Boart Longyear — H1 2014 Earnings Presentation
44 slides from Boart Longyear's earnings presentation, Aug 26, 2014
Slide 1: 1H 2014 Results
Drilling Services – Western Australia 1H 2014 Results August 2014
Slide 2: Important Notice and Disclaimer
Important Notice and Disclaimer • This presentation has been prepared by Boart Longyear Limited, ABN 49 123 052 728 (Boart Longyear or the Company). It contains general information about the Company’s activities as at the date of the presentation. It is information given in summary form and does not
Slide 3: Safety & Environment
Safety & Environment Our goal is adding value with zero harm – leading our industry with our employees returning home safely each day and performing our work with minimal impact to our neighbours or the environment. Total Case Incident Rate 1 Lost Time Incident Rate 1 4.00 0.40 0.34 3.26 3.00 0.30 2
Slide 4: 1H 2014 – Consolidated Results Summary
1H 2014 – Consolidated Results Summary (US$M) Revenue 1,000 719 • Mining sector-wide contraction in exploration and 421 development spend, which began in the 2nd half of 2012, 500 persists through mid-2014, but showing signs of stabilisation 0 1H 2013 1H 2014 • Stable demand for underground applicat
Slide 5: Key mining performance indicators are starting to show signs of stabilisation
Key mining performance indicators are starting to show signs of stabilisation… Mining Performance Key Commodity Trends 4 SNL MEG 3 Gold ($/oz.) 1,800 - Exploration Spend (US$ Billions) 2012 Avg 21.5 1,600 2013 Avg 1,400 18.2 15.2 1,200 14.4 2014 Avg 11.4 12.1 1,000 Jan-14 Feb-14 Mar-14 Apr-14 May-14
Slide 6: …but demand for our services and products remains tempered…
…but demand for our services and products remains tempered… Drilling Services’ Historical Operating Rigs5 700 • In 4Q2013 and 1Q2014, the number 600 of operating rigs fell below the previous low point experienced in 500 2009 400 2009 Lowest Operating Rigs • A surplus of global rig capacity, 300 espe
Slide 7: …leading us to continue to reduce our overall cost structure
…leading us to continue to reduce our overall cost structure (US$M) Cost efficiency measures are on track to achieve previously announced reductions Achieving Realised in 2013 $(460) in 2014 $2,081 $(232) -/+ $(55) Variable $(60) $1,274 $(30) $(28) in 2014 $(25) Realised over $800m of expenditure re
Slide 8: Key Performance Indicators
Key Performance Indicators 2013 2014 Q3 Q4 Q1 Q2 Average Rig Count 1,037 1,031 950 945 Average Operating Rig Utilisation 37% 31% 32% 39% Average Product Backlog $20M $19M $15M $17M Headcount 6,020 5,681 5,593 5,871 Net Debt 8 $530M $526M $544M $556M Positives Weaknesses • Drilling services for under
Slide 9: Business Overview
Roller Latch™ Head Assembly Business Overview
Slide 10: Diversified End Market Exposure
Diversified End Market Exposure 1H 2014 Total BLY Revenue – Products & Services 1H 2014 Total BLY Revenue by Region – Products & Services Drilling Global Drilling LAM, 13% Underground Equipment Coring Services: USA, 20% 17% 5% 73% Rotary/RC 22% Global Global revenue base Products: 27% APAC, 27% Cana
