2014

Foraco International Reports Q2 2013

Better quarter. Adapting to the current market reality
Q2 Revenue down 30% YoY at US$ 74.6 million with a net loss of US$ 1.1 million

TORONTO AND MARSEILLE, FR, Aug. 6, 2013 /CNW/ - Foraco International SA (TSX:FAR) (the "Company" or "Foraco"), a leading global provider of mineral drilling services, today reported unaudited financial results for its second quarter 2013. All figures are reported in US Dollars (US$), unless otherwise indicated.

Three months Q2 2013 Highlights

Revenue

  • Q2 2013 revenue amounted to US$ 74.6 million compared to US$ 106.6 million in Q2 2012, a decrease of 30%.  Excluding the impact of acquisitions performed during fiscal year 2012, revenue decreased by 48% due to the continued low level of exploration activities of mining companies in all regions which has significantly impacted  activity since Q4 2012.

Profitability

  • Q2 2013 gross profit including depreciation within cost of sales was US$ (0.9) million compared to US$ 26.7 million in Q2 2012.

  • The contraction of activity recorded in all regions resulted in an under absorption of fixed operational cost of US$7.2 million.

  • The Company incurred US$ 7.4 million of non-recurring costs including redundancy costs amounting to US$ 4.1 with additional one-off costs of US$ 3.3 million, mainly in South America.

  • Total headcount was reduced by 22% from 2,835 employees as at end of Q1 2013 to 2,219 employees as at end of Q2 2013.

  • SG&A was reduced from US$ 9.0 million in Q1 to US$ 8.3 million in Q2 with a 15% reduction in Headcount.

  • In accordance with IFRS an additional operating profit of US$ 9.6 million was recorded in Q2 2013 to reflect the reassessed value of the second tranche payable to Servitec minority shareholders.

  • Q2 2013 EBIT amounted to US$ 0.5 million compared to US$17.2 million in Q2 2012.

Six months Q2 2013 Highlights

Revenue

  • H1 2013 revenue amounted to US$ 134.4 million compared to US$ 194.8 million in H1 2012, a decrease of 31% due to the low level of exploration activities of mining companies in all regions which significantly impacted the activity since Q4 2012.

Profitability

  • H1 2013 gross profit including depreciation within cost of sales was US$ (9.6) million compared to US$ 47.1 million in H1 2012.

  • The contraction of activity recorded in all regions resulted in an under absorption of fixed operational cost of US$18.0 million.

  • The Company incurred US$ 17.1 million of non-recurring costs related to redundancy costs and other one off costs.

  • Total headcount was reduced by 45% from 4,005 employees at the end of Q2 2012 to 2,219 employees at the end of Q2 2013.

  • In accordance with IFRS an additional operating profit of US$ 18.8 million was recorded in H1 2013 to reflect the reassessed value of the second tranche payable to Servitec minority shareholders.

  • H1 2013 EBIT amounted to US$ (8.0) million compared to US$ 30.1 million in H1 2012.

"Although the current economic environment still does not show any sign of improvement, positive effects of seasonality have been seen in the second quarter. This has been supplemented by ongoing business development activities and internal synergies that have enabled new technical drilling projects to be started in France, Australia, Brazil, Canada and Russia. As a consequence and as anticipated last quarter, our utilization rate has improved from 37% in Q1 to 46% in Q2 and all regions except Latin America were profitable in the quarter. In line with the reduced level of industry activity, cost cutting measures continue to be implemented, including the reduction in operational and support headcount by 632 employees during the quarter, a 50% year-on-year decrease. With the two main loss-making contracts in Chile ending in Q2, and all of our ongoing contracts performing satisfactorily, we are in a better position", said Daniel Simoncini, Chairman and co-CEO of Foraco, "But our visibility in the demand for services will only improve when the bidding season starts in Q4".

