FAR Foraco International SA

Business strengthening – Order book up 117%

TORONTO and MARSEILLE, France, March 5, 2018 /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 and full year 2017. All figures are expressed in US Dollars (US$) unless otherwise indicated.

"We are pleased to announce that the positive trend reported over the last quarters was confirmed in Q4 with a significant volume of services to be performed in 2018 and beyond. The order book at year end exceeded US$ 200 million, a record high since 2014 and a sharp 117% increase compared to last year. Of this, US$ 128 million are expected to be realized within a year, a 78% increase compared to last year. Almost all regions contributed to this performance, led by North America," commented Daniel Simoncini, Chairman and Co-CEO of Foraco. "Q4 revenue was up 22% compared to the same quarter last year, although we have not yet detected a recovery in selling prices. FY 2017 revenue amounted to US$ 135.7 million, compared to US$ 115.2 million one year earlier, an 18% increase driven mainly by activity in countries where average revenue per rig is higher. Indeed, the utilization rate of the rigs only increased slightly (35% in FY 2017 vs 33% last year), leaving room for a further increase in revenue going forward."

"We are also pleased to report that this increase in activity benefited to our financial metrics. Our profit margin including depreciation in cost of sales is improving year on year, and represented 10.4% of revenue in FY 2017, a significant improvement compared to last year (3.9% of revenue). Our FY 2017 EBITDA came to US$ 12.1 million versus US$ 7.0 million last year," added Jean-Pierre Charmensat, Co-CEO and Chief Financial Officer. "We managed to maintain our working capital requirement at close to nil, and invested US$ 9.5 million in CAPEX in FY 2017, adding five underground rigs to our fleet to serve newly-acquired contracts. Free cash flow before debt servicing was a positive US$ 2.2 million in FY 2017. Our focus on cost control and our remarkably improved order book will result in continued improvement of cash generation."

Three months Q4 2017 Highlights

Revenue

• Q4 2017 revenue amounted to US$ 35.0 million compared to US$ 28.7 million in Q4 2016, an increase of 22%. Mining activity increased by 32%, whereas the water activity decreased by 48%. Some long-term contracts in the water segment were completed during the last quarter of 2016.

Profitability

• The Q4 2017 gross margin including depreciation within cost of sales was US$ 4.3 million (or 12.4% of revenue) compared to US$ 3.1 million (or 10.7% of revenue) in Q4 2016, this increase is mainly due to better performance on ongoing contracts and better absorption of fixed operational costs.
  
  
• During the quarter, EBITDA amounted to US$ 3.9 million compared to US$ 3.5 million for the same quarter last year.

Order book

• As at December 31, 2017, the Company's order backlog for continuing operations was US$ 200.8 million of which US$ 127.7 million is expected to be executed during the FY 2018. Last year at the same period, the order backlog for continuing operations was US$ 92.9 million of which US$ 72.9 million was expected to be executed during FY 2017.

Net debt

• The net debt was US$ 122.7 million as at December 31, 2017 compared to US$ 103.3 million as at December 31, 2016 (US$117.5 million at constant exchange rates).

Year ended December 31, 2017 – FY 2017 Highlights

Revenue

• FY 2017 revenue amounted to US$ 135.7 million compared to US$ 115.2 million in FY 2016, an increase of 18%.

Profitability

• FY 2017 gross margin including depreciation within cost of sales was US$ 14.1 million compared to US$ 4.5 million in FY 2016. The increased activity allowed a better absorption of fixed operational costs.
  
  
• FY 2017 EBITDA was US$ 12.1 million compared to US$ 7.0 million last year.
  
  
• FY 2017 EBIT was US$ (6.7) million compared to US$ (14.4) million, a US$ 7.7 million improvement mainly attributable to an improved gross margin.

Selected financial data

Financial results

Revenue

Q4 2017

Q4 2017 revenue amounted to US$ 35.0 million compared to US$ 28.7 million in Q4 2016, an increase of 22%.

