AUSTIN ENGINEERING LIMITED — Annual Report 2012

Aug 22, 2012

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

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Results
		Year to		Year to
	30	June 2012		30 June 2011
		$m		$m
Revenue		290.10	up 42% from	203.71
Net profit after tax for the year		29.58	up 38% from	21.47
Net profit for the year attributable to members		29.58	up 38% from	21.47
Brief Explanation of Movements in Revenue and Net Profit
The movements in revenue and net profit after tax for the year ended 30	June 2012 over the previous year are due to			a combination of factors
including:
- Growing workload levels over the year, particularly from October 2011 onwards;
- The inclusion of Hunter Valley and existing COR Cooling operations for a full year (pcp - 8 months and 7 months respectively after acquisition
in November and December 2010);
- The commencement of operations in the new workshop on Batam Island	in Indonesia in November 2011;
- Additional contributions from new business acquisitions:
V&V in Calama, Chile (completed in early January 2012)

Petroaceros S.A.C in Lima, Peru (completed in mid-April 2012)

COR Cooling Group in Australia (four relatively minor acquisitions completed in late July 2011, late September 2011, late October 2011 and early March 2012)

- The commencement of operations in the new workshop on Batam Island in Indonesia in November 2011; - Additional contributions from new business acquisitions: V&V in Calama, Chile (completed in early January 2012) Petroaceros S.A.C in Lima, Peru (completed in mid-April 2012) COR Cooling Group in Australia (four relatively minor acquisitions completed in late July 2011, late September 2011, late October 2011 and early March 2012)	- The commencement of operations in the new workshop on Batam Island in Indonesia in November 2011; - Additional contributions from new business acquisitions: V&V in Calama, Chile (completed in early January 2012) Petroaceros S.A.C in Lima, Peru (completed in mid-April 2012) COR Cooling Group in Australia (four relatively minor acquisitions completed in late July 2011, late September 2011, late October 2011 and early March 2012)	- The commencement of operations in the new workshop on Batam Island in Indonesia in November 2011; - Additional contributions from new business acquisitions: V&V in Calama, Chile (completed in early January 2012) Petroaceros S.A.C in Lima, Peru (completed in mid-April 2012) COR Cooling Group in Australia (four relatively minor acquisitions completed in late July 2011, late September 2011, late October 2011 and early March 2012)	- The commencement of operations in the new workshop on Batam Island in Indonesia in November 2011; - Additional contributions from new business acquisitions: V&V in Calama, Chile (completed in early January 2012) Petroaceros S.A.C in Lima, Peru (completed in mid-April 2012) COR Cooling Group in Australia (four relatively minor acquisitions completed in late July 2011, late September 2011, late October 2011 and early March 2012)	- The commencement of operations in the new workshop on Batam Island in Indonesia in November 2011; - Additional contributions from new business acquisitions: V&V in Calama, Chile (completed in early January 2012) Petroaceros S.A.C in Lima, Peru (completed in mid-April 2012) COR Cooling Group in Australia (four relatively minor acquisitions completed in late July 2011, late September 2011, late October 2011 and early March 2012)
- A full year of finance costs associated with the draw-down of bank loans to fund the Hunter Valley and COR Cooling acquisitions (pcp - 8
months and 7 months respectively) and 6 months of finance costs for a bank loan for the V&V acquisition (pcp - nil)
Please refer to the separate media release and presentation materials released on 23 August 2012 for a review of, and commentary on,
the results for the year and operations
Dividends and Dividend Reinvestment Plans
	Amount		Franked Amount
	per Security		per Security
Final dividend paid on 7 October 2011 for the financial year ended 30 June 2011	8.5			8.5
Interim dividend paid on 23 March 2012 for the financial year ended 30 June 2012
(up 17% from 3.0c in 2011)	3.5			3.5
Final dividend declared for the financial year ended 30 June 2012 (up 24% from 8.5c in 2011)	10.5			10.5
Total dividend for the financial year ended 30 June 2012 (up 22% from 11.5c in 2011)	14.0			14.0
Record date for determining entitlement to the final dividend		3 September 2012
Date for payment of final dividend		12 October 2012
There were no dividend reinvestmentplans in operation duringtheperiod.
Net Tangible Assets per Security
	Year to			Year to
	30 June 2012		30 June 2011
Net tangible asset backing per ordinarysecurity (cents)	55.3			40.1
Control Gained Over Entities Having a Material Effect
The acquisitions of a more significant nature that were completed during the year were:
3 January 2012 - acquisition of the business and assets of V&V in Calama, northern Chile for a cash consideration of			$24.4m.
20 April 2012 - acquisition of the business and assets of two divisions of Petroaceros S.A.C in Lima, Peru for a cash			consideration of $5.5m plus
$0.8m for inventories and work-in-progress.

