FORACO INTERNATIONAL REPORTS Q3 2014

Transcription

1 NEWS RELEASE FORACO INTERNATIONAL REPORTS Q Toronto, Ontario / Marseille, France Tuesday, November 4, 2014 Foraco International SA (TSX:FAR) (the Company or Foraco ), a leading global provider of mineral drilling services, today reported unaudited financial results for its third quarter All figures are reported in US Dollars (US$), unless otherwise indicated. Three months Q Highlights Revenue Q revenue amounted to US$ 51.6 million. This is the third consecutive quarter with increased revenue (Q1 2014: US$ 45.4 million, Q2 2014: US$ 48.4 million) and an increased utilization rate (Q1 2014: 30%, Q2 2014: 34% and Q3 2014: 37%). Compared with Q (US$ 66.2 million) activity decreased 22%. Profitability Q gross profit including depreciation within cost of sales was US$ 3.3 million (or 6% of revenue) compared to US$ 9.9 million in Q (or 15% of revenue). This decrease resulted from a continued pressure on selling prices, extra costs on some projects and some mobilizations. On a positive side, the effect of the fixed operational costs savings resulted in a reduced under absorption of fixed cost compared to the same quarter last year. SG&A costs decreased by 18% between Q and Q3 2014, mainly as a result of the continued implementation of the company-wide cost cutting action plans. EBIT was US$ (2.8) million in Q compared to US$ 2.4 million in Q Capital expenditure was US$ 3.9 million in Q compared to US$ 2.3 million in Q This Capex is mainly related to some new projects starting in Q and to be continued into 2015.

2 Nine months Q Highlights Revenue YTD Q revenue amounted to US$ million compared to US$ million in YTD Q3 2013, a decrease of 28% (23% excluding the effect of foreign exchange). The revenue decreased as a result of the continued market contraction and pressure on prices. Profitability YTD Q gross profit including depreciation within cost of sales was US$ 6.8 million (or 5% of revenue) compared to US$ 0.3 million in YTD Q There were no one-off costs during the period and the Company fully benefited from the positive effect of the fixed operational costs reduction which compensated some under absorption of fixed costs. SG&A costs decreased by 22% between YTD Q and YTD Q3 2014, mainly as a result of the continued implementation of the company-wide cost cutting action plans. EBIT was US$ (12.3) million in YTD Q compared to US$ (5.5) million in YTD Q3 2013, or US$ (24.4) million excluding the positive impact of the remeasurement in H of the contribution payable for Servitec, in accordance with IFRS. The YTD Q EBITDA was US$ 12.7 million, a US$ 6.0 million improvement compared to US$ 6.8 million adjusted EBITDA 1 in YTD Q Capital expenditures were US$ 7.4 million in YTD Q compared to US$ 8.8 million in YTD Q Cash flow and net debt Net cash generated from operations was US$ 8.2 million in YTD Q vs. US$ 3.2 million in YTD Q Net debt as at September 30, 2014 was US$ million vs. US$ million in Q and vs US$ million as at December 31, 2013, a total reduction of US$ 16.8 million since 2013 year end. 1 The definition of the adjusted EBITDA, a non IFRS measure, is provided on page 8. 2

