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Press release from CNW Group

FORACO INTERNATIONAL REPORTS Q4 and FY 2010

Tuesday, March 08, 2011

FORACO INTERNATIONAL REPORTS Q4 and FY 201006:00 EST Tuesday, March 08, 2011Q 4 Revenue up96%, Net Earnings up 44%; Order Backlog up 3.6 times Year over Year /NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES NOR FOR DISSEMINATION IN THE UNITED STATES/TORONTO and MARSEILLE, France, March 8 /CNW/ - Foraco International SA (TSX:FAR) (the "Company" or "Foraco"), a leading global provider of diversified drilling services, today reported unaudited financial results for its fourth quarter and full year 2010. All figures are reported in US Dollars (US$), unless otherwise indicated."Q4 was a positive period for the Company and for the mining industry. Demand for drilling services surged, fueled by strong commodity prices which will lead to increased exploration budgets for 2011. During this period, we had strong revenues for the last quarter and built a record backlog at improved prices. In parallel, we also managed to renegotiate favorably the financial conditions of certain long-term contracts," said Daniel Simoncini, Chairman and co-CEO of Foraco. "To respond to the significant increase in demand, both in terms of volume and quality, we have launched a solid capital expenditure program with the addition of six new rigs to our fleet in 2011. Overall, we expect 2011 to be a robust year, therefore the Board of Directors proposed a dividend payment of € 0,028 per share, to be approved by shareholders at the Company's Annual General Meeting on May 10th, 2011. This dividend per share is the same as last year, even though there are approximately 20 more million shares on a fully diluted basis."Foraco saw positive results in Q4, with all regions growing year over year, except in Africa where adverse political events caused the Company to stop operations in the Ivory Coast and Niger, with a moderate impact on the bottom line. Adviser turn-around is well underway following our reshaping of operations and the profitability in this geographic area is starting to pick up really nicely," commented Jean-Pierre Charmensat, co-CEO and Chief Financial Officer. "During this quarter, which is traditionally the weakest, we improved our EBITDA and our EBITDA per share compared to the same quarter last year, confirming that our acquisitions have had an accretive impact as early as year one."2010 Business AcquisitionsOn May 26, 2010, the Company acquired a 100% shareholding in Adviser Drilling SA ("Adviser"), a company based in Chile.  Adviser operates in Chile, Argentina and Mexico.On May 27, 2010, the Company completed the acquisition of a 50% controlling interest in LLC Eastern Drilling Company ("EDC"), a company based in Russia. EDC operates in Far East Russia and Eastern Siberia.On April 14, 2009, the Company acquired a 51% majority shareholding in Mosslake Drilling Services PTY Ltd ("Mosslake") which operates in Australia. On August 16, 2010, the Company acquired the remaining 49% minority interest.Order BacklogAs a result of the combination of internal growth and external acquisitions, the Company's order backlog, as at December 31, 2010, amounted to US$ 289 million, of which US$ 209 million is expected to be executed during the 2011 fiscal year.Three Months Q4 2010 HighlightsRevenue Q4 2010 revenue amounted to US$ 51.6 million, an increase of US$ 25.3 million or 96% compared to Q4 2009.Q4 2010 revenue in the Mining segment increased by US$ 29.7 million during the quarter, partially offset by a US$ 4.4 million decrease in the Water segment.South America contributed revenue of US$ 22.7 million during the period (nil in Q4 2009). Excluding South America, the net revenue of the Company increased by US$ 2.6 million or 10% compared to Q4 2009 which was previously the record high Q4 revenue for the Company.ProfitabilityQ4 2010 gross profit (including depreciation within cost of sales) amounted to US$ 10.2 million, an increase of US$ 3.6 million or 54% compared to Q4 2009.Q4 2010 net profit after tax amounted to US$ 3.4 million, an increase of US$ 1.1 million or 44% compared to Q4 2009.Q4 2010 EBITDA amounted to US$ 11.6 million compared to US$ 6.5 million in Q4 2009. EBITDA per share represented US$0.144 in Q4 2010 compared to US$0.111 in Q4 2009.FY 2010 HighlightsFY 2010 revenue amounted to US$ 164.0 million, an increase of US$ 44.6 million or 37% compared to FY 2009.FY 2010 gross profit (including depreciation within cost of sales) amounted to US$ 36.1 million, an increase of US$ 0.5 million or 1% compared to FY 2009.FY 2010 net income amounted to US$ 11.3 million compared to US$ 13.8 million for FY 2009, an 18% decrease.FY 2010 EBITDA amounted to US$ 37.8 million, an increase of US$ 4.4 million or 13% compared to FY 2009. EBITDA per share represented US $0.53 in FY 2010 compared to US $0.57 in FY 2009.FY 2010 cash generated from operations before changes in operating assets and liabilities amounted to US$ 37.5 million compared to US$ 33.3 million for FY 2009.The net debt to equity ratio at the end of the period remains low at 0.24.On March 7, 