Odyssey Marine Exploration, Inc. press release

Foraco International reports Q2 2014

2014-08-05

NASDAQ - Nasdaq Stock Market · Phosphate · Gold · Copper · Silver · Zinc · Cobalt · Manganese · Nickel · Rare Earth Elements · United States

Soft quarter Net debt reduced by US$11.6 millionover the period

TORONTOand MARSEILLE, FRANCE, Aug. 5, 2014/CNW/ - 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 2014. All figures are reported in US Dollars (US$), unless otherwise indicated.

Three months Q2 2014 Highlights

Revenue

Q2 2014 revenue amounted to US$ 48.4 millioncompared to US$ 74.6 millionin Q2 2013, a decrease of 35% (31% excluding foreign exchange rate differences). Compared to Q1 2014, revenue increased by US$ 3 millionor 7%. The Company's drill utilization rate was 34% in Q2 2014 (46% in Q2 2013), increasing from 30% in Q1 2014. Many customers continued to push the execution of projects into H2 2014.

Profitability

Q2 2014 gross profit including depreciation within cost of sales was US$ 0.9 million(or 2% of revenue) compared to US$ (0.9) millionin Q2 2013 (or -1% of revenue). The Company incurred extra costs and delays linked to the start up of projects and late contract signatures. In addition the decrease of revenue generated further under absorption of fixed cost, compensated by the positive effect of the fixed operational costs reduction.

SG&A costs decreased by 21% between Q2 2013 and Q2 2014, mainly as a result of the continued implementation of the company-wide cost cutting action plans.

EBIT was US$ (5.6) millionin Q1 2014 compared to US$ 0.5 millionin Q2 2013, or US$ (1.7) millionexcluding the impact of one-off costs, losses on troubled contracts and the remeasurement in Q2 2013 of the contribution payable for Servitec, in accordance with IFRS.

Capital expenditures were US$ 1.9 millionin Q2 2014 compared to US$ 3.0 millionin Q2 2013.

H2 2014 Highlights

Revenue

H1 2014 revenue amounted to US$ 93.9 millioncompared to US$ 134.4 millionin H1 2013, a decrease of 30%. Many customers continued to push the execution of projects into H2 2014.

Profitability

H1 2014 gross profit including depreciation within cost of sales was US$ 3.5 million(or 4% of revenue) compared to US$ (9.6) millionin H1 2013 (or -7% of revenue). Although the revenue decreased, generating some under absorption of fixed costs, there were no one-off costs and the Company fully benefited from the positive effect of the fixed operational costs reduction.

SG&A costs decreased by 24% between H1 2013 and H1 2014, mainly as a result of the continued implementation of the company-wide cost cutting action plans.

EBIT was US$ (9.5) millionin H1 2014 compared to US$ (8.0) millionin H1 2013, or US$ (26.8) millionexcluding the impact corresponding to the remeasurement in H1 2013 of the contribution payable for Servitec, in accordance with IFRS.

The adjusted EBITDA1 improved by US$ 12.9 millionfrom US$ (6.1)in H1 2013 to US$ 7.3 millionin H1 2014.

Capital expenditures were US$ 3.4 millionin H1 2014 compared to US$ 6.5 millionin H1 2013.

Cash flow and net debt

Cash generated from operations was US$ 7.7 millionin H1 2014 vs. cash used of US$ 5.5 millionin H1 2013.

Net debt as at June 30, 2014was US$ 108.0 millionvs. US$ 121.9 millionas at December 31, 2013, a reduction of US$ 13.9 million.

Net debt was positively impacted by the waiver during the period of a call and put option related to the acquisition of a minority shareholding in Servitec for US$ 12.7 million.

"The second quarter of the year has been unusually soft from a revenue perspective, as many customers continued to push the execution of projects into H2 2014: we reported a Q2 revenue of US$48 million, up US$ 3 millioncompared to Q1. Globally, and despite a recent encouraging surge in demand from junior companies together with a visible change in sentiment from the majors, overall demand continued to slightly contract. During the period, base metal prices which are a fundamental driver of our activity rose significantly across the board – with the exception of iron ore and coal, with no impact on drilling services demand yet," said Daniel Simoncini, Chairman and co-CEO of Foraco. "Our utilization rate rose 4% from Q1 up to 34%, but certain regions saw their utilization rate grow to 59% which led to an increase in our market share in some areas".

