Wrap Text
Highlights for the period
MASTER DRILLING GROUP LIMITED
Incorporated in the Republic of South Africa
Registration number: 2011/008265/06
JSE share code: MDI
ISIN: ZAE000171948 || LEI: 37890095B2AFC611E529
HIGHLIGHTS FOR THE PERIOD
- USD Revenue increased by 40.0% to USD171.8 million
- USD Earnings per share increased by 500.0% to 13.2 cents
- ZAR Earnings per share increased by 438,0% to 195,3 cents
- USD Headline earnings per share increased by 396.2% to 12.9 cents
- ZAR Headline earnings per share increased by 347,9% to 190,8 cents
- Stable order book of USD237.6 million
- Healthy pipeline of USD507.1 million
- Continued focus on working capital management
- Cash generated from operating activities amounted to USD32.5 million
COMMENTARY
About Master Drilling
Master Drilling was established in 1986 and listed on the Johannesburg Stock Exchange in 2012. The
company delivers innovative drilling technologies and solutions and has built trusted partner
relationships with blue-chip major and mid-tier clients in the mining, hydro-electric energy, civil
engineering and construction sectors across various commodities worldwide for over 35 years. The
Master Drilling business model of providing drilling solutions to clients through tailor-made designs
coupled with a flexible support and logistics chain, makes it the preferred drilling partner throughout
the lifecycle of projects from exploration to capital and production stages.
Commenting on the results for the year ended 31 December 2021, Danie Pretorius, CEO of Master
Drilling, said:
"Master Drilling continued to show resilience in pursuing its growth path, notwithstanding another
challenging year due to the Covid19 pandemic's ongoing effect on the global economy. We posted
record revenue in USD up 40% from USD123.1 million last year to USD171.8 million, while cash
from operating activities amounted to USD32.5 million. Cash generated was invested sensibly with
the long-term growth plan in mind. We are satisfied with the Group's current financial position, as
this will help us face the uncertainty of future trading conditions with confidence.
Technological innovation is a key priority for Master Drilling as we continue to support our clients to
move down the cost curve, optimise their operations and increase safety.
Looking forward, the Company will look to leverage its global footprint as part of its drive to create
value for all stakeholders. We are closely monitoring the civil engineering and construction
industries and the rapid growth of urbanisation worldwide, which present opportunities for us to
benefit from our existing footprint exposure. The ramp-up in electric vehicle production will increase
the demand for copper and other minerals. We are already exposed to a number of these minerals,
and we continue to amplify our exposure to copper and nickel."
Financial Overview
Revenue increased 40% to USD171.8 million and operating profit grew 126% to USD27.8 million.
These represent record results, achieved despite difficult global market and operating conditions.
Cost savings initiatives implemented to limit the impact of the Covid-19 pandemic assisted in this.
USD earnings per share (EPS) increased 500.0% to 13.2 cents, and ZAR EPS increased 438,0% to
195,3 cents. USD headline earnings per share (HEPS) increased 396.2% to 12.9 cents, and ZAR HEPS
increased 349,9% to 190,8 cents.
Net cash generated from operations amounted to USD32.5 million. Cash resources continue to be
managed carefully to cater for emerging opportunities that require specific design, planning and
investment.
Master Drilling's total capital spend of USD19.4 million was applied as to 43% on expansion and 57%
on sustaining the existing fleet.
Debt decreased from USD42.1 million to USD32.1 million and the gearing ratio, including cash,
improved from 10.3% to 5.8% in the 2021 fiscal year.
Operational Overview
Master Drilling's operations globally experienced a profitable year, evidencing the benefits of
significant capex investment over the past 10 years.
Safety and response to Covid-19
From the onset of the pandemic, Master Drilling put in place extensive safety measures and support
structures for its staff, their families and the communities in which we operate.
Through the Crisis Committee, the Group is continuously evaluating risks and adjusting responses,
working closely with health authorities and clients to ensure that all sites are adhering to all
protocols and guidance.
