Conservative Holding APA Group (ASX: APA, OTC: APAJF), a charter member of the Australian Edge Portfolio, continues to add assets on an accretive basis and to see organic growth from existing assets as the use of gas Down Under increases.

Its recent acquisition of Hastings Diversified Utilities Fund (HDF) has already contributed to operating cash flow, and the complementary infrastructure the deal brought to APA’s table looks likely to boost the bottom line as Australia’s gas renaissance matures.

In a release detailing results for the six months ended Dec. 31, 2012, management noted, “In the second half of this financial year APA will continue the development and construction of its capital projects, complete the integration of Epic Energy and progress the sale of the Moomba Adelaide pipeline system in order to satisfy its undertaking to the Australian Competition and Consumer Commission.”

APA reported a 28.5 percent increase in net profit after tax (NPAT) before significant items of AUD98.3 million for the first half of fiscal 2013. Statutory NPAT was up 221 percent to AUD211.76 million, which includes a number of significant items with a net positive impact of AUD113.7 million.

Revenue for the period grew by 17.8 percent to AUD624.69 million.

Significant items include payment of fees made by Hastings Diversified Utilities Fund (HDF) for costs related to its acquisition by APA, a gain on APA’s previously held interest in HDF and the reversal of some costs booked in relation to the sale of APA’s Allgas business in December 2011.

Normalized earnings before interest, taxation, depreciation and amortization (EBITDA) increased by 20.2 percent to AUD324 million. Normalized EBITDA includes a AUD31.6 million contribution from HDF’s Epic Energy pipeline assets for the period from Oct. 9, 2012.

EBITDA of APA’s historic continuing business–excluding the Allgas business divested in December 2011 and the Epic Energy assets– increased by 8.5 percent to AUD292.9 million.

Management reported solid growth across all business segments and cited earnings from the Roma Brisbane Pipeline expansion and increased investment performance, particularly from Envestra Ltd (ASX: ENV, OTC: EVSRF), as additional factors driving EBITDA growth.

Energy Infrastructure, which includes APA’s gas transmission assets and the Emu Downs wind farm, contributed 85 percent of normalized EBITDA. Segment EBITDA increased by 18.6 percent to AUD276.5 million, with growth supported by the three months’ contribution from the increased Roma Brisbane capacity and bolstered by Epic Energy. The latter accounted for half of the increase. Management also noted volume and tariff increases for the majority of its pipelines.

APA continued the expansion and further development of its energy infrastructure portfolio across Australia. The expansion of the Roma-to-Brisbane pipeline was commissioned in September 2012, increasing capacity by approximately 10 percent. The additional capacity has been substantially contracted under long-term transportation agreements with an energy retailer and a major gas user.

Work continued on the expansion of the Mondarra Gas Storage Facility and Goldfields Gas Pipeline in Western Australia. Major construction work on Mondarra’s surface facilities was completed in February 2013, and pre-commissioning work has commenced, with completion of the expanded facility scheduled for operation in mid-2013. The additional capacity on the Goldfields Gas Pipeline is expected to be available in 2014.

The Epic Energy assets added via the HDF acquisition will support the long-term growth of APA infrastructure segment. Epic’s assets include the South West Queensland Pipeline, a 937-kilometer pipeline connecting Wallumbilla in Queensland with Moomba in South Australia.

The pipeline has long-term gas transportation agreements for both western-haul and eastern-haul services. Plans are also underway to develop expanded compression and associated services at Wallumbilla.

All capital expenditures for these expansions are supported by long-term contracts with high-credit counterparties or relevant approvals under regulatory arrangements, consistent with APA’s long-term strategy.

Management noted that the process through which it will dispose of the Moomba-to-Adelaide system, as mandated by regulators when it assumed control of HDF, is underway.

APA also provides asset-management and operation services under long-term contracts with the majority of its energy investments as well as to a number of third parties. EBITDA in this segment increased by 22.4 percent to AUD17.2 million, mainly due to increased payment for services provided to Envestra, the addition of services to GDI (EII) Ltd and for third-party work across most states.

APA holds equity interests in a number of energy investments across Australia and a non-equity investment in the Ethane Pipeline Income Fund. EBITDA for this segment increased by 34.8 percent to AUD30.7 million, mainly due to an increase in Envestra’s profitability as well as increases across all APA’s investments.

