Essentials

Listed some five years ago, Forge Group is a success story of the working out of the ambitions of a successful group of engineers and leaders in building their company into the higher levels of engineering contractors and passing its enhanced future on to their successors.

Although currently some 30% below its peak, the share price is around five times the prices shortly after listing. The directors recognised that they needed scale and reputation to meet their aspirations and move up the food chain.

By 2010, Forge had experienced substantial growth, and the Board wished to improve its balance sheet and working capital to pursue larger scale projects and acquisition opportunities. The directors sought a cornerstone investor and strategic alliance partner able to assist and support Forge in building its growth within the oil and gas, mineral and infrastructure sectors in a controlled manner.

Clough Limited took up this role in April 2010, initially with a placement, gaining 13% of FGE for $19.5m as the first step in a series of transactions, including an offer by Clough to become a 31% - 56.5% cornerstone investor, and the formation of a long term strategic alliance between the companies. This would allow both companies to leverage their complementary expertise and accelerate opportunities to targets increases in project revenues for both companies with an anticipated positive impact on earnings.

In May 2010 Clough had a 31.3% stake in Forge, appointed a director, and the alliance began. Clough's stake is currently 35.93%. Meanwhile, each company has won a number of substantial contracts, to some of which Forge may otherwise have had less access. Forge has concluded and integrated and built on several important acquisitions. It has now completed strategic changes to its Board, including the appointment of a new Chairman and a new Managing Director.

We can look forward to Forge steadily increasing its presence in the upper echelon of engineers building the oil & gas, mineral and infrastructure projects needed for Australia's future.

Recent News Highlights

As at 14/06/2012 : see details at www.forgegroup.com.au   (new window? Shift+Click)

08/06/2012     Chairman appointment - Board and Management Transition

21/05/2012     Management exercise put option with Clough; Clough Acquires Additional Forge Shares

04/05/2012     Cimeco JV with indigenous partner awarded $41m BHPB contract

28/03/2012     Fortescue Metals Group $125m Notice of Award - Solomon Ore Processing

04/03/2012     FGE to enter the S&P/ASX 300 Index effective 17 March

16/02/2012     Results 1H12: flat earnings, plenty of cash

23/01/2012     Completion of CTEC acquisition

13/01/2012     Forge to acquire CTEC; David Simpson appointed as new CEO

30/12/2011     Extension of employment - Founding Directors

23/12/2011     Letter of Award for Engineering, Procurement, Construction & Commissioning (EPC) $36m Contract for Lynas Corporation’s Mt Weld

22/12/2011     LOA from Chicago Bridge & Iron for $90m civil and concrete services for early stages of the Gladstone LNG Project

Half-yearly Performance & Estimates - FGE

Year-end June	FY11A	1H12A	FY12A	1H13A	FY13A	FY14E	FY15E
Sales, $m	421.0	227.9	774.9	507.1	1,54	1,222	1,224
EBITDA, $m	59.6	33.6	83.6	61.9	109.4	109.2	111.0
EBIT, $m	54.4	30.7	67.3	51.2	88.0	87.2	85.4
Report NPAT, $m	38.9	21.3	49.4	34.0	63.0
Adj. NPAT, $m					63.0	62.7	61.8
Reported EPS, ¢	45.00	25.00	57.00	39.00	73.00
Adjusted EPS, ¢					73.00	75.25	74.85
EPS %FY/Growth		44%	27%	53%	28%	3%	-1%
Dividend, ¢	11.5	6.0	14.0	10.0	18.0	16.50	17.25
Franking, %	100%	100%	100%	100%	100%	100%	100%
EBITDA Margin	14%	0	11%	12.2%	10%	8.9%	9.1%
NPAT Margin	9%	0	6%	6.7%	6%	5.1%	5.0%
ROE, %	31%	0	30%	18	29%
EBIT/Interest	-23.0	0.0	-24.0	23.76	-41.44
Net Debt / Equity	-0.56	0	-0.68	-0.76	-0.32
CashFlow/Sh, ¢	46.8	33.4	109.1	91.2	20.9	91.7	95.1
Y/E Shares, m	83.0	83.5	86.2	86.2	86.2

Notes

Data sourced from IRESS Market Technology Limited. EPS Growth compared with the pcp is shown in most columns, except 1H11A and 1H12A which show the first half % of full year EPS. In a handful of cases, unadjusted share splits may give strange changes in ratios.

