Major Drilling Group International Inc. press release
Major Drilling Reports First Quarter Results and Increases Dividend
TSX - Toronto Stock Exchange · Copper · Gold · Nickel · Zinc · Lithium · Silver · Uranium · Rare Earth Elements · Canada
Sep. 8, 2010 (Canada NewsWire Group) --
MONCTON, NB, Sept. 8 /CNW/ - Major Drilling Group International Inc. (TSX: MDI) today reported results for its first quarter of fiscal year 2011, ended July 31, 2010.
<< Highlights
In millions of Canadian dollars Q1-11 Q1-10 (except earnings per share) ------ ----- Revenue $109.5 $62.5 Gross profit 26.5 17.2 As percentage of sales 24.2% 27.6% Net earnings (loss) 5.1 (3.3) Earnings (loss) per share 0.21 (0.14) Cash flow from operations (before changes in non-cash working capital items) 12.1 7.6
Major Drilling posted quarterly revenue of $109.5 million, an increase of 75 percent from the $62.5 million recorded for the same quarter last year.
Gross margin percentage for the quarter was 24.2 percent, up from 23.0 percent in the fourth quarter of fiscal 2010.
Net earnings were $5.1 million or $0.21 per share for the quarter compared to a net loss of $3.3 million or $0.14 per share for the prior year quarter.
Cash flow generated from operations during the quarter was $12.1 million, an increase of 59 percent over the same quarter last year.
Given the improving outlook, the Company has increased its semi-annual dividend by 10 percent, to $0.22 per share, to be paid on November 1, 2010. >>
"Activity levels continue to improve in every region. Canada, Chile and Argentina sustained their strong recovery, while we also saw good growth in Mexico, U.S. and Mongolia this quarter. The 75 percent increase in revenue, despite an unfavourable foreign currency translation impact of $6 million, came mainly from improved utilization. Pricing remains competitive, although we are starting to see improvements in certain geographic areas," said Francis McGuire, President and CEO of Major Drilling.
"The bulk of the increased activity is still coming from intermediate mining companies and junior mining companies with advanced properties, projects that require several years of multi-rig drilling. Early stage exploration companies are still experiencing difficulties in getting financing."
"Margins in this quarter improved from our fourth quarter of fiscal 2010, but were still impacted by training, mobilization and additional consumable purchases to support increased demand. As we continued to prepare more rigs for the field, higher repair costs also affected margins. In Australia, we continue to work our way out of some low-margin contracts. Going forward, margins should continue to gradually improve as we put those ramp-up costs behind us and pricing improves, although a shortage of experienced crews will put some pressure on productivity."
"Looking at the rest of fiscal 2011, if customers move forward with their stated plans, we expect to see continuing growth. Our global utilization rates are expected to continue to improve as each month goes by. In some of our regions, we have now reached high levels of utilization, which has begun to lead to a more positive pricing environment."
"As announced on July 6, 2010, we are very pleased to welcome North Star Drilling and its employees into the Major Drilling group. Through this purchase, we acquired 8 drill rigs. North Star, in combination with our SMD purchase from the previous quarter, provides an excellent platform for growth in the environmental and geotechnical drilling sector, a new venture for Major Drilling. This venture was not expected to be profitable in its first year but with the North Star contribution the time line for profitability should be expedited," stated Mr. McGuire. "The Company continues to seek acquisitions that complement our specialized drilling strategy, increase our diversification, or expand our geographic footprint."
"Net capital expenditures for the quarter were $8.9 million as we purchased 11 rigs while retiring 11 rigs through our modernization program. In the two weeks following quarter-end, the Company took delivery of an additional 3 rigs. During the quarter, we also added a significant amount of support vehicles and other support equipment to meet changing patterns of demand and our continually rising safety standards. These additions will improve rig utilization and reliability."
"Given the Company's ability to generate cash and the improving outlook, the Company is pleased to announce that today its Board of Directors has authorized a semi-annual cash dividend of $0.22 per share, which represents a 10 percent increase from previous dividends. This dividend is payable on November 1, 2010 to shareholders of record as of October 8, 2010. This dividend is designated as an "eligible dividend" for Canadian tax purposes."