In EMEA, revenue decreased by 11%, to US$ 8.2 million in Q4 2017 from US$ 9.2 million in Q4 2016, as a result of the decreased activity in France and in the Water segment in Africa, partially compensated by a higher level of activity in Russia.

Revenue in South America amounted to US$ 8.3 million in Q4 2017 (US$ 8.9 million in Q4 2016), a decrease of 7% mainly due to phasing of activity in Brazil partially compensated by increased activity in Chile.

Revenue in North America strongly increased by 125% to US$ 12.6 million in Q4 2017 from US$ 5.6 million in Q4 2016. Compared to last year, the Company benefited from new contracts with majors companies and junior companies and increased activity on ongoing contracts.

In Asia Pacific, Q4 2017 revenue amounted to US$ 5.9 million, an increase of 16% mainly due to new contracts just started in Australia.

FY 2017

FY 2017 revenue amounted to US$ 135.7 million compared to US$ 115.2 million in FY 2016.

In EMEA, revenue increased by 9% (from US$ 38.6 million in FY 2016 to US$ 42.1 million in FY 2017). The increased activity in the mining segment in Africa, France and Russia was partially offset by the lower activity in the water segment in Africa.

Revenue in South America amounted to US$ 30.6 million in FY 2017 (US$ 30.0 million in FY 2016), an increase of 2%. The improved activity recorded during the first semester has been partially offset by a temporary slowdown in Brazil due to the uncertainty surrounding the proposed mining reforms.

Revenue in North America increased by 60% to US$ 41.9 million in FY 2017 compared to US$ 26.1 million in FY 2016. The Company benefited from new contracts with junior companies and increased activity with major companies. Five rigs were purchased and five were transferred from other areas to North America to meet the increased demand.

In Asia Pacific, FY 2017 revenue was stable at US$ 21.1 million in FY 2017. After a slow start with US$ 8.3 million during the first half of the year, revenue reached US$ 12.8 million during the second semester driven by increased activity in Australia.

Gross profit

Q4 2017

The Q4 2017 gross margin including depreciation within cost of sales was US$ 4.3 million (or 12.4% of revenue) compared to US$ 3.1 million (or 10.7% of revenue) in Q4 2016. This improvement is a combination of increased performance on contracts and higher activity allowing more absorption of fixed operational costs.

FY 2017

FY 2017 gross margin including depreciation within cost of sales improved by US$ 9.6 million to US$ 14.1 million (10.4% of revenue) compared to US$ 4.5 million (or 3.9% of revenue) in FY 2016, most of the projects performed satisfactorily. In addition, the increase in activity allowed a better absorption of fixed operational costs.

Selling, General and Administrative Expenses

Q4 2017

SG&A went up by US$ 1.2 million corresponding to an increased cost structure (US$ 1.0 million) mostly in North America linked to increased activity and additional fees due to the obligations of the debt renegotiations (US$ 0.2 million).

FY 2017

As a percentage of revenue, SG&A was stable at 15% of revenue. The increase of US$ 3.6 million is mainly due to (i) an improved structure mostly in North America linked to increased activity (US$ 1.2 million), (ii) increased fees due to the obligations of the debt renegotiations (US$ 0.5 million) and (iii) retention bonuses (US$ 1.0 million).

Operating result

Q4 2017

The operating loss was US$ (0.9) million, a US$ 0.4 million improvement as a result of increased gross margin partially offset by the increase of SG&A.

FY 2017

The operating loss was US$ (6.7) compared to US$ (14.4) million in FY 2016 for the same reasons as stated above.

Financial position

The following table provides a summary of the Company's cash flows for FY 2017 and FY 2016:

In FY 2017, the cash generated from operations before working capital requirements amounted to US$ 12.0 million compared to US$ 5.8 in FY 2016.

Despite the increased activity, the level of working capital requirements is stable in FY 2017.  

During the year, Capex amounted to US$ 9.5 million in cash, compared to US$ 6.5 million in cash in FY 2016. The total rig count remains unchanged at 302.