Slide 11: 1H 2014 Operations – Drilling Services
1H 2014 Operations Drilling Services – Operating rigs stabilising, pricing pressure continues Change Change (US$M) 1H13 1H14 Key Performance Indicators 1H13 1H14 Fav/(Unfav) Fav/(Unfav) Revenue 538 308 (43%) Average Operating Rigs (without E&I) 9 439 333 (24%) COGS 453 281 38% Average Rig Utilisatio
Slide 12: Operating rig trends indicate the market may be stabilising
Operating rig trends indicate the market may be stabilising Year over Year % Change in Drilling Services’ Operating Rigs 50.0% 40.0% 30.0% 20.0% YoY % Change 10.0% 0.0% -10.0% -20.0% -30.0% Δ YoY 3 Month Moving Avg. -40.0% Op Rigs Flat -50.0% May-11 May-10 May-12 May-13 May-14 Aug-10 Aug-11 Aug-12 A
Slide 13: 1H 2014 Performance Bridges – Drilling Services
1H 2014 Performance Bridges - Drilling Services (US$M) Drilling Services Revenue Bridge • Revenue down 43%; driven by lower utilisation and price $538 $(29) $(188) $(13) $308 • Margins negatively impacted by 1H 2013 E&I Price/Volume/Mix FX 1H 2014 • Price and lower utilisation • Timing of reducing v
Slide 14: Revenue by rig type
Revenue by rig type 100.0% 10.7% 14.5% 14.8% 90.0% 13.5% 80.0% 20.5% 24.9% 70.0% % of total DS Revenue Water Well 60.0% UG Coring 50.0% 50.6% 37.2% 29.9% Surface Coring 40.0% Sonic 30.0% 4.2% Rotary 6.8% 20.0% 6.1% Percussive 17.6% 14.1% 10.0% 14.8% 6.9% 8.6% 0.0% 4.3% FY 2012 FY 2013 1H 2014 Total
Slide 15: Revenue by commodity
Revenue by commodity 100.0% 2.9% 4.8% 7.1% 4.6% 4.1% 90.0% 5.0% 7.5% 10.1% 80.0% 9.1% 11.6% 6.9% 4.9% 3.5% 70.0% 4.9% 6.5% 9.3% Environmental % of total DS Revenue 6.6% 60.0% Other 23.1% Other Metals 20.1% 50.0% 21.5% Iron Nickel 40.0% Energy 30.0% Copper Gold 44.1% 42.8% 20.0% 38.8% 10.0% 0.0% FY 2
Slide 16: Drilling Services Key Wins
Drilling Services Key Wins Diversified Mix MAGNUM ENERGY NATURAL GAS STORAGE BHP CHILE GLOBAL ESCONDIDA PARTNERSHIP AGREEMENT FIVE YEAR WITH MAJOR AGREEMENT MINER UNDERGROUND CALIFORNIA NEAR AGRICULTURAL FUNCTIONAL WORK CAPACITY WATER WELL NEAR FUNCTIONAL CAPACITY 1H 2014 Results - See pages 43 & 44
Slide 17: 1H 2014 Operations – Global Products
1H 2014 Operations Global Products – Markets appear to be stabilising with order backlog and other leading indicators improving Change Key Performance Indicators Change (US$M) 1H13 1H14 1H13 1H14 Fav/(Unfav) (US$M, except headcount) Fav/(Unfav) Revenue 181 113 (38%) Average Backlog 11 37 16 (57%) CO
Slide 18: 1H 2014 Performance Bridges – Products
1H 2014 Performance Bridges - Products (US $M) Products’ Revenue Bridge • Revenue down 38% • Decrease primarily due to lower volume $181 $(61) (minimal price impact) $(7) $113 1H 2013 Price/Volume/Mix FX 1H 2014 • EBITDA decrease primarily driven by flow- through of lower volume • SG&A down $6M Prod
Slide 19: Product Innovation
Product Innovation Focus on Safety & Productivity Launched LM™110 underground rig: More powerful power pack TruCore™ Core Orientation increases productivity increases productivity by providing high pullback force through innovation that reduces the overall time needed and fast rod-handling rates to
