Annual Review 2013
 
  1. Experience comes to life when it is powered by expertise
    Every Coffey relationship is built on trust.
    Whether it’s in geosciences, project management or international development. Trust that’s hard-earned through our proven expertise, our depth of global experience and our commitment to stay one step ahead.

    Our united group of specialists – many of whom number among the best in the world – take enormous pride in collaborating with our project partners. By digging deeper.Thinking smarter. And seeing further.

    All so we can deliver the smartest solutions, every time.

Every Coffey relationship is built on trust. Whether it’s in geosciences, project management or international development. Trust that’s hard‑earned through our proven expertise, our depth of global experience and our commitment to stay one step ahead.

Our united group of specialists – many of whom number among the best in the world – take enormous pride in collaborating with our project partners. By digging deeper. Thinking smarter. And seeing further.

All so we can deliver the smartest solutions, every time.

Letter from Chairman and
Managing Director
 
Left John Mulcahy, Chairman
Right John Douglas, Managing Director
Total revenue
$688.4m
Net debt down
12%
Underlying EBITDA
$28.8m
Coffey has emerged from the FY2013 year a much more resilient Company.
During the year, we adjusted quickly to slowing market conditions, especially in Australia, which is our largest single market for two of our three businesses, namely Geosciences and Project Management.

The result is a Company that is in a good position to weather the slow‑down in business activity, and which is ready to scale‑up swiftly – with a stronger balance sheet – when an upturn in the business cycle comes.

Reporting highlights of FY2013 results
The major outcomes for the year were:
  • EBITDA1 of $18.6 million compared to a loss of $0.5 million in FY2012
  • Underlying EBITDA2 of $28.8 million compared to $39.7 million in FY2012, a reduction of 27.5%
  • Net loss after tax of $1.0 million compared to a loss of $34.5 million the previous year
  • Positive operating cash flow, at $18.1 million, compared to $21.8 million in FY2012. The Company financed a restructuring, at a cash cost of $6.2 million in FY2013, from its own generated cash flow
  • Reduced net debt from $66.0 million in FY2012, to $58.0 million, a 12.1% reduction. Net debt has more than halved over the last two years; Coffey’s banking facilities were extended to February 2016
  • Lowered interest cost from $14.8 million in FY2012 to $10.0 million, a 32.4% reduction

1) EBITDA – Earnings before interest, tax, depreciation and amortisation.
2) Underlying EBITDA – Earnings before interest, tax, depreciation and amortisation, before vendor earn-out, restructuring costs and asset impairment.

Underlying EBITDA margin – averaged across all Coffey’s businesses – was 7.0%, as a proportion of fee revenue. The comparable figure in FY2012 was 9.4%.

Total revenue – which includes fees and reimbursable clients’ costs – was $688.4 million, up 1.5% from $678.1 million in FY2012. However, fee revenue on its own was $411.0 million, down by 2.5% from $421.5 million in FY 2012.

These modest shifts in revenue results represent significantly different results in our two most important businesses, namely International Development and Geosciences.

International Development – which enjoyed a good year – increased its total revenue by 11% and it increased fee revenue by 12%.

On the other hand, Geosciences was exposed to a sharp slowdown in business, particularly in the second half. Geosciences’ fee revenue fell by about 3% for the full year compared to FY2012.

But fee revenue – which is more relevant than total revenue in Geosciences – fell almost 10% in the second half of the year, compared to the same period in the 2012 year.

Nonetheless, these full‑year results demonstrate solid cash flows and on‑going underlying earnings, despite tough trading conditions.

Confirming strategic direction
This year’s results confirm our overall strategic direction.

Beginning in 2011, we sold or closed loss‑making or non‑core businesses in order to concentrate on businesses where we have high‑value capability.

We have also been reducing overhead costs to reflect benchmark levels for professional services firms.

Further, we have ensured diversified revenue sources, taking advantage of steady revenue in our International Development business to offset the more volatile revenues in Geosciences.

