FORACO INTERNATIONAL S.A.

Transcription

1 FORACO INTERNATIONAL S.A. Unaudited Condensed Interim Consolidated Financial Statements Three-month and nine-month periods ended September 30,

2 Table of Contents Unaudited condensed interim consolidated balance sheet - Assets 3 Unaudited condensed interim consolidated balance sheet Equity and Liabilities 4 Unaudited condensed interim consolidated income statement 5 Unaudited condensed interim consolidated statement of changes in equity 6 Selected notes to the unaudited condensed interim consolidated financial statements 8 1. Basis of preparation 8 2. Selected notes on critical accounting policies and new accounting pronouncements 8 3. Financial risk management Segment information Property, plant and equipment Goodwill Inventories Borrowings Provisions Waiver of a put and call option related to certain shares of Servitec Foraco Sondagem S.A. (Servitec) Share capital Expenses by nature Income tax expense Commitments and contingencies Related-party transactions Earnings per share calculation Post balance sheet events 17 The accompanying notes to the financial statements form an integral part of these unaudited interim consolidated financial statements 2

3 Unaudited condensed interim consolidated balance sheet - Assets ASSETS in thousands of US$ September 30, December 31, Note 2013 Non-current assets Property, plant and equipment (5) 85, ,098 Goodwill (6) 109, ,612 Deferred income tax assets 27,450 28,286 Other non-current assets 693 1, , ,055 Current assets Inventories, net (7) 37,966 43,172 Trade receivables, net 39,383 30,464 Other current assets 12,906 12,853 Cash and cash equivalents 26,163 37, , ,015 Total assets 338, ,070 The accompanying notes to the financial statements form an integral part of these unaudited interim consolidated financial statements 3

4 Unaudited condensed interim consolidated balance sheet Equity and Liabilities EQUITY in thousands of US$ September 30, December 31, Note 2013 Capital and reserves attributable to the Company's equity holders Share capital 1,772 1,772 Share premium and retained earnings 202, ,377 Other reserves (56,019) (45,169) 147, ,980 Non-controlling interests 14,783 9,175 Total equity 162, ,155 LIABILITIES Non-current liabilities Borrowings - Non-current portion of long term debt (8) 48,330 64,556 Borrowings - Non-current portion of drawn credit lines (8) 6,777 4,000 Consideration payable related to acquisitions (6) - 16,670 Deferred income tax liabilities 4,228 5,264 Provisions for other liabilities and charges (9) Current liabilities Trade and other payables 37,259 31,732 Current income tax liabilities 1,160 1,635 Borrowings - Current portion of long term debt (8) 21,781 25,329 Borrowings - Current portion of drawn credit lines (8) 50,994 48,865 Consideration payable related to acquisitions (6) 3,430 - Provisions for other liabilities and charges (9) 1,525 1,407 Total liabilities 175, ,915 Total equity and liabilities 338, ,070 Net debt 105, ,894 Net debt is a non IFRS measure and corresponds to the current and non-current portion of borrowings and the consideration payable related to acquisitions, net of cash and cash equivalents The accompanying notes to the financial statements form an integral part of these unaudited interim consolidated financial statements 4

5 Unaudited condensed interim consolidated income statement In thousands of US$ Note Three-month period ended September 30, Nine-month period ended September 30, Revenue (4) 51,580 66, , ,635 Cost of sales (12) (48,293) (56,340) (138,624) (200,359) Gross profit / (loss) 3,287 9,872 6, Selling, general and administratives expenses (12) (6,071) (7,428) (19,115) (24,649) Other operating income / (expense), net (6) ,825 Operating profit / (loss) (2,784) 2,444 (12,307) (5,548) Finance costs (1,115) (1,212) (3,501) (3,472) Profit / (loss) before income tax (3,899) 1,232 (15,808) (9,020) Income tax (expense) / profit 390 (345) 2,291 4,598 Profit / (loss) for the period (3,509) 887 (13,517) (4,422) Attributable to: Equity holders of the Company (3,564) (949) (13,502) (7,080) Non-controlling interests 55 1,836 (15) 2,658 Earnings per share for profit attributable to the equity holders of the Company during the period (expressed in US cents per share): - basic (15) (4.01) (1.08) (15.21) (8.06) - diluted (15) (4.01) (1.08) (15.21) (8.06) The accompanying notes to the financial statements form an integral part of these unaudited interim consolidated financial statements 5

