Foraco International reports Q1 2016

Longer than usual projects launch processes delay 2016 ramp up

TORONTO and MARSEILLE, France, May 3, 2016 /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 first quarter 2016. All figures are reported in US Dollars (US$), unless otherwise indicated.

"Our Q1 was quite weak as our customers took on average one month more than last year to launch their tenders and associated drilling campaigns: this has delayed considerably the 2016 ramp up.  This recent trend to compress most of the drilling budget into the last 3 quarters of the year was detected a couple of years ago, and has been amplified this year by the further decrease of metal prices seen in the last quarter of 2015: our customers further revisited their 2016 budgets and had to wait longer the go ahead from headquarters. Since then most of metals prices have enjoyed a significant rebound during the quarter, and this has been welcomed throughout the industry even if the sustainability of these new prices has yet to be proven. As far as our current fiscal year is concerned, we are confident that we will be able to recover the majority of these delays by year-end." said Daniel Simoncini, Chairman and co-CEO of Foraco.

"During the quarter, we have once again seen the benefits of the ongoing cost saving plan which allowed the Company to more than offset the impact of the reduced activity compared to the same period last year. This quarter again, we were able to demonstrate our ability to deliver the expected performance on the majority of the contracts that went ahead. Our G&A costs also continue to significantly decrease." commented Jean-Pierre Charmensat, co-CEO and Chief Financial Officer. "Despite the slowdown of activities which impacted the generation of cash, the increase in net debt is primarily attributable to working capital requirements which are expected to reverse before year end."

Three months Q1 2016 Highlights

Revenue

  • Q1 2016 revenue amounted to US$ 24.1 million compared to US$ 33.3 million in Q1 2015, a decrease of 28%. Using Q1 2015 exchanges rates, Q1 2016 revenue decreased by 18%, mainly due to the late start of certain projects.
  • The utilization rate was 25% in Q1 2016 compared to 28% in Q1 2015.

Profitability

  • The Q1 2016 gross margin including depreciation within cost of sales was US$ (2.8) million compared to US$ (3.2) million in Q1 2015. The reduction in fixed costs compensated the reduction of activity. Most projects have delivered their expected gross margin.
  • SG&A costs reduced by US$ 0.8 million (or 16%) between Q1 2016 and Q1 2015 excluding non-recurring items, as a result of the full effect of the cost cutting action plans.
  • Excluding non-recurring items, EBIT amounted to US$ (7.1) million in Q1 2016 compared to US$ (8.6) million in Q1 2015. The non-recurring cost corresponds to the final settlement of the earn-out clause related to the 2012 acquisition in Australia (US$ 0.9 million).
  • During the quarter, EBITDA excluding non-recurring items amounted to US$ (1.6) million compared to US$ (1.7) million for the same quarter last year.
  • Capital expenditure was US$ 1.9 million in Q1 2016 compared to US$ 2.8 million in Q1 2015. This Capex is mainly linked to new contracts.

Cash flow and net debt

  • Free cash flow was US$ (7.7) million in Q1 2016 compared to US$ (5.3) million in Q1 2015, due to the reduction of the activity and payment delays from customers.
  • The net debt was US$ 101.0 million as at March 31, 2016 compared to US$ 89.3 million as at December 31, 2015. This increase is due to the Free Cash Flow (US$ -7.7 million) and the effect of foreign exchange rates (mainly Euro) US$ 4 million.

Selected financial data

(In thousands of US$)
(unaudited)


Three-month period ended
March 31,


Three-month period ended March 31,
excluding non-recurring items (2)



2016


2015


2016

2015











Revenue



24,128


33,280


24,128


33,280





















Gross profit / (loss) (1)



(2,792)


(3,200)


(2,792)


(3,200)

As a percentage of sales



-11.6%


-9.6%


-11.6%


-9.6%











EBITDA



(1,620)


(1,252)


(1,620)


(1,749)

As a percentage of sales



-6.7%


-3.8%


-6.7%


-5.3%





















Operating profit / (loss)



(8,010)


(8,122)


(7,110)


(8,619)

As a percentage of sales



-33.2%


-24.4%


-29.5%


-25.9%





















Profit / (loss) for the period



(8,314)


(7,891)


(7,414)


(8,224)





















Attributable to:










Equity holders of the Company



(7,977)


(7,023)


(7,077)


(7,356)

Non-controlling interests



(337)


(869)


(337)


(869)











EPS (in US cents)










Basic



(8.92)


(7.85)





Diluted



(8.92)


(7.85)





(1)

includes amortization and depreciation expenses related to operations

(2)

The three-month periods presented have been normalized in order to exclude (i) in 2015, a non-recurring non-cash gain of US$497 thousand resulting from the unused reversal of a provision for doubtful debt, and (ii) in 2016, an amount of US$ 900 thousand corresponding to the final settlement of an earn-out clause related to the 2012 acquisition in Australia.

 

Financial results

Revenue

(In thousands of US$) - (unaudited)

Q1 2016

% change

Q1 2015

Reporting segment




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

19,784

-31%

28,747

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

4,343

-4%

4,533

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

24,128

-28%

33,280





Geographic region




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

9,359

-10%

10,439

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

4,600

-48%

8,927

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

6,497

-15%

7,629

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

3,671

-42%

6,285

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

24,128

-28%

33,280





 

Q1 2016 revenue amounted to US$ 24.1 million compared to US$ 33.3 million in Q1 2015, a decrease of 28%. Using Q1 2015 exchanges rates, Q1 2016 revenue decreased by 18%.

In EMEA, revenue decreased by 10% (3% excluding the foreign exchange impact), from US$ 10.4 million in Q1 2015 to US$ 9.4 million in Q1 2016.

