Foraco International Reports Q4 2019

TORONTO and MARSEILLE, France, March 2, 2020 /CNW/ - Foraco International SA (TSX: FAR) (the "Company" or "Foraco"), a leading global provider of mineral drilling services, today released its unaudited financial results for the fourth quarter 2019. All figures are expressed in US Dollars (US$) unless otherwise indicated.

"We posted our third consecutive profitable quarter in Q4 2019 and ended the year 2019 with a net profit after tax for the first time since 2013. This year again, we continued to outperform the market growth with a 14% increase in revenue at USD 205.4 million in 2019 versus USD 180.0 million in 2018. The US$ 48.4 million revenue generated in Q4 2019 reflects the sustained performance of all regions and confirmed our strategy to focus on and to develop our positioning in key markets. Canada, Australia, Brazil and Russia are the main contributors to this performance this quarter" commented Daniel Simoncini, Chairman and Co-CEO of Foraco. "The bidding activity was exciting and we are pleased to report that our backlog at year-end is significantly higher than last year at USD 158.1 million to be executed in 2020, a 19% increase compared to US$133.0 million at the end of 2018. We certainly have a strong base to build upon now and we would like to take this opportunity to thank our dedicated management team for his enthusiasm and commitment which made this recovery possible"

"In Q4 2019, we recorded an EBITDA of US$ 8.2 million, a 88% increase compared to Q4 2018. On a full year basis, we posted US$ 29.3 million EBITDA in 2019, a 62% increase compared to FY 2018. Free cash flow continued to be positive for the fifth consecutive quarter and our net result after tax was a profit of US$ 2.3 million in Q4 2019 and US$ 2.6 million for the full year 2019." added Jean-Pierre Charmensat, Co-CEO and Chief Financial Officer. "Despite this positive news, we are aware of the challenges we will face in the future as a result of simultaneously competing factors ranging from economic data, outbreaks and geopolitical shifts. Our response is to restore our financial flexibility and thus to concentrate our efforts to accelerate our balance sheet deleveraging while protecting our current stakeholders."

Highlights – Q4 2019

Revenue

• Q4 2019 revenue amounted to US$ 48.4 million compared to US$ 48.0 million in Q4 2018, an increase of 1%.
  
  
• The rigs utilization rate was 45% in Q4 2019 compared to 51% in Q4 2018 mainly due to the mixed effect of lower activity in South America compensated by increased activity in Australia where revenue per rig is higher.

Profitability

• The Q4 2019 gross margin including depreciation within cost of sales was US$ 8.9 million (or 18.4% of revenue) compared to US$ 5.4 million (or 11.3% of revenue) in Q4 2018. This increase is due to improved performance on contracts and continued effective cost control over our operating expenses.
  
  
• During the quarter, EBITDA amounted to US$ 8.2 million (or 17.0% of revenue), a 88% increase compared to US$ 4.4 million (or 9.1% of revenue) for the same quarter last year.

Highlights – FY 2019

Revenue

• FY 2019 revenue amounted to US$ 205.4 million compared to US$ 180.0 million in FY 2018, an increase of 14%.
  
  
• The rigs utilization rate was 48% in FY 2019 compared to 45% in FY 2018 mainly due to Australia, Brazil and Russia increase in activity.

Profitability

• FY 2019 gross margin including depreciation within cost of sales was US$ 32.1 million (or 15.6% of revenue) compared to US$ 21.9 million (or 12.2% of revenue) in FY 2018. This increase is due to improved performance on contracts, better absorption of fixed operational costs and continued effective cost control over our operating expenses.
  
  
• During the period, EBITDA amounted to US$ 29.3 million (or 14.2% of revenue), compared to US$ 18.1 million (or 10.0% of revenue) for the same period last year.

Net debt

• The net debt excluding the impact of the implementation of IFRS 16 was US$ 128.9 million as at December 31, 2019 compared to US$ 130.4 million as at December 31, 2018. This decrease is mainly linked to the free cash flow generated during the period (US$ 8.0 million) offset by the capitalized interest (US$ 5.5 million). The net debt including the impact of IFRS 16 is US$ 133.0 million as at December 31, 2019.

Backlog

• As at December 31, 2019, the Company's order backlog for continuing operations was US$ 269.1 million of which US$ 158.1 million is expected to be executed during the FY 2020. Last year at the same period, the order backlog for continuing operations was US$ 266.0 million of which US$ 133.9 million was expected to be executed during FY 2019.

