Master Drilling Group Limited (MDI) Earnings Call Transcript & Summary

Well, welcome all to our 2020 result presentation. Just on the procedures for today, we'll be covering the group strategy overview, just high level. Again, I will not spend much time on it. Koos is going to deal with the technical side of the business and Roelof on the operational side, more time. And obviously, for André van Deventer. So just a word of caution, when André is presenting, I would strongly suggest you guys taking your seatbelts and keep them fastened throughout the presentation when André is presenting. Just the -- just high level, again, before we talk about the business, maybe a step back on the safety, again, excellent performance on safety for the group. Roelof will touch on it later on in the presentation. Roelof, am I right? I think another 20% improvement on the LTI frequency rate for 2020. And again, I think the commitment from the employees to try and create a safe environment, well done to all the employees. Just on what happened in the industry and probably more specific about the clients and what we saw some pain points and maybe some root of that, what we believe we should be taking notice of in the mining space. I think 3 or 4 things, very important. So if we just deal with the economy first, although there is an uptick in the market, and we believe the economy is going to be growing at 3% or 4%, I think there's probably a discussion for tomorrow. We, as a business, would probably not spend capital on what we see out there. What we do see, which is probably positive, is most certainly what's happening in China. I really believe what we see in China could probably influence the commodities, and probably, more specific, the commodities that's been mined in South Africa. So I think, again, work in progress, not much to add. And what we believe is going to happen in the commodity space going forward, we talked with the world economy. The June political space, I was saying to André earlier today, something which we, as a business, always try and use the gold and silver as a hedge to make sure that at least we're in the game and at least we got some sort of a hedge against these uncertainties. The 2 things, again, in the world, which we believe is a given, one being the uncertainty and the volatility. So that's a given. And on the back of that, something that we, as a company, at least we're visiting, can't have a debate about. It's just to too many uncertainties in that space. As far as the commodity is concerned, I think a couple of things important, which we've learned. The one is most certainly the decarbonization of the world. I think where we are today and what we see in the commodity space with some of the traditional miners, which, all of a sudden, is adding the -- some of these commodities, and some of them in the battery minerals to their portfolio, is something that we, as a contractor, will certainly watch. I think the other one, which is very interesting to note is the nontraditional miners, which, all of a sudden, has an appetite of some kind to be involved in the commodities, these battery minerals. It's something that we would like to be close to. And maybe a last point on that is, is the outlook for some of these commodities. We've noticed that nickel, the forecast for nickel is like ten to twentyfold in the next 10 years. Again, a commodity, which is not part of our portfolio today, but something that we need to watch and would probably be staying close to, especially in the exploration business. As far as the green economy is and the so-called ESG's, talk of the town today, if you engage with the miners, very interesting. I was saying to the guys 3, 4 years ago when we engaged -- or at least at my level with some of the executives in the mining space, ESG was ever never a discussion. All of a sudden, the last 2 years, ESG's surfaced. We also know that the mining industry has never been seen as the clean and green of the world. But today, what we see, especially for some of you that's not as close to the foreign mining companies, very interesting, just in Chile, that Anglo just announced recently the statements under [indiscernible] Minerals, and the same with BHP, that those companies will be totally independent, emission-free in the short term. We saw in Brazil, where Brazil in Vale, committed that in '23, Vale in Brazil will be emission-free. We also saw that Vale International will be, in '25, totally emission-free. In addition to that, we also saw what Rio Tinto is doing with one of the largest steel suppliers in the world, Bow Steel in China, where we will actually assist Bow Steel to be emission-free and changing the traditional coal to hydrogen. So there are a lot happening in the space of ESG. And again, maybe a last note to that is expectation from the -- from our clients to contractors or service providers like ourselves to make sure that we're compliant. Today, we see it actually on our scorecards, in the scorecards to be part thereof. So ESG is today something that we need to watch. And especially in South Africa, I think, today is becoming more important than it used to be. Then we talk about the strategy of the business, high level. Not much has happened since our discussion and our presentation in September. We still work in progress with the initiative on our people and especially the fit for future and the way we're going to map out. And I would say, change the structure of our people, more about where we are today, where we would like to go. And so -- and the delta, how we are going to deal with delta to make sure we have people that can take this business forward, and probably moving a lot of people around in this space. On the optimization part, I think Roelof is going to deal with this in depth, so not much to add, apart from the biggest driver has always been the lever to pull is in utilization space. I think where we are today with the order, which, again, which Roelof will touch on later on, I think we're well positioned if we talk about the fleet utilization of where we are today and what's happening in that space. Technology, we've got a number of slides, which we will take you through the technology slides. So I'm not going to labor that. And maybe on the growth, the fourth pillar, two things important. If you talk about geographic expansion, some good work by the team to commission the first machine in Russia. There's a second machine on the water. And we have another machine probably in that part of the world come's at the end of the year. So good work on that side. And I think on the M&A side, André said he would fill you guys in on what's happening on the M&As. So again, 2 or 3 opportunities out there, which we're trying to follow. But where we are today, I think, there's a lot of moving parts out there and really would like to make sure the cash position of the company as such, that we can probably benefit from some of these opportunities. So this is pretty much what I have to say in deal. Koos, if you can maybe deal with the rest on the technology side, please?

