AUSTIN ENGINEERING LIMITED — Annual Report 2009

Aug 16, 2009

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

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2009

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Results Revenue Net Profit After Tax Attributable to Members	Year to 30 June 2009 $000 179,316 up 69% from 14,832 up 29% from	Year to 30 June 2008 $000 106,343 11,536

Brief Explanation of Movements in Revenue and Net Profit

The increase in revenue and net profit after tax for the year ended 30 June 2009 over the comparative period is due to a combination of factors including:

• Continued strong demand for the company’s products and services despite global market conditions during the reporting period; - A full year of contribution from Western Technology Services Inc (“Westech”) in the USA (which was acquired in November 2007 and contributed only seven months of revenue and profit in the financial year ended 30 June 2008); and

• Successful expansion of the Westech dump truck body range into the Australian market during the year.

	Dividends and Dividend Reinvestment Plans Final dividend paid on 10 October 2008 for the financial year ended 30 June 2008 Interim dividend paid on 27 March 2009 for the financial year ended 30 June 2009 (up from 1.0c in the previous year) Final dividend declared for the financial year ended 30 June 2009 Total dividend for the financial year ended 30 June 2009 (up from 7.5c in the previous year) 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 6.5 6.5 1.5 1.5 6.5 6.5 8.0 8.0 11 September 2009 9 October 2009	Amount Franked Amount per Security per Security 6.5 6.5 1.5 1.5 6.5 6.5 8.0 8.0 11 September 2009 9 October 2009
	Net Tangible Assets per Security Net tangible asset backing per ordinary security (cents)	Year to 30 June 2009 63.2		Year to 30 June 2008 31.6
	Control Gained Over Entities Having a Material Effect None

Associates or Joint Ventures

The company has a 50% interest in the Majan Aluminium Services Company, based in Oman, which was formed for the purpose of servicing the needs of the aluminium smelter and other industries in the Middle East.

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 2009

COMMENTARY

Financial Highlights

	FY2009	FY2008	Increase
	$m	$m	%
Revenue	179.32	106.34	69%
EBIT	21.61	17.05	27%
PBT	20.87	16.40	27%
NPAT	14.83	11.54	29%
Basic earnings pershare (cents)	31.39	24.73	27%
Net assets	51.95	31.62	64%
Finaldividend pershare (cents)	6.5	6.5	-
Totalannualdividend pershare (cents)	8.0	7.5	7%

Review of Operations

Revenue was $179.3m for the year ended 30 June 2009, up 69% from the previous year’s level of $106.3m. Over the course of the financial year, the company continued to experience strong demand for its products and services both domestically and overseas. The first six months of the financial year was a period of intense activity for the company as a result of record activity levels across the mining and resources sector. Growing customer acceptance of the company’s Westech dump truck body range was also a key feature of revenue development during the year. The receipt of orders totalling $32m for 75 bodies over the course of January and February 2009 at the peak of the global economic crisis was a significant achievement for the company. Whilst not completely insulating the company from the effects of the economic slowdown, the orders still enabled the company to operate with a solid base workload in the second half of the financial year.

Revenue for the financial year also included a full year of contribution from Western Technology Services Inc (“Westech”), which contributed only seven months of revenue in the previous financial year, following its acquisition in late November 2007.

Result for the Financial Year

Earnings before interest and tax (EBIT) increased by 27% to $21.6m, up from $17.1m in the previous financial year. The volume growth in EBIT followed the increased level of activity across operations in the year. EBIT margins over the year were less than the corresponding period due to a number of one-off factors, including provisions and recovery costs related to an unpaid trade receivable from a customer, lower than average initial margins on a newly-introduced product line earlier in the year and no external licence fee revenue.

Profit before tax of $20.9m, up 27% from $16.4m in the previous financial year, largely tracked the development of EBIT and included a full twelve months of interest cost associated with the USD 19m bank loan that was drawn-down upon the acquisition of Westech. Interest costs on this loan are US dollar-denominated and over the latter part of the financial year were very low as a result of underlying downward interest rate movements in the US economy.

Financial Position

Net assets increased to $52m from $31.6m in the previous financial year, an increase of 64%. The increase in total assets reflected the growth in the company’s profitability as well as the introduction of $10.2m of new equity towards the end of June 2009, representing funds received from Tranche 1 of the Institutional Placement announced to the market on 16 June 2009. The levels of working capital at the end of the financial year were consistent with the level of activity throughout and leading up to the end of the financial year.

Cash Flow and Liquidity

The company generated $21.9m of net operational cash inflow over the year, up from $13.5m in the previous financial year. Despite the economic disturbances caused by the global financial crisis, the company was able to maintain its existing commercial relationships and trading terms with customers and suppliers, resulting in good operational cash flows throughout the year.

