Major Drilling Reports Second Quarter Results
MONCTON, NB,
Highlights
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In millions of Canadian Q2-10 Q2-09 YTD-10 YTD-09
dollars (except earnings ------- ------- ------- ---------
per share)
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Revenue $ 75.5 $ 191.0 $ 138.0 $ 369.2
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Gross profit
As percentage of sales 22.8 70.4 40.0 133.7
30.2% 36.9% 29.0% 36.2%
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Net earnings 4.1 29.3 0.8 55.6
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Earnings per share 0.17 1.23 0.03 2.35
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Cash flow from
operations * 12.3 38.9 19.9 75.5
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* before changes in working capital
- Cash flow from continuing operations before changes in working capital
was $12.3 million for the quarter.
- Net cash position increased by $8.7 million to $27.8 million from the
first quarter, positioning the Company well for future growth.
- Major Drilling posted quarterly revenue of $75.5 million, down
60.5 percent from the $191.0 million recorded for the same quarter last
year, but up $13.0 million or 21 percent from the first quarter of
fiscal 2010.
- Gross margin percentage for the quarter was 30.2 percent, compared to
36.9 percent for the corresponding period last year.
- Net earnings were $4.1 million or $0.17 per share for the quarter,
compared to net earnings of $29.3 million or $1.23 per share for the
prior year quarter.
"As expected, we started to see a recovery during the quarter as revenue was up 21 percent relative to the first quarter despite the weakening U.S. dollar. Global exploration spending continued to improve, driven by sustained strength in key commodity prices, particularly gold and copper. Also, the financing environment has improved for mining companies over the past few months. These factors helped improve our drill utilization as we moved through the quarter, particularly the specialized rigs," said Francis McGuire, President and CEO of
"In terms of regional performance,
While general market conditions are improving, the Company cautions that broad volatility in all aspects of its business continues and, accordingly, actual results may vary substantially from all forward-looking information in this press release.
"Many of the supply issues that face most commodities are coming back into focus and with moderate growth in the world economy, the need to explore and develop mines will increase. We believe that at that point, the need to develop resources in areas that are increasingly difficult to access will return, which should further increase demand for specialized drilling. We have seen a noticeable increase in inquiries from intermediate and senior customers, which could have a positive impact on the market by this spring. Customers, especially the large mining companies, are still formulating their plans for calendar 2010 and it is too early to anticipate the full impact of their decisions."
"It is important to note that we are now in our third quarter, traditionally the weakest quarter of our fiscal year, as mining and exploration companies shut down, often for extended periods over the holiday season. At this time, most senior and intermediate companies are still working through their budget process and have yet to decide on post-holiday start up dates. Also, due to the time it takes to mobilize once contracts are awarded, a slow pace of start ups is expected in January, which will impact overall third quarter revenue. We expect pricing to remain competitive until utilization rates pick up significantly, especially in conventional drilling," observed
"The Company continues to be in an excellent financial position remaining debt-free, net of cash. Total cash level, net of long-term debt, increased by
"While capital expenditures have been low up to this point in this fiscal year, we continue to see opportunity to broaden our footprint in the coal and coal seam gas sector. We currently have 14 rigs in this sector but during the next few months we will be adding a further 6 rigs. Three of our mineral rigs are being adapted for these purposes and 3 additional rigs will be purchased in the coming quarter. These rigs are expected to be in operation by late spring and should add to the success of the Company in developing this market segment."
Second quarter ended
Total revenue for the quarter was
Revenue for the quarter from Canada-U.S. drilling operations decreased by 62.2 percent to
South and Central American revenue was at
Australian, Asian and African operations reported revenue of
The overall gross margin percentage for the quarter was 30.2 percent, down from 36.9 percent for the same period last year. Reduced pricing due to increased competitive pressures and delays significantly impacted margins although the Company has been able to recapture some of this loss through productivity gains and cost cutting.
General and administrative costs were
Other expenses for the quarter were
Foreign exchange gain in the quarter was
Short-term interest revenue was nil this quarter compared to an expense of
Amortization expense was
Income tax expense was
Net earnings were
Year to date ended
Revenue for the six months ended
Canada-U.S. revenue decreased by 62.9 percent or
Revenue in South and
Revenue in
Gross margins for the year to date were 29.0 percent compared to 36.2 percent last year, due mainly to significantly decreased pricing, which was somewhat offset by improvements in drillers' productivity.
