Foraco International Reports Q3 2012

Revenue up 25% at US$ 103.2 million, Net Earnings of US$ 7.0 million

TORONTO and MARSEILLES, France, Nov. 6, 2012 /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 third quarter 2012. All figures are reported in US Dollars (US$), unless otherwise indicated.

"As anticipated last quarter the market showed further signs of contraction as project cutbacks, capital expenditure deferrals and cost cutting exercises continued to spread. In this challenging environment we have delivered the second highest quarterly revenue ever and achieved solid performances in all regions with the noticeable exception of Chile where we experienced a significant reduction of activity on two key contracts from the same major customer and an unexpected winter shut down from another customer contract. We are revisiting this situation and each of the three contracts are currently being re tendered," said Daniel Simoncini, Chairman and co-CEO of Foraco. "While we recognize that customers are still revisiting their budgets and overall activity is still slowing down, we are beginning to see signs of market stabilization beyond year end. We have put significant focus on strengthening the Company's ability to deliver satisfactory results in this part of the cycle."

"In this environment, the Company EBITDA as a percentage of sales decreased to 20.6% and our utilization rate was 66%, compared to 76% a year ago. Our cash position continued to be strong. Our net debt at September 30th was US$ 115.2 million including US$ 57.5 million corresponding to our commitment to acquire the remaining 49% of Servitec. This represents a debt to equity ratio of 0.56 and a net debt / TTM EBITDA ratio of 1.32" commented Jean-Pierre Charmensat, co-CEO and Chief Financial Officer. "We are satisfied with the integration of Servitec whose Q3 results were as expected. In addition, on September 24th, we announced that we had entered into a binding agreement to acquire John Nitschke Drilling, ("JND") which we aim to close in the coming days. JND is a leading drilling services provider, with approximately US$ 50 million in sales in 2011. We believe this acquisition will give us the critical size and allow us to deploy our business model across Australia, which remains a major market. These acquisitions are part of Foraco's ongoing growth strategy".

Three months Q3 2012 Highlights

Revenue

• Q3 2012 revenue amounted to US$ 103.2 million compared to US$ 82.4 million in Q3 2011, an increase of 25% or US$ 20.8 million.

Profitability

• Q3 2012 gross profit including depreciation within cost of sales increased to US$ 20.6 million (20.0% of revenue) compared to US$ 19.7 million (23.9% of revenue) in Q3 2011.
  
  
• Two key contracts in Chile had a negative impact on gross profit estimated at US$ 2.7 million in Q3 2012, caused by the combination of a significant number of rigs being shut down at the client's request, preexisting unfavorable contract conditions aggravated by the significant downsizing of the allocated fleet, and lower production rates during the winter season.  These two contracts are due to expire in mid 2013 and are being re tendered. Furthermore, a third key contract in Chile was stopped at the client's request during the winter season, whereas last year they requested work to be performed throughout the season. This negatively impacted gross profit in Q3 2012 by a further US$ 1.7 million.
  
  
• Q3 2012 EBITDA amounted to US$ 21.3 million (20.6% of revenue) compared to US$ 20.7 million in Q3 2011 (25.1% of revenue).
  
  
• Q3 2012 net profit after tax amounted to US$ 7.0 million (6.8% of revenue) compared to Q3 2011 which amounted to US$ 8.7 million (10.5% of revenue).
  
  
• Q3 2012 earnings per share attributable to the equity holders of the Company during the period including the non-controlling interests corresponding to Servitec which the Company is in the process of acquiring  amounted to 5.19 US cents (basic) and 5.15 US cents (diluted), compared to 9.45 US cents (basic) and 9.28 US cents (diluted) in Q3 2011.

Nine months Q3 2012 Highlights

Revenue

• YTD Q3 2012 revenue amounted to US$ 298.0 million compared to US$ 226.0 million in YTD Q3 2011, an increase of 32% or US$ 72.0 million including US$ 34.8 million generated by the Brazilian operations.

Profitability

• YTD Q3 2012 gross profit, including depreciation within cost of sales, increased to US$ 67.8 million (22.7% of revenue) compared to US$ 52.5 million (23.3% of revenue) in YTD Q3 2011, an increase of 29% or US$ 15.2 million.
  
  
• YTD Q3 2012 EBITDA amounted to US$ 69.1 million (23.2% of revenue) compared to US$ 55.4 million in Q3 2011 (24.5% of revenue). YTD Q3 2012 EBITDA includes US$ 1.2 million one-off transaction costs (nil in YTD Q3 2011).
  
