SRG GLOBAL LIMITED — Annual Report 2012

Aug 30, 2012

Preliminary Final Report for the year ended 30 June 2012

RESULTS FOR ANNOUNCEMENT TO MARKET

This preliminary final report is provided to the Australian Securities Exchange under ASX Listing Rule 4.3.A.

			30 June2012$000	30 June2011$000
Revenue from ordinary activities	UP	46.2%	212,244	145,212
Profit from ordinary activities aftertax attributable to members	UP	17.6%	22,843	19,424
Net profit for the period attributableto members	UP	17.6%	22,843	19,424

	30 June2012cents	30 June2011cents
Earnings per share (basic)	19.7¢	20.8 ¢
Net tangible assets per security	74.3¢	61.7¢

Dividends	AmountperSecurity	FrankedamountperSecurity
Final Dividend	-	-
Final Dividend previouscorresponding period (DRP)	4.50¢	4.50¢(100%)
Record date for determiningentitlements to the final dividend	Notapplicable	Notapplicable
Interim Dividend (DRP)	4.25¢	4.25¢(100%)
Interim Dividend previouscorresponding period (DRP)	3.75¢	3.75¢(100%)

This preliminary final report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report should be read in conjunction with the annual financial report for the year ended 30 June 2011 and any public announcements made by Global Construction Services Limited during the reporting period in accordance with the continuous disclosure requirements of the ASX Listing Rules and Corporations Act 2001.

Managing Directors Review

Results

Global Constructions Services Limited (GCS, GCS Group) achieved a record statutory profit after tax from ordinary activities of $22.8m (FY11: $19.4m) on group revenue of $212.2m (FY11: $145.2m)

Normalised earnings excluding the amortisation of intangibles of $1.25m increased 24% to $24.1m (FY11: $19.4m).

GCS Group EBITDA in FY12 was $50.4m (FY11: $38.0m), EBIT in FY12 was $37.3m (FY11: $30.0m). Earnings per Share were 19.7 cents (FY11: 20.8 cents).

Given the Group is experiencing increasing demand for Plant and Equipment in supporting the growing needs of the Resource, Industrial and Energy sectors and has applied significant capital to this area, the Board has determined not to pay a full year dividend. The total fully franked dividend for the year is 4.25 cents (FY11: 8.25 cents).

Normalised earnings, EBIT and EBITDA reconciliation is provided as follows:

	30 June2012$000	30 June2011$000
Profit for the year after income taxAdd back amortisation	22,8431,251	19,4247
Normalised earnings for the year after income tax	24,094	19,431
Profit for the year after income tax	22,843	19,424
Add back finance costs	5,279	3,542
Add back income tax expense	9,187	7,019
EBIT	37,309	29,985
Add back depreciation	11,863	8,107
Add back amortisation	1,251	7
EBITDA	50,423	38,099

In the 2012 financial year GCS Group continued to significantly increase its capital investment program in new equipment to underpin the demand and expansion in the Group's growth segment encompassing Resource, Industrial, Energy, Oil & Gas.

Approximately $60m of new equipment was purchased and brought on line throughout FY12. Almost 80% of this expenditure was in Plant Hire and Temporary Site Accommodation. The GCS Group is experiencing extraordinary demand for Temporary Site Accommodation in Western Australia's Northwest. The Plant Hire division continues to grow exponentially, with new branch openings in Geraldton to service the Midwest resource region of Western Australia and in the Northwest, Pt. Hedland has opened and is operating to expectations. Karratha is expected to start trading in the second half of FY13.

Strategically the investment is significant, as GCS Group develops its growth platform for FY13 and beyond. The diversification of the GCS Group is becoming evident; Contract work undertaken by GCS Group's contract arm CASC continues to be an important business segment but is being overtaken by material new revenues and earnings generated by the Group's growth businesses of GCS Industrial Services, GCS Budget Portables and GCS Hire.

Weak conditions persist in the Residential segment, however earnings growth in GCS Group's main operating segments Commercial and Resources and Industrial enabled the Group to deliver results in accordance with market expectations and strategic execution.

Corporate Activity

GCS specialised labour hire company Global Industrial Services Pty Ltd (GIS) acquired 3 June 2011 contributed a full year of revenue and earnings in FY12. GIS performed above management expectations confirming the Board's strategy of complementing GCS Group with a low capital intensive business which supplements the GCS service offering.

