Infrastructure services group OTOC Limited (ASX: OTC) has received a major vote of confidence in its operations from Australia's largest bank, the Commonwealth Bank (ASX: CBA), which has provided new finance facilities up to an amount of $8.2 million.
The importance of these facilities is that they provide OTOC with an enhanced financial capacity to undertake new and larger projects, and to fund potential growth opportunities.
OTOC outlined at the Annual General Meeting last month that it was positioning the business to respond to changing market conditions and growth opportunities.
This includes targeting niche, high-margin and recurring revenue work streams that complement its skill sets, which could be made through acquisition.
OTOC delivered strong FY13 financials, which included profit growth and EBIT of $7.7 million. The EBIT margin increased from 4.8% to 6.7%, while the company also strengthened the balance sheet.
Details of the Commonwealth Bank facility
The facilities are a combination of commercial bills, bank guarantees and overdrafts, with drawdown of the facilities subject to certain conditions precedent.
Adam Lamond, chief executive officer for OTOC, commented: "This funding provides OTOC with the financial capacity and flexibility to pursue larger projects in our core resources and government infrastructure markets.
"We believe the support of the Commonwealth Bank is further verification of OTOC's business model and prospects."
Entry into the Government sector
OTOC Australia has leveraged its remote construction ability to secure work in the Commonwealth Government construction sector.
This strategic move diversifies the company's earnings and order book, while providing exposure to a significant growth sector.
Recent contracts include the initial $28.7 million contract for Stage 1 of the Nauru Processing Centre (RPC 1) - a 900 person facility expected to be completed in the second half of calendar year 2013.
While in October 2013, OTOC was awarded a $16.2 million variation for RPC 1, comprising $10.5 million for infrastructure services and $5.7 million of communications related work to be completed by OTOC's Communications Division.
Organic growth opportunities
OTOC Australia offers facilities solutions currently for mining companies, located in North-West Australia, with this segment of the group eyeing growth - as clients seek to reduce capital expenditure and move items off balance sheet.
Current equipment for hire includes a 700 person commercial kitchen/diner facility, 150 person kitchen, power stations, water supply plants, fuel tanks, and water treatment plants.
The Facilities Division is expected to generate EBITDA in excess of $1.7 million in FY2014.
OTOC Australia also provides specialised communications services, which includes IT, network, data, internet and infrastructure management, telephony, video on demand, entertainment and help desk.
Communications is a strong-margin business, with only a handful of companies accredited with tier one resources companies to perform these services in the North-West.
Division revenue has grown to $7.5 million in FY2013 and is expected to grow to in excess of $10.0 million of revenue in FY2014.
Current work in hand already reached $10.0 million.
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