Clear skies for Environmental on back of ‘12,344pc’ profit growth
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Exhaust maker The Environmental Group reported an annual profit yesterday that looked liked an outrageous typo.
Environmental (ASX:EGL) said full year profit was up “12,344 per cent” this year to $1.7 million, from a $14,000 loss.
Revenue, by comparison, was up a mere 27 per cent.
Environmental’s share price rocketed on the news, rising 205 per cent yesterday to 6.4c, but still falling short of its 52-week high of 8c.
Environmental’s explanation for the big profit jump was modest: “We completed reorganising our business model and the implementation of a clearer strategic direction.
“Growth has been redefined to embrace targeted marketing to build cash flow and gross margins.”
Executive director Ellis Richardson did not wish to add much to the brief explanation, saying only that they were targeting projects in specific areas, and had achieved gross margins of 20-25 per cent, compared to “under 20 per cent” before the strategic shift.
“It’s really just a case of targeting discreetly the sort of project we are attracting,” he told Stockhead. “We could be a $100 million business tomorrow if we chased all the business available.”
Richardson declines to say what kind of specific projects or customers the company was targeting, except that business in Asia and Europe had grown well.
Earlier shareholder updates pointed to $54 million of work won since the start of 2016, on the back of $26 million in revenue in each of the last two years.
That’s not to say The Environmental Group has had an easy run this year.
In January the corporate watchdog accused Environmental of making fraudulent payments totalling $400,000 to an Indonesian subsidiary, which was subsequently cleared up by an audit in February.
In the same month the board sacked then-CEO Peter Bowd – who had only been appointed in September.
Richardson would not go into details on the circumstances of the sacking, because in June Bowd took the company to the Federal Court over that very matter. He is seeking $500,000 in damages, though Richardson had “no great concerns”.
Environmental consists of two arms: Baltec, which supplies exhaust systems for large gas turbines, and TAPC which makes pollution reduction and control systems for industrial users.
Richardson said Baltec, which he owned before selling it into the larger company in 2013, had always followed a quality over quantity model. The strategic refocus had been to bring the other arm TPAC up to speed.
The company is worth $13.8 million now and plans to grow that to $20 million within three years.