Thank you, Danie. Good morning, everyone. We would like to provide you with the following update on our technology overview. And in Master Drilling, it's extremely important for us to understand where the world is going and how everything is changing. So it's important to understand what -- with the mines of the future, what would they look like. And what we're increasingly seeing is that open cast mines are going underground; that we have longer and deeper access to underground ore bodies; that projects is more remote in harsh geographies; that environmental, social and government sustainability aspects around that is becoming important; and big data, digitized information and control, information decision-making that needs to be taken place. Through innovation, we plan to be future-relevant in our competitiveness and alignment of resources to address these points. And through quality and solutions, we are looking at providing quality services in terms of check performance, increased productivity and competitive cost. On the raise boring side, we've increased our competitiveness over the last year. We have launched the ID6, which is an extra-large raise boring rig. We've done developments on a mobile slot boring unit for LP100. We've increased our footprint in our operations for remote operation, where we've seen at least a 10% to 15% benefit compared to a normally operated site. We continue to invest in our semi-autonomous control as well as our excellence in directional drilling. Mobility of equipment is important, and we're looking at this. We have also provided proposals for up to 10 meters diameter raised boring shaft during the last year. And always an important issue is the difficulty in geological conditions and constructing shaft, and we have come up with many different solutions to address this point. We vowed to be associated with our work that we're doing for Northam Platinum. It's on the mine, where we're constructing a 5-meter diameter shaft about 1.5 -- 1.4 kilometers deep in a single lift. For fast tunnel access to underground ore bodies, we see the Mobile Tunnel Borer as a very important tool. Unfortunately, in 2020, we had our contract with Eland mine for Northam Platinum terminated. Since then, we've done maintenance, we've done improvements, and we're currently recommissioning the machine. We retained the experience, technical and operational staff, and we are awaiting a potential award for contract to start in quarter 2 of 2021. For future expansion, we'll only consider this under successful implementation of a first project. We do see the MTB still relevant, if we look at what developments is happening in the industry. And for that reason, it's important for us to maintain the intellectual property that we've invested in this project. For shaft sinking, we're following a phased implementation process with our partners, the IDC. We've been very successful at the end of 2019 with experimental Phase 1 that we concluded. We have also in 2020, decided to conserve our cash and our capital, that led us to rescope the project to a smaller and a lower cost project scope for implementation. We've since received an intent from a client to apply this technology at the operations. And we're in the process of approval and review for Phase 2 to 4 funding for the project. The idea around having a reduced scope project, is to implement it on noncritical or lower-risk infrastructure such as ventilation shafts compared to hosting -- hoisting shafts. The concept, though, is scalable. So we've successful implementation of reduced scope at a later stage in the future. We think we will be open -- able to have enormous benefit on larger scopes, a 2-kilometer deep shaft at about 9 meters diameter and hard rock. We've also invested heavily in the IP for this project. And there is novel aspects to what we've developed, but we're also looking at maintaining and optimizing. As communicated in the past, we're very committed and excited around nonexplosive mechanized mining, where we see there to be benefits in terms of ventilation, continuous operation, industrialized processes and where we could have fewer people exposed to a potential hazardous area and have them working more and more from a safer environment. Our approach to pursue the strategy is around solutions for clients and collaboration with them, where we offer a service in terms of study work, experimental work, product supply, support, project servicing operations. And we'll also be involved in concession throughput. We currently have 2 projects like this that we're doing with clients, and we're making well progress. We're also doing it in a phased process, and it's very exciting for us. That being said, thank you very much. I'd like to hand over to Roelof Swanepoel, and he will take you through digital technology overview. Thank you.

