FORACO INTERNATIONAL SA
FORACO INTERNATIONAL REPORTS Q2 2015
NEWS RELEASE
Q2 2015 revenue up 8% compared to last year excluding foreign exchange impact
Q2 2015 EBITDA amounting $6.9m vs. $2.9m last year, up 137% Market conditions still challenging
Toronto, Ontario / Marseille, France - Tuesday, August 4, 2015. Foraco International SA (TSX:FAR) (the "Company" or "Foraco"), a leading global provider of mineral drilling services, today reported unaudited financial results for its second quarter 2015. All figures are reported in US Dollars (US$), unless otherwise indicated.
Three months Q2 2015 Highlights
Revenue
Q2 2015 revenue amounted to US$ 43.8 million compared to US$ 48.4 million in Q2 2014, a decrease of 9%. At Q2 2014 exchanges rates, Q2 2015 revenue increased by 8%.
The utilization rate was 36% in Q2 2015 compared to 34% in Q2 2014.
Profitability
The Q2 2015 gross margin including depreciation within cost of sales was 5.4 million compared to US$ 0.9 million in Q2 2014. Most contracts have delivered their expected gross margin. Certain projects which were identified as challenging in Q1 2015 are now under control.
SG&A costs reduced by US$ 1.5 million between Q2 2014 and Q2 2015 as a result of the foreign exchange variance and the continued cost cutting action plans.
EBIT amounted to US$ 0.4 million in Q2 2015 compared to US$ (5.6) million in Q2 2014.
During the quarter, EBITDA amounted to US$ 6.9 million (or 16% of revenue) compared to US$ 2.9 million (or 6% of revenue) for the same quarter last year.
Capital expenditure was US$ 1.4 million in Q2 2015 compared to US$ 1.9 million in Q2 2014. This
Capex primarily relates to ancillary equipment.
Finance Costs
Net financial expenses amounted to US$ 1.1 million in Q2 2015, compared to US$ 1.1 million for the corresponding period in 2014.
H2 2015 Highlights
Revenue
H1 2015 revenue amounted to US$ 77.1 million compared to US$ 93.9 million in H1 2014, a decrease of 18% or 4% excluding the impact of exchange rates
Profitability
H1 2015 gross margin including depreciation within cost of sales was US$ 2.2 million compared to US$ 3.5 million in H1 2014. The Company encountered a certain number of operational difficulties in Q1. In Q2, most contracts have delivered their expected gross margin. Certain projects identified as challenging in Q1 2015 are now under control.
SG&A costs reduced by US$ 3.5 million between H1 2014 and H1 2015. Excluding the impact of exchange rates amounting to US$1.3 million, SG&A reduced by US$ 1.7 million as a result of the continued cost cutting action plans and US$ 0.5 million related to the payment of a receivable provided for in Q4 2014.
In spite of an improved Q2 EBITDA, the H1 2015 EBITDA of US$5.7 million is still below the H1 2014
EBITDA of US$ 7.3
Capital expenditures were US$ 4.1 million in H1 2015 compared to US$ 3.4 million in H1 2014.
"During Q2 2015, mining companies continue to reduce costs, resulting in sustained pressure on prices. For drilling companies the current utilization rate remains below break-even. In this difficult environment, the Company managed to increase its utilization rate from 34% in the same quarter last year to 36%, and the Q2 revenue excluding foreign exchange impact increased by 8%. From an operational standpoint, most of our contracts are performing well and certain Q1 challenging projects are now under control" said Daniel Simoncini, Chairman and co-CEO of Foraco. "In addition, we continue to relocate equipment and to reduce fixed costs. As a result of these actions, we have now managed to lower significantly the break-even point of the Company."
"EBITDA for the quarter was $6.9m or 16% of revenue, a significant improvement compared to previous quarters. Capex are still reduced to a minimum to maintain our level of equipment. The Company efficiently managed its working capital to minimize the impact of seasonality, June historically requiring the highest annual level of working capital" commented Jean-Pierre Charmensat, co-CEO and Chief Financial Officer. "At the end of Q2 2015, our net debt amounts to US$97.7m, similar to the figure as at year-end 2014. We have demonstrated our ability to adapt to the ever changing market conditions and strongly believe that we are well positioned to benefit from the next market pick-up."
