More jobs to go as Boart outlook worsens
In the June half it posted a net loss of $US329 million, a reversal from the net profit of $US98 million earned a year earlier, largely due to heavy write-offs and provisions. Revenue slumped to $US719 million from $US1.1 billion.
Putting the restructuring provisions of $US315.5 million to one side, the company said second-half earnings were likely to be worse than the first half, amid declining drill utilisation.
Additionally, price declines across the industry are only now starting to be felt, which will put further pressure on earnings.
Earlier, Boart Longyear had guided analysts to a full-year net profit of between $US116 million and $US159 million, although it warned on Monday that even the lower end of this range could be optimistic. "Significant industry volatility in the second half could materially impact performance," it said, opening the door to even weaker results.
"Operating conditions and key performance indicators have continued to deteriorate early in the second half of the year.
"The company expects its second-half 2013 result to be lower than the adjusted result for the first half despite the benefit of restructuring initiatives."
Investors may not be fully aware of the "risk of price erosion in the second half and may assume larger benefits in 2013 from the company's cost reduction efforts than are likely to be achieved", it warned investors.
"Although I have 30-plus years in the commodity and mining markets, it has surprised me," the company's president and chief executive, Richard O'Brien, said of the speed and depth of the downturn.
"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 told investors that it was battening down the hatches for a sustained downturn.
"We are not assuming that the market will come back in the near term, and we are prepared for a difficult rest of 2013 and 2014," Alan Sides, the group's drilling division head, told analysts.
The company has become embroiled in a tax dispute with the Canadian government, which alleges transfer pricing, with a claim of $C69 million ($73 million), which could rise further.
Frequently Asked Questions about this Article…
Boart Longyear reported a US$329 million net loss in the June half, reversing a US$98 million profit a year earlier. The decline was driven by heavy write-offs and provisions and revenue falling to US$719 million from US$1.1 billion as mining activity contracted and drill utilisation weakened.
The company has already cut more than 3,500 jobs last year and another 2,300 in the first six months of the year. Management says further cuts are likely as it responds to an ongoing contraction in mining activity, declining drill utilisation and what it describes as an unprecedented downturn.
Boart booked US$315.5 million in restructuring provisions. Even setting those provisions aside, the company warned second-half earnings are likely to be worse than the first half because falling drill utilisation and price declines across the industry are starting to hit earnings.
Earlier the company guided analysts to a full-year net profit between US$116 million and US$159 million. It has since warned that even the lower end of that range could be optimistic, saying significant industry volatility in the second half could materially impact performance.
Price declines across the mining services industry are beginning to be felt and are expected to put further pressure on Boart's earnings. The company cautioned investors may underestimate the risk of price erosion and overestimate the short-term benefits from cost cuts.
CEO Richard O'Brien said the speed and depth of the downturn has been surprising but believes the market will come back, although he can't predict when. Alan Sides, head of the drilling division, said the company is not assuming a near-term recovery and is preparing for a difficult rest of 2013 and 2014.
Yes. Boart is in a tax dispute with the Canadian government over alleged transfer pricing, with a claim of C$69 million (about US$73 million) that could rise further. That represents an additional potential financial risk for investors to monitor.
Investors should track near-term indicators mentioned by the company: drill utilisation trends, second-half earnings updates, any further restructuring charges, commodity and service price movements, and developments in the Canadian tax dispute. Given management's warning about volatility and possible weaker results, staying updated with company reports and guidance is key.
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