"The reduced activity including the impact of foreign exchange rate fluctuations was partially compensated for by the reduction in fixed operational and SG&A costs. The EBIT for Q2 came to a negative amount of US$ (5.6) million, a decrease of US$ (3.9) millioncompared to the same period last year and excluding the Servitec debt remeasurement and one-off costs incurred in Q2 2013. Positive cash flow from operating activities was US$ 5.8 millionafter working capital requirements, interests and taxes in the first half of 2014, an increase of US$ 13.0 millioncompared to the same period last year. " commented Jean-Pierre Charmensat, co-CEO and Chief Financial Officer. "Capital expenditures were limited to US$ 1.9 millionduring the quarter (US$ 3.4 millionin H1 2014). The net debt as at June 30, 2014was US$ 108.0 millionvs. US$ 121.9 millionas at December 31, 2013, a reduction of US$ 13.9 million. As at June 30, 2014, the Company complies with its bank covenant."

Selected financial data

| (In thousands of US$) (unaudited) | | Three-month period ended June 30, | | Six-month period ended June 30, | | | | | | | | | | 2014 | | 2013 | | 2014 | | 2013 | | | | | | | | | | | | | | | | Revenue | | | 48,407 | | 74,628 | | | 93,852 | | 134,423 | | | | | | | | | | | | | | | | | | | | | | | | | | Gross profit (1) | | | 891 | | (855) | | | 3,521 | | (9,596) | | As a percentage of sales | | | 1.8% | | -1.1% | | | 3.8% | | -7.1% | | | | | | | | | | | | | | EBITDA | | | 2,854 | | 11,062 | | | 7,288 | | 13,196 | | As a percentage of sales | | | 5.9% | | 14.8% | | | 7.8% | | 9.8% | | | | | | | | | | | | | | Operating profit / (loss) | | | (5,635) | | 491 | | | (9,523) | | (7,992) | | As a percentage of sales | | | -11.6% | | 0.7% | | | -10.1% | | -5.9% | | | | | | | | | | | | | | | | | | | | | | | | | | Profit / (loss) for the period | | | (6,010) | | (1,139) | | | (10,008) | | (5,309) | | | | | | | | | | | | | | | | | | | | | | | | | | Attributable to: | | | | | | | | | | | | Equity holders of the Company | | | (6,137) | | (2,909) | | | (9,939) | | (6,131) | | Non-controlling interests | | | 127 | | 1,770 | | | (69) | | 822 | | | | | | | | | | | | | | EPS (in US cents) | | | | | | | | | | | | Basic | | | (6.95) | | (3.32) | | | (11.25) | | (6.98) | | Diluted | | | (6.95) | | (3.32) | | | (11.25) | | (6.98) |

| | (1) | includes amortization and depreciation expenses related to operations |

Financial results

Revenue

| (In thousands of US$) - (unaudited) | Q2 2014 | % change | Q2 2013 | | H1 2014 | % change | H1 2013 | | Reporting segment | | | | | | | | | Mining.......................................................................... | 40,904 | -43% | 71,862 | | 80,761 | -38% | 129,421 | | Water............................................................................ | 7,503 | 171% | 2,766 | | 13,091 | 162% | 5,002 | | Total revenue............................................................... | 48,407 | -35% | 74,628 | | 93,852 | -30% | 134,423 | | | | | | | | | | | Geographic region | | | | | | | | | South America............................................................. | 15,782 | -38% | 25,413 | | 30,778 | -38% | 49,864 | | Europe, Middle East and Africa............................... | 14,211 | -41% | 24,295 | | 25,481 | -32% | 37,574 | | North America............................................................. | 7,517 | -11% | 8,457 | | 17,134 | -13% | 19,592 | | Asia Pacific.................................................................. | 10,897 | -34% | 16,463 | | 20,458 | -25% | 27,393 | | Total revenue............................................................... | 48,407 | -35% | 74,628 | | 93,852 | -30% | 134,423 | | | | | | | | | |

Q2 2014

Q2 2014 revenue amounted to US$ 48.4 millioncompared to US$ 74.6 millionin Q2 2013, a decrease of 35% and a US$ 3 millionincrease compared to Q1 2014. Many customers continued to push the execution of projects into H2 2014.

Revenue in South Americaamounted to US$ 15.8 millionin Q2 2014 (US$ 25.4 millionin Q2 2013), a decrease of 38%. The decrease in Chilewas 29% including 10% of foreign exchange (Fx) impact and 19% mainly linked to the termination of the two troubled contracts in Q2 2013. No activity was recorded in Argentinain Q2 14. In Brazil, the decrease was 36%, of which 6% was linked to the exchange rate effect. The balance is mainly related to an unusually late bidding season, the non-renewal of a gold contract and a postponement into Q3 of a large iron ore contract.

In EMEA, revenue decreased by 41%, from US$ 24.3 millionin Q2 2013 to US$ 14.2 millionin Q2 2014. This is mainly due to the reduced activity in the mining segment across West Africawhich was partly offset by the increased activity in the water segment. In Europeand Russia, after an early bidding season, many customers revisited their budget and cancelled or postponed most of the projects to H2 2014.