The company undertook a number of capital expenditure programs during the period, with almost $3.2m being expended on initiatives to increase productivity and to introduce new revenue streams to the operations, including $0.8m on a new plasma cutting system in the Perth workshop. $2.5m was also expended on the purchase of the Austbore workshop in Mackay, which was rented from the previous owners of the business until March 2009. $0.4m of the purchase price was funded from operational cash flows, with the remaining $2.1m being financed by way of a bank loan.

Free cash resources at the end of the financial year were $25.1m, including $10.2m of new equity from Tranche 1 of the Institutional Placement. Underlying year-end cash balances of $14.9m compared to $5.8m at the end of the previous financial year.

Debt

At the end of the financial year, the balance sheet included three components of debt totalling $27m; a USD19m ($23.6m Australian dollar equivalent) bank loan for the acquisition of Westech in 2007, a $2.0m bank loan for the purchase of the Austbore workshop in Mackay drawndown in April 2009 and $1.4m of finance lease and hire purchase obligations.

The USD 19m loan, which is interest-only, attracts US interest rates and at the end of the financial year these were 1.85%, including the bank’s margin. The company’s banking facilities were renewed in December 2008 with repayment of the Westech loan being extended to late October 2010. Other working capital and bank guarantee facilities were maintained until the next review of facilities due in October 2009. Following the annual review of bank facilities in December 2008, the cost of facilities more than doubled from the levels applied previously. Virtually of all this increase was a direct result of the increased cost of funding within the wider banking environment.

The provision of banking facilities requires that the company complies with three principal covenants, mainly in relation to debt servicing and interest cover. The company operated within the covenants very comfortably throughout the financial year, with EBIT interest cover of 24 times for the year and a year-end Debt-to-EBITDA ratio of 1.13. None of the covenants have conditions related to the company’s share price or market capitalisation.

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

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2009

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Capital Raisings

On 16 June 2009 the company announced a $31m capital raising program, consisting of a $26m Institutional Placement and a $5m Shareholder Share Purchase Plan.

The proceeds of the Placement were received in two Tranches, with Tranche 1 raising $10.2m from the issue of 7.0m shares at $1.45 per share on 22 June 2009. Tranche 2 of the Placement was completed on 23 July 2009, with $15.8m being raised from the issue of 10.9m shares, also at $1.45 per share. The $26m raised from the Placement was used to fund the cost of an expansion of the company’s activities into Chile in South America, by way of the acquisition of the steel dump truck body business of Conymet Ltda. The acquisition of Conymet was confirmed on 3 August 2009 for a cash consideration of USD 19.6m.

The Share Purchase Plan was completed on 27 July 2009, with $4.9m of the $5.0m sought by the company being raised by the issue of 3.3m shares at $1.45 per share. The proceeds of the Share Purchase Plan will be used to provide the company with additional working capital, to repay the balance of the bank loan for the purchase of the Austbore workshop in Mackay and to assist with the purchase of property associated with the Conymet acquisition.

Dividends

The company paid a final dividend of 6.5c per share for the 07/08 financial year on 10 October 2008 and an interim dividend of 1.5c per share for the 08/09 financial year on 27 March 2009. The interim 08/09 dividend was up 50% from the previous year’s level. A final dividend of 6.5c per share, similar to the previous year’s level, has been declared for the 08/09 financial year, bringing the total dividend for the year to 8.0c per share, an increase of 7%. This final dividend will be paid on shares issued under both tranches of the Placement and Shareholder Share Purchase Plan. The dividend payout ratio for the year is approximately 35%, consistent with the company's existing dividend payout ratio policy of 25% to 40%.

Outlook

The company enters the new financial year with markedly different business conditions from the same time last year. Whilst the global economic disturbances led to a marked reduction in the level of activity by the major miners in the first calendar half of 2009, there are signs that business conditions are stabilising and improving. This has become particularly evident for the company with enquiries and tendering activity for the company’s products having increased significantly in recent periods.

The company’s Queensland operations begin the 09/10 financial year with a solid workload well into the 2010 calendar year, mainly servicing the equipment requirements of miners in the Hunter Valley and Bowen Basin regions. In more recent weeks, further orders have been received for dump truck bodies for the Bowen Basin in Queensland. Of particular note is an order for 8 “ultra-class” bodies for a major OEM, which will be the first time that these large bodies will be manufactured and delivered in Australia. Business conditions in WA are improving, with orders now being received for dump truck bodies for manufacture and delivery into the beginning of the 2010 calendar year. Miners and OEMs remain cautious in North America, however enquiry and tendering activities are also showing signs of recovery.

