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TRANSCRIPT
JSW Australia Acquisition
and
FY13 Results
October 2013
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Disclaimer
2
The following disclaimer applies to this presentation and any information provided regarding the information contained in this presentation (the Information). You are advised to read this disclaimer carefully before reading or making any other use of this presentation or any information contained in this presentation.
Except as required by law, no representation or warranty, express or implied, is made as the fairness, accuracy, completeness, reliability or correctness of the Information, opinions and conclusions, or as to the reasonableness of any assumption contained in this document. By receiving this document and to the extent permitted by law, you release Hughes Drilling, and its officers, employees, agents and associates from any liability (including in respect of direct, indirect or consequential loss or damage or loss or damage arising by negligence) arising as a result of the reliance by you or any other person on anything contained in or omitted from this document.
Statements contained in this material, particularly those regarding the possible or assumed future performance, costs, dividends, returns, production levels or rates, prices, reserves, potential growth of Hughes Drilling, industry growth or other trend projections and any estimated company earnings are or may be forward looking statements. Such statements relate to future events and expectations and as such involve known and unknown risks and uncertainties, many of which are outside the control of, and are unknown to, Hughes Drilling and its officers, employees, agents or associates. In particular, factors such as variable climatic conditions and regulatory decisions and processes may cause or may affect the future operating and financial performance of Hughes Drilling. Actual results, performance or achievement may vary materially from any forward looking statements and the assumptions on which those statements are based. The Information also assumes the success of Hughes Drillings business strategies. The success of the strategies is subject to uncertainties and contingencies beyond Hughes Drilling’s control, and no assurance can be given that the anticipated benefits from the strategies will be realized in the periods for which forecasts have been prepared or otherwise. Given these uncertainties, you are cautioned to not place undue reliance on any such forward looking statements. Hughes Drilling undertakes no obligation to revise the forward looking statements included in this presentation to reflect any future events or circumstances.
In addition, Hughes Drilling’s results are reported under Australian International Financial Reporting Standards, or AIFRS. This presentation may include references to EBITDA, EBITA, EBIT and NPAT. These references should not be viewed in isolation or considered as an indication of, or as an alternative to, measures reported in accordance with AIFRS or as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity.
The distribution of this Information in jurisdictions outside Australia may be restricted by law and you should observe any such restrictions. This Information does not constitute investment, legal, accounting, regulatory, taxation or other advice and the Information does not take into account your investment objectives or legal, accounting, regulatory, taxation or financial situation or particular needs. You are solely responsible for forming your own opinions and conclusions on such matters and the market and for making your own independent assessment of the Information. You are solely responsible for seeking independent professional advice in relation to the Information and any action taken on the basis of the Information. No responsibility or liability is accepted by Hughes Drilling or any of its officers, employees, agents or associates, nor any other person, for any of the Information or for any action taken by you or any of your officers, employees, agents or associates on the basis of the Information.F
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Bringing together two of Australia’s leading drilling contractors
The Acquisition brings together two of Australia’s leading drilling contractors, providing service, sector, geographic and
commodity expansion
Key details of the Acquisition:
� The total purchase price comprises:
� 26,918,080 fully paid ordinary shares at A$0.26 per share equating to A$6,998,900.80 to be issued to be issued to JSW
shareholders (New Shares); and
� Retention of existing JSW debt of ~A$17.4m
� The New Shares issued within Hughes 15% capacity under ASX Listing Rule 7.1
� The issue price of the New Shares was a 4.0% premium to the trading price of Hughes’ quoted ordinary shares at 16 August 2013
� Hughes has acquired 100% of the ordinary voting shares, which is 96% of the issued shares in JSW. The balance of issued shares
are retained by a JSW executive and do not have voting rights
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Complementary business providing significant growth opportunities
CREATES A LEADING
AUSTRALIAN DRILLING
CONTRACTOR
� Accelerates Hughes access to blast hole opportunities in North West Western Australia
� Utilising Hughes delineation assets accelerates JSW’s move into the Queensland and NSW
� Creation of a leading national drilling contractor – focussed on production
� Increased scale and profile
� Complementary services and production focus
� Complementary geographic and commodity focus
SIGNIFICANT SYNERGIES
AND ADDITIONAL
BENEFITS
� Cross selling, enhanced marketing sales – access to new market growth for both Hughes and JSW
� Cost reduction across the business – drill rig maintenance, drill rig acquisition, reduced reporting etc.
