Worley was established in the early 1960’s and expanded its operations in the Asia pacific region during the 1970’s. It expanded its services to South East Asia, North America, and the Middle East within a short span of time. The company listed itself on the Australian stock exchange in November 2002, and now operates in 19 countries. It has a diverse portfolio of providing services in the oil and gas sector, industrial infrastructure, metals, power and water.
The business has been exemplified by regular partnerships between the client and service providers. The company has also gone through a number of set up partnerships and joint ventures, with global leaders like Fluor, Bechtel, Kvaerner and KBR for complete project solutions to their clients. After its merger with Parson Company, on November 15, 2004, at the annual meeting of the Worley shareholders, a special resolution was passes to change the name of the company Worley Parsons. The headquarters are located in Sydney with Mr. John Grill as the CEO.
Financial Position and Major Decisions of the Company – 2005/6 – 2007/8
As on 30th June 2008, the gearing ratio calculated was 31.34% which was at least 10% higher than the value of the last year (compared with 22.23% at 30 June 2007). The gearing ratio was calculated on a net debt to net debt + equity basis. The EBITDA to total interest expense ratio was 11.7 times (2007: 16.0 times). The Company’s cash position at 30 June 2008 was $82.2 million.
At the same time, the company has also increased its debt services during the year from $921 million to $1,293 million, which also comprised of the S $143.5 million which was raised during from the US Private Placement market in the month of march 2008. The Facility utilization was recorded at 69%. The average maturity of the debt facilities at 30 June 2008 is 4.63 years (2007 5.38 years) with $98.2 million (9%) maturing within one year, $456.8 million (43%) between one and four years and $515.4 million (48)% between five and ten years. Operating cash flow for the period was $198.8 million, compared to $195.9 million in the previous corresponding period. Working capital utilized in the group increased during the period due to business growth and funding and support of a number of new operations across the Group. The amount of operating cash flow was also influenced by a quantity of timing impact due to the execution of fresh monetary schemes in a number of processes. It is anticipated that this timing blow will overturn at some stage in the premature part of the next fiscal year.
For the 2006 financial year, the Worley Parsons Group accomplished net revenue subsequent to a duty of $27.79 m, an increase of 53.0% from the previous financial year. The revenue in 2005, which was an all inclusive of the company’s share of its incorporated joint ventures with 7 global companies around the world in different technical projects, augmented by $197.4 m to $546.2 m, which was a substantial increase of 45%.
The overall returns on the regular equity was 42.9%, up by 7.8% from 21.0% in the year
2005. The Return on equity is the key assessment for the organization and is the foundation for computation of the fresh performance administration incentive plan. The effectual duty charge for the year was 46.9% (as compared to 46.6% in 2004), therefore reflecting the summary of delayed duty balance in line with the alterations in the Australian corporate tax rate. An account of the aspects that directly contribute to the consequences is controlled by the Chief Executive Officer’s report in the company’s Annual Report.
Declaration of Financial Position
At 30 June 2006, the overall possessions of the Worley Parson group were estimated to be at $398.0 m, which was a substantial augmentation of at least $39.0m during the financial year. The bulk of the asset expansion carries on being in exceptional phase all across the Worley Parson group. The sum total receivables stood at $201.2m.
A boost was also noticed within the investment scenario of the Worley Parson group, which was calculated to rise up by $3.9 m during the financial year. This figure actually reflected the augmented venture in Petrocon Arabia, the preliminary assets that were given in the establishment of Worley Qatar, and increases in the value of a number of the existing investments in the included joint ventures of the company.
In calculation, for the duration of the year, Worley Parsons got hold of the big business of Newcastle based engineering consultancy group, and Worley’s earlier joint venture partner, TYP, for $1.4 m and made payment funds of $0.5m to the founding and formation of Transfield Worley Solutions, which is an expansion of its existing association with Transfield Services.
Worley Parson also improved its share within the Indonesian unit, Ceria Worley, to over 86.5%. The Plant and equipment purchases for this project rose to a large extent during the year, thereby reflecting an asset investment in the upgrade of much of Worley’s information technology potential and communications network. The total responsibilities and liabilities amplified to $96.3 m, up from $74.2 m in the previous financial year, with the most important increase in deal creditors and worker provisions. These two clearly reflected the fundamental growth in the business.
There were no additions to the issued capital for the duration of the financial year. No options were issued under the Worley Parson Option scheme owing to the imminent reorganizing of the legal organization of the Worley Parson group.