  
• YTD Q3 2012 net profit after tax amounted to US$ 27.5 million (9.2% of revenue), an increase of 19% or US$ 4.3 million compared to US$ 23.2 million (10.3% of revenue) in YTD Q3 2011.
  
  
• YTD Q3 2012 earnings per share attributable to the equity holders of the Company during the period including the non-controlling interests corresponding to Servitec which the Company is in the process of acquiring  amounted to 29.44 US cents (basic) and 29.16 US cents (diluted), compared to 25.75 US cents (basic) and 25.57 US cents (diluted) for YTD Q3 2011.

Acquisitions of businesses and non-controlling interests

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 through a combination of US$ 20.2 million in cash and 4,816,509 Foraco shares at US$ 4.99 each representing US$ 24.0 million. As part of this agreement, the Company has an option to acquire, and the current 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. The maximum amount payable for this tranche is capped at US$ 75 million. As at November 5, 2012, the best estimate of the cash consideration payable is US$ 61.1 million (a present value of US$ 57.5 million reported as the consideration payable in the balance sheet as at September 30, 2012). Servitec has been consolidated into the Foraco International financial statements since April 20, 2012. The financial statements as at September 30, 2012 include five months of Servitec activity.

The Company is currently considering the acquisition of the 49% non-controlling interests of Servitec.. This will have no impact on the amount and the timing of the consideration payable which is due in 2015. This will be accretive to the profit for the period attributable to equity holders of the Company going forward. For the purpose of the MD&A, the earnings per share are presented assuming that the acquisition took place as at April 20, 2012.

John Nitschke Drilling

On September 24, 2012, the Company entered into a binding agreement to acquire 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 6,000,000 warrants giving the right to acquire, for no additional consideration, 6,000,000 Foraco International shares, with the possibility to issue up to an additional 1,000,000 warrants depending on certain market conditions. The warrants will be automatically convertible on the occurence of certain events on or after 9 months from the closing date. The earn-out amount will depend on the level of EBITDA as at December 31, 2012 and cannot exceed AU$ 6 million (US$ 6.2 million).

The closing of the transaction is scheduled to take place on November 19, 2012 and is subject to the completion of certain conditions precedent, including approval from the Toronto Stock Exchange and the shareholder approval of Foraco International at a meeting of its shareholders scheduled to be held on November 15, 2012.

Selected Financial data

Financial Results

Q3 2012

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.

Q3 2012 revenue amounted to US$ 103.3 million, an increase of 25% or US$ 20.8 million compared to Q3 2011.

The Mining segment, up US$ 21.6 million, is driven by strong activity in North America and the integration of Servitec in South America partially offset by decreased activity levels in the Asia Pacific and Africa regions.

The Water segment decreased to US$ 1.7 million in Q3 2012 compared to US$ 2.4 million in Q3 2011. Activities in this segment are principally carried out in Africa.

Revenue in South America amounted to US$ 52.3 million in Q3 2012 (US$ 29.8 million in Q3 2011), an increase of 75%. This growth is mainly generated by the addition of Brazilian operations enabled by the Servitec acquisition in Q2 2012.

In EMEA, Q3 2012 revenue decreased by US$ 1.8 million compared to Q3 2011. This is mainly due to reduced activity levels in both the water and mining segments in Africa which has only partially been offset by strong activity in Russia.

Revenue in North America increased by 22%, from US$ 16.5 million in Q3 2011 to US$ 20.1 million in Q3 2012. This increase has been realized through increased activity in long term contracts with major companies.

In Asia-Pacific, Q3 2012 revenue amounted to US$ 6.7 million, a decrease of US$ 3.3 million compared to Q3 2011 as a result of reduced activity in the Western Australian mining market.

Nine months YTD Q3 2012

YTD Q3 2012 revenue amounted to US$ 298.0 million, an increase of 32% or US$ 72.0 million compared to YTD Q3 2011.

The Mining segment, up US$ 75.1 million, is driven by the contribution of all geographic areas. In South America, the variation includes the consolidation of Servitec since April 20, 2012 which contributed US$ 34.8 million to revenue.

The Water segment decreased to US$ 8.9 million in YTD Q3 2012 compared to US$ 11.9 million in YTD Q3 2011. Activities in this segment are principally carried out in Africa. Offsetting the decline in traditional water drilling services has been the significant growth in mining related water projects.

Revenue in South America amounted to US$ 142.6 million in YTD Q3 2012 (US$ 86.2 million in YTD Q3 2011) an increase of 65%. This was mainly generated by the acquisition of Servitec and activity from long-term contracts with major companies in the region.

