest-bearing liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Retained profits Total Equity Statement of Changes in Equity Total equity at beginning of the year Profit for the year Issue of shares Cost of share issues Dividends paid Total equity at end of the year	Notes	2007 Economic Parent Entity Entity $ $ 6,311,352 6,094,800 10,239,016 7,869,603 3,158,762 2,724,439 1,852,229 1,775,717 21,561,359 18,464,559 9,989,518 6,626,045 - 9,479,969 9,596,334 2,705,768 19,585,852 18,811,782 41,147,211 37,276,341 10,615,909 10,178,948 6,105,636 5,457,285 1,711,448 1,151,367 1,354,680 1,147,563 19,787,673 17,935,163 2,747,567 1,371,352 2,747,567 1,371,352 22,535,240 19,306,515 18,611,971 17,969,826 9,694,133 9,694,133 8,917,838 8,275,693 18,611,971 17,969,826 9,913,358 9,913,358 4,977,228 4,335,083 4,732,625 4,732,625 (11,846) (11,846) (999,394) (999,394) 18,611,971 17,969,826	2006
			Economic Entity
	8 5 6		$ 11,934,395 7,925,891 4,825,894 665,490
			25,351,670
			3,352,522 - -
			3,352,522
			**28,704,192 **
			13,566,877 692,106 1,604,097 1,109,252
			**16,972,332 **
			1,818,502
			**1,818,502 **
			**18,790,834 **
			9,913,358
			4,973,354 4,940,004
			9,913,358
			5,960,818 4,351,084 - - (398,544)
			9,913,358

The accompanying notes form part of this preliminary statement of financial position.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITTIES

PRELIMINARY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2007

Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Borrowing costs Income tax paid Net cash provided by operating activities Cash flows from investing activities Purchase of business and company Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Net cash provided/(used) by investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Repayment of deferred consideration on purchase of business Dividend payment Net cash provided/(used) by financing activities Net increase/(decrease) in cash held Cash at the beginning of the year Cash at the end of the year	Notes	2007 Economic Parent Entity Entity $ $ 55,264,537 54,394,267 (48,185,302) (48,631,017) 188,784 186,996 (406,389) (373,095) (3,191,578) (2,989,210) 3,670,052 2,587,941 (17,037,244) (15,056,164) (1,435,722) (1,410,785) - - (18,472,966) (16,467,271) 4,720,778 4,720,778 8,294,721 6,889,400 (2,769,896) (2,505,033) - - (999,394) (999,394) 9,246,209 8,105,751 (5,556,708) (5,773,257) 11,868,057 11,868,057 6,311,352 6,094,800	2006
			Economic Entity
	7 9 5 8 8		$ 52,599,461 (46,735,298) 149,417 (838,285) (689,268)
			4,486,027
			- (792,703) 15,930,986
			15,138,283
			- - (6,952,580) (375,000) (399,057)
			(7,726,637)
			11,897,673
			(29,616)
			11,868,057

The accompanying notes form part of this preliminary statement of cash flows.

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

FOR THE ENDED 30 JUNE 2007

Note 1: Basis of preparation of preliminary financial statements

The preliminary report has been prepared on an accruals basis and is based on historical costs modified, where appropriate, by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

The accounting policies applied in this preliminary report are the same as those applied by the Company in the financial report as at and for the year ended 30 June 2006. The principal accounting policies have been consistently applied to the periods presented, unless otherwise stated.

Note 2: Revenue Revenue from operating activities: Manufacture, repair and overhaul of mining-related products and steelwork fabrication Other revenue: Rental and other income Interest received	2007 Economic Parent Entity Entity $ $ 57,186,592 54,266,989 124,209 124,209 188,784 186,996 57,499,585 54,578,194	2006
		Economic Entity
		$ 48,685,639 47,605 149,417
		48,882,661

Note 3: Other expenses

Other expenses from ordinary activities for the financial year ended 30 June 2007 include $242,964 of costs associated and incurred

in the previous financial year on the sale and leaseback of properties.

