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Audited Annual Results for the year ended 31 December 2020
MASTER DRILLING GROUP LIMITED
Incorporated in the Republic of South Africa
Registration number: 2011/008265/06
JSE share code: MDI
ISIN: ZAE000171948 || LEI: 37890095B2AFC611E529
AUDITED ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2020
SALIENT FEATURES FOR THE PERIOD
- USD Revenue decreased by 17.0% to USD123.1 million
- USD Earnings per share decreased by 78.1% to 2.2 cents
- ZAR Earnings per share decreased by 75,1% to 36,3 cents
- USD Headline earnings per share decreased by 74.8% to 2.6 cents
- ZAR Headline earnings per share decreased by 71,4% to 42,6 cents
- Stable order book of USD212.8 million
- Healthy pipeline of USD539.9 million
- Continued focus on working capital management
- Cash from operating activities increased by 72.7% to USD25.5 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 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 30 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 2020, Danie Pretorius,
CEO of Master Drilling, said:
"Master Drilling's overall performance for the year was weighed down by the weak global economic growth
environment entering 2020 which was compounded by the material impact of Covid-19, across the 23 countries
in which we operate, from a human, financial and operational perspective. Although the Group experienced a
significant decline in revenue in the South American operations, primarily due to government-imposed Covid-19
restrictions, this was offset by regions such as India, Africa and Scandinavia which remained operational and
received various stimulus packages.
Despite a decrease in revenue, the Group experienced much-improved overall cash generation and maintained
adequate liquidity whilst prioritising proactive measures around costs, working capital and capex during these
uncertain times. These initiatives provide us with a solid platform for the current year as we execute on
exciting contracts and opportunities.
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. Our recent investment in AVA is aligned with our
strategy to diversify our services and invest in businesses that help us meet our clients' demand for increased
mechanisation and digitisation. Other opportunities with low capital requirements and short return cycles are
currently under consideration.
Although the shape of recovery remains uncertain, we have seen a turnaround in the past six
months across the commodities and regions that we are already exposed to. Having made significant
investments in our fleet, technology and geographical diversification over the past couple of years,
we are now positioned to capitalise on the predicted bull run without requiring additional capital
investment."
Financial Overview
Revenue decreased 17.0% to USD123.1 million and operating profit decreased to USD12.3 million.
This was a respectable result given the adverse global market conditions experienced. Cost savings
initiatives were implemented as far possible to limit the impact of the Covid-19 pandemic.
USD earnings per share (EPS) decreased 78.1% to 2.2 cents, and ZAR EPS decreased 75,1% to 36,3 cents.
USD headline earnings per share (HEPS) decreased 74.8% to 2.6 cents, and ZAR HEPS decreased 71,4% to 42,6 cents.
Net cash generation improved to USD25.5 million. Cash resources continue to be managed
stringently to cater for emerging opportunities that require specific design, planning and investment.
Master Drilling's total capital spend of USD9.2 million was 52.9% on expansion and 47.1% on sustaining the existing fleet.
Debt decreased from USD51.4 million to USD42.1 million and the gearing ratio, including cash,
changed from 22.5% to 10.3% in the 2020 financial year.
Operational Overview
Master Drilling entered the year facing a challenging operating environment as well as deteriorating
economic and socio-political fundamentals across many of its operations. The negative impact of
those factors on the mining sector were compounded by the outbreak of the Covid-19 pandemic
during the second quarter and subsequent lockdown measures across the countries in which the
Group operates.
In particular, the international movement of people and goods has proven incredibly challenging and
costly. Even though mining remained an essential component of economic activity throughout the
pandemic, limited production led mining companies to build up supply chains and logistics capacity
around their respective operating mines.
Despite these unprecedented challenges, the teams managed to stabilise production, partially
mitigating the significant financial impact during the initial hard lockdowns of the first half.
Subsequently, the Group was awarded new exploration projects and mobilised an additional fleet to
service existing clients with a considerable improvement in drilling and exploration activity becoming
more apparent and creating a healthy pipeline.
Against this backdrop, it is evident that the flexibility of Master Drilling's business model and the
geographical spread of its operations have assisted in cushioning the Covid-19 blow while ensuring
sustainability in the short to medium term.
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
Operations in South America, which include Brazil, Chile, Ecuador and Peru were severely impacted
by Covid-19, with some of the world's highest infection rates throughout the year.