3 Despite some recent budgeting activity in the junior space, the market continued to slightly contract as certain majors are continuing to adjust or delay their drilling budgets. Therefore, the Company has continued to be affected by the relatively low activity and the pressure on prices. In spite of this environment, this is the third consecutive quarter with increased revenue and an increased utilization rate. It is interesting to note that the utilization rate in certain significant areas reached very satisfactory levels, like in Australia. As reported in Q2, we have started some multi-year projects and are still in the ramp up phase, said Daniel Simoncini, Chairman and co-ceo of Foraco. We also performed an extensive customer satisfaction survey with very encouraging results for our Company: 85% of our customers declared themselves ready to work again with us and recommend FORACO to third parties. We are entering the bidding season and are focused to get the best possible balance between activity and profitability, as some competitors continue to lower their unsustainable prices. Overall, the operational performance was in line with expectations given the current level of activity, with an EBITDA margin of 11% while we continue to decrease our fixed operation costs and SG&A commented Jean-Pierre Charmensat, co-ceo and Chief Financial Officer. "Net cash generated from operations amounted to US$ 8.2 million as at September 30, The net debt as of September 30, 2014 was US$ million vs. US$ million as at December 31, 2013, a reduction of US$ 16.8 million. We are currently reassessing our debt structure and have entered into negotiations with our lenders in France in order to adapt it so as to better match our future cash flow generation. Selected financial data Financial results (In thousands of US$) (unaudited) Three-month period ended Nine-month period ended September 30, September 30, Revenue 51,580 66, , ,635 Gross profit (1) 3,287 9,872 6, As a percentage of sales 6.4% 14.9% 4.7% 0.1% EBITDA 5,447 12,395 12,735 25,593 As a percentage of sales 10.6% 18.7% 8.8% 12.8% Adjusted EBITDA 5,447 12,395 12,735 6,768 As a percentage of sales 10.6% 18.7% 8.8% 3.4% Operating profit / (loss) (2,784) 2,444 (12,307) (5,548) As a percentage of sales -5.4% 3.7% -8.5% -2.8% Profit / (loss) for the period (3,509) 887 (13,517) (4,422) Attributable to: Equity holders of the Company (3,564) (949) (13,502) (7,080) Non-controlling interests 55 1,836 (15) 2,658 EPS (in US cents) Basic (4.01) (1.08) (15.21) (8.06) Diluted (4.01) (1.08) (15.21) (8.06) (1) includes amortization and depreciation expenses related to operations 3

4 Revenue (In thousands of US$) - (unaudited) Q % change Q YTD Q % change YTD Q Reporting segment Mining... 47,197-27% 64, ,958-34% 193,837 Water... 4, % 1,796 17, % 6,798 Total revenue... 51,580-22% 66, ,432-28% 200,635 Geographic region South America... 13,402-23% 17,466 44,180-34% 67,331 Europe, Middle East and Africa... 11,897-35% 18,442 37,378-33% 56,016 North America... 11,236-15% 13,278 28,370-14% 32,870 Asia Pacific...15,045-12% 17,026 35,503-20% 44,418 Total revenue... 51,580-22% 66, ,432-28% 200,635 Q Q revenue amounted to US$ 51.6 million compared to US$ 66.2 million in Q3 2013, a decrease of 22% and a US$ 3.2 million increase compared to Q and US$ 6.2 million compared to Q Revenue in South America amounted to US$ 13.4 million in Q (US$ 17.5 million in Q3 2013), a decrease of 23%. In Brazil, the decrease was 43% mainly due to the evaporation of the Junior market. The activity in Chile increased by 86%. No activity was recorded in Argentina in Q In EMEA, revenue decreased by 35%, from US$ 18.4 million in Q to US$ 11.9 million in Q This is mainly due to the reduced activity in the mining segment across West Africa which was partly offset by the increased activity in the water segment. In Europe and Russia, many projects were postponed to Q and Revenue in North America decreased by 15% in US$ but only 10 % in Canadian dollars. Junior activity remains bleak. In Asia Pacific, Q revenue amounted to US$ 15.0 million, a decrease of 12% mainly due to pressure on selling prices and delays on some projects. Nine months Q YTD Q revenue amounted to US$ million compared to US$ million in YTD Q3 2013, a decrease of 28% (23% excluding the effect of foreign exchange). The revenue decreased as a result of the continued market contraction and pressure on prices. Revenue in South America amounted to US$ 44.2 million in YTD Q (US$ 67.3 million in YTD Q3 2013), a decrease of 34%. In Chile, the decrease of 18% was mainly linked to the termination of two troubled contracts. No activity was recorded in Argentina in YTD Q In Brazil, revenue decreased by 36% due to the completion of some projects, and to the evaporation of the junior market. In EMEA, revenue decreased by 33%, from US$ 56.0 million in YTD Q to US$ 37.4 million in YTD Q This is mainly due to the reduced activity in the mining segment across West Africa which was partly offset by the increased activity in the water segment. In Europe and Russia many customers postponed their projects to Q and Revenue in North America decreased by 14% in US$ but only 8% in Canadian dollars. In Asia Pacific, YTD Q revenue amounted to US$ 35.5 million, a decrease of 20%. In Australia, activity was impacted by pressure on selling prices. After a slow start the Company signed two large multi-year multi-rig contracts. In New Caledonia, the second quarter suffered from local disturbances including the temporary closure of a large nickel mine. 4