� Advanced systems and reporting
COMPLEMENTARY
BLUE CHIP CLIENT BASE� Balances customer mix of blue chip clients and new opportunities
COMBINES SPECIALIST
EXPERTISE ACROSS
DRILLING CONTRACTOR
MARKET
� Leverage Hughes’ blast hole expertise in WA markets
� Leverage JSW’s capability in grade control, delineation, pit dewatering drilling, water services and specialist
services
� Leverage REICHdrill’s engineering capabilities to continue the advancement of the group’s rig fleet, particularly in
drilling efficiency
POSITIVE FINANCIAL
IMPACT
� JSW expected to represent 38% of FY14 combined revenue
� Expected to be EPS accretive FY14 pre synergies
� Significant synergies available FY14 and beyond
EXPERIENCED BOARD &
MANAGEMENT TEAM
� Experienced Board and management with significant drilling experience
� Significant management experience leading Australian drilling companies
DIVERSIFIED EARNINGS
STREAMS
� Across sectors, business divisions and commodities
� Reduced variability of earnings
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Overview of JSW Australia Pty Ltd
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Background:
� Operating since March 2010
� Head office in Perth, WA - Offices and Support centres in Bibra
Lake, Kalgoorlie, Port Hedland and Boddington
� Location of operations include the Kimberley, Pilbara, Mid
West, Goldfields-Esperance, Wheat belt, Peel, South West and
Great Southern regions of Western Australia
� 24 specialist drill rigs (including 4 sub-contracted rigs)
� 140 professional workforce
Pilbara Support Facilities Goldfields Support Facilities
South West Support FacilitiesHead Office
Business Divisions:
� Production Drilling - Focused on Grade Control, Resource
Delineation
� Water Services - Dewatering Bores, Production Bores and
Monitoring Bores
� Specialist Services - Geo-thermal, BOP Well Control, Paste/
Service Holes, ROBIT Casing Advance
Clients:
� Blue chip
� Bulk commodities include iron ore, coal. Other non-bulks gold,
nickel and other
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Overview of JSW Australia Pty Ltd (cont)
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Blast-Hole Drilling REICHdrill Express Hydraulics Delineation Drilling JSW Australia
Overview Production drilling: Blast hole
drilling in-pit for open cut coal
Manufacture, sales and
distribution of REICHdrill drilling
rigs, drilling consumables and spares
Sales and distribution of drilling
consumables and spares
Production drilling: Drilling for
reserve delineation and structural
support for coal
Production related blast hole
drilling, grade control, delineation
drilling, mine dewatering, paste and U/G service holes, casing
advance drilling, drilling with a
Geo-thermal, BOP, water services.
FY12 Revenue Contribution ~70% ~0% ~6% ~23% N/A
FY13 Revenue ~82% ~4%
(3 months contribution, % after
elimination of sales to Hughes)
~3% ~11% Not applicable. Acquisition
expected to happen outside FY13
FY14 Revenue Contribution Forecast
~40% ~20% ~2 % Absorbed into JSW operations ~38%
Key Assets(30 June 2013)
40 Rigs:
• 17 x REICHdrill C750D
• 16 x REICHdrill C700D• 2 x REICHdrill C550DII
• 4 x Terex GD5000
• 1 x SKS
Global client base:
• USA
• Australia• Africa
• Indonesia
• Other major mining regions
Agencies/Distributor for:
• REICHdrill
• Torquato• Sullivan Palatek
• Thomson International
• Halco• Ryco
• N&N Drilling
13 Marketable Rigs: 24 Rigs:
• 1 x Strange Drilling SD1000
• 1 x Strange Drilling SD200• 1 x Strange Drilling SD400
• 1 x Strange Drilling SD100
• 1 x Strange Drilling SD800• 1 x Globe Drill SD850
• 1 x Miller Mining SD450
• 1 x Globe Drill SD350• 2 x Globe Drill KAL500-CP8
• 3 x Sandvick RCD450
• 3 x Atlas Copco TH60• 1 x Atlas Copco RD20
• 2 x CAT/Montabert 336D
• 2 x CAT/Montabert 336D #• 1 x VermeerD100x120Series 2
• 2 x Atlas Copco D65 #
Note: 4 above rigs subcontracted #
Contracts / Customers:• Anglo American
• BHP Mitsui Coal• Downer EDI Mining
• Hunter Valley Energy
• Jellinbah Mining• Leighton
• MacMahon Group
• Peabody Energy• Theiss Contractors
• Yancoal
• BHP Billiton• Karara Mining
• Rockwater
• Rio Tinto• Fortescue Mining Group
• Mt Magnet Gold
• Boggabri
• Callide
• Daunia• Eaglefield
• Foxleigh
• Goonyella• Jellinbah
• Lake Vermont
• Millennium• Mt Arthur
• North Dawson
• Poitrel• Sonoma
• Wilkie Creek
• Yarrabee
Global client base:
• USA
• Australia• Africa
• Indonesia
• Other major mining regions
• Other Hughes business units
• Peabody
• Sandvik
• Other Hughes business units
• Peabody
• Sandvik
• Mt Keith
• Boddington
• Karara• Wembley Downs
• Pilbara Mines
• Koolyanobbing• Newman Region
• Tom Price Region
• Mt Magnet• Collie
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Combined pro-forma profile
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Share price(1) 32cents
Shares on issue(1) 209.0m
Market capitalisation $66.88m
Debt(2) $47.32m
Cash(2) $7.23m
Enterprise value $106.97m
Capital Structure – Post Acquisition Register Composition Post Acquisition
(1) Share price as at 03 October 2013.There are 4,615,000 options on
issue and no performance shares outstanding.