Revenue in North Americadecreased by 11% in US$ but only 6 % in Canadian dollars.

In Asia Pacific, Q2 2014 revenue amounted to US$ 10.9 million, a decrease of 34%. Two contracts, one in the energy sector and one in the gold sector were not renewed after June 2013. Nevertheless the Company secured two large multi-year multi-rigs contracts, one in the Pilbara (Iron Ore) and one in Queensland(Coal). In New Caledonia, the quarter's results suffered from local disturbances including the temporary closure of a large nickel mine.

H1 2014

H1 2014 revenue amounted to US$ 93.9 millioncompared to US$ 134.4 millionin H1 2013, a decrease of 30%. Compared to H1 2013 there were significant fluctuations in local currency exchange rates against the US$ in certain countries where the Company operates. Assuming no change in exchange rates between H1 2013 and H1 2014, H1 2014 revenue would have decreased by 25%.

Revenue in South Americaamounted to US$ 30.8 millionin H1 2014 (US$ 49.9 millionin H1 2013), a decrease of 38%. The decrease in Chileof 34% was mainly linked to the end of two troubled contracts. No activity was recorded in Argentinain H1 2014. In Brazil, revenue decreased by 33%, of which 9% was linked to the effect of foreign currency exchange rates.

In EMEA, revenue decreased by 38%, from US$ 37.6 millionin H1 2013 to US$ 25.5 millionin H1 2014. This is mainly due to the reduced activity in the mining segment across West Africawhich was partly offset by the increased activity in the water segment. In Europeand Russia, after an early bidding season, many customers revisited their budget and cancelled or postponed most of the projects to H2 2014.

Revenue in North Americadecreased by 13% in US$ but only 5% in Canadian dollars.

In Asia Pacific, H1 2014 revenue amounted to US$ 20.5 million, a decrease of 25%. Two contracts, one in the energy sector and one in the gold sector were not renewed after June 2013. The Company secured two large multi-year multi-rigs contracts, one in the Pilbara (Iron Ore) and one in Queensland(Coal). In New Caledonia, the second quarter suffered from local disturbances including the temporary closure of a large nickel mine.

Gross profit

Q2 2014

Q2 2014 gross profit including depreciation within cost of sales was US$ 0.9 million(or 2% of revenue) compared to US$ (0.9) millionin Q1 2013 (or -1% of revenue). The Company experienced extra costs and delays linked to the start up of projects up and late contract signatures. In addition the decrease of revenue generated further under absorption of fixed cost, compensated by the positive effect of the fixed operational costs reduction.

H1 2014

Selling, General and Administrative Expenses

| (In thousands of US$) - (unaudited) | Q2 2014 | % change | Q2 2013 | | H1 2014 | % change | H1 2013 | | | | | | | | | | | Selling, general and administrative expenses | 6,526 | -21% | 8,261 | | 13,044 | -24% | 17,221 |

Q2 2014

SG&A costs decreased by US$ 1.8 million(or US$ 1.5 millionexcluding one-off costs) between Q2 2013 and Q2 2014. These savings are mainly the result of the continued implementation of the company-wide cost cutting action plans.

H1 2014

SG&A costs decreased by US$ 4.2 millionbetween H1 2013 and H1 2014. These savings are the result of the continued implementation of the company-wide cost cutting action plans.

Operating profit

| (In thousands of US$) - (unaudited) | Q2 2014 | % change | Q2 2013 | | H1 2014 | % change | H1 2013 | | | Reporting segment | | | | | | | | | | Mining ......................................................................... | (5,760) | -61% | 356 | | (8,844) | 15% | (7,719) | | | Water............................................................................ | 125 | 97% | 135 | | (679) | 149% | (273) | | | Total operating profit / (loss) ................................. | (5,635) | -54% | 495 | (1) | (9,523) | 19% | (7,992) | (1) |

(1)In Q2 2013, the Company recognized a gain amounting to US$ 9.6 million(US$ 18.8 millionin H1 2013) resulting from the remeasurement of the contribution payable related to Servitec in accordance with IFRS. Excluding this positive effect, the operating loss would have been US$ 9.1 millionin Q2 2013 (loss of US$ 26.8 millionin H1 2013).

Q2 2014

Operating profit / loss decreased by US$ (6.0) million. Excluding the impact of the Servitec debt remeasurement and one-off costs and losses on troubled contracts in Q2 2013, the decrease was US$ (3.5) millionand can be explained as follows:

H1 2014

Operating profit / loss decreased by US$ (1.5) million, going from an operating loss of US$ (8.0) millionin H1 2013 to US$ (9.5) millionin H1 2014. The reduced activity including the impact of exchange rate fluctuations was partially compensated for by the reduction in fixed operational and SG&A costs.