Our next challenge is to replicate – in Geosciences – the diversified, multi‑country revenue streams that we enjoy in our International Development business.

Positioning for current and anticipated market conditions
During the second half of the year, we restructured the Company to reflect slowing business, especially in Australia, where resources and infrastructure projects were cancelled or delayed.

We reduced staff numbers in two businesses, Geosciences and Project Management. We consolidated some offices, reducing our fixed lease costs, and we flattened the organisational structure.

Company‑wide staff numbers were reduced by 290 net (headcount basis) at 30 June 2013, compared to a year earlier.

The cost of the restructuring was $10.2 million, of which $6.2 million was paid from cash generated during the year. The balance of $4.0 million was accrued to FY2013, and will be settled in FY2014.

The cost of the restructure is the single reason for the difference between our underlying EBITDA, at $28.8 million, and our reported EBITDA at $18.6 million. No impairments were incurred this year.

Overall, the year ended with Coffey structured for the immediate tough trading conditions.

Our fixed costs are lower.

Our net debt is reduced.

Our revenue is diversified across two main businesses.

We also have the capacity to scale‑up quickly when business activity improves.

Dividends
As announced in the fourth quarter, Coffey will not pay a final dividend for FY2013. This is due mostly to the impact of the restructuring on cash, and our priority of reducing debt.

Ensuring health and safety standards
Systematic attention to high standards of occupational health and safety, and security, are the top priority for Coffey.

Our lost‑time injury frequency rate (LTIFR) in the past year was 1.43 (measured on a rolling month‑by‑month basis)3. Our benchmark LTIFR is 2.0, which reflects that of comparable firms.

3) Lost-time injuries expressed per million hours worked.

Assessing exchange rate impacts
The decline in the Australian dollar will make our Geosciences business more competitive in bidding for work against firms based in the United States and Europe. This includes bidding for work in Africa and South America, where some competitors are European or American.

The falling value of the Australian dollar also improves profitability when US dollar and British pound profits, from our International Development business, are exchanged to Australian currency. However, there was no substantial impact on profitability in FY2013 because the decline in the Australian dollar came late in the financial year.

However, we note the falling Australian dollar had an unfavourable impact of $3.2 million (net) on the value of our debt as at balance date; some of that debt is enumerated in US dollars and Canadian dollars.

Reporting immediate remuneration decisions – aligned to company performance
The Board awarded short‑term remuneration payments for two executives who exceeded financial objectives. One further executive was awarded a pro‑rata, short‑term remuneration payment at the end of employment.

The Managing Director, and the Finance Director, elected not to be paid short‑term incentives in FY2013.

The Board determined that no other executives would be awarded short‑term remuneration payments based on FY2013 performance.

Addressing long‑term performance incentives, 100% of shares awarded three years ago – under the FY2010 plan – were forfeited. The performance measures that would have allowed them to be vested were not met.

Fixed remuneration for Non‑executive and Executive Directors, and senior managers remained unchanged during the year, other than a market‑based adjustment for one executive.

With the exception of that executive, and new key executives, salaries remain at 2011 levels.

Short‑term incentives to staff in the businesses – which are designed to ensure recruitment and retention of high‑quality professionals, and also require performance measures to be met – was cut by 50% (company‑wide total) relative to the previous year.

Assessing the results of the businesses
Geosciences provides about 63% of Coffey’s fee revenue.

In the last 12 months – and particularly in the second half – Geosciences was exposed to a downturn in the resources sector, particularly in Australia, which is our largest geographical market.

The restructuring ensures that Geosciences is resourced to reflect immediate and anticipated demand.

Margins in Geosciences, as a proportion of EBITDA, fell to 4% in the second half, and to 7.5% for the full year. Improving these margins is our biggest challenge and our biggest opportunity in the medium‑term. The restructuring is an important first step.

