Management Resource Solutions Strategic Acquisition of SubZero - - PowerPoint PPT Presentation
Management Resource Solutions Strategic Acquisition of SubZero - - PowerPoint PPT Presentation
Management Resource Solutions Strategic Acquisition of SubZero Group August 2016 Disclaimer This presentation document and its content (the Presentation ) have been prepared by Management Resource Solutions Plc (the Company ) for
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Executive Summary
Management Resource Solutions (“MRS”) has entered into an Asset Sale Agreement to acquire selected assets of the SubZero Group Limited (“SubZero”) for $6.1m (the “Transaction), comprising;
- $1.0m in cash upfront,
- $0.5m in cash 12 months after transaction completion,
- $1.8m in MRS shares; and
- the assumption of certain liabilities.
SubZero offers on and off-site structural, mechanical and support services to top tier coal mining companies in the Hunter Valley region The transaction is an opportunity for MRS to acquire a well established, profitable business at a low point in the resource cycle Underlying profitable business with strong gross margins The Transaction is value accretive, with an EV / EBITDA multiple of 2.0x - 3.0x Pro forma 2016FY revenues of the combined MRS and Subzero businesses in the order of $80m
Acquiring SubZero adds significant value to MRS
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Contents
- 1. MRS Overview
- 2. Transaction Summary
- 3. SubZero Group Overview
- 4. Acquisition Funding
MRS Overview Transaction Summary SubZero Overview Acquisition Funding
Management Resource Solutions
MRS Overview
MRS Overview Transaction Summary SubZero Overview Acquisition Funding
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MRS Overview
Corporate Snapshot
Substantial Shareholders
Shareholder Comments Ownership % Paul Morffew CEO, MRS founder 41.7% Daniela Athan 11.7%
Management Analysis
Shareholder Comments Ownership % Paul Morffew CEO, MRS founder 41.7% Murray D’Almeida Chairman
- Timothy Jones
Finance Director 0.1% Chris Berkefeld Non-Executive Director
- Capital Structure (AIM:MRS)1
Shares on Issue Millions 36.3 Share Price (5/8/16) p 14.75 Market Capitalisation1 £m’s / $m’s £5.4 / $9.3 Cash2 £m’s / $m’s £1.3 / $2.2 Debt3 £m’s / $m’s £0 Enterprise Value £m’s / $m’s £4.1 / $7.1
Management Resource Solutions Share Price History5
1. Capital structure does not reflect impact of Bachmann Plant Hire acquisition completed 11 January 2016; GBP/AUD 1.73 2. 2.63m options, exercisable at 30p/share, expiring 11 December 2021. 3. Cash position as of 31 December 2015 4. Debt position as of 31 December 2015
- 5. MRS relisted 11 January 2016 following completion of the
Bachmann transaction
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 £0.00 £0.05 £0.10 £0.15 £0.20 £0.25 £0.30 Feb-16 Apr-16 Jun-16 Aug-16
Volume (Millions) Share Price (GBP)
Volume Price
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MRS Overview
Diversified Services
MRS is an AIM listed company, founded in
- 2007. MRS is headquartered in Australia and
- perates globally
MRS offers diversified services to the resources industry, including:
- Project Management
- Labour Hire
- Plant Hire
- Maintenance
MRS has recently completed the transformative acquisition of Bachmann Plant Hire, extending MRS’ plant hire capabilities
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MRS Overview
Core Pillars of Service
Project Management
Engineering Procurement and Construction capabilities including:
- Storage tanks
- Process facilities
- Water treatment facilities
- Industrial park developments
- Resource sector facilities
- Demolition
Specialise in the <$50m contract space
Labour Hire
Offer highly skilled personnel specialising in:
- Quality management (QA and QC)
- Project management support services
- Document management
- Site inspection and procurement
- Environmental management
- Health and Safety management
Diversified database of over 23,000 consultants
Wet and Dry Hire
Provided through Bachmann Plant Hire subsidiary – 50 years of service in QLD and NSW Bulk earthworks for property development Building pads for major industrial and commercial sites Construction of sports ovals, dams and rehabilitation of landfill sites Fleet of over 90 primary vehicles and over 80 ancillary vehicles
Maintenance
Onsite asset support services Site shut downs and combined heat and power maintenance Technical specialists and assistance across Engineering, Civil, Mechanical, Commercial and Industrial disciplines Turnkey design and construction projects that include fabrication, mechanical and electrical instrumentation installation and commissioning
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MRS Overview
Board of Directors
Paul Morffew – Chief Executive Officer and Founder
Over 25 years’ experience in managing public and private businesses Bachelor of Applied Science (Chemistry and Mineral Chemistry) Background in environmental management and Quality Assurance Started Management Resource Solutions in 2007 Managed businesses for Australian Environmental Labs, SGS, Water Ecoscience and Sigma Energy Solutions (GE Alstom)
