Ausdrill sinks on lowered guidance

SHARES in Ausdrill plunged 27% yesterday morning on news that the mining services company’s net profit for financial 2014 will be less than half that of the previous year.

Staff Reporter

The company cited prevailing market conditions for a revision of its expected net profit after tax to $A35-45 million for the year ending in June 2014.

This compares to a net profit after tax of $90.4 million in the previous financial year.

Revenues were forecast to come in at $825 million for financial 2014 versus $1.1 billion the previous year.

The company said the weaker-than-expected outlook was the result of challenging conditions in the mining sector that were expected to remain until the beginning of 2014.

“Ausdrill expects that the focus by the mining industry on deferring all non-essential expenditure including capital works, exploration programs and non-critical maintenance will taper in the near future and that surplus capacity that exists in the mining services industry will start to diminish in financial year 2015,” the company said.

“Ausdrill remains in a sound financial position.

“It considers that the forecast result is not acceptable even in these challenging times and is continuing to work on plans and strategies to achieve the returns necessary for a company of its size.”

Key factors in the diminished outlook included reduced mining operations impacting contract services and cessation of contract work at several west African sites.

The company said, however, that it was actively tendering work in Africa and Australia that could replace a “substantial portion” of the ceased African programs.

The gloom was starker in Ausdrill’s exploration and equipment hire divisions, with both sectors showing signs that challenging conditions would persist in the near term.

The company said reduced capital expenditure had a flow-on effect on its DT HiLoad business, which manufactured dump truck trays, and that there was a delay in the commissioning of rigs for coal seam gas and onshore oil well drilling in eastern Australia.

Weakness in commodity prices, meanwhile, has led to lower demand for services provided by the BTP business in Australia which was reported to have performed “substantially below expectations.”

Ausdrill confirmed, however, that it remained comfortably within its debt covenants and stressed a focus on a number of initiatives to create revenue opportunities as well as position the company to benefit from any upturn in the mining sector.

These efforts include improving performance of specialist services, restricting capital expenditures, identifying new markets and better informing clients on the benefits of service packages.

Ausdrill shares were last trading 24.4% down at $1.04.