As expected, shares in Ausdrill (ASL) were pounded yesterday after it produced up to $90 million of write-downs and losses that the company warned were coming in a statement to the ASX late last week.
It was the fourth or fifth profit warning or downgrade from the company in the past year.
The shares plunged 17% to a low of 88.5c before recovering to close just over 97c, for a loss of 9% on the day.
Yesterday’s low is still well above the 52 week low of 76c hit last November (and the year high of $1.92 hit in September of last year).
That sharp fall was after a previous earnings warning and downgrade in early November 2013, and then confirmation of that at the annual meeting later that month.
The shares had been halted from last Friday at the company’s request. They fell 9% last week in the lead up to the impairment warning and trading halt last Friday.
A further request at the start of this week sought an extension until today.
ASL 2Y – Ausdrill shares down on yet another downgrade/warning
Yesterday’s impairment warning didn’t contain any estimate of the impact on 2013-14 earnings, except to say the losses of between $60 to $90 million would be non-cash and write-downs against goodwill.
A statement issued on June 2 warned the company was looking at a sharp fall in 2013-14 profit, but there was no mention of any impairment.
In fact the June 2 statement was relatively upbeat about the outlook for the mining sector:
"In light of the Group’s results for the second half to 30 April 2014, prevailing market conditions, and a revision of the FY2014 forecasts, Ausdrill expects to report a Net Profit after Tax of between A$25 million and A$30 million for the financial year to 30 June 2014," the company said in its June statement.
"The forecast FY2014 result excludes the effects of significant items as well as any further impact of any exchange rate fluctuations. The business remains comfortably within its debt covenants.
"Ausdrill is expecting a substantially improved result in FY2015.
"It is continuing to focus on reducing costs, and the preliminary forecasts for the Ausdrill businesses for FY2015 are indicating an enhanced result with improvements expected particularly in the Energy Drilling Australia business and in the African Mining Services business.
"The anticipated improvements in these businesses are based on contracts which are now in place.
"Ausdrill is of the view that provided there is not a significant fall in commodity prices from current levels, the mining downturn may have bottomed out or be close to the bottom.
"However, it anticipates that any recovery will be slow with challenging market and mining industry conditions continuing in FY2015, with subdued activity particularly in the Australian market.
"Ausdrill expects the focus by the mining industry on deferring all non-essential expenditure including capital works, exploration programmes and non-critical maintenance will taper at some point, and possibly towards the end of FY2015, and that surplus capacity that exists in the mining services industry will then start to diminish."
But clearly the mild optimism of the June statement had vanished by the time yesterday’s statement was issued.
In yesterday’s statement directors blamed the write-down on weakening outlook for the mining industry:
"Ausdrill advises that it has carried out a preliminary review of the carrying value of assets as at 30 June 2014, with the review including a consideration of the reasonableness of the assumptions used in these valuations. The review is ongoing and will be completed as part of the audit of Ausdrill’s annual financial statements for FY2014.
"As noted in Ausdrill’s FY2014 Half Year Results released on 28 February 2014, a change in the assumptions the Company used at the time could result in the Company having to book an impairment expense.
"Significantly, a review of the Company’s longer term forecast on the back of the recent fall in the iron ore price and continued challenging market conditions have resulted in a view being taken that the recovery of the Australian mining services sector will be slower than Ausdrill had previously anticipated,” the company said in the statement.
The company also warned it could be hit with a $A2.7 million tax bill in Mali, as a result of the removal of a corporate tax exemption.
That was a message we heard earlier in the week from Downer EDI, while the contract hire company Bluestone Global collapsed earlier this week because of the downturn in the coal mining sector, especially in the Hunter Valley area of NSW. Many of its 3,500 workers are being found jobs with other labour hire companies, such as Skilled.
Based on the June 2 warning, the company is looking at pre tax losses of more than $60 million.