Half-year Performance & Estimates - FGE

Year-end June	1H11A	FY11A	1H12A	FY12A	1H13A	FY13E	FY14E
Sales, $m	203.7	421.0	227.9	774.9	507.1	984.0	1,028
EBITDA, $m	32.5	59.6	33.6	83.6	61.9	117.7	118.1
EBIT, $m	30.6	54.4	30.7	67.3	51.2	96.9	102.4
Report NPAT, $m	21.3	38.9	21.3	49.4	34.0
Adj. NPAT, $m					34.0	74.1	73.2
Reported EPS, ¢	25.00	45.00	25.00	57.00	39.00
Adjusted EPS, ¢					39.00	83.60	83.15
EPS %FY/Growth	56%		44%	27%	56%	47%	-1%
Dividend, ¢	4.0	11.5	6.0	14.0	10.0	19.50	20.50
Franking, %	100%	100%	100%	100%	100%	100%	100%
EBITDA Margin	18%	14%	0	11%	12.2%	12.0%	11.5%
NPAT Margin	12%	9%	0	6%	6.7%	7.5%	7.1%
ROE, %	32%	31%	0	30%	18%
EBIT/Interest	-130.4	-23.0	0.0	-24.0	23.76
Net Debt / Equity	-0.49	-0.56	0	-0.68	-0.76
CashFlow/Sh, ¢	31.8	46.8	33.4	109.1	91.2	123.5	105.0
Y/E Shares, m	82.9	83.0	83.5	86.2	86.2

Notes

EPS Growth compared with the pcp is shown in most columns, except 1H10A and 1H11A which show the first half % of full year EPS.

Half-yearly Performance & Estimates - FGE

Year-end June	FY10A	1H11A	FY11A	1H12A	FY12A	FY13E	FY14E
Sales, $m	245.8	203.7	421.0	227.9	774.9	878.0	907.0
EBITDA, $m	43.3	32.5	59.6	33.6	83.6	103.9	106.8
EBIT, $m	40.1	30.6	54.4	30.7	67.3	79.1	86.2
Report NPAT, $m	29.5	21.3	38.9	21.3	49.4
Adj. NPAT, $m					49.4	62.1	65.3
Reported EPS, ¢	38.00	25.00	45.00	25.00	57.00
Adjusted EPS, ¢					57.00	67.75	72.55
EPS %FY/Growth		56%	18%	44%	27%	19%	7%
Dividend, ¢	7.0	4.0	11.5	6.0	14.0	18.50	20.00
Franking, %	100%	100%	100%	100%	100%	100%	100%
EBITDA Margin	18%	18%	14%	14.7%	11%	11.8%	11.8%
NPAT Margin	12%	12%	9%	9.3%	6%	7.1%	7.2%
ROE, %	32%	32%	31%		30%
EBIT/Interest	-130.4	-130.4	-23.0	0.00	-24.04
Net Debt / Equity	-0.49	-0.49	-0.56	0	-0.68
CashFlow/Sh, ¢	44.3	31.8	46.8	33.4	109.1	93.9	98.0
Y/E Shares, m	78.8	82.9	83.0	83.5	86.2

Notes

Data sourced from IRESS Market Technology Limited. EPS Growth compared with the pcp is shown in most columns, except 1H11A and 1H12A which show the first half % of full year EPS. In a handful of cases, unadjusted share splits may give strange changes in ratios.

Company Overview

Forge operates generally through its subsidiaries.

Cimeco Pty Ltd:

Provides construction services across a wide range of disciplines including commercial building, civil, concrete, structural, mechanical, piping, tanks and electrical. The focus is on commercial building, steel and tank fabrication, manufacturer and onsite civil and mechanical contractor, with it extensive, modern and reliable fleet of construction plant. Revenue in 1H12 was $208m of FGE's total $275m before $47m inter-segment elimination. Cimeco contributed $29.5m of the group's overall $32.2m segment profits in 1H12 .

Abesque Engineering Limited:

Specialises in providing engineering design and project management services to the resources sector including base metals, gold and iron ore. It also supplies engineering design capabilities across all project disciplines including earthworks, civil works, structural, mechanical, piping, electrical and instrumentation. Abesque provides expert services to prepare feasibility studies for mineral processing facilities and associated infrastructure and has been expanding as its project workload increased in study, FEED and EPC contracting activity.

Webb Construction (West Africa) Limited:

Specialises in structural, mechanical and pipe installation, tank fabrication and erection.

Clough Forge Pty Ltd:

An incorporated 50/50 joint venture between Clough Projects Pty Ltd and Forge Group Ltd, formed to service Australian EPC projects in the mineral, oil and gas and infrastructure industries.

On 20 January 2012 FGE acquired CTEC Pty Ltd, a WA-based provider of engineering, procurement and construction (EPC), operations and maintenance solutions to the energy and utilities sectors.