"Costs directly linked to redundancy, other restructuring activities and the ending of the loss-making Chilean contracts have impacted our Q2 result by US$ 7.4 million and our year-to-date result by US$ 17.6 million. With these one-off costs behind us and continued focus on cost control and productivity improvement, we believe that even in the current market conditions our ability to return to profitability has been reestablished," commented Jean-Pierre Charmensat, co- CEO and Chief Financial Officer. "Since the beginning of the year, we have used US$ 5.5 million cash from operations. We are monitoring our cash position through strict capex control and by minimizing working capital requirements. At June 30, 2013, we have cash available amounting to US$ 21.4 million and unused short term available credit lines of US$ 67 million. In addition, we have taken proactive steps to secure the continued support from our lenders regarding our financing needs. It is our intention to achieve a better balance between our short term and long term financing".

Acquisition of businesses

Servitec

On April 20, 2012, the Company completed the acquisition of a 51% shareholding in WFS Sondagem S.A. ("Servitec"), a Brazilian drilling service provider, for an amount of US$ 44.2 million. As part of this agreement, the Company has an option to acquire, and the current minority shareholders of Servitec have an option to sell, the remaining 49% after three years. The corresponding purchase consideration will depend upon a formula based on the average 2012, 2013 and 2014 EBITDA of Servitec and on the net cash as at December 31, 2014. A first estimate at transaction date of the present value of the amount payable was US$ 57.0 million. As a result of the change in market conditions in the last part of FY 2012, the Company has revised this estimate and adjusted the amount payable to US$43.7 million as at December 31, 2012. The further deterioration of these market conditions led the Company to reassess the present value of the amount payable. An adjustment amounting to US$ 9.6 million was accounted for in Q2 2013 (US$ 9.2 million in Q1 2013). The best estimate of the present value of the amount payable is US$ 24.9 million as at June 30, 2013.

Servitec has been consolidated into the Foraco International financial statements since April 20, 2012. The financial statements for the three-month period ended March 31, 2012 did not include the contribution of Servitec.

John Nitschke Drilling

On November 19, 2012, the Company acquired a 100% shareholding in John Nitschke Drilling, ("JND"), an Australian drilling service provider, through a combination of AU$ 30 million (US$ 31.2 million) in cash, an earn out amount and up to 7,000,000 warrants giving the right to acquire, for no additional consideration, up to 7,000,000 Foraco International shares. The warrants will be automatically converted in August 2013.

JND has been consolidated into the Foraco International financial statements since November 19, 2012. The financial statements for the three month and six-month periods ended June 30, 2012 did not include the contribution of JND.

         
Selected financial data        
         
(In thousands of US$)
(unaudited)
  Three-month period ended
June 30,
  Six-month period ended
June 30, 
    2013   2012   2013   2012
                     
Revenue     74,628   106,605     134,423   194,768
                     
Gross profit / (loss) (1)     (855)   26,735     (9,596)   47,117
As a percentage of sales     -1.1%   25.1%     -7.1%   24.2%
                     
EBITDA     11,062   26,461     13,196   47,792
As a percentage of sales     14.8%   24.8%     9.8%   24.5%
                     
Operating profit / (loss)     491   17,209     (7,992)   30,050
As a percentage of sales     0.7%   16.1%     -5.9%   15.4%
Profit / (loss) for the period     (1,139)   11,365     (5,309)   20,466
EPS (in US cents)                    
Basic     (3.32)   11.50     (6.98)   23.45
Diluted     (3.32)   11.34     (6.98)   23.13
                     
EPS (in US cents) including the impact of the considered
acquisition of the non-controlling interest of Servitec 
Basic     (3.15)   11.50     (7.84)   23.45
Diluted     (3.15)   11.34     (7.84)   23.13
                     

(1)     includes amortization and depreciation expenses related to operations

             
Financial results            
             
Revenue            
             
(In thousands of US$)
(unaudited)
Q2 2013 % change Q2 2012 H1 2013 % change H1 2012
Reporting segment            
Mining ............................................ 71,862 -31% 104,540 129,421 -31% 187,568
Water ............................................ 2,766 34% 2,065 5,002 -31% 7,200
Total revenue ............................. 74,628 -30% 106,605 134,423 -31% 194,768
             
Geographic region            
South America .............................. 25,413 -52% 53,025 49,864 -45% 90,322
Europe, Middle East and Africa .... 24,295 -18% 29,803 37,574 -32% 55,138
North America .............................. 8,457 -46% 15,775 19,592 -39% 32,225
Asia Pacific .................................. 16,463 106% 8,003 27,393 60% 17,084
Total revenue ............................ 74,628 -30% 106,605 134,423 -31% 194,768
             

Since Q3 2012, Europe, Africa and Middle East have been grouped into one geographic region for management and reporting purposes (EMEA). Previously, Africa and Europe were presented separately.

