AUSTIN ENGINEERING LIMITED — Annual Report 2008

Aug 17, 2008

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

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2008

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Results Revenue Net Profit After Tax Attributable to Members	Year to 30 June 2008 $ 106,342,809 up 85% from 11,536,494 up 132% from	Year to 30 June 2007 $ 57,499,585 4,977,228

Brief Explanation of Movements in Revenue and Net Profit

The increase in revenue and net profit after tax for the year ended 30 June 2008 over the comparative period is due to a combination of factors including:

• Continued strong demand for the company’s products and services due to very favourable market conditions within the mining and resources business sector

• A full year’s contribution from Austbore Pty Ltd in Mackay (which was acquired in April 2007 and contributed only three months of revenue and profit in the financial year ended 30 June 2007)

• The acquisition of Western Technology Services Inc (“Westech”) in November 2007, which contributed seven months of revenue and profit in the financial year ended 30 June 2008

Dividends and Dividend Reinvestment Plans

Dividends and Dividend Reinvestment Plans	Dividends and Dividend Reinvestment Plans	Dividends and Dividend Reinvestment Plans	Dividends and Dividend Reinvestment Plans	Dividends and Dividend Reinvestment Plans
	Final dividend paid on 12 October 2007 for the financial year ended 30 June 2007 Interim dividend paid on 28 March 2008 for the financial year ended 30 June 2008 Final dividend declared for the financial year ended 30 June 2008 Record date for determining entitlement to the final dividend Date for payment of final dividend There were no dividend reinvestment plans in operation during the period.		Amount Franked Amount per Security per Security 3.5 3.5 1.0 1.0 6.5 6.5 12 September 2008 10 October 2008
	Net Tangible Assets per Security Net tangible asset backing per ordinary security (cents)	Year to 30 June 2008 31.6		Year to 30 June 2007 22.5
	Control Gained Over Entities Having a Material Effect The Company acquired Western Technology Services Inc, based in Casper, Wyoming, USA, o	n 30 November 2007. The purchase price was
US$19 million.

The Company acquired Western Technology Services Inc, based in Casper, Wyoming, USA, on 30 November 2007. The purchase price was US$19 million.

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 summarised report is based on financial data that has been subject to audit and for which no material adjustments or misstatements have been identified or require correction.

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

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2008

COMMENTARY

Financial Highlights

	Increase	FY2008	FY2007
	%	$m	$m
Revenue	85%	106.34	57.50
EBIT	133%	17.05	7.31
PBT	131%	16.40	7.09
NPAT	132%	11.54	4.97
Basic earnings pershare (cents)	99%	24.73	12.45
Net assets	70%	31.62	18.61
Finaldividend pershare (cents)	86%	6.5	3.5
Totalannualdividend pershare (cents)	88%	7.5	4.0

Review of Operations

Revenue was $106.3m for the year ended 30 June 2008, against $57.5m for the previous year, an increase of 85%. Over the course of FY2008 the company continued to experience strong demand for its products and services across all locations. Domestic revenue benefited from a full year’s contribution from the Austbore business in Mackay (which contributed only three months in FY2007 following acquisition in April 2007) as well as a 65% growth in the company’s productive capacity in Perth and Mackay following the lease of a second workshop in Perth and the completion of a $3.8m new workshop in Mackay. The growth in revenue across domestic operations was also achieved against a background of significantly reduced activity at the company’s Kaldura operations in Mackay as a result of unprecedented flooding events and associated delays in the movement of equipment across the Central Queensland coalfields over January to March 2008.

The acquisition of Western Technology Services Inc (“Westech”) introduced new, overseas-based revenue streams to the company’s operations including mining product revenue from the North American and Canadian resources sector and fees from the licensing of Westech dump truck bodies to the South American mining market. Westech contributed seven months of revenue in FY2008 following its acquisition by the company in late November 2007.

Result for the Financial Year

Earnings before interest and tax increased by 133% to just under $17.1m, up from $7.3m in the previous financial year. The increase in EBIT profitability was largely driven by the growth in revenue, a high level of capacity utilisation across all operations and increased contributions from Austbore and Westech. As previously reported, the flooding in Central Queensland resulted in three months of lost contribution from the company’s Kaldura operations in Mackay. Westech produced a result ahead of expectations and enjoyed a high workload level from a solid North American mining and resources sector, despite the adverse conditions in the wider economic environment in the region.