In EMEA, the YTD Q3 2012 revenue increased by 9% or US$ 6.8 million compared to YTD Q3 2011. This is mainly due to the expansion of mining operations in West Africa and to the growth in Russia supported by the operation of an additional rig.

Revenue in North America increased by 20%, from US$ 43.7 million in YTD Q3 2011 to US$ 52.3 million in YTD Q3 2012. This increase is realized through long term contracts with major companies.

In Asia-Pacific, YTD Q3 2012 revenue was flat (US$ 23.8 million) compared to the same period last year (US$ 23.6 million).

Gross Profit

Q3 2012

Overall, Q3 2012 gross profit amounted to US$ 20.6 million, an increase of 5% compared to Q3 2011 (US$ 19.7 million).

The mining segment gross profit increased by US$ 1.1 million compared to the same period a year ago, however, gross profit as a percentage of revenue decreased to 20.0% compared to 24.0% in Q3 2011.

A proactive focus on aligning operations to the rapidly changing market conditions has resulted in preserving the profitability in all regions with the exception of Chile. In this country, two key contracts had a negative impact on gross profit estimated at US$ 2.7 million in Q3 2012, caused by the combination of a significant number of rigs being shut down at the client's request, preexisting unfavorable contract conditions aggravated by the significant downsizing of the allocated fleet, and lower production rates during the winter season.  These two contracts are due to expire in mid 2013 and are being re tendered. Furthermore, a third key contract in Chile was stopped at the client's request during the winter season, whereas last year they requested work to be performed throughout the season. This negatively impacted the gross profit in Q3 2012 by a further US$ 1.7 million. Significant steps have been taken locally, including a change in the Region's Management as reported last quarter, to restore the profitability of these two contracts.

The newly acquired business in Brazil delivered a gross margin in line with expectations.

In the water segment the gross profit remains stable at 23% of revenue compared to 22.1% in Q3 2011.

Although the Company remains committed to strategic initiatives including the integration of newly acquired businesses, risk management and the optimization of production equipment through long-term contracts, significant focus in the near term is on adapting to the rapidly evolving market conditions.

Nine months YTD Q3 2012

Overall, YTD Q3 2012 gross profit amounted to US$ 67.8 million (or 22.7% of revenue), an increase of US$ 15.2 million or 29% compared to YTD Q3 2011 (US$ 52.5 million or 23.3% of revenue).

The mining segment gross profit as a percentage of revenue decreased slightly to 22.6% in YTD Q3 2012 from 23.3% in YTD Q3 2011, and the water segment gross profit margins increased to 27.9% in YTD Q3 2012 from 22.5% in YTD Q3 2011.

Although the Company remains committed to strategic initiatives including the integration of newly acquired businesses, risk management and the optimization of production equipment through long-term contracts, significant focus in the near term is on adapting to the rapidly evolving market conditions.

Selling, General and Administrative Expenses

Q3 2012

During the quarter, SG&A expenses were impacted by the integration of the Servitec acquisition in Brazil and costs associated with the reinforcement of the corporate structure. One-off costs associated with business acquisitions amounted to US$ 0.2 million (nil in Q3 2011).

Nine months YTD Q3 2012

During the period, SG&A expenses were impacted by the integration of Servitec and the one-off transaction costs related to the acquisitions amounting to US$ 1.2 million (nil in YTD Q3 2011) and costs associated with the reinforcement of the corporate structure. Excluding the impact of the one off transaction costs, SG&A as a percentage of revenue remains stable.

Operating Profit

Q3 2012

Operating profit decreased to US$ 11.4 million in Q3 2012 compared to US$ 12.9 million in Q3 2011. The slight increase in gross profits was offset by the year on year increase in SG&A resulting in a net decrease of US$ 1.6 million.

Nine months YTD Q3 2012

Operating profit increased to US$ 41.4 million (or 13.9% of revenue) in YTD Q3 2012 compared to US$ 33.3 million (or 14.8% of revenue) in YTD Q3 2011. This increase of US$ 8.1 million is primarily due to the growth in revenue and the increasing level of gross margin.

Currency and exchange rates

The exchange rates for the periods under review are provided in the Management's Discussion and Analysis of Q3 2012.

Outlook

The Company's business strategy is to continue to grow through the development and optimization of the services it offers across geographical regions and industry segments, as well as through the expansion of its customer base. 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 6, 2012, Company Management will conduct a conference call at 9:00 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/1057017/1149073 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 March 9, 2012, 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