Boart signals no end to weak earnings yet
Even so, it has expressed confidence it can rebuild operations without turning to shareholders for funds after completing a $300 million financing earlier this week that carries a high 10 per cent interest rate.
"It allows us to absorb a more protracted downturn ... without using more equity," CEO Richard O'Brien told analysts on Tuesday when discussing the refinancing.
"As our business gets more efficient and conditions improve ... we will not have to access equity markets or sell assets."
"It feels like the pace of the decline has slowed," executive vice-president Kent Hoots told the analysts. "We're not calling the bottom of the market, we are seeing a flattening."
Boart Longyear has already slashed its workforce - 3000 jobs were cut last year, another 2000 in the first six months of this year and further cuts since - as it seeks to revive margins, which lag behind its competitors.
In the June-half Boart Longyear lost $US329 million, down from the net profit of $US98 million a year earlier, largely due to heavy write-offs and provisions, as revenue slumped to $US719 million from $US1.1 billion.
Despite management optimism, analysts warned the loan terms were restrictive since lenders have first-priority security interest over various assets together with placing additional limits over Boart Longyear's ability to raise further debt and over capital spending plans.
Boart told analysts capital spending will be capped at $US50 million a year over the next few years, which partly reflects the high level of spending in recent years coupled with the more limited demand to upgrade equipment during the downturn.
The key indicator of the group's prospects is its drilling rig utilisation rate, which has continued to fall. In mid-September, rig utilisation fell to 45 per cent from 50 per cent in mid-August and 60 per cent in mid-May.
"It will continue to bump along at low to mid-high 40s [per cent] until November and then dip through year end," the company told analysts, "and by February return around where we are now."
Rig utilisation in Australia and North America "appears to have bottomed" with utilisation in Africa, the Middle East and Europe expected to weaken leading into 2014.
"It doesn't take a big uptick to see a recovery," management told analysts, while saying that fixed costs will be held in check during any upswing.
Frequently Asked Questions about this Article…
Boart Longyear has flagged continued weak earnings as demand from the mining sector has yet to bottom and pricing pressure persists. Management says the pace of decline has slowed and is seeing a flattening, but it is not yet calling a market bottom.
The company completed a US$300 million refinancing this week that carries a high 10% interest rate. Management says the financing lets them absorb a more protracted downturn without using more equity or asking shareholders for funds.
In the June half the group reported a US$329 million loss, down from a US$98 million net profit a year earlier. Revenue fell to US$719 million from US$1.1 billion, with the loss largely driven by heavy write-offs and provisions.
Yes. Boart Longyear has reduced its workforce significantly: about 3,000 jobs were cut last year, another 2,000 in the first six months of this year, with further cuts since, as it seeks to improve margins that lag competitors.
The company told analysts it will cap capital spending at US$50 million a year over the next few years. That cap reflects heavy prior spending and weaker demand to upgrade equipment during the downturn, and it limits cash outflows while demand recovers.
Rig utilisation is a key indicator of demand for Boart Longyear's drilling services. Utilisation fell from about 60% in mid-May to 50% in mid-August and 45% in mid-September. The company expects utilisation to stay in the low to mid-high 40s until November, dip through year end, and by February return around current levels.
Analysts warned the refinancing terms are restrictive: lenders have first-priority security interest over various assets and the loan places additional limits on the company's ability to raise further debt and on capital spending plans, which could constrain flexibility.
Management says some regions, like Australia and North America, appear to have bottomed while Africa, the Middle East and Europe may weaken into 2014. They note it doesn't take a big uptick to spark a recovery and that fixed costs will be held in check during any upswing, but they stop short of predicting a definitive timing for a full recovery.
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