OTOC Limited (ASX: OTC) has reported a 6.3% increase in operating profit to $7.7 million for the year ended 30 June 2013 thanks to its successes in business diversification and improved financial management.
Notably, the result was achieved despite a general slowdown in the mining infrastructure market.
EBITDA for the year was $10.9 million while operating cash flow was $7.9 million.
"OTOC group is pleased to report strong financial performance despite the market downturn in resources," chief executive officer Adam Lamond said.
"This growth in earnings is a direct result of the Company's focus on cost management and strategies to diversify our revenue base.
"OTOC goes into FY2014 in the strongest position in our history, with a solid, diversified order book, a pipeline of material opportunities and balance sheet to support our growth profile."
Group revenue was down 25% to $114 million while net profit was down 17% to $5.2 million.
The strong cash flow enabled the company to reduce its debt position and provide a strong working capital position going forward.
The company said the introduction of improved internal processes and management systems to better monitor costs and create a best practice environment for its workforce had a positive impact on its earnings, with EBIT margin increasing to 6.7% in the 2013 financial year from 4.8% in the previous year.
It added it was confident these improvements will continue to have a positive impact on group profits.
OTOC has also taken steps to diversify its group revenue and order book in a bid to address the slowdown in the mining infrastructure market.
Key to this is its entry to the government construction sector with the award of the $28.7 million contract for Stage 1 of the Nauru Processing Centre.
The company said this would not only have a material impact on earnings in the 2014 financial year, it also positions it for further government-sponsored construction work as well as other offshore engagements.
Other steps include the creation of two new divisions within the Company; Facilities and Remote Communications, providing additional high-margin, recurring income streams; as well as the expansion of Whelans Australia through continued investment in regional service offerings and aerial mapping projects.
Whelans recorded a 47% increase in 2013 financial revenue to $29.2 million and a 73% increase in EBIT to $2.9 million.
The OTOC Australia business is currently completing the $32 million installation of accommodation units at Rio Tinto's Brockman 4 Operations Village.
This contract is expected to be completed in late 2013, providing good earnings visibility into the 2014 financial year.
Notably, this positions it strongly to secure further work at Nammuldi as well as the Silvergrass and Koodaideri projects.
It added that in its core North-West resources market, new market entrants are retreating or reducing headcount and installation teams in the North-West, resulting in less competition in the $10 million to $30 million contract space.
Opportunities also exist to joint venture with larger companies for installation work.
OTOC Australia had also leveraged its remote construction ability to secure the Nauru Processing Centre contract. The Stage 1 will comprise a 900 person facility and is expected to be completed in the second half of calendar year 2013.
This provides OTOC Australia with off-shore construction experience, Commonwealth Government accreditations and an incumbent position at Nauru.
It has already submitted a tender for the second stage of the project and has submitted proposals with the Government of Nauru for a whole of island power solution and installation of a fibre optic network.
Wholly-owned subsidiary Whelans Australia was awarded contracts totalling $4.3 million in July to carry out survey services and aerial acquisition works.
The $0.5 million aerial acquisition works involve capturing aerial imagery throughout Western Australia for LandGate as part of their State Land Information Capture (OTC:SLIC) Program for 2013/14.
This will begin in August and will be carried out under Whelans joint venture with Aerodata International Surveys.
OTOC had also in July expanded its Facilities Division with acquisition of the remaining 50% of a 700 person commercial kitchen/diner facility in the Pilbara, Western Australia, for $2 million.
This is expected to double its EBITDA contribution for the 2014 financial year to $1.5 million.
With the Nauru Processing Centre contract in place, contract awards to Whelans as well as the expansion of its Facilities Division, OTOC is poised to build on its solid earnings in the 2013 financial years and increase its earnings for the current financial year.
We expect any further growth in its order book to be reflected in its share price, which currently stands at $0.095. While OTOC's share price has been strong of late, we expect the share price to open up today on the solid results.
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