Q2 2013

Q2 2013 revenue amounted to US$ 74.6 million compared to US$ 106.6 million in Q2 2012, a decrease of 30%.  Excluding the impact of acquisitions performed during fiscal year 2012, revenue decreased by 48% due to the continued low level of exploration activity of mining companies recorded in all regions.

Revenue in South America amounted to US$ 25.4 million in Q2 2013 (US$ 53.0 million in Q2 2012), a decrease of 52%. Excluding the acquisition of Servitec in Brazil during Q2 2012, revenue decreased by 72% due to reduced activities in ongoing contracts and the end of some contracts in Chile and Argentina.

In EMEA revenue decreased by 18% from US$ 29.8 million in Q2 2012 to US$ 24.3 million in Q2 2013. This is mainly due to reduced activity levels across West Africa (-44%) partially compensated by a 32% increase activity in Europe in both France and Russia.

Revenue in North America decreased by 46%, from US$ 15.8 million in Q2 2012 to US$ 8.5 million in Q2 2013. This decrease was mainly due to reduced activity levels in Eastern Canada and weather related delays in Western Canada.

In Asia-Pacific, Q2 2013 revenue amounted to US$ 16.5 million, an increase of 106% compared to Q2 2012 as a result of the integration of JND activity since November 19, 2012. Excluding this acquisition, revenue decreased by 44% compared to Q2 2012.

H1 2013

H1 2013 revenue amounted to US$ 134.4 million compared to US$ 194.8 million in H1 2012, a decrease of 31%.  Excluding the impact of acquisitions performed during fiscal year 2012, revenue decreased by 50% due to the continued low level of exploration activity of mining companies recorded in all regions.

Revenue in South America amounted to US$ 49.9 million in H1 2013 (US$ 90.3 million in H1 2012), a decrease of 45%. Excluding the acquisition of Servitec in Brazil during Q2 2012, revenue decreased by 68% due to reduced activities in ongoing contracts and the end of some contracts in Chile and Argentina.

In EMEA revenue decreased by 32% from US$ 55.1 million in H1 2012 to US$ 37.6 million in H1 2013. This is mainly due to reduced activity levels across West Africa (-53%) partially compensated by a 44% increase activity in Europe in both France and Russia.

Revenue in North America decreased by 39%, from US$ 32.2 million in H1 2012 to US$ 19.6 million in H1 2013. This decrease was mainly due to reduced activity levels in Eastern Canada and weather related delays in Western Canada.

In Asia-Pacific, H1 2013 revenue amounted to US$ 27.4 million, an increase of 60% compared to H1 2012 as a result of the integration of JND activity since November 19, 2012. Excluding this acquisition, revenue decreased by 49% compared to H1 2012.

             
Gross profit            
             
(In thousands of US$)
(unaudited)
Q2 2013 % change Q2 2012 H1 2013 % change H1 2012
Reporting segment            
Mining ........................... (1,352) -105% 26,218 (10,020) -122% 45,026
Water ............................ 497 -4% 517 424 -80% 2,091
Total gross  profit ..... (855) -103% 26,735 (9,596) -120% 47,117
             

Q2 2013

Q2 2013 gross profit including depreciation within cost of sales was US$ (0.9) million compared to US$ 26.7 million in Q2 2012.

This drop in Gross profit, by order of magnitude, is the result of (i) reduced contract contributions, (ii) under absorption of fixed operational cost, (iii) contract losses in Chile, (iv) redundancy costs and (v) net impact of pricing and productivity.

The largest contributor to the reduction of Gross Profit is the fall through from the lower revenue level amounting to US$ 11.2 million.