5 Gross profit (In thousands of US$) - Q % change Q YTD Q3 % change YTD Q3 (unaudited) Reporting segment Mining... 2,568-73% 9,560 4,955 n/a (460) Water % 312 1, % 736 Total gross profit... 3,287-67% 9,872 6,808 n/a 276 Q Q gross profit including depreciation within cost of sales was US$ 3.3 million (or 6% of revenue) compared to US$ 9.9 million in Q (or 15% of revenue). This decrease resulted from continued pressure on selling prices, extra costs on some projects and some mobilizations. On a positive side, the effect of the fixed operational costs savings resulted in a reduced under absorption of fixed costs compared to the same quarter last year. Nine months Q YTD Q gross profit including depreciation within cost of sales was US$ 6.8 million (or 5% of revenue) compared to US$ 0.3 million in YTD Q There were no one-off costs during the period and the Company fully benefited from the positive effect of the fixed operational costs reduction which compensated some under absorption of fixed costs. Selling, General and Administrative Expenses (In thousands of US$) (unaudited) Q % change Q YTD Q % change YTD Q Selling, general and administrative expenses 6,071-18% 7,428 19,115-22% 24,649 Q SG&A costs decreased by US$ 1.4 million between Q and Q These savings are mainly the result of the continued implementation of the company-wide cost cutting action plans. Nine months Q SG&A costs decreased by US$ 5.5 million between YTD Q and YTD Q These savings are mainly the result of the continued implementation of the company-wide cost cutting action plans. Operating profit (In thousands of US$) - (unaudited) Q % change Q YTD Q3 % change YTD Q3 Adjusted (1) YTD Q Reporting segment Mining... (2,986) -228% 2,333 (11,830) 120% (5,386) (24,211) Water % 111 (477) 194% (162) (162) Total operating profit / (loss)... (2,784) -214% 2,444 (12,307) 122% (5,548) (24,373) (1) In YTD Q3 2013, the Company recognized a gain amounting to US$ 18.8 million resulting from the remeasurement of the contribution payable related to Servitec in accordance with IFRS. Excluding this positive effect, the operating loss would have been US$ 24.4 million in YTD Q

6 Q Operating profit / (loss) decreased by US$ (5.2) million and can be explained as follows: - (i) Net impact of reduced activity and pricing: US$ (8.4) million -(ii) Fixed operational costs reduction: US$ 1.8 million -(iii) Reduction in SG&A costs: US$ 1.4 million - Total variance: US$ (5.2) million Nine months Q Operating loss decreased by US$ (12.0) million, going from an adjusted operating loss of US$ (24.4) million in YTD Q to US$ (12.3) million in YTD Q The reduced activity including the impact of exchange rate fluctuations was partially compensated for by the reduction in fixed operational and SG&A costs. Financial position The following table provides a summary of the Company s cash flows for YTD Q and YTD Q3 2013: (In thousands of US$) YTD Q YTD Q Cash generated from operations before working capital requirements 13,271 6,860 Working capital requirements, interest and tax (5,107) (3,677) Net cash flow generated by operating activities 8,164 3,183 Purchase of equipment in cash (6,888) (8,361) Consideration payable related to acquisitions (500) - Net cash used in investing activities (7,388) (8,361) Debt variance (10,273) 16,700 Acquisition of treasury shares - (1,556) Dividends paid (1,086) (5,983) Net cash generated by / used in financing activities (11,359) 9,161 Net cash variation (10,583) 3,983 Foreign exchange differences (780) (2,348) Variation in cash and cash equivalents (11,363) 1,635 In YTD Q3 2014, the net cash flow generated by operating activities amounted to US$ 8.2 million compared to US$ 3.2 million during the same period last year. During the period, the Company acquired maintenance Capex for US$ 6.9 million in cash and US$ 0.5 million through capital leases compared to a total of US$ 8.4 million in cash purchases during YTD Q As at September 30, 2014, cash and cash equivalents totaled US$ 26.2 million compared to US$ 37.5 million as at December 31, Cash and cash equivalents are held at or invested within top tier financial institutions. 6