Geosciences now has a modest exposure to mining, at just over 26% of Geosciences’ fee revenue. Taken as a share of company‑wide fee revenue, the direct contribution from mining is no more than 17%. Indeed, the majority of Geosciences’ revenue is from infrastructure projects, and the oil and gas sector.

Project Management is our smallest business. It provides just under 5% of total revenue and 7% of fee revenue. Project management operates in Australia, New Zealand, and South Africa. Australia is the source of about 70% of the revenue.

Project Management ran at a loss overall, and it was restructured to reflect immediate and anticipated demand. Subdued activity in the commercial property market – particularly in Australia – impacted revenue.

However, falling interest rates in Australia are likely to benefit the commercial property market, with potentially positive results for Project Management.

International Development provides about 45% of total revenue, and about 30% of fee revenue. The sources of revenue are diversified, with about 70% of fee revenue earned from sources offshore (i.e. sources other than Australia).

International Development enjoyed a good year. The US‑based business performed well in a tough market. The UK‑based business recovered steadily. The Australian unit continued performing well.

More detail on the respective businesses can be found in the business sections of this report.

Looking ahead to 2014
Overall, the Company ends the year in a sound position relative to tough trading conditions.

Our fixed costs and net debt are lower. Our cost of borrowing is lower, and it will fall further in FY2014 when fixed interest debt arrangements entered into in 2008 come to an end.

All of our businesses have schedules of contracted work for FY2014. The declining value of the Australian dollar, relative to the US dollar, is likely to work in our favour in winning new offshore work.

During the year just ended, we refreshed the Coffey brand, retiring the nine separate brands that existed earlier. Now there is one Coffey brand, with the exception of MSI, one of our International Development units, which has high recognition in the US market.

We have backed the brand refresh with six behaviours – effectively a shift in the Company’s culture – which are aimed at ensuring we deliver value for clients, and maintain safety and security as top priorities.

We anticipate this brand overhaul will be well‑received by our clients in the coming months.

Undoubtedly, the global economy continues to be sluggish. The Australian economy is undergoing a substantial transition from the boom years of the early 2000s. Under such conditions, no one can provide certainty about future returns.

However, business opportunities continue to exist, particularly offshore.

We have won some of those opportunities. We are pursuing others.

We are confident the Company is on a stronger financial footing. And it is positioned for the current market, and for an upturn in the business cycle when it comes.

Recognising the contribution of staff
We recognise and acknowledge the contribution of Coffey’s staff during the year. The tough trading conditions have tested all of us.

Our performance, in these circumstances, is a credit to the commitment and effort of all our employees.

John Mulcahy
Chairman
John Douglas
Managing Director
Board of Directors 
John Mulcahy
Chairman
PhD, BE (Civil Eng) (Hons), REAust, MAICD

John Douglas
Managing Director
BEng (Hons), MBA, MAICD
Urs Meyerhans
Finance Director
CA (CH), MAICD
Stuart Black AM
Non-executive Director
FCA. FAICD
Leeanne Bond
Non-executive Director
BEng (Chem), MBA, FIEAust, RPEQ, GAICD
Guy Cowan
Non-executive Director
BSc (Eng) (Hons), FCA, MAICD
Susan Oliver
Non-executive Director
B Bldg, FAICD
Group Management
John Douglas
Managing Director
Urs Meyerhans
Finance Director
 
Rebelle Moriarty
Group Executive
Human Resources
Chantalle Meijer
Group Executive
Marketing & Communications
Financial Highlights 
In FY2013, Coffey maintained its focus on financially de-risking the Company, while implementing the necessary changes to align our operations to the deteriorating business conditions and resultant project delays.
Revenue performance
Coffey’s total revenue – which comprises fee revenue plus client reimbursables – was $688.4 million, compared to $678.1 million in FY2012. That is an increase of 1.5%.