"Finally, the Board and management would like to take this opportunity to thank John Schiavi and David Hope, who are retiring as Directors. Mr. Schiavi has been a Director of the Company for more than 15 years, joining the Board prior to its initial public offering in 1995, and Mr. Hope has been a Director of the Company since 2005."
First quarter ended July 31, 2010
Total revenue for the quarter was $109.5 million up 75 percent from the $62.5 million recorded in the same quarter last year. Most of the Company's branches exhibited strong growth mainly coming from increased utilization. Revenue growth was affected by the strengthening Canadian dollar against the U.S. dollar as compared to the same period last year. The unfavourable foreign exchange translation impact for the year, when comparing to the effective rates for the same period last year, is estimated at over $6 million on revenue.
Revenue for the quarter from Canada-U.S. drilling operations increased by 100 percent to $40.5 million compared to $20.2 million for the same period last year. Both countries contributed to this increase as utilization rates increased substantially while pricing remained relatively flat as compared to the same quarter last year.
South and Central American revenue was up 120 percent to $40.0 million for the quarter, compared to $18.2 million posted for the prior year quarter. All regions exhibited strong growth, again driven primarily by increased rig utilization.
Australian, Asian and African operations reported revenue of $29.0 million, up 20 percent from the $24.1 million reported in the same period last year. Mongolia and Indonesia accounted for all of the growth in the region, offset by a decrease in activity in Australia as compared to last year. In Australia, market conditions were still difficult during the quarter given the recent concerns on mining tax. In the last month however, we have started to see early signs of a recovery.
The overall gross margin percentage for the quarter was 24.2 percent, down from 27.6 percent for the same period last year, but up from 23.0 percent in the fourth quarter of fiscal 2010. Margins in the quarter were impacted by training costs, mobilization costs and additional consumable purchases to support increased demand.
General and administrative costs were $9.6 million for the quarter, up 7.9 percent compared to $8.9 million in the same period last year. The increase was due to the addition of the new environmental division and also increased costs to support the strong growth in activity levels.
Other expenses for the quarter were $1.9 million, up from $0.9 million in the prior year quarter, due primarily to higher incentive compensation expenses given the Company's increased profitability, and consultant work.
Net earnings were $5.1 million or $0.21 per share ($0.21 per share diluted) for the quarter compared to a net loss of $3.3 million or $0.14 per share ($0.14 per share diluted) for the prior year quarter.
The Annual and Special Meeting of the shareholders of Major Drilling Group International Inc. will be held at The TMX Broadcast Centre Gallery, The Exchange Tower, 130 King St. W., Toronto, Ontario, tomorrow, September 9, 2010 at 10:00 am EDT.
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 15 to 17 of the 2010 Annual Report entitled "General Risks and Uncertainties", and such other documents 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, New Brunswick, Major Drilling Group International Inc. is one of the world's largest metals and minerals contract drilling service companies. To support its customers' mining operations, mineral exploration and environmental activities, Major Drilling maintains operations in Canada, the United States, South and Central America, Australia, Asia, and Africa.
Financial statements are attached.
Major Drilling will provide a simultaneous webcast of its quarterly conference call on Thursday, September 9, 2010 at 8:30 AM (EDT). To access the webcast please go to the webcast section of Major Drilling's website at www.majordrilling.com and click the attached link, or go directly to the CNW Group website at www.newswire.ca for directions. Participants will require Windows MediaPlayer, which can be downloaded prior to accessing the call. Please note that this is listen only mode.
<< Major Drilling Group International Inc. Consolidated Statements of Operations (in thousands of Canadian dollars, except per share information) (unaudited)
Three months ended July 31
2010 2009
TOTAL REVENUE $ 109,480 $ 62,489
DIRECT COSTS 82,948 45,259
GROSS PROFIT 26,532 17,230
OPERATING EXPENSES General and administrative 9,556 8,872 Other expenses 1,891 885 Foreign exchange loss (gain) 92 (680) Interest expense (revenue) 86 (69) Interest expense on long-term debt 200 303 Amortization 7,355 7,727 Restructuring charge (note 5) - 1,220 Goodwill impairment (note 6) - 2,032 19,180 20,290
EARNINGS (LOSS) BEFORE INCOME TAX 7,352 (3,060)
INCOME TAX - PROVISION (RECOVERY) Current 2,943 (285) Future (644) 521 2,299 236
NET EARNINGS (LOSS) $ 5,053 $ (3,296)
EARNINGS (LOSS) PER SHARE Basic * $ 0.21 $ (0.14) Diluted (xx) $ 0.21 $ (0.14)
Based on 23,784,913 and 23,716,073 daily weighted average shares outstanding for the fiscal year to date 2011 and 2010, respectively. The total number of shares outstanding on July 31, 2010 was 23,789,806.