6 Unaudited condensed interim consolidated statement of changes in equity in thousands of US$ Attributable to equity holders of the Company Share Capital Share Premium and Retained Earnings Other Reserves Total Noncontrolling interests Total Equity Balance at January 1, , ,682 (7,820) 213,491 8, ,906 Profit for the period - (7,080) - (7,080) 2,658 (4,422) Currency translation differences - - (27,294) (27,294) (564) (27,858) Employee share-based compensation - - 1,391 1,391-1,391 Conversion of warrants 143 (143) - - Exercise of share-based compensation (354) Dividend relating to (4,483) (4,483) (1,500) (5,983) Treasury shares purchased (see Note 10) - (1,556) - (1,556) - (1,556) Balance at September 30, , ,774 (34,077) 174,469 9, ,478 Balance at January 1, 1, ,377 (45,169) 167,981 9, ,155 Profit for the period - (13,685) - (13,685) 168 (13,517) Currency translation differences - - (11,585) (11,585) (1,904) (13,489) Employee share-based compensation Exercise of share-based compensation (194) Waiver of put and call optaion related to Servitec (Note 10) - 4,311-4,311 8,429 12,740 Dividend relating to (1,086) (1,086) Balance at September 30, 1, ,198 (56,019) 147,951 14, ,734 Unaudited statement of comprehensive income in thousands of US$ September 30, September 30, 2013 Net profit for the period (13,517) (4,422) Currency translation differences (13,489) (27,858) Total comprehensive income for the period (27,006) (32,280) Attributable to: Equity holders of the Company (25,271) (34,876) Non-controlling interests (1,735) 2,596 The accompanying notes to the financial statements form an integral part of these unaudited interim consolidated financial statements 6

7 Unaudited condensed interim consolidated cash flow statement in thousands of US$ Nine-Month period ended September 30, 2013 Profit / (loss) for the period (13,517) (4,422) Adjustments for: - Depreciation, amortization and impairment 24,098 29,749 - Non-cash changes in provisions and consideration payables 272 (18,719) - (Gain) / loss on sale and disposal of assets 279 (12) - Share-based compensation expenses 929 1,391 - Income tax expenses (2,291) (4,598) - Finance costs, net 3,501 3,472 Cash generated from operations before changes in operating assets and liabilities 13,271 6,860 Changes in operating assets and liabilities: - Inventories 2,101 8,726 - Trade accounts receivable and other receivables (9,589) 7,776 - Trade accounts payable and other payables 6,527 (13,863) Cash generated from operations 12,310 9,499 - Interest paid, net (2,720) (3,001) - Income tax paid (1,426) (3,315) Net cash flow from operating activities 8,164 3,183 Purchase of property, plant and equipment (PPE) (*) (6,888) (8,361) Advance payment related to Servitec acquisition (500) - Net cash used in investing activities (7,388) (8,361) Proceeds from issuance of borrowings, net of issuance costs 79 15,187 Repayments of borrowings (15,258) (18,240) Proceeds from short term credit facilities 4,906 19,753 Acquisition of treasury shares (see Note 11) - (1,556) Dividends paid to Company's shareholders - (4,483) Dividends paid to non-controlling interests (1,086) (1,500) Net cash from financing activities (11,359) 9,161 Exchange differences on cash and cash equivalents (780) (2,348) Net increase / (decrease) in cash and cash equivalents (11,363) 1,635 Cash and cash equivalents at beginning of the period 37,526 35,897 Cash and cash equivalents at end of the period 26,163 37,532 (*) Excluding acquisition financed through capital lease The accompanying notes to the financial statements form an integral part of these unaudited interim consolidated financial statements 7

