TSE 2010 Full Year Results: ASX Statement 'Transfield Services delivers guidance, record operating cash flow and a strengthened balance sheet to fund growth strategy'

26 August 2010

• Revenue of A$4.1 billion (including joint ventures)
• NPAT of $73.0 million compared to $55.0 million loss last year
• Normalised NPAT of $96.0 million up 2.7% and in-line with guidance
• Record operating cash flow at $225.0 million
• ecord contracted revenue at A$11.6 billion
• Record low gearing of 25%
• Strengthened balance sheet with significant capacity to achieve growth strategy
• Total FY10 dividend of 14 cents per share - up 17% from last year
• Share purchase plan introduced

Transfield Services announced today that it had delivered on its earnings guidance, achieving record operating cash flow and reducing its gearing as it continued to advance its strategy to move up the value chain and increase its total asset management capability.

Reported Net Profit After Tax (attributable to members of the Company) was $73.0 million for the period ending 30 June 2010, compared to a loss of $55.0 million the previous year. Excluding the impact of non-recurring items, NPAT was $96.0 million, an increase of 2.7% compared to the previous year’s normalised NPAT pre-impairment of $93.4 million, and in-line with guidance. This includes a A$10 million investment in business efficiency initiatives during the year, making this an even stronger result.

Managing Director and CEO, Peter Goode, said today: “This is a satisfying result for Transfield Services in what is a tough business environment and reflects the disciplined approach we have taken to pursuing growth and broadening our capabilities.”

Including the contribution from joint ventures, total Group Revenue declined by 6.2% to A$4.1 billion, as a stronger Australian dollar reduced the contribution from the Company’s international operations. Despite the ongoing adverse economic conditions, on a constant currency basis we were able to maintain our level of revenue.

“A highlight was our Australia and New Zealand division increasing margin in a tough market that has seen growing competitive tension over the last few years. Our disciplined approach to pursuing new work has enabled us to protect margins while growing contracted revenue,” Mr Goode said.

The Board declared a fully franked final dividend of 9 cents per share, payable on 20 October 2010. The total dividend for the year will be 14 cents per share, up 17 per cent on last years 12 cents per share, and represents an increase in the payout ratio to 61 per cent, compared to the previous corresponding period of 53 per cent.

As foreshadowed at last years AGM, a Share Purchase Plan (SPP) has been announced today, offering shareholders an opportunity to purchase shares in Transfield Services at a discount and free from brokerage and transaction costs. Funds raised through the SPP will be used initially to repay debt which will further strengthen our financial metrics and provide flexibility for future growth. The SPP will assist our strategy of providing consistency of earnings and the generation of solid and reliable returns for all shareholders. Documentation about the SPP is being despatched to shareholders today.

The Board has also resolved to suspend the Dividend Reinvestment Plan until further notice, effective from today.

The Company achieved its best ever operating cash result at $225 million compared to $174 million last year.

“In FY10 the Company continued to focus on capital management initiatives that delivered a solid operating cash result allowing further debt to be repaid. The Company has a healthy balance sheet with the lowest level of gearing since it listed,” Mr Goode said.

“Organic growth from our existing long-term relationships with key clients and balance sheet strength gives us the ability to expand in FY11 in accordance with our underlying strategy of pursuing higher margin, higher value-add contracts in growth areas. For example, our acquisition of ICD during FY10 boosted the Company’s engineering capability in the hydrocarbons processing and related industries.”

“The 2010 financial year continued to be a year of transition with investment in business transformation removing redundancy and driving discipline across the business. This process will continue into the 2011 financial year as we execute our strategy for sustainable growth during 2011 and beyond,” Mr Goode said.

A further $10 million will be invested in restructuring and business efficiency initiatives in FY11.

“We continue to be committed to streamlining our operational structure with an increasing focus on business development. Transfield Services is broadening its capabilities to complement existing relationships with JV partners and to enhance the range of technical services currently provided.

“There are a number of positives we can look forward to driving growth in 2011. These include the ongoing business efficiency improvements, the lower cost base of our US business, investment returning to key resource sectors and increased infrastructure spending. We are also encouraged by our pipeline of opportunities currently totalling $29 billion.”

During the year, Transfield Services Infrastructure Fund successfully completed its capital structure review. Transfield Services contributed $43 million in taking up its pro-rata share of the entitlement offer, from which it expects to receive a forecast annualised 11.7 per cent distribution yield. As a consequence of the capital structure review and TSI Fund DRP, the Company reduced its holding in TSI Fund to 44.5% (from 48.1%). TSI Fund now has a strong capital structure and is in a better position to take advantage of opportunities.

The Company’s contracted revenue at the end of the period was A$11.6 billion. Since 30 June 2010, an additional $700 million worth of work has been won. The successful securing of contracts throughout the financial year sustains Transfield Services’ disciplined approach to building a quality order book of long-term contracts, delivering consistency of earnings, and generating solid and reliable returns.

Transfield Services provides more than 80 per cent of its services under secure, long-term asset management contracts and its overall client retention rate exceeds 95 per cent. The Company has a robust pipeline of work developing in the infrastructure and oil and gas sectors, providing diversified revenue sources of the business.

Outlook

Subject to there being no further deterioration in economic conditions, the Company is targeting mid-single digit percentage growth for FY11 Net Profit After Tax. This guidance is based on FY10 normalised NPAT of A$96.0 million, assumes foreign exchange rates as at 30 June 2010; and an expected FY11 effective tax rate for the Group of 17%. It does not include any restructuring or cost reduction initiatives.

TSE 2010 Full Year Results: ASX Statement 'Transfield Services delivers guidance, record operating cash flow and a strengthened balance sheet to fund growth strategy'

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