Associates or Joint Ventures

The company has a 50% interest in the Majan Aluminium Services Company, which is undertaking a number of projects related to the aluminium smelter industry in the Middle East.

Audit

The financial data in this report is in the process of being audited, pending completion of the company’s statutory financial report and the issue of the accompanying independent auditor’s report. The audit process has not identified any material adjustments or misstatements that require the financial data included in this preliminary final report to be corrected.

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

PRELIMINARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2012

Revenue Other income Raw materials and consumables expenses Change in inventories and work in progress Employment expenses Subcontractor expenses Occupancy and utility expenses Depreciation expense Amortisation - customer relationships and other intangibles Other expenses from ordinary activities Finance costs Profit before income tax Income tax expense Net profit for the year Other comprehensive income: Changes in fair value of available-for-sale financial assets Foreign currency translation differences Other comprehensive income for the year, net of tax Total comprehensive income for the year Profit for the year is attributable to: Owners of Austin Engineering Limited Total comprehensive income for the year is attributable to: Owners of Austin Engineering Limited Earnings per share attributable to owners of Austin Engineering Limited: Basic earnings per share (cents per share) Diluted earnings per share (cents per share)	Note	Consolidated Entity	Consolidated Entity
		2012 $000 290,097 - (109,235) 9,645 (102,462) (5,833) (6,521) (5,621) (773) (25,204) (2,883) 41,210 (11,630) 29,580 - (303) (303) 29,277 29,580 29,277 41.00 40.16	2011
	2,3 4 4		$000 203,714 2,183 (71,792) 7,866 (83,182) (566) (5,148) (3,566) (598) (16,878) (1,756)
			30,277 (8,809)
			21,468
			541 (2,405)
			(1,864)
			19,604
			21,468
			19,604
			30.37 29.29

The above Preliminary Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

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

PRELIMINARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2012

Current Assets Cash and cash equivalents Trade and other receivables Inventories and work-in-progress Other assets Total Current Assets Non-Current Assets Property, plant and equipment Investments accounted for using the equity method 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 earnings Reserves Total Equity	Note	Consolidated Entity	Consolidated Entity
		30 June 2012 $000 15,748 50,687 30,842 4,924 102,201 92,852 1,645 85,268 4,255 184,020 286,221 72,452 3,451 3,733 5,593 85,229 67,035 8,672 75,707 160,936 125,285 48,938 78,182 (1,835) 125,285	30 June 2011
	5		$000 37,416 29,985 20,940 2,780
			91,121
			53,670 1,554 74,908 2,528
			132,660
			223,781
			55,445 1,222 2,525 4,481
			63,673
			49,948 6,418
			56,366
			120,039
			103,742
			48,251 57,254 (1,763)
			103,742