(2) Cash balance as at 30 September 2013. Cash net of overdraft.
Bob Hughes,
35.4%
Directors,
Management &
Employees
(Current &
Former), 16.6%
Other
Shareholders,
48.0%
Hughes 53
JSW* 24
Combined 77
Drill rigs
Hughes 264
JSW* 140
Combined 404
Employees
FY13A FY14E
Hughes ~$50m ~$59m
JSW ~$30m ~$45m
Reichdrill* ~$2m ~$27m
Combined ~$80m ~$130m
FY13A & FY14E Revenue
* Includes 4 subcontracted rigs * Includes 20 subcontracted employees
* FY13 Only 3 mth revenue contribution
from Reichdrill
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Highly experienced Board
ROBERT HACKETT, Non-Executive Chairman
Robert is a former CEO of both an Asia Pacific onshore drilling contractor (minerals, drill and blast, geothermal, oil and gas) and a Middle Eastern based site services
contractor with turnover of $400 million and 5,000 employees. Robert has prior experience in project finance and investment banking and holds a Bachelor of
Engineering (Civil, Adelaide), an MBA (IMD, Switzerland) and MAICD.
BOB HUGHES, Executive Director and Managing Director
Bob is founder of the Hughes Drilling business and major shareholder of Hughes. Bob started drilling career 36 years ago, providing drilling and blasting services for
quarries and mining operations. Established Hughes Drilling Pty Limited in 1991, initially contracting to Leighton and has been the driving force in the Company’s
development.
ANDREW DRAKE, Chief Executive Officer (Executive Director)
Andrew joined Hughes Drilling in 2006 as General Manager and Chief Executive Officer. In the prior 16 years Andrew held managerial and business development
roles with Dyno Nobel, the world’s second largest explosives supplier.
BARRY O’CONNOR, Non-Executive Director
Barry has over 40 years experience in promoting and marketing premium mining, drilling and comparable products. Barry was previously Director and Head of
Construction and Mining at Sullair Pty Ltd, an international manufacturer of industrial compressors, until 2007. Prior to joining Sullair, headed the rotating
equipment division of BTR Nylex.
ANDREW WEBB, Non-Executive Director
Andrew has 24 years of banking and structuring financial solution experience. He was formerly Vice president – TSS- Treasury Services with JPMorgan Australia,
Head of Industry, Policy and Credit Support – SCF with National Australia Bank, and Regional Head of Trade & commodity Finance – Americas with Australia &
New Zealand Banking Group.
PAUL BRENTON, Chief financial Officer and Company Secretary
Paul is a CPA with 17 years experience in accounting, corporate finance and commerce. Paul previously held the position of Chief Financial Officer of a large
property development group prior to joining EDMS in 2010. Prior to this Paul started his career with PwC working across a range of business sectors including to
clients based in mining, manufacturing and construction.
JOHN SILVERTHORNE, Non-Executive Director
John was co-founder of NRW Holdings Ltd, a listed public company that had a market capitalisation in excess of $1.0bn. John has 35 years Contract & Civil Mining
Management and Drilling experience.
