FAR Foraco International SA

Company pivots its business towards more stable jurisdictions. Temporary revenue contraction while maintaining good profitability. Best quarter ever in North America and Australia.

TORONTO and MARSEILLE, France, Aug. 2, 2024 /CNW/ - Foraco International SA (TSX: FAR) ("Foraco" or the "Company"), a leading global provider of drilling services, is pleased to announce its results for the second quarter ended June 30, 2024. All amounts are denominated in US Dollars (US$) unless otherwise stated.

Q2 2024 Highlights:

• Revenue amounted to US$ 77.9 million, compared to a record US$ 100.1 million in Q2 2023.
  • Two key regions marked their best quarter ever:
    • North America saw an increase of 3%, reaching US$ 32.1 million.
    • Asia-Pacific (Australia) experienced a 38% increase, reaching US$ 22.2 million.
  • In the EMEA region, revenue decreased US$ 7.8 million following the Company's strategic decision to exit unstable jurisdictions (Russia and some countries in West Africa).
  • Revenue in South America decreased by US$ 20.7 million from last year's record quarter (US$ 39.0 million), due to a lack of financing in the junior mining sector and an early winter season on high-altitude projects.
    
    
• Gross Margin, including depreciation within the cost of sales, was a solid US$ 17.9 million (23.0% of revenue) compared to US$ 25.9 million (25.9% of revenue) in Q2 2023. Most projects generated solid operating performance, which partially offset the under-absorption of fixed costs.
  
  
• EBITDA amounted to 21.0% of revenue (US$ 16.4 million) compared to 23.8% of revenue (US$ 23.8 million) for the same quarter last year.

Tim Bremner, CEO of Foraco, reflected on the quarter, stating, "We have achieved notable successes in our two main  markets, North America and the Asia-Pacific region, where we generated all-time record revenue. The decrease in revenue in EMEA is the result of our strategic decision to reduce exposure in unstable jurisdictions, including Russia and some countries in West Africa. In South America, we faced challenges mainly due to reduced funding  for junior miners particularly in the lithium commodity and adverse weather conditions. We are therefore confident that our strategy to focus on tier-one clients in mining-friendly countries will offer significant opportunities, driven by the demand for mineral commodities. We believe that the revenue contraction will be temporary as a result of our strategic decision to pivot the Company."

Fabien Sevestre, CFO of Foraco, shared insights into the financial performance, stating, "During the quarter we have  maintained healthy financial metrics with a 23% gross margin after depreciation (compared to 26% in Q2 2023), a 21% EBITDA margin (compared to 24% in Q2 2023), and a 10% net profit margin (compared to 11% in Q2 2023). We also reduced our SG&A expenses by 18% compared to Q2 2023. The US$ 23.5 million increase in working capital requirements is entirely linked to supporting our developments in North America and Australia. We have achieved a 50% reduction in net financial expenses compared to H1 2023, thanks to more favorable interest rates from our new financing secured in Q4 2023. Looking ahead, we will continue to focus on debt reduction while staying active in strategic investments."

Income Statement

Highlights – Q2 2024

Revenue

• Q2 2024 revenue amounted to US$ 77.9 million, compared to a record US$ 100.1 million in Q2 2023.
• Two key regions achieved new record performance for the quarter:
  • North America increased by 3% at US$ 32.1 million
  • Asia-Pacific (Australia) increased by 33% at US$ 22.2 million
• In the EMEA region, revenue decreased US$ 7.8 million following the Company's strategic decision to exit unstable jurisdictions (Russia and some countries in West Africa).
• Revenue in South America decreased by US$ 20.7 million from last year's record quarter (US$ 39.0 million), due to a lack of financing in the junior mining sector and an early winter season on high-altitude projects.

Profitability

• Q2 2024 gross margin including depreciation within cost of sales was a solid US$ 17.9 million (or 23.0% of revenue) compared to US$ 25.9 million (or 25.9% of revenue) in Q2 2023. Most projects generated solid operating performance which partially offset the under-absorption of fixed costs.
  
  
• During the quarter, EBITDA amounted to US$ 16.4 million (or 21.0% of revenue) compared to US$ 23.8 million (or 23.8% of revenue) for the same quarter last year.

Highlights – H1 2024

Revenue

• For the six-month period ending June 30, 2024 (H1 2024),  revenue amounted to US$ 155.0 million compared to US$ 188.4 million in H1 2023.

Profitability

• In H1 2024, the gross margin, inclusive of depreciation within cost of sales, was US$ 34.7 million (or 22.4% of revenue), compared to US$ 47.1 million (or 25.0% of revenue) in H1 2023.
  
  
• During H1, EBITDA amounted to US$ 34.0 million (or 21.9% of revenue), compared to US$ 42.9 million (or 22.8% of revenue) for the same period last year.
  
  
• The Free Cash Flow for the period was US$ (9.7) million, mainly attributed to  working capital requirements to support the development in North America and Asia Pacific.

Financial results

Revenue

Q2 2024

Revenue for the quarter decreased by US$ 22.2 million, from US$ 100.1 million in Q2 2023 to US$ 77.9 million in Q2 2024. The decline in junior activity , which amounted to US$ 11.0 million, accounted for nearly half of this decrease and mainly impacted South America. Additionally, the company  has  reduced its exposure in unstable jurisdictions in the EMEA region, which further impacted revenue by US$ 8.0 million.

