October 29, 2008
Boart Longyear Market Update
In light of unprecedented developments in the global economies that have recently occurred, Boart Longyear (ASX: BLY) is today updating its 2008 guidance and outlining certain actions and strategies for addressing future market conditions.
Total revenues for 2008 are expected to be approximately 22% higher than the level achieved in 2007. This is slightly below the previous guidance of 25% which was outlined in late August. Although revenues in local currencies in the 2nd half of 2008 have been consistent with prior expectations that were outlined in late August, the values of the Australian and Canadian dollars relative to the U.S. dollar have declined and now sit well below the levels of mid-year. This is expected to reduce our translated U.S. dollar revenues which are reported.
The 2008 EBITDA margin is expected to be approximately 22%, which remains in line with previous guidance and is before any restructuring charges that may be necessary. While the company's Drilling Services division has continued to experience strong results thus far in 2008, there are indications that customer demand for exploration drilling is beginning to moderate. Although we have not yet seen a significant change in our global rig utilization, redeployment and rig turnover activity has increased as certain contracts have been delayed or reduced and junior mining companies are taking actions to conserve cash. Furthermore, demand in the Products division has softened in recent weeks resulting in a decline in the company's order book backlog of manufactured products.
Commenting on this update, Craig Kipp, President and Chief Operating Officer, indicated, "2008 is shaping up as an outstanding year for Boart Longyear. However, the world's economies are slowing, prices for many base metals and other commodities have declined and the continuing credit crisis is severely restricting access to financing that many of our customers need. Although there is still a great deal of uncertainty as to the extent and duration of the current economic downturn, it is becoming apparent that our record financial performance in 2008 is unlikely to be replicated in 2009."
"While our strategy over the past several years has focused on growth and expansion to solidify Boart Longyear's position as the industry leader, I expect that 2009 will be characterized by efficiency, cost control and conservative balance sheet management. While growing the business over the past few years, we have also closely managed our ongoing cost profile. We have lowered our overhead by consolidating factories and regional offices. More importantly, by using strategic suppliers, we have successfully implemented a strategy of "variabilizing" a significant portion of the manufacturing cost base of our products business. As always, we maintain the ability to quickly reduce our operating costs in drilling services, on a rig-by-rig basis, as demand patterns change. Finally, we have made critical investments in enhancing our global financial reporting system and we now have better visibility into all of our costs so we can better control them. All of these programs will serve us well as we move forward into 2009."
As a result of the changing business environment, among the initiatives that Boart Longyear is implementing are the following:
-- Immediate restructuring and headcount reductions initiatives have been announced at the company's manufacturing facilities in Salt Lake City, Utah; North Bay, Ontario; and Adelaide, Australia. These actions will impact approximately 150 people in the coming weeks. Additional cost savings initiatives are currently being evaluated. The Company expects to record a restructuring charge in 2008 related to these actions.
-- Capital spending in 2009 will be reduced to approximately 50% of the level in 2008 and our acquisition activity will decline. While continuing to selectively monitor and evaluate a limited number of attractive growth opportunities, the company's priority in 2009 will be to maximize cash flow and maintain its strong balance sheet.
Mr. Kipp added "Many of our core strategic priorities will remain unchanged. We will continue to invest in our R&D and safety programs. We have had outstanding success in introducing new products to the market. In addition, we will also continue to strengthen, develop and leverage our key customer and supplier relationships. Junior mining companies represent only about 20% of our 2008 year-to-date Drilling Services revenues, so our focus remains on the mining majors where the strength of our relationships is a key competitive advantage."
"Our financial position remains strong, with our ratio of total net debt to EBITDA expected to be approximately 1.7 times and our ratio of EBITDA to Interest Expense at over 10 times as of year end 2008. Available undrawn revolver capacity, cash balances and strong underlying cash generation capability remain more than adequate to execute on our plans in 2009. We have no refinancing requirements for the next 18 months as the first tranche of our bank credit facilities does not mature until April 2010 and we are operating well within all of our financial covenants. This enables us to continue to benefit from the low-cost capital structure that we put in place in connection with our IPO in 2007 as our annual after-tax cash interest expense is approximately $25 million."
"In conclusion, while the current market environment presents many challenges, Boart Longyear is well-positioned to address these challenges. The long-term outlook for our company and our industry remains attractive. The demand for gold, copper, iron ore and other commodities will continue to grow."
Boart Longyear will release its full year 2008 results in late February and will provide more detailed guidance on its 2009 outlook at that time.
About Boart Longyear
Boart Longyear is a 120-year-old global organization headquartered in Salt Lake City, Utah and Adelaide, South Australia with offices and operations in Asia Pacific, North and South America, Europe and Africa. The company is the leading provider of drilling services and drilling products for the global mining industry, and also has a substantial presence in drilling for other purposes, including water exploration, environmental and oil sands exploration.
With 2007 sales of over U.S. $1.5 billion and nearly 10,000 employees worldwide, the company conducts contract drilling services in more than 40 countries, and provides mining products to customers in over 100 countries.