Note 4: Earnings per share

Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilutive securities - share options Weighted average number of ordinary shares used in calculating diluted earnings per share Note 5: Contributed equity Balance at beginning of year Shares issued on exercise of Director options on 29 September 2006 Shares issued on exercise of employee options on 19 February 2007 Funds received from shareholders pursuant to Shareholder Share Purchase Plan (shares issued on 5 July 2007) Cost of share issues Balance at end of year Note 6: Retained profits Balance at beginning of year Net profit for the year Dividends paid Balance at end of year	39,964,240 2,420,667 42,384,907 4,973,354 4,973,354 38,400 38,400 75,000 75,000 4,619,225 4,619,225 (11,846) (11,846) 9,694,133 9,694,133 4,940,004 4,940,004 4,977,228 4,335,083 (999,394) (999,394) 8,917,838 8,275,693	39,805,740 1,350,000
		41,155,740
		4,973,354 - - - -
		4,973,354
		987,977 4,351,084 (399,057)
		4,940,004

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

FOR THE ENDED 30 JUNE 2007

Note 7: Reconciliation of cash flow from operations with profit from ordinary activities after tax Profit after income tax Adjustment to profit after tax for non-cash flows: Depreciation Gain on sale of property, plant and equipment Changes in assets and liabilities: (Increase)/Decrease in trade debtors Decrease in inventories (Increase)/Decrease in prepayments and other assets Increase/(Decrease) in trade creditors and accruals Increase/(Decrease) in income taxes payable Increase in provisions Cash flow from operations Note 8: Reconciliation of cash Cash in bank and on hand Bank overdraft Note 9: Acquisition of business and company The Company finalised and settled on the transaction to acquire the business of Kaldura Industries in Mackay on 7 July 2006. The details of the acquisition are as follows: Fair value of assets acquired: Property Plant and equipment Goodwill on acquisition The Company finalised and settled on the transaction to acquire Austbore Pty Ltd in Mackay on 3 April 2007. The details of the acquisition are as follows: Net purchase price paid on acquisition Fair value of net assets acquired: Property Plant and equipment Inventories and work-in-progress Trade receivables Trade payables Interest bearing liabilities Provisions for employee leave liabilities and tax Goodwill on acquisition Total acquisition costs	2007 Economic Parent Entity Entity $ $ 4,977,228 4,335,083 1,147,514 1,007,689 - - 325,555 56,288 1,930,147 2,101,455 (1,153,020) (1,110,227) (3,217,669) (3,387,929) (393,157) (452,730) 53,454 38,312 3,670,052 2,587,941 6,311,352 6,094,800 - - 6,311,352 6,094,800 2,346,000 2,346,000 524,427 524,427 2,705,768 2,705,768 5,576,195 5,576,195 9,479,969 340,000 3,138,361 263,015 2,638,680 (46,544) (884,111) (878,918) 6,890,566 11,461,049 9,479,969 17,037,244 **15,056,164 **	2006
		Economic Entity
		$ 4,351,084 876,286 (2,731,158) (1,247,644) 92,164 93,258 1,439,809 1,164,588 447,640
		4,486,027
		11,934,395 (66,338)
		11,868,057
		- - - - - - - - - - - - - - -

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AUSTIN ENGINEERING LTD (ABN 60 078 480 136) AND CONTROLLED ENTITIES

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

FOR THE ENDED 30 JUNE 2007

Note10: Contingent liabilities and contingent assets

There are no contingent liabilities or assets that have a material impact on the financial statements at 30 June 2007.

Note 11: Events subsequent to reporting date

No material event subsequent to the end of the financial year has arisen that has not been recognised in the preliminary financial statements. On 23 August 2007, the Directors declared a fully franked final dividend of 3.5 cents per share for the financial year 2006/07, payable on 12 October 2007.

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