After reporting record results for the third consecutive year in FY2024 ended June 30, Civmec P9D remains focused on maintaining a “solid bottom line” and margins, says Patrick Tallon, CEO of the company. For FY2024, Civmec, which is listed on the Singapore Exchange S68 (SGX) and Australian Securities Exchange (ASX), reported revenue of A$1.03 billion ($903.4 million), 24.4% higher y-o-y. Civmec’s NPAT also rose by 11.6% y-o-y to A$64.4 million. Both were at all-time highs.
With a CAGR of 27.5% in revenue and 38.5% in NPAT from FY2020 to FY2024, Civmec has emerged as a leading growth story in its sector. Tallon attributes this success to the company’s focus on its bottom line and maintaining strong margins.
“We’re not the kind of company that just chases revenue for the sake of it. We aim to work on projects that we believe will deliver the margins we expect,” he says.
From the start, the company aimed to ensure its average net profit margins of 4.5% to 5% were sustainable during the initial growth period for at least its first 10 years. However, once the company achieved stability and developed a “mature executive team”, it increased its outlook and targeted net profit margins ranging from 5.5% to 6.5%, says Tallon.
He adds that managing the complexities of large construction projects — such as fluctuating commodity prices, weather disruptions, and changes in project scopes — is key to maintaining these margins. “We are very focused on estimating costs as accurately as possible, and we monitor productivity and efficiency closely throughout each project. That’s how we ensure profitability despite the inevitable challenges that arise in this industry.”
Solid beginnings
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Tallon, who co-founded Civmec with executive chairman James Fitzgerald in July 2009, remembers that the company’s earlier years were focused on growth — establishing its infrastructure in Henderson, Western Australia and Newcastle in New South Wales; building a “good, solid” team; and developing internal capabilities.
“We’ve focused on key platforms such as safety, quality and scheduling. As a result, profitability seems to follow naturally,” says Tallon.
One of the keys to Civmec’s success has also been the stability of its leadership team. “No one person can lead a business and be successful. Having people who understand how we operate and approve of how we work is part of that growth,” he adds.
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To Tallon, succession planning and internal development are key; it is also “very important” that the company continues to bring in the next round of people, both professional and the blue-collar workforce.
“[Our employees] start with us as young engineers, project engineers, tradespeople and others of different capabilities [and work their way up]. We are quite pleased, at this point, that the gaps in experience are largely covered and that we are constantly bringing people through,” he says.
Civmec also conducts “extensive apprenticeships” to ensure the future planning of the business, a move that Tallon hopes will last for “hundreds of years”. In FY2024, Civmec employed 146 apprentices, graduates, and trainees.
Organic growth
Unlike some of its peers, which have grown through mergers & acquisitions (M&A), Civmec prefers to build from within.
“[Growing through M&As] are not our philosophy,” shares Tallon. “It doesn’t mean we won’t consider it, but it has to fit neatly with our business and the [company] has to be compelling [enough] for us to spend our money.”
He adds that acquiring new companies is complex and may not always work well as it means bringing in a team with a different culture and a team who may be set in their ways. Instead, the company prefers to work in-house unless it’s a specialised task.
Recurring revenue
One of Civmec’s challenges is managing its revenue recognition timing, which can be lumpy with various projects at different stages of completion. Revenue is recognised based on each project’s progress, with work-in-progress costs increasing closer to completion, says Tallon. With this in mind, the company is aiming for a possible 60-40 split between major projects and recurring revenue derived from long-term agreements in the medium to longer term.
“We try to manage this as best we can by ensuring that one project starts as another finishes. It’s all about balancing the timing of project starts and completions to ensure consistent revenue flow,” says Tallon.
That said, he also observes that Civmec is conservative in its approach to revenue recognition, erring on the side of caution. “We don’t take up revenue unless there is a high probability of it materialising. This conservative approach helps us manage financial performance and avoid surprises.”
Upturn in energy sector
Coming into FY2025, Tallon expects Civmec’s energy segment to double its revenue.
“The energy sector has been depressed for some time, and we should start seeing an upturn soon,” he says. “Because of the quality of work we’ve been doing, [we see] potential opportunities and the outlook for the energy sector is positive.”
Meanwhile, the resource segment has always been a “steady” source of revenue for Civmec. While there are fewer major projects to be awarded in the next six to nine months, the company still sees a robust pipeline of work happening in the medium term. In contrast, a large volume of sustaining capital and plant optimisation works available in the immediate term of varying values will keep the company busy in the short term.
Maintenance is another thing Civmec is heavily focused on. “The whole idea is to secure several hundreds of millions of dollars in maintenance work over the coming years,” says Tallon. He adds that the company is now receiving around A$100 million to A$150 million in maintenance projects, and he hopes to grow that substantially in the next few years.