The contraction of activity also resulted in an under absorption of fixed operational cost of US$7.1 million (an improvement from US$ 10.8 million in Q1 13) consisting of depreciation and field support costs.

The underperformance and closure of troubled contracts in Chile negatively impacted the Gross Profit by US$ 4.0 million.

Included in the Q2 2013 Gross Profit are redundancy costs amounting to US$ 3.9 million (US$ 3.8 million in Q1 2013 with a reduction of field employees by 594 in Q2 2013 in addition to the 500 layoffs in Q1 2013.

The net impact of pricing reductions in new and selected existing contracts, offset by productivity gains, was US$ 1.4 million.

Significant actions have been taken to reduce the cost base and adapt the organization to the lower activity levels.

H1 2013

H1 2013 gross profit including depreciation within cost of sales was US$ (9.6) million compared to US$ 47.1 million in H1 2012.

This drop in Gross profit, by order of magnitude, is the result of (i) reduced contract contributions, (ii) under absorption of fixed operational cost, (iii) contract losses in Chile, (iv) redundancy costs, and (v) net impact of pricing and productivity.

The largest contributor to the reduction of Gross Profit is the fall through from the lower revenue level amounting to US$ 20.0 million.

The contraction of activity also resulted in an under absorption of fixed operational cost of US$17.1 million consisting of depreciation and field support costs.

The underperformance and closure of troubled contracts in Chile negatively impacted the Gross Profit by US$ 10.0 million.

Included in the H1 2013 Gross Profit are redundancy costs amounting to US$ 7.7 million with a reduction of field employees by 1,094 in H1 2013.

The net impact of pricing reductions in new and selected existing contracts, offset by productivity gains, was US$ 1.9 million.

                         
Selling, General and Administrative Expenses                        
                         
(In thousands of US$)
(unaudited)
  Q2 2013   % change   Q2 2012   H1 2013   % change   H1 2012
                         
Selling, general and administrative expenses   8,261   -13%   9,526   17,221   1%   17,067
                         

Q2 2013

SG&A decreased by US$ 1.3 million. On a comparable basis and excluding one off costs, the quarterly SG&A costs have been reduced by US$ 1.2 million a 15% reduction. These savings are the result of a continuing implementation of the companywide cost cutting action plan. The non-recurring redundancy cost of US$ 0.4 million is included in the period.

H1 2013

HI 2012 SG&A expenses do not include the full impact of the 2012 acquisitions (JND was purchased in November 2012 and Servitec in April 2012). On a comparable basis and excluding one off costs, the SG&A costs have been reduced by US$ 1.2 million an 8% reduction.

These savings are the result of a continuing implementation of the companywide cost cutting action plan which has resulted in a reduction of 20% of SG&A headcount since December 31, 2012. The non-recurring redundancy cost of US$ 0.8 million is included in the period.

                         
Operating profit                        
                         
(In thousands of US$)
(unaudited)
  Q2 2013   % change   Q2 2012   H1 2013   % change   H1 2012
Reporting segment                        
Mining ..................................   356   -98%   16,877   (7,719)   -127%   28,787
Water ..................................   135   -59%   332   (273)   -119%   1,463
Total operating profit ....   491   -97%   17,209   (7,992)   -127%   30,050
                         

The YoY difference is the result of the changes in gross profit and SG&A described above.

Q2 2013

In addition, during the quarter, the Company reestimated at US$ 24.9 million the present value of the amount payable related to the second phase of the Servitec acquisition, compared to US$ 34.5 million as at March 31, 2013. The adjustment amounting to US$ 9.6 million has been recorded in other operating income and expense within operating profit in accordance with IFRS 3.

H1 2013

During the period, the Company reestimated at US$ 24.9 million the present value of the amount payable related to the second phase of the Servitec acquisition, compared to US$ 43.7 million as at December 31, 2012. The adjustment amounting to US$ 18.8 million has been recorded in other operating income and expense within operating profit in accordance with IFRS 3.

