10 Questions for Civmec Limited

Company Overview

Civmec is an integrated, multi-disciplinary construction and engineering services provider to the Oil & Gas, Metals & Minerals, Infrastructure and Marine & Defence sectors. Established in 2009, Civmec is one of Australia’s leading providers of turnkey solutions across a range of core capabilities. The Group operates four strategically located facilities across Australia with a combined land area of approximately 43 hectares. Link to StockFacts company page

1. Please Elaborate on Civmec’s Business Segments and Focus Areas.

• Civmec is a construction and heavy engineering company based in Australia. We provide a comprehensive suite of turnkey solutions to the resources, energy, infrastructure, as well as marine and defence sectors.

• Our capabilities are diverse, but they fall broadly within the areas of construction, manufacturing and maintenance. The services we offer include, but not limited to, fabrication of structures, industrial insulation, shipbuilding, offshore logistics, civil works, and surface treatment.

• The Group is able to take on projects of all sizes and complexities. Our clients include major energy and resources companies – such as Chevron, Rio Tinto, BHP, Fortescue Metals Group and Alcoa – as well as government bodies in Australia.

2. How has COVID-19 affected your operating conditions, especially since Civmec’s business requires heavy manpower at manufacturing and onsite facilities? What measures have you put in place to mitigate the impact?

• COVID-19 has not made any significant impact on our operations. Our in-house manufacturing capabilities proved beneficial in ensuring that many of our clients’ onsite supply-chain requirements continued to be met. We also sought to ensure that our manufacturing operations remained as close as possible to normal so we could service our sites and clients without any disruptions.

• In terms of maintenance work for our clients, certain projects were rescheduled but none was cancelled. For some maintenance projects that were delayed last year, we expect to recognize their financial contributions in our current financial year ending 30 June 2021 (FY2021).

• At the onset of the pandemic, we promptly put in place stringent controls in our workshop and main office facilities. These include safe distancing, increased regular cleaning of all work areas, regular temperature checks, permitting only essential visitors to our premises, avoidance of physical meetings, and the usage of electronic communication platforms.

3. Who are some of your competitors? What differentiates Civmec from them?

• There are a number of companies providing some of the services we offer. However, there are no companies we know of with the same extensive range of capabilities in fabrication, modular construction and maintenance that we have.

• Such full suite of capabilities enable us to be involved in a significant portion of a project without us having to sub-contract certain functions to third parties. This makes us a one-stop shop for the vast majority of our customers. We believe that Civmec is also diverse enough in terms of sectoral exposure to be able to stay resilient during different business cycles.

4. How has the Group’s orderbook grown over the years? How do you plan to sustain this growth going forward?

• Due to our ability to generate profits consistently, we have been paying final dividends every year since our listing in 2012.

• We declared our very first interim dividend – of 1 Australian cent per share – when we reported our results for the half-year ended 31 December 2020 on 10 February 2021. This interim dividend was possible because of our strong profits and operating cashflows, as well as reduced capital requirements.

5. Does the company have a dividend policy?

• Our order book has grown quite significantly over the last few years. As at 31 January 2021, it stood at A$1.15 billion, a record high and the first time it has gone above A$1 billion.

• Companies in the sectors we operate in are projected to spend about A$500 billion1 on various projects over the next five years. This presents significant growth opportunities for a service provider like Civmec.

6. What are the key focus areas for Civmec in the next 2-3 years? 8. How have pandemic-induced changes in global supply chains altered Civmec’s market outlook and operating landscape?

• Fortunately for us, the impact so far has been minor as all our major supply chains are based in Australia.

• None of our projects has been cancelled, although some maintenance work for certain clients has been pushed back.

• Our extensive network of suppliers across Australia gives us access to majority of the materials, products and services we need to carry out our projects. This also enables us to still meet our contractual obligations without any compromise on quality.

