Foraco International reports Q2 2014

Soft quarter
Net debt reduced by US$11.6 million over the period

TORONTO and MARSEILLE, FRANCE, Aug. 5, 2014 /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 2014. All figures are reported in US Dollars (US$), unless otherwise indicated.

Three months Q2 2014 Highlights

Revenue

  • Q2 2014 revenue amounted to US$ 48.4 million compared to US$ 74.6 million in Q2 2013, a decrease of 35% (31% excluding foreign exchange rate differences). Compared to Q1 2014, revenue increased by US$ 3 million or 7%. The Company's drill utilization rate was 34% in Q2 2014 (46% in Q2 2013), increasing from 30% in Q1 2014. Many customers continued to push the execution of projects into H2 2014.

Profitability

  • Q2 2014 gross profit including depreciation within cost of sales was US$ 0.9 million (or 2% of revenue) compared to US$ (0.9) million in Q2 2013 (or -1% of revenue). The Company incurred extra costs and delays linked to the start up of projects and late contract signatures. In addition the decrease of revenue generated further under absorption of fixed cost, compensated by the positive effect of the fixed operational costs reduction.
  • SG&A costs decreased by 21% between Q2 2013 and Q2 2014, mainly as a result of the continued implementation of the company-wide cost cutting action plans.
  • EBIT was US$ (5.6) million in Q1 2014 compared to US$ 0.5 million in Q2 2013, or US$ (1.7) million excluding the impact of one-off costs, losses on troubled contracts and the remeasurement in Q2 2013 of the contribution payable for Servitec, in accordance with IFRS.
  • Capital expenditures were US$ 1.9 million in Q2 2014 compared to US$ 3.0 million in Q2 2013.

H2 2014 Highlights

Revenue

  • H1 2014 revenue amounted to US$ 93.9 million compared to US$ 134.4 million in H1 2013, a decrease of 30%. Many customers continued to push the execution of projects into H2 2014.

Profitability

  • H1 2014 gross profit including depreciation within cost of sales was US$ 3.5 million (or 4% of revenue) compared to US$ (9.6) million in H1 2013 (or -7% of revenue). Although the revenue decreased, generating some under absorption of fixed costs, there were no one-off costs and the Company fully benefited from the positive effect of the fixed operational costs reduction.
  • SG&A costs decreased by 24% between H1 2013 and H1 2014, mainly as a result of the continued implementation of the company-wide cost cutting action plans.
  • EBIT was US$ (9.5) million in H1 2014 compared to US$ (8.0) million in H1 2013, or US$ (26.8) million excluding the impact corresponding to the remeasurement in H1 2013 of the contribution payable for Servitec, in accordance with IFRS.
  • The adjusted EBITDA1 improved by US$ 12.9 million from US$ (6.1) in H1 2013 to US$ 7.3 million in H1 2014.
  • Capital expenditures were US$ 3.4 million in H1 2014 compared to US$ 6.5 million in H1 2013.

Cash flow and net debt

  • Cash generated from operations was US$ 7.7 million in H1 2014 vs. cash used of US$ 5.5 million in H1 2013.
  • Net debt as at June 30, 2014 was US$ 108.0 million vs. US$ 121.9 million as at December 31, 2013, a reduction of US$ 13.9 million.
  • Net debt was positively impacted by the waiver during the period of a call and put option related to the acquisition of a minority shareholding in Servitec for US$ 12.7 million.

"The second quarter of the year has been unusually soft from a revenue perspective, as many customers continued to push the execution of projects into H2 2014: we reported a Q2 revenue of US$48 million, up US$ 3 million compared to Q1. Globally, and despite a recent encouraging surge in demand from junior companies together with a visible change in sentiment from the majors, overall demand continued to slightly contract. During the period, base metal prices which are a fundamental driver of our activity rose significantly across the board – with the exception of iron ore and coal, with no impact on drilling services demand yet," said Daniel Simoncini, Chairman and co-CEO of Foraco. "Our utilization rate rose 4% from Q1 up to 34%, but certain regions saw their utilization rate grow to 59% which led to an increase in our market share in some areas".

"The reduced activity including the impact of foreign exchange rate fluctuations was partially compensated for by the reduction in fixed operational and SG&A costs. The EBIT for Q2 came to a negative amount of US$ (5.6) million, a decrease of US$ (3.9) million compared to the same period last year and excluding the Servitec debt remeasurement and one-off costs incurred in Q2 2013. Positive cash flow from operating activities was US$ 5.8 million after working capital requirements, interests and taxes in the first half of 2014, an increase of US$ 13.0 million compared to the same period last year. " commented Jean-Pierre Charmensat, co-CEO and Chief Financial Officer. "Capital expenditures were limited to US$ 1.9 million during the quarter (US$ 3.4 million in H1 2014). The net debt as at June 30, 2014 was US$ 108.0 million vs. US$ 121.9 million as at December 31, 2013, a reduction of US$ 13.9 million. As at June 30, 2014, the Company complies with its bank covenant."

Selected financial data

(In thousands of US$)
(unaudited)


Three-month  period ended June 30,


Six-month period ended June 30, 



2014


2013


2014


2013












Revenue



48,407


74,628



93,852


134,423























Gross profit (1)



891


(855)



3,521


(9,596)

As a percentage of sales



1.8%


-1.1%



3.8%


-7.1%












EBITDA



2,854


11,062



7,288


13,196

As a percentage of sales



5.9%


14.8%



7.8%


9.8%












Operating profit / (loss)



(5,635)


491



(9,523)


(7,992)

As a percentage of sales



-11.6%


0.7%



-10.1%


-5.9%























Profit / (loss) for the period



(6,010)


(1,139)



(10,008)


(5,309)























Attributable to:











Equity holders of the Company



(6,137)


(2,909)



(9,939)


(6,131)

Non-controlling interests



127


1,770



(69)


822












EPS (in US cents)











Basic



(6.95)


(3.32)



(11.25)


(6.98)

Diluted



(6.95)


(3.32)



(11.25)


(6.98)

 


(1)

 includes amortization and depreciation expenses related to operations

 

Financial results

Revenue

(In thousands of US$) - (unaudited)

Q2 2014

% change

Q2 2013


H1 2014

% change

H1 2013

Reporting segment








Mining..........................................................................

40,904

-43%

71,862


80,761

-38%

129,421

Water............................................................................

7,503

171%

2,766


13,091

162%

5,002

Total revenue...............................................................

48,407

-35%

74,628


93,852

-30%

134,423









Geographic region








South America.............................................................

15,782

-38%

25,413


30,778

-38%

49,864

Europe, Middle East and Africa...............................

14,211

-41%

24,295


25,481

-32%

37,574

North America.............................................................

7,517

-11%

8,457


17,134

-13%

19,592

Asia Pacific..................................................................

10,897

-34%

16,463


20,458

-25%

27,393

Total revenue...............................................................

48,407

-35%

74,628


93,852

-30%

134,423









Q2 2014

Q2 2014 revenue amounted to US$ 48.4 million compared to US$ 74.6 million in Q2 2013, a decrease of 35% and a US$ 3 million increase compared to Q1 2014. Many customers continued to push the execution of projects into H2 2014.

Revenue in South America amounted to US$ 15.8 million in Q2 2014 (US$ 25.4 million in Q2 2013), a decrease of 38%. The decrease in Chile was 29% including 10% of foreign exchange (Fx) impact and 19% mainly linked to the termination of the two troubled contracts in Q2 2013. No activity was recorded in Argentina in Q2 14. In Brazil, the decrease was 36%, of which 6% was linked to the exchange rate effect. The balance is mainly related to an unusually late bidding season, the non-renewal of a gold contract and a postponement into Q3 of a large iron ore contract.

In EMEA, revenue decreased by 41%, from US$ 24.3 million in Q2 2013 to US$ 14.2 million in Q2 2014. 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, after an early bidding season, many customers revisited their budget and cancelled or postponed most of the projects to H2 2014.

Revenue in North America decreased by 11% in US$ but only 6 % in Canadian dollars.

In Asia Pacific, Q2 2014 revenue amounted to US$ 10.9 million, a decrease of 34%. Two contracts, one in the energy sector and one in the gold sector were not renewed after June 2013. Nevertheless the Company secured two large multi-year multi-rigs contracts, one in the Pilbara (Iron Ore) and one in Queensland (Coal). In New Caledonia, the quarter's results suffered from local disturbances including the temporary closure of a large nickel mine.

H1 2014

H1 2014 revenue amounted to US$ 93.9 million compared to US$ 134.4 million in H1 2013, a decrease of 30%. Compared to H1 2013 there were significant fluctuations in local currency exchange rates against the US$ in certain countries where the Company operates. Assuming no change in exchange rates between H1 2013 and H1 2014, H1 2014 revenue would have decreased by 25%.