Selected financial data

(In thousands of US$) (unaudited)				Three-month period ended December 31,							Year ended December 31,
				2019				2018			2019				2018
Revenue						48,379		47,992				205,444			180,046
Gross profit (1)						8,920		5,447				32,100			21,885
As a percentage of sales						18.4%		11.3%				15.6%			12.2%
EBITDA						8,230		4,370				29,251			18,081
As a percentage of sales						17.0%		9.1%				14.2%			10.0%
Operating profit / (loss)						3,584		182				10,952			1,114
As a percentage of sales						7.4%		0.4%				5.3%			0.6%
Profit / (loss) for the period						2,269		(3,633)				2,632			(10,630)
Attributable to:
Equity holders of the Company						2,756		(3,931)				1,085			(10,616)
Non-controlling interests						(487)		298				1,547			(546)
EPS (in US cents)
Basic						3.07		(4.37)				1.21			(11.83)
Diluted						2.99		(4.37)				1.18			(11.83)

(1)	This line item includes amortization and depreciation expenses related to operations

Financial results

Revenue

(In thousands of US$) - (unaudited)	Q4 2019	% change	Q4 2018	FY 2019	% change	FY 2018
Reporting segment
Mining	46,499	0%	46,566	199,327	14%	174,940
Water	1,880	32%	1,426	6,117	20%	5,106
Total revenue	48,379	1%	47,992	205,444	14%	180,046
Geographic region
Europe, Middle East and Africa	12,931	17%	11,087	52,386	17%	44,603
South America	10,145	-20%	12,605	46,404	27%	36,479
North America	16,245	-5%	17,096	70,499	4%	68,012
Asia Pacific	9,058	26%	7,204	36,155	17%	30,952
Total revenue	48,379	1%	47,992	205,444	14%	180,046

Q4 2019

Revenue of the quarter slightly increased from US$ 48.0 million in Q4 2018 to US$ 48.4 million in Q4 2019 (+1%).

In EMEA revenue for the quarter was US$ 12.9 million compared to US$ 11.1 million in Q4 2018, an increase of 17%. Each area showed improved activity. In Africa, the Company mobilized new deep-water wells contracts which will continue through 2020. In Russia, most of the contracts will continue during 2020.

Revenue in South America decreased by 20% at US$ 10.1 million in Q4 2019 (US$ 12.6 million in Q4 2018). The activity in Brazil decreased by 20% linked to the end of certain contracts with Junior companies. In Chile, the activity slowed down as political troubles affected the rotation of crews.

Activity in North America remained sustained with revenue at US$ 16.2 million in Q4 2019 compared to US$ 17.1 million in Q4 2018. Extreme weather conditions affected our operations at the end of the quarter.

In Asia Pacific, Q4 2019 revenue amounted to US$ 9.1 million, an increase of 26% mainly due to the increased volume with existing clients and start-up of new contracts.

FY 2019

FY 2019 revenue amounted to US$ 205.4 million compared to US$ 180.0 million in FY 2018, an increase of 14%.

In EMEA, revenue increased by 17%, to US$ 52.4 million in FY 2019 from US$ 44.6 million in FY 2018, as a result of increased activity in Russia and a stable activity in France and Africa.

Revenue in South America increased by 27% at US$ 46.4 million in FY 2019 (US$ 36.5 million in FY 2018). Brazil showed improved activity with major clients and junior companies.

Revenue in North America increased by 4% to US$ 70.5 million in FY 2019 from US$ 68.0 million in FY 2018. In FY 2019, the Company benefited from sustained activity with major clients and secured new long-term contracts in the underground sector.

In Asia Pacific, FY 2019 revenue amounted to US$ 36.2 million, an increase of 17% mainly due to the increased volume with our existing clients and start of new contracts in Australia. 

Gross profit

(In thousands of US$) - (unaudited)	Q4 2019	% change	Q4 2018	FY 2019	% change	FY 2018
Reporting segment
Mining	8,669	50%	5,793	31,285	42%	22,101
Water	251	n/a	(347)	815	n/a	(216)
Total gross profit / (loss)	8,920	64%	5,446	32,100	47%	21,885

Q4 2019

The Q4 2019 gross margin including depreciation within cost of sales was US$ 8.9 million (or 18.4% of revenue) compared to US$ 5.4 million (or 11.3% of revenue) in Q4 2018. This increase is due to improved performance on contracts and continued effective cost control over our operating expenses.

FY 2019

The FY 2019 gross margin including depreciation within cost of sales was US$ 32.1 million (or 15.6% of revenue) compared to US$ 21.9 million (or 12.2% of revenue) in FY 2018. This increase is due to improved performance on contracts, better absorption of fixed operational costs and continued effective cost control over our operating expenses.

Selling, General and Administrative Expenses

(In thousands of US$) - (unaudited)	Q4 2019	% change	Q4 2018	FY 2019	% change	FY 2018
Selling, general and administrative expenses	5,336	1%	5,265	21,149	2%	20,771

Q4 2019

SG&A was stable compared to the same quarter last year.

FY 2019

SG&A increased by 2% compared to the same period last year. As a percentage of revenue, SG&A decreased from 11.5% in FY 2018 to 10.3% in FY 2019.

Operating result

(In thousands of US$) - (unaudited)		Q4 2019	% change	Q4 2018	FY 2019	% change	FY 2018
Reporting segment
Mining	3,540		n/a	685	10,784	n/a	2,234
Water	44		n/a	(503)	168	n/a	(1,120)
Total operating profit / (loss)	3,584		n/a	182	10,952	n/a	1,114

Q4 2019

The operating profit was US$ 3.6 million, a US$ 3.4 million improvement as a result of increased activity, improved gross margin and controlled SG&A expenses.