The above Preliminary Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

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

PRELIMINARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2012

Consolidated Entity Opening balance at 1 July 2010 Total comprehensive income for the year: Profit for the year Other comprehensive income: Revaluation of available-for-sale financial assets: Gross Deferred tax adjustment Reclassification adjustments: Transfer to profit or loss – gross Deferred tax Currency translation differences Total comprehensive income for the year Transactions with owners in their capacity as owners: Issue of share capital Share issue costs Dividends paid Share-based payments At 30 June 2011 Total comprehensive income for the year: Profit for the year Other comprehensive income: Currency translation differences Total comprehensive income for the year Transactions with owners in their capacity as owners: Issue of share capital Share issue costs Deferred tax relating to equity items Dividends paid Share-based payments At 30 June 2012	Contributed Equity Retained Earnings Options Reserve Foreign Currency Translation Reserve Available for Sale Investments Reserve Total
	$000 $000 $000 $000 $000 $000 43,684 43,286 920 (690) (541) 86,659 - 21,468 - - - 21,468 - - - - 2,955 2,955 - - - - (887) (887) - - - - (2,183) (2,183) - - - - 656 656 - - - (2,405) - (2,405)
	- 21,468 - (2,405) 541 19,604
	4,635 - - - - 4,635 (68) - - - - (68) - (7,500) - - - (7,500) - - 412 - - 412
	4,567 (7,500) 412 - - (2,521)
	48,251 57,254 1,332 (3,095) - 103,742
	- 29,580 - - - 29,580 - - - (303) - (303)
	- 29,580 - (303) - 29,277
	675 - - - - 675 (6) - - - - (6) 18 - - - - 18 - (8,652) - - - (8,652) - - 231 - - 231
	687 (8,652) 231 - - (7,734)
	48,938 78,182 1,563 (3,398) - 125,285

The above Preliminary Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

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

PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2012

Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Dividends received Finance costs Income tax paid Net cash provided by operating activities Cash flows from investing activities Payments for acquisition of businesses, net of cash acquired Payments for property, plant and equipment Distribution from joint venture entity Settlement of contingent consideration of business combination Proceeds from sale of other financial assets Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares, net of transaction costs Proceeds from borrowings Repayment of borrowings Dividends paid Net cash provided by financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on cash and cash equivalents Cash at the end of the period	Consolidated Entity	Consolidated Entity
	2012 $000 288,735 (251,703) 378 - (2,883) (9,903) 24,624 (33,273) (18,788) 753 (813) - (52,121) 687 40,663 (26,144) (8,652) 6,554 (20,943) 37,416 (725) 15,748	2011
		$000 234,579 (181,572) 492 133 (1,756) (8,107)
		43,769
		(36,384) (24,371) 1,055 - 6,638
		(53,062)
		4,567 37,141 (6,404) (7,500)
		27,804
		18,511
		21,125 (2,220)
		37,416

The above Preliminary Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

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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 2012

Note 1: Basis of preparation of preliminary financial statements

This 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.

This preliminary report does not include all the notes of the type normally included in annual financial statements. Accordingly, this preliminary report should be read in conjunction with the annual financial statements for the year ended 30 June 2011 and any public announcements made by Austin Engineering Ltd during the year in accordance with the continuous disclosure requirements of the Australian Securities Exchange and Corporations Act 2001.

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 2011. The principal accounting policies have been consistently applied to the periods presented, unless otherwise stated.

Note 2: Revenue

Note 2: Revenue
Revenue from the sale of goods and services Interest received Dividends received Other revenue	2012 2011
	$000 $000 289,407 202,993 378 492 - 133 312 96
	290,097 203,714

Note 3: Segment information

Management has determined that the strategic operating segments comprise of Australia (for mining equipment, other products and repair and maintenance services), Americas (for mining equipment and other products, comprising of North America and South America), Asia (currently consisting of Indonesia for mining equipment) and the Middle East (for aluminium smelter equipment and products). These reporting segments also provide a more balanced view of cross-operational performance across business units, recognising and compensating for inter-regional differences in relation to technical methodologies, production facilities and processes, the cost of key inputs such as labour and steel, the existence of competition and differing customer requirements that may affect product pricing.

Executive management now monitors segment performance based on EBITDA. Segment information for the years ended 30 June 2012 and 30 June 2011 is as follows:

Total segment revenue Inter-segment revenue Revenue from external customers EBITDA Segment assets at 30 June 2012 Segment assets at 30 June 2011	Australia	Americas	Middle East	Asia **Total **
	2012 2011	2012 2011	2012 2011	2012 2011 2012 2011
	$000 $000 213,455 162,573 (11,268) (9,512)	$000 $000 70,369 48,424 - -	$000 $000 2,393 2,114 - -	$000 $000 $000 $000 15,148 115 301,365 213,226 - - (11,268) (9,512)
	202,187 153,061	70,369 48,424	2,393 2,114	15,148 115 290,097 203,714
	32,865 29,103	12,334 6,044	959 853	3,951 (295) 50,109 35,705
	132,246 139,092	134,960 77,549	1,645 1,554	17,370 286,221 5,586 223,781

Corporate expenses are included in the Australian reporting segment for decision-making purposes as this represents the area within which they are mostly incurred. Asset amounts are measured in the same way that they are measured in the financial statements. Segment assets are allocated based on the operations of the segment and the physical location of the assets.

The reconciliation of EBITDA to profit before income tax is as follows:

EBITDA Depreciation Amortisation Interest revenue Finance costs Profit before income tax	2012 2011
	$000 $000 50,109 35,705 (5,621) (3,566) (773) (598) 378 492 (2,883) (1,756)
	41,210 30,277

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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 2012

Note 4: Earnings per share

Note 4: 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 - options Weighted average number of ordinary shares used in calculating diluted earnings per share	2012 2011
	$000 $000 29,580 21,468 No. No. 72,149 70,693 1,516 2,613
	73,665 73,306

Note 5: Contributed equity - ordinary shares

Note 5: Contributed equity - ordinary shares
Balance at beginning of the year Issue of shares on exercise of options Issue of performance-related shares Cost of share issues Deferred tax adjustment to cost of share issues Balance at end of the year	2012 No.000 $000 71,865 48,251 450 675 - - - (6) - 18 72,315 48,938	2011
		No.000 $000 69,315 43,684 2,500 4,635 50 - - (68) - -
		71,865 48,251

Ordinary shares issued in the year to 30 June 2012 comprised of the following, all of which were in relation to the exercise of employee options: 8 September 2011: 150,000 shares at $1.50 each ($225,000)

13 December 2011: 150,000 shares at $1.50 each ($225,000) 14 December 2011: 150,000 shares at $1.50 each ($225,000)

Note 6: Business combinations

• a) Acquisition of business of V&V in Calama, northern Chile:

• On 3 January 2012, Austin Ingenieros Chile Limitada, a 100% subsidiary of Austin Engineering Ltd, completed the acquisition of the business of V&V, based in Calama in northern Chile, for a cash consideration of $24.38m. V&V is a site-based equipment hire and repair and maintenance business located next to the majority of mines in northern Chile. The acquisition was a strategic development to expand business activities and gain more exposure to repair and maintenance operations in this important mining region. The acquisition was funded by existing bank loan facilities.

• b) Acquisition of business of Petroaceros S.A.C in Lima, Peru:

On 20 April 2012, Austin Engineering South America No. 1 Pty Ltd, a 100% subsidiary of Austin Engineering Ltd, completed the acquisition of two of the mining services divisions of Petroaceros S.A.C, based in Lima in Peru, for a cash consideration of $5.48m plus $0.83m for inventories and work-in-progress. The fabrication, repair and maintenance (‘FRM’) division manufactures and repairs dump truck bodies, buckets and other mining equipment. The second division undertakes the on-site maintenance and repair of equipment for large miners in the region. The acquisition was a strategic development to expand business activities and gain more exposure to repair and maintenance operations in an important and growing mining region. The acquisition was funded by available existing cash resources.

• c) Acquisition of various businesses in Queensland, New South Wales and South Australia: During the year, COR Cooling Pty Ltd, a 100% subsidiary of Austin Engineering Ltd, acquired the following businesses as part of a strategic development to expand business activities into important mining regions in Australia:

29 July 2011: the business and assets of Noceid Pty Ltd trading as Diecon Engineering, with operations based in Brisbane, for a cash consideration of $0.77m. Diecon Engineering is a specialised manufacturer and repairer of industrial and marine cooling products. The acquisition was funded by way of available existing cash resources.

30 September 2011: the business and assets of Southstate Industrial Services Pty and Motrad Pty Ltd (together the “Southstate Industrial Radiators” Group), with operations based in Adelaide, for a cash consideration of $0.14m. Southstate Industrial Radiators is a specialised industrial radiator repair business. The acquisition was funded by way of available existing cash resources.

31 October 2011: the business and assets of Tonkins Radiators Mansfield Park Pty Ltd (“Tonkins Radiators”), with operations based in Adelaide, for a cash consideration of $0.78m. Tonkins Radiators is a specialised industrial radiator repair business. The acquisition was funded by way of existing available cash resources.

