Civmec

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#11
Former Boart chief says his warnings weren’t heeded
PUBLISHED: 19 JUL 2014 02:59:26 | UPDATED: 19 JUL 2014 05:34:31
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TESS INGRAM
Two years ago, Craig Kipp was riding the mining boom as the head of the world’s largest mining services provider, Boart Longyear.
Fast forward to today and the former chief executive is examining the job landscape for new opportunities – and Boart is in on the brink. Reports this week that the company had begun talks with restructuring specialists to avoid bankruptcy sent the ASX-listed company’s stock plummeting 36 per cent to a record low on Wednesday .
The drilling company’s market cap now sits at about $40 million, a far cry from the $4 billion it peaked at in 2007.
As Kipp knows all too well, volatile industries such as mining and mining services turn around quickly.
“When I was with GE, Jack Welch always said, repeatedly, ‘Unless you are on your game, you can lose a short cycle business in three months’,” Kipp says.
“The drilling industry is short cycle but it is also capital intensive and very cyclical – the perfect storm.”
Floated on the ASX in 2007 after being purchased by Macquarie Bank, Boart’s $2.35 billion IPO was one of the largest of the heady years before the GFC time.
Macquarie originally held a 40 per cent stake, along with private equity firms Advent International and Bain Capital. Boart was floated just seven months after Macquarie gained control of the company.
A CASE STUDY IN FAILURE
Boart isn’t the only mining services company under pressure, of course. But its incredible fall from grace is a case study in how a failure to adapt to changing conditions can destroy ¬shareholder wealth. A decline in commodity prices and the cooling of Chinese demand over the past 18 months has lessened miners’ demand for services such as drilling.
In the lead-up to the end of the 2013 financial year, more than two dozen ASX-listed mining -services companies issued earnings downgrades.
Changes in leadership at BHP Billiton and Rio Tinto resulted in a renewed focus on cost-cutting and ¬productivity across the industry, turning companies away from exploration and expansion.
Deutsche analyst Craig Wong-Pan says the company was ill-prepared and slow to act when the climate changed.
“Boart just didn’t prepare its business properly for the downturn,” he says. “It continued to build its inventory during 2012 and was very slow to reduce it.”
Inventory peaked in 2012 at $US514 million, up from $US162 million in 2009. It now sits at $US334 million ($356 million).
“When the mining market turns, either up or down, the team does not have time to develop a new business model, hire consultants or implement the new grand strategy,” Kipp says.
“You have to move. If you hesitate, you lose market share on the upside and bleed cash on the downside.”
Speaking to AFR Weekend from his home in Utah, the executive, known for his frankness, seemed optimistic about his future, but was hesitant to comment on the company’s.
In an August 2012 results presentation, in perhaps his most candid announcement, Kipp warned the company, shareholders and the market that the good times were over.
Less than three months later, he was sacked, with Boart explaining that it wanted someone who could better communicate with the market and improve its share price, after a 75 per cent slide in the previous six months.
“I was one of the first to say this market is changing and it is changing quickly,” Kipp says. “That didn’t go over well with some people.
“There is a downside to being first. As they say, the early pioneer gets all the arrows.” Former Boart general manager for drilling services in the Asia Pacific region Ross Tilson says that he saw the downturn coming in early 2012.
“We noticed a gradual decline from April 2012 in line with the falling commodity price,” he says.
“We started to see rigs come out of work and adjusted accordingly but we didn’t begin cutting back until September 2012.”
RECOVERY HARD TO PINPOINT
Wong-Pan says that the current market weakness isn’t a permanent fixture but was reluctant to provide a time frame for recovery.
“The company does operate in a cyclical market so improvements will come at some point but it is very difficult to tell when,” he says. “At this stage we are seeing no signs of improvement but the problem for Boart is that it has higher debt levels than its peers.”
Boart’s full-year 2013 total liabilities were just over $US1 billion.
In February, Boart reported a net loss for 2013 of $US620 million and admitted that only one-third of its fleet of drill rigs were in use.
It employed Goldman Sachs to conduct a strategic review of the business, which it said aimed to preserve the company’s key divisions.
Current chief executive Richard O’Brien said at the time that he was confident the resources industry would begin to strengthen.
“While we cannot predict when our markets will recover, we have the experience of 120-plus years to know that mineral exploration spending will increase, as mining company reserves must be replenished to satisfy ongoing, worldwide commodity demand,” O’Brien says.
There is speculation that the review, designed to sell assets or raise capital, may now be favouring a restructure.
Boart has denied that restructuring is the only option on the table, reiterating in a statement to the ASX this week that it is continuing to evaluate a range of options. Boart said the advisers had been involved in the review ever since it began in February.
But investors aren’t listening. There was fresh pressure on the share price this week when Canadian fund manager Beutel Goodman cut its exposure by 7 million shares.
The Australian Financial Review
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#12
So I guess the thrust of the article is that the risks associated with the Australian mining decline are pretty high that has reduced a $4B company to one-hundredth of its size. But there must be something CIVMEC is doing that is supporting their decent ROE, perhaps oil and gas. The 9M results are not outstanding, but the 3Q figures seem quite positive. Guess I have to take a long hard look before committing to this one; thanks for the advice.
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#13
Mining services in the spotlight
THE AUSTRALIAN JULY 26, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
An undated company photograph shows a Boart Longyear Ltd. employee working on a rig, provided to the media on Tuesday, Aug. 2...
A Boart Longyear employee works on a rig. Source: Supplied
THE emergence of $US20 billion ($21.6bn) private equity buyout and distressed securities firm Centerbridge Partners on the register of struggling drilling contractor Boart Longyear has shone a light on the embattled mining services sector ahead of next month’s reporting season.