Murray d’Almeida – Chairman
Over 35 years national and international business experience Founded ASX listed Retail Food Group in Australia and grew it to over 300 stores across seven countries Director of Beacon Hill Resources Plc, Chairman of Pacific Environment Limited, Chairman of Bartercard Limited (Group), Chair man
- f Bartercard Australia Pty Limited, Member of Gold Coast Light Rail Business Advisory Board, Chairman Barrack Investments
Limited, Councillor Southern Cross University Previously Director of Connecting Southern Gold Coast Limited and Member of successful Queensland 2018 Commonwealth Games Business Bid Committee and the Australian Small Business Association
Timothy Jones – Finance Director
Almost 40 years experience in the oil and gas industry Qualified Chartered Accountant, founded his own Accountancy and consultancy practice in 1990 Chairman of Xcite Energy Limited (AIM and TSX listed) and a director of Falkland Oil and Gas Limited (AIM listed) Previous positions include directorships at Bahamas Petroleum Company Limited and Beacon Hill Resources Plc, both of which he saw through the listing process
Christopher Berkefeld – Non Executive Director
Over 20 years experience in industrial services and waste management Chris is currently a non-executive director to Wagner Group, Hiway Group and HSE Mining He previously had a 25 year career to 2009 with Brambles Industries Ltd commencing in logistics and leading to industrial services and waste management (BIS and Cleanaway). During this period Chris held positions as executive director Brambles Europe and Brambles Australia and managing director and CEO of BISCleanaway Since 2009 Chris has served as deputy executive general manager of Leighton Mining in 2010 and chairman of WSN Waste Management 2010/11
Management Resource Solutions
SubZero Transaction Summary
MRS Overview Transaction Summary SubZero Overview Acquisition Funding
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SubZero Transaction Summary
Key Highlights
SubZero Transaction
- SubZero is in receivership and administration, with concurrent appointment on 11
February 2016, and the receivers have been running a process to sell the business
- MRS has entered into an Asset Sale Agreement to acquire the core assets of SubZero
Group for a net consideration of $3.3m, comprising $1.0m in cash upfront, $0.5m cash payable in 12 months and $1.8m in MRS scrip
- MRS will assume hire purchase and employee liabilities at completion, totalling
~$2.8m
- The Transaction is conditional on certain key events including the completion of a
capital raising by MRS
SubZero
- Founded in 1999, and listed on the ASX in 2013, SubZero had peak revenues of $85m
in 2013FY
- The group has three core operating divisions – structural, mechanical and mining
support, servicing the Hunter Valley coal industry
- SubZero offers on-site and off-site services through large specialised facilities in
Muswellbrook and Mt Thorley
- SubZero’s customers are predominately top tier coal miners
- The Top 10 customers comprise over 80% of revenues
- SubZero became increasingly distressed from late 2013 as a result of challenges in the
thermal coal market and an over leveraged balance sheet
- SubZero has reduced costs and improved its operating performance, despite
significant working capital constraints
- Substantial tangible assets are included in the Transaction
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SubZero Transaction Summary
Key Highlights
Strategic Rationale
- SubZero fits within MRS’ existing four core offerings; Project management, Labour Hire,
Wet & Dry Hire and Maintenance
- The Transaction is an outstanding growth opportunity at a low point in the resource
cycle
- MRS is well positioned through the Transaction to unlock the growth potential of
SubZero by recapitalising the business appropriately
- The Transaction will diversify MRS’ earnings by customers and geography
- SubZero’s presence in regional NSW will provide opportunities for MRS to market its
existing civil works business into regional NSW and Sydney markets
- MRS will also have the opportunity to sell its specialised consulting services such as
Quality Assurance and Quality Control to existing SubZero customers
- Increased utilisation of MRS’ existing fleet – ability to share equipment
- Cost saving synergies – removing duplicate reporting functions, overheads and corporate
costs
- Value accretive acquisition, Transaction EV / EBITDA multiple of 2.0x - 3.0x
- Estimated 2016FY Pro forma revenues approaching $80m
- Appropriately capitalising the SubZero business will position the group for significant
growth in the near term
Acquisition Funding
- Capital raise to fund upfront cash consideration and provide initial working capital
- Further working capital to be provided by bank debt