JEFF BRANSON, Chief Operations Officer - Drilling (Executive Director)
Jeff is a Civil Engineer and co-founder of Brandrill Limited, now part of Ausdrill, which was a 100 drill rig business with its primary focus being blast hole and presplit
drilling. Jeff has over 32 years Drilling & Contract Management Experience.For
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JSW LOCATIONS - GOLD
Mt Magnet
Laverton Gold Mine
Leonora Gold Mine
JSW LOCATIONS – IRON ORE
Tom Price
Newman
Karara
Kollyanobbing
JSW LOCATIONS – COAL
Collie
JSW LOCATIONS – NICKEL
Mt Keith
JSW LOCATIONS – OTHER COMMODITIES
Canning Basin
Boddington
Wembley Downs
JSW OFFICES & SUPPORT CENTRES
Bibra Lake
Kalgoorlie
Port Hedland
Boddington
Callide QLD
Daunia QLD
Eaglefield QLD
Foxleigh QLD
Goonyella QLD
Jellinbah QLD
Lake Vermont QLD
Millennium QLD
North Dawson QLD
Poitrel QLD
Sonoma QLD
Wilkie Creek QLD
Yarrabee QLD
Boggabri NSW
Mt Arthur NSW
Wambo NSW
HUGHES LOCATIONS - COAL
HUGHES OFFICES/DEPOTS
Not to scale
Geographic and commodity diversification
REICHdrill FACTORY
9
Mackay QLD
Yatala QLD
Singleton NSW
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Client diversification
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Global Exposure – REICHdrill Rigs
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REICHdrill FACTORY
United States - Phillipsburg PA
DISTRIBUTORS
Northern United States - TJM Inc. Aliquippa PA
North East United States - Northeast Drill Supply
Western United States - Komatsu Equipment Company
France & North West Africa - Eurofor SAS
Southern Africa - Mincon
Former Soviet Union - Global Technology Group Ltd
Indonesia & South East Asia - Fajar Mas Murni
Australia - Express Hydraulics (Aust)
TARGETED REGIONS
Central America
West Coast South America
India
China
FORMER SOVIET UNION
CHINA
INDIA
INDONESIA &
SOUTH EAST ASIA
AUSTRALIA
SOUTHERN AFRICA
NORTH WEST AFRICA
FRANCENORTH & NORTH EAST USA
CENTRAL AMERICA
WEST COAST SOUTH AMERICA
WESTERN USA
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Majority of FY14 revenue booked with significant upside
Mine Client RegionCore
Coal Type
Number of
Rigs
Contract
Expiry
Contract
Tenure
Production Drilling
Callide Anglo American Bowen Basin, Qld PCI, thermal 1 Dec-14 2 years
Foxleigh Anglo American Bowen Basin, Qld PCI, thermal 2 Jan-16 3 years
Mt Arthur BHP Hunter Valley, NSW Thermal 1 Aug-14 1 year
Goonyella BHP Billiton Mitsubishi Alliance Bowen Basin, Qld HCC 3 Jun-15 5 years
Poitrel BHP Billiton Mitsubishi Alliance Bowen Basin, Qld HCC / SHCC 2 Nov-15 2 years
Boggabri Downer EDI Gunnedah Basin, NSW Export thermal 5 Dec-16 1 year
Daunia Downer EDI Bowen Basin, Qld Thermal 2 Jun-15 2 years
Millennium Downer EDI Bowen Basin, Qld PCI, coking, thermal 3 Mar-15 2 years
Jellinbah Jellinbah Mining Bowen Basin, Qld PCI, SSCC 4 Apr-14 5 years
North Dawson Leighton Bowen Basin, Qld Coking, thermal 4 Dec-14 2 years
Sonoma Leighton Bowen Basin, Qld HCC, export thermal 5 Oct-15 7 years
Eaglefield MacMahon Group Bowen Basin, Qld HCC, PCI 1 Aug-14 1 year
Wilkie Creek Peabody Energy Surat Basin, Qld Export thermal 1 Dec-13 2 years
Lake Vermont Theiss Contractors Bowen Basin, Qld PCI, coking, thermal 1 Dec-13 1 year
Yarrabee Yancoal Bowen Basin, Qld PCI, export thermal 1 Dec-15 2 years
Total operational production rigs 36
Note: Excludes 2 rigs being commissioned at Yatala, 1 rig in for routine maintenance at Yatala and 1 rig in transit from REICHdrill Factory in USA to Yatala. Total Fleet = 40
Mine Client Region CommodityNumber of
RigsContract Expiry
Contract
Tenure
Mt Keith BHP Billiton Northern Goldfields Nickel 2 Feb-16 3 yrs
Mt Keith BHP Billiton Northern Goldfields Nickel 1 Feb-16 6 yrs
Mt Keith BHP Billiton Northern Goldfields Nickel 1 Feb-16 3 yrs
Boddington BHP Billiton South Western Australia Bauxite 4 Feb-16 3 yrs
Karara Gindalbie / Karara Midwest Iron Ore 1 Mar-15 4 yrs
Wembley Downs Rockwater Perth Metropolitan Geothermal 1 Sep-13 6 mths
Pilbara Mines Rio Tinto Pilbara Iron Ore 3 Jan-14 2 yrs
Koolyanobbing Rockwater Goldfields Iron Ore 1 Dec-12 2 yrs
Newman Region FMG Pilbara Iron Ore 3 Jul-16 3 yrs
Tom Price Region FMG Pilbara Iron Ore 3 Sep-16 3 yrs
Bunbury Department of water Pilbara water 1 Oct -14 1 yr
Mt Magnet Mt Magnet Gold NL Midwest Gold 1 Apr-14 3 yrs
Busselton City of Busselton South Western Australia water 1 Oct 14 2 yrs
Total operational rigs 23
Note: The above list includes 4 sub contracted rigs and excludes 1 rig in for routine maintenance at Bibra Lake
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Complementary service and drilling focus
Hughes JSW Combined
Revenue contribution by service
Revenue contribution by drilling sector
Hughes JSW Combined
61%
34%
5%
Production Drilling
Other (Supply Services)
Dilineation drilling
22%
39%
40%Production Drilling
Delineation drilling
Non Mining (Water
Services)
48%
16%
22%
14%Production Drilling
Delineation Drilling
Other (Supply Services)
Non Mining (Water Services)
61%5%
31%
3%
Production Drilling
Delineation Drilling
REICHdrill
Express Hydraulics
22%
39%
40% Production Drilling
Delineation Drilling
Water Services
48%
16%
14%
20%2%
Production Drilling
Delineation Drilling
Water Services
REICHdrill
Express Hydraulics
Note – The forecast figures above include 12 months of existing Hughes and REICHdrill business and 9 months of JSW.
