Transfield’s solid results were primarily driven by the strong performance of its Defence, Social and Property sector. Key credit metrics have improved with Transfield’s leverage ratio of 1.8 times now below its target range of 2.0 times
Figure 1 below highlights Transfield’s FY15 financial performance. While overall revenue and EBITDA increased 1.8% and 22% respectively, sector performance was mixed reflecting challenging economic conditions as well as the effects of the mining downturn. The key contributor to the FY15 result was the Defence, Social and Property sector where EBITDA more than doubled from FY14 to $256m. Results were in line with company guidance.
Transfield also delivered a significant improvement in underlying operating cash flow, up 27.5% to $298m. EBITDA cash conversion in FY15 has remained strong at 113%, compared with 108% in FY14.
FY15 Financial Performance
The company has progressively improved its key credit metrics over the past three years as reflected in Figure 2. The leverage ratio (net debt / EBITDA) of 1.8 times is within Transfield’s target range of 2.0 times. Despite beating its leverage target Transfield did not pay a dividend in FY15, preferring to focus on strengthening the balance sheet which is a ‘credit-friendly’ action. Liquidity is strong - at 30 June 2015 Transfield had $581m of cash and committed undrawn facilities available.
Key credit ratios
|Ratios ||FY2013 || FY2014 ||FY2015 || |
|Net debt ||$542m ||$534m || $471m || -$63m |
|Gearing (net debt / (net debt + equity)) ||43% ||41.0% || 36.8% || -4.2% |
|Net debt to EBITDA ||2.7x ||2.4x || 1.8x || -0.6x |
Notwithstanding the challenging economic environment, Transfield expects to maintain its underlying EBITDA into FY16. The company currently has $9.8bn in contracted revenue with $2.5bn to be delivered in FY16. Transfield is awaiting decisions on over $2.3bn of submissions and have been announced as the preferred tenderer on over $1.3bn of contracts.
A key consideration for Transfield is the renewal of the Department of Immigration (DOI) contract in September this year. While we expect that the contract will be renewed given Transfield’s incumbent status, revenues and margins under the renewed contract are expected to be lower than the current contract. However, improvements in Transfield’s other underlying businesses are expected to offset the reduced contribution from the DOI contract.
Its win rate on contract retention opportunities is at a very high 81% as reflected in the Figure 3 below, highlighting its consistent ability to renew existing contracts.
Contract win rates (new business versus retention opportunities)
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