We continue to support and comply with all requirements set by governments and clients to contain
the spread of the virus. Whilst doing that, the Group has also ensured that it continues to deliver
services in a safe and responsible manner. Thankfully, the Group experienced relatively low infection
rates.
Early proactive measures ensured the Group maintained adequate headroom in terms of liquidity
and implemented stringent measures across the business to manage costs, optimise working capital
and capital expenditure, and drive a stronger focus on cash flow generation during these uncertain times.
South America
Each business is up in revenue by more than 20% to 30%, compared to the prior period.
Brazil had one of the best years in the history of the Company with new clients coming on board,
efficient utilisation of equipment, more deployment of larger equipment and shafts drilled
increasing in size. We also maintained and renewed our long-term contract with one of our standing
flagship clients. Growth in Brazil was mainly driven by expansion in our drilling scope with key
clients.
Chile's profitability has improved to more acceptable levels. The Master Drilling Besalco Consortium
is performing well, and the Consortium experienced a profitable year, with capex spend improving
significantly by Codelco. Technology development for our blind hole and raise bore fleet remains a
priority for the Chile business.
In Peru we saw a strong bounce back in 2021 with our utilisation rate increasing. We also regained
two clients lost in prior years. Improved profitability and a recovery in our performance were
attributable to the rebase and restructure of the operations during 2020. Furthermore, we
successfully completed the Ecuador project.
Central and North America
The market for raise boring and exploration drilling activities in North America is buoyant in 2022.
Our management team there is already working on tenders for the current year, as well as on some
long-term drilling contracts. In addition, our North American entity will be employed in the
execution of a project in Saudi Arabia.
The Canadian contract is advancing well. During 2021 we were awarded a new contract and started
mobilising equipment towards the end of last year. The remote locations present logistical
challenges, however, we are well positioned to meet these. We have established a solid base in
Canada and are well positioned to capitalise on increasing opportunities.
We continue with our efforts to secure contractors licenses across each state in the USA. Doing this
will assist in driving our new business pipelines, focusing primarily on mining-rich Nevada but also
Arizona.
Mexico bounced back during 2021 and we have seen machines deployed to projects in satellite
countries such as Nicaragua. We were recently awarded several projects in Mexico on the back of
stronger commodity prices. We see a strong orderbook for the 2022 year in the region. Cost drivers
remain a focus point. Significant improvements have already been made with a positive effect on
gross profit.
The local Master Drilling Mexico business in partnership with A&R Group, an associate of the Group,
has delivered its first project in this region.
Africa
Africa remains the key area for the Group, and we are aggressively pursuing further opportunities in
this market.
In Ghana, we currently have two machines working on two projects. However, it is expected that
operations will be finalised by the end of the first quarter of 2022 as the contracts are about to
commence reaming of the final ventilation hole.
The DRC, continued its satisfactory performance with our long-term project. We have a strong
working relationship with the client, with additional opportunities for work on the copper and cobalt
mines. Further opportunities are in the pipeline for growth in this region.
Operations in Mali will see an uptick in revenue. Work on the ventilation shafts commenced end of
2021. Stable revenue is expected in Mali and the current client is regarded as a strategic partner of
Master Drilling.
We are in the process of mobilizing equipment to Tanzania on a long-term contract. There are
prospects of additional work and we believe this country will be an important contributor in the
future.
Zimbabwe started with two contracts and the possibility exists of extending it for further additional
scope on the back of the improvement in the platinum and palladium prices.
Although Zambia's operations were put into care and maintenance, we are mobilizing equipment to
the country to start up a new project during 2022.
The South African operations have maintained steady growth. The XXXL machine at the strategic
project is almost complete with this record hole. The 2nd XXXL has started collaring on the vent shaft
and is planned to complete the hole at the same depth of 1 377m.
We remain committed to expansion into African countries meeting our investment criteria.
Scandinavia
Of note is that we changed the name of the European operations from Bergteamet (the operation
we acquired) to Master Drilling Europe. In addition, we made changes to management with the
appointment of a Swedish general manager in July 2021. We are seeing an uptick in work, and we
were awarded our first project in Spain to shotcrete a 560m ventilation shaft. We expect further
raise boring opportunities once we execute this project successfully. In general, we see much more
movement in the market than just six months ago. Several enquiries are coming from infrastructure
as well as hydro-electric sectors.