• Our deep expertise in construction and manufacturing has enabled us to grow steadily over the years. We aim to develop recurring revenue streams even as we continue to tender for more construction and manufacturing projects. This will involve scaling up our maintenance business.

• One major enhancement to our flagship Henderson facility in Western Australia is the addition of an assembly and sustainment hall. This is the largest undercover modularisation and maintenance facility in Australia and has enough space to house the equivalent of 12,000 passenger buses. With this facility, we can build and maintain large vessels, as well as complex modules for projects in the resources and energy sectors.

• We intend to spend about A$10 million over the next 18 months to set up a permanent facility in Port Hedland in Western Australia to better support our clients in the

resources and energy sectors. This facility will have fabrication and maintenance capabilities and provide our clients access to local manpower for their short- and long-term needs on a recurring basis.

• For the defence sector, we are building 10 offshore patrol vessels in Henderson for the Royal Australian Navy. This project will provide long-term revenue until 2029. The Australian federal government has also designated Henderson as a strategic site for the building and maintenance of various naval ships.

• We also see more opportunities in the infrastructure space. Australia’s federal government recently announced an additional commitment of A$15.2 billion over 10 years for road, rail and community infrastructure projects, as part of the stimulus measures to support employment in the aftermath of COVID- 19.

• We are also keen in renewable energy projects. Initiatives involving clean energy such as hydrogen and wind are increasingly taking off in Australia. We believe there is a lot we can offer in this space, given our construction and engineering capabilities.

7. Do You Have Any Plans to Expand Your Geographical Reach?

• We remain focused on Australia for the moment as we believe that opportunities here are still plentiful. Just based solely on the defence business, the Group has income visibility till 2029. This is just based on our existing orders and does not include prospects for more contracts that the Australian military is expected to award.

• As for the resources, energy and infrastructure sectors, we expect more projects to be tendered in the foreseeable future.

8. How have pandemic-induced changes in global supply chains altered Civmec’s market outlook and operating landscape?

• Fortunately for us, the impact so far has been minor as all our major supply chains are based in Australia.

• None of our projects has been cancelled, although some maintenance work for certain clients has been pushed back.

• Our extensive network of suppliers across Australia gives us access to majority of the materials, products and services we need to carry out our projects. This also enables us to still meet our contractual obligations without any compromise on quality

9. The Group maintains several policies with regards to diversity, environmental, health & safety, local industry participation etc. Can you elaborate on some of the Group’s key focus areas?

• Our key focus areas are described in our annual sustainability report and are broadly grouped under People, Safety and Environment.

• People - the percentage of women employed in our head office and in total in the business increased in FY2020, as did the percentage of apprentices and trainees employed in the business.

• Safety - our all-injury frequency rate (rate of injuries requiring first aid or greater medical attention for every million hours worked) improved to 30.13 for FY2020. Our target for FY2021 is to bring this rate to below 30.

• Environment - targets for energy intensity and emissions intensity, measured against revenue earned, improved in FY2020. Our recycling participation rate also increased in FY2020. Both these measures are expected to improve further in FY2021.

10. Why Should Investors Take a Closer Look at Civmec?

• The Group has been profitable every year since inception in 2009 and we are still actively seeking opportunities for further growth. This is evident in the last few years as we invested heavily to expand our facilities.

• We believe that the sheer scale of what we have put in place is now unparalleled in Australia and matches the best facilities globally. Our substantial manufacturing and construction capabilities, as well as resilient in-house supply chain management put us in a good position to seize more growth opportunities and secure significant projects across all the sectors we operate in.

• Our investments are bearing fruit, as seen from the substantial increase in our revenue and earnings over the last few years, as well as our current record order book of A$1.15 billion.

10 in 10 – 10 Questions in 10 Minutes With SGX-listed Companies

Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials. This report contains factual commentary from the company’s management and is based on publicly announced information from the company. For more, visit sgx.com/research. For company information, visit www.civmec.com.au

Click here for its 1HFY2021 Financial Announcement.