Thank you, Koos. To finish off the technology section, of course, it's very important to share with you our strategy when it comes to digital technologies. The top priority of most of our mining clients that we speak to today is all about safety, cost optimization and operational optimization. And I believe none of these objectives can be achieved without real-time information, quality information being available. If you look at mining companies around the world, I think, mining companies still have a long way to go to fully transform digitally. And I believe Master Drilling has a new exciting role to play in this specific area. We've recently announced the acquisition of AVA Solutions. AVA Solutions have developed a data-driven mine management solution. And briefly, what this system does is one of the features is it's load and hauling feature, which will enable supervisors, operators on-site to quickly react to -- real-time to their operations and manage their resources a lot better. And the great part about this is they provide the service at a fraction of the cost than traditional players are providing that at. That's it on the technology side. Then if we move on to the operational review, today, in the operational review, I would like to share with you and unpack what happened during 2020. I think all of us can agree that 2020 was a very interesting year and challenging year. And let me take you through 2020. The highlights of the year, number one, safety, as Danie mentioned, our safety performance have been the best to date in the company history. Our LTIFR ratings sitting at a very, very low 1.1 today. Secondly, we'll go through the different regions, unpacking the performance, stand still in some of the growth areas. And then also have a quick discussion about the disappointing performance in South America. Lastly, I'll share with you some insight into our order books, our awarded work. Our order book is at an all-time high, sitting at more than $200 million. And I think this will make for a very interesting year or 2 that's ahead of us. Before we move on, I would like to take a moment and just mention to you that in the past year, we've lost one of our colleagues due to COVID. And this is a very unfortunate situation for us and the business. Master Drilling have done everything in its power to support the families being affected. Then to all the managers, supervisors, operators, assistants, technicians, accountant, secretaries, everyone that put in a lot of effort during 2020, thanks a lot for your contribution and to your families that have contributed a lot to the business during 2020. Then if we start off with safety. As I mentioned to you, safety, quite impressive. LTIFR rate, down to 1.1. This is the lowest that it's been in the company history. Just quickly on LTIFR. LTIFR is a function of the amount of hours worked and the number of incidents. Although the number of hours worked manhours during the year was slightly down, we've seen a significant reduction in the amount of incidents during 2020. I'm glad to report that in 2020, we have 15 countries that operated incident-free for 2020, which is up from the 11 that we reported to you last year the same time. This, thus, demonstrate the investment we made in manned machine initiatives, safety leadership and automation that these investments are starting to pay off. And we look forward to investing in more of these initiatives going forward. Then maybe just lastly, on the safety side. On remote drilling, as Koos mentioned earlier, with the implementation of our remote drilling program, we believe this will completely change the safety landscape where we can potentially remove our workers in a potentially dangerous environment underground to surface operating machine underground in a very safe environment. Then if we move on to revenue by geographical area. Revenue for 2020 is down 17% compared to 2019. The stronger dollar had about a 3.5% negative impact on the top line. But the biggest impact really came from lower utilization rates across the board, and the biggest chunk really come from our South American operations. If we run through the different operations, let's start at Central and North America. Gary and his team up in Central and North America did an excellent job in 2020 again, as they've increased the utilization of equipment up in North America. Although the revenue contribution to the group is still flat from 2019 to 2020 at around 18%, that contributed an additional $5 million of profit at a gross profit level, which is quite good. And the group really needed that in a very tough year. We can report back on our progress On the Voice Bay contract that is in a very good position currently. Although the pandemic that we faced up there provided a lot of challenges for the team. We can also report that we are heading back to Raglan again for a 3-year contract that have been awarded to us recently. Briefly touching on Mexico. As we reported in August last year, Mexico experienced a drop in utilization due to the pandemic and lockdown restrictions. In Q3, Q4, last year, we've seen a bit of an uptick in the market. And currently, utilization rate is back to normal in the Mexico business. Then on South America, our operations in South America were severely affected. As we've previously reported, that the region suffered some of the worst infection rates globally and our operations in Peru and Chile were severely affected. Operations in Peru, we're only able to operate effectively for about 8 months during 2020. And to put this whole South America performance into perspective, South America only contributed, in 2020, 50% of the revenue that it contributed in 2019. In March last year, we reported -- we commenced with a restructuring program in Peru. We can report that, that has been completed by the end of 2020. And today, we're sitting with a fit-for-purpose business in terms of people and equipment, and we're ready to take our new opportunities in the Peru environment. Then just in terms of the South America contribution, in revenue, that is basically down from 34% to 21%. And then a very disappointing operating margin for the region. On Africa. Africa had a very strong performance in 2020, Africa being our top revenue contributor for 2020 and also top profit contributor for 2020. We saw limited impact coming from the COVID pandemic in Africa. Although some of our operations were affected, most of our operations were able to continue as normal, and we've seen great utilization rates across Africa. Our newly established operating base in West Africa is performing steady, and we look forward to utilize more of the opportunities in the area, especially on the back of the higher gold price. Then as we reported in August last year, and as Koos mentioned, the Zondereinde project, we've completed the