(In thousands of US$)
(unaudited)
Three-month period ended June 30, Six-month period ended June 30,As a percentage of sales 12.3% 1.8% 2.9% 3.8%
EBITDA 6,913 2,854 5,661 7,288As a percentage of sales 15.8% 5.9% 7.3% 7.8%
Operating profit / (loss) 361 (5,635) (7,761) (9,523)As a percentage of sales 0.8% -11.6% -10.1% -10.1%
Attributable to:
Equity holders of the Company (1,145) (6,137) (8,166) (9,939) Non-controlling interests 425 127 (445) (69)
EPS (in US cents)Basic (1.30) (6.95) (9.24) (11.25) Diluted (1.30) (6.95) (9.24) (11.25)
(1) includes amortization and depreciation expenses related to operations
Financial resultsRevenue
(In thousands of US$) - (unaudited) | Q2 2015 | % change | Q2 2014 | H1 2015 | % change | H1 2014 |
Reporting segment | ||||||
Mining ...................................... | 38,368 | -6% | 40,904 | 67,115 | -17% | 80,761 |
Water....................................... | 5,457 | -27% | 7,503 | 9,990 | -24% | 13,091 |
Total revenue ............................ | 43,825 | -9% | 48,407 | 77,105 | -18% | 93,852 |
Geographic region Europe, Middle East and Africa......... | 14,968 | 5% | 14,211 | 25,407 | 0% | 25,481 |
South America ............................ | 10,056 | -36% | 15,782 | 18,983 | -38% | 30,778 |
North America ............................ | 9,361 | 25% | 7,517 | 16,990 | -1% | 17,134 |
Asia Pacific ................................ | 9,440 | -13% | 10,897 | 15,725 | -23% | 20,458 |
Total revenue ............................ | 43,825 | -9% | 48,407 | 77,105 | -18% | 93,852 |
Q2 2015 revenue amounted to US$ 43.8 million compared to US$ 48.4 million in Q2 2014, a decrease of 9%. At Q2 2014 exchanges rates, Q2 2015 revenue increased by 8%.
In EMEA, revenue increased by 5%, from US$ 14.2 million in Q2 2014 to US$ 15.0 million in Q2 2015. Excluding the foreign exchange impact mainly linked to the Russian Ruble variance, revenue increased by 44% compared to the same quarter last year.
Revenue in South America amounted to US$ 10.1 million in Q2 2015 (US$ 15.8 million in Q2 2014), a decrease of 36%. In Brazil, the decrease was 22% in US$, but increased by 8% excluding the impact of exchange rates. Activity in Chile reduced by 58% as all contracts were halted in Q2 2015 due to weather issues.
Revenue in North America increased by 25% or 40% excluding the impact of exchange rates.
In Asia Pacific, Q2 2015 revenue amounted to US$ 9.4 million, a decrease of 13%, this is stable when excluding the impact of exchange rates.
H1 2015 revenue amounted to US$ 77.1 million compared to US$ 93.9 million in H1 2014, a decrease of
18% or 4% excluding the impact of exchange rates.
In EMEA, revenue was stable, from US$ 25.5 million in H1 2014 to US$ 25.4 million in H1 2015. Excluding the foreign exchange impact mainly linked to the Russian Ruble variance, revenue increased by 38% compared to the same quarter last year.
Revenue in South America amounted to US$ 19.0 million in H1 2015 (US$ 30.8 million in H1 2014), a decrease of 38%. In Brazil, revenue was stable excluding the impact of exchange rates compared to the same period last year as the Q2 increased activity offset the Q1 reduced revenue. In H1 2015, the activity in Chile reduced by 51% compared to H1 2014 due to contracts being halted and adverse climate conditions.
Revenue in North America was stable at US$17 million, but increased by 12% excluding the impact of exchange rates.
