FORACO INTERNATIONAL REPORTS Q Revenue still low but increased tendering activity

Transcription

1 NEWS RELEASE FORACO INTERNATIONAL REPORTS Q Revenue still low but increased tendering activity Toronto, Ontario / Marseille, France Tuesday, August 2, 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 All figures are reported in US Dollars (US$), unless otherwise indicated. In Q2, the subdued market conditions have continued to impact our activity together with continuing strong pressure on prices and the postponement of certain ongoing contracts. Despite this, we were able to gain new significant clients in the period, which give us the opportunity to add growth sources for the next cycle upturn said Daniel Simoncini, Chairman and co-ceo of Foraco. Notwithstanding the significant increase in gold price, some metal prices have started to recover during the first six months of the year, although it is yet too early to consider this as a firm indication that we reached the cycle upturn point. The commercial activity has recently shown some new signs of life in the junior space, which is a good marker, even if prices are still depressed by ailing small to midsize drilling contractors desperate to get cash. Meanwhile, we are working to further enrich the Company services offering to increase significantly its resilience going forward and take advantage of the market turnaround when it will occur. The Company has proved its ability to limit the negative financial impact of the severe adverse conditions in the mining industry. The EBITDA for the quarter and the first six months of 2016 is positive. We were able to finance the peak in working capital requirements mainly due to increasing trade receivables and inventory as a result of the late start of certain projects at the beginning of the year. Our capex plan remains under control. Our general and administrative expenses continue to be strictly monitored commented Jean-Pierre Charmensat, co-ceo and Chief Financial Officer. Based on the contracts at hand, we expect activity and margins to favorably evolve in the next quarters so as to generate a positive annual cash flow. As previously agreed with our French banks the Company resumed discussions regarding the future of our French credit facilities. We believe that the actions taken and results seen place us in a favorable position to comfort our financial situation for the future following these negotiations. Three months Q Highlights Revenue Q revenue amounted to US$ 32.3 million compared to US$ 43.8 million in Q2 2015, a decrease of 26%. Using Q exchanges rates, Q revenue decreased by 20%, mainly as a consequence of the late start of contracts recorded during the first months of the year. The utilization rate was 36% in Q (unchanged compared to Q2 2015).

2 Profitability The Q gross margin including depreciation within cost of sales was US$ 2.1 million compared to US$ 5.4 million in Q2 2015, this reduction can mainly be explained by the decrease of activity, continued pressure on prices and mobilization costs related to the first phase of contracts awaiting formal confirmation of extension. SG&A costs reduced by US$ 0.6 million (or 13%) between Q and Q2 2015, as a result of certain additional savings. EBIT amounted to US$ (2.5) million in Q compared to US$ 0.4 million in Q During the quarter, EBITDA amounted to US$ 2.6 million compared to US$ 6.9 million for the same quarter last year. Cash flow and net debt Free cash flow was US$ (1.6) million in Q compared to US$ (2.3) million in Q2 2015, due to the reduction of the activity and the working capital requirements on new projects. The net debt was US$ million as at June 30, 2016 compared to US$ 89.3 million as at December 31, This increase is due to the negative free cash flows (US$ million) and the adverse effect of foreign exchange rates (mainly Euro) US$ 3.6 million. H Highlights Revenue H revenue amounted to US$ 56.4 million compared to US$ 77.1 million in H1 2015, a decrease of 27% (or 19% excluding the impact of exchange rates). This decrease is mainly linked to the late start of contracts. Profitability H gross margin including depreciation within cost of sales was US$ (0.7) million compared to US$ 2.2 million in H1 2015, this increase can mainly be explained by the decrease in activity, continued pressure on prices and mobilization costs related to the first phase of contracts awaiting formal confirmation of extension. SG&A costs reduced by US$ 1.0 million between H and H as a result of certain additional savings which more than compensated the reversal of an unused provision for doubtful debt (US$0.4 million) recorded during the first quarter Capital expenditure was US$ 2.8 million in H compared to US$ 4.1 million in H