5 March 2012: the business and assets of Radiator Express Pty Ltd, with operations based in Singleton in the Hunter Valley region of New South Wales, for a cash consideration of $1.15m. Radiator Express is a specialised industrial radiator repair business. The acquisition was funded by way of available existing cash resources.

Due to the relative immateriality of these acquired businesses, the net assets acquired, intangible assets, goodwill and purchase consideration have been combined for disclosure purposes.

Acquisition-related costs of $150,000, comprising of legal and other fees, have been recognised in the period and are included within other expenses from ordinary activities in the consolidated statement of comprehensive income.

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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 2012

Note 6: Business combinations (cont’d)

Details of the net assets and intangibles acquired are as follows:

Purchase consideration Fair value of net tangible assets acquired Intangible assets and goodwill The fair value of net tangible assets from the acquisitions is as follows: Property, plant and equipment Inventories and work-in-progress Receivables Payables Employee leave entitlements Financial liabilities Net identifiable tangible assets acquired The intangible assets and goodwill acquired, net of deferred tax, arising from the acquisitions are as follows: Customer relationships and service agreements Non-compete agreement Goodwill Deferred tax liability Total intangible assets and goodwill acquired Purchase consideration - cash outflow: Outflow of cash to acquire subsidiaries, net of cash acquired: Total purchase consideration Less: deferred consideration Less: contingent consideration Outflow of cash – investing activities	Petroaceros COR V&V S.A.C Cooling Total
	$000 $000 $000 $000 24,384 6,316 2,847 33,547 (20,093) (1,754) (966) (22,813)
	4,291 4,562 1,881 10,734
	23,911 1,939 404 26,254 - 834 755 1,589 - - 72 72 - - (44) (44) - (363) (221) (584) (3,818) (656) - (4,474)
	20,093 1,754 966 22,813
	2,093 500 1,000 3,593 - - 70 70 2,198 4,062 1,111 7,371 - - (300) (300)
	4,291 4,562 1,881 10,734
	24,384 6,316 2,847 33,547 - (244) - (244) - - (30) (30)
	24,384 6,072 2,817 33,273

The assets arising from the acquisition are recognised at fair value, taking into account the age and condition of the assets acquired and the expected remaining useful life in the production environment in which they are operated. The fair value of acquired inventories, work-in-progress and trade receivables approximates to their carrying value.

Goodwill is attributable to the profitability of the acquired business and the significant business development opportunities that are expected to arise after the group’s acquisition of the respective businesses.

From the dates of their respective acquisitions to 30 June 2012, the acquired businesses contributed $9,037,000 of revenue and $1,286,000 of net profit after tax to the group. If the acquisitions had occurred on 1 July 2011, the revenue of the group on a pro-forma, pro-rata basis would have been $301,000,000 and net profit after tax would have been $31,642,000. The relative contribution of these new businesses is expected to increase in the future as business expansion plans are implemented and investments are made in new facilities.

Details of the business combinations arising in the year ended 30 June 2011 are disclosed in note 31 of the group’s annual financial statements for the year ended 30 June 2011.

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 2012.

Note 8: Dividends

The company paid a fully-franked final dividend of 8.5c per share on 7 October 2011 in relation to the financial year ended 30 June 2011 (up 13% from 7.5cps in 2010). The company also paid a fully-franked interim dividend of 3.5c per share on 23 March 2012 in relation to the financial year ended 30 June 2012 (up 17% from 3.0c per share in 2011).

Note 9: Events subsequent to reporting date

The Directors have declared a final fully-franked dividend of 10.5 cents per share for the financial year ended 30 June 2012 (up 24% from 8.5 cps in 2011) payable on 12 October 2012. The aggregate amount of the dividend to be paid out of retained profits based on the number of ordinary shares issued at 30 June 2012, but not recognised as a liability at the end of the year, is $7,593,000.

On 6 July 2012 COR Cooling Pty Ltd, a 100% subsidiary company of Austin Engineering Ltd, acquired the business and assets of Beltrax Pty Ltd, trading Bells Radiator Services), a specialised manufacturer and repairer of cooling products based in Toronto, Hunter Valley, Australia. The purchase price, which was paid in cash, was $1.60m plus $0.08m for inventories. The fair value of tangible and intangible assets acquired is in the process of being determined and finalised.

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