Financial position

The following table provides a summary of the Company's cash flows for H1 2013 and H1 2012:

       
(In thousands of US$) H1 2013   H1 2012
       
Cash generated from operations before working capital requirements (5,498)   47,990
Working capital requirements, interest and tax (1,677)   (29,449)
       
Net cash flow from operating activities (7,175)   18,541
       
Purchase of equipment in cash (6,089)   (20,412)
Consideration payable related to acquisitions     (17,223)
       
Net cash used in investing activities (6,089)   (37,635)
       
Proceeds from credit facilities, net 2,783   26,479
Acquisition of treasury shares (1,535)   (1,917)
Dividends paid (1,692)   (6,391)
       
Net cash from financing activities (444)   18,171
       
Exchange differences (781)   1,104
       
Variation in cash and cash equivalents (14,489)   181
       

For the six-month period ended June 30, 2013, cash used in operations before changes in operating assets and liabilities amounted to US$ 5.5 million compared to US$ 48.0 million of cash generated during the same period a year ago.

After working capital requirements, interest and income tax paid, the net cash used in operations was US$ 7.2 million in H1 2013 compared to US$ 18.5 million of cash generated during the same period a year ago.

During the period, the Company acquired operating equipment for US$ 6.1 million in cash. This compares to a total of US$ 20.4 million in cash purchases during H1 2012.

As at June 30, 2013, cash and cash equivalents totaled US$ 21.4 million compared to US$ 35.9 million as at December 31, 2012. Cash and cash equivalents are held at or invested within top tier financial institutions.

On June 30, 2013, financial debts and equivalents amounted to US$ 158.7 million (US$ 175 million as at December 31, 2012). The financial debt also includes the present value of the consideration payable in 2015 for the acquisition of the remaining shares of Servitec totaling US$ 25.9 million.

As at June 30, 2013, the maturity of the financial debts (borrowing and other financial debts) breaks down as follows (in thousands of US$):

                 
Maturity   Less than
one year
  Between one
and five years
  More than
five years
  Total
Bank overdraft ...........................................................   38,848       38,848
Assignment of trade receivables with recourse .......   3,593       3,593
Bank financing ...........................................................   21,886   59,049     80,935
Capital lease obligations ............................................   6,859   2,559   __   9,418
Total financial debt ................................................   71,186   61,608   __   132,794
               

Assignment of trade receivables with recourse, which is presented in the table above as "less than one year", is backed by trade receivables and can be renewed as necessary. The Company has used and unused short-term credit facilities of US$ 108.3 million available as at June 30, 2013 (US$ 106 million as at December 31, 2012), corresponding to bank overdrafts and the assignment of trade receivables. US$ 42.4 million has been drawn down as at June 30, 2013.

As at June 30, 2013, the net debt amounted to US$ 137.3 million. The ratio of debt (net of cash) to shareholders' equity increased to 0.74 from 0.62 as at December 31, 2012 mainly as a result of the cash used in the period.

The Company is subject to certain covenants linked to two long term debt financings related to the 2012 acquisitions of Servitec and JND. These covenants are mainly related to a net debt / EBITDA ratio which is measured as at December 31 of each year. A breach of these covenants as of this date would require the initiation of discussions with the representative of the lenders, but would not result in an automatic acceleration of debt repayment. The representative of the lenders has been informed of the current position of the Company.

Bank guarantees as at June 30, 2013, totaled US$ 17.9 million compared to US$ 22.8 million as at December 31, 2012.

Going concern and impairment testing

Based on internal forecasts and projections which are regularly updated in order to take into account foreseeable 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 (mainly related to debt service obligations) for a period of at least twelve months. In addition, impairment tests based on expected discounted cash flows which were performed at the level of each business segment and geographic area indicate that no impairment is required on the carrying values of the long lived assets considered for each business segment and geographic area.

Currency exchange rates

The exchange rates for the periods under review are provided in the Management's Discussion and Analysis of Q2 2013.

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 August 6, 2013, 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 1- 888-390-0546 or 416-764-8688. You will be put on hold until the conference call begins. A live audio webcast of the conference call will also be available through http://www.newswire.ca/en/webcast/detail/1204243/1320681 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 www.foraco.com.

"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 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 April 2, 2013, which is filed with Canadian regulators on SEDAR (www.sedar.com). 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.

SOURCE Foraco International SA



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