Profit before tax of $16.4m, up 131% from $7.1m in the previous financial year, reflected the increased performance from underlying operations and included the effect of seven months of US dollar-denominated interest cost resulting from a US$19m bank loan that was drawn-down upon the acquisition of Westech.

Financial Position

Net assets increased from $18.6m to $31.6m, up 70% from the previous financial year. The increase in total assets reflected the growth in the company’s profitability as well as US$14m of net assets acquired upon the acquisition of Westech. US$19m was expended on purchasing the Westech business and the US$5m of corresponding goodwill, together with associated acquisition costs of $0.6m, were included in net assets at the end of the financial year. The levels of working capital at the end of the financial year were consistent with the increased level of activity throughout and leading up to the end of the financial year.

Cash Flow and Liquidity

The company generated $13.5m of net operational cash inflow over the year, up from $3.7m in FY2007. Increased operational cash flow was in correlation with NPAT for the year and included $4.0m of payments in company income tax.

Operational cash inflow during the year was used to support the significant redevelopment of the company’s Kaldura workshop in Mackay, with almost $3.8m being expended in the establishment of a modern facility with the capacity to lift components of up to 90 tons. This new facility positions the company to take advantage of the expected growth in mining operations in the Central Queensland coalfields and the corresponding requirement for maintenance of heavy mining products. $0.5m was also expended on a spare block of land adjacent to the Austbore facility and this has the potential for the establishment of additional workshop operations.

The purchase of Westech for US$19m was accommodated by the utilisation of an equivalent US$19m bank loan. Other non-operational cash flows included $8.0m of repayments of previous borrowings, mainly associated with planned repayments of finance leases and debt associated with the purchase of Austbore. In addition, $2.1m was raised from the completion of a share placement in early July 2007.

Free cash resources at the end of the financial year were $5.8m, compared to $6.3m at the end of the previous financial year.

Debt

At the end of the financial year, the balance sheet included two components of debt - a US$19m bank loan for the purchase of Westech and $2.0m of finance lease and hire purchase obligations.

The US$19m loan, which is interest-only and not due for repayment before late November 2009, is an ‘evergreen’-type facility and part of an overall $38m bank funding facility granted by the company’s bank, reviewed annually. Interest on the loan attracts US interest rates and at the end of the financial year was less than 4%. The loan also has a facility for locking interest at a fixed rate. The loan has three covenants, none of which are related to the company’s share price or market capitalisation, and the company was in compliance with these at the end of the financial year. EBIT interest cover for FY2008 was just under 21 times.

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

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2008

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Dividends

The company paid a final dividend of 3.5c per share for FY2007 on 12 October 2007 and an interim dividend of 1.0c per share for FY2008 on 28 March 2008. The interim FY2008 dividend was up 100% from the interim dividend for the previous financial year. A final dividend of 6.5c per share has been declared for FY2008, bringing the total dividend for the year to 7.5c per share, an increase of 88% over the previous full year dividend.

Outlook

The company enters the new financial year with another record order book and a high level of forward activity stretching well into the year across all of its operations. Economic conditions in the mining and resources business sector are expected to remain very strong, as evidenced by further orders received more recently and a high level of enquiries from, and submission of tenders to, the company’s customers. As previously reported, particular focus is being given to expanding the company’s operations overseas as well as increasing productive capacity and capabilities to meet ongoing and strengthening demand for the company’s products and services. Further growth in all key financial measures is expected for FY2009.

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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 2008

Revenues from continuing operations Raw materials and consumables expenses Employment expenses Subcontractor expenses Occupancy and utility expenses Depreciation and amortisation expense Other expenses from ordinary activities Borrowing expenses Profit before income tax Income tax expense Profit for the full year attributable to members of the Company Earnings per Share: Basic earnings per share (cents) Diluted earnings per share (cents)	Notes	2008 Economic Parent Entity Entity $ $ 106,342,809 71,156,109 (36,524,233) (27,897,119) (37,184,115) (23,203,512) (2,159,426) (1,557,752) (2,931,733) (2,310,528) (1,807,055) (1,105,107) (8,503,473) (5,067,780) (833,659) (682,579) 16,399,115 9,331,732 (4,862,621) (2,568,470) 11,536,494 6,763,262 24.73 23.44	**2007 **
			Economic Parent Entity Entity
	2 3 3		$ $ 57,499,585 54,578,194 (19,588,983) (18,880,051) (21,115,882) (20,315,040) (2,361,250) (2,265,406) (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

