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Capital Drilling Plc

Capital Drilling Ltd Strong performance for the first half

Capital Drilling Ltd (LON:CAPD), a leading drilling solutions company focused on the African markets, today announced half year results for the period ended 30 June 2019.

 H1 2019H1 2018
Average Fleet Size (No. of drill rigs)9194
Fleet Utilisation (%)5246
ARPOR ($)183,000200,000
   
Capex ($ m)6.45.4
   
Revenue ($ m)54.854.5
EBITDA1 ($ m)12.712.5
EBIT1 ($ m)7.95.8
Net Profit After Tax ($ m)5.12.8
Cash From Operations ($ m)10.57.2
   
Earnings per Share  
Basic (cents)3.72.0
Diluted (cents)3.72.0
   
Interim Dividend per Share (cents)0.70.6
   
Net Asset Value per Share1 (cents)58.352.2
   
Return on Capital Employed (%)21.417.7
Return on Total Assets (%)15.611.8
Net Cash1 ($ m)8.53.4
Net Cash/Equity (%)10.74.7

*All amounts are in USD unless otherwise stated

(1)) EBITDA, EBIT, Net Asset Value per share and Net Cash are non-IFRS financial measures and should not be used in isolation or as a substitute for Capital Drilling Limited financial results presented in accordance with IFRS.

Financial Overview

·    First half revenue of $54.8 million, 0.6% higher than H1 2018 (H1 2018: $54.5 million)

·    ARPOR of $183,000 (H1 2018: $200,000), an 8.5% decrease with lower revenues during start-up phase of new contracts. Continued solid contract performance across key contracts

·    EBITDA of $12.7 million, up 1.6% on H1 2018 despite the increased investment in growth. Margins stable at 23%, reflecting the sustainability of cost management initiatives

·    NPAT $5.1 million, an 82.1% increase (H1 2018: $2.8 million) reflecting reduced depreciation and lower interest charges

·    Capex up 18.4% to $6.4 million (H1 2018: $5.4 million) on expanding the support asset base in West Africa

·    Net cash up 150% to $8.5 million (H1 2018: $3.4 million) with an additional $2 million of long-term debt repaid

·    Cash from operations up 45.8% to $10.5 million (H1 2018: $7.2 million) due to improved working capital management

·    Investments of $7.7 million as of 30 June 2019 (31 December 2018: $5.7 million) following strategic investments aligned to successful West African business development strategy, supporting a number of contract wins

·    Earnings per share improved by 87.3% to 3.7 cents (H1 2018: 2.0 cents)

·    Final dividend for 2018 financial year of 1.5 cents per share, paid in May 2019 (FY 2017: 1.2 cents)

·    Interim dividend of 0.7 cent per share, up 17%, to be paid on 27 September 2019 (2018: Interim dividend of 0.6 cents per share) to shareholders registered on 06 September 2019

Operational and Strategic Review

·    New exploration contracts wins to commence in H2 2019 include:

–     Arrow Minerals, Burkina Faso

–     Desert Gold Ventures, Mali

–     Awale Resources, Cote d’Ivoire

·    Previously announced Exploration contracts awarded in H1 2019 include:           

–     Compass Gold Corp, Mali

–     Golden Rim Resources, Burkina Faso

–     Allied Gold Corp, Cote d’Ivoire

–     Thor Explorations Ltd, Nigeria

·    Previously announced Mine Site contracts awarded in H1 2019 include:

–     Kinross Gold Corp, Mauritania

–     Resolute Mining Ltd, Mali

–     Thor Explorations Ltd, Nigeria

·      Expanded the Group’s operations into new West African markets of Burkina Faso and Nigeria (Q4)

·      Contract wins with new clients and in new countries reflect progress in leveraging the increased operational presence in West Africa

·      Further deployed rigs into the high-growth West African region, increasing the rig count to 33 rigs

·      Multi-year contract wins (Allied, Thor and Kinross laboratory contract) expanded the Group’s portfolio of long-term mine-site based contracts to eight

