Financial year 2017 represented a significant and positive change in the ARA Group. It was a year of many accomplishments and positive changes.
At the time of the acquisition of CMC Property Services Group (CMC), ARA acquired 49% of CMC Indigenous Services (CMCIS). CMCIS is 51% owned by Michael O’Loughlin, the former Sydney Swans star player, and now ARA’s business partner.
Since the acquisition of the predecessor company to ARA Building in 2007, it has been a goal of ARA that this business be the “hub” of ARA in the provision of multiple ARA services simultaneously. There have been some notable successes. In each situation, ARA Building used each ARA service to complete the project.
It has become an operational imperative that we combine ARA Manufacture and ARA Distribution into a new division called ARA Products. Stuart Harmer from ARA Distribution is now the Managing Director of ARA Products working closely with Mark Pamula and his team from ARA Manufacture. Together the combined management team is looking at how they can build the sales of both parts of this newly formed division.
ARA revenue grew $20 million, or 6%, to $372 million in 2017 from $352 million in 2016. This is the fifteenth year out of the sixteen years of the ARA business that revenue has increased from the prior year. From 2008 to 2017, a period of the last ten years, revenue has grown at a compound growth rate of 8.1%. The growth of ARA since its inception has been a combination of organic growth and strategic acquisitions.
Product Service Construction
ARA has continued its 16 year history of having a positive EBITDA each year. The improvement in earnings has accelerated in the past two years due to strong ARA management, strong delivery of its services and products and its entrepreneurial approach to business. EBITDA in 2017, before acquisition expenses, was $22.9 million, an increase of 38% from the EBITDA of $16.6 million in 2016. From 2008 to 2017, a period of the last ten years, EBITDA has grown at a compound growth rate of 9.8%, or slightly ahead of the compound growth in revenue during the same period. As a result of the improved EBITDA, the operating margin of ARA has increased.
There was an increase of $28.4 million in shareholders’ equity in financial year 2017 to $95.0 million from $66.6 million a year earlier. The reasons for the increase in shareholders’ equity are net income for the year less the dividends declared ($3.4 million), and the issuance of ARA shares ($25.0 million) for the conversion and exchange of subordinated debentures, consideration for the purchase of businesses and purchases by shareholders of newly issued ARA shares.
The net debt (total debt less cash) increased this financial to $22.9 million from $13.3 million. The principal reason for the increase in net debt was to finance the acquisitions completed during the year. ARA has maintained a consistent level of net debt throughout its history as demonstrated in the graph. Net debt as a percent of total capital structure (net debt plus shareholders’ equity) has been very consistent during the past ten years, averaging 18%. Net debt as a percent of total capital was 19% at 30 June 2017.
Net Debt Equity
ARA has attempted to provide a good return to its shareholders throughout its sixteen-year history, so long as earnings and cash flow allowed the dividends to be paid. The graph demonstrates dividends declared each year for the past ten years. The total dividends declared in the previous ten years was $43.1 million.
During the past two years, ARA declared $0.725 per share fully franked dividends, or a total of $20.2 million. The average dividend declared per year for the last ten years is aproximately $0.20 per share. At 30 June 2017, ARA has approximately $16 million of unused franking credits.
Cents per share declared total dividends declared