3 Selected financial data (In thousands of US$) (unaudited) Three-month period ended June 30, 2016 Six-month period ended June 30, Revenue 32,297 43,825 56,425 77,105 Gross profit / (loss) (1) 2,128 5,399 (664) 2,199 As a percentage of sales 6.6% 12.3% -1.2% 2.9% EBITDA (2) 2,625 6,913 1,005 5,661 As a percentage of sales 8.1% 15.8% 1.8% 7.3% Operating profit / (loss) (2,510) 361 (10,520) (7,761) As a percentage of sales -7.8% 0.8% -18.6% -10.1% Profit / (loss) for the period (3,305) (720) (11,619) (8,611) Attributable to: Equity holders of the Company (3,828) (1,145) (11,905) (8,166) Non-controlling interests (445) EPS (in US cents) Basic (4.28) (1.30) (13.31) (11.25) Diluted (4.28) (1.30) (13.31) (11.25) (1) This line item includes amortization and depreciation expenses related to operations (2) The six-month periods presented have been normalized in order to exclude in 2016, an amount of US$ 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$) - (unaudited) Q % change Q H % change H Reporting segment Mining... 29,556-23% 38,368 49,340-27% 67,115 Water... 2,741-50% 5,457 7,085-29% 9,990 Total revenue... 32,297-26% 43,825 56,425-27% 77,105 Geographic region Europe, Middle East and Africa... 12,920-14% 14,968 22,279-12% 25,408 South America... 7,788-23% 10,056 12,388-35% 18,983 North America... 6,416-31% 9,361 12,913-24% 16,989 Asia Pacific... 5,173-45% 9,440 8,845-44% 15,725 Total revenue... 32,297-26% 43,825 56,425-27% 77,105 Q Q revenue amounted to US$ 32.3 million compared to US$ 43.8 million in Q2 2015, a decrease of 26%. Using Q exchanges rates, Q revenue decreased by 20%. In EMEA, revenue decreased by 14% (6% excluding the foreign exchange impact), from US$ 15.0 million in Q to US$ 12.9 million in Q The reduction in activity in Russia and the late starts of certain contracts in Africa were partially compensated by a higher level of activity in France.

4 Revenue in South America amounted to US$ 7.8 million in Q (US$ 10.1 million in Q2 2015), a decrease of 23% or 12% excluding the foreign exchange impact. This can mainly be explained by the reduced activity in Brazil and lack of activity in Argentina. Revenue in North America decreased by 31% or 29% excluding the impact of exchange rates, mainly due to the postponement of new contracts and the reduction of volume on some ongoing contracts. In Asia Pacific, Q revenue amounted to US$ 5.2 million, a decrease of 45% mainly due to the reduction of drilling programs and to some delays in the start of new contracts in Australia. In New Caledonia, activity only started in June. H H revenue amounted to US$ 56.4 million compared to US$ 77.1 million in H1 2015, a decrease of 27% or 19% excluding the impact of exchange rates. In EMEA, revenue decreased by 12% (from US$ 25.4 million in H to US$ 22.3 million in H1 2016). Excluding the foreign exchange impact mainly linked to the Russian Ruble variance, revenue decreased by 5% compared to the same period last year. Revenue in South America amounted to US$ 12.4 million in H (US$ 19.0 million in H1 2015), a decrease of 35% (or 22% excluding the foreign exchange variance). This can mainly be explained by the reduced activity in Chile and Brazil and lack of activity in Argentina. Revenue in North America was US$ 12.9 million compared to US$ 17.0 million, a decrease of 24% mainly due to the postponement of new contracts and the reduction of volumes on certain ongoing contracts. In Asia Pacific, H revenue amounted to US$ 8.8 million, a decrease of 44% mainly due to the reduction of drilling programs and to some delays in the start of new contracts in Australia. In New Caledonia, activity only started in June. Gross profit (In thousands of US$) - (unaudited) Q % change Q H % change H Reporting segment Mining... 2,093-60% 5,192 (721) -134% 2,112 Water % % 87 Total gross profit / (loss)... 2,128-61% 5,399 (664) -130% 2,199 Q Q gross margin including depreciation within cost of sales was US$ 2.1 million compared to US$ 5.4 million in Q2 2015, this increase can mainly be explained by the decrease in activity, continued pressure on prices and mobilization costs. H H gross margin including depreciation within cost of sales was US$ (0.7) million compared to US$ 2.1 million in H1 2015, this increase can mainly be explained by the decrease in activity, continued pressure on prices and mobilization costs.

5 Selling, General and Administrative Expenses (In thousands of US$) - (unaudited) Q % change Q H % change H Selling, general and administrative expenses 4,418-13% 5,056 8,596-10% 9,561 Q SG&A costs reduced by US$ 0.6 million (or 13%) between Q and Q as a result of certain additional savings mainly fees and legal costs. H SG&A costs reduced by US$ 1.0 million between H and H as a result of certain additional savings which more than offset the reversal of an unused provision for doubtful debt (US$0.4 million) recorded during the first quarter Operating result (In thousands of US$) - (unaudited) Q % change Q H % change H Reporting segment Mining... (2,070) n/a 784 (9,350) 43% (6,537) Water... (440) -4% (423) (1,170) -4% (1,224) Total operating profit / (loss)... (2,510) n/a 361 (10,520) 36% (7,761) Q The operating loss was US$ (2.5) million, compared to a profit amounting to US$ 0.4 million in Q for the same reasons as stated above. H The operating loss was US$ (10.5) million, compared to US$ (7.8) million in H for the same reasons as stated above. The H operating loss includes a US$ 0.9 million one-off cost linked to the settlement of the earn-out relating to the acquisition of JND in Australia.