However, fee revenue alone – excluding other forms of revenue – was $411.0 million, compared to $421.5 million in FY2012. That is a decrease of 2.5%.

Earnings performance
Underlying EBITDA was $28.8 million, which is within the range provided in the trading update in May 2013.

The FY2013 underlying EBITDA result is 27.5% lower than the FY2012 result of $39.7 million.

The underlying EBITDA result reflects subdued trading conditions in the second half, in which infrastructure and resources projects, particularly in Australia, were cancelled or delayed.

Reported EBITDA – which takes into account any impairments, or restructuring costs – was $18.6 million, compared to a loss of $0.5 million the previous year.

No impairments were incurred in the FY2013 year.

The restructuring cost incurred in the current year of $10.2 million is the single cause of the difference between underlying EBITDA and reported EBITDA in FY2013.

The post-tax result for the year – which is a net loss of $1.0 million – while disappointing, is a credible result in the tough trading conditions.

Further, other results for the year – including reduced net debt, lowered interest cost, and solid cash flow – demonstrate resilient performance in tough trading conditions, and contribute to a strengthened balance sheet.

Net debt
Net debt at 30 June 2013 was $58.0 million, a 12.1% reduction on the previous year, which was $66.0 million.

This is a major contribution to strengthening our balance sheet.

In line with the reduced net debt, and the lowered cost of borrowing, our interest cost fell 32.4%, from $14.8 million to $10.0 million.

There will be further reductions in the interest expense in the coming year when fixed-interest arrangements that date from 2008 come to an end.

Our ratio of net debt to underlying EBITDA was 2.0 times. Our target range is 1.0 – 2.0 times.

Coffey’s banking facilities were renewed during the year, for a further three years to February 2016, on more favourable terms. Given the reduction in our debt levels, we reduced our facility limit to $124.7 million.

Coffey met all its banking covenants during the year and expects to do so for the foreseeable future.

Working capital days
Continued disciplined management of our working capital meant working capital days were 61 at 30 June 2013. That is 7.6% lower than at 30 June 2012 (66 days), reflecting close attention by management to working capital.

Operating cash flow
Operating cash flow was $18.1 million, compared to $21.8 million in FY2012, 17% lower.

While the FY2013 cash flow result is a decline year-on-year, it demonstrates resilience in tough trading conditions. The cash flow result also reflects the cash cost of the restructuring in FY2013 of $6.2 million, which is equal to 34.3% of cash flow.

Risk management
The Board-approved Financial Market Risk Policy provides a formal framework, and approach, for the effective management of Coffey’s exposure to financial market risk, comprising foreign exchange and interest rate risks.

The implementation of this policy is managed by Group Treasury.

Further details can be found in the Financial Instruments Note 21 to the Financial Statements in the Coffey Annual Report 2013

Seven Year Performance Summary
$ million unless otherwise stated FY07
restated
FY08 FY09 FY10 FY11 FY12 FY13
Total revenue 362.7 558.6 808.7 769.8 680.6 678.1 688.4
Fee revenue 281.9 376.6 510.4 475.7 423.6 421.5 411.0
EBITDA1 25.2 44.9 53.3 44.0 (39.7) (0.5) 18.6
Underlying EBITDA2 25.2 44.9 55.4 47.9 32.3 39.7 28.8
Earnings before interest and tax 18.4 35.0 41.1 33.7 (50.0) (9.6) 9.2
Net profit after tax 8.4 15.3 16.4 13.8 (69.7) (34.5) (1.0)
EPS – cents per share 9.3 13.9 14.5 11.9 (52.9) (16.3) (0.4)
Net debt 46.1 93.9 92.8 100.5 121.2 66.0 58.0
Equity 177.6 196.1 191.1 198.2 122.4 133.4 137.2
Net debt / equity 26.0% 46.9% 48.6% 50.7% 99.0% 49.5% 42.3%
Net debt / capital (equity + net debt) 20.6% 31.9% 32.7% 33.6% 49.6% 33.1% 29.7%
1) EBITDA – Earnings before interest, tax, depreciation and amortisation.
2) Underlying EBITDA – Earnings before interest, tax, depreciation and amortisation, before vendor earn-out, restructuring costs and asset impairment.
A reconciliation of underlying EBITDA to reported net profits is provided in the Directors’ Report — Review of Operations, in the Coffey Annual Report 2013.