Although revenue in the region experienced a significant decline, primarily due to government-imposed
Covid-19 restrictions, various restructuring initiatives to right-size our footprint and costs were
completed and the businesses continued to show resilience amid the pandemic with Brazil output normalising
in the second half of 2020 and all contracts continuing as operationally planned.
Brazil finished the 2020 year in a strong position as delays incurred during the Covid-19 period were
recovered during the latter part of the year. The business will continue to look for diversification
opportunities, including those in the civil construction sector.
In Chile, margins are showing improvements following the restructuring initiatives. The newly
established Joint Venture Master Drilling Besalco S.A. has been successfully awarded a project in
Chuiqicamata (Codelco) which positions Master Drilling for additional vertical and horizontal
development projects within the country.
Peru continued to present difficult conditions with strict lockdowns in 2020 restricting human capital
mobilisation to sites. Revenue remained low, despite Peru starting operations again in July with a
couple of machines working. Although the utilisation of the rest of the machines deployed in Peru
increased in the fourth quarter, this was not sufficient to offset losses incurred earlier in the
year. The management restructuring process was completed during the second half of 2020 and the low
revenue necessitated a further reduction in the labour force in addition to the initial restructuring
plan. The Peruvian Government Covid-19 related special labor arrangement provided some relief.
Central and North America
Operations in the region have been bedded down and the strategy to grow Master Drilling as a differentiated
competitor in the market is progressing.
Canada continues to have the largest exploration budget in the world, offering many opportunities
for growth. The largest contract in the country is progressing well and the first rig deployed on the
project recently completed the first ever bore hole in Labrador. The second rig has been
commissioned and has successfully completed its first pilot hole.
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.
The Mexican operations experienced a challenging first half of 2020. Due to mining being declared a
non-essential service during the initial nationwide lockdown, business operations were severely
affected. Currency fluctuation compounded these challenges, affecting performance negatively. It is,
however, encouraging to see signs of recovery with numerous requests for proposals coming to
market for new projects in 2021.
The region offers great opportunities driven by increased mechanisation and modernisation
providing a good platform for our automation and remote controlling solutions.
Africa
Master Drilling currently has a large fleet deployed across key projects and the region is now the
largest contributor of revenue and profits for the Group. Operationally, the pandemic had less
impact on operations in the region with no sites closing due to the pandemic. However, logistical
issues such as various delays experienced in mobilising equipment to site and ensuring clearances by
the necessary authorities had to be managed.
The aggressive expansion into West Africa continued as part of the Group's diversification strategy,
with a specific focus on gold producers. The global uncertainty spurred demand for gold as a safe-haven
asset in 2019 and this trend accelerated in 2020 which is positive for producers in the short-term.
In Ghana, an initial contract commenced in the second quarter and the Company's footprint was
expanded further with different clients during the remainder of 2020 thereby securing a long-term
sustainable business.
Operations in Mali will see a marginal growth in revenue due to an increased scope of work. DRC
delivered a satisfactory performance aligned with expectations.
Botswana continues to offer great opportunities, with a contract secured in the first half of 2020
now under way. This long-term project is a sign of encouraging opportunities available in the country.
Even though the South African mining sector still provides isolated opportunities, it is shrinking in
overall size due to the unfavourable environment limiting new capital expenditure.
Master Drilling will continue to support its loyal domestic clients although growth will likely remain
subdued.
We remain committed to expansion into African countries meeting our investment criteria.
Scandinavia
After a very positive start to the year, we experienced a slowdown in the latter half of the year,
because of mines postponing the start-up of new projects in response to the uncertainty caused by
secondary Covid-19 waves. The 18-month underground project is progressing well, and Master
Drilling has been awarded an additional shaft. Discussions are also currently underway for other
drilling contracts.
The Civil infrastructure sector has been a key focus area and we are starting to see an increase in
raisebore enquiries for projects that have historically been excavated conventionally.
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, Russia and Central Asia, with a focus on raise boring.
In Australia, our break-through contract is well under way with growing interest from prospective
clients providing a healthy pipeline of new projects. Mobilisation and project start-ups were
impacted by travel restrictions and unplanned shipping delays, but an office has been set up and all
essential personnel have been appointed.
There is a growing appetite in Russia for mechanised mining services and the Group has commenced its
first drilling project in this region with a partner. The initiatives in this region is beginning to bear
fruit and there is a healthy pipeline of opportunities in the greater region.