Revenue in South America amounted to US$ 4.6 million in Q1 2016 (US$ 8.9 million in Q1 2015), a decrease of 48% or 33% excluding the foreign exchange impact. This can mainly be explained by the reduced activity in Chile and Brazil and lack of activity in Argentina.

Revenue in North America decreased by 15% or 6% excluding the impact of exchange rates, due to the late start of new contracts.

In Asia Pacific, Q1 2016 revenue amounted to US$ 3.7 million, a decrease of 42%, or 37% excluding the impact of exchange rates, mainly due to the delays in the start of new contracts in Australia and no start of activity in New Caledonia.

Gross profit

(In thousands of US$) - (unaudited)

Q1 2016

% change

Q1 2015

Reporting segment




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

(2,814)

-9%

(3,080)

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

22

-118%

(120)

Total gross profit / (loss) ...........................................

(2,792)

-13%

(3,200)

 

Q1 2016 gross margin including depreciation within cost of sales was US$ (2.8) million compared to US$ (3.2) million in Q1 2015. The reduction in fixed costs compensated the reduction of activity. Most projects have delivered their expected gross margin.

Selling, General and Administrative Expenses

(In thousands of US$) - (unaudited)

Q1 2016

% change

Q1 2015



Selling, general and administrative expenses

4,179

-7%

4,505

 

SG&A costs reduced by US$ 0.8 million (or 16%) between Q1 2016 and Q1 2015 excluding non-recurring items, as a result of the full effect of the cost cutting action plans.

Operating result

(In thousands of US$) - (unaudited)

Q1 2016

% change

Q1 2015

Reporting segment




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

(7,280)

-1%

(7,321)

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

(730)

-9%

(801)

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

(8,010)

-1%

(8,122)

Total operating profit / (loss) excluding non-recurring items...............

(7,110)

-18%

(8,619)






 

Operating profit was US$ 8.0 million, a US$ 1.5 million improvement excluding non-recurring items compared to Q1 2015.

Financial position

The following table provides a summary of the Company's cash flows for Q1 2016 and Q1 2015:

(In thousands of US$)

Q1 2016

Q1 2015




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

(2,500)

(1,754)

Working capital requirements

(3,094)

590

Interest and tax

(1,125)

(1,839)

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

(6,719)

(3,003)




Purchase of equipment in cash

(1,020)

(2,344)




Free cash flow

(7,739)

(5,347)




Debt variance

4,523

(2,245)

Dividends paid to minority shareholders in affiliates

(500)

-

Acquisition of treasury shares

(62)

-

Net cash generated / (used in) financing activities

3,961

(2,245)




Net cash variation

(3,778)

(7,592)




Foreign exchange differences

262

(1,064)




Variation in cash and cash equivalents

(3,516)

(8,656)

 

In Q1 2016, the net cash flow used from operating activities amounted to US$ 6.7 million compared to US$ 3.0 million during Q1 2015.

During the period, Capex amounted to US$ 1.0 million in cash, compared to US$ 2.3 million in cash and US$ 0.4 million through capital leases in Q1 2015. The total rig count remains unchanged at 302.

Free cash flow was US$ (7.7) million in Q1 2016 compared to US$ (5.3) million in Q1 2015.

As at March 31, 2016, cash and cash equivalents totaled US$ 13.1 million compared to US$ 16.6 million as at December 31, 2015. Cash and cash equivalents are mainly held at or invested within top tier financial institutions.

As at March 31, 2016, net debt amounted to US$ 101.0 million (US$ 89.3 million as at December 31, 2015). This increase is due to the Free Cash Flow (US$ -7.7 million) and the effect of foreign exchange rates (mainly Euro) US$ 4 million.

As at March 31, 2016, financial debts and equivalents amounted to US$ 114.1 million (US$ 105.8 million as at December 31, 2015):

Maturity

Credit lines

April 1, 2016
and March
31, 2017

April 1, 2017
and March
31, 2018

April 1, 2018
and March
31, 2019

April 1, 2019
and March
31, 2020

April 1, 2020
and March 31,
2021

Total


Drawn credit lines rolled over on a yearly basis

53,973

-

-

-

-

-

53,973











Long term financing related to:









- Brazil acquisition


-

3,620

3,620

3,620

-

10,860


- Australia acquisition


5,656

5,656

5,656

5,656


22,624


- Acquisition of fixed assets


6,837

8,441

6,062

3,977

726

26,044


- Acquisition of fixed assets through
capital leases


277

239

52

-

-

567











Total

53,973

12,770

17,956

15,390

13,253

726

114,067

(*)

(*)

The non-current portion of long term debt, i.e. from April 1, 2017 onwards is US$47,325 thousand

 

The Company currently has used and unused short-term credit facilities amounting to US$ 60.2 million, of which US$ 54.0 million was drawn down as of March 31, 2016. 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. As at December 31, 2015, the Company complied with its financial covenants. From June 2016, the Company and its French lenders will negotiate the maturities of its debts, and the ratio applicable to the covenant as at December 31, 2016.

Currency exchange rates

The exchange rates for the periods under review are provided in the Management's Discussion and Analysis of Q1 2016.

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$)

(unaudited)

Q1 2016


Q1 2015

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

(8,010)


(8,122)

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

5,409


6,705

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

81


165

Settlement related to the 2012 acquisition in Australia.....................

900


-

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

(1,620)


(1,252)

 

Net debt:

 (In thousands of US$)  (unaudited)

Q1 2016


Q4 2015

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

13,055


16,571

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

(47,323)


(46,167)

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

(66,743)


(59,663)

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

(101,013)


(89,259)

 

Outlook

The Company's business strategy is to wait 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 May 3, 2016, 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=1182383&s=1&k=767CC06E52855A1F673438B4DCF2BB7D

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 30, 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

SOURCE Foraco International SA

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


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