Barminco announces FY2014 results
Barminco is pleased to report its full year results for the year ended 30 June 2014.
Barminco delivered earnings before interest, tax, depreciation, and amortisation (EBITDA) of $111.7 million, prior to one off redundancy costs of $5.2 million, down from $125.2 million in FY2013. Revenue was $537.9 million in FY2014, compared to $675.1 million in FY2013.
These results exclude Barminco's 50 per cent joint venture interest in African Underground Mining Services, which is accounted for on an equity accounting basis and does not impact revenue, EBITDA or EBIT.
The results reflect the scheduled completion of several contracts as well as the broader challenging conditions affecting the resources sector, which has impacted mining services companies.
Barminco responded to these challenging market conditions by implementing a targeted efficiency improvement and cost-management strategy in the year. The success of this strategy enabled Barminco to grow its EBITDA margin to 20.8 per cent (from 18.5 per cent), while clients also benefited through production and efficiency gains.
Barminco Chief Executive Officer Peter Stokes said the executive team had focused on eliminating inefficiencies across the business, including working closely with clients to identify target areas.
"One of our key areas of focus in the year was to increase productivity, which was achieved through greater automation and teleremoting at sites, and sustained efficiency improvements more broadly," Mr Stokes said.
"We have taken a refreshed perspective at our operations. Led by Chief Operating Officer, Victor Rajasooriar, we are working in close partnership with our clients to identify and target practices, that provide the most efficient and productive outcome.
"Not only did this mean we successfully grew our margins in the face of competitive conditions, we also delivered improved productivity for our clients and have best positioned Barminco to ensure contract renewals and win new contracts."
Barminco has long-term funding through US$485 million senior secured notes, maturing June 2018, providing the Company with financial flexibility. This facility has been fully hedged into AUD, however as a requirement of the relevant accounting standard the liability in the balance sheet has been adjusted to reflect the deterioration in the Australian dollar since the facility was established.
Barminco also continued to maintain a strong cash position in the year, with cash on hand at 30 June 2014 of $95.8 million (30 June 2013: $106.6 million). The liquidity provided by this strong cash position is supported by an undrawn revolving credit facility of $47 million and available equipment finance lines of approximately $40 million.
Mr Stokes said: "Our debt structure and strong liquidity provides the Company with the financial capability to continue investing in our fleet and people. We have the financial capacity to win and deliver on new contracts without needing to draw down on any additional debt.
"This strong financial position meant we were able to reduce the headroom on our effectively undrawn revolving credit facility by half last month to $47 million."
Private equity capital structure
Barminco's capital structure continues to reflect its current private equity ownership, with the investment from the owners being made through Redeemable Preference Shares ("RPS") and Shareholder Loan Notes ("SLN"). The RPS/SLN's are, however, classified as debt rather than equity for accounting purposes. This treatment skews the reported non-current liabilities and net asset position, and non-cash financing costs (interest) in comparison to peers listed on the ASX.
During FY2014, $316.1 million of RPS/SLN's were classified as debt in the statutory accounts. Additionally, $38.8 million of associated non-cash interest related to the RPS/SLN was recorded as an interest expense, however this interest is capitalised and has no cash cost to the business.
Mr Stokes said: "To compare our financial results with our listed peers you would need to view the preference shares and shareholder loans as equity rather than debt. That means reclassifying $316.1 million from long-term debt into equity and removing $38.8 million in interest costs from our income statement.
"That's certainly the way our balance sheet would be structured if Barminco was to ever list on the ASX and it's the way we present the business to our US bondholders. To directly compare our reported financial statements with those of a listed company would be quite misleading."
The challenging conditions affecting the resources sector have continued in FY2015, however Barminco is seeing positive signs and the Company is well positioned to respond to the current conditions and future growth opportunities.
In September, Barminco was awarded a contract extension for underground mining development and production at Western Areas' Spotted Quoll and Flying Fox nickel mines in Western Australia, with an initial two-year term valued at $190 million.
Barminco will continue to target efficiency improvements through both working closely with existing clients and implementing further productivity gains across the business. The Company will also continue to invest in its fleet as part of its ongoing strategy to deliver productivity gains, following a $53 million capital spend in FY2014.
One of those investments has been the largest order in Australia of the new, state-of-the-art Sandvik TH663 trucks. Barminco has five trucks operating at AngloGold Ashanti's Sunrise Dam and will have 11 in its fleet by January 2015 – more than 10 per cent of the Company's underground fleet. These trucks have already delivered improvements through their greater payload, lighter frame, and lower costs, such as 20 per cent less fuel consumed per shift.
"Through being innovative and working closely with our clients, Barminco is well positioned to extend existing contracts and target new projects in Australia and at our overseas markets," Mr Stokes said.