7 As at September 30, 2014, the net debt amounted to US$ million (US$ million as at December 31, 2013). The ratio of debt (net of cash) to shareholders equity decreased from 0.69 as at December 31, 2013 to 0.65 as at September 30, On September 30, 2014, financial debts and equivalents amounted to US$ million (US$ 159 million as at December 31, 2013). The financial debt also includes the present value of the consideration payable in 2015 for the acquisition of the remaining Servitec shares which were reduced to US$ 3.4 million following the agreement signed with the minority shareholder of Servitec to waive the call and put options previously due to be exercised before the end of 2014 and payable in March As at September 30, 2014, the Company is not in breach of any covenant. The next testing date for the bank covenants is December 31, The Company is currently reassessing its debt structure and has entered into negotiations with its lenders in France in order to adapt its debt structure so as to better match its future cash flow generation. The Company is confident that an agreement will be reached before year-end. As at September 30, 2014, the financial debt is as follows (in thousands of US$): Maturity Drawn credit lines rolled over on a yearly basis Roll Over October 1, 2014 and September 30, 2015 October 1, 2015 and September 30, 2016 October 1, 2016 and September 30, 2017 October 1, 2017 and September 30, 2018 October 1, 2018 and September 30, 2019 Total 50, ,994 Long term financing related to: - Drawn credit lines rolled over confirmed for at least 12 months 6, ,777 - Brazil acquisition 4,059 4,059 4,059-12,178 - Australia acquisition 6,343 6,343 6,343 6,343 25,370 - Acquisition of fixed assets 9,858 8,998 7,237 3, ,405 - Acquisition of fixed assets through capital leases 1, (0) 2,159 Total 57,771 21,781 19,737 17,845 10, ,882 (*) The non-current portion of long term debt, i.e. from October 1, 2015 onwards, is $48,330 thousand The Company has used and unused short-term credit facilities amounting to US$ 91.8 million out of which US$ 57.8 million was drawn as of September 30, These facilities are granted individually by several banks, mainly in France, Chile, Brazil, Australia and Canada. They are generally granted on a yearly basis and are subject to review at various dates. Going concern and impairment testing Current economic conditions make forecasting difficult, and there is the possibility that the Company s actual operating performance during the coming year may be different from expectations. Based on internal forecasts and projections that take into account reasonably possible changes in the Company s operating performance, the Company believes that it has adequate financial resources to continue in operation and meet its financial commitments for a period of at least twelve months provided it continues to benefit from the support of its lenders. The next testing date for the bank covenants is December 31, The Company is currently reassessing its debt structure and has entered into negotiations with its lenders in France in order to adapt its debt structure so as to better match its future cash flow generation. The Company is confident that an agreement will be reached before year-end. Accordingly, the Company continues to adopt the going concern basis in preparing its financial statements. The current economic conditions in mining services were seen as an indicator of potential impairment of the carrying value of the Company s long lived assets. Accordingly, an impairment test was performed at the level of each reporting segment and geographic region. The assumptions used 7