The Worley Limited (Hong Kong) has right to use to a bank overdraft facility and a multi option capability that consent to for a combination of off and on balance sheet amenities contained by an overall limit. These conveniences are protected by fixed and hanging charges over the possessions of those entities. During the year, the amenities accessible to the Worley Limited (Hong Kong) were amplified to agree to for adequate functioning capital to meet the increased growth and investment across the business.
In addition to the augmented bank overdraft facility available to the Worley Limited (Hong Kong), the entities in the Worley Limited (Hong Kong) set up an information technology equipment facility laboratory with IBM Global Financing for about $3.99 m and therefore enhanced the present bond facility available to the Worley Limited (Hong Kong) to $18.0 m.
Financial Highlights for the Year 2008
-The Total profits after tax deduction was increased by 53.0% to $343.8 million
-The EBITDA growth was recorded at 66.21% to $589.0 million
-The EBITDA margin was increased by 12.0% in the current year as compared to 10.0% in the previous year.
-The EBITDA growth for the second half the current year was recorded at 23.1%
-Worley Parson was included in the list of top 10 Global Engineering Design Firms
-The EPS was risen by 40.0% to reach to 142.6 cents per share
-The company stands with a positive vision for the next financial year 2009
The company for the financial year 2008 announced a net profit margin (after tax deduction) of $343.9 million, which was an increase of 53.0% on the previous year earning’s of $224.8 million which were recorded on 30 June 2007 for the same period. The profit earned by the company was on an cumulative returns of $4,900.7 million, which was a rise of 38.7% on the $3,524.7 million reported in the earlier corresponding period. The EBITDA for the period was recorded at $587.0 million, which was an increase of 66.21% on the prior corresponding period and an increase of 23.1% on the first half of this financial year. The EBITDA margin for the group increased to 12.0% from the 10.0% reported in the previous corresponding period. The company’s net profit after tax margin on aggregated revenue increased to 7.0% from the 6.4% reported in 2007. The effective corporate tax rate of 28.9% remained in line with the rate recorded in the first half of this financial year. Basic earnings per share (EPS) were 142.5 cents, an increase of 40.0% above the 101.8 cents per share for the previous corresponding period.
* Aggregated revenue includes revenue from associates and excludes pass through procurement services for nil margin
** Normalized for the amortization of intangibles
The management of the company makes regular half yearly dividend payments to shareholders as per the profits gained in the financial year, the working capital levels and the amounts of debts. Usually, as per the company standards, 60 to 70 % of the total year’s profit value after tax deduction is distributed as dividends, while the remaining amount is used for development purposes. The board has issued statements of a concluding bonus of 47.5 cents per share, franked at 72.0% (33.7 cents per share franked). The final dividend for the financial year of 2007 was at 32.65 cents per share, franked at 29.2% (9.5 cents per share). The company paid these dividends top the shareholders in the month of October 2008.
Effect of Acquisitions on dividends
The board of Worley Parson is of the view that the existing level of dividend payments will continue after the various acquisitions made by the company. At the same time, the changing scenario of the company’s financial performance, taxation systems, assets, funds, and other investments portfolios will be considered. The management has no intention to reduce the dividend payments in view of the acquisitions keeping in view the potential accessibility of adequate distributable revenue and in the nonexistence of unexpected events. On the other hand, to the scope that a mounting percentage of Worley’s income is derivative of outside Australia, it is probable that the future dividends will be kept at a level lower than the historic level of 100%.
Relations with Shareholders
The company ensures that its investors are at all times fully informed about the sensitive information related to Worley Parson, through:
Reports disclosed to the Australian Stock Exchange
Yearly / half yearly business and financial reports
Press and media releases along with website information.
Moreover the company management encourages active participation on the part of the investors at every annually meeting which discusses the performance and accountability of the management. Further, the Chairman also encourages the shareholders to participate and put up questions and raise doubts regarding their concerns. The company CEO and the COO, occasionally arrange meetings with investors and business analysts to foresee the current and future growth options for the company. Any presentations made to these groups are released to the market via the ASX and published on the investor section of the Company’s website. At the annual shareholders meetings a panel of external auditors are also present to answer about the external review and audit of the company.
Management Structure of the Company
The company has managed a decent growth record since it was listed on the Australian Stock Exchange in the year 2002. The company has made succeeding acquisitions of the Parsons E&C during the year 2004 and overtook the Colt Group in the year 2007. Worley parson has acquired a leadership status in many of the product markets across the word in a short span of time. To make sure the business stays on a positive note for the employees and the investors, the present bard has brought out a new executive management structure which has been implemented in the month of September 2008.
The novel management structure has given more importance to the operating regions and have made them independent (five regions operating across the world )and increased stress upon projects exceeding US$1 billion. At the same time the board has set up independent responsibility to these sections so as to increase the accountability within the business activities.
