31/08/2009 - 17:15

Brandrill net profit slumps 75% to $2.8m

31/08/2009 - 17:15

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Brandrill has reported a 75 per cent slump in its full-year net profit on the back of a steep fall in revenues and tightening of competitive pressures on margins in the second half of the 2009 financial year.

Brandrill net profit slumps 75% to $2.8m

Brandrill has reported a 75 per cent slump in its full-year net profit on the back of a steep fall in revenues and tightening of competitive pressures on margins in the second half of the 2009 financial year.

The Henderson-based mining services company, which recently agreed to a friendly merger with Ausdrill, said the 2009 financial year was a tale of two halves with the first half recording a profit before tax of $5.8 million

Meantime, cost saving initiatives were not able to offset a steep decline in revenues in the second half, which booked a net loss before tax of $4.7 million.

The net profit after tax for the 2009 financial year was $2.8 million, down from $11 million recorded in the previous year.

 

 

The announcement is below:

 

Review of Operations

The Group generated revenue of $178.4 million for the year, up 6% on the $168.7 million achieved in 2008. Net profit after tax was $2.8 million, a 75% decline from the $11.0 million recorded in 2008. A tax benefit for the year resulted from consolidation of the Group's tax position.

The year was a tale of two halves. Revenue in the second half was 36% below the first half as the impact of the global financial crisis lead to declines in coal, civil and exploration drilling activities, and caused deferral of orders for the DT Hi Load business. Operating performance in the first half had been disappointing for a range of external and internal factors, and hence half yearly profit before tax of $5.8 million was disappointing. Despite overcoming many of these operational factors, the financial results for the second half suffered from the steep decline in revenues and a tightening of competitive pressures on margins. These were not able to be offset by cost saving initiatives and a loss before tax of $4.7 million resulted for the second half.

Drilling activities contributed $167.4 million revenue in 2009, an increase of 9% over the $153.8 million in 2008. These drilling activities include in‐pit and exploration RC drilling as well as coal, hard rock and civil production drill and blast activities.

DT Hi Load sales were $9.6 million in 2009 compared to $13.0 million in 2008. A small loss was incurred. RockTek sales were $1.2 million for 2009 similar to $1.3 million in 2008. Reduced marketing cost structures reduced the loss in 2009.

Capital expenditure for the year was $31.9 million of which $24.8 million was in the first half. Expenditure in the second half of $7.1 million was well contained with replacement capital of $4.8million and an additional RC rig of $2.3 million.

At year end Net Debt/Equity was 75% with aggregate gross debt of $58.4 million being slightly above the level of June 2008 but reduced by $4.9 million from December 2008 following the high level of committed capital expenditure in the December half.

Subsequent Events

On 2 July 2009, to assist with working capital, $2.0 million was raised by private placement at 4 cents to Resource Capital Funds. After the placement RCF holds 19.9% of the equity in Brandrill. As announced at the time of the placement, based on the results for 2009, Brandrill has now formally sought a short term waiver from one of its lenders for a breach of one of three lending covenants for an $8 million facility. The Company is providing the lender with the information needed to obtain the waiver.

On 17 August 2009, the Company announced a proposed merger with Ausdrill Limited. The merger is unanimously recommended to shareholders by Brandrill Directors in the absence of a superior proposal. If the merger is approved, eligible Brandrill shareholders will receive one share in Ausdrill for every 14.5 shares in Brandrill. It is proposed the merger will be implemented via a scheme of arrangement. The proposed merger is subject to a number of conditions, including Brandrill shareholder approval and Court approval.

Outlook

The overall outlook for the mining services sector is improving, with expansions in the Pilbara and in oil and gas creating immediate opportunities for civil work; coal activity in Queensland is gradually rebounding; and in the longer term new developments in magnetite mining seeming now assured for Western Australia.

For Brandrill, in July, drilling revenues began returning to historic levels with the ramp up of a major civil project and the commencement of mobilisation of another. Exploration drill utilisation is also improving as demand for exploration services increases. The order book for DT Hi Load has also improved with sales expected well above last year and several new trials underway with major mining clients in Australia and overseas.

This overall improved outlook for Brandrill is expected to continue at least through to the end of 2009, and beyond depending on timing of project developments. Emphasis remains on increasing utilisation of our existing capacities, ongoing debt reduction initiatives and the completion of the proposed merger with Ausdrill.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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