The latter was offset by the reduced distributions received from HDF. HDF distributions contributed to Energy Investments until Oct. 9, 2012, when APA’s interest exceeded 50 percent. Since that time the Epic Energy assets from HDF have formed part of APA’s Energy Infrastructure segment.

APA reinvested AUD15.3 million of distributions received through its Envestra investment. As of Dec. 31, 2012, APA’s interest in Envestra was 33.9 percent.

During the period APA and fellow AE Portfolio Conservative Holding AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY), its partner on the project, completed financing for the Diamantina and Leichhardt Power Stations in Mount Isa, Queensland. Total capital expenditure on this project is forecast at AUD570 million, exclusive of financing costs.

APA’s equity contribution is expected to be about AUD100 million and will be funded from available cash and committed facilities on completion of construction. The power stations are expected to be fully operational in the first half of calendar 2014.

Normalized operating cash flow was up by 35.3 percent to AUD212.5 million, while operating cash flow per share was up by 20.9 percent to AUD0.298. APA’s board of directors had previously declared an interim distribution of AUD0.17 per share, in line with the prior corresponding period. It will be paid March 13, 2013, to shareholders of record as of Dec. 31, 2012.

The distribution payout ratio for the current period, based on operating cash flow, was 66.2 percent, down from 69.2 percent for the first half of fiscal 2012.

Based on its results for the six months ended Dec. 31, 2012, management expects EBITDA for the full year to June 30, 2013, of AUD755 million to AUD770 million. This range includes the significant items reported for the half year. Management maintained distribution guidance for the full year of “at least” AUD0.35 per share.

APA will report results for fiscal 2013 on or about Aug. 21, 2013. But management will declare the company’s final dividend on or about June 19, 2013, two months ahead of the full-year earnings announcement.

Since fiscal 2009 APA has raised its distribution by an average of 4.4 percent per year, though the pace of increase slowed from 5.1 percent at the beginning of this period to 1.7 percent for fiscal 2012, with a high of 5.6 percent for fiscal 2010.

Management’s circumspect approach to fiscal 2013 capital management reflects its desire to preserve as much cash as possible so it can continue to invest in expansion and further development of its existing energy infrastructure portfolio around Australia.

Including Epic projects already underway, APA expects fiscal 2013 full-year growth CAPEX to be around AUD400 million. The Roma-to-Brisbane and Goldfields pipeline projects and Mondarra gas storage project accounted for most of the first-half expenditure; those efforts will generate new revenue in fiscal 2014. APA is now continuing with approximately AUD300 million of projects in and around the Epic pipelines.

Even after these investments as well as the AUD2.8 billion acquisition of HDF APA’s balance sheet remains strong. APA repaid all of HDF’s outstanding liabilities upon completion of the merger on Dec. 24, 2012, and now has just AUD113 million of debt due within the next 12 months.

APA has more than AUD700 million of cash and committed undrawn facilities with which to meet short-term debt obligations and to fund CAPEX going forward.

Following the HDF acquisition APA’s gearing ratio–or debt-to-capitalization–was 64.2 percent, well within the company’s long-term target range of 65 percent to 68 percent and sufficient to provide APA headroom to fund projected growth over the next 18 months to two years from internally generated and currently available resources. APA’s access to funding markets at competitive pricing levels is also well-proven.

Since our initial recommendation in the Sept. 26, 2011, debut issue of Australian Edge APA has generated a total return–capital gain plus dividends paid–in US dollar terms of 77.3 percent.

The company paid AUD0.344 per share for fiscal 2011, including an interim dividend of AUD0.165 and a final dividend of AUD0.179. Management boosted the fiscal 2012 interim dividend to AUD0.17 and the final to AUD0.18, for a total distribution of AUD0.35 last year.

Since its June 2000 initial public offering on the Australian Securities Exchange APA has never cut its payout. It remains a reliable invest-to-grow story.

The Roundup

APA Group (ASX: APA, OTC: APAJF) reported solid results for the first half of fiscal 2013, as detailed above. APA remains a buy under USD5.50.

Cardno Ltd (ASX: CDD, OTC: COLDF) reported company-record net profit after tax (NPAT) of AUD40.1 million for the six months to Dec. 31, 2012, an increase of 11 percent over the prior corresponding period and at the upper end of profit guidance provided by management in November 2012.