As announced to the market on 3 August 2009, the acquisition of the dump truck body business of Conymet Ltda in Chile enables the company to enter into a key market where major miners are progressing with expansion plans, their equipment needs are significant and where competition and operational risks are low. Integration of the Conymet business (which will operate under the name of Austin Engineering Chile) into Austin’s existing business structure and expansion of the company’s Westech and JEC product ranges into Chilean operations will be a key business and operational objective throughout the 09/10 financial year. In addition, a joint venture will be established in Brazil in order to take advantage of the market opportunity that also exists in that region.

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

PRELIMINARY INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2009

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	2009 Consolidated Parent Entity Entity $000 $000 179,316 107,640 (75,417) (51,599) (59,671) (30,729) (1,461) (1,264) (3,564) (2,765) (2,243) (1,314) (15,161) (6,023) (929) (809) 20,870 13,137 (6,038) (3,548) 14,832 9,589 31.39 29.39	2008
			Consolidated Parent Entity Entity
	2 3 3		$000 $000 106,343 71,156 (36,524) (27,897) (37,184) (23,203) (2,160) (1,558) (2,932) (2,310) (1,807) (1,105) (8,503) (5,068) (834) (683)
			16,399 9,332 (4,863) (2,569)
			11,536 6,763
			24.73 23.44

The accompanying notes form part of this preliminary income statement.

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

PRELIMINARY BALANCE SHEET

AT 30 JUNE 2009

Current Assets Cash and cash equivalents Trade receivables Inventories Other Total Current Assets Non-Current Assets Property, plant and equipment Available for sale financial assets Intangible assets Deferred tax assets Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Financial liabilities Current tax liabilities Provisions Total Current Liabilities Non-Current Liabilities Financial liabilities Deferred tax liabilities Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Retained profits Reserves Total Equity	Notes	2009 Consolidated Parent Entity Entity $000 $000 25,070 17,931 18,845 10,331 9,712 5,447 611 16,590 54,238 50,299 26,704 10,875 3,918 23,460 17,708 2,706 2,777 1,463 51,107 38,504 105,345 88,803 20,689 18,158 565 138 1,385 1,042 4,112 2,167 26,751 21,505 26,388 25,902 259 15 26,647 25,917 53,398 47,422 51,947 41,381 23,094 23,094 29,910 18,767 (1,057) (480) 51,947 41,381	2008
			Consolidated Parent Entity Entity
	4		$000 $000 5,810 4,535 22,695 16,074 11,500 5,233 1,172 18,897
			41,177 44,739
			21,846 10,176 1,717 20,135 16,752 2,706 1,329 333
			41,644 33,350
			82,821 78,089
			26,044 29,279 548 120 1,124 1,088 1,867 887
			29,583 31,374
			21,291 20,379 324 5
			21,615 20,384
			51,198 51,758
			31,623 **26,331 **
			13,000 13,000 18,361 12,946 262 385
			31,623 26,331

The accompanying notes form part of this preliminary balance sheet.

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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 2009

Consolidated Entity Opening balance at 1 July 2007 Profit for the year Issue of shares Dividends paid Deferred tax adjustment to equity items Options reserve movement Foreign exchange reserve movement Closing balance at 30 June 2008 Opening balance at 1 July 2008 Profit for the year Issue of shares Dividends paid Deferred tax adjustment to equity items Adjustment to value of available for sale financial assets Options reserve movement Foreign exchange reserve movement Closing balance at 30 June 2009 Parent Entity Opening balance at 1 July 2007 Profit for the year Issue of shares Dividends paid Deferred tax adjustment to equity items Options reserve movement Closing balance at 30 June 2008 Opening balance at 1 July 2008 Profit for the year Issue of shares Dividends paid Deferred tax adjustment to equity items Adjustment to value of available for sale financial assets Options reserve movement Closing balance at 30 June 2009	Contributed Retained Equity Profits Reserves Total
	$000 $000 $000 $000 9,694 8,918 - 18,612 - 11,536 - 11,536 3,136 - - 3,136 - (2,093) - (2,093) 170 - - 170 - - 385 385 - - (123) (123)
	13,000 18,361 262 31,623
	13,000 18,361 262 31,623 - 14,832 - 14,832 10,026 - - 10,026 - (3,768) - (3,768) 68 - 517 585 - - (1,723) (1,723) - - 341 341 - 485 (454) 31
	23,094 29,910 (1,057) 51,947
	9,694 8,276 - 17,970 - 6,763 - 6,763 3,136 - - 3,136 - (2,093) - (2,093) 170 - - 170 - - 385 385
	13,000 12,946 385 26,331
	13,000 12,946 385 26,331 - 9,589 - 9,589 10,026 - - 10,026 - (3,768) - (3,768) 68 - 517 585 - - (1,723) (1,723) - - 341 341
	23,094 18,767 (480) 41,381