(xx) Based on 23,916,473 and 23,861,826 daily weighted average shares outstanding for the fiscal year to date 2011 and 2010, respectively.
For the quarter ended July 31, 2009 the exercise of stock options would have been anti-dilutive.
Major Drilling Group International Inc. Consolidated Statements of Comprehensive Earnings (Loss) (in thousands of Canadian dollars) (unaudited)
Three months ended July 31
2010 2009
NET EARNINGS (LOSS) $ 5,053 $ (3,296)
OTHER COMPREHENSIVE EARNINGS (LOSS) Unrealized gains (losses) on translating financial statements of self-sustaining foreign operations 5,637 (24,428)
COMPREHENSIVE EARNINGS (LOSS) $ 10,690 $ (27,724)
Consolidated Statements of Retained Earnings (in thousands of Canadian dollars) (unaudited)
Three months ended July 31
2010 2009
RETAINED EARNINGS, BEGINNING OF THE PERIOD $ 209,025 $ 218,983
Net earnings (loss) 5,053 (3,296)
RETAINED EARNINGS, END OF THE PERIOD $ 214,078 $ 215,687
Consolidated Statements of Accumulated Other Comprehensive Loss (in thousands of Canadian dollars) (unaudited)
Three months ended July 31
2010 2009
ACCUMULATED OTHER COMPREHENSIVE LOSS, BEGINNING OF THE PERIOD $ (44,333) $ (5,079)
Unrealized gains (losses) on translating financial statements of self-sustaining foreign operations 5,637 (24,428)
ACCUMULATED OTHER COMPREHENSIVE LOSS, END OF THE PERIOD $ (38,696) $ (29,507)
Major Drilling Group International Inc. Consolidated Statements of Cash Flows (in thousands of Canadian dollars) (unaudited)
Three months ended July 31
2010 2009
OPERATING ACTIVITIES Net earnings (loss) $ 5,053 $ (3,296) Operating items not involving cash Amortization 7,355 7,727 (Gain) loss on disposal of property, plant and equipment (112) 67 Future income tax (recovery) (644) 521 Stock-based compensation 447 505 Goodwill impairment (note 6) - 2,032 12,099 7,556 Changes in non-cash operating working capital items (217) (538) Cash flow from operating activities 11,882 7,018
FINANCING ACTIVITIES Repayment of long-term debt (2,281) (3,076) Acquisition of short-term debt (note 10) 10,400 - Issuance of common shares 134 - Dividend paid (4,750) (4,743) Cash flow from (used in) financing activities 3,503 (7,819)
INVESTING ACTIVITIES Business acquisition (note 7) (2,352) - Acquisition of property, plant and equipment (8,919) (3,304) Proceeds from disposal of property, plant and equipment 540 895 Cash flow used in investing activities (10,731) (2,409)
OTHER ACTIVITIES Foreign exchange translation adjustment 332 (2,673)
INCREASE (DECREASE) IN CASH 4,986 (5,883)
CASH POSITION, BEGINNING OF THE PERIOD 30,232 58,035
CASH POSITION, END OF THE PERIOD $ 35,218 $ 52,152
Major Drilling Group International Inc. Consolidated Balance Sheets As at July 31, 2010 and April 30, 2010 (in thousands of Canadian dollars) (unaudited)
ASSETS July April 2010 2010
CURRENT ASSETS Cash $ 35,218 $ 30,232 Accounts receivable 69,923 62,128 Income tax receivable 8,045 10,053 Inventories 63,491 63,170 Prepaid expenses 9,523 4,813 Future income tax assets 287 793 186,487 171,189
PROPERTY, PLANT AND EQUIPMENT 216,773 210,812
FUTURE INCOME TAX ASSETS 8,777 8,117
GOODWILL AND INTANGIBLE ASSETS (note 9) 26,434 25,538
$ 438,471 $ 415,656
LIABILITIES
CURRENT LIABILITIES Accounts payable and accrued charges $ 56,350 $ 54,027 Income tax payable 3,872 2,830 Short-term debt (note 10) 10,624 - Current portion of long-term debt 8,383 8,887 Future income tax liabilities 350 819 79,579 66,563
LONG-TERM DEBT 13,360 15,041
FUTURE INCOME TAX LIABILITIES 15,992 15,783 108,931 97,387
SHAREHOLDERS' EQUITY Share capital 142,569 142,435 Contributed surplus 11,589 11,142 Retained earnings 214,078 209,025 Accumulated other comprehensive loss (38,696) (44,333) 329,540 318,269
$ 438,471 $ 415,656
MAJOR DRILLING GROUP INTERNATIONAL INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE PERIODS ENDED JULY 31, 2010 AND 2009 (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 April 30, 2010. These interim consolidated financial statements conform in all respects to the requirements of Canadian generally accepted accounting principles for annual financial statements, with the exception of certain note disclosures. As a result, these interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes for the year ended April 30, 2010 contained in the Company's 2010 annual report.