2011, the Board of Directors proposed a dividend payment of € 0.028 to be approved by shareholders at the Company General Meeting on May 10th, 2011.Selected Financial Data(In thousands of US$)Q4 2010% changeQ4 2009 FY 2010% changeFY 2009        (unaudited)    Revenue51,60996%26,320 164,04037%119,402 Gross Profit (1) 10,21454%6,633 36,1082%35,559 Operating Profit4,96875%2,834 16,901-17%20,260 Net earnings3,36644%2,333 11,331-18%13,810         EBITDA11,63278%6,526 37,75713%33,509        (1) includes amortization and depreciation expenses(2) excludes cost of salesFinancial ResultsForaco's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"), rather than Canadian Generally Accepted Accounting Principles ("Canadian GAAP"), and as such may not be directly comparable to the financial statements of other Canadian issuers.As of the second quarter ended June 30, 2010, and in accordance with IFRS, the Company has elected to report its consolidated financial statements using the US Dollar as its presentation currency. Previously, the Company reported in Euros. All figures previously reported in Euros have been converted at historical, average or closing currency exchange rate, as appropriate and in accordance with generally accepted accounting principles.Revenue(In thousands of US$)Q4 2010% changeQ4 2009 FY 2010% changeFY 2009        (unaudited)  Reporting segment       Mining48,116161%18,422 146,11469%86,669Water3,496-56%7,898 17,925-45%32,734Total revenue51,60996%26,320 164,04037%119,402        Geographic region       Africa11,478-10%12,749 46,655-20%58,384Europe2,955-11%3,303 14,084-11%15,771Asia Pacific6,98760%4,373 24,37960%15,259North America7,45126%5,894 29,598-1%29,988South America22,739-- 49,325--Total revenue51,60996%26,320 164,04037%119,402As a result of the acquisition of Adviser, the Company now benefits from a significant presence in South America. Until June 2010, the Company had only one geographic region for America which is now split between North and South America for internal reporting purposes. For the purpose of the segment reporting, South America includes Mexico and Europe includes Russia.Q4 2010 RevenueQ4 2010 revenue amounted to US$ 51.6 million, an increase of US$ 25.3 million or 96% compared to Q4 2009, mainly as a result of:A US$ 29.7 million increase in the Mining segment (or 161%), partially offset by a US$ 4.4 million decrease in the Water segment (or 56%).The activity in South America which generated revenue of US$ 22.7 million in Q4 2010 (nil in Q4 2009).The increased level of revenue generated by other geographic regions, which represented US$ 2.6 million, a 10% increase compared to Q4 2009.In Africa, the Q4 2010 revenue decreased by US$ 1.3 million compared to Q4 2009. This is mainly due to the political crisis in Ivory Coast and to the terrorist threat in Niger. The Company had to stop most of its operations in these two countries and redeploy personnel and equipment to other West African countries. In the Mining segment, the activity increased by US$ 2.9 million or 51% in Q4 2010 compared to Q4 2009.The Company has no presence in North Africa or the Middle East and as such is not directly affected by recent events in these areas.Revenue in Europe decreased by US$ 0.3 million in Q4 2010 compared to Q4 2009. The strong performance in Russia compensated the decrease in activity in France where certain public contracts were not renewed as a result of government budget cuts.In Asia-Pacific, Q4 2010 revenue amounted to US$ 7.0 million, an increase of US$ 2.6 million or 60% compared to Q4 2009. This increase was mainly attributable to the recovery of mining activity in Australia. The Company believes it is well positioned in this region to further this development and is currently investing in new rigs to be delivered in 2011.As a result of continuing improvements of market conditions in Canada, revenue in North America increased by 26% from US$ 5.9 million in Q4 2009 to US$ 7.5 million in Q4 2010.The integration of Adviser generated US$ 22.7 million revenue in South America in Q4 2010 (nil in Q4 2009), dominated by long-term contracts with major companies in Chile, as well as strong activity in Argentina. The Company relocated some rigs from Mexico to Chile to benefit from better market conditions. The marked improvement of Adviser's financial performance noted in the third quarter continued through Q4 2010.FY 2010FY 2010 revenue amounted to US$ 164.0 million, an increase of US$ 44.6 million or 37% compared to FY 2009.In 2010, revenue in the Mining segment increased by US$ 59.4 million or 69%, a significant portion of which was due to the acquisition of Adviser which accounted for US$ 49.3 million.  