Master Drilling’s profit fell by three-quarters for the six months to end-June, hit by impairment losses related to its mobile tunnel-boring equipment, property and plant.
The JSE-listed group led by CEO Danie Pretorius said on Tuesday that revenue rose 17.3% to $127m, driven by its expanded fleet, good performance in the A&R Group, and an upswing in utilisation and revenue per rig.
However, operating profit decreased 62.5% to $8m due to the impairment of property, plant and equipment, which drove an overall 75.1% decline in profit after tax to $3.6m from $14.6m. Headline earnings per share (HEPS) decreased 3.2% to 9c.
An impairment loss of $7.8m was recognised on the group’s mobile tunnel borer. Group CFO André van Deventer said the machinery, which Master Drilling developed with an Italian company, had completed two projects with miners Northam and Anglo American to test the equipment.
But the company lacked a contract for the equipment and future cash generation from the asset is uncertain, so it adopted a conservative stance and chose to impair the equipment.
“It’s not to say the equipment is not going to work again; we are busy marketing it quite seriously in South America to some of our clients,” Van Deventer said. “I’m sure we will get work for it. Will it be in the next year? Maybe not, but that has been the view given that we can’t approve cash generation of the equipment in the next year.”
Additionally, a downturn in the market led to the group’s operations in North and Central America not using the shaft reverse circulation equipment, it said. The group thus made provisions for impairment losses on the equipment while it attempted to sell it in other markets.
Total group impairments amounted to $13.3m.
The CFO said that since listing on the JSE in 2012, Master Drilling had invested almost $250m in capital. The impairments in the past 12 years accounted for a mere 7% of this total. “If you consider the new technology that we are investing in, I don’t think it’s a bad number. This one-off is quite a big hit for us, but overall 7% ... is not that big,” he said.
Through its operating subsidiaries, Master Drilling provides specialised drilling services to blue-chip and mid-tier businesses in the mining, civil engineering, infrastructure and hydroelectric energy sectors across several commodities and regions.
The group reported its pipeline by June totalled $599.6m, while the committed order book totalled $271.4m for the rest of 2024 and beyond. Its operations in South, Central and North America showed slight operational improvements but failed to produce the desired financial outcomes.
The group said it still viewed Africa as a crucial area for expansion and is actively looking for new business opportunities in the continent. Though cognisant of the hazards associated with the mining industry in this region, Master Drilling said it was confident about the potential that lies ahead for its clientele across African nations.
In terms of profitability, the rest of the world businesses outperformed predictions thus far in 2024, it said, thanks to effective personnel utilisation, cost-cutting strategies and efficient project execution. New contracts were secured to provide multiple machines and services for clients.
“Excluding the impairments, the diversification has worked well, as in certain parts of the world — such as Africa, India, Europe and Australia — we did very well,” said Van Deventer. “The Americas, North and South, was still a bit of a struggle. Though there was an improvement from where we were before, it’s still lagging.”
Though profitability faced some pressure in the half-year, Master Drilling was optimistic about the future, saying its long-term contracts provided a stable foundation for the business. Diversifying its footprint across various regions, commodities, currencies and industries would help it mitigate risks.
The Gauteng-based firm said it was actively working to optimise its fleet utilisation, targeting a benchmark of 75%. In the short to medium term, it expects the sales pipeline to stabilise and increase, with further tactical acquisitions and joint ventures supporting performance.
Master Drilling shares rose 7.57% to R12.22 on Tuesday, having slipped 16% since the start of the year.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.