Wednesday 16 August 2017 by Mary Anne Low Company updates

NRW acquires Golding

On 14 August 2017, NRW Holdings Limited announced it will acquire Golding Group Pty Ltd, a civil infrastructure, urban and mining services company operating in Queensland and New South Wales for AUD85m.

Golding was established in 1942, with origins in Gladstone and Bowen Basin, with a focus on the east coast of Australia. Golding’s unaudited financial year ended 30 June 2017 reported revenue of AUD369m, EBITDA of AUD53m and an order book of around AUD500m, with AUD275m scheduled for delivery in FY18.

The proposed AUD85m acquisition will be funded via a combination of AUD48m term debt facility, AUD25m equity placement and the remaining AUD12m from NRW’s available cash reserves. The acquisition debt facility is being provided by Bankwest who will take first charge over the Golding Group, however the acquisition debt will rank behind NRW’s senior secured notes maturing in December 2020 with a fixed coupon of 7.50% (the Notes) in respect to all other assets of NRW. On 15 August 2017, NRW announced that it received binding commitments to place approximately 36.8 million shares to raise the AUD25m towards the acquisition.

In addition, NRW has secured a new AUD12m short term working capital facility, which the company currently does not intend to draw. NRW is also undertaking a AUD5m non-underwritten share purchase plan to eligible NRW shareholders.

Notwithstanding the increase in NRW’s net financial leverage (net debt/EBITDA) to around 0.7x post-completion of the acquisition (from 0.4x), we believe the proposed acquisition is credit positive for the group as the higher debt will be offset by the almost two folds increase of the combined NRW group’s revenue and EBITDA base to around AUD739m revenue and AUD112m of EBITDA (on a proforma FY17 basis).

Having said that, we expect NRW’s financial leverage – as measured on a total secured debt/EBITDA and total debt/EBITDA basis under its financial covenants – to continue to remain below 1.0x over the next three years. As such, we also expect NRW to maintain its current significant headroom within its financial covenant metrics of 2.25x and 2.50x on a total secured debt/EBITDA and total debt/EBITDA basis, respectively.

We understand from NRW that the company does not expect the priority position of the Noteholders to be affected and that Noteholders will continue to have first ranking security over NRW’s Equipment Pool. This is based on our understanding that the incurrence of the new acquisition bank facility, albeit also ranked senior secured, will fall under “any other permitted secured debt outstanding” in the event of default; i.e. only be after the Noteholders according to the priority waterfall structure.

We also understand that as a condition subsequent to settlement of the acquisition, NRW will be seeking Noteholder consent to specifically include Bankwest as a secured lender ranking behind the Notes in the security priority waterfall relating to NRW’s assets (other than the specific equipment pool that has a first charge to the Notes and the Golding Group that will have a first charge to Bankwest). As the ranking of the Notes is unchanged, we would expect that Noteholders should have no objection to this consent request.

We will provide a further update once we have the opportunity to review the terms and conditions in the relevant documentations (as part of the consent request) in relation to the potential impact on the Noteholders.

In addition to the step change in the scale of NRW’s revenue and EBITDA base, the combined group will have an order book of over AUD1.4bn, including around AUD625m scheduled for delivery in FY18. Also partly mitigating the higher debt is the diversification benefits NRW will enjoy from adjacent and complementary sectors and geographies of its existing business, which is in line with NRW’s growth strategy.

While NRW will be subject to the usual integration risks, this is largely mitigated as the company does not expect to achieve any cost synergies as a result of the acquisition. Furthermore, NRW will retain Golding’s current experienced management team under NRW’s ownership.

The acquisition is effective 1 July 2017, with financial close expected to be before 31 August 2017. The completion of the proposed acquisition is subject to conditions precedent consistent with a transaction of this nature. Although the proposed acquisition is not subject to shareholder approval, shareholder approval is required for the provision of “financial assistance” which will be sought at the NRW 2017 annual general meeting.

FY17 preliminary results (unaudited)

On 14 August 2017, NRW also published a summary of its unaudited preliminary FY17 financial performance. Barring any material differences in relation to the audited FY17 financial results – which are expected to be announced on 17 August 2017 – we expect NRW’s audited FY17 financial results to be within our expectations.

FY17 unaudited summary results:

NRW FY17 Unaudited Summary Results
Source: NRW, FIIG Securities

NRW’s unaudited FY17 revenue of AUD370.3m was 2% higher compared to our forecast of AUD362m, and EBITDA was AUD58.8m, 7% above our expectations of AUD54.8m. As at 30 June 2017, debt was 1% higher than our expectation of AUD62.3m to AUD63.1m, but was a reduction from AUD96.5m as at 30 June 2016. The lower debt together with cash on balance sheet of AUD42.3m resulted in lower total secured debt/EBITDA and total debt/EBITDA of 1.1x from 2.0x, which was in line with our expectations.

NRW’s order book stands at AUD900m, of which AUD350m is scheduled for delivery in FY18.