Financial position

The following table provides a summary of the Company's cash flows for H1 2014 and H1 2013:

| (In thousands of US$) | H1 2014 | H1 2013 | | | | | | Cash generated from operations before working capital requirements | 7,684 | (5,498) | | Working capital requirements, interest and tax | (1,920) | (1,677) | | Net cash flow generated by / used in operating activities | 5,764 | (7,175) | | | | | | Purchase of equipment in cash | (2,931) | (6,089) | | Consideration payable related to acquisitions | (500) | - | | Net cash used in investing activities | (3,431) | (6,089) | | | | | | Debt variance | (9,572) | 2,783 | | Acquisition of treasury shares | - | (1,535) | | Dividends paid | (1,086) | (1,692) | | Net cash used in financing activities | (10,658) | (444) | | | | | | Net cash variation | (8,325) | (13,708) | | | | | | Foreign exchange differences | (47) | (781) | | | | | | Variation in cash and cash equivalents | (8,372) | (14,489) |

In H1 2014, the net cash flow generated by operating activities amounted to US$ 5.8 millioncompared to US$ (7.2) millionof cash used during the same period a year ago.

During the period, the Company acquired operating equipment for US$ 2.9 millionin cash and US$ 0.5 millionthrough capital leases compared to a total of US$ 6.1 millionin cash purchases during H1 2013.

As at June 30, 2014, cash and cash equivalents totaled US$ 29.2 million compared to US$ 37.5 million as at December 31, 2013. Cash and cash equivalents are held at or invested within top tier financial institutions.

As at June 30, 2014, the net debt amounted to US$ 108.0 million(US$ 121.9 millionas at December 31, 2013). The ratio of debt (net of cash) to shareholders' equity decreased from 0.69 as at December 31, 2013to 0.59 as at June 30, 2014.

On June 30, 2014, financial debts and equivalents amounted to US$ 137.2 million(US$ 159 millionas at December 31, 2013). The financial debt also includes the present value of the consideration payable in 2015 for the acquisition of the remaining Servitec shares which was reduced to US$ 3.4 millionfollowing the agreement signed with the minority shareholder of Servitec to waive the call and put options previously due to be exercised before the end of 2014 and payable in March 2015.

In December 2013, the Company signed an addendum to the loan agreements linked to the 2012 acquisitions in Braziland Australia. Under the terms of these agreements, the covenant ratio Net Debt / EBITDA was agreed to be a maximum of 3.5 as at June 30. The actual June 30, 2014ratio was 3.4. The Company is not in breach of any covenant.

As at June 30, 2014, the financial debt is as follows (in thousands of US$):

| Maturity | Roll Over | July 1, 2014

and June 30,

2015 | July 1, 2015

and June 30,

2016 | July 1, 2016

and June 30,

2017 | July 1, 2017

and June 30,

2018 | July 1, 2018

and June 30,

2019 | Total | | Drawn credit lines rolled over on a yearly basis | 47,255 | - | - | - | - | - | 47,255 | | Long term financing related to: | | | | | | | | | - Drawn credit lines rolled over confirmed for at least 12 months | 8,227 | - | - | - | - | - | 8,227 | | - Brazil acquisition | - | 4,366 | 4,366 | 4,366 | - | - | 13,099 | | - Australia acquisition | - | 6,823 | 6,823 | 6,823 | 6,823 | - | 27,290 | | - Acquisition of fixed assets | - | 10,689 | 10,195 | 8,076 | 4,654 | 1,100 | 34,714 | | - Acquisition of fixed assets through capital leases | - | 2,360 | 370 | 240 | 194 | (0) | 3,164 | | | | | | | | | | | Total | 55,482 | 24,238 | 21,754 | 19,505 | 11,670 | 1,100 | 133,750 |

The Company has used and unused short-term credit facilities amounting to US$ 103.7 million out of which US$ 55.5 millionwas drawn as of June 30, 2014. These facilities are granted individually by several banks, mainly in France, Chile, Brazil, Australiaand Canada. They are generally granted on a yearly basis and are subject to review at various dates.

Going concern and impairment testing

Based on internal forecasts and projections which are regularly updated in order to take into account foreseeable 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 (mainly related to debt service obligations) for a period of at least twelve months. In addition, impairment tests based on expected discounted cash flows were performed at the level of each business segment and geographic area as at June 30, 2014and indicated that no impairment was required on the carrying values of the long lived assets for each business segment and geographic area.

Currency exchange rates

The exchange rates for the periods under review are provided in the Management's Discussion and Analysis of Q2 2013.

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.

Earlier from Odyssey Marine Exploration, Inc.

Foraco announces Q2 2014 results and conference call 2014-07-29
Foraco International reports Q1 2014 2014-05-06
Foraco announces Q1 2014 results and conference call 2014-04-30