1) Underlying EBITDA – Earnings before interest, tax, depreciation and amortisation, before vendor earn-out, restructuring costs and asset impairment.
Geosciences 
Total revenue
$348.9m
Total employees
1,700
12 month contracted fee revenue
$100m
Fee revenue from Geosciences for FY2013 was $257.9 million, compared to $265.0 million the previous year (down 2.7%).

Geosciences’ contribution to total revenue (which includes fees plus any reimbursable client costs, such as equipment hire) was $348.9 million in FY2013, compared to $342.5 million the previous year (up 1.9%).

Fee revenue – which is effectively the revenue earned from providing expert advice and services – is the more important measure in Geosciences, because it’s the key source of profit margin in Geosciences.

Fee revenue in Geosciences slowed sharply in the second‑half of FY2013: it was down 9.5%, from $132.6 million to $120 million, comparing the second half of FY2012 to FY2013.

Underlying EBITDA was $17.1 million compared to $29.5 million (down 42.0%).

Total employees working in Geosciences numbered 1,700 people at June 2013, a reduction of 12.8% (250 fewer positions, on a headcount basis, including 100 people on leave without pay in Ghana) on the previous year.

Infrastructure work represented 35.7% of fee revenue. Oil and gas projects represented 19.0%. The mining industry represented 26.2% of fee revenue in Geosciences, down from 32.3%.

During the year, we undertook a restructuring of our Geosciences business to reflect slowing demand, mostly in Australian resources and infrastructure. The structure of the business is flatter, the number of technical and support staff have been reduced, and some offices have been consolidated.

Looking forward, over the next year, we have $100 million worth of contracted work, with the majority in Australia and New Zealand. This includes post‑earthquake work in Christchurch. We also have work in Canada, the Middle East, Latin America, and in Africa.

Service Line Group Executive and Managers
Sukumar Pathmanandavel
Group Executive Geosciences Geotechnics & Mining
Robert Morris
Group Executive Geosciences Environmental Services
Michael Renehan
Group Executive Geosciences Testing
Chris Fredericks
Geosciences Africa
Craig McCloskey
Geosciences South America
Bob Simpson
Geosciences Canada
LNG project, Exxon Mobil, Papua New Guinea
Coffey conducted and compiled the environmental impact assessment for the PNG LNG Project. The Project’s environmental impact statement (EIS) was approved in 2009 by the PNG Department of Environment and Conservation (DEC).

The PNG LNG Project is an integrated development that includes natural gas production and processing facilities, onshore and offshore pipelines and liquefaction facilities. The PNG LNG Project is operated by Esso Highlands Limited, a subsidiary of Exxon Mobil Corporation, in co-venture with Oil Search Limited, National Petroleum Company PNG Limited, Santos Limited, JX Nippon Oil and Gas Exploration Corporation, Mineral Resources Development Company Limited and Petromin PNG Holdings Limited, and their affiliates.

Sydney, Australia
Basement and pile foundation designs for the high rise office towers on Barangaroo South. The site will be the centre of a second CBD, entertainment precinct, and residential accommodation for Sydney.

The $6.0 billion Barangaroo project – which is on a former ports site – is the largest urban redevelopment in Sydney.


Auckland, New Zealand
Geotechnical lead on the $NZ220 million major motorway upgrade project which will raise and widen a 5 kilometre stretch of the motorway that serves Auckland’s western suburbs. Plus add extra lanes to the motorway. Three-year project to improve traffic flows and environmental outcomes.