6 Financial position The following table provides a summary of the Company s cash flows for H and H1 2015: (In thousands of US$) H H Cash generated by/(used in) operations before working capital requirements (24) 5,369 Working capital requirements (4,653) (5,151) Interest and tax (2,198) (3,042) Net cash flow generated by / (used in) operating activities (6,875) (2,824) Purchase of equipment in cash (2,464) (3,740) Payment related to Servitec acquisition - (1,111) Net cash used in investing activity (2,464) (4,851) Free cash flow (9,339) (6,564) Settlement of dispute (934) - Debt variance 4,569 (129) Dividends paid to minority shareholders in affiliates (500) - Acquisition of treasury shares (86) - Net cash generated / (used in) financing activities 3,049 (129) Net cash variation (6,290) (7,804) Foreign exchange differences 262 (1,243) Variation in cash and cash equivalents (6,028) (9,047) In H1 2016, the net cash flow used in operating activities amounted to US$ 6.9 million compared to US$ 2.8 million during H During the period, Capex amounted to US$ 2.4 million in cash, compared to US$ 3.7 million in cash and US$ 0.4 million through capital leases in H The total rig count remains unchanged at 302. Free cash flow was US$ (9.3) million in H compared to US$ (7.7) million in H As at June 30, 2016, cash and cash equivalents totaled US$ 10.5 million compared to US$ 16.6 million as at December 31, Cash and cash equivalents are mainly held at or invested within top tier financial institutions. As at June 30, 2016, net debt amounted to US$ million (US$ 89.3 million as at December 31, 2015). This increase is due to the Free Cash Flows (US$ -9.3 million) and the effect of foreign exchange rates (mainly Euro) US$ 3.6 million.

7 On June 30, 2016, financial debts and equivalents amounted to US$ million (US$ million as at December 31, 2015): Maturity Drawn credit lines rolled over on a yearly basis Credit lines July 1, July 1, July 1, July 1, July 1, Total 55, ,791 Long term financing related to: - Brazil acquisition 3,547 3,547 3, ,640 - Australia acquisition 5,542 5,542 5,542 5,542 22,166 - Acquisition of fixed assets 8,085 8,056 5,536 3, ,078 - Acquisition of fixed assets through capital leases Total 55,791 17,464 17,383 14,671 8, ,251 (*) (*) The non-current portion of long term debt, i.e. from April 1, 2017 onwards, is US$47,325 thousand The Company currently has used and unused short-term credit facilities amounting to US$ 57.7 million, of which US$ 55.8 million was drawn down as of March 31, 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 the Company continues to benefit from the support of its lenders: In February 2015, an agreement was reached with the Company s French lenders, resulting in (i) the postponement of installments, (ii) the securing of short-term credit facilities and (iii) the confirmation of bank guarantee lines until October 31, The agreement with these lenders included certain covenants. As at December 31, 2015, the Company complied with the required financial covenants. As stipulated in the February 2015 agreement, the parties met in June 2016 to resume ongoing discussions regarding the future of the French credit facilities. The Company is confident that it will continue to benefit from the support of its lenders given it has limited the negative financial impact of the severe adverse conditions in the mining industry. Accordingly, the Company continues to adopt the going concern basis in preparing its financial statements. The current economic conditions in mining services are seen as an indicator of potential impairment of the carrying value of the Company s long lived assets. Accordingly, an impairment test based on expected discounted cash flows was performed as at December 31, 2015 at the level of each business segment and geographic area. Taking into account the assumptions made, the expected discounted future cash flows exceeded the carrying values of the long lived assets considered for each business segment and geographic area and accordingly, no impairment was recognized as at December 31, During the first six months of 2016, the Company was negatively affected by certain postponements and late starts on contracts while the overall market continues to be weak. The Company considers that these developments do not reflect the long term trend and do not require a revision of the long

8 term forecasted cash flows used for impairment testing as at December 31, The Company regularly monitors its financial performance and considers that no significant change was necessary to its medium term plan. Therefore, no impairment testing was carried out as at June 30, The next impairment testing will be performed as at December 31, 2016 at the latest. Currency exchange rates The exchange rates for the periods under review are provided in the Management s Discussion and Analysis of Q 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$) (unaudited) Q Q H H Operating profit / (loss)... (2,510) 361 (10,520) (7,761) Depreciation expense... 5,042 6,375 10,451 13,080 Non-cash employee share-based compensation Settlement related to the 2012 acquisition in Australia EBITDA... 2,625 6,913 1,005 5,661 Net debt: (In thousands of US$) (unaudited) Q Q Cash and cash equivalents... 10,543 16,571 Borrowings - Non-current portion... (40,996) (46,167) Borrowings - Current portion... (73,255) (59,663) Total Net Debt... (103,708) (89,259) 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.

9 Conference call and webcast On August 2, 2016, 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 or You will be put on hold until the conference call begins. A live audio webcast of the Conference Call will also be available through 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 For further information, please contact: Brenda Patterson-Mack (patterson@foraco.com) Tel: (647) "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 and its ability to continue to benefit from the support of its French lenders. 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 forwardlooking 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, 2016, which is filed with Canadian regulators on SEDAR ( 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