Mining services update
Please find below updates and alerts on issues that may be of interest, trends in the market and our insights. If you would like to receive further information on the topics below or the industry generally, please feel free to contact one of our team listed below.
Given the continued downturn in the mining sector, and despite earlier industry views of a return to more normal levels by now, we provide a reminder on managing through a downturn. This is not necessarily anything new but in challenging times and adversity we often lose sight of the basic fundamentals.
We find that those businesses currently experiencing distress lack robust strategy and financial management and are unaware of the impacts a prolonged downturn can have on their business. Key considerations for directors, bankers and investors of mining services customers should be:
- Who are your most and least profitable clients or contracts?
- What key performance indicators are you tracking?
- How are you positioning your business for after the downturn? Has the business factored a change of industry dynamics?
- How long is the business able to sustain a downturn?
- What is the impact and mitigants in place for the loss of a major client or key supplier?
While the strength of the balance sheet is key to managing through a downturn, strong financial management can improve the prospects of managing through the downturn. We are assisting clients to enhance their financial management including the planning aspects of forecasting and budgeting, quality reporting and performance monitoring to highlight necessary remedial action.
This information can give managers insights into a business so they can undertake some of the following activities:
- Scenario or sensitivity analysis – test key risks, critical assumptions and different business strategies and the likely impact on earnings and cash
- Sales pipeline analysis – a visual tool that monitors tenders and their outcomes over time. The tool enables managers to predict sales in the short-term, identify excess capacity or constraints and manage customer concentration risk
- Break-even analysis – helps define the level of revenue at which cash can be generated to sufficiently address all obligations based on volume and margin. This type of analysis can also be useful for lenders to assess the viability and capacity of a business to service debt
- Fixed and variable cost analysis – understanding your costs and their fixed or variable nature is important to ensure efficiency. A company may look to shift fixed costs to variable costs in areas that are not core to simplify its business model. Strategies include:
- Outsourcing non-core activities
- Replacing full-time employees with contract labour
- Transforming the head office function or shared service model
- Cost-benefit analysis – enables mangers to make a comparative assessment of the benefits from various projects or initiatives. Wet or dry hire? Is outsourcing more appropriate? Does the cost provide any additional value to the business or its earnings?
If there is anything you wish to discuss further, please contact one of the team:
Tel: +61 7 3308 7136
Tel: +61 8 9365 7080
Tel: +61 7 3308 7108
Tel: +61 2 9322 7086
Tel: +61 7 3308 7205
Tel: +61 3 9671 7362
Tel: +61 7 3308 7080