pilotal. As mentioned last time, this machine is busy reaming, that is excavating this 1,400 meter shaft all the way to the surface. We look forward to more record-breaking performance by the South African team on that. In terms of the other regions. Our business, Bergteamet, up in Scandinavia, had a record year for 2020. Following our acquisition of this business at the end of 2015, this business have consistently added to the group's performance and to the group's profit line a real steady performance coming from them the past couple of years. Briefly on India, India had a solid performance for 2020. We can also report back that a number of the contracts that we currently have in India have been extended for another 3 years, which is excellent news. And Russia, as Danie mentioned, 2 machines, one machine there, another machine on his way to Russia. We're currently seeing a number of opportunities in the area, and we're looking at potentially sending more machines there in the future. And then finally, down under, in Australia. Australia, we can report back that our expansion plan is basically on track for that region. Okay. Then if we move on to revenue by mining activity. Just briefly on this, this is as expected. We've seen a number of mining clients delaying the startup of some of the capital projects for 2020, and this impact this diversification. So revenue from mining, our revenue from capital projects, down to 10% compared to 15% in 2019. Maybe just briefly on exploration. You'll see a jump from 3% to 5%. That is just mainly due at the latter part of 2020, we've seen an increase in the amount of inquiries and proposals coming through. And that translated into new machines being deployed here in South Africa to existing or some of our old customers. Then revenue by commodity. This is a very, very interesting slide. A lot of movement happened in 2020 there. You can see gold dropping from 30% to 24%. Another big mover there is silver, lead and zinc, jumping from 19% all the way to 30%. And that was really on the back of the stronger performance and utilize -- higher utilization rates coming from India, and then our friends in Mexico just contributing slightly to that in Q4 last year. Then on platinum, I think that's worth mentioning, jumping from 2% to 9%. That's really on the back of more activity we see in South Africa with all the platinum miners and the Zondereinde project contributing a little bit to that. The next slide, and this is quite an important slide to just stand still for a moment. I know everybody has always a lot of questions on this. So let me take you through this. First of all, raise bore utilization, a very important number for us. In June last year, we reported that our utilization for the first half of the year were 53%. Now utilization have increased to 60% for the full year. This means that for the latter part of the year, H2, our utilization rate for our raise bore machines were above 65%, which is really good news. And this is also in line with the activity that we're currently seeing in the market and have observed for the latter part of 2020. Some good news to share with you our XXXL and XXL machines, these are the machines at the higher end of our fleet, the bigger machines, for example, that's on the Zondereinde project. These machines utilization is currently sitting above 80%, and most of them deployed on long-term contracts. And we expect them to give us a solid contribution in the next year or 2. Briefly on ARPOR for our raise boring rigs, you'll see that dropping down to about $105,000. And that is mainly impacted a little bit by the exchange rate, as I mentioned, and then just by local lockdown restrictions in the different clients around the world. These lockdown restrictions, we've seen a slight impact in our productivity, and these are in certain isolated pockets around the world. Then just on slim drilling, I think it's important to mention, in June last year, we reported for the first half that the utilization rate were 27%. That have jumped to 48% for the full year, which is quite a significant improvement. And that's really on the back of a number of new inquiries coming up, specifically in the platinum side here in South Africa, which resulted in us deploying a lot more equipment on these projects. If we move on to the pipeline, I can report that we have a very, very strong pipeline at around $514 million. Just to put this into context, what does this mean, pipeline? This means awarded work that has been awarded to us that is secured. It means work that's currently in adjudication or in a tender process. And then the third part of it is all the inquiries that we received, all the initial projects, disabilities that we work on and possible leads that's out there. So this is a real, real solid pipeline that we can tap into for the next 2 years. Important to mention to you that our awarded work for 2021 is currently sitting at $130 million, which is a very strong position to be in. That is at about 105% of our 2020 top line. That's a real good position to be in. Usually, if we're sitting at around 50% or 70% of the previous year's revenue, today, in our order book secured, that is good. But by having that full to more than 100%, I believe we have some good performance then coming in the year 2020 and 2023. Okay. Then if we move on to our awarded orders, this is our committed order book. If you have a look at the diversification there, again, very, very well diversified. Gold, copper standing out there. But this has always been our strategy, to have a very well diversified order book. I think something else to mention here is, specifically on the civils and infrastructure. For a number of years, we've been trying to increase our exposure in terms of that. And our Bergteamet business have done an excellent job to help us in that part. And we expect to see that increasing slightly over the next few years. Then just in terms of -- the last thing in terms of awarded orders. We've seen a significant jump in our order book, the last time we reported it up to now. This increase was about $133 million of awarded work that were awarded to us in the latter part of the year. And this is mainly coming from the regions like Chile, Bergteamet, a little bit in Australia, Africa and Russia contributing a little bit to that. Then just the last slide from my side. This is just a year-on-year comparison of our pipeline and order book. And as we've said initially, our order book is currently sitting at an all-time high, which, I believe, is setting us up for a very good position. And then just in conclusion from my side, I really believe with this very strong order book today, fit-for-purpose management teams and the capacity in our fleet, we're set for a very good performance in the next 2 years ahead. Thank you very much. Over to you, André.