8 Selected notes to the unaudited condensed interim consolidated financial statements 1. Basis of preparation These unaudited condensed interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting. All material intercompany balances have been eliminated. Because all the disclosures required by IFRS are not included, these interim statements should be read in conjunction with the audited financial statements of Foraco International S.A. and its subsidiaries ( Foraco or the Company ) for the year ended December 31, Except when otherwise stated, all amounts are presented in thousands of US$, which is the presentation currency of the Company. 2. Selected notes on critical accounting policies and new accounting pronouncements 2.1. Accounting policies The accounting policies have been consistently applied with those of the annual financial statements for the year ended December 31, 2013 except for the following: during the year, the income tax expense is recognized based on Management s best estimate of the average annual income tax rate expected for the full financial year on a tax jurisdiction by tax jurisdiction basis. In the last quarter of each fiscal year, Management determines the effective income tax rate for the full year based on the anticipated actual tax returns to be filed and the effective contribution of each tax jurisdiction to the consolidated financial statements Seasonal fluctuations The worldwide presence of the Company reduces its overall exposure to seasonality and its influence on business activity. In West Africa, most of the Company s operations are suspended between July and October due to the rainy season. In Canada, seasonal slow periods occur during the winter freeze and spring thaw or break-up periods. Depending on the latitude, this can occur anytime from October until late December (freezing) and from mid-april through to mid-june (break-up). Operations at mine sites continue throughout the year. Russia is also affected by the winter period during which operations are suspended. In Asia Pacific and in South America, where the Company operates exclusively in the Mining segment, a seasonal slowdown in activity occurs around year-end during the vacation period. Certain contracts are also affected in Chile in July and August when the winter season peaks. 8

9 2.3. Going concern 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. The next testing date for the bank covenants is December 31,. The Company is currently reassessing its debt structure and has entered into negotiations with its lenders in France in order to adapt its debt structure so as to better match its future cash flow generation. The Company is confident that an agreement will be reached before year-end. Accordingly, the Company continues to adopt the going concern basis in preparing its financial statements Impairment testing The current economic conditions in mining services were 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 September 30,. The Company performed the impairment test at the level of each reporting segment and geographic region. The assumptions used involve a considerable degree of estimation on the part of management. Actual conditions may differ from the assumptions and thus actual cash flows may be different to those expected with a material effect on the recoverability of each cash generating unit. The most significant assumptions made for the determination of expected discounted cash flows prepared to cover the next 5 years are: - last estimate and 2015 forecast per management - Number of rigs unchanged to 2017 ramp-up - As of 2018: - 7 year historical average of EBITDA margin adjusted for significant one-off events - 7 year historical average of revenue per rig - 9% to 12% discount rate depending on the country s risk - 1% long term growth These assumptions are based on future expectations for the next 2 years and historical trends from then on. Although management believes that the assumptions used to evaluate potential impairment are reasonable, with a significant portion based on the actual performance achieved in the past, such assumptions are inherently subjective. Based on the assumptions made, the expected discounted future cash flows exceeded each of the long lived asset s carrying amounts for each reporting segment and geographic region and accordingly no impairment has been recognized. A variation in the discount rate of 1% will not change the outcome of the impairment testing. 9