FY 2019

The operating profit was US$ 11.0 million, a US$ 8.9 million improvement as a result of increased activity, improved operating performance and effective cost control over SG&A expenses.

Financial position

The following table provides a summary of the Company's cash flows for FY 2019 and FY 2018:

(In thousands of US$)	FY 2019	FY 2018
Cash generated by operations before working capital requirements	29,251	18,194
Working capital requirements	(637)	(6,847)
Income tax paid (received)	(4,696)	(2,404)
Purchase of equipment in cash	(12,533)	(12,743)
Free Cash Flow before debt servicing	11,385	(3,800)
Debt variance	(1,161)	5,301
Interests paid	(3,364)	(3,374)
Acquisition of treasury shares	(19)	(487)
Dividends paid to non-controlling interests	(1,046)	(77)
Net cash generated / (used in) financing activities	(5,590)	1,363
Net cash variation	5,795	(2,436)
Foreign exchange differences	(830)	(1,051)
Variation in cash and cash equivalents	4,965	(3,487)

In FY 2019, the cash generated from operations before working capital requirements amounted to US 29.3 million compared to US$ 18.2 million in FY 2018.

In FY 2019, the working capital requirement was US$0.6 million compared to US$ 6.8 million in the same period last year impacted by the significant upturn in activity which started end of 2017.

During the period, the Capex was US$ 12.5 million in cash, a stable amount compared to FY 2018. The Capex mainly relates to major rigs overhauls, ancillary equipment and rods. The Company acquired 9 rigs in FY 2019 and 9 rigs were removed from service.

Free cash flow before debt servicing was US$ 11.4 million in FY 2019 compared to US$ (3.8) million in FY 2018.

As at December 31, 2019, cash and cash equivalents totaled US$ 16.1 million compared to US$ 11.1 million as at December 31, 2018. Cash and cash equivalents are mainly held at or invested within top tier financial institutions.

As at December 31, 2019, net debt excluding IFRS 16 implementation amounted to US$ 128.9 million (US$ 130.4 million as at December 31, 2018).

Bank guarantees as at December 31, 2019 totaled US$ 6.5 million compared to US$ 1.7 million as at December 31, 2018 linked to new contracts in the water segment.  The Company benefits from a confirmed contract guarantee line of € 12.7 million (US$ 14.2 million). 

Going concern and impairment testing

Going concern is assessed based on internal forecasts and projections that take into account the trend in the business in which the Company operates and its capacity to address the market and deliver its services. On the basis of the above, the Company believes that it will have adequate financial resources to continue in operation for a period of at least twelve months. Accordingly, the Company continues to adopt the going concern basis in preparing its financial statements.

As part of the May 2017 debt reorganization, certain key financial covenants were set including minimum cash, leverage ratio and limitation to capital expenditure. In December 2018, a new set of covenants applicable to the year 2019 was agreed with the lenders. As at September 30, 2019, the Company met its covenants. Nothing indicates that the Company will not respect its covenants going forward within the next 12 month period.

Currency exchange rates

The exchange rates for the periods under review are provided in the Management's Discussion and Analysis of Q4 2019.

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)	Q4 2019	Q4 2018	FY 2019	FY 2018
Operating profit / (loss	3,584	182	10,951	1,114
Depreciation expense	4,601	4,143	18,119	16,787
Non-cash employee share-based compensation	45	45	180	180
EBITDA	8,230	4,370	29,251	18,081

IFRS 16 implementation had a positive impact of US$ 0.3 million in Q4 2019 and US$ 1.1 million in FY 2019.

Outlook

The Company's strategy is to become a leading actor in the mineral drilling services sector, assisting its customers to explore or manage their deposits throughout the whole cycle, with a special focus on life of mines extension activity.  The Company intends to develop and grow its services offered across the world with a focus on stable jurisdictions, high tech drilling services, optimal commodities mix - with a significant involvement in water related drilling services and choose carefully its customers.  The Company expects it will execute its strategy primarily through organic growth in the near future.

As at December 31, 2019, the Company's order backlog for continuing operations was US$ 269.1 million of which US$ 158.1 million is expected to be executed during the FY 2020. Last year at the same period, the order backlog for continuing operations was US$ 266.0 million of which US$ 133.9 million was expected to be executed during FY 2019. The Company's order backlog consists of sales orders. Sales orders are subject to modification by mutual consent and in certain instances orders may be revised by customers. As a result, the order backlog of any particular date may not be indicative of actual operating results for any subsequent period.

Conference call and webcast

On March 2, 2020, Company Management will conduct a conference call at 5:30 pm 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:

https://event.on24.com/wcc/r/2207388/BA6098C47F0B5929553D09ACACDB50C8

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 May 29, 2019, 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

Fabien Sevestre ([email protected]), Tel: [phone]

Related Links

http://www.foraco.com/