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International Financial Reporting Standards ("IFRS")
In February 2008, the Accounting Standards Board ("AcSB") confirmed that the use of IFRS will be required in 2011 for publicly accountable enterprises in Canada. In April 2008, the AcSB issued an IFRS Omnibus Exposure draft proposing that publicly accountable enterprises be required to apply IFRS, in full and without modification, on January 1, 2011 for companies with a calendar year end, therefore the transition date for the Company is May 1, 2011. This will require the restatement, for comparative purposes, of amounts reported by the Company for its year ended April 30, 2011, and of the opening balance sheet as at May 1, 2010. The Company is currently in the process of developing a conversion and implementation plan and assessing the impacts of the conversion on the consolidated financial statements and disclosures of the Company.
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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 Central America. Coming out of the recent economic and industry downturn, it is not yet clear whether or not the Company's revenue will return to more historical seasonal patterns, or whether a recent lack of seasonality will continue.
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Effective May 1, 2010, the Company's operation in Chile changed its functional currency from the U.S. dollar to the Chilean peso. Factors considered when changing the functional currency included contract revenue being determined in local currency, the currency of operating costs and local regulations requiring invoicing and settlement of these being performed in the local currency. This change has been done in accordance with CICA Handbook Section 1651, Foreign Currency Translation, and consequently applied prospectively. All items were translated to the new functional currency using the exchange rate at the date of the change.
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In the last year's first quarter, the Company recorded a restructuring charge of $1,220 to account for retrenchment and closedown costs, primarily in Australia.
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In the previous year's first quarter, the Company recorded a net non-cash goodwill impairment charge of $2,032 relating to the Paragon del Ecuador S.A. acquisition.
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North Star Drilling
Effective June 30, 2010, the Company acquired the assets of North Star Drilling, which provides contract drilling services to the fresh water and geothermal markets in certain mid-western states in the USA, and operates from its head office in Little Falls, Minnesota, as well as from satellite offices in Brainerd and Bemidji, Minnesota. The acquired business includes drilling equipment, contracts and employees. The purchase price for the transaction was USD $2,250 (CAD $2,352), excluding customary working capital adjustments, financed with cash. There is also a contingent consideration of USD $750 to the purchase price, based on future earnings.
The Company is in the process of finalizing the valuation of assets. As at July 31, 2010, $1,664 of the purchase price was allocated to net tangible assets and $688 was allocated to goodwill. These values are preliminary and are subject to adjustments as additional information is obtained.
The estimated net assets acquired at fair market value at acquisition are as follows:
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SMD Services
Effective February 26, 2010, the Company acquired SMD Services based in Huntsville, Alabama. Through this purchase, Major Drilling entered the environmental drilling sector and acquired a small fleet of sonic, probe and auger drill rigs, as well as a skilled management team and personnel. The purchase price for the transaction was USD $1,953 (CAD $2,064), including customary working capital adjustments, financed with cash. There is also a contingent consideration of USD $2,000 to the purchase price, based on future earnings.