·      Strengthened operational and business development capabilities, appointing Jodie North as Chief Operating Officer and Chris Hall as Business Development Manager – West Africa

·      Purchased an additional blast hole rig to support long-term Sukari Gold Mine (Egypt) contract

·      Fleet utilisation up 13% (52%) on H1 2018 (46%) on an average fleet of 91 rigs

Health & Safety

·    Previously announced world class safety achievements:

–     Sukari Gold Mine (Egypt) achieved two years LTI free in January

–     North Mara Gold Mine (Tanzania) achieved three years LTI free in March

–     Geita Gold Mine (Tanzania) achieved two years LTI free in March

–     Tasiast Gold Mine (Mauritania) achieved two years LTI free in June

–     Syama Gold Mine (Mali) achieved three years LTI free in June

Outlook

·        Recent strength in the gold price an encouraging indicator – approximately 90% of the Company’s revenues are linked to gold

·        Equity markets showing renewed interest in the exploration sector as a result of the stronger gold price

·        Strategic expansion into West Africa continuing to generate multiple new opportunities

·        West Africa remains a high growth region, particularly in the gold sector with relatively under-developed gold deposits

·        Business development activity securing new business, including with new clients in existing operational areas, together with expansion into new operational countries

·        Strong cash generation from mining companies driving increased exploration budgets

·        Solid pipeline of new contracts commencing in H2 provide confidence in growth plans

The Group maintains its revenue guidance range of $110 – $120 million for 2019, with revenue expected to increase in H2 2019, consistent with 2018.

Commenting on the results, Jamie Boyton, Executive Chairman of Capital Drilling, said:

“We are pleased to report the Group has delivered another strong performance for the first half, delivering solid financial results while continuing to pursue strategic growth plans. Particularly pleasing is the strong cash result, despite outflows associated with establishing operations in Burkina Faso and mobilisation for a new contract in Mali. Our balance sheet remains robust due to ongoing prudent cost management. As a result of this performance, we have today announced an interim dividend to shareholders of 0.7 cents per share, representing a 17% increase on the previous corresponding period.

Our strategic expansion into West Africa continues to yield results which will diversify our revenue base. Our increased presence in the region, together with business development activity undertaken during the half has developed a solid pipeline of new contracts, including a number of new clients and further expansion of operations into Burkina Faso and Nigeria. This positions the company well for the remainder of the year, with the majority of these contracts expected to contribute to revenue from late Q3.

We continue to target mine-site based contracts and it is extremely pleasing to have announced the award of a further three long-term contracts during the period. Encouragingly, MSALAB’s three-year laboratory management contract with Kinross (Mauritania) sees the investment into developing infrastructure to grow the business coming to fruition. Capital Drilling now has a solid portfolio of eight long-term mine-site based contracts, providing revenue stability across the cycle.

Additionally, our existing long-term contracts continue to perform strongly, maintaining a robust ARPOR result. Our underground grade control drilling contract with Resolute Mining (Mali) was extended for a further one year, a reflection of our excellent service delivery.

Safety remains at the core of our operations and we have achieved exceptional results during the half, with safety milestones achieved across all our existing long-term contract sites – Geita and North Mara (Tanzania), Sukari (Egypt), Syama (Mali) and Tasiast (Mauritania).

We made a strategic decision in the half year to increase the size of our drill for equity programme in line with increased business development activity in West Africa. This proved successful in supporting a number of our contract wins.

The recent strength in the gold price is a further positive indicator for Capital Drilling given the sector represents 90% of our overall business, by revenue. Additionally, mining companies are generating stronger cash flows that are driving increased exploration budgets.

The recent announcement of six new contract awards, together with ongoing strong performance at existing long-term operations, places the Group in a strong position for the second half of 2019. We continue to grow and consolidate our presence in the high growth region of West Africa and remain confident this will provide further growth opportunities for the remainder of the year.”

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.