India
The Indian operations are performing well. The original contract expired during the year but after
successful negotiations it was extended with a bigger scope of work for a further three years.
Further discussions regarding expansion are continuing.
Other regions
Master Drilling is growing its presence in Australia and Central Asia, with a focus on raise boring.
The ramp-up in Australia required more investment than expected and, with new projects starting
up, could require additional cash. However, this is a strategic investment into one of the biggest
mining countries in the world and we will continue to pursue new opportunities. The focus is to get
long-term contracts to serve as base for the operations there.
Other smaller projects in other regions of the world are currently being explored with the mindset of
expanding the Group's already wide-spread presence.
Technology
Technological innovation is a key priority for Master Drilling to support clients to move down the
cost curve, optimise their operations and increase safety.
Given the challenges for our clients in mining, we have identified three technology areas of focus to
develop a growth strategy and diversify the business: shaft sinking, tunnelling and non-explosive
mining.
In order to spread our risk and lighten funding requirements, we entered into a joint venture
(Master Sinkers) with the Industrial Development Corporation (IDC) with a view to pursuing a
promising business case. Master Sinkers now have a signed letter of intent with a client to blind bore
a ventilation shaft, and we are conducting investigative work on scoping and have started on the
detailed design and procurement of resources for the shafts. The project is progressing well and by
H2 2022 we hope to commission the service and start executing on the project. We are positioning
ourselves as a specialised mining contractor, as opposed to a mainstream one.
We secured a contract for an underground exploration decline project in South Africa. We are
looking to start tunnelling in the first quarter of 2022. We have also initiated a study on additional
applications and projects. The study is associated with technologies and various value propositions
which are substantially diversified including underground mining access and non-explosive mining
methods to address the needs of clients.
Non-explosives mining is still an uncharted area, and we are looking to provide solutions for clients
that are not bound by the requirement of explosives approvals, while at the same time shielding
personnel against hazards by offering the flexibility to operate remotely. We have engaged with four
different clients where we are able to develop these technologies and provide bespoke solutions
that cater to their specific needs. By doing so, we hope to build relationships with these clients in a
phased approach thereby ensuring gradual progress and minimising large exposure or risk. All these
projects are progressing well. These technologies all relate to providing a safer, higher productivity,
cost-competitive and efficient solution.
Plant and equipment
The fleet consists of 150 raise bore and 58 slim drilling rigs. The total raise boring fleet's utilisation
rate was around 70%. The rate of new rigs coming on board will settle with a focus on larger units, which
typically generate higher income.
Skills development
Safety across the Group is of paramount importance and one of our focus areas, with a goal of zero harm.
Due to the ramp up in operations and the increase in manhours worked, we have seen a slight increase in
our "all injury frequency rate". We are addressing this through several initiatives.
The foundation of our strategy is the people who make it happen; our success depends on the skills
and expertise that support our goals. Our people have specialized knowledge aligned with global
best practice, which is then applied to ensure that sound, sustainable use is made of our assets,
enhancing growth, productivity, and profitability.
In 2021, the Group continued with the Human Capital project that focused on reviewing the current
skills requirements and ensuring that these align with its future growth and expansion vision. Several
new roles have subsequently been identified and approved, and individual development plans are
being aligned to ensure continuous best practice in the development of our people in key areas.
Work has commenced to revise Master Drilling's overall safety induction programme. This initiative
will ensure that Master Drilling satisfies legislative and client requirements. This initiative will
continue during 2022.
The B-BBEE skills development initiatives for the SA entities were once again successfully
coordinated and financed via Master Drilling Training Services. The B-BBEE certification for the
Training Centre was finalised with a level 2 rating being achieved.
Remote learning via the Learner Management System to mitigate the risk of lapsing training
certificates is ongoing. The range of training programmes available on this system continues to
expand.
Dividend
In line with the Board's commitment to continue the Company's dividend history in future once
circumstances permit, the Board gave careful consideration to declaring a dividend at this stage.