Revenue was up 34.7 percent to AUD599.9 million, while operating cash flow was AUD40.0 million. Earnings before interest, taxation, depreciation and amortization (EBITDA) rose 11.3 percent to AUD69.6 million. Basic earnings per share were AUD0.2887, down 11.8 percent AUD0.3274 a year ago due to the issue of new shares in March 2012 and tighter margins across the business.

Management declared an interim dividend of AUD0.18 per share to be paid on April 5, 2013, to shareholders of record as of March 22, 2013. The payout ratio for the period, based on basic earnings per share, was 62.3 percent, up from 54.9 percent a year ago.

Cardno’s balance sheet remains strong, with a net debt-to-equity ratio of 25 percent and cash of AUD86.7 million as of Dec. 31, 2012.

Managing Director Andrew Buckley cited “solid” organic revenue growth of 7.6 percent as the major factor underlying the record NPAT number but also noted that competition within the markets where Cardno operates led to tighter margins. Recent acquisitions offset some of this negative impact.

During the period Cardno completed five acquisitions in the mining, energy, environmental and infrastructure sectors, adding around 500 staff. In December 2012 Cardno announced the acquisition of Caminosca SA in Ecuador, which will add a further 400 staff when completed in early 2013.

Mr. Buckley noted that most of Cardno’s markets remain “difficult” but the outlook in the Americas is improving, with the environmental market remaining strong, broad economic growth forecast to improve, and signs of improvement in the residential development sector.

In Australia and New Zealand the outlook is mixed, with the resources and oil and gas sectors expected to continue to grow, offset by a slowdown in infrastructure expenditure.

Cardno is a buy under USD8.05.

CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY) reported net profit after tax (NPAT) for the first half of fiscal 2013 of USD627 million, up 24 percent from USD504 million a year ago. Earnings per share (EPS) grew by 30 percent to USD1.25, while cash flow from operations of USD670 million was up by 24 percent.

Management announced a 35 percent increase in the interim dividend, to USD0.50 per share. The distribution will be paid April 5, 2013, to shareholders of record as of March 12, 2013.

Sales revenue was up 7 percent over the prior corresponding period go USD2.5 billion. CSL invested USD190 million in research and development, 14 percent higher than a year ago.

Managing Director and CEO Dr. Brian McNamee described it as “a very productive half-year” and noted that the company has “successfully strengthened our presence in emerging markets.”

Dr. McNamee reaffirmed CSL’s upgraded profit forecast, despite a murky global economic outlook.

Management expects fiscal 2013 NPAT to grow by approximately 20 percent in constant currency terms, while EPS growth “will again exceed profit growth as shareholders benefit from the ongoing effect of past and current capital management initiatives.” CSL expects EPS growth of “approximately” 24 percent.

CSL Behring sales of USD1.96 billion were up 9 percent in constant currency terms compared to the prior corresponding period, while Immunoglobulin sales of USD912 million grew 10 percent.

Albumin sales, excluding Asian sales, of USD163 million were up 8 percent. Including Asia albumin sales grew 27 percent. Growth was driven by ongoing demand in China and the favorable re-evaluation of albumin usage in intensive-care units in Europe.

Hemophilia product sales of USD542 million were up 6 percent. Volume growth for plasma derived factor VIII products was led by Beriate. Demand was particularly strong in Argentina, Poland and Brazil. This volume growth was offset to some extent by the ongoing geographic shift towards lower-priced emerging markets.

Specialty products sales of USD345 million were up 15 percent, while Other Human Health sales of USD518 million were up 19 percent.

To date CSL has repurchased approximately 3.7 million shares for approximately AUD190 million, representing approximately 21 percent of the intended AUD900 million buyback program announced Oct. 17, 2012. The company has until mid-October 2013 to complete this program.

CSL’s balance sheet remains very sound. Cash and cash equivalents totaled USD757 million as of Dec. 31, 2012, while net debt was USD371 million.

Management announced along with first-half results that during the second half of fiscal 2013 CSL intends to raise around USD300 million via a new US private placement facility. These funds will be used to repay existing debt, fund CSL’s capital management plan, including the on-market share buyback, and for general corporate purposes.

CSL–which has produced a total return in US dollar terms of 94.9 percent since October 2011, when we made it one of the first two additions to the AE Portfolio following the introduction of “Eight Income Wonders from Down Under”–is now hold.

Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY) is the other stock we added to the Portfolio in October 2011. CSL’s performance mitigates at least some of the disappointment this gold and copper producer has generated during its time as an Aggressive Holding.