The year 2008, the company further made new rules that categorized all its services into three basic segments. The three segments were Select, Deliver and Improve. Select is a expert ability of Worley Parsons, alert on project feasibility evaluation and assortment. The company offers any kind of consultancy services through this group. This part is an essential division of Worley Parsons’ international project delivery facility. The second segment, the Deliver phase, assist the group in converting the maximum prospective worth of the project that has been identified during the Select phase into fully definite, secure and productively implemented projects, comprehending highest value for its clientage. The third segment – Improve executes the most important projects, improves, de-bottlenecking and maintenance projects, project portfolio management and support services to sustain assets and improve business performance of the company’s operations.
Management of Working Capital and Acquired Assets
The company acquired a 100% share in the Sydney based Patterson Britton and Partners Pty Ltd and Brisbane based John Wilson and Partners Pty Ltd and John Wilson and Partners (Services) Pty Ltd. The deal was priced at total of $32.5 million. Both these companies were leading consultants in the field of water and environment, power, infrastructure, and civil services in Australia and with the acquirement of these two companies, Worley Parson took a major step in overtaking a substantial part of the business in the country.
In August 2007, the group again took over the Polestar Applied Technology Inc for a price of $12.7 million. This 100% acquisition further strengthened the company’s stand on the platform for nuclear consulting and analysis section of the global nuclear power industry. This acquisition brought about a number of advantages and opportunities for the group as Polestar was doing significant business with Europe and USA.
In November, 2007, the group took over the Unifield Engineering Inc for a price of $17.9 million. This 100% acquisition was to assist the company in its expected growth advancements in the power business in parts pf west USA. This questions also provides a substantial base of the company to grow forward in the Hydrocarbons sector.
Worley Parson acquired Engineering for a total of $117.6 million on 16th April, 2008. INTEC used to offer services in the engineering project business in the field of offshore exploration. Moreover, it has had a stable business in the production and transportation sectors of the oil and gas industry, with a particular focus on deepwater. With staff strength of over 600, across a chain of 7 international offices including London, INTEC acquisition offered a high growth prospective to Worley Parson.
Later on, in June 2008, the company also took over another leading Canadian consultant for approximate $50 million – the Westmar Consultants Inc (Westmar). This consultant group provided services in the field of marine and port services, sea resources and mining equipments, deep water procurement and transportation expertise with the assistance of a staff of 280. the consultant had its operations in Canada and on the entire northwest costal region of North America.
The entities in the Worley Limited and Worley Engineering Pty Ltd, compensated completely franked bonuses of $2.671 m each on 21 August 2005 and 26 February 2006. The Worley Limited and Worley Engineering Pty Ltd hold adequate franking credit to make certain that bonuses owed in the year ending 30 June 2003 will be fully franked also. However, no dividends were paid by the Worley Limited at the Hong Kong Global centre entities, during the year ended 30 June 2002.
The total net cash flow that was derived from the working and other operating activities of the Worley Parsons Group diminished during the year to $4.3 m, with the reduction in operating cash attributable to increased working capital, the payment of GST under the New Tax System that was introduced in Australia at the start of the fiscal year, and advanced interest and finance costs.
The Cash that was used up by the company for its investment activities was over $9.4 m, with the greater part of the amount being the investment in the improvement and up gradation of the Worley Parsons’ information technology infrastructure and supplementary computing resources which were required in order to meet the enlarged operational headcount. In addition, Worley invested $2.6m in getting hold of, principally PCS, which was a joint venture partner of Worley Limited (Hong Kong).
The cash that was used by the company in its financing activities incorporated the maintenance of bonus payments ($2.13), programmed repayments of the short term debt ability recognized for the acquirement of Worley Chemicals & Minerals ($0.75m), and ongoing lease repayments.
Assets held for sale
Worley Parson has decided to pull out from the infrastructure and real estate projects and is currently viewing opportunities in the power sector. These power station project opportunities are based in the Western Australia. As a result of this decision, these investments are now booked under as “assets held for sale’ with a book value of $31.7 million. The group does not foresees or expect the possible auction of these investments to add significantly to future earnings.
Budgetary Management and Effect on Market Share
Worley Parson plans to administer their performance in an enhanced manner by moving to the Budget control model. There are some laid down points by the budget control committee of Worley Parson:
• Evaluation of on hand measures for official risk administration and major business decisions such as investment and income projects and come to a decision what improvements are desirable if risk management is to be maintained rather than weaken the budget control initiative.