Shareholders are advised that the Board concluded that, whilst the requirements for being able
to pay a dividend are met, the massive global uncertainty caused by the recent outbreak of
hostilities between Russia and Ukraine and by the current and potential further responses of
various countries to this situation, makes it advisable to defer a dividend decision until
more certainty exists regarding how this situation and its possible consequences may unfold.
The Board will consider declaring a dividend as soon as that becomes possible, which may be
by way of a special dividend rather than a normally scheduled dividend.
Pipeline and committed orders
As at 31 December 2021 our pipeline totalled USD507 050 803 while the committed order book
totalled USD237 593 876 for 2022 and beyond.
Outlook and prospects
Master Drilling's diversified footprint, proactive capital management, service orientation and
quick response to ensure the safety of employees and clients have ensured a commendable performance.
The fleet utilization is now moving towards the required benchmark of 75%. The Group's diversification
across regions, commodities, currencies, and industries proved to be a key factor in this and will
remain a key part of Master Drilling's strategy.
The Group remains committed to ensuring the safety of its people and will continue using innovative
mechanised equipment in its operations. This is also the future of the industry with an increased
focus on mechanisation and remote operations, which is the space in which Master Drilling likes to
operate and is well placed to compete. Opportunities to diversify outside of the traditional drilling
business into areas such as Artificial Intelligence will also continue to be pursued.
Pipeline as at 31 December 2021 totalled USD507.1 million while the committed order book totalled
USD237.6 million for 2022 and beyond. In the short to medium term, the sales pipeline is expected to
normalise and increase with further tactical acquisitions and joint ventures supporting performance.
Having made significant investments in its fleet, technology and geographical diversification over the
past couple of years, the Group is now positioned to capitalise on the predicted bull run without
requiring additional capital investment.
Master Drilling's technology and experience put the company in a strong position to continue to support
its clients' drive to improve productivity and efficiencies whilst reducing operational risk.
REGULATORY REQUIREMENTS
The contents of this short form announcement are the responsibility of the Board of directors
of Master Drilling Group Limited. The information in the short-form announcement is a summary
of the full announcement available on Master Drilling's website. Master Drilling posts information
that is important to investors on the main page of its website at www.masterdrilling.com and under
the "investors" tab on the main page. The information is updated regularly and investors should visit
the website to obtain important information about Master Drilling.
The full announcement can also be accessed online at
https://senspdf.jse.co.za/documents/2022/JSE/ISSE/MDI/FYResults.pdf
The information in this announcement has been extracted from the audited consolidated annual
financial statements that are prepared by the corporate reporting staff of Master Drilling, headed by
Willem Ligthelm CA(SA), the Group's financial manager. This process was supervised by Andre Jean
van Deventer CA(SA), the Group's chief financial officer.
BDO South Africa Inc, the group's independent auditor, has audited the consolidated annual financial
statements of the group from which the abridged consolidated results contained in this report have
been derived, and has expressed an unmodified audit opinion on the consolidated annual financial
statements. The abridged consolidated financial results comprise the statements of financial
position at 31 December 2021 and the statements of comprehensive income and cash flows for the
year then ended. A copy of the auditor's report is available for inspection at Master Drilling Group
Limited's registered office. The auditor's report does not necessarily report on all of the information
contained in the abridged consolidated annual results. Shareholders are therefore advised to obtain
a copy of the auditor's report and key audit matters together with the accompanying financial
information from Master Drilling Group Limited's registered office.
Any investment decision by investors and/or shareholders should be based on consideration of
the full announcement as available on www.masterdrilling.com. The full announcement is also
available at the Company's registered office (for inspection, at no charge, during office
hours on any business day).
For and on behalf of the Board
DC Pretorius
Chief Executive Officer
AJ van Deventer
Chief Financial Officer
Sandton
22 March 2022
Sponsor
Investec Bank Limited
REGISTERED AND CORPORATE OFFICE
4 Bosman Street
PO Box 902
Fochville, 2515
South Africa
Date: 22-03-2022 07:05:00
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