10 2.5. Deferred tax valuation allowance The current economic conditions also impact the timing of the recognition of deferred tax assets. The Company s policy is to recognize deferred tax assets only when they can be recovered within a reasonable timeframe. Based on internal forecasts and projections, management has considered that the potential recovery timeframe for deferred tax assets in certain countries would be longer than previously estimated, thus creating a risk that deferred tax assets may be unused. As a general rule, the Company recognizes deferred tax assets only when they can be used against taxable profit within a timeframe of five years. On this basis, the Company has adopted a partial recognition based approach and has recorded a valuation allowance New accounting pronouncements Standards, amendments and interpretations to existing standards that have been adopted by the Company on January 1, with no material impact on the consolidated financial statements. Amendment to IAS 32 Financial instruments: presentation, on asset and liability offsetting Amendment to IAS 39 Financial instruments: recognition and measurement, on novation of derivatives Amendment to IAS 36 Impairment of assets, on recoverable amount disclosures IFRIC 21, Levies Standards, amendments and interpretations to existing standards that are not yet mandatory effective and have not been early adopted by the Company The following standards and amendments to existing standards have been published and are mandatory for the Group s accounting periods beginning on or after January 1, or later periods, but have not been early adopted by the Group: Amendment IAS 19 Defined benefit plans: employee contributions Annual improvement Cycle Annual improvement Cycle IFRS 9, Financial instruments - Classification of financial assets and financial liabilities The impact resulting from the application of these standards and amendments is currently being assessed. 3. Financial risk management The Company is exposed to a variety of financial risks through its activity, including: liquidity risk, currency risk, cash transfer restriction, interest rate / re-investment risk, financial counter-party risk and credit risk. 10

11 A significant portion of the cash flows of the Company are denominated in Canadian Dollars, Euros, Australian Dollars, Brazilian Real, Chilean Pesos and US Dollars. The financial performance and position as reported in US$ are dependent on the fluctuations of the US$ against the other mentioned currencies of the Group. 4. Segment information The business segment information for the three-month periods ended September 30,, and September 30, 2013, is as follows: Mining Water Group Three-month period ended September 30, September 30, September 30, Revenue 47,197 64,416 4,383 1,796 51,580 66,212 Gross profit / (loss) 2,568 9, ,287 9,872 Operating profit / (loss) (2,986) 2, (2,784) 2,444 Finance costs (1,115) (1,212) Profit / (loss) before income tax (3,899) 1,232 Income tax profit / (expense) 390 (345) Profit / (loss) for the period (3,509) 887 The business segment information for the nine-month periods ended September 30,, and September 30, 2013, is as follows: Mining Water Group Nine-month period ended September 30, September 30, September 30, Revenue 127, ,837 17,474 6, , ,635 Gross profit / (loss) 4,955 (460) 1, , Operating profit / (loss) (11,830) (5,386) (477) (162) (12,307) (5,548) Finance costs (3,501) (3,472) Profit / (loss) before income tax (15,808) (9,020) Income tax profit / (expense) 2,291 4,598 Profit / (loss) for the period (13,517) (4,422) The following is a summary of sales to external customers by geographic area for the three-month periods ended September 30, and September 30, 2013: Three-month period ended September 30, September 30, 2013 South America 13,402 17,466 Europe, Middle East and Africa 11,897 18,442 Asia Pacific 15,045 17,026 North America 11,236 13,278 Net sales 51,580 66,212 11

12 The following is a summary of sales to external customers by geographic area for the ninemonth periods ended September 30, and September 30, 2013: Nine-month period ended September 30, September 30, 2013 South America 44,180 67,330 Europe, Middle East and Africa 37,378 56,016 Asia Pacific 35,503 44,419 North America 28,370 32,870 Net sales 145, , Property, plant and equipment Property, plant and equipment (PP&E) consists of the following: Land & Buildings Drilling equipment & tools Automotive equipment Office furniture & other equipment Total Year ended December 31, 2013 Opening net book amount 5, ,529 22,384 1, ,780 Additions 86 8,412 2, ,469 Exchange differences (168) (10,707) (1,956) (82) (12,913) Disposals or retirements (48) (63) (23) (38) (172) Depreciation expense (891) (29,392) (7,241) (542) (38,066) Year ended December 31, ,257 85,779 15,916 1, ,098 Period ended September 30, Opening net book amount 4,257 85,779 15,916 1, ,098 Additions 13 5,713 1, ,410 Exchange differences (288) (3,309) (1,273) (70) (4,940) Disposals or retirements (104) (274) (104) (1) (483) Depreciation expense (483) (17,215) (6,039) (331) (24,068) Closing net book value 3,395 70,694 10, ,017 The depreciation expense of PP&E and the amortization expense of intangible assets have been charged to the income statement as follows: Period ended September 30, September 30, 2013 Cost of sales 23,979 29,311 Selling, general and administrative expenses Total depreciation and amortization 24,098 29,749 12