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Complementary geographic and commodity focus - FY14
100%
Western Australia
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Revenue contribution by location
Revenue contribution by commodity
Hughes JSW Combined
Hughes JSW Combined
64%5%
31% Queensland
New South Wales
United States
42%
3%20%
35% Queensland
New South Wales
United States
Western Australia
66%
34%Coal
Supply - Rigs &
parts
Note – The forecast figures above include 12 months of existing Hughes and REICHdrill business and 9 months of JSW.
62%6%
10%
3%
14%5%
Iron Ore
Gold
Bauxite
Water
Nickel
Other
43%
22%
21%
2%4%
1%5% 2%
Coal
Supply - Rigs & parts
Iron Ore
Gold
Bauxite
Water
Nickel
Other
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Increased scale and profile
~A$130m - Revenue Business ~ 75 Rigs ~ 404 Skilled Operators
Revenue – FY(14) Estimated Rigs Estimated Employees / Contractors
59
27
45 130
0
20
40
60
80
100
120
140
Hughes Reichdrill JSW Total
$ M
illi
on
214
50
140 404
0
50
100
150
200
250
300
350
400
450
Hughes Reichdrill JSW Total
Em
plo
ye
es
/ C
on
tra
cto
rs
38
13
4
24
79
0
10
20
30
40
50
60
70
80
90
FY13 -
Prodn
rigs
FY13 -
Delin.
rigs
New
Prodn
rigs
JSW Total
Rig
s
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Hughes is well positioned to increase profitability and accelerate growth
Strong performance from existing business (pre Acquisition)
� Revenue from ordinary activities relating to continuing operations UP 27.0%
� NPAT from ordinary activities attributable to equity holders UP 23.2%
� NTA backing per share UP 59.1%
Acquisition creates a leading Australian drilling contractor and provides services, sector, geographic and commodity expansion
� Complementary blue chip client base
� Significant synergies and additional benefits
� Specialist expertise across drilling contractor market
� Diversified earnings streams
� Positive financial impact
� Existing highly experienced Board and management team bolstered by new Directors
Reichdrill provides global exposure and expansion opportunities
Strong balance sheet with capacity to accelerate growth plans
� Gearing reduced to 27.7%
� Strong cash balance supported by profitable businessFor
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FY13 Results
October 2013
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High growth rates and profitability continued in FY13
� Margin Profiles: Underlying margin profiles from the blast hole activities remained stable. Modest fall in consolidated NPAT
margin from reduced contribution from completed delineation drilling contract and expensed non-recurring costs associated
with the acquisition of REICHdrill and corporate restructuring
� Debt management: Debt less cash (net debt), has reduced by $8.4m to $21.9m in June 2013, from peak debt in February 2013
of $30.4m, a reduction of, 27.7%
� Cash flow: Cash flow from operations before interest increased to $10.1m from $1.6m
� Operations: High equipment operating efficiency (high reliability with maintenance managed largely outside required
production times) + sustained high utilisation (95%+) = very high financial productivity of the blast hole production fleet for
both Hughes and its clients
� High growth rates and profitability continued in FY13 - Key contributors;
� Blast hole rigs purchased progressively during FY12 with full year of earnings in FY13
� New blast hole rigs commenced operations during FY13 (hence only working for part of FY13)
� Contribution by REICHdrill from 25 March 2013
Movement % change FY12 Result FY13 Result
$,000s $,000s
Revenue from ordinary activities relating to
continuing operations
Up 27.0% 39,187 49,756
Net profit/(loss) after tax from ordinary
activities attributable to equity holders
Up 23.2% 8,417 10,367
Net profit/(loss) after tax attributable to
