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Mincon better placed to boost service business

Mincon Group says it now has its drilling equipment manufacturing operations aligned with its growing sales profile and can focus on optimising costs but more importantly building a bigger service business around vital on-time product delivery and better regional inventory management.
Mincon better placed to boost service business Mincon better placed to boost service business Mincon better placed to boost service business Mincon better placed to boost service business Mincon better placed to boost service business

Staff reporter

The company this week reported 24% higher revenue for the March 2019 quarter, compared with the level of a year ago, though it didn't post its latest revenue number (or a comparable one for a year ago). The company booked first-half sales of €55.7 million in 2018 and finished the year about 25% ahead of 2017 with its circa-€100 million full-year revenue.

Mincon (AIM:MCON) said it "caught up with the order book" in Q1 this year and its factories around the world were, " in the main, well specified now for the product range and sales level".

Describing itself again as the "challenger brand" in the global market, Mincon said it had started to "be able to compete in supplying complete drill consumable solutions directly to mines" after completing its drill string build out, and extending its ranges of hammers and bits (through recent M&A).

"We are getting much deeper into the service element," management said.

"This dependence by customers on our service and engineering means that we also have to keep the requisite inventory near the contract site, and service individuals proximate to the service delivery. This is an emerging model for us, and each contract requires people, investment, service-guarantees and time.

"We have recently won multi-million dollar business in Chesapeake Virginia, in Indonesia, in Chile, and in Finland which are not reflected in this growth as yet to any degree. These will require some restructuring and build out in the group to support the end customers, incur some initiation and front-end costs, and this is causing a rethink of our management structure to lean towards a regional footprint, mapping the thinking behind the investment in the key factories in the Americas, Australasia/Asia Pacific and EMEA."

Mincon says it has cut €1 million of its targeted €3 million a year of overhead reductions.

"Since we expect low margin, less engineered products to come increasingly under pressure in an interconnected world, Mincon Group is repositioning with the full consumables offering and a higher service element, directly to the larger end customers. We aim to combine this with product systems that are more fuel efficient, offer better value in use overall and are more environmentally friendly," the company said.

Irish stockbroker Davy said Mincon's planned beta testing of its new and important Greenhammer hydraulic systems in Western Australia had been delayed by a cyclone-induced mine closure, to May this year, "will be frustrating for the company, but the opportunity for the technology remains significant".

A bigger contribution from the lower-margin, €20 million-a-year Driconeq business acquired last year was a factor in Mincon's lower 35% gross margin for the quarter.

Mincon's share price was up 2% Thurday in London at 102p, capitalising the company at €210.5 million. The shares are down nearly 8% since the start of the year.