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 2008

Current Assets Cash Assets Receivables Inventories Other Total Current Assets Non-Current Assets Property, plant and equipment Investments Intangible assets Deferred tax 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 Deferred tax liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Retained profits Reserves Total Equity	Notes	2008 Economic Parent Entity Entity $ $ 5,810,437 4,534,959 22,695,164 16,073,635 11,500,288 5,233,307 1,171,810 18,897,225 41,177,699 44,739,126 21,845,871 10,175,714 1,716,551 20,135,413 16,752,135 2,705,768 1,328,711 332,800 41,643,268 33,349,695 82,820,967 78,088,821 26,044,274 29,278,834 547,674 120,244 1,123,904 1,088,041 1,866,885 887,318 29,582,737 31,374,437 21,291,327 20,378,363 324,160 5,386 21,615,487 20,383,749 51,198,224 51,758,186 31,622,743 26,330,635 12,999,796 12,999,796 18,361,216 12,945,839 261,731 385,000 31,622,743 26,330,635	**2007 **
			Economic Parent Entity Entity
	4		$ $ 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

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 ENTITIES

PRELIMINARY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2008

Economic Entity Opening balance at 1 July 2007 Profit for the year Issue of shares Dividends paid Deferred tax adjustment to share issue costs Options reserve movement Foreign exchange reserve movement Closing balance at 30 June 2008 Parent Entity Opening balance at 1 July 2007 Profit for the year Issue of shares Dividends paid Deferred tax adjustment to share issue costs Options reserve movement Foreign exchange reserve movement Closing balance at 30 June 2008	Contributed Equity	Retained Profits Reserves Total
	$ 9,694,133 - 3,136,215 - 169,448 - -	$ $ $ 8,917,838 - 18,611,971 11,536,494 - 11,536,494 - - 3,136,215 (2,093,116) - (2,093,116) - - 169,448 - 385,000 385,000 - (123,269) (123,269)
	12,999,796	18,361,216 261,731 31,622,743
	9,694,133 - 3,136,215 - 169,448 - -	8,275,693 - 17,969,826 6,763,262 - 6,763,262 - - 3,136,215 (2,093,116) - (2,093,116) - - 169,448 - 385,000 385,000 - - -
	12,999,796	12,945,839 385,000 26,330,635

The accompanying notes form part of this preliminary statement of changes in equity.

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

PRELIMINARY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2008

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 Investment in joint venture Purchase of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Issue of inter-company loans Repayment of borrowings Dividend payment Currency exchange movements Net cash provided by financing activities Net (decrease)/increase in cash held Cash at the beginning of the year Cash at the end of the year	Notes	2008 Economic Parent Entity Entity $ $ 116,037,606 76,817,224 (97,887,458) (62,762,759) 183,212 164,196 (833,659) (682,579) (4,015,198) (2,789,493) 13,484,503 10,746,589 (22,055,484) (8,938,893) (1,397,949) (1,397,949) (5,670,172) (4,654,776) (29,123,605) (14,991,618) 3,137,625 3,137,625 22,377,995 19,874,477 - (12,029,288) (7,981,030) (6,204,510) (2,093,116) (2,093,116) (303,287) - 15,138,187 2,685,188 (500,915) (1,559,841) 6,311,352 6,094,800 5,810,437 4,534,959	**2007 **
			Economic Parent Entity Entity
	5		$ $ 56,264,537 54,394,267 (49,185,302) (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) (16,466,949)
			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
			(5,556,705) (5,773,257)
			11,868,057 11,868,057
			6,311,352 6,094,800

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 YEAR ENDED 30 JUNE 2008

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 2007. The principal accounting policies have been consistently applied to the periods presented, unless otherwise stated.

