Mincon Group Profit Down As Customers Feel The Pinch
(Alliance News Via Acquire Media NewsEdge) LONDON (Alliance News) - Mincon Group PLC Wednesday reported a lower first-half pretax profit as the fall in precious metals prices hurt its mining customers, but it announced its first acquisitions since its initial public offering amid a push to bolster and diversify its product portfolio.
The maker of hard rock drilling tools for the mining sector said pretax profit in the six months to June 30 was EUR5.5 million, down from EUR7.7 million a year earlier, as revenue fell to EUR23.4 million, from EUR24.5 million, and its margins and profit were hurt by a EUR2.0 million hit from currency fluctuations.
The company makes about three-quarters of its revenue in currencies other than the euro, while most of its manufacturing costs are incurred in euros. It makes most of the tools it uses for hard rock drilling, although it also sells third-party product through its distribution channels.
"The weakness in the global exploration and mining market, driven by the decline in the price of precious metals, which was a feature of 2013 and, as indicated in our annual results published in April 2014, continued into 2014 impacting the drilling products market in which we operate, particularly in relation to third party product," Chief Executive Kevin Barry said in a statement.
The Irish engineering group said demand for Mincon manufactured product remained stable, while demand for third party product continued to be weak. Invoiced sales of third party product dropping by 38% due to the slowdown in the exploration and mining market, particularly in Europe, Middle East and Africa.
It blamed a 7% drop in sales revenue for Mincon product solely on the weakening of currencies such as the South African rand and the Australian dollar, which dropped on average 18% and 14%, respectively, compared with the comparable period.
Looking ahead, the company expects that revenue from third party product sales will improve in the second-half with the addition of new agencies for the sale of drill rigs in Southern Africa.
It said that while market conditions remain challenging, weakness in the global drilling market began to abate in its second quarter with invoiced sales 14% ahead of the average invoiced sales for the previous three quarters, a trend that has continued into the third quarter. It expects the trend to continue for the remainder thereof and into the fourth quarter.
"The risk posed by the volatility in currency markets remains a concern. We continue to increase our international sales network and maintain a strong emphasis on continued and new product development aimed at improving and expanding the existing product range," said the company.
Mincon said it will pay an interim dividend of EUR0.01 cents a share, its first as a public company and in line with the dividend policy its set out at the time of its initial public offering in November last year.
In a separate statement, Mincon said that it has acquired 65% interests in two companies and a 60% interest in a third company, and has secured options to subsequently acquire the remaining interests.
The company has acquired the 65% stakes in Canadian product design and engineering company, Rotacan, and Queensland, Australia distribution company ABC Products, and the 60% stake in Namibian distribution firm Omina Supplies, for EUR7 million, EUR0.7 million and EUR0.6 million, respectively.
Mincon Group said the three acquisitions will increase and diversify its product portfolio, "providing us with an offering in the rotary blast hole drilling industry and extending Mincon's distribution network, addressing target markets in eastern Australia and southern Africa in line with the stated strategy to supply product direct to the end user where possible".
The acquisitions, the first made since its IPO, are expected to be profit enhancing from the first-half of 2015.
Mincon added that it is currently in advanced talks on some additional acquisitions that should give it new products and customers. "We are ambitious about securing one or more on satisfactory terms before the end of the current financial year," it said in its half-year results.
In a further statement Wednesday, the company said Chairman Peter Lynch will step down at its annual general meeting on Friday, after being appointed to an executive role with the company. Mincon said Lynch will now serve in a consultancy capacity with a particular focus on merger and acquisition activity as the business focuses on ongoing expansion and development.
Mincon Group said senior independent director Padraig McManus will assume the role of Chairman.
Shares in Mincon Group were Wednesday trading 2.5% lower at 78.00 euro cents per share.
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