Thank you, Roelof. Yes. Ladies and gentlemen, thank you for being here. As Danie mentioned, it's really been a tough period. I think everybody explained it to you. I think since we've been listed in 2012, it's been the toughest period we've been in. I've been with the company 20 years, definitely the toughest I've been in. And I think, Danie, with you starting the business 35 years ago, also the toughest that we've seen. But I think let's take it step by step on the salient features for the year. The revenue, down by 17% for the year. I mean the profits we hammered with the environment, down 70-odd percent. But I think the highlight for me, and I think, for the group was the management of cash during this period. I think it's always been very important to us is managing the cash. And I think in a period like this, where capital was cut back, we could see the amount of cash that this business can actually generate in a phase like this. So I think highlight for me was the cash position for the year. If we just look at the earnings per share in dollars and in rands, both of them doesn't make great reading. Normally, we have a bit of a benefit out of weaker emerging currencies, which we do have, but still not pretty reading. But we can go through the detail of that as we go through the income statement and cash flow statements. If we look at the EBITDA, I think this is actually a good position. We've still maintained nearly 18 percentage on the EBITDA numbers, given the decline in revenue by 17% and us having quite an amount of fixed cost, that's been the effect. But to make still an 18% return in these cases has actually been a very good position in. If we look at the revenue, down $25 million from last year, containing cost was very important to us. So that we've achieved. If we even look at the budget that we had for 2020, much higher than last year's revenue. And to try and to save those costs by having such a high revenue budget, I think, we actually did quite well in achieving those EBITDA numbers. Profit after tax. This is not nice reading. One of the biggest impacts of this has been the taxation that we had to put through during 2020. There were several entities in the group that made tax losses. And due to the tax losses that we've made, we couldn't really recognize those assets on the balance sheet. So the tax rate has nearly been 60%. So that had a huge effect on the profit after tax number. But obviously, going forward, when businesses, especially like in Peru, becomes more profitable, again, those tax assets, we'll be able to realize. And the tax rate would be able to come down. If we go into the balance sheet. I think what was really important for us during this year was the -- to protect our balance sheet. And I think it's clear how resilient our balance sheet has been during this time. A lot of focus has been in cutting back capital, not spending unnecessary capital, although we normally don't spend unnecessarily. But we've came into a state, we just looked at sustainable capital spend was required to keep the jobs going and just restricted to some of the technology spend that's of strategic importance to us. So that was very important for us. And then on the gearing, which is very good to us, we dropped it down to 10% gearing at the end of the year. So that was -- especially for our banking covenants, that was important. And that was the focus for the year, is trying to achieve those low gearing, protect our cash, be in a position to be liquid enough to maintain the business during these tough times, which we achieved. If we go to the income statement. I think important here is, even with a drop in revenue, as mentioned, same as on the EBITDA line, we still managed to be profitable on the operating profit line. There was quite a big cut in salaries. I think on the half year, we reported that most of the countries, we were able to cut 25% of salary cost during the initial lockdown period, where all the employees assisted quite a lot in protecting the business and taking that pay cuts. Unfortunately, a lot of people were retrenched during this period, which we also reported in half year. The full impact on that is evident in the final numbers. It's roughly $3 million of termination costs that we had to pay. But as Roelof mentioned, we've got now a fit for business and people in the business and geared to when we get the upswing to be more profitable. Also, included in the operating expenses was the disinvestment in the TunnelPro business, which we made a loss of about $1.5 million that negatively affected the profit for the year. So that is, more or less, we can see the benefit of a lower amount of capital outstanding on the loans with the finance charges being significantly less than the previous year and also with a lower interest rate environment that we're currently in on the taxes. We talked about that. It's a very high tax percentage. If you look at this slide, normally, this assists us very well. And part of the strategy of the business, one of the other benefits of diversifying into all different geographies is operating in different currencies. We, once again, had a benefit of $1.3 million positive impact on our results due to the strategy having emerging currencies expenses. Although it changed a bit, we -- with the percentage reduced a bit, a bit more dollar expenditure, especially in some of the areas that we operate now, in Canada, Australia, where its first world countries. So the emerging currencies are reducing a bit, but