Securing positions with panel contracts for various clients has been another revenue driver. Tallon notes that such contracts last three to five years and can vary from modest values to several million individually, accumulating to tens of millions over their term. “If you’ve performed well, you should be able to renew those projects by the end of the term,” he says.
While Civmec’s resources segment has historically been a major revenue source, Tallon stresses that all its sectors — energy, resources and infrastructure, marine and defence — are “appropriately busy”.
However, the requirements of the defence segment remain unclear as the Australian government finalises its shipbuilding requirements.
When the government is ready to spend on defence, depending on the type of contract Civmec might secure, it may record this as part of its recurring revenue stream because these contracts are usually spread over the longer term.
“Such contracts mean we don’t just build one ship; it takes years to complete, and we consider that to be steady, recurring revenue. We feel [that the sector’s contribution] is going to grow over time,” Tallon shares.
Opportunities abound
Infrastructure is another “interesting area” for Civmec, as the company is working to increase its accreditation levels to bid on larger government projects.
At the moment, Civmec has a “B4” accreditation level, which is the highest for constructing bridges in Australia. As such, the company can bid for any project it deems financially viable.
On the other hand, it only has an “R2” accreditation for roads, which goes up to “R5”. The lower accreditation means Civmec can only bid for a smaller pool of lower-value road works and can price them accordingly.
According to Tallon, the company aims to increase its accreditation to “R3” and “R4”, opening up a new pool of opportunities.
As he recognises that getting higher accreditation for road-building is a longer process if the company chooses to go about it organically, Tallon is open to working with or even considering acquiring a suitable company with higher accreditation and who already has inroads into such projects.
Another huge opportunity is in shipbuilding. “In 2016, we first expressed our interest in being involved in shipbuilding when we became fully aware of the Australian government’s plans for sovereign shipbuilding,” says Tallon. “We participated in the offshore patrol vessel programme and completed our scope of work to the satisfaction of our clients and the country.”
“At that time, the government announced that Henderson and Osborne in South Australia would be the main hubs for shipbuilding for the Royal Australian Navy moving forward,” he adds. “However, there was some uncertainty regarding the various scopes of the shipbuilding work and what each region would focus on. More recently, things have become clearer, and there’s now a strong pipeline of projects.”
So far, the Australian government has proposed for shipyards in Western Australia to consolidate and work together to “ensure sufficient capacity and better outcomes” instead of operating as individual entities.
To Tallon, this should benefit Civmec thanks to its significant experience, skilled workforce, extensive facilities and willingness to work collaboratively with other shipbuilders in the precinct.
Civmec recently signed a memorandum of understanding (MOU) with local shipbuilder Austal for a joint venture (JV) which could submit a proposal for the Australian army’s future landing craft project. The intention is for the JV to contract directly with the Commonwealth to undertake shipbuilding tasks within Civmec’s Henderson facility.
“Austal can build medium landing crafts with existing facilities, but heavy landing crafts would require larger facilities, such as the ones we have at Henderson. So, we’re exploring how we can work together to meet [the Australian government’s] goal of building these ships in Australia,” he says.
One-stop solution
In another existing development, Civmec has broadened its skillset to become a local Original Equipment Manufacturer (OEM). It is the only Australian company offering full in-house servicing covering the entire life cycle of major material handling equipment, known as balanced machines. The company can now do the design, manufacturing and construction, installation, maintenance and management of spare parts in-house.
The company anticipates that the industry will require well over 30 to 40 new and refurbished balanced machines in Australia’s resources sector in the next 10 years. To meet the demand, the company will secure more resources and capabilities within the engineering space from its current team of approximately 35 engineers and designers, subject to requirements following awards.
With the company capable of turning out two to three machines yearly, depending on the type and size, Tallon sees an opportunity for a “reasonably big revenue” in this segment. “It’s hopefully going to be lucrative and give us another avenue of recurring revenue as we commit to ongoing support and maintenance of the machines we build and those existing,” he says.
Dividends
Despite its dividend growth from 1 Australian cent in FY2020 to 6 Australian cents in FY2024, Civmec does not intend to have a dividend policy now. “Our business is in growth,” says Tallon. “We give back what we feel is viable. We’re not going to have idle money sitting around. If we’re not going to need the cash, we are happy to give back, but we don’t want to lock ourselves in as well.”
Meanwhile, the company does not intend to “go backwards” on its dividend amount. “Unless something extraordinary happens, where there is a bigger benefit for us to use the money for growth or for working capital requirements, we have every intention to continue at least to give what we’re giving now,” he adds.