equity holders
Up 23.2% 8,417 10,367
NTA backing per share Up 59.1% $0.22 $0.35
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Operational Overview
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Blast-Hole Drilling REICHdrill Express Hydraulics Delineation Drilling
Overview Production drilling: Blast hole drilling in-
pit for open cut coal
Sales and distribution of drilling
consumables and spares
Sales and distribution of drilling
consumables and spares
Production Drilling: Drilling for reserve
delineation and structural support for coal
FY12 Revenue Contribution ~70% 0% ~6% ~23%
FY13 Revenue Contribution ~82% ~4% (3 months contribution, % after
elimination of sales to Hughes)
~3% ~11%
FY14 Revenue Contribution Forecast
~62% (pre JSW) ~31% (pre JSW) ~3% (pre JSW) ~4% (pre JSW)
Key Assets 40 Rigs:
• 17 x REICHdrill C750D
• 16 x REICHdrill C700D• 2 x REICHdrill C550DII
• 4 x Terex GD5000
• 1 x SKS
Manufacturer and global distributor
(direct and through agents) of the
REICHdrill product range of rigs
Agencies/Distributor for:
• REICHdrill
• Torquato• Sullivan Palatek
• Thomson International
• Halco• Ryco
• N&N Drilling
13 Marketable Rigs
Contracts / Customers:• Anglo American
• BHP Mitsui Coal• Downer EDI Mining
• Hunter Valley Energy
• Jellinbah Mining• Leighton
• MacMahon Group
• Peabody Energy• Theiss Contractors
• Yancoal
• BHP Billiton
• Boggabri
• Callide
• Daunia• Eaglefield
• Foxleigh
• Goonyella• Jellinbah
• Lake Vermont
• Millennium• Mt Arthur
• North Dawson
• Poitrel• Sonoma
• Wilkie Creek
• Yarrabee
Global client base:
• USA
• Australia• Africa
• Indonesia
• Other major mining regions
• Other Hughes business units
• Peabody
• Sandvik
Hughes production drilling continued to contribute the vast majority of revenue in FY13 (REICHdrill’s contributed only for 3 months of FY13)
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Operational Overview – Production Drilling
20
Hughes production drilling market: continuing sustained growth
Note 2: Australia Coal Production in Thermal Coal increased in FY11 by 7.8 Mt but was
offset by a decrease in Metallurgical Coal of 17.0 Mt resulting in a combined decrease of 9.2
Mt.
Note 1: Source: Australian Government Bureau of Resources and Energy Economics Resources
and Energy Quarterly March 2013.
300.0
320.0
340.0
360.0
380.0
400.0
420.0
440.0
460.0
0
5
10
15
20
25
30
35
40
45
FY09 FY10 FY11 FY12 FY13 FY14 (f)
A
U
S
C
O
A
L
P
R
O
D
U
C
T
I
O
N
M
t
N
O
O
F
R
I
G
S
Hughes Production Rig Fleet
Actual Production Rigs Forecasted production Rigs
Aust Coal Production (Mt) (2)
0.0
100.0
200.0
300.0
400.0
500.0
600.0
FY09 FY10 FY11 FY12 FY13 (f) FY14 (f) FY15 (f) FY16 (f) FY17 (f) FY18 (f)
Australian Coal Production
Thermal Coal (Mt) (1) Metallurgical Coal (Mt) (1)For
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Operational Overview – Production Drilling (cont)
21
Competitors
Driller Market Share
Hughes Drilling 45.9%
Coldwell 8.1%
Ausdrill 4.1%
Predrill 4.1%
Drill Pro 4.1%
AD&B 4.1%
SMW 4.1%
Others 25.5%
Total 100.0%
Source: Hughes market research estimates
Hughes’ high production drilling market share continues to reflect financial and operating productivity benefits for clients
Hughes
Drilling
27%
Other
Contractors
73%
Contracted Production Rig Market
Share NSW
Hughes Drilling Other Contractors
Hughes Drilling
47%
Other Contractors
53%
Contracted Production Rig Market Share QLD & NSW
Hughes Drilling Other Contractors
Hughes
Drilling
54%
Other
Contractors
46%
Contracted Production Rig
Market Share QLD
Hughes Drilling Other Contractors
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REICHdrill & Express Hydraulics
In March 2013 Hughes acquired REICHdrill following a longstanding relationship.
For several years REICHdrill has been the sole supplier of blast hole production rigs
to Hughes.