With a negative total return–capital loss offset by dividends paid–of 38.3 percent Newcrest is far and away the worst performer in the current lineup of 24 Aggressive and Conservative Holdings.

Fiscal 2013 first-half statutory net profit after tax (NPAT) of AUD320 million was 51 percent lower than the prior corresponding period result of AUD659 million, while underlying profit of AUSD320 million was down 48 percent from AUD611 million.

Lower underlying profit was driven by a AUSD537 million, or 23 percent, decrease in sales revenue to AUSD1.805 billion, partially offset by a AUD135 million, or 10 percent, reduction in cost of sales to AUD1.221 billion.

Total gold revenue for the six months ended Dec. 31, 2012, AUD1.515 billion, down 24 percent from AUD1.989 billion, the reduction largely the result of a 23 percent decline in gold sales volumes to 936,183 ounces. The realized gold price for the period of AUD1,618 per ounce was 1 percent lower.

Gold production of 953,331 ounces was down 18 percent from 213,039 ounces. Total material movement was higher, but average grades processed were lower, resulting in less produced gold. Processed ore for the half was higher. Gold revenue represented 84 percent of total sales revenue for the first half of the fiscal year, in line with the 85 percent in the prior corresponding period.

Total copper revenue of AUD261 million was down 17 percent due to an 8 percent decline decrease in realized prices to AUD3.37 per pound and a 10 percent reduction in copper sales volumes to 35,179 metric tons. Silver revenue of AUD29 million was down 22 percent from AUD37 million due to lower silver production and prices.

Management declared an interim dividend of AUD0.12 per share, in line with the interim dividend for fiscal 2012 but representing a 29 percent increase in the payout ratio.

In a statement announcing first-half results management described fiscal 2013 as “a significant one for Newcrest.” The company is completing two major projects that should establish “a platform for increased gold and copper production, earnings and cash flow.”

The Cadia East project achieved commercial production milestones in December 2012 and is now ramping up ore production from the underground panel cave. The Lihir Million Ounce Plant Upgrade project was commissioned in January 2013 and went operational on Feb. 1, 2013, boosting production capacity at Newcrest’s largest operation.

To a large extent, Newcrest’s results for the first half of the year reflect what management called the “transitional nature” of fiscal 2013. Management closed by noting that production is expected to be higher in the second half of the fiscal year. Newcrest Mining remains a buy under USD30.

Here are dates for the next round of reporting season, which for most companies will be for the first half of fiscal 2013. We’ve noted where the reporting period differs. We’ve also linked to discussion of earnings for those companies that have already reported numbers.

Please consult the Portfolio tables at www.AussieEdge.com for current advice.

Conservative Holdings

• Aberdeen Asia-Pacific Income Fund (NYSE: FAX)–N/A (fund, reports holdings on a quarterly basis)
• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Feb. 27, 2013 (confirmed)
• APA Group (ASX: APA, OTC: APAJF)–Feb. 21 Down Under Digest
• Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF)–Feb. 7 Down Under Digest
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–Feb. 15, 2013 (fiscal 2013 second quarter trading update, confirmed)
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Feb. 21 Down Under Digest
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Feb. 21 Down Under Digest
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Feb. 21, 2013 (confirmed)
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Feb. 25, 2013 (confirmed)
• Ramsay Health Care Ltd (ASX: RHC, OTC: RMSUF)–Feb. 24, 2013 (confirmed)
• SMS Management & Technology Ltd (ASX: SMX, OTC: SMSUF)–Feb. 20, 2013 (confirmed)
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Feb. 7 Down Under Digest
• Transurban Group (ASX: TCL, OTC: TRAUF)–Feb. 7 Down Under Digest
• Wesfarmers Ltd (ASX: WES, OTC: WFAFF, ADR: WFAFY)–Feb. 14, 2013 (confirmed)

Aggressive Holdings

• Amalgamated Holdings Ltd (ASX: AHD, OTC: None)–Feb. 21, 2013 (confirmed)
• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Feb. 20, 2013 (confirmed)
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 16, 2013 (confirmed)
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Feb. 14, 2013 (confirmed)
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Feb. 21 Down Under Digest
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Mar. 26, 2013 (estimate)
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–Feb. 26, 2013 (full year 2012, confirmed)
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Feb. 21, 2013 (confirmed)
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–Feb. 24, 2012 (full year 2012, confirmed)
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–February Sector Spotlight