General and administrative expenses decreased to
Other expenses were
Foreign exchange gain was
Short-term interest was a revenue of
Amortization expense decreased to
The provision for income tax for the year was
Net earnings were
Some of the statements contained in this press release may be forward-looking statements, such as, but not limited to, those relating to worldwide demand for gold and base metals and overall commodity prices, the level of activity in the minerals and metals industry and the demand for the Company's services, the Canadian and international economic environments, the Company's ability to attract and retain customers and to manage its assets and operating costs, sources of funding for its clients, particularly for junior mining companies, competitive pressures, currency movements, which can affect the Company's revenue in Canadian dollars, the geographic distribution of the Company's operations, the impact of operational changes, changes in jurisdictions in which the Company operates (including changes in regulation), failure by counterparties to fulfill contractual obligations, and other factors as may be set forth, as well as objectives or goals, and including words to the effect that the Company or management expects a stated condition to exist or occur. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements by reason of factors such as, but not limited to, the factors set out in the discussion starting on pages 19 to 22 of the 2009 Annual Report entitled "General Risks and Uncertainties", as available on SEDAR at www.sedar.com. All such factors should be considered carefully when making decisions with respect to the Company. The Company does not undertake to update any forward-looking statements, including those statements that are incorporated by reference herein, whether written or oral, that may be made from time to time by or on its behalf, except in accordance with applicable securities laws.
Based in Moncton,
Financial statements are attached.
Major Drilling Group International Inc.
Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share information)
(unaudited)
Six months ended Three months ended
October 31 October 31
2009 2008 2009 2008
---------- ---------- ---------- -----------
TOTAL REVENUE $ 138,017 $ 369,225 $ 75,528 $ 191,010
DIRECT COSTS 97,995 235,483 52,736 120,572
---------- ---------- ---------- -----------
GROSS PROFIT 40,022 133,742 22,792 70,438
---------- ---------- ---------- -----------
OPERATING EXPENSES
General and
administrative 16,998 26,172 8,126 12,794
Other expenses 2,032 8,696 1,147 4,871
Foreign exchange
(gain) loss (829) 1,628 (149) 1,461
Interest (revenue)
expense (95) 207 (26) 173
Interest expense on
long-term debt 574 944 271 452
Amortization 15,440 15,753 7,713 8,157
Restructuring charge
(note 5) 1,220 - - -
Goodwill impairment
(note 6) 2,032 - - -
---------- ---------- ---------- -----------
37,372 53,400 17,082 27,908
---------- ---------- ---------- -----------
EARNINGS BEFORE INCOME
TAX 2,650 80,342 5,710 42,530
---------- ---------- ---------- -----------
INCOME TAX - PROVISION
Current 1,302 22,907 1,587 12,799
Future 584 1,829 63 455
---------- ---------- ---------- -----------
1,886 24,736 1,650 13,254
---------- ---------- ---------- -----------
NET EARNINGS $ 764 $ 55,606 $ 4,060 $ 29,276
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
EARNINGS PER SHARE
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Basic * $ 0.03 $ 2.35 $ 0.17 $ 1.23
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Diluted ** $ 0.03 $ 2.32 $ 0.17 $ 1.22
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
* Based on 23,717,467 and 23,708,168 daily weighted average shares
outstanding for the fiscal year to date 2010 and 2009, respectively
and on 23,718,861 and 23,709,293 daily weighted average shares for
the quarter ended October 31, 2009 and 2008, respectively. The total
number of shares outstanding on October 31, 2009 was 23,722,573.
** Based on 24,025,755 and 23,987,920 daily weighted average shares
outstanding for the fiscal year to date 2010 and 2009, respectively
and on 23,894,788 and 23,940,827 daily weighted average shares
outstanding for the quarter ended October 31, 2009 and 2008,
respectively.
Major Drilling Group International Inc.