13 6. Goodwill Goodwill can be analyzed as follows: Period ended September 30, December 31, 2013 Goodwill at beginning of period 116, ,675 Purchase accounting adjustment related to JND Exchange differences (7,520) (18,061) Goodwill at end of period 109, , Inventories Inventories consist of the following: Period ended September 30, December 31, 2013 Spare parts and consumables, gross 37,966 43,172 Less inventory allowance - - Inventories, net 37,966 43,172 The Company is performing ongoing assessments of spare parts and consumables and writes off obsolete inventories as soon as they are identified. 8. Borrowings As at September 30,, the maturity of financial debt can be analyzed as follows: Maturity Drawn credit lines rolled over on a yearly basis Roll Over October 1, and September 30, 2015 October 1, 2015 and September 30, 2016 October 1, 2016 and September 30, 2017 October 1, 2017 and September 30, 2018 October 1, 2018 and September 30, 2019 Total 50, ,994 Long term financing related to: - Drawn credit lines rolled over confirmed for at least 12 months 6, ,777 - Brazil acquisition 4,059 4,059 4,059-12,178 - Australia acquisition 6,343 6,343 6,343 6,343 25,370 - Acquisition of fixed assets 9,858 8,998 7,237 3, ,405 - Acquisition of fixed assets through capital leases 1, (0) 2,159 Total 57,771 21,781 19,737 17,845 10, ,882 (*) (*) The non-current portion of long term debt, i.e. from October 1, 2015 onwards, is $48,330 thousand 13

14 Roll-over of credit facilities which do not require confirmation within 12 months is presented within long-term financing and amounts to US$ 6.8 million. Included within current debt is a roll-over of credit facilities amounting to US$ 51.0 million to be reconfirmed within 12 months and the current portion of the long term bank financing amounting to US$ 21.8 million. Total roll-over of credit facilities amounts to US$ 57.8 million. The Company has used and unused short-term credit facilities amounting to US$ 91.8 million of which US$ 57.8 million was drawn as at September 30,. These facilities are granted individually by several banks, mainly in France, Chile, Brazil, Australia and Canada. They are generally granted on a yearly basis and are subject to review at various dates. 9. Provisions Provisions comprise the following elements: Pension and retirement indemnities Provision for tax uncertainty Other provisions Total As at January 1, ,864 Charged to consolidated income statement - Addition to provisions Used amounts reversed - - (98) (98) - Unused amouts reversed Exchange differences (58) (62) (29) (149) As at September 30, ,977 In 2013, the former shareholders of JND filed a claim against the Company as their assessment of the earn-out clause differed from that of the Company. Based on their assessment, the former shareholders of JND are claiming an amount of AU$ 4 million (US$ 3.7 million). The defense was filed with the Supreme Court of South Australia on April 22,. The outcome of this claim is expected in The Company is confident in its position that no earn-out is due and accordingly, no provision has been recorded. The Company operates in various countries and may be subject to tax audits and employee related risks. The Company is currently facing such risks in certain countries. The Company regularly reassesses its exposure and accounts for provisions accordingly. 14

