Tough conditions sink Master Drilling’s headline earnings by over 30%



26-08-2020
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IOL Business Report
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CAPE TOWN – Master Drilling Group, a global leader in drilling services to the mining, civil engineering and building construction sectors, Tuesday reported a 30.5 percent decline in headline earnings per share to 53.3 cents in the six months to June 30, after tough operating conditions in the 23 countries in which it operates through the Covid-19 pandemic.

Revenue fell 17.9 percent to $57.4 million (R966m), while profit fell 40.7 percent to $4.6m. The balance sheet was well managed with cash from operating activities up 100 percent to $11.1m from $5.5m, while capital expenses were curtailed. No dividend was declared.

The committed order book of $144.6m was slightly lower than at the same time last year, but the group anticipated it would begin to improve again in about six to eight months as the group began to benefit from the current upward cycle in commodities prices, chief executive Danie Pretorius said in a telephone interview.

“The group entered the year facing a challenging operating environment and deteriorating economic fundamentals across many of the 23 countries in which we operate. However, our quick response to the unprecedented disruptions in mining activity due to government-imposed lockdowns to curb the spread of Covid-19 ensured our financial stability and profitability,” he said.

He said the diversification of the group across commodities and across countries paid off during the tough period, with for instance, mining continuing without interruption in Scandinavian countries, and mining less impacted by the virus in some African countries.

Chief financial officer André van Deventer said that while the group had adequate liquidity headroom, stringent measures focused on cash flows, costs management as well as working capital and capital expenditure optimisation across the business would be maintained.

Progress was made in its strategy to secure projects in various geographies and industries, with new work was secured in West Africa, Australia, Russia, Europe and North America, whilst also increasing exposure to commodities experiencing significant upswings and driving mining activity.

Opportunities in the civil construction industry were also being pursued and an 18 months’ contract starting in mid-2021 has been secured in France.

“At year-end, we highlighted our interest in growing our presence in Australia, Russia and central Asia, with a focus on raise boring. Our Russian business partner agreement is in place and a project has been secured with equipment currently being mobilised.

“Opportunities in Kazakhstan and neighbouring states are also being actively worked on. Operations in Australia have started under a contract and we are actively building a pipeline of new projects,” said Pretorius.

Although some commodities are showing positive trends, only a limited number of new mining projects are expected to be commissioned in the short to medium term.

“Looking ahead, the improvement in commodity prices including gold, PGMs, iron ore, copper and polymetals, together with the weaker emerging market currencies, should counter some of the headwinds still facing the group for the remainder of the year.

“In the longer term, whilst it is still too early to assess the full impact of the pandemic on our business, we believe that our strategy to diversify across regions, commodities, currencies and industries will stand us in good stead to take advantage of opportunities when we emerge from this cycle,” said Pretorius.

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