Christchurch, New Zealand
Detailed geotechnical consultancy for repairs and reconstruction of damaged buildings, land and infrastructure across Christchurch following the devastating earthquakes in 2011. Work is contracted through to 2014. Project Management for the new bus interchange in the central city. Approx. 100 Coffey experts are working in Christchurch.
Project Management 
Total revenue
$32.5m
Total employees
150
12 month contracted fee revenue
$14m
Richard Biesheuvel
Group Executive
Project Management
Project Management generated $32.5 million of total revenue, down 30.1% on the previous year (FY2012: $46.5 million).

Fee revenue was $28.7 million, compared to $36.8 million (down 22.0%). Underlying EBITDA was a loss of $1.8 million, compared to a loss of $0.3 million the previous year.

Total employees in Project Management numbered 150 at June 2013, 25% fewer than the previous year (50 fewer positions on headcount basis).

During the year, we restructured Project Management to reflect subdued commercial property activity, especially in Australia where private sector commercial property development has been flat.

We anticipate continued low confidence in the Australian commercial building market however, lower interest rates will make large scale property investments more attractive financially. In the immediate future, New Zealand and South Africa – both markets where we are already working – present better opportunities. We have $14 million of fee revenue contracted for the coming year.


Integrated terminal project, Christchurch Airport, New Zealand
Since 2009 Coffey has worked with Christchurch International Airport Limited to help manage the delivery of this iconic $NZ237 million project. We provided full project management services from the early stages of the project through to completion.

The new terminal building opened in April this year and has since gone on to win the Tourism and Leisure Property Award at the Property Council New Zealand’s 2013 Property Industry Awards.

International Development 
Total revenue
$306.9m
Total employees
1,7001
12 month contracted fee revenue
$73m
1) Total employees include 1,300 contractors.
International Development produces steady, long-term revenue at solid profitability levels.

The business had a strong year in FY2013, with our US-based and Australian-based businesses performing well. The British-based business recovered steadily from the 2012 year.

International Development generated $306.9 million in total revenue, an increase of 10.8% (FY2012: $277 million).

Underlying EBITDA was $18.3 million, compared to $14.8 million, an increase of 23.6%.

Employees in International Development numbered 1,700 at June 2013 (including contractors).

International Development provides highly-skilled teams in 95 countries working on behalf of three major government clients (United States Agency for International Development (USAID), the British Department for International Development (DFID), and Australian Agency for International Development (AusAID).

International Development is largely independent of the business cycles in specific countries or cycles in particular sectors. Our International Development business is based on a highly-adjustable model, that allows us to scale resources up – or down – easily in order to reflect demand.

The outlook in International Development remains positive over the immediate future. The falling value of the Australian dollar – relative to the US dollar and the British pound – will improve the Australian dollar value of profits from International Development.

 
Service Line Group Executive and Managers
Glenn Simpson
Group Executive
International Development
Larry Cooley
President – MSI
Marina Fanning
Executive Vice President – MSI
Kit Black
General Manager APAC
Rod Reeve
General Manager Europe (Acting)

MSI Iraq
Developed the Social Safety Net system for Iraq’s Ministry of Labor and Social Affairs, streamlining the process for Iraq’s poor and marginalised citizens to receive benefits. Savings to the Iraqi Government: more than US$20 million.

Anti‐corruption program, Indonesia
Coffey’s anti-corruption project in Indonesia, funded by USAID, achieved great successes in strengthening watchdog agencies, particularly the well-known and respected KPK or Corruption Eradication Commission.

We worked with the KPK to produce four landmark films aimed at countering the culture of corruption. The films have gained attention from the news media, and interest has been high amongst citizens, officials and government workers.

More than 800,000 citizens viewed the films, including more than 120,000 online viewers. Broadly, they generated a welcome discussion of the costs of corruption in every day life and individuals’ personal choices to prevent its spread through their own actions.