Thursday 27 August 2015 by Company updates

Ausdrill delivers solid cashflow performance in a weak market

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

Ausdrill cashflow performance FY14 and FY15
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

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.

Ausdrill mining services Australia and Africa
 
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.

Ausdrill group debt position and maturity profile
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

Ausdrill breakdown of mining services revenue FY15
Figure 5
Source: Ausdrill presentation

Please contact your FIIG representative for more information on the Ausdrill bond available to FIIG investors.