Foraco International - First Quarter 2017 Report

26% increase in revenue year on year

TORONTO and MARSEILLE, France, May 3, 2017 /CNW/ - Foraco International SA (TSX: FAR) (the "Company" or "Foraco"), a leading global provider of mineral drilling services, today reported its unaudited financial results for the first quarter of 2017. All figures are reported in US Dollars (US$), unless otherwise indicated.

"Last quarter, we reported signs of relatively stronger commercial activity in drilling services following the 2016 recovery in metal prices. Certain drilling budgets have been reinstated for many of the major companies and juniors are becoming active again. A good example is North America, where a recovery is underway and business has improved significantly. Our Q1 2017 revenue was US$30.3 million, compared to US$24.1 million in the prior-year period, an increase of 26%," said Daniel Simoncini, Chairman and Co-CEO of Foraco. "The utilization rate of our rigs was 35% during the quarter, a level not seen since Q1 2013. This increased level of activity required some rigs and support equipment to be mobilized and relocated in order for new projects to be executed over the coming quarters."

"We are also pleased to report the good operating performance of our contracts in Q1 2017. We generated positive EBITDA, continued to keep capex under control and managed to improve cash collection. Cash management was tight due to our financing constraints and our working capital requirements being affected by the timing of operations," commented Jean-Pierre Charmensat, Co­CEO and Chief Financial Officer. "We will soon collect the first tranche of the new financing we secured in an amount of €18 million (US$19 million). This, coupled with the postponed repayment of most of our existing long-term financing, concludes the financial reorganization process, which will strengthen our global position and our ability to take advantage of the industry's recovery."

Three months Q1 2017 Highlights – Q1 2017

Revenue

  • Q1 2017 revenue amounted to US$ 30.3 million compared to US$ 24.1 million in Q1 2016, an increase of 26%.
  • The utilization rate was 35% in Q1 2017 compared to 25% in Q1 2016.

Profitability

  • The Q1 2017 gross margin including depreciation within cost of sales was US$ 1.5 million compared to US$ (2.8) million in Q1 2016. Most projects have delivered their expected gross margin. The increase of activity generated better absorption of fixed operational costs.
  • SG&A costs increased by US$ 0.7 million mainly due to the recognition of some retention bonuses and costs linked to the financing renegotiations. As a percentage of revenue, SG&A represented 16% in Q1 2017 compared to 17% during the same period last year.
  • EBIT amounted to US$ (3.5) million in Q1 2017 compared to US$ (8.0) million in Q1 2016, a US$ 4.5 million improvement mainly as a result of increased Gross Margin.
  • During the quarter, EBITDA amounted to US$ 1.3 million compared to US$ (1.6) million for the same quarter last year.
  • Capital expenditure was US$ 1.4 million in Q1 2017 compared to US$ 1.9 million in Q1 2016. This Capex is mainly linked to new contracts.

Cash flow and Net debt

  • Free cash flow improved from US$ (7.7) million in Q1 2016 to US$ (0.6) million in Q1 2017 mainly due to the better level of profitability and a lower level of working capital requirements.
  • The net debt was US$ 106.2 million as at March 31, 2017 compared to US$ 103.3 million as at December 31, 2016. This increase is due to the Free Cash Flow (US$ -0.6 million) and the effect of foreign exchange rates (mainly Euro) for US$ 2 million.

Financial results

Revenue

(In thousands of US$) - (unaudited)

Q1 2017

% change

Q1 2016

Reporting segment




Mining

28,008

42%

19,784

Water

2,316

-47%

4,343

Total revenue

30,324

26%

24,128





Geographic region




Europe, Middle East and Africa

11,360

21%

9,359

South America

8,469

30%

6,497

North America

7,404

61%

4,600

Asia Pacific

3,091

-16%

3,671

Total revenue

30,324

26%

24,128

 

Q1 2017 revenue amounted to US$ 30.3 million compared to US$ 24.1 million in Q1 2016, an increase of 26%.

In EMEA, revenue increased by 21% from US$ 9.4 million in Q1 2016 to US$ 11.4 million in Q1 2017. The increased activity in the mining segment in Africa and Europe has more than offset the lower activity in the water segment in Africa.

Revenue in North America increased by 30% from US$ 6.5 million in Q1 2016 to US$ 8.5 million in Q1 2017. Compared to last year, the Company benefited from new contracts with Juniors and increased activity with Majors.

Revenue in South America increased by 61% from US$ 4.6 million in Q1 2016 to US$ 7.4 million in Q1 2017.  The increase of 61% is mainly attributable to the earlier start of projects in Brazil (+59%) and Chile (+67%).

In Asia Pacific, Q1 2017 revenue decreased by US$ 0.6 million to US$ 3.1 million, mainly due to the combination of lower activity in Australia partially compensated by an increase of activity in New Caledonia.