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.
Master Drilling recently announced the acquisition of a 40% stake in AVA Solutions (AVA), a
specialist in data-driven mine fleet management solutions. Currently, AVA's unique digital platform
analyses and tracks vehicles across 28 different sites in 5 countries for a range of blue-chip
companies. This investment is aligned with the Group's strategy to diversify its services and invest in
businesses that help meet clients' demand for increased mechanisation and digitisation. Other
opportunities with low capital requirements and short return cycles are currently under review.
As previously reported, the decision was made to exit the TunnelPro business due to a lack of contract
opportunities, cost management requirements and general economic conditions. However, the skills and intellectual
property transfer to Master Drilling was completed successfully and the strategy for our Mobile Tunnel Borer (MTB)
technology remains sound. The MTB is currently undergoing maintenance and improvements in Fochville following
project cancellations because of Covid-19 in March 2020. New project approvals are pending.
The Shaft Boring System is set to replace the conventional shaft-sinking methods. Progress is being
made with the Industrial Development Corporation (IDC) to support this approach in co-funding and
financing, limiting Master Drilling's contribution and preserving cash.
Plant and equipment
The fleet consists of 145 raise bore and 58 slim drilling rigs. The total fleet's utilisation rate was 60%.
The rate of new rigs coming on board will settle with a focus on larger units, which typically generate
higher income. No new slim rigs are in the pipeline at this point.
Skills development
Safety across the Group is of paramount importance and one of the main focus areas, with a goal of
zero harm. A number of safety initiatives implemented over the past three years have led to an
overall reduction in the lost time injury frequency rate of almost 15% over the period and a decline
of 18% in all injuries.
In addition, a mobile application was developed and implemented to manage Safety, Health,
Environmental and Quality (SHEQ) initiatives. This initiative demonstrates Master Drilling's ability to
deploy innovative solutions to increase safety during drilling operations, whether for mining or civil
works, across its employee and client base.
Investments in upskilling the workforce also remain an integral part of achieving targeted top line
growth. Various activities were implemented to ensure the business remains sustainable. In 2020, the
Group embarked on a Human Capital project that will focus on reviewing the current skills requirements
and ensure that these align with its future growth and expansion vision.
The MD Training Centre received accreditation from the Mining Qualifications Authority (MQA) and the
first accredited Management Training programmes were conducted. The B-BBEE skills development initiatives
for the SA entities are now being coordinated and financed via the MD Training centre. Applications for
extension of scope have been submitted to the MQA which will enhance the portfolio of training that will
be conducted by MD Training.
Raisebore Qualification training material was developed and submitted for accreditation to the MQA
and a business plan has been finalised and the training material translated to Portuguese and
Spanish to ensure uniform standards of training across the Group. During the Covid-19 lockdown
restrictions, the material, as well as accompanying tests, were presented remotely via the Learner
Management System (LMS) to mitigate the risk of lapsing qualifications.
The B-BBEE accreditation for the Training Centre was finalised with a level 2 rating being awarded.
Dividend
In view of currently prevailing global volatility and uncertain economic conditions the Board deems it
advisable that cash resources should be protected, and thus resolved on 22 March 2021 not to
declare a dividend in respect of the 2020 financial year. The Board remains committed to consider
the continuation of the Company's dividend history in future financial periods, once circumstances
permit.
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/2021/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 2020 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 and on www.masterdrilling.com
under the “investors� tab on the main page. 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 and on www.masterdrilling.com.
Pipeline and committed orders
As at 31 December 2020 our pipeline totalled USD539 903 987 while the committed order book
totalled USD212 775 709 for 2021 and beyond.
Outlook and prospects
Master Drilling's diversified footprint, proactive capital management and quick response to ensure
the safety of employees and clients have ensured a commendable performance during the Covid-19
pandemic. 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 AI will also continue.
Although the shape of recovery and the pace at which vaccines will be rolled out globally remains uncertain,
the uptick in the past six months across the commodities and regions that Master Drilling is already exposed
to is encouraging.
Pipeline and committed orders as at 31 December 2020 totalled USD539.9 while the committed order book totalled
USD212.8 for 2021 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.
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
23 March 2021
Sponsor
Investec Bank Limited
REGISTERED AND CORPORATE OFFICE
4 Bosman Street
PO Box 902
Fochville, 2515
South Africa
Date: 23-03-2021 08:27:00
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