still giving us the benefit in 2020. If we look at the cash flow statement. Obviously, the highlight for the year is generating $25 million of cash. It's nearly 200% cash conversion ratio. So I think we really did well, and a 74% improvement from 2019. This was possible by weekly calls with all the role players in managing the cash, managing the debtors, trying to recover as much as possible. I think -- although we're not there where we're supposed to be on the day-to-days, but we're making improvements, and still some of the geographies that we challenged with some of the clients, but I think a huge improvement on that side. On the investment activities, as mentioned earlier, that we are very strict on capital expenditure. So the $9 million that we spent, a lot of that still went into the technology on the tile bore, the blind shaft bore. And then for the first time, actually, we spent half of our capital on maintenance capital, sustainable capital. So not that big a portion in growth, but more in maintaining the current fleet. If we look at the cash from financing activities, and that was mostly the repayment of the APTA facility. So we're staying on track with that and paying as we supposed to. So if we look at the cash movement for the year, $6 million positive for the year compared to last year, where we were $13 million negative. So a huge swing in the cash position. And coming end of the year, we had $25 million of cash in the balance sheet. If we look at the revenue waterfall, I think Roelof mostly touched on this, but just to show it here. The movement is mostly due to the fleet mix and utilization. It was pretty much down from the previous year, also on the slim drilling side, which was significantly lower than previous years. But that was the impact of COVID. And even with -- as mentioned before, with the utilization improving, it was logistically very difficult to have machines operating at the 25 hours a day that we used to operate. So that also had an effect on the revenue for the year. You'll see the acquisition revenue, $4.6 million out of the [indiscernible] acquisition, we announced earlier this year. I think it was a very nice fit into the business. We incorporated that into Master Drilling exploration, and we believe that will be positive going forward. Also, with the fleet expansion, we added another 2 machines to our fleet on the extra-large version. All of them have been moved to new sites. So it was a small part of the year that they were operational or came into operations, but booked out for 2021. So good expansion there. Just a bit further breakdown on the working capital. A lot of focus, as mentioned on the inventory as well. We tried to restrict as much as possible purchases from outside suppliers. We did a lot of work in procuring internally within the Master Drilling business where it was possible rather by some of the inventory from our subsidiaries and utilized it in projects. So that was then possible to reduce their inventory stockholding for the period. I think we did very well. On the receivables, the good thing about that was the aging of the debtors. You'll see it was 63% in normal terms, a vast improvement from previous years. Also, the 1, 2 and 3 months' overdue, that reduced quite a lot. So a lot of work done there. What we have seen, though, on the normal terms, is some of the clients have moved payment terms from 30 to 60 days or to 45 days. So we had some contractual pushback from clients there, but that we are running according to contract now with the clients. Just on the ratios, not great. I mean -- but still a positive return on capital on EBITDA line. As mentioned before, our target is 17%. So the 9% is not acceptable, and we're working hard to get that improved for 2021. Same with -- on the EBIT line, working capital days, only 4 days' improvement. But with a lower revenue cycle, obviously, that was much more difficult to reduce those days. So I think we did well. But our target is still there, it's 100 days. So we're pushing to try and get 2021 to the 100 days and working hard towards that. Gearing, as mentioned before, nicely down from 22% to 10%. Cash flow waterfall, I think, we discussed it earlier, but again, a highlight for us, the way we generated a lot of cash out of operations, a low spend in capital with a net effect of only $8 million and the investment in the subsidiary, $1 million paid there for the acquisition of user. Then the repayment of the APTA facility. So leaving us with roughly $25 million beginning of the year for operational purposes this year. If we look at the capital spend. Very low spend for the year compared to previous years with nearly half of that being maintenance capital and the rest being expansion. Also looking forward, if we look at the capital for 2021, if everything goes according to plan, roughly $10 million set aside for capital for 2021, with most of the capital in the continuous improvement, automating some of our machines and then a small portion of expansion. So that's the end. Just maybe I want to add, on the debt levels. I think we did mention before that we are in a phase where we want to reduce our debt levels. But most important, we want to keep our balance sheet strong. Not to say we're not going to pick up debt in the future, but we want to be in a position where there's opportunities that we can latch on to that and get the growth that we would like to get. So we'll take the Q&A. And after that, Danie will just do a summary for looking forward.

Okay. The first question comes from Leroy Mnguni from HSBC. Is the 65% raise bore rigs utilization for the latter part of your sustainable? Is there any scope for this to increase?

I think, Roelof, you take it.

Yes. So great question. We've been debating that quite a lot. The 65% that we've experienced, we believe that is a reflection of the market conditions. If you have a look at the amount of secured work for the year,at around $130 million, that equates to about a 66%, 67% utilization rate for this year. But we definitely expect the amount of awarded work to increase over the next few months and pushing that utilization rate up to around 70%. Okay.

Another question from Leroy. Are you seeing any increase in activity in the platinum sector other than activities at Zondereinde and Eland? Please, could you elaborate on these?

Yes. I think, again, a good question. I think if you read the papers, what's going to be spent just in the impala space and some of the other platinum mines, I really believe there's some more capital to be spent in the rest of the mines as well. And on the other side of the business, I wouldn't be surprised if the 9% today is probably closer to the 15%, and probably in the -- total, in the 20% in the medium term.

Next question is from [ Shai ] from Afina Capital. Please comment on your H2 gross margin. I calculate just over 16% achieved in H2 despite the utilization being less than 65%.

Yes. I think there's been a lot of, call it, IFRS adjustments by the auditors for the second half of the year. So obviously, that had a negative impact on gross profit. So you can't really align first half with second line due to some increase in the second half of the year. But gross profit has been down and affected by a lot of these termination charges, also a lot of logistics costs in getting the rigs to the new locations. So that had a negative impact on the gross profit. Also, with that, the depreciation charges was significantly higher this year than the previous year, roughly $2 million of additional depreciation. And that, in a way, is a bit funny with the revenue being low and the higher depreciation. But a big portion of that is due to COVID where depreciation works out on basically valuation of the equipment and with people not being able to get to the machines or drop out to measure them, we had to make these provisions and weren't able to reverse some of those provisions with the measurements we do. So bit of a high depreciation choice making the GP a bit lower.