While Boart is seen as one of the prime candidates in the sector for debt default in the next nine months, its depressed share price also has hit levels where some have said it could attract a takeover despite few signs of better market conditions.

Boart shares more than doubled to 22.5c this week as Centerbridge established a 12.7 per cent position to become the drilling contractor’s biggest shareholder.

But the stock was coming off an all-time low of 8.5c after previous major shareholder Beutel Goodman exited its stake and after another credit downgrade from Standard & Poor’s.

At yesterday’s close of 22.5c, the shares are languishing at about 1 per cent of the $22 highs it hit before the global financial ­crisis.

Analysts say the mining ser­vices sector, which has been hit hard by falling commodities prices and cutbacks on both spending and outsourcing to contractors from the major miners, remains under pressure.

There is value to be had from some stocks they say, but Boart is not high on the list.

“We maintain a cautious outlook for the engineering and contracting sector given the continued focus by clients on reducing their cost bases, clients’ willingness to cancel contracts, declining engineering construction activity and excess engineering and contracting capacity,” Deutsche Bank analyst Craig Wong-Pan said. According to him the best value in mining services sector is Downer EDI because of a strong management team and balance sheet.

On Boart, he said there was a negative short-term outlook given the company’s high debt and weakness in the minerals drilling market, although the company could become a takeover target.

Shaw Stockbroking analyst Danny Younis said he expected contractor earnings to decline further this year.

“The longer term is likely to be tempered by a cautious and uncertain outlook, with the majors streamlining operations by deferring or delaying new capital expenditure, cutting costs and squeezing contractor margins,” Mr Younis said.

Shaw’s advice is it so stick to the energy-exposed contractors like Mermaid Marine and Titan Energy and to stay away from Boart, whose target price Mr Younis cut from 20c to 7c after cutting its earnings forecasts to below debt covenant levels.

Macquarie’s top picks are Macmahon Holdings, where a solid and clean earnings report is expected next month, and RCR Tomlinson for its infrastructure exposure.

It says lack of balance sheet strength is an issue for Boart.

“The debt position of the group remains a major impediment and we expect the trading performance and opaque market outlook to weigh on the prospect of Boart meeting its March 2015 debt covenants,” Macquarie said.