In August 2011 GCS acquired a strategic 50% interest in SmartScaff Pty Ltd for $3.5m in cash. SmartScaff Pty Ltd is an East Coast scaffolding company, with operations in Sydney, Melbourne and Brisbane. The investment delivers an immediate platform to expand and diversify the GCS geographical base under an experienced management team lead by Mr Rob Oberstar.

SmartScaff Pty Ltd contributed earnings of $547k for the full year ended 30 June 2012.

Board and Executive Activity

FY12 saw GCS significantly bolster its Board and Executive team with a number of key appointments.

Mr Peter Wade, the current Executive Chairman and Managing Director of Mineral Resources Limited, was appointed GCS Group Non-executive Chairman in November 2011. Mr Wade a highly accomplished and experienced executive has a successful history of guiding organisations on a path of sustained growth.

Mr Michael Sertorio joined the GCS Group Board in July 2011 as an Executive Director. Mr Sertorio serves on the board of a number of private companies and has a wealth of experience in critical strategic planning and execution.

The GCS Group Executive Team was bolstered by the appointments of Divisional Managing Directors, Mr Raul Used and Mr Graeme Hearn. Mr Carlo Genovesi joined as Chief Financial Officer and Mrs Susan Cameron as Group Financial Controller.

Operational Review

GCS Group's individual segments performance was in line with the economic conditions of the markets they operate in.

Commercial Division

The Commercial division continued with good progress on key projects including the QEII car park project for Probuild. GIS contributions were above management expectations. The division is well placed to take advantage of in excess of $7.6b in State Government infrastructure projects committed and ready to start.

Residential Division

A persistent lack of confidence in the market has seen tough trading conditions in FY12. The division has held its own, maintaining market share in a competitive and price retracting market. It is anticipated demand will commence to filter through in 2014 with pent up demand translating to an increase in developments and housing starts.

Resource and Industrial Division

An exceptional level of enquiry and activity continues in the Northwest. A new "GCS Hire" Plant hire branch has opened in Pt. Hedland with Karratha set to open in the second half of FY13. Demand for temporary site accommodation continues to escalate. GCS Group has undertaken a significant capital expenditure program building the infrastructure and deploying equipment to gear up GCS Industrial Services to take advantage of the abundance of opportunities in this sector.

Dividends

The directors have determined not to pay a final dividend for FY 12. The total fully franked dividend for the year is 4.25 cents (FY11: 8.25 cents).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		30 June	30 June
		2012	2011
Continuing Operations	Note	$000	$000
Revenue from hire of equipment, provision of labour and contracting services		201,555	134,916
Sale of goods		10,689	10,296
	1	212,244	145,212
Raw materials, consumables and services		(37,331)	(58,433)
Personnel expenses		(108,161)	(36,931)
Other expenses		(12,924)	(9,380)
Occupancy		(4,062)	(3,219)
Repairs and maintenance		(580)	(478)
Depreciation expense		(11,863)	(8,107)
Amortisation expense		(1,251)	(7)
Other Income		732	1,265
Finance costs		(5,279)	(3,542)
Share of profit of equity accounted investees (net of tax)		505	63
Profit before income tax expense		32,030	26,443
Income tax expense		(9,187)	(7,019)
Profit for the year		22,843	19,424
Other comprehensive income for the year, net of income tax		-	-
Total comprehensive income for the year		22,843	19,424
Profit and total comprehensive income for the year attributable to:
Owners of the company		22,843	19,424
Earnings per share for profit attributable to owners of the Company
Basic earnings per share		19.7¢	20.8¢
Diluted earnings per share		19.6¢	20.4¢

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

		30 June	30 June
		2012	2011
	Note	$000	$000
Current Assets
Cash and cash equivalents		7,158	17,535
Trade and other receivables		46,683	32,705
Inventories		5,523	4,014
Total Current Assets		59,364	54,254
Non-Current Assets
Other Receivables		5,837	191
Investments accounted for using the equity method	3	4,267	262
Property, plant and equipment		169,272	120,825
Intangible assets	5	60,157	61,386
Deferred tax assets		3,980	4,272
Other Financial Assets		72	12
Total Non-Current Assets		243,585	186,948
Total Assets		302,949	241,202
Current Liabilities
Trade and other payables		34,960	23,247
Borrowings		53,927	15,726
Deferred Income		1,555	10,871
Current tax liabilities		7,613	9,155
Total Current Liabilities		98,055	58,999
Non-Current Liabilities
Borrowings		45,450	38,633
Provisions		1,017	816
Deferred Tax Liabilities		11,732	9,765
Total Non-Current Liabilities		58,199	49,214
Total Liabilities		156,254	108,213
Net Assets		146,695	132,989
Equity
Issued Capital		97,355	96,339
Reserves		140	140
Retained profits		49,200	36,510
Total Equity		146,695	132,989