Gross profit

(In thousands of US$) - (unaudited)

Q1 2017

% change

Q1 2016

Reporting segment




Mining

1,460

n/a

(2,814)

Water

45

n/a

22

Total gross profit / (loss)

1,505

n/a

(2,792)

 

Q1 2017 gross margin including depreciation within cost of sales was US$ 1.5 million compared to US$ (2.8) million in Q1 2016. Most projects have delivered their expected gross margin. The increase of activity allowed a better absorption of fixed operational costs.

Selling, General and Administrative Expenses

(In thousands of US$) - (unaudited)

Q1 2017

% change

Q1 2016

Selling, general and administrative expenses            

4,916

18%

4,179

 

SG&A costs increased by US$ 0.7 million mainly due to the recognition of some retention bonuses and costs linked to the financing renegotiations. As a percentage of revenue, SG&A represented 16% in Q1 2017 compared to 17% during the same period last year.

Operating result

(In thousands of US$) - (unaudited)

Q1 2017

% change

Q1 2016

Reporting segment




Mining

(3,130)

-57%

(7,280)

Water

(330)

-55%

(730)

Total operating profit / (loss)

(3,460)

-57%

(8,010)

 

Operating loss was US$ 3.5 million, a US$ 4.5 million improvement mainly as a result of increased gross margin.

Financial position

The following table provides a summary of the Company's cash flows for Q1 2017 and Q1 2016:

(In thousands of US$)

Q1 2017

Q1 2016




Cash generated by/(used in) operations before working capital requirements

1,303

(2,500)

Working capital requirements

833

(3,094)

Interest and tax

(1,350)

(1,125)

Net cash flow generated by / (used in) operating activities

786

(6,719)




Purchase of equipment in cash

(1,403)

(1,020)




Free cash flow

(617)

(7,739)




Debt variance

1,772

4,523

Dividends paid to minority shareholders in affiliates

-

(500)

Acquisition of treasury shares

(11)

(62)

Net cash generated by / (used in) financing activities

1,761

3,961




Net cash variation

1,144

(3,778)




Foreign exchange differences

116

262




Variation in cash and cash equivalents

1,260

(3,516)

 

In Q1 2017, the net cash flow generated by operating activities amounted to US$ 0.8 million compared to US$ 6.7 million used during Q1 2016, mainly due to earlier start of projects.

Working capital requirements was a positive US$ 0.8 million during Q1 2017 compared to a negative US$ 3.1 million. Cash management was tight due to financing constraints, and some delayed receivables were recovered during the period.

During the period, Capex amounted to US$ 1.4 million in cash, compared to US$ 1.0 million in cash in Q1 2016. The Company purchased 2 rigs for contracts due to start in Q2 and retired 2 from service. The total rig count remains unchanged at 302.

Free cash flow was US$ (0.6) million in Q1 2017 compared to US$ (7.7) million in Q1 2016.

As at March 31, 2017, cash and cash equivalents totaled US$ 7.5 million compared to US$ 6.2 million as at December 31, 2016. Cash and cash equivalents are mainly held at or invested within top tier financial institutions.

As at March 31, 2017, net debt amounted to US$ 106.2 million (US$ 103.3 million as at December 31, 2016). This increase is due to the Free Cash Flow (US$ -0.6 million) and the effect of foreign exchange rates (mainly Euro) for US$ 2 million.

During the quarter, the Company reached an agreement with its existing and new lenders. The agreement consists in postponing the installments of most of the long-term financing which will take the form of 5-year term subordinated bonds and providing for a new money injection of €23 million (US$ 24 million) in the form of bonds with a 5 years term, including €18 million (US$ 19 million) available at closing. The legal documentation is currently being finalized. The table below presents the maturity of the financial debt assuming the legal documentation was finalized at March 31, 2017:

in thousand US$

Proforma as at March 31, 2017



Credit lines

10,393

Long-term debt



April 1, 2017 and March 31, 2018

4,479


April 1, 2018 and March 31, 2019

2,422


April 1, 2019 and March 31, 2020

2,324


April 1, 2020 and March 31, 2021

1,606


April 1, 2021 and March 31, 2022

92,447

Total

113,671

 

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 and the agreement reached with lenders as described above, the Company believes that it will have adequate financial resources to continue in operation and meet its financial commitments for a period of at least twelve months.

Accordingly, the Company continues to adopt the going concern basis in preparing its financial statements.

Currency exchange rates

The exchange rates for the periods under review are provided in the Management's Discussion and Analysis of Q1 2017.

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.

Reconciliation of the EBITDA is as follows:

(In thousands of US$)

(unaudited)

Q1 2017

Q1 2016




Operating profit / (loss)

(3,460)

(8,010)

Depreciation expense

4,734

5,409

Non-cash employee share-based compensation

29

81

Settlement related to the 2012 acquisition in Australia

-

900

EBITDA

1,303

(1,620)

 

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 its strategy primarily through organic growth in the near future.

Conference call and webcast

On May 3, 2017, 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 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=1418472&s=1&k=78D179C7E1039ADC7207E14BC33AFAB5

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 22 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 31, 2017, 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

For further information: Brenda Patterson-Mack (patterson@foraco.com), Tel: (647) 351-5483


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