Big write-downs darken Boart Longyear

Cutting costs and staff is part of a cyclical business.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The 2013 half-year results for Boart Longyear (ASX: BLY) tell of a deep hole in profits — a net loss of $329.4 million, down from a profit of $97.7 million in December 2012. The world's leading supplier of drilling services, equipment and tooling declared a massive US$315 million in restructuring charges and impairments due to ongoing core market weakness.

Weak commodity prices have caused a slowdown in the resources industry domestically and internationally, and the Chinese economy cooling down has had a knock-on effect with the company's customers, reducing their capital budgets and needs for drilling services.

The negative impact has continued though the first half of 2013, reducing revenue by 35% compared to the first half of 2012. Rationalisation of the company has meant a reduction of over 2,800 personal since the start of 2013, and divisional groups are being consolidated to cut costs and streamline works.

The cost of the restructuring is estimated to cost about $98 million, but the company projects it will save about $90 million annually. The impairments include $175 million in goodwill and intangible assets being written down, as well as a $42 million write-down of assets in the drilling services division.

Drill rig utilisation only averaged about 50%, down from 70% in the same period last year. Revenue for drilling services was down 34%, with a 53% fall in EBITDA. The company has completed its sell off non-core US-based environmental and infrastructure drilling services in July after the balance date. The products division has felt the same effect with revenues down 36%, and EBITDA was off 68% to $22 million.

The company expects its second-half 2013 result to be lower than the adjusted result for the first half, yet the restructuring will still produce savings. Richard O'Brien, the company's President and Chief Executive Officer, said,"… we are taking aggressive steps to control costs. Our latest cost reduction initiatives should lead to approximately US$90 million of reductions, on a run-rate basis, by the end of 2014 in addition to the US$70 million of reductions announced in late-2012 and already being realized in 2013."

The share price has fallen from about $3.00 in July 2012 to currently around $0.50. No dividend was declared for this first half.

Foolish takeaway

Cyclical industries have to be avoided until they are so bad that they can't get worse. That's when buying opportunities present themselves. Your margin of safety may be built into that price drop because it can't get much worse.

Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading


Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »