Joy Global, formerly Harnischfeger Industries, is the parent company of Milwaukee-based P&H Mining Equipment, which supplies surface mining equipment, and Joy Mining Machinery, which supplies underground mining equipment.
Net sales for the quarter totalled $US286.4 million, an increase of 7% from last year's first quarter net sales of US$267.5 million. Of this total, underground mining machinery (Joy Mining Machinery) contributed $US197.5 million and surface mining equipment (P&H) contributed $US88.9 million.
For the period the company reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $US22.3 million, compared with $US22.9 million for the previous year. The company pointed out that comparing the net loss for the quarter of $US29 million to the net loss of $US15 million for the first quarter of 2001 would not be meaningful. This is because Joy Global's financial statements reflect its emergence from bankruptcy in July 2001, and the adoption of ‘fresh start accounting’, related to the revaluation of inventory along with increased depreciation and amortization expenses in fiscal 2002.
The adjusted EBITDA (including the fresh-start inventory adjustment) for underground mining machinery is $US21.9 million, compared with $US15 million for the previous corresponding period.
The adjusted EBITDA for P&H dropped to $US4.9 million, compared with $US11 million for the previous period. A downturn in surface equipment markets and low copper and iron ore prices are the main reasons P&H has not performed as well as previously. A drop in orders for electric mining shovels has resulted in the lay off of 45% of workers at the Milwaukee operations.
During a recent Australian visit, Wayne Hunnell, president and COO of Joy Mining Machinery, said equipment demand in the US had picked up since July 2001, linked to the Californian power shortage and other factors. Growth in the US coal industry has subsequently stalled and has dampened forecast earnings. Two of the largest US coal companies, Arch Coal and Consol, have both recently announced production cuts.
Globally, Hunnell said Joy Mining Machinery has seen a 25%-30% improvement in demand for original equipment and aftermarket as compared with 1999-2000 through to fiscal 2001. Demand for original equipments, such as continuous miners and roof supports has seen an even higher percentage increase he said.
Joy Mining Machinery is targeting China, India and Russia for future growth opportunities. It has recently entered into contracts for three sets of bord and pillar equipment into India, each including one miner, two shuttle cars and multi-bolter, the fruition of ten years of negotiations. In the past Western equipment into third world countries, and India in particular, has not been adequately supported. As a result longwall mining has never achieved complete universal acceptance as a high production method.
In recognition of this problem Joy is also supplying up to 15 operators for the first five years. In effect, the equipment is being sold with expertise which will be transferred over time to the local workforce. While modelled along the lines of contract labour - Joy has agreed to meet certain production targets and will earn a bonus if these are exceeded – the deal is more about risk sharing between the OEM and the mine. Further equipment orders are expected to flow from India if this approach proves successful.
Joy Mining Machinery has also made its first sale ever of roof support structures into the normally closed German market. The order, to be shipped mid-year, is an exciting and positive development for Joy, Hunnell said.
The Chinese market too has been growing. To date there are three complete longwall systems and a total of 69 pieces of Joy equipment (shearers, continuous miners, shuttle cars, armoured face conveyors, etc.) operating in Chinese mines. This includes a shearer and continuous miners supplied to the recently developed Yu Jia Ling mine of the Shenhua group.
Looking ahead, Joy Global has lowered its revenue forecast for original equipment orders, mostly related to the surface equipment business. Joy Global expects EBITDA of $US125 - $US135 million in the 12 months ending February 2, 2003.
Joy Global chairman, president and CEO, John Nils Hanson, said lower production levels in surface mining equipment operations would temper overall operating results and offset some of the gains in the underground mining machinery operation.
“In addition, our overall product mix, increased termination and medical costs and the adverse effects of the South African rand, are expected to mitigate much of the potential increase in earnings normally associated with higher revenues," he said.
In other financial news, in mid-March the company offered $US200 million of 8.75% senior subordinated notes, due in 2012. In effect, the placement allows Joy Global to defer repayments of $US208 million of principal repayments required in fiscal years 2002 through 2006 under a term loan and senior notes until 2012.
“Together with our strong projected free cash flows, we believe this debt creates considerable flexibility for our company’s future growth and development,” Hanson said.