- Hire purchase liabilities to be consolidated with MRS’ existing hire purchase facilities
- SubZero will be well capitalised facilitating future growth
Value Accretion
Management Resource Solutions
Overview of SubZero Group
MRS Overview Transaction Summary SubZero Overview Acquisition Funding
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SubZero Overview
SubZero was founded in 1999 and offers the most comprehensive range of specialist structural, mechanical and support services in the Hunter Valley region SubZero has established itself as one of the largest providers of on and off site support in the NSW coal mining sector MRS is acquiring the core assets of SubZero Group1
Structural Support Mechanical Support Mining Support
- 1. Assets associated with SubZero Labour Services, Moranbah JV and Harness Master Wiring Systems are excluded from the Transaction
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SubZero Structural Services
- Specialist heavy engineering services
- Repair and refurbishment of dragline
buckets, truck bodies, excavator buckets, dozer blades and other machinery parts
- Unique milling capabilities, Linear and
Gantry Mill Bro-Built Engineering
- Provides onsite mining asset support
services
- Onsite welding services – specialist
boom welding
- Site shut downs and CHP maintenance
- Electrical installation and repairs
- Mobile industrial cleaning
- Mobile abrasive blasting and painting
Field Services Line Boring Industrial Services
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SubZero Mechanical Services
- Large mining equipment mechanical
repairs including:
- Midlife rebuilds
- Engine change outs
- Defect repairs
- Driveline maintenance
Heavy Mechanical
- Light vehicle fleet specialist – fit out
and servicing
- Automotive and fleet vehicle glazing
and glass supply
- BHP Billiton and RTA authorised
inspection station SubZero Automotive
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SubZero Support Services
- Earthmoving fleet with experienced
- perators
- Road and construction maintenance
- Mine rehabilitation project team
- Conveyor and material handling clean-
up support Support Services
- Small civil works on operating mine
sites
- Poly pipe supply and install
- Infrastructure and general
maintenance including landscaping
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SubZero Customers
Top tier customers
SubZero’s customer base include top tier mining operations located in the Hunter Valley Major Customers include:
- BHP Billiton
- Rio Tinto
- Glencore
SubZero’s top 10 customers make up over 80%
- f its revenues
Long serving customer relationships - locally established and operating since 1999
BHP Billiton 21% Rio Tinto 33% Glencore 18% Other Top 10 Customer 3% Other Customers 25%
Revenue by Customer 2015FY1
- 1. Attributable to assets under consideration
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Investment rationale
Consolidation at a low point in the resource cycle
Thermal coal price up 36% to US$64.5/t from January 2016 low of US$47.3/t Acquisition timing capitalises on recent coal price performance
Newcastle FOB Thermal Coal Price (6,000ckal) Coal Price Recovery – In the News “Australia's’ $14bn thermal coal industry can be part of the solution to the global emissions abatement challenge” Morga gan S Stanle ley 11 11 Jul uly 2016 2016 “Seaborne Thermal Coal price rises to highest level in 10 months” Fin inancial T Tim imes 12 12 Jul 2016 ul 2016 “China’s coal output will fall by 280 million tons this year… Provincial governments that fail to stick to capacity cut plans or miss their targets will be “seriously punished”” Xu Shaoshi hi, Ch Chairman of
- f Ch
China Na National D Developme ment a and Reform C m Commi mmission 7 J Jul 2016 016 “Coal continues to supply around two-thirds of Australia’s electricity generation” Australian Bureau of Statistics 13 Jul 2016 “We are now bullish on short-term thermal coal prices” Citigroup 12 Jul 2016
$40 $45 $50 $55 $60 $65 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16
Thermal Coal Price (US$/t)
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Investment rationale
Strong and recovering underlying demand for support services
Hunter Valley coal mines are globally competitive due to premium quality coal and proximity to port and rail Export volumes from Newcastle Port are expected to continue to grow, with a further increase by 1% in 2016FY Recent cost pressures resulted in coal operators cutting costs by:
- Retrenching workers
- Outsourcing a greater amount of support
functions in order to rebase costs
- Delaying pre-stripping, as illustrated by the
declining average strip ratio in the above graph
- Increasing production to reduce unit costs
- Delaying routine fleet maintenance
- Delaying rehabilitation activities
The above activities cannot be sustained indefinitely, with mining intensity ultimately set to increase - recent coal price improvement will accelerate the process There is potential for maintenance expenditure to increase in the short to medium term due to the large number of fleet purchases in 2010-2012, in combination with delaying refurbishments (adjacent graph)