Outlook
� Enquires are increasing.
� FY14 order book from third parties is strong, the majority being sold outside the
USA, however, enquires within USA are increasing.
� The FY14 order book excludes all sales for Hughes/JSW.
Distribution network
� Continues to grow through re-engaging with existing agencies and approaching
new agencies in new regions.
� Is currently enjoying a rapid expansion. Notable areas include:
• USA: Komatsu, TJM Inc. Aliquippa & Northeast Drill Supply
• Africa: Mincon & Eurofor SAS
• Indonesia & South East Asia : Fajar Mas Murni
• Australia: Hughes Group
• Former Soviet Union: Global Technology Group
• France: Eurofor SAS
Manufacturing cost base
� Continues to remain low (considerably cheaper than Australia).
� Many major supply contracts favorably renegotiated.
� Very stable work force.
REICHdrill & Express Hydraulics continue growth
Express Hydraulics specialises in sales and distribution of Drilling rigs
spare parts and drilling consumables to Hughes group of companies
and external customers across Australia
Outlook
� Enquiries continue to increase year on year as the Hughes and
REICHdrill brand gain more exposure.
� Express hydraulics continues to represent new leading edge
mining equipment companies e.g. Palatek, Thompson
International, Tooltec and with this sales are expected to grow .
Distribution network
� EHA distribution network now expected to include Hunter Valley
and Bowen Basin with specialist Drill services depots and supply
centers now established.
� The network is also expected to expand further leveraging off the
JSW exposure and JSW facilities located in the Pilbara, Southwest
and Goldfields.
� Express Hydraulics is a major distributor for :
• REICHdrill Inc.
• Thompson International
• Dillco Industrial Inc.
• Tooltech
• N&N Drilling Supply
• Donaldson Filtrations Solutions
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FY13 Performance at a glance
($m) FY13 FY12 Change
Revenue 49.8 39.5 +27.0%
EBITDA 18.1 15.4 +17.8%
EBITDA % 36.3% 39.1% -2.8 points
EBIT 12.5 10.5 +19.8%
EBIT % 25.2% 26.7% -1.5 points
PBT 10.4 8.4 +23.5%
NPAT 10.4 8.4 +23.2%
NPAT Margin 20.8% 21.5% -0.7 points
Earnings per Share 7.8 cents 8.96 cents -12.9%
Notes: FY12 comprises full year of Hughes Drilling and 7 months of EDMS
FY13 comprises full year of Hughes Drilling and 3 months of REICHdrill Inc.
Revenue
� FY13 growth particularly reflects continued strong growth of
production drilling activities
� REICHdrill acquisition consolidated from 25 March. Non-
recurring distortion in this period from underlying high level of
sales to Hughes, rather than third parties. FY14 order book
overwhelmingly to third parties.
Margins
� EBITDA and subsequent margins were impacted by the
completion of delineation drilling activities at Wambo and
expensed non-recurring costs associated with corporate
restructuring and the acquisition of REICHdrill.
Continuing operations from established clients
� Hughes production drilling: Stable blue chip client base with
mines generally lower on the cost curve. Low counter party risk.
� REICHdrill: Revitalisation/renewal of the global distribution
network (USA, Africa, Indonesia, South America) is delivering an
order book dominated by third party clients (USA, Africa in
particular).
High level of operating consistency and hence predictability of
earnings and cash flow.
� High level of equipment on-ground availability through effective
and planned maintenance.
� Rates competitive and yet stable in real terms.
� Generally good matching of contract duration with asset
financing profiles.
Diversity of service/product offering is winning new contracts
• Hughes has won contracts in FY13 by offering existing and
new customers a variety of drilling solutions including:
� Traditional contract drilling services;
� Sale/supply of drill rig to mine owner operator, with a
service and supply of drill consumables contract through
Express Hydraulics; and
� A hybrid of contract drilling and direct sale of drill rig, with
a buy price after a period of time.
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Business Activities Review
Blast hole production operations:
� Revenue and profitability growth is driven by an expanding rig fleet,
full year contributions from rigs purchased part way through FY12 and
part year contributions from rigs purchased progressively during FY13.
� Rig fleet growth rate moderated in the second half FY13. A further
moderation in growth rates to 8%-12% is expected for FY14.
� Moderating demand for growth capital resulted in utilised debt
funding falling by $3.4m from a February peak of $30.6m to $27.3m
(debt less cash fell $8.4m, 27.7% in the same period).
� The recent blast hole related debt reduction profile is expected to
continue through FY14.
REICHdrill:
� FY13 contribution distorted by high percentage of June quarter sales to
Hughes which were eliminated on consolidation.
� FY14 order book overwhelmingly comprises sales to third parties.