Next question is from Keith McLaren. Regarding the AVA acquisition, do you have an option to buy out the remaining shares in the company? At least, do you have a first right of refusal on these shares?

Thank you, Keith, for that question. We're currently negotiating some options to actually extend that. There's a window period of 6 months, which we can strike a specific option deal to actually increase that. And just maybe on the strategy of Master Drilling when it comes to these acquisitions, our strategy has always been to, over a period, get a controlling stake within these businesses. We usually start off with a minority portion and then have mechanisms in place to ramp that up over the next 2, 3 years as the business performs. Thank you, Keith.

Another question from Keith. How are you managing the counterparty and credit risk in Russia and India?

Yes I think credit risk for India, I mean, we -- in [indiscernible] the Bergteamet Group is a huge group, although they're also obviously going through some matters with their shareholders and the way they want to structure their group and what they're busy with. But I mean, at the end of the day, they do pay you, sometimes a bit late. But we're in a good position with payments today. We also had the extension of the contract for a 3-year period. We were able to get all the arrear payments up to date. So today is just continuing on the basis. But it's something we always keep our eyes on. But payments -- losing money is not a risk according to us. And then just on Russia, we've gone in there with a partner. We're busy doing an agreement for a joint venture going forward with -- and we've done a lot of homework. I mean it's one of the bigger players in some of the -- some international businesses, they've been doing a lot of business with before. So I think today, the risk is very limited. And obviously, something important with a lot of growth that we see in that area. But we're quite comfortable with how we mitigate that at the moment.

A question from Tim Clark from SBG Securities. Congratulations on the cash flow results through a tough period. Please, may I ask for some further color as to where you see opportunities in the M&A and what return measures you require for M&A instead of, say, considering share buybacks?

I think there's a lot of acquisitions that we're consistently looking at. Obviously, there's a lot of opportunities in these tough times. But we -- as you've known us in the last 8 years, we're very conservative on acquisitions. We really want to make sure that what we buy is strategically important to us. So there are a couple we're currently looking at. We believe it's going to create -- can create a lot of value. We are looking at north of 25% returns that we want to achieve when we do these acquisitions. So those -- that's what we're currently looking at. Obviously, we've done the AVA one, and we've done the [indiscernible] one last year, which yielded good returns. And the previous ones, we've done has also been good acquisitions.

No more questions from the audience.

So if you let me to talk, just a quicker wrap up then on what we've seen. Remember, I'm still a shareholder of the business as well. So if you look at the EBITDA line, maybe just north of 21%, given COVID. Then I think, operationally, not bad. Considering the so-called felicitas, retrenchment cost and needs to be added back on top of the 21.8%. I think, generally, the company on that line, not bad. I think the second one, which we probably don't brag enough about, André, is the cash generation of the business. I really believe the business demonstrated lastly, despite all these headwinds we faced, but the company actually [indiscernible] to, one, manage cash and the cash generation of the business. Then if you look, again, at the miners, these 2 things very important for some of those of you who's not following the miners. The cost of mining today worldwide, the cost of miners are not coming down. And I really believe what we did with the AVA deal and what Koos and his team is busy with will probably impact somehow on the cost or to get some sort of a cost benefit for our clients. So I really believe we're keeping ourselves busy with the right stuff. In terms of diversification, if you talk about the business and where we are today and going forward, something that we will keep on driving. I think, diversification of the business in the group for the past 34 years is probably what saved us last year. If you just take the South American business, which lost roughly about $25 million and take $25 million off the top line -- and remember, South America used to be the darling in the group. And I really think that it demonstrates the importance to be resilient against all these headwinds going forward. This is indication is something that we keep on and must keep on driving. And then maybe on what Koos and his team is busy with, 2 things probably important on that. Remember, the way investors like yourself and some of these miners with the projects today, timing is critical. So I really think what Koos is doing in the shaft boring and the NPV space, which certainly assists the miners to squeeze down some of these projects, which certainly have a huge impact on the NPV of these projects. So to wrap up then, I think from my side, I think safety-wise, cash flow-wise, profit-wise, I don't think we did bad given all the expense we faced with COVID. And certainly, like Roelof was saying, looking forward, I think, we're well positioned with a good order book, solid pipeline. And it seems, the commodities on the up. Thank you very much.