The intention of Centerbridge on the register is unclear but it is thought unlikely to be related to a parallel attempt to acquire the company’s debt and is a direct vote of confidence in the value of the company at current share price levels.
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#14
They have to start talking as the operating environment down under is getting extremely tough...

http://www.businesstimes.com.sg/premium/...h-20140730

PUBLISHED JULY 30, 2014
Civmec unveils three-pronged expansion approach to growth
Aussie firm to set up office in Singapore in next few months
BYANDREA SOH
sandrea@sph.com.sg @AndreaSohBT

HAVING built eight different business segments in a short span of five years, Australian construction and engineering services provider Civmec now hopes to embark on the next phase of growth.
This includes plans to set up an office in Singapore in the next few months, and eventually using it as a hub to expand to the rest of the world.
The other parts of the three-pronged expansion approach are to cross-integrate its eight vertical pillars, as well as create even more efficient processes in the way Civmec works, the firm said in its first major corporate update since its 2012 listing.
"We recognise we haven't spent enough time in Singapore, because we've been busy doing the work on the other side," said its executive chairman, James Fitzgerald, at a press briefing yesterday. "We're at the crossroads now, and we're satisfied we can take this change in journey."
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#15
Yes, you are right; I also wonder if this update is to calm the market before the FY14 "bad news" comes out, or indicates expansion plans for a business doing well in last Quarter. What do you think? I did go in and buy a little bit recently, but still feeling a bit nervous about this investment. Based on its revenue pattern and order book, it does appear that the business is probably on an upturn and Aussie FX cross-rates have stabilised. I feel that the 4Q results will be a watershed for its share price; if the revenues for 4Q exceeds S$140M, then they're OK; anything much lower than that is not good. I must say that their PR is excellent - there's plenty of rah-rah information and nice pictures about their projects on their website; looks very professional, but then looks can be deceiving!
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#16
Angmo is famous for NATO - no action talk only...

(30-07-2014, 09:53 AM)sykn Wrote: Yes, you are right; I also wonder if this update is to calm the market before the FY14 "bad news" comes out, or indicates expansion plans for a business doing well in last Quarter. What do you think? I did go in and buy a little bit recently, but still feeling a bit nervous about this investment. Based on its revenue pattern and order book, it does appear that the business is probably on an upturn and Aussie FX cross-rates have stabilised. I feel that the 4Q results will be a watershed for its share price; if the revenues for 4Q exceeds S$140M, then they're OK; anything much lower than that is not good. I must say that their PR is excellent - there's plenty of rah-rah information and nice pictures about their projects on their website; looks very professional, but then looks can be deceiving!
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#17
On hindsight, I think my previous analysis was defective; I overlooked the fact that its annual CAPEX (whether for maintenance of the business or for growth, I'm not sure) is huge and has "eaten up" all its net earnings. Hence I have sold back all my investment into this counter at a loss of $110; better to sleep peaceful than worry about something that's not at my comfort level. Thanks for your caution that has caused me to review my own investments; much appreciated.
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#18
Industry competitor? Operating conditions are worrying...

Bradken FY profit falls sharply
CHRIS KOHLER WITH AAP AUGUST 12, 2014 9:30AM

Engineering group Bradken's full year net profit has more than halved as the slowdown in mining investment continues to bite.

In the 12 months to June 30, the group recorded a net profit attributable to members of $21.5 million, a 67.9 per cent fall on the $66.9m reported in 2013.

Revenue for the period was $1.14 billion, a 13.5 per cent decrease on last year.

The company will pay an unfranked final dividend of 11c per share on September 9 to members on the register at August 20.

Combined with an unfranked interim dividend of 15c per share, the total unfranked dividend for fiscal 2014 is 26c per share, a 32 per cent decline on the 38c per share paid in 2013.

Managing Director Brian Hodges said the company's cost cutting and continued work on new product development placed it in an excellent position to take the greatest advantage of improved market conditions.

The company has axed 1,800 jobs in less than two years.

"We expect an improvement in order intake as delayed expenditure at mine sites is released and mine production volumes continue to increase, supporting sales in the second half," Mr Hodges said.

"It remains unclear when the mining capital cycle will improve, but we are not solely relying on it to do so."

