INDUSTRY CHANGE

DSO 1.5 ⇓

DIO 0.3 ⇑

DPO 2.1 ⇓

DWC 2.3 ⇑

While we have good visibility of our customer collections, focused efforts at half year and year end have helped us free up cash to reduce debt and invest in new projects.


Kevin Balloch, Chief Financial Officer

Base Resources Limited

Increase in DWC driven by small number of large players.

Improved market prices for metals, coal and oil contributed to a strong year for the Mining & Resources sector, with 93% of sampled companies reporting an increase in revenues in 2018. However, only 79% of the sample was able to convert this into higher EBITDA, with tightening margins largely a function of rising energy and raw material costs.

Overall, the sample reported an increase in average DWC of 2.3 days to 40.9 days in 2018. However, this was heavily influenced by four companies (14% of the sample) that reported DWC increases of 25.0 days or more, which more than offset the DWC reductions achieved by 57% of the sample. While the average movements in DSO, DIO and DPO were relatively benign, there were some large individual swings across the sample.

While we have good visibility of our customer collections, focused efforts at half year and year end have helped us free up cash to reduce debt and invest in new projects.


Kevin Balloch, Chief Financial Officer

Base Resources Limited

The sector maintained its relatively short customer collection cycles in 2018 with an average DSO of 32.9 days, representing an improvement of 1.5 days from the prior year. Of the companies in our sample, 57% reported reductions in DSO. Of note was the 109.6 day spread between the best and worst performers, highlighting the challenges in converting growing revenue into cash. The larger miners were the better performers, with 43% of the companies (representing a combined market cap of 76% of the sample) reducing DSO by three or more days.

Average DIO remained flat in 2018, with a 0.3 day increase to 75.7 days. However, inventory remains a key driver of working capital performance for Mining & Resources companies. Inventory balances increased for 57% of the sample during 2018 as production ramped up on the back of improving market conditions. Of the 16 companies that recorded an increase in DIO, 56% managed to extend supplier payments to at least partially offset their additional inventory loads.

Base Resources achieved the biggest DWC improvement in 2018. While still carrying higher working capital levels than a number of its peers, Base Resources was able to release $18.1 million in cash from its working capital by increasing the frequency of shipments and customer invoicing. This helped compress the debtors cycle. Management also focussed on running down inventory stockpiles at overseas mines to free up cash. This resulted in an overall improvement in DWC of 33.3 days.

Top 5 DWC improvements - Mining & Resources

Days

DWC at 30 June (or latest available)

Mining & Resources

Days 2017 2018 Change
DSO 34.4 32.9 (1.5)
DIO 75.4 75.7 0.3
DPO 58.5 56.4 (2.1)
DWC 38.6 40.9 2.3

Best & Worst

Days 2017 2018 Change
DSO 3.2 112.8 109.6
DIO 7.8 491.3 483.5
DPO 192.0 9.2 (182.8)
DWC 1.5 125.5 124.0

Base Resources Limited

Days 2017 2018 Change
DSO 99.0 71.1 (27.9)
DIO 64.9 60.3 (4.6)
DPO 33.9 36.2 2.3
DWC 118.9 85.6 (33.3)