In Asia Pacific, H1 2015 revenue amounted to US$ 15.7 million, a decrease of 23% or 9% excluding the impact of exchange rates, mainly due to pressure on selling prices, a lower utilization rate and early termination of contract.
Gross profit | ||||||
(In thousands of US$) - (unaudited) | Q2 2015 | % change | Q2 2014 | H1 2015 | % change | H1 2014 |
Reporting segment Mining ......................................... | 5,192 | n/a | (246) | 2,112 | -12% | 2,387 |
Water .......................................... | 207 | n/a | 1,137 | 87 | -92% | 1,134 |
Total gross profit / (loss) ............... | 5,399 | n/a | 891 | 2,199 | -38% | 3,521 |
Q2 2015
Q2 2015 gross margin including depreciation within cost of sales was US$ 5.4 million compared to US$
0.9 million in Q2 2014. Most contracts have delivered their expected gross margin. Certain projects identified as challenging in Q1 2015 are now under control.
H1 2015
H1 2015 gross margin including depreciation within cost of sales was US$ 2.2 million compared to US$
3.5 million in H1 2014. The Company encountered a certain number of operational difficulties in Q1. In Q2, most contracts have delivered their expected gross margin. Certain projects identified as challenging in Q1 2015 are now under control.
Selling, General and Administrative Expenses
(InthousandsofUS$)-(unaudited)Q2 2015% changeQ2 2014H1 2015% changeH1 2014
Selling, general and administrative expenses
5,056 -23% 6,526 9,561 -23% 13,044
SG&A costs reduced by US$ 1.5 million between Q2 2014 and Q2 2015 as a result of the foreign exchange variance and the continued cost cutting action plans.
H1 2015SG&A costs reduced by US$ 3.5 million between H1 2014 and H1 2015. Excluding the impact of exchange rates amounting to US$1.3 million, SG&A reduced by US$ 1.7 million as a result of the continued cost cutting action plans and US$ 0.5 million related to the payment of a receivable provided for in Q4 2014.
Operating result | ||||||
(In thousands of US$) - (unaudited) | Q2 2015 | % change | Q2 2014 | H1 2015 | % change | H1 2014 |
Reporting segment | ||||||
Mining ..................................... | 784 | n/a | (5,760) | (6,537) | -26% | (8,844) |
Water ...................................... | (423) | n/a | 125 | (1,234) | 80% | (679) |
Total operating profit / (loss) ..... | 361 | n/a | (5,635) | (7,761) | -18% | (9,523) |
Q2 2015
Operating profit was US$ 0.4 million, a US$ 6.0 million increase compared to Q2 2014.
H1 2015
Operating loss decreased by US$ 1.7 million as a result of the developments mentioned previously.
Financial position
The following table provides a summary of the Company's cash flows for H1 2015 and H1 2014:
(In thousands of US$) Cash generated by/(used in) operations before working capital | H1 2015 | H1 2014 |
requirements | 5,369 | 7,684 |
Working capital requirements, interest and tax | (8,193) | (1,920) |
Net cash flow generated /(used) in operating activities | (2,824) | 5,764 |
Purchase of equipment in cash | (3,740) | (2,931) |
Consideration payable related to acquisitions | (1,111) | (500) |
Net cash used in investing activities | (4,851) | (3,431) |
Free cash flow | (7,675) | 2,333 |
Debt variance | (129) | (9,572) |
Dividends paid | - | (1,086) |
Net cash used in financing activities | (129) | (10,658) |
Net cash variation | (7,804) | (8,328) |
Foreign exchange differences | (1,243) | (47) |
Variation in cash and cash equivalents | (9,047) | (8,372) |
In H1 2015, the net cash flow used in operating activities amounted to US$ 2.8 million compared to US$ 5.8 million generating during H1 2014. The increase in working capital requirements is mainly due to the phasing effect between Q1 and Q2 in the respective periods.
During the period, Capex amounted to US$ 3.7 million in cash and US$ 0.4 million through capital leases compared to US$ 2.9 million in cash and US$ 0.5 million through capital leases during H1 2014. One rig was acquired in Russia and one was taken out of service in Africa.
