Loss deepens to $127m for AJ Lucas
Details of the company's dire financial position were disclosed on Friday night in preliminary accounts yet to be signed off by the auditor that showed a widened loss of $127 million.
Australia's mining services industry has been in turmoil as the resources boom has cooled. Difficult trading conditions forced AJ Lucas to write down the value of assets by $45 million, and the company also reported difficulty attracting business due to its poor financial health.
The annual results showed a working capital deficiency at the end of the financial year, meaning current liabilities exceed current assets by $40 million.
But AJ Lucas said recent equity raisings had bolstered the "company's financial position and removed many of these concerns".
"Difficult trading conditions, principally due to weak commodity prices and client focus on cost reduction, resulted in the group recording underlying earnings before interest, depreciation and amortisation of $3.3 million," the company told the ASX.
"A reluctance to award work to the company whilst its balance sheet remained under strain also contributed to the poor performance, with revenue declining by 41.5 per cent, from $504.3 million to $294.8 million."
AJ Lucas reported almost $62 million in one-off costs. It said it would focus on core strengths in its engineering and contracting division, where it reported a "very disappointing" halving of revenue to $131.4 million in the year to June.
The company took into account the continuing support of substantial shareholder and lender Kerogen in assuming it was a going concern for accounting purposes, as well as recent contract wins and the prospect of further cash from its British Bowland prospect asset.
Shareholders will be asked to vote on extending AJ Lucas' debt liabilities to Kerogen for three years until early 2017 - an agreement that AJ Lucas said would leave it without material borrowings falling due for 3½ years.
AJ Lucas shares closed at $1.40 on Friday ahead of the announcement of its full-year loss, compared with a price above $5 in the best years of the mining boom. Analysts said they had had low expectations for the result but were more upbeat this financial year.
The recent equity raisings - $137 million in June and $63.7 million in July - means that AJ Lucas' gearing level has fallen to 24.8 per cent, from 43.4 per cent previously. One of Australia's richest businesspeople, Paul Fudge, recently increased his stake in AJ Lucas to 10 per cent.
AJ Lucas is not alone in experiencing financial difficulties. Drill contractor Boart Longyear last week revealed further job cuts amid the ongoing contraction in mining activity. It swung to a net loss of $US329 million in the June half-year, largely due to heavy write-offs and a fall in revenue.
"We're fighting against a decline which is unprecedented in a lot of ways. The market will come back, I can't predict when, but I can tell you it will," Boart chief executive Richard O'Brien said.
But engineering company UGL reported good news in Australian coalminers seeking tenders for maintenance for the first time in 12 months. UGL reported a decline in net profit for the year to June of $41.7 million, from $135.4 million, on the back of weakness in its engineering arm.
Frequently Asked Questions about this Article…
AJ Lucas disclosed a widened preliminary full-year loss of $127 million. The figures were released as preliminary accounts and had not yet been signed off by the auditor at the time of the announcement.
The company cited difficult trading conditions driven by weak commodity prices and clients cutting costs. Revenue fell 41.5% from $504.3 million to $294.8 million, it wrote down assets by $45 million and recorded almost $62 million of one-off costs, all contributing to the widened loss.
AJ Lucas reported a working capital deficiency of $40 million at year end, meaning current liabilities exceeded current assets by that amount. For everyday investors, a working capital deficiency signals short-term funding pressure unless remedied by capital injections or improved cash flow.
AJ Lucas completed equity raisings of $137 million in June and $63.7 million in July. Management said these bolstered the company's financial position, helped remove many immediate concerns and reduced gearing from 43.4% to 24.8%.
AJ Lucas assumed continuing support from substantial shareholder and lender Kerogen when assessing it was a going concern. The company is asking shareholders to vote to extend debt liabilities to Kerogen for three years until early 2017, which management says would leave it without material borrowings maturing for about 3½ years.
The company is scaling back operations to focus on its most profitable business lines. It said it will concentrate on core strengths in its engineering and contracting division, despite that division reporting a halving of revenue to $131.4 million for the year to June.
AJ Lucas shares closed at $1.40 on the Friday ahead of the full-year loss announcement, down from prices above $5 in the boom years. Notably, investor Paul Fudge recently increased his stake to 10%, and analysts said expectations had been low but were more upbeat for the new financial year.
No. The article notes widespread turmoil in Australia's mining services industry. For example, drill contractor Boart Longyear swung to a US$329 million net loss and cut jobs, while engineering company UGL also saw a drop in net profit, although UGL reported some signs of renewed tender activity among coalminers.
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