Free cash flow before debt servicing was US$ 2.2 million in FY 2017 compared to US$ (7.3) million in FY 2016.

As at December 31, 2017, cash and cash equivalents totaled US$ 14.6 million compared to US$ 6.2 million as at December 31, 2016. Cash and cash equivalents are mainly held at or invested within top tier financial institutions.

As at December 31, 2017, net debt amounted to US$ 122.7 million (US$ 103.3 million as at December 31, 2016 or US$117.5 million at current exchange rate).

New bonds net of transaction costs generated a net cash inflow of US$ 16.3 million. Debt reimbursement was US$ 4.5 million during the year.

Following the debt reorganization, the maturity of the financial debt as at December 31, 2017 is as follows:

Bank guarantees as at December 31, 2017 totaled US$ 4.0 million compared to US$ 17.9 million as at December 31, 2016. The Company benefits from a confirmed contract guarantee line of € 12.7 million (US$ 15.2 million).

As at December 31, 2017, cash and cash equivalents totaled US$ 14.6 million compared to US$ 6.2 million as at December 31, 2016.

Going concern

As described previously, the positive trend in commercial activity gains strength. However, current economic conditions in the industry still make forecasting uncertain, and there is the possibility that the Company's actual operating performance during the coming year may be different from expectations. Going concern is assessed based on internal forecasts and projections that take into account reasonably possible changes in the Company's operating performance.

On May 11, 2017, the Company completed its debt reorganization consisting (i) in a new money injection of €23 million (US$ 25 million) in the form of bonds with a 5-year term, including €18 million (US$ 19.8 million) available at closing, and (ii) in the postponing of the instalment of most of the Company's existing long-term financing which takes the form of 5-year term subordinated bonds.

As part of the debt reorganization, certain key financial covenants were set including minimum cash, leverage ratio and limitation to capital expenditure. A waiver was obtained to offset the negative impact of the exchange rates on the leverage ratio. As at December 31, 2017, the Company met its covenants.

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.

Currency exchange rates

The exchange rates for the periods under review are provided in the Management's Discussion and Analysis of Q4 2017.

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 EBITDA is as follows:

EBITDA

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.

As at December 31, 2017, the Company's order backlog for continuing operations was US$ 200.8 million of which US$ 127.7 million is expected to be executed during the FY 2018. Last year at the same period, the order backlog for continuing operations was US$ 92.9 million of which US$ 72.9 million was expected to be executed during the FY 2017. 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 5, 2018, 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 1-888-231-8191 or 1-647-427-7450. You will be put on hold until the conference call begins. A live audio webcast of the Conference Call will also be available through http://event.on24.com/r.htm?e=1030030&s=1&k=C7CA11F40F09768BDBBCB5B9DBF428FF

An archived replay of the webcast will be available for 90 days.

About Foraco International SA

Foraco International SA (TSX: FAR) is a leading global mineral drilling services company that provides a comprehensive and reliable service offering in mining and water projects. Supported by its founding values of integrity, innovation and involvement, Foraco has grown into the third largest global drilling enterprise with a presence in 22 countries across five continents. For more information about Foraco, visit www.foraco.com

"Neither TSX Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Exchange) accepts responsibility for the adequacy or accuracy of this release."

Caution concerning forward-looking statements

This document may contain "forward-looking statements" and "forward-looking information" within the meaning of applicable securities laws. These statements and information include estimates, forecasts, information and statements as to Management's expectations with respect to, among other things, the future financial or operating performance of the Company and capital and operating expenditures. Often, but not always, forward-looking statements and information can be identified by the use of words such as "may", "will", "should", "plans", "expects", "intends", "anticipates", "believes", "budget", and "scheduled" or the negative thereof or variations thereon or similar terminology. Forward-looking statements and information are necessarily based upon a number of estimates and assumptions that, while considered reasonable by Management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Readers are cautioned that any such forward-looking statements and information are not guarantees and there can be no assurance that such statements and information will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed under the heading "Risk Factors" in the Company's Annual Information Form dated March 31, 2017, 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