Through solid operational cashflow generation of $117.9m and restrictions on capital expenditure, Ausdrill has been able to make secured debt repayments of ~$100m over FY15 in a challenging mining services market. The large reduction in secured debt improves the expected recovery position on Ausdrill’s unsecured bonds
Ausdrill has delivered a solid credit performance in the context of a weak mining services market. As Figure 1 below shows, while operational cash flows were down $24.2m to $117.9m, Ausdrill was able to turnaround net free cashflow from negative $15.3m to $12.5m through reducing capital expenditure by $36.2m as well as reduced dividends. The net free cashflow is also inclusive of $95.4m in repayments of secured debt.
While the mining services industry is currently considered higher credit risk than other sectors, we expect a lower risk of default for Ausdrill than other mining services businesses such as Emeco. This is because of its lower leverage and adequate operational cashflow performance.
Ausdrill cashflow performance
Figure 1
Source: Ausdrill Ausdrill's management has implemented measures to preserve operating cashflows in the face of challenging conditions. These include: workforce reductions to counter downward pressure on operating margins, reductions in capital expenditure, and debt repayments.
Figure 2 shows, the company’s three-year financial performance, which is broadly reflective of the downturn in the commodities cycle. FY15 revenues were down 7.3% to $765.8m, while EBITDA was down 34% to $114.7m. Statutory losses of $175.6m were impacted by a $202.8m non-cash impairment to asset values.
Ausdrill 3-year financial performance
Figure 2
Source: Ausdrill
We note that the financial performance of Ausdrill’s African mining services business was stronger than its Australian business. Shown in Figure 3 below, Ausdrill’s African business showed a 10% increase in revenues and maintained a reasonable EBIT profit margin, while the revenues in the Australian business fell 18.1%. This was due to more challenging conditions in the Australian mining industry.
Figure 3
Source: Ausdrill
Through the ~$100m secured debt reduction, Ausdrill’s credit metrics have only moderately weakened despite the fall in earnings. Gearing has increased moderately from 34.8% to 39.5%, while EBITDA / interest cover of 3.7 times (FY14: 4.3 times) and net debt / EBITDA of 3.1 times (FY14: 2.3 times) are moderately weaker.
Figure 4
Source: Ausdrill presentation
Ausdrill has a relatively high exposure to gold and copper (as represented by the Figure 5 below) where mining exploration activities have held up versus other commodities such as iron ore and coal.
Breakdown of mining services revenue
Figure 5
Source: Ausdrill presentation
Please contact your FIIG representative for more information on the Ausdrill bond available to FIIG investors.