Slide 20: Financial Overview
Financial Overview
Slide 21: 1H 2014 Consolidated Overview
1H 2014 Consolidated Overview (US $M) Revenue Bridge $719 $(29) $(249) $(20) $421 1H 2013 E&I Price/Volume/Mix FX 1H 2014 Adjusted EBITDA2 Bridge $80 $(90) $30 $(1) $19 $(0) 1H 2013 Price/ Material/Labor SG&A/Other FX 1H 2014 Volume/Mix Inflation 1H 2014 Results - See pages 43 & 44 for footnote desc
Slide 22: Half over Half Overview – 1H 2014 vs 1H 2013
Half over Half Overview – 1H 2014 vs 1H 2013 (US $M) - (except EPS (cents) and headcount) Statutory Adjusted 2 % Change % Change 1H 2013 1H 2014 1H 2013 1H 2014 Fav/(Unfav) Fav/(Unfav) Revenue 719 421 (41% ) Revenue 719 421 (41% ) Gross Margin 134 56 (58% ) Gross Margin 134 56 (58% ) Gross Margin %
Slide 23: Sequential Half over Half Overview – 1H 2014 vs. 2H 2013
Sequential Half over Half Overview – 1H 2014 vs. 2H 2013 (US$M) - (except EPS (cents) and headcount) Statutory Adjusted 2 % Change % Change 2H 2013 1H 2014 2H 2013 1H 2014 Fav/(Unfav) Fav/(Unfav) Revenue 504 421 (16% ) Revenue 504 421 (16% ) Gross Margin 68 56 (18% ) Gross Margin 68 56 (18% ) Gross
Slide 24: Net debt increased by $30M to $556M
Net debt increased by $30M to $556M (US $M) Operations Working Capital Other $143 $(52) $(23) $9 $(53) $(37) $31 $(7) $13 $(23) $10 $28 $624 $585 3 4 1 Net 2 Net Debt Debt $526m $556m Gross Debt NPAT Restructuring Tax Effect of Cash Depreciation Taxes & Cash Taxes Accounts Accounts Inventory Capex O
Slide 25: Compliant with Covenants at June 2014
Compliant with Covenants at 30 June 2014 Actuals Covenant Jun-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Min LTM EBITDA $63.5M $45M $35M N/A Min Interest Coverage Suspended 1.55x N/A Min Liquidity Suspended $30M Max Total $654.0M $700M $715M $670M $720M $725M Indebtedness14 Ch
Slide 26: 2014 Full Year Outlook
2014 Full Year Outlook Bloomberg Consensus Revenue EBITDA Net Debt (21 Aug 2014) Low $766M $26.4M $514M High $878M $57.6M $561M Mean $842M $46.6M $532M • Range of analysts’ full-year forecasts for revenue, normalised EBITDA and net debt appear reasonable. • Risks to full-year performance include: •
Slide 27: Conclusion
LM 90 Underground Rig Conclusion
Slide 28: Strategic Review – well-advanced
Strategic Review – well-advanced • Considered a broad range of recapitalisation Robust structures beginning February 2014 Review • Goldman Sachs and other advisors add experience and judgment • Engaged numerous reputable, capable and well Significant capitalised potential investors Interest • Invest
Slide 29: Business is well-positioned with improving operating leverage
Business is well-positioned with improving operating leverage when our markets return • Drilling Services continues to win contracts with major mining companies Valuable • Products quoting continues to increase Franchise • Product innovation continues as demonstrated by recent entrance into instrume
Slide 30: Safety Leaders
Safety Leaders http://youtu.be/XHYWE_3DLds 1H 2014 Results - See pages 43 & 44 for footnote descriptions 30
Slide 31: Questions?