15 10. Waiver of a put and call option related to certain shares of Servitec Foraco Sondagem S.A. (Servitec) On March 31,, a memorandum of understanding was signed between Foraco International and one of the minority shareholders of Servitec, whereby Foraco International waived its call option to acquire the minority shareholder s shares in Servitec, and the minority shareholder waived his put option enabling him to force the sale. In previous periods, because this put and call option existed, the Company assumed, for the purposes of IFRS, that the transaction was substantially completed and recognized in the balance sheet a liability amounting to US$ 12.7 million as at December 31, On March 31,, as there is no longer a legal obligation, the liability has been reversed against non-controlling interests for an amount of US$ 8.4 million corresponding to the share of the minority shareholder in the net assets of Servitec, and against share premium and retained earnings for an amount of US$ 4.3 million reflecting the difference between the transaction at fair value and the carrying value of the net assets of Servitec. 11. Share capital Number of shares outstanding As at September 30,, the total common shares of the Company are distributed as follows: Number of shares Common shares held directly or indirectly by principal shareholders 37,594,498 Common shares held directly or indirectly by individuals in their capacity as members of the Board of Directors 951,754 Common shares held by the Company 677,499 Common shares held by the public 50,728,047 Total shares issued and outstanding 89,951,798 Common shares held by the Company (677,499) Total common shares issued and outstanding 89,274,299 Treasury shares As at September 30,, the Company owns 677,499 of its own shares (1,107,498 as at December 31, 2013). 15

16 12. Expenses by nature Operating expenses / (income), net by nature are as follows: Three-month period Nine-month period ended September 30, ended September 30, Depreciation and amortization (7,917) (9,501) (24,098) (29,750) Accruals increases / (reversals) (95) (8) (272) (105) Raw materials, consumables used and external charges (24,556) (27,818) (69,646) (100,958) Employee benefit expense (21,499) (25,901) (62,854) (92,685) Taxes other than on income (297) (523) (869) (1,587) Other operating expenses (profit), net - (18) - 18,901 Total operating expenses (54,364) (63,769) (157,739) (206,184) Share-based compensation expenses recognized within Employee benefit expense for the period ended September 30, amounts to US$ 944 thousand (US$ 1,391 thousand in 2013). 13. Income tax expense During the nine-month period ended September 30,, the Company recognized an income tax profit amounting to US$ 2,291 thousand, i.e. an effective income tax rate of 14% compared to the profit / (loss) before income tax. The difference between the effective income tax rate of 14% and the income tax rate generally applicable within the Company is mainly explained by the non-recognition of certain tax assets in certain countries. As at September 30,, US$ 10.8 million of deferred tax assets mainly related to net operating losses carried forward have not been recognized. 14. Commitments and contingencies The guarantees given are as follows: Period ended September 30, December 31, 2013 Bid bonds 461 1,111 Advance payment guarantees and performance guarantees 11,180 12,796 Retention guarantees 1,314 1,295 Financial guarantees 17,439 13,346 Total 30,394 28,548 Generally, the Company is subject to legal proceedings, claims and legal actions arising in the ordinary course of business. The Company's Management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 16

17 15. Related-party transactions The Company accounted for certain related party transactions including lease rentals amounting to US$ 258 thousand for the nine-month period ended September 30, (US$ 236 thousand for the period ended September 30, 2013). Costs related to key management compensation for the nine-month period ended September 30, amounted to US$ 1,101 thousand (US$ 1,026 thousand for the period ended September 30, 2013). 16. Earnings per share calculation For the three-month period ended September 30,, the weighted basic average number of shares was 88,361,300 (87,818,604 in 2013) and the weighted diluted average number of shares was 88,772,098 (87,707,386 in 2013). For the nine-month period ended September 30,, the weighted basic average number of shares was 88,361,300 (87,797,150 in 2013) and the weighted diluted average number of shares was 88,772,098 (87,685,932 in 2013). In previous periods, the Company reported certain information on the face of the condensed consolidated income statement, to include the impact of the put and call option regarding Servitec, as described in Note 10. Indeed, in accordance with IFRS, the Company recorded a legal obligation as a liability in its balance sheet, but also the related non-controlling interest in the income statement. This presentation is no longer deemed necessary as the put and call option has been waived. The recognition of the noncontrolling interest continues to apply, but the liability is no longer recognized. Diluted earnings per share Dilutive instruments cannot have an anti-dilutive effect in case of a net loss attributable to the equity holders of the Company. Therefore, the basic and diluted earnings per share are the same for the three and the nine-month periods presented. 17. Post balance sheet events There are no post balance sheet events to be reported. 17