Consolidated Statements of Comprehensive (Loss) Earnings
(in thousands of Canadian dollars)
(unaudited)
Six months ended Three months ended
October 31 October 31
2009 2008 2009 2008
---------- ---------- ---------- -----------
NET EARNINGS $ 764 $ 55,606 $ 4,060 $ 29,276
OTHER COMPREHENSIVE (LOSS)
EARNINGS
Unrealized (losses)
gains on translating
financial statements of
self-sustaining foreign
operations (24,016) 34,353 412 31,453
---------- ---------- ---------- -----------
COMPREHENSIVE (LOSS)
EARNINGS $ (23,252) $ 89,959 $ 4,472 $ 60,729
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Consolidated Statements of Retained Earnings
(in thousands of Canadian dollars)
(unaudited)
Six months ended
October 31
2009 2008
------------- ------------
RETAINED EARNINGS, BEGINNING OF THE PERIOD $ 218,983 $ 182,533
Net earnings 764 55,606
Dividends (4,745) (4,742)
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RETAINED EARNINGS, END OF THE PERIOD $ 215,002 $ 233,397
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Consolidated Statements of Accumulated Other
Comprehensive Loss
(in thousands of Canadian dollars)
(unaudited)
Six months ended
October 31
2009 2008
------------- ------------
ACCUMULATED OTHER COMPREHENSIVE LOSS,
BEGINNING OF THE PERIOD $ (5,079) $ (44,552)
Unrealized (losses) gains on translating
financial statements of self-sustaining
foreign operations (24,016) 34,353
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ACCUMULATED OTHER COMPREHENSIVE LOSS,
END OF THE PERIOD $ (29,095) $ (10,199)
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Major Drilling Group International Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Six months ended Three months ended
October 31 October 31
2009 2008 2009 2008
---------- ---------- ---------- -----------
OPERATING ACTIVITIES
Net earnings $ 764 $ 55,606 $ 4,060 $ 29,276
Operating items not
involving cash
Amortization 15,440 15,753 7,713 8,157
Loss (gain) on disposal
of property, plant and
equipment 1 1,164 (66) 352
Future income tax 584 1,829 63 455
Stock-based compensation 1,044 1,098 539 700
Goodwill impairment
(note 6) 2,032 - - -
---------- ---------- ---------- -----------
19,865 75,450 12,309 38,940
Changes in non-cash
operating working capital
items (325) (2,452) 213 15,949
---------- ---------- ---------- -----------
Cash flow from operating
activities 19,540 72,998 12,522 54,889
---------- ---------- ---------- -----------
FINANCING ACTIVITIES
Repayment of long-term
debt (6,469) (5,923) (3,393) (2,881)
Additional long-term debt - 10,000 - 10,000
Repayment of demand credit
facilities - (2,179) - (1,596)
Issuance of common shares 28 28 28 21
Dividend paid (4,743) (4,742) - (4,742)
---------- ---------- ---------- -----------
Cash flow (used in) from
financing activities (11,184) (2,816) (3,365) 802
---------- ---------- ---------- -----------
INVESTING ACTIVITIES
Business acquisition - (21,805) - (21,805)
Acquisition of property,
plant and equipment, net
of direct financing (7,208) (33,964) (3,904) (15,073)
Proceeds from disposal of
property, plant and
equipment 1,497 1,893 602 1,421
---------- ---------- ---------- -----------
Cash flow used in
investing activities (5,711) (53,876) (3,302) (35,457)
---------- ---------- ---------- -----------
OTHER ACTIVITIES
Foreign exchange
translation adjustment (3,157) 2,025 (484) 2,021
---------- ---------- ---------- -----------
(DECREASE) INCREASE IN
CASH (512) 18,331 5,371 22,255
CASH POSITION, BEGINNING
OF THE PERIOD 58,035 20,695 52,152 16,771
---------- ---------- ---------- -----------
CASH POSITION, END OF
THE PERIOD $ 57,523 $ 39,026 $ 57,523 $ 39,026
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Major Drilling Group International Inc.
Consolidated Balance Sheets
As at October 31, 2009 and April 30, 2009
(in thousands of Canadian dollars)
(unaudited)
ASSETS October April
2009 2009
------------- ------------
CURRENT ASSETS
Cash $ 57,523 $ 58,035
Accounts receivable 51,561 52,538
Income tax receivable 8,814 6,014
Inventories 62,508 72,764
Prepaid expenses 6,126 3,478
Future income tax assets 822 2,644
------------- ------------
187,354 195,473
PROPERTY, PLANT AND EQUIPMENT 217,724 240,224
FUTURE INCOME TAX ASSETS 4,108 1,403
GOODWILL AND INTANGIBLE ASSETS (note 9) 26,297 32,072
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$ 435,483 $ 469,172
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LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued charges $ 47,823 $ 47,691
Income tax payable 2,947 1,719
Current portion of long-term debt 11,976 15,049
Future income tax liabilities 1,148 1,071
------------- ------------
63,894 65,530
LONG-TERM DEBT 17,761 23,507
FUTURE INCOME TAX LIABILITIES 15,407 14,789
------------- ------------
97,062 103,826
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SHAREHOLDERS' EQUITY
Share capital 142,261 142,233
Contributed surplus 10,253 9,209
Retained earnings 215,002 218,983
Accumulated other comprehensive loss (29,095) (5,079)
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338,421 365,346
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$ 435,483 $ 469,172
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MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIODS ENDED OCTOBER 31, 2009 AND 2008