QUESTIONS? 1H 2014 Results - See pages 43 & 44 for footnote descriptions 31
Slide 32: Appendix
BOART R LONGYEAR we
Slide 33: Debt Maturity Schedule
Debt Maturity Schedule (US $M) Debt Maturity Bank Loan Facility Commitments Unused Letters of Credit Borrowings 30 June 2014 Proactively exploring alternate financing structures through the Strategic Review of recapitalisation options 1H 2014 Results - See pages 43 & 44 for footnote descriptions 33
Slide 34: Canadian Tax Update
Canadian Tax Update 2005-06 Audit • Good progress on completing open items to finalise reversal • Ontario assessments replicate federal Canada Revenue Agency (“CRA”); no independent audit • C$24.5 million federal security released 26 May 2014 • C$6.7 million refund received 2 July 2014 from CRA • C$
Slide 35: Reconciliation: Statutory to Adjusted
Reconciliation: Statutory to Adjusted (US $M) 1 1 Statutory Adjusted Statutory Adjusted $ in Millions 1H 2013 Adjustments 1H 2013 2 1H 2014 Adjustments 1H 2014 2 Revenue 719 - 719 421 - 421 EBIT (307) 316 9 (86) 52 (34) EBITDA (235) 315 80 (33) 52 19 NPAT (329) 305 (24) (143) 75 (68) 1H 2014 Results
Slide 36: Inventory
Inventory (US $M) Inventory Balance $428.2 $394.0 $298.9 $(22.5) $(1.2) • Peaked at ~$570M gross in $2.3 $277.5 October 2012 • Continued focus on supply chain efficiencies to further decrease total company inventory Gross Net Inventory Volume Impairment/ FX/ Net Inventory Gross Inventory Dec 2013 Dr
Slide 37: End Market Exposure
End Market Exposure Year over year comparison BLY Revenue - Products & Services BLY Revenue by Region - Products & Services % of Revenue 1H 2013 1H 2014 % of Revenue 1H 2013 1H 2014 Production Drilling 5% 8% USA 22% 20% Surface Coring 32% 21% Canada 18% 22% Underground Coring 15% 17% EMEA 21% 18% Ro
Slide 38: Income Statement
Income Statement 6 m onths 6 m onths ended ended 30 June 2014 30 June 2013 US$'000 US$'000 Continuing operations Revenue 421,495 718,863 Cost of goods sold (365,564) (584,463) Gross margin 55,931 134,400 Other income 4,310 327 General and administrative expenses (63,047) (85,538) Selling and marketi
Slide 39: Balance Sheet
Balance Sheet 30 June 31 Decem ber 2014 2013 US$'000 US$'000 Current assets Cash and cash equivalents 68,675 59,053 Trade and other receivables 189,653 196,912 Inventories 277,533 298,947 Current tax receivable 15,041 18,253 Prepaid expenses and other assets 21,454 25,054 Total current assets 572,35
Slide 40: Cash Flow Statement (1 of 2)
Cash Flow Statement (1 of 2) 6 m onths 6 m onths ended ended 30 June 2014 30 June 2013 US$'000 US$'000 Cash flow s from operating activities Loss for the year (142,826) (329,394) Adjustments provided by operating activities: Income tax (benefit) expense recognised in profit 28,771 7,090 Finance cost
Slide 41: Cash Flow Statement (2 of 2)
Cash Flow Statement (2 of 2) 6 m onths 6 m onths ended ended 30 June 2014 30 June 2013 US$'000 US$'000 Cash flow s from investing activities Purchase of property, plant and equipment (6,451) (17,498) Proceeds from sale of property, plant and equipment 2,739 12,200 Intangible costs paid (3,423) (4,40
Slide 42: Restructuring & Impairment Detail
Restructuring & Impairment Detail For the half-year ended 30 June 2014 2014 2013 2013 US$ Millions US$ Millions US$ Millions US$ Millions US$ Millions EBITDA(1) (33.0) (235.1) NPAT(2) (142.8) (329.4) Goodw ill impairment - - 166.3 166.3 Property, plant and equipment impairment 41.4 41.4 55.7 55.7 In
Slide 43: Footnote Disclosures
Footnote Disclosures • Footnote 1: Per 200,000 work hours. • Footnote 2: EBITDA, Adjusted EBITDA, Adjusted EBIT, and Adjusted NPAT are non-IFRS measures and are used internally by management to assess the performance of the business. For 2014, the adjusted figures have been derived from the Company’
Slide 44: Footnote Disclosures cont.
Footnote Disclosures cont. • Footnote 10: Increase in Global Products employees is due to the consolidation of maintenance and supply chain operations into the Global Products division. • Footnote 11: Backlog as of 15 August 2014 was $23M. • Footnote 12: Transactions between segments are carried out