Mining Services

DSO 4.9 ⇓

DIO 2.2 ⇓

DPO 12.1 ⇓

DWC 1.7 ⇓

Shorter collection cycles (lower DSO) and reduced inventory holdings (lower DIO) used to pay suppliers more quickly (lower DPO).

The Mining Services sector benefited from a ramp up in mining production buoyed by strong commodities prices in 2019, which drove demand for rental assets and ancillary services. This resulted in all of our sampled companies reporting an increase in revenue and 80% delivering EBITDA growth in 2019.

Whilst the broader sample showed a reduction in average DWC in 2019 (by 1.7 days to 51.2 days) only half of the companies covered achieved the reduction, highlighting a wide range of outcomes in the sector.

The relatively small movement in average DWC was underpinned by relatively large movements across all three metrics. On average, companies collected more quickly (DSO reduced by 4.9 days) and reduced inventory (DIO) by 2.2 days. However, those improvements were mostly offset by a 12.1 day reduction in DPO as suppliers were paid more quickly.

Decreasing DPO is not surprising in the context of sector growth during 2019 as participants compete to secure equipment, materials and contracted labour to meet customer demand and are willing to accept shorter terms from their suppliers. Equally, debtors management is an area that requires close attention for companies operating in this sector, particularly the conversion of work to billings (and ultimately cash).

Across our sample, BlueScope Steel, Emeco Holdings, Boart Longyear and Sims Metal Management reported the largest improvements in DWC in 2019. Sims Metal Management reported a c.$90 million cash release from working capital. This was driven by a reduction in inventory holdings and lower debtors attributed to a global initiative to maximise collections during the second half of the year.

The sector has experienced material fluctuations in fortunes over the past eight years. Successful operators are those with working capital (and therefore cash flow) management high on their agenda.