(in thousands of Canadian dollars)
1. BASIS OF PRESENTATION
---------------------
These interim consolidated financial statements were prepared using accounting policies and methods consistent with those used in the preparation of the Company's audited consolidated financial statements for the year ended
2. CHANGES IN ACCOUNTING POLICIES
------------------------------
Goodwill and Intangible Assets
Effective
3. FUTURE ACCOUNTING CHANGES
-------------------------
Business combinations
In
Consolidated financial statements and non-controlling interests
In
International Financial Reporting Standards ("IFRS")
In
4. SEASONALITY OF OPERATIONS
-------------------------
The Company's operations tended to exhibit a seasonal pattern whereby its fourth quarter (February to April) was its strongest. With the exception of the third quarter, the Company has, over the past several years, exhibited comparatively less seasonality in quarterly revenue. The third quarter (November to January) is normally the Company's weakest quarter due to the shutdown of mining and exploration activities, often for extended periods over the holiday season, particularly in South and
5. RESTRUCTURING CHARGE
--------------------
The Company initiated a restructuring plan in fiscal year 2009 to standardize the drilling equipment fleet and reduce operating costs by rationalizing the workforce and business locations. These initiatives have generated a total restructuring charge of
The current fiscal year charges include
As of
6. GOODWILL IMPAIRMENT
-------------------
In the first quarter of the current fiscal year, the Company recorded a net non-cash goodwill impairment charge of
7. BUSINESS ACQUISITION
--------------------
Effective
The net assets acquired at fair market value at acquisition are as follows:
Assets acquired and liabilities assumed
Accounts receivable $ 5,055
Prepaid expenses 241
Inventories 533
Property, plant and equipment 7,489
Intangible assets 2,350
Goodwill (not tax deductible) 13,223
Accounts payable (884)
Income tax payable (2,842)
Future income tax liability (2,048)
-----------
Net assets $ 23,117
-----------
-----------
Consideration
Cash $ 21,867
Accounts payable 500
Long-term debt 750
-----------
$ 23,117
-----------
-----------
8. INVENTORY
---------
The cost of inventory recognized as an expense and included in direct costs for the six and three months ended
9. GOODWILL AND INTANGIBLE ASSETS
------------------------------
October 2009 April 2009
------------- ------------
Goodwill $ 24,959 $ 30,470
Intangible assets 1,338 1,602
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$ 26,297 $ 32,072
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Intangible assets include the carrying value of customer relationships and a non-compete agreement, which are amortized on a straight-line basis over four and three years respectively.
Changes in the goodwill and intangible assets balance were as follows for the six and three months ending October 31, 2009:
2010 YTD 2009 YTD 2010 Q2 2009 Q2
---------- ---------- ---------- -----------
Balance at beginning of
the period $ 32,072 $ 14,837 $ 26,692 $ 15,316
Amortization of intangible
assets (264) - (132) -
Goodwill adjustment
(note 6) (1,690) - - -
Goodwill impairment
(note 6) (2,032) - - -
Goodwill and intangible
assets acquired - 14,757 - 14,757
Effect of foreign currency
exchange rate changes (1,789) 2,760 (263) 2,281
---------- ---------- ---------- -----------
$ 26,297 $ 32,354 $ 26,297 $ 32,354
---------- ---------- ---------- -----------
10. CAPITAL MANAGEMENT
------------------
The Company includes shareholders' equity (excluding accumulated other comprehensive loss), long-term borrowings and demand credit facility net of cash in the definition of capital.
Total managed capital was as follows:
October 2009 April 2009
------------- ------------
Long-term debt $ 29,737 $ 38,556
Share capital 142,261 142,233
Contributed surplus 10,253 9,209
Retained earnings 215,002 218,983
Cash (57,523) (58,035)
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$ 339,730 $ 350,946
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The Company's objective when managing its capital structure is to maintain financial flexibility in order to: i) preserve access to capital markets; ii) meet financial obligations; and iii) finance internally generated growth and potential new acquisitions. To manage its capital structure, the Company may adjust spending, issue new shares, issue new debt or repay existing debt.
Under the terms of certain of the Company's debt agreements, the Company must satisfy certain financial covenants. Such agreements also limit, among other things, the Company's ability to incur additional indebtedness, create liens, engage in mergers or acquisitions and make dividend and other payments. During the period, the Company was, and continues to be, in compliance with all covenants and other conditions imposed by its debt agreements.
In order to facilitate the management of its capital requirements, the Company prepares annual budgets that are updated as necessary, dependent on various factors.
The Company's objectives with regards to capital management remain unchanged from fiscal 2009.
