Company Briefing: Industrea Limited (ASX:IDL)

The bulk of these have been for the Chinese underground coal industry, which continues to be a key growth market for the Brisbane-based company. In April 2009, Industrea set a new milestone with a $20 million contract to supply the largest and most advanced longwall roof support and shearer carriers ever developed for Shenhua Group’s record-breaking longwall at its coal reserves in Shandong Province.
The appointment of experienced public company and finance industry executive Robin Levison as managing director and CEO in late 2005 sparked a transformation of Industrea. Market capitalisation has swollen from around $3.5 million in June 2005 to over $150 million in April 2009, with corresponding growth in revenues, profits and dividends.
The company’s geographical footprint now spans Australasia, North and South America, China, South-east Asia, Europe and South Africa, with major clients including BHP Billiton, Rio Tinto, Anglo Coal, Barrick Gold and Boeing, and China’s Jincheng, Shanxi and Shenhua mining groups.
The ASX-listed company has diversified revenue streams from its group of subsidiary companies, including integrated outsourced open cut mining and equipment hire, asset management, contracting and engineering services. Industrea’s current product range includes open cut Collision Avoidance Systems, Underground Directional Drilling, Aboveground Directional Drilling, Contractor Management, Mobile Asset Tracking and Driver Safety Performance Index, along with a range of flame-proof and explosion-proof underground diesel vehicles for the transport of people and longwall mining equipment.
In January 2009, Industrea listed on the international OTCQX market, giving it exposure to new US institutional investors in addition to its nearly 10,000 current shareholders.

Q&A with Robin Levison, Managing Director and CEO

AJM: Industrea appears to be riding out the global slowdown. How have you achieved this?
RL: Industrea’s strategic vision and plan remains intact despite the global slowdown. We continue to penetrate international markets with new contracts secured this year in South Africa and China as well as in Australia.
Our mining services subsidiary, Huddy’s, has seen strong enquiry levels for its integrated mining services. It has recently won three new contracts in the Bowen Basin, along with its first Hunter Valley contract, which was awarded by Rio Tinto Coal in March 2009. These indicate the success of our strategy to diversify revenue streams from Mt Isa, and into the thermal coal industry, which is seen as most insulated against commodity price and demand fluctuations.
Meanwhile, we are seeing continued product demand growth internationally for our suite of productivity and safety tools, particularly in the Chinese underground coal mining industry.

AJM: How is China’s coal industry performing, and will it remain a key market for Industrea?
RL: Coal provides around 80 per cent of China’s electricity, and the Chinese Government has plans for significant growth in coal production to meet the country’s long-term energy needs. Annual output is forecast to reach more than 3.3 billion tonnes by 2015, up more than 30 per cent from the 2.5 billion tonnes produced in 2007.
Industrea has expanded its Beijing office with the provision of a service and support capability to our Chinese clients, which include most of the leading energy groups. Being a regular visitor to the country and attendee at international trade shows, I can say there is little evidence of a slowdown.
Already in 2009 we have announced several multi-million deals in China, including April’s $20 million contract with Shenhua and a US$6.2 million contract with Inner Mongolia Yitai Coal in February.
The equipment being supplied to Shenhua will allow the mine’s 7.3 metre coal seam to be mined in a single pass, without the requirement to use either top level caving or the 2 pass method, which are significantly more expensive and potentially more dangerous. We expect this to set a new trend in underground mining, with strong demand anticipated from other countries including Russia, India and Australia.
The Chinese Government has also announced a tax on coal to fund the purchase of safety equipment, and given our strong reputation and market-leading position in mining productivity and safety equipment we foresee continued growth in our China business.

AJM: What is Industrea’s outlook for the year ahead?
Industrea is on track to meet its full year earnings guidance of an adjusted NPAT (net profit after tax) of between $42-47 million. Recent contract wins in Australia and overseas have given the company the beginnings of a solid order book for the 2010 fiscal year.
The company’s acquisition strategy remains in place, with the latest acquisition of metal fabrication business Kade Engineering in Gloucester, NSW, strengthening our Hunter Valley manufacturing base.
Industrea declared an interim dividend of 0.25 cents per share, fully franked, for the half year to 31 December, 2008. The company has no new capital requirements and is in a strong financial position, with no drawn debt maturing until February 2011.
While the global economy is enduring a challenging period, Industrea is well placed to ride out the storm and emerge in an even stronger shape when the anticipated global recovery materialises.