As at June 30, 2014, cash and cash equivalents totaled US$ 14.2 million compared to US$ 23.2 million as at December 31, 2014. Cash and cash equivalents are held at or invested within top tier financial institutions.
As at June 30, 2015, net debt amounted to US$ 97.7 million (US$ 96.7 million as at December 31,
2014). The ratio of debt (net of cash) to shareholders' equity increased from 0.67 as at December
31, 2014 to 0.79 as at June 30, 2015.
On June 30, 2015, financial debts and equivalents amounted to US$ 111.9 million (US$ 119.9 million as at December 31, 2014):
Maturity
Credit lines
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
July 1, 2019 and June 30,
2020
Total
Drawn credit lines rolled over on a yearly basis
5,874 - - - - - 5,874
Long term financing related to:
- Drawn credit lines rolled over confirmed for at least 12 months
- Brazil acquisition
- Australia acquisition
- Acquisition of fixed assets
- Acquisition of fixed assets through capital leases
47,541 - - - - - 47,541
- | 3,550 | 3,550 | 3,550 | - | 10,650 | |
- | - | 5,547 | 5,547 | 5,547 | 5,547 | 22,188 |
- | 4,031 | 6,746 | 7,299 | 4,291 | 1,877 | 24,244 |
- 851 291 234 30 - 1,406
Total 53,415 4,882 16,134 16,630 13,418 7,424 111,903
(*) The non-current portion of long term debt, i.e. from July 1, 2016 onwards, is US$53,604 thousand
The Company presently has used and unused short-term credit facilities amounting to US$ 61.3 million, of which US$ 53.4 million was drawn down as of June 30, 2015. Other facilities are granted individually by various banks, mainly in Chile, Brazil, Australia and Canada. They are generally granted on a yearly basis and are subject to review at certain 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 main bank covenant is December 31, 2015. At this stage, the Company does not anticipate any breach of covenants.
As previously discussed, during the quarter, the Company's performance improved compared to previous quarters. On this basis, there is no indication that impairment testing is necessary as at June 30, 2015.
Currency exchange rates
The exchange rates for the periods under review are provided in the Management's Discussion and
Analysis of Q2 2015.
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.
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.
Reconciliations of the various non IFRS measures are as follows:
EBITDA
(In thousands of US$) | Q2 | Q2 | H1 | H1 |
(unaudited) | 2015 | 2014 | 2015 | 2014 |
Operating profit / (loss) ................................................ | 361 | (5,635) | (7,761) | (9,523) |
Depreciation expense .................................................. | 6,375 | 8,175 | 13,080 | 16,181 |
Non-cash employee share-based compensation ................... | 177 | 314 | 342 | 630 |
EBITDA .................................................................... | 6,913 | 2,854 | 5,661 | 7,288 |
Net debt: | Q2 2015 | Q4 2014 |
Cash and cash equivalents ............................. | 14,178 | 23,225 |
Borrowings - Non-current portion..................... | (101,147) | (109,312) |
Borrowings - Current portion .......................... | (10,756) | (10,053) |
Consideration payable related to acquisitions ..... | - | (528) |
Total Net Debt .......................................... | (97,725) | (96,667) |
Outlook
The Company's business strategy is to actively prepare for the next growth phase of the metallic commodities cycle in the best possible conditions through the development and optimization of its services offered across its range of geographical regions, industry sectors, commodities and customers. The Company expects it will execute on its strategy primarily through organic growth in the near future.
Conference call and webcast
On August 4, 2015, 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 co-CEO, and Jean- Pierre Charmensat, co-CEO and CFO.
You can join the call by dialing 1-888-231-8191 or 1-647-427-7450. 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://event.on24.com/r.htm?e=1030030&s=1&k=C7CA11F40F09768BDBBCB5B9DBF428FF
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, visitwww.foraco.com.
For further information, please contact:
Brenda Patterson-Mack (patterson@foraco.com) Tel: (647) 351-5483
"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 31, 2015, 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
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