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Ordinary$000	OptionReserve$000	RetainedEarnings$000	Total$000
Balance at 1 July 2010	53,943	140	23,414	77,497
Profit for the year	-	-	19,424	19,424
Total comprehensive income for the period	-	-	19,424	19,424
Transactions with owners in their capacities as owners
Issue of ordinary shares, net of transactions costs	40,649	-	-	40,649
Dividends paid	1,477	-	(6,328)	(4,851)
Tax-effect share based transaction expenses	270	-	-	270
Balance 30 June 2011	96,339	140	36,510	132,989
Balance at 1 July 2011	96,339	140	36,510	132,989
Profit for the year	-	-	22,843	22,843
Total comprehensive income for the period	-	-	22,843	22,843
Transactions with owners in their capacities as owners
Issue of ordinary shares, net of transaction costs	382	-	-	382
Issue of shares on acquisition of subsidiary	51	-	-	51
Dividends paid	579	-	(10,153)	(9,574)
Tax-effect share based transaction expenses	4	-	-	4
Balance 30 June 2012	97,355	140	49,200	146,695

CONSOLIDATED STATEMENT OF CASHFLOWS

		2012	2011
	Note	$000	$000
Cash flows from operating activities
Receipts from customers		194,533	151,388
Payments to suppliers and employees		(148,646)	(106,607)
Income taxes paid		(8,287)	(1,143)
Net cash inflows from operating activities		37,600	43,638
Cash flows from investing activities
Payments for property, plant and equipment		(25,377)	(4,871)
Proceeds from sale of property, plant and equipment		32	261
Interest received		433	654
Acquisition of subsidiaries, net of cash acquired		-	(15,200)
Acquisition of associate	3	(3,467)	-
Loans from/(to) related parties		(5,646)	-
Net cash outflow from investing activities		(34,025)	(19,156)
Cash flows from financing activities
Proceeds from borrowings		30,260	9,000
Repayment of borrowings		(29,559)	(36,657)
Interest paid		(5,461)	(3,542)
Proceeds from issue of ordinary shares		396	18,292
Transaction costs from issue of ordinary shares		(14)	(816)
Dividends paid to group shareholders		(9,574)	(4,851)
Net cash outflow from financing activities		(13,952)	(18,574)
Net increase/(decrease) in cash and cash equivalents		(10,377)	5,908
Cash and cash equivalents at beginning of the year		17,535	11,634
Effects of exchange rate changes on cash and cash equivalents held in		-	(7)
foreign currencies at the end of the year.
Cash and cash equivalents at the end of the year		7,158	17,535

NOTES TO THE PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2012

(a) Basis of Preparation

This preliminary final report for the year ended 30 June 2012 relates to the consolidated entity consisting of Global Construction Services Limited (the Company, GCS Group) and its controlled entities.

The preliminary final report has been prepared on an accruals basis and a historical cost basis except for certain current and non-current assets and financial instruments which are measured at fair value or where otherwise stated.

Cost is based on the fair value of consideration given in exchange for assets.

This preliminary final report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report should be read in conjunction with the annual financial report of the year ended 30 June 2011 and any public announcements made by GCS Group during the year in accordance with the continuous disclosure requirements of the Corporations Act 2001.

The amounts contained in this preliminary final report are presented in Australian dollars, the functional currency of the consolidated entity, and are rounded to the nearest thousand dollars ($'000) where rounding is applicable under the option available to the Company under ASIC class order 98/100. The Company is an entity to which the class order applies.

(b) Statement of Compliance

The preliminary final report is a general-purpose financial report and has been prepared in accordance with applicable Australian Accounting Standards, other pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. The preliminary final report is also in compliance with ASX listing Rule 4.3.A and the disclosure requirements of ASX Appendix 4E.