Revenue in South America amounted to US$ 30.8 million in H1 2014 (US$ 49.9 million in H1 2013), a decrease of 38%. The decrease in Chile of 34% was mainly linked to the end of two troubled contracts. No activity was recorded in Argentina in H1 2014. In Brazil, revenue decreased by 33%, of which 9% was linked to the effect of foreign currency exchange rates.

In EMEA, revenue decreased by 38%, from US$ 37.6 million in H1 2013 to US$ 25.5 million in H1 2014. 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, after an early bidding season, many customers revisited their budget and cancelled or postponed most of the projects to H2 2014.

Revenue in North America decreased by 13% in US$ but only 5% in Canadian dollars.

In Asia Pacific, H1 2014 revenue amounted to US$ 20.5 million, a decrease of 25%. Two contracts, one in the energy sector and one in the gold sector were not renewed after June 2013. The Company secured two large multi-year multi-rigs contracts, one in the Pilbara (Iron Ore) and one in Queensland (Coal). In New Caledonia, the second quarter suffered from local disturbances including the temporary closure of a large nickel mine.

Gross profit

(In thousands of US$) - (unaudited)

Q2 2014

% change

Q2 2013


H1 2014

% change

H1 2013

Reporting segment








Mining..........................................................................

(246)

-81%

(1,352)


2,387

-124%

(10,020)

Water............................................................................

1,137

129%

497


1,134

168%

424

Total gross profit ..................................................

891

-204%

(855)


3,521

-137%

(9,596)

 

Q2 2014

Q2 2014 gross profit including depreciation within cost of sales was US$ 0.9 million (or 2% of revenue) compared to US$ (0.9) million in Q1 2013 (or -1% of revenue). The Company experienced extra costs and delays linked to the start up of projects up and late contract signatures. In addition the decrease of revenue generated further under absorption of fixed cost, compensated by the positive effect of the fixed operational costs reduction.

H1 2014

H1 2014 gross profit including depreciation within cost of sales was US$ 3.5 million (or 4% of revenue) compared to US$ (9.6) million in H1 2013 (or -7% of revenue). Although the revenue decreased, generating some under absorption of fixed costs, there were no one-off costs and the Company fully benefited from the positive effect of the fixed operational costs reduction.

Selling, General and Administrative Expenses

(In thousands of US$) - (unaudited)

Q2 2014

% change

Q2 2013


H1 2014

% change

H1 2013








Selling, general and administrative expenses

6,526

-21%

8,261


13,044

-24%

17,221

 

Q2 2014

SG&A costs decreased by US$ 1.8 million (or US$ 1.5 million excluding one-off costs) between Q2 2013 and Q2 2014. These savings are mainly the result of the continued implementation of the company-wide cost cutting action plans.

H1 2014

SG&A costs decreased by US$ 4.2 million between H1 2013 and H1 2014. These savings are the result of the continued implementation of the company-wide cost cutting action plans.

Operating profit

(In thousands of US$) - (unaudited)

Q2 2014

% change

Q2 2013


H1 2014

% change

H1 2013


Reporting segment









Mining .........................................................................

(5,760)

-61%

356


(8,844)

15%

(7,719)


Water............................................................................

125

97%

135


(679)

149%

(273)


Total operating profit / (loss) .................................

(5,635)

-54%

495

(1)

(9,523)

19%

(7,992)

(1)

 

(1) In Q2 2013, the Company recognized a gain amounting to US$ 9.6 million (US$ 18.8 million in H1 2013) 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$ 9.1 million in Q2 2013 (loss of US$ 26.8 million in H1 2013).

Q2 2014

Operating profit / loss decreased by US$ (6.0) million. Excluding the impact of the Servitec debt remeasurement and one-off costs and losses on troubled contracts in Q2 2013, the decrease was US$ (3.5) million and can be explained as follows:

-(i) Reduced activity including impact of exchange rate fluctuations:                           

US$ (7.7) million

-(ii) Net impact of pricing, savings and productivity variations:                                     

US$ (2.1) million

-(iii) Fixed operational costs reduction:                                                               

US$ 4.5 million

-(iv) Reduction in SG&A costs:                                                                                 

US$ 1.5 million

-Total variances                                                                                                      

US$ (3.9) million

 

H1 2014

Operating profit / loss decreased by US$ (1.5) million, going from an operating loss of US$ (8.0) million in H1 2013 to US$ (9.5) million in H1 2014. 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 H1 2014 and H1 2013:

(In thousands of US$)

H1 2014

H1 2013




Cash generated from operations before working capital requirements

7,684

(5,498)

Working capital requirements, interest and tax

(1,920)

(1,677)

Net cash flow generated by / used in operating activities

5,764

(7,175)




Purchase of equipment in cash

(2,931)

(6,089)

Consideration payable related to acquisitions

(500)

-

Net cash used in investing activities

(3,431)

(6,089)




Debt variance

(9,572)

2,783

Acquisition of treasury shares

-

(1,535)

Dividends paid

(1,086)

(1,692)

Net cash used in financing activities

(10,658)

(444)




Net cash variation

(8,325)

(13,708)




Foreign exchange differences

(47)

(781)




Variation in cash and cash equivalents

(8,372)

(14,489)

 

In H1 2014, the net cash flow generated by operating activities amounted to US$ 5.8 million compared to US$ (7.2) million of cash used during the same period a year ago.

During the period, the Company acquired operating equipment for US$ 2.9 million in cash and US$ 0.5 million through capital leases compared to a total of US$ 6.1 million in cash purchases during H1 2013.

As at June 30, 2014, cash and cash equivalents totaled US$ 29.2 million compared to US$ 37.5 million as at December 31, 2013. Cash and cash equivalents are held at or invested within top tier financial institutions.

As at June 30, 2014, the net debt amounted to US$ 108.0 million (US$ 121.9 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 0.59 as at June 30, 2014.

On June 30, 2014, financial debts and equivalents amounted to US$ 137.2 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 was 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 2015.

In December 2013, the Company signed an addendum to the loan agreements linked to the 2012 acquisitions in Brazil and Australia. Under the terms of these agreements, the covenant ratio Net Debt / EBITDA was agreed to be a maximum of 3.5 as at June 30. The actual June 30, 2014 ratio was 3.4. The Company is not in breach of any covenant.

As at June 30, 2014, the financial debt is as follows (in thousands of US$):

Maturity

Roll Over

July 1, 2014

and June 30,

2015

July 1, 2015

and June 30,

2016

July 1, 2016

and June 30,

2017

July 1, 2017

and June 30,

2018

July 1, 2018

and June 30,

2019

Total

Drawn credit lines rolled over on a yearly basis

47,255

-

-

-

-

-

47,255

Long term financing related to:








- Drawn credit lines rolled over confirmed for at least 12 months

8,227

-

-

-

-

-

8,227

- Brazil acquisition

-

4,366

4,366

4,366

-

-

13,099

- Australia acquisition

-

6,823

6,823

6,823

6,823

-

27,290

- Acquisition of fixed assets

-

10,689

10,195

8,076

4,654

1,100

34,714

- Acquisition of fixed assets through capital leases

-

2,360

370

240

194

(0)

3,164









Total

55,482

24,238

21,754

19,505

11,670

1,100

133,750

 

The Company has used and unused short-term credit facilities amounting to US$ 103.7 million out of which US$ 55.5 million was drawn as of June 30, 2014. 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

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 were performed at the level of each business segment and geographic area as at June 30, 2014 and indicated that no impairment was required on the carrying values of the long lived assets 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.

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)

Q2 2014

Q2 2013

H1 2014

H1 2013

Operating profit / (loss)...................................................................................

(5,635)

491

(9,523)

(7,992)

Depreciation expense .....................................................................................

8,175

10,097

16,181

20,249

Non-cash employee share-based compensation............................................

314

475

630

940

EBITDA ............................................................................................................

2,854

11,063

7,288

13,196

Impact resulting from the remeasurement of the contribution payable

for Servitec......................................................................................................

 

n.a.

 

9,607

 

n.a.

 

18,825

Adjusted EBITDA............................................................................................

n.a.

1,456

n.a.

(5,629)

Adjusted EBIT..................................................................................................

n.a.

(9,116)

n.a.

(26,817)

 

Net debt

 (In thousands of US$)  (unaudited)

Q2 2014

Q1 2014

Q4 2013

Cash and cash equivalents..................................................

29,154

28,853

37,526

Borrowings - Non-current portion......................................

(62,256)

(65,761)

(68,556)

Borrowings - Current portion..............................................

(71,493)

(79,278)

(74,194)

Consideration payable related to acquisitions....................

(3,430)

(3,430)

(16,670)

Total Net Debt........................................................................

(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 August 5, 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- 888-231-8191 or 647-427-7450. 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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