• Supervision of the ambiguity and risks of the Budget control implementation itself.
• The budget laid down by the company for every financial year, is used to bring together all the activities within the company and setting targets. The budgetary control committee of Worley parson decides the targets that are based upon the expected sales that are assessed from the future conditions of the market share of the company. This anticipated figure that is calculated by the budgetary control committee decides the production, raw materials and other financial requirements.
• The budget targets that are set up by the budget control committee integrate the company as it divided the target equally amongst every level. These levels are usually classified as divisional, personal, sectional or at times individual as well.
• The targets are used to gain control of the company by efficiently monitoring the levels that are assigned the targets. The feedback loop gives a complete analysis of the performance at each level.
This way the targets are met with changing individual or levels targets of the various targets in the company. This further increases the production pace and systematic attempt to achieve relative certainty of business conditions that are desirable for a better markets share thus providing a competitive advantage to the company.
Role of Pricing in Management of Working Capital
Like every other company, Worley parson is also facing challenges with the role of pricing at its management levels. Pricing research is directly related to the finance progress of the company and there exists a hierarchy when it comes to price determination of products.
The management board is confronted by many audiences like government, HMOs – insurance companies, formulary committees and clients who play an important role in pricing issues.
There are some challenges that are faced by the company when assessing the pricing role of their products.
It takes around 3 to 5 years to develop a new facility in any part of the world and in order to assess the investment done on the facility unit, which can be anywhere around $4 to $5 m, the management needs to possess a good idea of the relative value of the new product, and hence approximations of price are crucial to provide for forecast models all through the product development process.
Reaching a global pricing decision for a new manufactured good is a complex process for the management. The management needs o understand that there is a price sensitivity for every audience level and also the pricing can differ amongst countries as well. Since the company operates around the world, it is necessary for the management to understand that price, in turn, is an important factor in that forecast and essential in predicting profitability.
The management undertakes the responsibility to determine the prices in relation to the market dynamics, competitor activity, treatment costs, and social/political/economic environment. In result, the task of pricing research in the development process is to continuously narrow the price ranges considered by management for input into forecast models until a single launch price (or set of prices in the case in which multiple dosages or formulations are launched) is established. One of the main issues before the company for pricing research analysis at these milestones is to discuss the issue with the experts who can provide information in relation to product performance and within the context of future prices or pricing environment.
FUTURE GROWTH OPTIONS FOR THE COMPANY
Recently, Worley Parson’s growth in their trademark economics suitable business which extends in providing a lot of environmental, social and financial sustainability has gained a lot of international popularity. The future growth plans of the company plan to embed all their services with efficient project deliveries, and short termed life cycle projects that tend to reduce the cost and maintenance value for their client.
Without a doubt sustainability is the key matter internationally for the power/energy industry and it’s a mounting concern and Worley Parsons is receiving enormous notice for this industry of theirs. As a marketing strategy, most of these big players in the energy sector are showing off their “clean energy” and “green energy” virtues in advertising to realize how important it is for the world in future.
Issues like carbon credit, trading clean coal technology, water and energy efficiencies are all things that Worley Parsons is offering as an expert advisor to its clients. Although, at present this might seem to be a small part of their revenues, but from a 5 year view this will be a significant part of Worley’s long term growth in my view and a very high growth part of the business.
At the same time, the company is also palling to go overboard on large projects in the Middle East region. Some of them are the 360 km Fujairah crude pipeline and the colossal US$7 by Tweelah Aluminium smelter project in Abu Dhabi. Worley Parsons has an outstanding relation before now in the Middle East region like the big Gorilla in oil, Saudi Aramco and another of the national oil companies. At the same time, the company sees a huge amount of scope to develop their Middle Eastern trade considerably over the subsequent decade or more.
At the share market, the company is regarded as a classic stock as it runs from $1.70 to $47 over its scheduled life. Worley is a world class Australian trade company which offers high class management qualities. Worley is now mentioned in the same breath as its global giant peers like Fluor, Halliburton, Foster Wheeler and Wood Group Plc and Worley is competent enough now to buy large companies in their space.Worley Parsons has an enormous growth chance in the Middle East and at the same time at buying out several global companies. The company is looking forward to acquiring some financial services in Australia and some infrastructure spacing businesses.
By the end of the current financial year, the company has strengthened its position by undertaking noteworthy acquisitions, and have made use of prospects arising from the global market, at the same time infusing high performance oriented system to yield higher profits for its investors. The total profit of the company during the financial year 2007 reached a new high of $343.9 million, which was a rise by 53.0% than the previous year. The company has sustained its worldwide reputation by giving higher results to its employees and shareholders.