11. FINANCIAL INSTRUMENTS
---------------------
Fair value
The carrying values of cash, accounts receivable and accounts payable and accrued charges approximate their fair value due to the relatively short period to maturity of the instruments. Long-term debt has a carrying value of
Risk management
The Company is exposed to various risks related to its financial assets and liabilities. There have been no substantive changes in the Company's exposure to financial instrument risks, its objectives, policies and processes for managing those risks, or the methods used to measure them, from previous periods, unless otherwise stated in this note.
Credit risk
The Company is exposed to credit risk from its accounts receivable. The Company has adopted a policy of dealing only with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. It carries out, on a continuing basis, credit checks on its customers and maintains provisions for contingent credit losses. The Company also diversifies its credit risk by dealing with a large number of customers in various countries. Demand for the Company's drilling services depends upon the level of mineral exploration and development activities conducted by mining companies, particularly with respect to gold, nickel and copper. The Company's five largest customers account for 25 percent (26 percent in 2009) of total quarterly revenue, with no one customer representing more than 10 percent of its revenue for 2010 or 2009.
The carrying amounts for accounts receivable are net of allowances for doubtful accounts, which are estimated based on aging analysis of receivables, past experience, specific risks associated with the customer and other relevant information. The maximum exposure to credit risk is the carrying value of the financial assets.
As at
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. This risk is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
Interest rate risk
The demand loan and long-term debt of the Company bear a floating rate of interest, which exposes the Company to interest rate fluctuations.
As at
Foreign currency risk
Foreign currency risk arises as the Company has operations located internationally where local operational currency is not the same as the functional currency of the Company.
A significant portion of the Company's operations are located outside of
Based on the Company's foreign currency net monetary exposures and net assets as at
Increase (decrease) in
------------------------
net earnings
--------------
Canadian Canadian
dollar dollar
appre- depre-
ciates 10% ciates 10%
------------- ------------
US Dollar $ (11) $ 11
Indonesian Rupiah (196) 196
Tanzanian Shilling 164 (164)
Chilean Peso 277 (277)
Increase (decrease) in
------------------------
comprehensive earnings
------------------------
Canadian Canadian
dollar dollar
appre- depre-
ciates 10% ciates 10%
------------- ------------
Australian Dollar $ (1,698) $ 1,698
US Dollar (24,678) 24,678
Liquidity risk
Liquidity risk arises from the Company's management of working capital, the finance charges and principal repayments on its debt instruments. The risk is that the Company would not be able to meet its financial obligations as they become due.
The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Total financial liabilities, by due date, as at
Total 1 year 2-3 years 4-5 years 5+ years
--------- --------- ---------- ---------- ----------
Accounts payable &
accrued charges $ 47,823 $ 47,823 $ - $ - $ -
Long-term debt 29,737 11,976 12,733 5,028 -
--------- --------- ---------- ---------- ----------
$ 77,560 $ 59,799 $ 12,733 $ 5,028 $ -
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--------- --------- ---------- ---------- ----------
12. SEGMENTED INFORMATION
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2010 YTD 2009 YTD 2010 Q2 2009 Q2
---------- ---------- ---------- -----------
Revenue
Canada - U.S. $ 44,279 $ 119,271 $ 24,091 $ 63,703
South and Central
America 42,403 109,604 24,160 54,316
Australia, Asia and
Africa 51,335 140,350 27,277 72,991
---------- ---------- ---------- -----------
$ 138,017 $ 369,225 $ 75,528 $ 191,010
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---------- ---------- ---------- -----------
Earnings from operations
Canada - U.S. $ 5,381 $ 34,856 $ 3,768 $ 19,858
South and Central
America 5,268 29,813 3,362 13,968
Australia, Asia and
Africa 566 27,438 1,270 15,172
---------- ---------- ---------- -----------
11,215 92,107 8,400 48,998
Eliminations (657) (603) (333) (301)
---------- ---------- ---------- -----------
10,558 91,504 8,067 48,697
Interest expense, net 479 1,151 245 625
General corporate expenses 4,177 10,011 2,112 5,542
Restructuring charge 1,220 - - -
Goodwill impairment 2,032 - - -
Income tax 1,886 24,736 1,650 13,254
---------- ---------- ---------- -----------
Net earnings $ 764 $ 55,606 $ 4,060 $ 29,276
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Goodwill impairment relates to the South and Central American segment (see Note 6 - Goodwill Impairment).
For further information: Denis Larocque, Chief Financial Officer, (506) 857-8636, Fax: (506) 857-9211, [email protected]
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