Net debt levels decreased to $377.2 million from $431.5 million in the previous year due mainly to the lower capital expenditure, reduced working capital level and also lower cash dividend payments, the company said.
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#19
RBA warns of mining services defaults
THE AUSTRALIAN MARCH 26, 2015 12:00AM

Sarah-Jane Tasker

Reporter
Sydney
RBA warns of mining defaults
The RBA says the full effects of the slump in commodity prices are yet to be felt Source: News Limited

Australia’s mining services companies are at risk of default as the downturn in the once-booming resources sector begins to bite.

The warning came from the Reserve Bank of Australia, which wrote in its semi-annual review of financial sector stability that while the full effects of the slump in commodity prices were yet to be felt, the headwinds could make it more difficult for resource-­related firms to service their debt, raising the risk of default.

The RBA said the profits of listed mining services companies were estimated to have fallen by more than 15 per cent last year.

“The financial health of mining services companies looks less robust than that of the broader corporate sector,” the RBA said.

“The aggregate debt-servicing ratio of listed mining services companies has increased significantly over the past couple of years as profits have fallen sharply, and is now around the peak reached during the financial crisis, while aggregate liquidity is also lower than for other listed corporations. It is likely that parts of the mining services sector will find the current operating environment challenging, particularly those firms that are more exposed to resource investment or exploration.”

But the RBA pointed out that mining services firms accounted for only 16 per cent of debt owed by listed resource-related corporations, and talks with banks suggested that loan defaults to date had generally been limited.

Credit rating analysts warn Australia’s mining services sector still faces big risks, especially over potential contract deferrals and cancellations.

“The credit ratings of some resource-related companies have already been downgraded, while ratings implied by credit default swaps and bond pricing suggest that the market expects more downgrades,” the RBA said.

The price of iron ore has more than halved since the start of the year and many of the smaller miners are struggling to make a profit at current prices.

The RBA said the prices of oil and iron ore had fallen more sharply than expected, following earlier large falls in coal prices.

The bank pointed out that many of the miners had responded to the downturn by reducing planned capital expenditure, weakening the prospects for mining services companies, which it said had compounded the already subdued conditions in that sector as the investment phase of the mining boom wound down.

The RBA said there were limited risks to financial stability in Australia from the ailing health of mining services firms, however, because the domestic banks’ exposure to the resource-related sector was not large.
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#20
Civmec targets funding in Forgacs acquisition


Kylar Loussikian
[Image: kylar_loussikian.png]
Journalist
Sydney


[b]Engineering firm Civmec has moved to secure more federal government defence spending, acquiring a significant part of shipbuilder Forgacs, which is involved in the construction of destroyers used by the Royal Australian Navy.[/b]
If finalised, the Forgacs family will take a significant stake in Perth-based Civmec, and hold a number of assets not included in the deal, including the Forgacs-Broens business, which operates facilities in Ingleburn in NSW and Elizabeth in South Australia.
While financial details of the transaction have not yet been released, it is understood Forgacs has an annual revenue of about $130 million, with Civmec to acquire about two-thirds of the business. The deal will require approval from shareholders.
Civmec chairman Jim Fitzgerald said the acquisition was an “ideal opportunity” to replicate its West Australian operations in Newcastle, while adding naval ship construction and repair capabilities.
“We see this acquisition as a long-term investment in the east coast of Australia and see this as a base to provide ongoing employment and training opportunities in the area,” Mr Fitzgerald said.
Civmec chief executive Pat Tallon said it would allow the company to gain a long-established foothold in the defence shipbuilding industry. “It gives us the opportunity to acquire in-house submarine building and technical expertise, (and) we will be well-positioned to capitalise on the significant infrastructure expenditure planned for east coast.”
Forgacs’s Tomago shipyard has built some of the navy’s most iconic ships, including the icebreaker Aurora Australis, HMAS Tobruk and sections of the troubled Collins-class submarines.
The deal will include the 17ha Tomago shipyard, which has two ship basins, as well as the plant and equipment located at Forgacs’s Hexham and Gladstone heavy engineering workshops.
Peter Burgess, chairman of Forgacs, said the acquisition would create a national company with engineering skills to build and maintain defence equipment.
“Forgacs and Civmec have many similarities, with both companies specialising in the higher value-add sectors of heavy engineering of complex structures where quality, dimensional control and on-time delivery is critical to the success of projects,” he said.
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