AusGroup's profits plunged 58% to AUD9.7m

But things could have been worse.

According to OSK, Aus Group’s FY13 revenue was 8% lower than expectations at AUD582.7m, while profits tumbled 58% to AUD9.7m, coming in 9% below OSK's forecast. If not for the sale of scaffolding in 4QFY13, AUSG would have reported a loss for the quarter.

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Balance sheet weakened by negative operating cash flow. AUSG has suffered two consecutive quarters of receivables buildup, which dragged its balance sheet from net cash to a 10% net gearing.

While the KML issue is showing signs of being resolved (change of CEO and some progress payments), the low cash holdings have prompted Management to omit giving dividend. We see a chance of an interim dividend when AUSG collects KML’s receivables in full and returns to net cash.

No escape from ugly macro picture. The minerals sector is slowing down. With most of the jobs in its major projects segment completed, AUSG has little work left in this segment. While the oil & gas sector remains active, cost overruns have resulted in massive delays in order flow and cancellations of some projects.

While the company’s AUD260m orderbook will provide work for two more quarters, the downtrend in revenue and margins - combined with high operating leverage - will continue to pressure its bottomline for a few more quarters.