Foraco International SA (FAR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Foraco International SA fourth quarter results conference call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Daniel Simoncini, Chairman and CEO. Thank you. Please go ahead.

Thank you. Thank you for joining us on our Q4 2019 result conference. I am Daniel Simoncini, Chairman and Co-CEO of Foraco, and with me today is Vice CEO and CFO, Jean-Pierre Charmensat. The news release of this result was issued this afternoon after the open -- the closing of the TSX through CNW Newswire. If you did not receive a copy of the release, please visit www.foraco.com. After the outline of our financial results, we will open the session for questions. Q4 has been a good quarter, and we are pleased to report a quarterly revenue of $48 million flat year-over-year and a $2.3 million net profit for the quarter. Canada, Russia, Australia were the busiest region during this quarter. We still stand at 302 rigs and our fleet utilization in the quarter was 45% compared with 52% last year, but as we put bigger rig at work, they generated higher revenue. On a 12 months basis, we closed the year with a $205 million revenue, up 14% year-on-year, outperforming the market, and a net profit of $2.6 million, the first since 2013. Our 2019 fleet utilization rate was 48%, up 3% compared to the previous year. Jean-Pierre will walk us through the more detailed financials shortly. This performance is mainly due to the now widely recognized quality and reliability of our services, our innovative approach to bring cost-effective solutions to our customer challenges and our very skilled, involved and enthusiastic workforce, without which nothing would be possible. Equally, our business model, which rely on inter-region cost utilization begin to pay off after a too long standstill during the recession. We are now selling deep directional drilling services outside Canada and we have increased our large diameter for the reverse technology very successfully in Australia. We are also rolling out more remote control rigs, which make our operation much safer and improve significantly the working conditions of our crews. I will now pass the conference to Jean-Pierre, who will walk us through the numbers. Jean-Pierre?

Thank you, Daniel, and good morning, everyone. Revenue for this quarter amounted to USD 48.4 million, a 1% increase compared to the same quarter last year, which quarter was particularly high due to the postponement activity from the beginning of 2018. EMEA, mainly Russia and Asia Pacific, mainly Australia were the most active regions. EMEA, plus 17%, as a result of increased activity in Russia and in Africa where we mobilized the new deepwater wells contracts. Asia Pacific was 26% due to increased volume of activity with existing clients and start-up of new contracts. North America, minus 5%, where we faced extreme weather conditions on some contracts at year-end. South America, minus 20%, particularly in Brazil linked to the end of some contracts with Junior companies. In Q4 '19, the geographical activity split was North America, 33%; EMEA, 27%; South America, 21%; Asia Pacific, 19%. During this quarter, the gross margin, including depreciation within cost of sales as per IFRS rules, was a profit of USD 8.9 million or 18% of revenue versus $5.4 million or 11% of revenue for the same quarter last year. This improvement is due to improved performance on contract and cost control of our operating expenses. SG&A costs amounted to $5.3 million, 11% as a percentage of revenue and stable compared to the same period last year. The EBIT is a $3.6 million profit compared to a $0.2 million profit in Q4 '18. And our EBITDA amounted to $8.2 million or 17% of revenue, a 88% increase compared to $4.4 million or 9% of revenue in Q4 '18. Our net profit amounts to $2.3 million compared to a loss of $3.6 million in Q4 2018. This is our third consecutive quarter we recorded a net profit. On a 12 months basis, we also recorded improved results. Revenue increased 14% to $205.4 million compared to $180 million in fiscal year 2018. All regions contributed to this increase. North America was the most active region and benefited from sustained activity with major clients as well as new long-term contracts in the underground sector. South America, mainly Brazil, recorded a 27% increase; while Asia Pacific, mainly Australia; and EMEA, mainly Russia, recorded a 17% increase compared to last year. The fiscal year 2019 gross profit was $32.1 million versus $21.9 million for the same period last year, a 47 improvement. This is due to improved performance on contracts, better absorption of fixed operational costs and better cost control over operating expenses. The increase in SG&A was only 2% compared to last year. The 2019 EBIT was $11 million compared to $1 million in 2018, mainly as a result of increased gross margin. The 2019 EBITDA was $29.3 million compared to $18.1 million in 2018, a 62% increase. As a percentage of revenue, the EBITDA amounted to 14% in 2019 compared to 10% in 2018. And we released the net profit for the year amounted to $2.6 million of net profit since 2013. Regarding the company's cash flow, we also released improved figures compared to the previous year. The cash generated by operating activities before working capital requirements were -- was $29.3 million compared to $18.2 million during the same period last year. CapEx was stable at $12.5 million in cash and was $12.7 million in 2018. This CapEx relates to new rigs, major rigs overhauls, ancillary equipment and roads. Nine rigs were acquired in 2019 and 9 were retired from service. In 2019, the free cash flow before debt servicing was $11.4 million positive compared to a negative $3.8 million in the same period last year. At December 31, 2019, our net debt, excluding the effect of IFRS 16, amounted to USD 128.9 million compared to $130.4 million at the end of December 2018. We make our covenant as of December 31, 2019. Now I will return the call to Daniel for his closing remarks. Daniel?

Thank you, Jean-Pierre. We start 2020 with some strong points and a few concern. Our order book as of January 1 is at a record high, $158 million, to be performed in the year with a total backlog of $269 million as a result of an exciting bidding season and the first 2 months of the current quarter have been rather active. Gold, which represent 1/3 of our revenue, is having a great ride since a few months now. And the U.S. and China have finally agreed to halt their trade dispute. Alas, the coronavirus outbreak in China then Asia and now in the western world has already disrupted many economic sectors and it is yet unclear if, when and how our drilling space will be impacted. As we speak, we operate in jurisdiction which are not touched or very low impacted by this outbreak and we are taking all possible steps to protect our people and limit the consequences of a spot contamination. This global outbreak has impacted metal prices, we hope rather temporarily, and the medium- and long-term expectation are still quite positive for our activity given the significant backlog of drilling, the industry needs, to catch up, to maintain production and balance failing grades. So we are doing business as usual, but we remain very alert. And we continue to be very disciplined in cost management and continuing to work on the debt restructuring despite the current financial markets conditions. Thank you for listening. I will now turn the call to the operator. We will take the first question. Operator?

[Operator Instructions] Our first question comes from Steven Green with Ordinance Capital.

Daniel, it's Steven Green. So I'll try to make it quick. I missed the whole call, but I just heard the very end. I was curious, your margins, they were pretty good this quarter. Has business [indiscernible] leveraging the business and creating your margins higher, Daniel?

Steven, we've got a quality connection -- bad quality, your line. We barely can hear you.

I'm sorry, can you hear me now?

Yes.

I said overall, I said margins are good, but as business [indiscernible] will margins grow?

Hello?

Okay. I'm sorry.

I understand you are questioning the jump in our gross margin on a quarter-to-quarter?

Yes, grow as the business grows, your [indiscernible] business.

Well, we -- 2019 has been a much better period for price restoration and cost optimization versus 2018 where we were still some -- in some contracts on still defensive pricing, okay? Which dated back in the '16 or '17. And we also have delivered exceptional good performance on certain contracts, especially in the dewatering. So our contract mix is getting better. Does this answer your question? You there? I think we lost Steven.

But in addition, we had some mobilization of new contracts in Q4 '18, which we haven't this year.

Yes. Operator, is there any other question?

[Operator Instructions] There are no further questions at this time. I will now turn the call back over to the presenters.

Thank you so much. So thank you for listening and talk to you early May. Bye-bye.

Thank you. Bye-bye.

This concludes today's conference call. You may now disconnect.