Australian Accounting Standards include Australian equivalents of International Reporting Standards ("AIFRS").

(c) Going Concern

The preliminary final report has been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.

The consolidated entity recorded a profit after income tax from continuing operations for the year of $22.8m (2011:$19.4m) and had cash assets of $7.2m as at 30 June 2012 (30 June 2011: $17.5m). At 30 June 2012 the consolidated entity is reporting a working capital deficiency of $38.7m (30 June 2011: $4.7m). As previously disclosed in the Company's Annual Reports, the Commercial Bill and Property financing facilities are due to expire in May 2013 and consequently have been classified as current liabilities in the current reporting period, resulting in the working capital deficiency. The working capital deficiency may cast uncertainty on the consolidated entity's ability to continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business.

The Directors are confident that they will be able to renegotiate and refinance its banking facilities or raise additional capital as required to continue as a going concern. The Groups bankers have committed to enter into negotiations during the second quarter of FY13 to renew the facilities. Accordingly the preliminary final report has been prepared on a going concern basis.

1. Revenue

	30 June2012$000	30 June2011$000
Revenue
Hire of equipment and related services	159,776	61,918
Contracting	41,779	72,998
Sale of goods	10,689	10,296
	212,244	145,212

2. Dividends

	Dividend pershare¢	Amount$000
The directors have determined not to pay a full year dividend	-	-
Dividends recognised in the period year ended 30 June 2012
2012 Interim dividend fully franked, paid 2 April 2012. Dividend Reinvestment Planapplied	4.25	4,937
2011 Final dividend fully franked, paid 26 September 2011. Dividend ReinvestmentPlan applied	4.50	5,215

3. Investments in Associates accounted for using the equity method

Global Construction Services Limited acquired a 50% interest in the issued shares and equity of SmartScaff Pty Ltd, a scaffolding company with operations and facilities in Melbourne, Sydney and Brisbane. The investment was for a cash consideration of $3.5m. The effective date of the transaction was 1 July 2011.

The interest of Global Construction Services Limited is accounted in the consolidated financial statements using the equity method of accounting and is carried at cost.

Interest of participant Global Construction Services Limited in SmartScaff is revenue of $4.5m and net profit after tax of $547k for the year ended 30 June 2012.

Global Construction Services Limited is party to a jointly controlled entity GCS Concrete Pumping Pty Ltd. Global Construction Services Limited has a 50 % Interest in the issued shares and equity of the entity. GCS Concrete Pumping Pty Ltd provides concrete pump hire and contracting services to the commercial construction market in Western Australia.

Interest of participant Global Construction Services Limited in GCS Concrete Pumping Pty Ltd is revenue of $300k and net loss after tax of $42k for the year ended 30 June 2012.

4. Operating Segments

Description of segments

Management has determined that strategic decision making is facilitated and enhanced by evaluation of operations on the customer segments of Commercial, Residential and Resource & Industrial. For each of the strategic operating segments, the Group Managing Director reviews internal management reports on a monthly basis.

GCS Group supplies an extensive range of specialised labour services and equipment including hire and sales of scaffolding, formwork, material hoists, temporary site accommodation, chemical toilets, general plant hire, temporary fencing. Together with delivery and pick up, installation and dismantling and related estimating, design and engineering services, plus supply and installation of concrete in the Commercial segment.

4. Operating Segments (continued)

The following summary describes the operations in each of the group's reportable segments:

Commercial

The operations in the Commercial segment consist of the supply of the complete range of GCS products and services – including supply and installation of concrete to clients constructing high rise offices, residential towers, retail, hotel, factory, health and recreation projects. Contracts are typically medium to long term.

Residential

The operations in the Residential segment consist of the supply of the complete range of GCS products and services to customers typically involved in the construction of single and multi-story residential developments. Contracts are generally short to medium term.

Resource & Industrial

The operations in the Resource & Industrial segment consist of the supply of the complete range of GCS products and services to customers principally within the Infrastructure, Energy, Oil and Gas, Resources and Industrial industries. Contracts vary in length from short to long term.