Activity in North America reported its best quarter ever, with a 3% increase in revenue (5% excluding adverse foreign exchange rates) to US$ 32.1 million in Q2 2024, compared to US$ 31.2 million in Q2 2023. This increase is attributed to strong operational performance on ongoing long-term contracts.

In Asia Pacific, Q2 2024 revenue amounted to US$ 22.2 million, marking the best quarter ever with a 33% increase compared to Q2 2023. This growth is primarily attributed to increased demand and the acquisition and commissioning of new rigs.

Revenue in South America decreased by 53% to US$ 18.3 million in Q2 2024, down from US$ 39.0 million in Q2 2023. The region was affected by an early winter season for high-altitude projects and the suspension of activity by  junior companies due to a lack of financing.

In the EMEA region, revenue for the quarter was US$ 5.3 million, compared to US$ 13.1 million in Q2 2023, representing a 60% decrease. This decline was primarily due to the company's exit from Russia and the reduction of its exposure in Africa.

Overall, rig utilization rate in Q2 2024 was 40% compared to 59% in Q2 2023.

H1 2024

H1 2024 revenue amounted to US$ 155.0 million compared to US$ 188.4 million in H1 2023, a decrease of 18%.

Revenue in North America was US$ 59.2 million compared to US$ 60.9 million, a decrease of 3% mainly due to the adverse exchange rate between the US dollar and the Canadian dollar.

In Asia Pacific, H1 2024 revenue amounted to US$ 36.9 million, an increase of 13%.  This increase is mainly linked to the increase in demand and the acquisition and commissioning of new rigs.

Revenue in South America amounted to US$ 43.8 million in H1 2024 (US$ 70.2 million in H1 2023), a decrease of 38%. Several clients delayed issuing orders to remobilize long-term contracts at the beginning of the year, while Q2 activity was impacted by the withdrawal of junior companies due to a lack of financing and an early winter season for high-altitude projects.

In EMEA, revenue decreased by 39% (from US$ 24.7 million in H1 2023 to US$ 15.1 million in H1 2024). The Company sold its participation in Russia in Q1 2024 and continued to reduce exposure in unstable jurisdictions.

Gross profit

Q2 2024

The Q2 2024 gross margin including depreciation within cost of sales was a solid US$ 17.9 million (or 23.0% of revenue) compared to US$ 26.0 million (or 25.9% of revenue) in Q2 2023. Most projects generated solid operating performance which partially offset the under-absorption of fixed costs.

H1 2024

The H1 2024 gross margin including depreciation within cost of sales was US$ 34.7 million (or 22.4% of revenue) compared to US$ 47.1 million (or 25.0% of revenue) in H1 2023. Most projects generated solid operating performance which partially offset the under-absorption of fixed costs.

Selling, General and Administrative Expenses

Q2 2024

SG&A decreased 18% compared to the same quarter last year. As a percentage of revenue, SG&A remained stable around 7.0% of the revenue.

H1 2024

SG&A decreased by 14% compared to the same period last year. As a percentage of revenue, SG&A was stable.

Operating result

Q2 2024

The operating profit was US$ 12.1 million compared to US$ 18.9 million in the same quarter last year.

H1 2024

The operating profit was US$ 24.7 million compared to US$ 33.1 million in the same period last year. On March 15, 2024,  the Company finalized the sale of its 50 % stake in Eastern Drilling Company (EDC) Russia. This transaction generated a net profit of US$ 2.1 million recorded in other operating income and expense within operating profit.

Financial position

The following table provides a summary of the Company's cash flows for H1 2024 and H1 2023:

In H1 2024, the cash generated from operations before working capital requirements amounted to US$ 33.9 million compared to US$ 42.9 million in H1 2023.

During the same period, the working capital requirements reached US$ 23.5 million compared to US$ 14.3 million for the same period last year, primarily to support the developments in North America and Australia.

During the period, Capex totaled US$ 10.0 million in cash compared to US$ 14.26 million in H1 2023. Capex primarily relates  to the acquisition of rigs, major rig overhauls, ancillary equipment and rods. Three large rotary rigs were added to the fleet during the period.

Strategy

The Company's strategy is to assist its customers in exploring or managing their deposits throughout the entire cycle, with a special focus on the life of mine  activity. The Company intends to continue developing and growing its services across the world with a focus on stable jurisdictions, high tech drilling services, optimal commodities mix including battery metals and gold - with a significant presence in water related drilling services - and a gradual implementation of remote-controlled rigs and other advanced digital applications. The Company expects to execute its strategy primarily through organic growth and targeted acquisitions.

The Company addressed the environmental, social and governance (ESG) requirements, and implements a pragmatic and measurable approach to ESG with quantitative KPIs to maximize improvement and efficiencies.

Currency exchange rates.

The exchange rates for the periods under review are provided in the Management's Discussion and Analysis of Q2 2024.

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 the EBITDA is as follows:

Conference call and webcast

On August 2, 2024, Company Management will conduct a conference call at 10:00 am Eastern Time to review the financial results. The call will be hosted by Tim Bremner, CEO, and Fabien Sevestre, CFO.

You can join the call by dialing 1-888-836-8184 or 1-289-819-1350.  You will be put on hold until the conference call begins. A live audio webcast of the Conference Call will also be available

https://app.webinar.net/G0zrOB9mpN3

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 21 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 7, 2024, 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