Note 2: Revenue and segment reporting

Revenue from operating activities: Mining equipment manufacture and repair and steelwork fabrication Licence fees Interest received Other revenue	2008 Economic Parent Entity Entity $ $ 105,107,599 70,846,570 894,225 - 106,001,824 70,846,570 183,212 164,196 157,773 145,343 106,342,809 71,156,109	**2007 **
		Economic Parent Entity Entity
		$ $ 57,310,801 54,391,198 - -
		57,310,801 54,391,198 188,784 186,996 - -
		57,499,585 54,578,194

Licence fees represent external fees generated from the licensing of the manufacture of dump truck bodies by Westech to an engineering partner based in South America. Licence fees generated by Austin Engineering Ltd’s Australian-based operations and payable to Westech, which have been eliminated as inter-company sales on consolidation, amounted to $1,103,266 in the year ending 30 June 2008.

Note 3: Earnings per share

Note 3: Earnings per share
		2008		**2007 **
		$		$
Earnings used in basic and diluted earnings per share calculation		11,536,494		4,977,228
		No.		No.
Weighted average number of ordinary shares used in calculating
basic earnings per share		46,641,662		39,964,240
Effect of dilutive securities - share options		2,574,750		2,420,667
Weighted average number of ordinary shares used in calculating
diluted earnings per share		49,216,412		42,384,907
Note 4: Contributed equity
	2008		**2007 **
	No.	$	No.	$
Ordinary shares, fully paid, net of transaction costs:
Balance at beginning of year	43,269,412	9,694,133	39,805,740	4,973,354
Issue of shares on exercise of options	2,222,000	941,600	278,000	113,400
Issue of shares on completion of shareholder share purchase plan	-	-	3,185,672	4,619,225
Issue of shares on completion of placement	1,500,000	2,295,000	-	-
Cost of share issues	-	(100,385)	-	(11,846)
Deferred tax adjustment to cost of share issues	-	169,448	-	-
Balance at end of year	46,991,412	12,999,796	43,269,412	9,694,133

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

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2008

Note 5: Reconciliation of profit after income tax to

net cash inflow from operating activities

Reconciliation of cash flow from operations with profit from ordinary activities after tax: Profit after income tax Depreciation Share options expense (Increase)/decrease in receivables (Increase)/decrease in inventories (Increase)/decrease in other assets Increase/(decrease) in payables Increase/(decrease) in income taxes payable Increase/(decrease) in provisions Cash flow from operations	2008 Economic Parent Entity Entity $ $ 11,536,494 6,763,262 1,807,055 1,105,107 385,000 385,000 (4,979,028) (8,204,032) (4,001,581) (2,508,868) 1,248,885 907,495 8,315,167 12,781,302 (739,854) (222,433) (87,635) (260,244) 13,484,503 10,746,589	**2007 **
	Economic Entity	Economic Parent Entity Entity
	$ 11,536,494 1,807,055 385,000 (4,979,028) (4,001,581) 1,248,885 8,315,167 (739,854) (87,635)	$ $ 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
	13,484,503	3,670,052 2,587,941

Note 6: Acquisition of company

On 30 November 2007, the company, through its newly-formed 100% owned subsidiary Austin Engineering Inc., acquired all of the issued shares of Western Technology Services Inc., for a cash consideration of US$19m. Details of the net assets acquired and corresponding goodwill are as follows:

Purchase consideration Incidental costs of acquisition Total cost of acquisition Fair value of net assets acquired: Cash Receivables Inventories Deferred tax assets Other assets Property Plant and equipment Payables Bank overdraft Other liabilities and provisions Net assets acquired Goodwill on acquisition	US$	$
	19,000,000 1,572,419 7,119,546 4,198,523 1,555,000 165,539 6,625,000 1,058,663 (3,547,636) (459,005) (4,186,660)	21,590,909 611,853
		22,202,762
		1,786,840 8,090,393 4,771,049 1,767,045 188,113 7,528,409 1,203,026 (4,031,405) (521,597) (4,757,568)
	14,101,389	16,024,305
		6,178,457

The fair value of property is based on an independent valuation conducted in November 2007. The fair value of all other assets and liabilities are based on current book values. No acquisition provisions were created.

Note 7: Contingent liabilities and contingent assets

There are no contingent liabilities or assets that have a material impact on the financial statements at 30 June 2008.

Note 8: 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 18 August 2008, the Directors declared a fully franked final dividend of 6.5 cents per share for the financial year 2007/08, payable on 10 October 2008.

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