Yet another mining services company has sprung an earnings downgrade on the market, and seen its shares tank.
Ausdrill (ASL) saw its shares whacked yesterday after lowering its earnings guidance for the 2014-15 financial year for a second time in three months, and flagging potential impairment charges in coming months.
It was the company’s second earnings downgrade since August.
It blamed falling iron ore and gold prices, lower earnings from its energy drilling division, and its underperforming contract mining business in Africa.
At the same time there’s a further announcement coming containing news of asset write-downs.
Ausdrill shares had been suspended last Thursday while the company prepared an update on its guidance.
That was issued yesterday and the shares plunged 11% in early trading.
They ended the day down 12% at 76.5c.
ASL 1Y – More woes in mining services
The company joins a growing list of mining services groups downgrading their earnings outlook for the 2014-15 financial year in the past month. These include ALS, WDS and Titan Energy Services.
It wouldn’t surprise to see this list added to over the next couple of months as the slump in spending in the resource sector and an ending of the investment boom crunches revenues and profit margins.
In the promised announcement to the market, Ausdrill said that it was revising its 2014-15 financial year earnings forecasts “in light of the group’s results for the first quarter to September 2014 and prevailing market conditions”.
The company said it now expects to report earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2015 financial year of between $150 million and $160 million, before the effects of impairment charges, on revenues of approximately $840 million.
That will be lower than the reported operating EBITDA of $173.7 million, on revenue of $826.3 million, for the 2014 financial year.
The company also said that "as a result of the expected underperformance" in this financial year that it "will be required to test its business units for impairment".
"This will be carried out as soon as practicable. A further update will be provided in relation to impairment at the appropriate time and, until this work is completed, no estimate is available on the likely impairment provision."
The company added, “The business remains and expects to remain in full compliance with its debt covenants".
Managing director Ron Sayers said, “The company remains in a stable financial position. We certainly do not consider that our forecast result is acceptable, even in these challenging times, and every member of our team is working hard to achieve the returns necessary for a company of our size.
“In addition, the deleveraging plans we are pursuing will ensure that the group will be well placed to benefit from any upturn and opportunities that arise in the mining industry.”
Ausdrill has been reviewing the value of its assets in light of tough market conditions.
In August, it flagged a $60-$80 million pre-tax hit to its full year profit. That no estimate was given yesterday indicates the amount will be higher than the August estimate.