Segment Information			Resource
	Commercial	Residential	and	Total
30 June 2012	$000	$000	Industrial$000	$000
Total Segment revenue	192,487	24,901	58,243	275,631
Intersegment revenue	(62,026)	(1,268)	(93)	(63,387)
Revenue from external customers	130,461	23,633	58,150	212,244
Interest revenue	120	25	14	159
Adjusted EBITDA	34,162	4,763	17,371	56,296
Depreciation and amortisationIncome tax expenseShare of profits of equity accounted investees	6,591	1,920	3,193	11,7049,468505
Segment assets	145,556	32,867	62,155	240,578
Segment liabilities	111,610	10,428	32,216	154,254

4. Operating Segments (continued)

Segment Information30 June 2011	Commercial$000	Residential$000	ResourceandIndustrial$000	Total$000
Total Segment revenue	210,727	23,979	17,879	252,585
Intersegment revenue	(105,127)	(1,688)	(558)	(107,373)
Revenue from external customers	105,600	22,291	17,321	145,212
Interest revenue	159	53	17	229
Adjusted EBITDA	33,011	5,131	3,464	41,606
Depreciation and amortisationIncome tax expenseShare of profits of equity accounted investees	5,712	1,488	788	7,9889,30863
Segment assetsSegment liabilities	135,64391,936	29,04310,150	20,68417,267	185,370119,353

The Managing Director assesses the performance of the operating segments based on a measure of adjusted EBITDA. This measurement excludes certain non-recurring expenditures which are of an isolated nature such as equity settled share based payments and corporate activities pertaining to the overall group including the treasury function which manages the cash and funding arrangements of the group.

A reconciliation of adjusted EBITDA to operating profit before income tax is provided as follows:

	2012$000	2011$000
Adjusted EBITDA	56,296	41,606
Eliminations	-	236
Share of equity accounted investees, net of income tax	505	63
Finance costs	(5,279)	(3,542)
Depreciation and amortisation	(13,114)	(8,114)
Unallocated amounts: Other Revenue	1,104	1,458
Unallocated amounts: Corporate	(7,482)	(5,264)
Profit before income tax	32,030	26,443

5. Intangible Assets

30 June 2011	Goodwill$000	Customercontracts$000	Otherintangibles$000	$000
Opening net book amount as at 1 July 2010Acquisition of subsidiary	24,09337,170	--	123-	24,21637,170
Closing net book amount as at 30 June 2011	61,263	-	123	61,386
CostAccumulated amortisation and impairment	61,263-	--	184(61)	61,447(61)
Closing net book amount as at 30 June 2011	61,263	-	123	61,386

30 June 2012	Goodwill$000	Customercontracts$000	Otherintangibles$000	$000
Opening net book amount as at 1 July 2011	61,263	-	123	61,386
Acquisition of subsidiary	22	-	-	22
Allocation of identifiable intangible assets (1)	(2,750)	2,750	-	-
Amortisation expense	-	(1,251)	-	(1,251)
Closing net book amount as at 30 June 2012	58,535	1,499	123	60,157
Cost	58,535	2,750	184	61,469
Accumulated amortisation and impairment	-	(1,251)	(61)	(1,312)
Closing net book amount as at 30 June 2012	58,535	1,499	123	60,157

(1) GCS acquired 100% of the issued capital of Global Industrial Services (Aust) Pty Ltd (GIS) on 3 June 2011, and the acquisition of the subsidiary was provisionally accounted for as Goodwill at the 30 June 2011 in accordance with AASB 3 Business Combinations. During the provisional accounting period to 3 June 2012, Customer Contracts of $2.750m were identified and assessed as having useful lives based on the life of the Customer Contracts of between 1 to 3 years.

6. Contingent Liabilities

There has been no material change of any contingent liabilities during the year.

No matter or circumstance has arisen since the end of the year to the date of this report which has significantly affected, or may significantly affect, the operations of the consolidated entity the results of those operations or the state of affairs of the consolidated entity.

7. Events after reporting date

Extension of Directors' tenure

GCS Group has agreed to extend the tenure of GCS Group Managing Director Mr Enzo Gullotti and GCS Group Executive Director Mr George Chiari.

Mr Gullotti and Mr Chiari have re-signed for a further three years on the same terms, conditions and remuneration they currently have. The extension to their contracts will expire 30 June 2015.

Mr Michael Sertorio became a Non-Executive Director of GCS Group on 6 August 2012. Mr Sertorio was an Executive Director of the GCS Group since his appointment on 5 July 2011.

Audit Status

This preliminary final report is based on accounts which are in the process of being audited and subject to review.

Enzo Gullotti Group Managing Director

31 August 2012