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 CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 JUNE 2009

Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Dividends 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 Investments in other financial assets 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 Net cash provided by financing activities Net (decrease)/increase in cash held Cash at the beginning of the year Currency exchange movements Cash at the end of the year	Notes	2009 Consolidated Parent Entity Entity $000 $000 189,943 121,474 (161,771) (106,053) 202 186 217 217 (929) (809) (5,760) (4,130) 21,902 10,885 (212) (219) (5,748) (2,013) (3,712) (3,376) (9,672) (5,608) 10,026 10,026 2,100 2,100 - - (667) (239) (3,768) (3,768) 7,691 8,119 19,921 13,396 5,810 4,535 (661) - 25,070 17,931	2008
			Consolidated Parent Entity Entity
	5		$000 $000 116,037 76,817 (97,887) (62,763) 183 164 - - (834) (683) (4,015) (2,789)
			13,484 10,746
			(22,683) (9,616) (5,670) (4,655) (1,399) (1,399)
			(29,752) (15,670)
			3,136 3,136 21,590 21,590 - (13,068) (6,866) (6,201) (2,093) (2,093)
			15,767 3,364
			(501) (1,560)
			6,311 6,095 - -
			5,810 4,535

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

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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 2009

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 2008. 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 Dividends received Other revenue	2009 Consolidated Parent Entity Entity $000 $000 178,514 106,431 - - 178,514 106,431 202 661 217 217 383 331 179,316 107,640	2008
		Consolidated Parent Entity Entity
		$000 $000 105,108 70,847 894 -
		106,002 70,847 183 164 - - 158 145
		106,343 71,156

Note 3: Earnings per share

Note 3: Earnings per share
Earnings used in basic and diluted earnings per share calculation 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	2009 $000 14,832 No. (000) 47,256 3,205 50,461	2008
		$000 11,536 No. (000) 46,641 2,575
		49,216

Note 4: Contributed equity

Note 4: Contributed equity
Ordinary shares, fully paid, net of transaction costs: Balance at beginning of year Issue of shares on exercise of options Issue of performance-related shares Issue of placement shares Cost of share issues Deferred tax adjustment to cost of share issues Balance at end of year	2009 No. (000) $000 46,991 13,000 100 50 50 - 7,037 10,203 - (227) - 68 54,178 23,094	2008
		No. (000) $000 43,269 9,694 2,222 942 - - 1,500 2,295 - (100) - 169
		46,991 13,000

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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 2009

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	2009 Consolidated Parent Entity Entity $000 $000 14,832 9,589 2,243 1,314 341 341 4,897 5,744 3,204 (214) 594 4,535 (6,068) (11,122) (259) (582) 2,118 1,280 21,902 10,885	2008
		Consolidated Parent Entity Entity
		$000 $000 11,536 6,763 1,807 1,105 385 385 (4,978) (8,204) (4,002) (2,509) 1,249 907 8,315 12,781 (740) (222) (88) (260)
		13,484 10,746

Note 6: Acquisition of business

On 30 November 2007, the company, through its newly-formed 100% owned subsidiary Austin Engineering USA Inc., acquired all of the issued shares in Western Technology Services Inc. for a cash consideration of US$19 million. Details of the fair value of net assets that were acquired in the period ending 31 December 2007 were as follows:

Cash Receivables Inventories Deferred tax assets Other assets Property Plant and equipment Payables Bank overdraft Other liabilities and provisions Goodwill on acquisition	2009 2008 $000 $000 - 1,787 - 8,090 - 4,771 - 1,767 - 188 - 7,528 - 1,203 - (4,031) - (522) - (4,757)
	16,024 - 6,659
	- 22,683

There were no business combinations in the year ended 30 June 2009.

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 2009.

Note 8: Dividends

The company has declared a fully-franked final dividend of 6.5c per share payable on 9 October 2009 in relation to the financial year ended 30 June 2009.

Note 9: Events subsequent to reporting date

On 23 July 2009, the company announced that it had completed the capital raising program comprising of a $26m Institutional Placement. Approximately $15.8m was raised from the issue of the ‘Tranche 2’ shares of the placement, representing 10.93m shares at $1.45 per share, following approval of the issue by shareholders in general meeting on 20 July 2009.

On 27 July 2009, the company announced that it had completed the Shareholder Share Purchase Plan program and had raised $4.9m from the issue of 3.33m shares at $1.45 per share.

On 3 August 2009, the company announced it had completed the acquisition of the steel dump truck body business of Conymet Limitada, based in Chile, for the cash consideration of USD 19.6m.

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