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15
Strip Ratio (cbm:t)
Hunter OC Total 6 per. Mov. Avg. (Hunter OC Total) 2. Parker Bay Company
Hunter Valley Open Cut Coal – Declining Strip Ratios1 Hunter Valley Mining Truck Acquisitions2
- 1. Coal Services
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Investment rationale
Installed infrastructure gives major competitive advantage
Centrally located offsite sheds in close proximity to major customers in both Muswellbrook and Mt Thorley SubZero offers a full range of services for customers offsite and onsite Structural and mechanical competitive advantages through the workshop at Thomas Mitchell Drive (“TMD Shed”):
- Crane capacity up to 150t and large shed heights
eliminate the need for third party crane hire
- Largest floor/shed area - work on up to 8 dump truck
trays simultaneously Supply 24/7 on-site field services
Bengalla Mt Arthur HVO Bulga Mt Thorley Liddell Wambo Muswellbrook Coal
Mt Thorley Shed TMD Shed Carramere Rd
SubZero’s Strategic Location Muswellbrook “TMD Shed”
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Poised for significant growth
MRS plans to grow the SubZero business
Working capital constrained
Capital injected into the business Cash flow discipline
Adequately capitalise the business Establish a foundation for sustainable growth Improve operating cycle
SubZero – pre Transaction SubZero – post transaction Outcomes Facilitate Growth Improve Margins
Uncertainty created by financial distress and debt levels Decline in supplier confidence Costs, overheads carried at mining boom levels Revenue and growth prioritised
- ver margin
Restore supplier trust Consolidate number and cost of sites Integrate back office functions – accounting and ERP systems Disciplined tendering Profit focussed KPI’s
Reduce overheads Improve gross margins Incentivise management
Communicate with market to restore confidence in SubZero brand with MRS backing
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MRS and SubZero pro forma
Combined entity pro forma revenues
2016FY pro forma revenues approaching $80m1,2
1. Pro forma Bachmann results for 2016FY, MRS Group acquired Bachmann Feb 2016 2. 2016FY management accounts, unaudited
$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 2013 2014 2015 2016¹ ² Revenue (A$m's) MRS Group Bachmann SubZero
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Experienced Team
SubZero management and key personnel
Graeme (Joe) Clayton, Chief Executive Officer
- 40 years experience in mining and 22 years leading mining operations
- Successfully implemented major mining change management programs at some of the most challenging
mining operations in South East Asia.
- 16 years in Hunter Valley and Gunnedah Basin has enabled strong relationships throughout all SubZero
stakeholders and imparted an understanding of business requirements from customers’ perspective
John Dickson, Chief Financial Officer
- 28 years experience in financial roles from lead auditor to CFO primarily for mining and mining services
companies
- Spent 4 years as General Manager – Finance for G&S Engineering & Services
- Specialised experience in developing and streamlining risk management systems, project costing and cash
management processes
John Furner, General Manager (Mining)
- 35 years mining operations and contracting experience
- 5 years experience as General Manager of operating open cut coal mines in the Hunter Valley
- 5 years experience as General Manager of a labour hire and professional services business
- Advanced Diploma in Business Management and Diploma in Surface Mine Operations Management
Management Resource Solutions
Acquisition Funding
MRS Overview Transaction Summary SubZero Overview Acquisition Funding
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Sources and Uses
Sources $m’s Uses $m’s
Consideration Capital Raise $4.0
Acquire SubZero Assets (Cash) $1.0
MRS Equity Issued to Vendors $1.8
Acquire SubZero Assets (Scrip) $1.8
Balance Sheet - liability $0.5
Acquire SubZero Assets (Deferred Cash) $0.5
Balance Sheet - liability $1.0
Assume Employee Liabilities $1.0
New Hire Purchase Facility $4.2
Pay out existing Hire Purchase facility $1.8
Total Consideration $6.1 Transaction Costs $0.4 Bank Debt $1.7 Working Capital $6.7 Total $13.2 Total $13.2
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Summary of Opportunity
Attractive acquisition price – value accretive transaction Exceptional growth potential Synergies with MRS’ core offerings Profitable business with top tier customers Consolidation at a low point in the resource cycle
Management Resource Solutions
We are your SOLUTION.
For further information contact: Paul Morffew Chief Executive Officer paul.morffew@mrslimited.com t: +61 438 865 311 Murray d’Almeida Chairman murray.dalmeida@mrslimited.com t: +61 401 691 514
www.mrsplc.net