8 involve a considerable degree of estimation on the part of management. The most significant assumptions include revenue per rig, EBITDA margin, discount rate and long term growth. The assumptions for 2015 and 2016 are based on management s estimates. For 2017 onwards, the Company used the 7-year actual historical performance in order to determine its revenue per rig and EBITDA margin. Management considers that this provides a reasonable factual basis for the purpose of impairment testing. On this basis, no impairment was deemed necessary. Currency exchange rates The exchange rates for the periods under review are provided in the Management s Discussion and Analysis of Q Non-IFRS measures EBITDA represents Net income before interest expense, income taxes, depreciation, amortization and non-cash share based compensation expenses. EBITDA is a non-ifrs quantitative measure used to assist in the assessment of the Company's ability to generate cash from its operations. The Company believes that the presentation of EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the drilling industry. EBITDA is not defined in IFRS and should not be considered to be an alternative to Profit for the period or Operating profit or any other financial metric required by such accounting principles. Adjusted EBITDA corresponds to the EBITDA excluding the impact resulting from the remeasurement of the contribution payable for Servitec. Adjusted EBIT corresponds to the operating profit / (loss) excluding the impact resulting from the remeasurement of the contribution payable for Servitec. Net debt corresponds to the current and non-current portions of borrowings and the consideration payable related to acquisitions, net of cash and cash equivalents. The reconciliations of the different non IFRS measures are as follows: EBITDA, adjusted EBITDA and adjusted EBIT (In thousands of US$) (unaudited) Q Q YTD Q YTD Q Operating profit / (loss)... (2,784) 2,444 (12,307) (5,548) Depreciation expense... 7,917 9,501 24,098 29,750 Non-cash employee share-based compensation ,391 EBITDA... 5,447 12,395 12,735 25,593 Impact resulting from the remeasurement of the contribution payable for Servitec ,825 Adjusted EBITDA... 5,447 12,395 12,735 6,768 Adjusted EBIT... (2,784) 2,444 (12,307) (24,373) 8

9 Net debt Q Q Q Q Cash and cash equivalents 26,163 29,154 28,853 37,526 Borrowings - Non-current portion (55,107) (62,256) (65,761) (68,556) Borrowings - Current portion (72,775) (71,493) (79,278) (74,194) Consideration payable related to acquisitions (3,430) (3,430) (3,430) (16,670) Total Net Debt (105,149) (108,025) (119,616) (121,894) Outlook The Company s business strategy is to reinforce its existing platform and to develop and optimize the services it offers across geographical regions and industry segments. Foraco expects to continue to execute its strategy through a combination of organic growth and development and acquisitions of complementary businesses in the drilling services industry. Conference call and webcast On November 4, 2014, Company Management will conduct a conference call at 10:00 am ET to review the financial results. The call will be hosted by Daniel Simoncini, Chairman and CEO, and Jean-Pierre Charmensat, Vice-CEO and CFO. You can join the call by dialing or You will be put on hold until the conference call begins. A live audio webcast of the conference call will also be available through or on our website. An archived replay of the webcast will be available for 90 days. About Foraco International SA Foraco International SA (TSX: FAR) is a leading global mineral drilling services company that provides a comprehensive and reliable service offering in mining and water projects. Supported by its founding values of integrity, innovation and involvement, Foraco has grown into the third largest global drilling enterprise with a presence in 23 countries across five continents. For more information about Foraco, visit For further information, please contact: Brenda Patterson Mack [email protected] Tel: (647) "Neither TSX Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Exchange) accepts responsibility for the adequacy or accuracy of this release." Caution concerning forward-looking statements This document may contain "forward-looking statements" and "forward-looking information" within the meaning of applicable securities laws. These statements and information include estimates, forecasts, information and statements as to Management's expectations with respect to, among other 9

10 things, the future financial or operating performance of the Company and capital and operating expenditures. Often, but not always, forward-looking statements and information can be identified by the use of words such as "may", "will", "should", "plans", "expects", "intends", "anticipates", "believes", "budget", and "scheduled" or the negative thereof or variations thereon or similar terminology. Forward-looking statements and information are necessarily based upon a number of estimates and assumptions that, while considered reasonable by Management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Readers are cautioned that any such forward-looking statements and information are not guarantees and there can be no assurance that such statements and information will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed under the heading "Risk Factors" in the Company's Annual Information Form dated March 31, 2014, which is filed with Canadian regulators on SEDAR ( The Company expressly disclaims any intention or obligation to update or revise any forward-looking statements and information whether as a result of new information, future events or otherwise. All written and oral forward-looking statements and information attributable to Foraco or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. 10