� Global distribution network re-development well advanced and
generating sales.
Express Hydraulics:
� Refurbishment facility and key management team in place for non-
Hughes customers and eventually Hughes owned rigs being
established in Mackay, Queensland. Will service rigs in the Bowen
Basin and Queensland generally. Contribution will commence FY14.
� Australia focused agency and distribution activities on-going.
Delineation operations:
� There will be no expansion of asset base.
� Assets to be absorbed into the JSW operations post acquisition.
Financial benefits in 2HFY14.
� JSW management are currently seeking opportunities for these assets.
Revenue by business unit – FY12 & FY13 (A$m)
Activity FY12
$’m
FY13
$’m
Production Drilling 27.7 40.6
REICHdrill (FY13 from 25 March 2013) - 2.0
Delineation Drilling 7.1 5.6
Express Hydraulics 2.4 1.6
Other Income/Discontinued activities 2.3 0.1
Total Revenue 39.5 49.9
Notes: FY12 comprises full year of Hughes Drilling and 7 months of EDMS.
FY13 comprises full year of Hughes Drilling and 3 months of REICHdrill Inc.
0
10
20
30
40
50
60
FY12 FY13
$M
Other Income
REICHdrill
Express Hydraulics
Large Diameter Drilling
Delineation Drilling
Production Drilling
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Balance sheet
Depreciation profile:
� Depreciation of rigs for FY13 has decreased from 15% pa to
10% pa to better reflect the useful life of the rigs (useful life of rigs
is 11-14 years)
� Of the 40 rigs in the fleet (38 operational), 13 rigs are at zero book
value with an average age of 8 years and residual operating life of
3-6 years
Average age of rig fleet:
� Average age of rig fleet is 3.5 years
� Average rig life is 11 to 14 years
Increase in inventory reflects:
� Growth of production drilling fleet by 41%
� Some acceleration of inventory purchases when A$/US$ high
� Addition of REICHdrill inventory
Debt management:
� Debt less cash reduced by $8.4m from peak debt in February (to
$21.9m from $30.4m, a 27.7% reduction)
� In same 4 month period total debt (including bank overdraft
reduced) by $3.4m (~$850k/month) from operating cash flow
generated
Balance sheet FY12 FY13
Cash and cash equivalents 2.5 5.3
Trade and other receivables 9.5 9.1
Inventories 11.2 24.7
Other 1.1 1.1
Current assets 24.3 40.2
Property, plant and equipment 29.3 41.6
Deferred tax asset 1.3 1.3
Intangible assets 4 7.6
Non-current assets 34.6 50.5
TOTAL ASSETS 58.9 90.7
Trade and other payables 7.5 8.1
Bank overdraft 0.9 0.6
Borrowings 24.7 11.2
Provisions 0.5 0.6
Other 2.2 -
Current liabilities 35.8 20.5
Borrowings 0.1 15.5
Provisions 0.4 0.3
Non-current liabilities 0.5 15.8
TOTAL LIABILITIES 36.3 36.3
NET ASSETS 22.6 54.4
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Cash flow
FY2013 Cash flow:
� The strong growth in cash generated by operating activities is
consistent with expectations reflecting full year of “clean”
operations post the Hughes/EDMS merger.
� Modest drag on operating cash flow from a slowing of
payment cycles by some clients.
� Operating cash flow is net of $0.9m of non-recurring cash
costs associated with corporate restructuring and the
acquisition of REICHdrill.
� The majority of the increase in cash flow from investing
activities relates to the acquisition of 11 new blast hole rigs
and the acquisition of REICHdrill.
� The majority of cash flow from financing activities is from the
$18.5m net capital raising funds, and was utilised for the
acquisition of REICHdrill and for the purchase of new
production rigs.
($m) FY12 FY13
Receipts from customers 33.3 50.4
Payments to suppliers and employees -31.7 -40.4
Other -2 -2.1
Net cash (used in) / generated by operating activities -0.4 7.9
Purchase of plant and equipment -11.4 -17.2
Proceeds from sale of plant and equipment 2.4 -
Payment for acquisition of subsidiary - -5.1
Other 0.3 1.1
Net cash used in investing activities -8.7 -21.2
Net proceeds from issue of shares 2.0 18.0
Non controlling interest contribution - 0.2
Dividends Paid -1.3 -
Proceeds from borrowings 10.5 11.6
Repayment of borrowings -3.6 -13.4
Net cash generated by financing activities 7.6 16.4
Net (decrease) / increase in cash and cash equivalents -1.5 3.1
CASH AT THE BEGINNING OF YEAR 3.1 1.6
CASH AT THE END OF THE YEAR 1.6 4.7
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