In the Water segment, revenue decreased by US$ 14.8 million or 45%, from US$ 32.7 million during 2009 to US$ 17.9 million in 2010.In Africa, the FY 2010 revenue decreased by US$ 11.7 million compared to FY 2009. Adverse political events, in Niger and Guinea in 2010, and in the Ivory Coast at the end of the year, affected the Company's operations in these countries. In spite of the above, in the Mining segment, the activity remained satisfactory with a 5% increase.In Europe, revenue decreased by US$1.6 million. In France, certain public contracts were not renewed as a result of government budget cuts. The strong performance in Russia in the second half of the year only partially compensated these losses.In Asia-Pacific, revenue amounted to US$ 24.4 million, an increase of US$ 9.1 million or 61% compared to last year. This increase was mainly attributable to the recovery of mining activity in Australia and the full integration of Mosslake in 2010.In North America, revenue amounted to US$ 29.6 million, almost stable compared to 2009. Operations in Canada were affected by the general weak market conditions for mining during the first half of the year which improved notably in the second half.The integration of Adviser generated a US$ 49.3 million revenue in South America in 2010 (nil in 2009), mostly in Chile and Argentina. Mexico was affected by downward pressure on prices.Gross Profit(In thousands of US$)Q4 2010% changeQ4 2009 FY 2010% changeFY 2009        (unaudited)         Reporting segment        Mining9,499126%4,202 31,73521%26,162 Water715-71%2,431 4,373-53%9,397Total gross  profit 10,21454%6,633 36,1082%35,559Q4 2010Q4 2010 gross profit amounted to US$ 10.2 million, an increase of US$ 3.6 million or 54% compared to Q4 2009. As a percentage of revenue, gross profit decreased to 20% in Q4 2010 from 25% in Q4 2009. Gross profit includes the impact of depreciation expense within cost of sales. Depreciation expense was US$ 6.4 million in Q4 2010 compared to US$ 3.2 million in Q4 2009, an increase of US$ 3.2 million. This is mainly due to the integration of Adviser's recently acquired fleet of modern drilling rigs. The Company has a conservative depreciation policy regarding drilling rigs with an average term of 7 years.In the mining segment, Q4 gross profit increased from US$ 4.2 million (or 23% of revenue) to US$ 9.5 million (or 20% of revenue). During the second half of 2010, and particularly in Q4, the mining segment benefited from more favorable market conditions.  In South America, the Company was able to renegotiate certain long-term contracts and to implement several measures to improve the profitability of its operations, the full benefit of which should be expected in 2011. In Russia, Management's expectations of the profitability were fully met. However, in Canada and Australia, contract margins have yet to benefit from the recovery of activity.In the Water segment, gross profit margins are lower due to under-absorption of fixed costs compared to Q4 2009.FY 2010FY 2010 gross profit amounted to US$ 36.1 million, an increase of US$ 0.5 million or 2% compared to FY 2009. As a percentage of revenue, gross profit decreased to 22% in 2010 from 30% in 2009.Gross profit includes the impact of depreciation expense within cost of sales. Depreciation expense was US$ 20.0 million in 2010 compared to US$ 12.1 million in 2009, an increase of US$ 7.9 million. This is mainly due to the integration of Adviser's recently acquired fleet of modern drilling rigs. EBITDA amounted to US$ 37.8 million compared to US$ 33.4 million in 2009, a 13% increase.In the mining segment, gross profit increased to US$ 31.7 million from US$ 26.2 million. As a percentage of revenue, gross profit decreased to 22% from 30%. This decrease in percentage is attributable to higher depreciation expenses, but also to overall lower gross margins in South America and continuing pressure on prices in Canada and Australia where contract margins have yet to benefit from the recovery of activity.In the Water segment, gross profit margins are lower due to under-absorption of fixed costs compared to FY 2009.Operating Expense (excluding cost of sales)(In thousands of US$)(unaudited)Q4 2010% changeQ4 2009FY 2010% changeFY 2009       Selling, general and administrative (SG&A) expenses 5,30136%3,88519,50825%15,609Other (income) and expense, net-55--86-301-3%-310Total operating expenses5,25638%3,79919,20726%15,299Q4 2010 operating expenses amounted to US$ 5.2 million, an increase of US$ 1.4 million or 38% compared to Q4 2009. As a percentage of revenue, operating expenses are now 10% in Q4 2010 as compared to 14% in Q4 2009. This is the direct result of the better absorption of fixed costs as a consequence of the significant increase in activity.FY 2010 operating expenses amounted to US$ 19.2 million, an increase of US$ 3.9 million or 26% compared to FY 2009. As a percentage of revenue, operating expenses are now 12% in 2010 as compared to 13% in 2009. Within operating expenses are recorded US$ 0.9 million of transaction costs related to the acquisitions of Adviser and EDC, which were accounted for within general and administrative expenses as required by IFRS 3(R), effective as at January 1, 2010. Excluding this impact, operating expenses as a percentage of revenue is lower, a direct result of the better absorption of fixed costs.Operating profit(In thousands of US$)Q4 2010% changeQ4 2009 FY 2010% changeFY 2009(unaudited)        Reporting segment        Mining 4,598198%1,542 14,891-1%15,015 Water370-71%1,291 2,010-62%5,245Total operating profit  4,96875%2,834 16,901-17%20,260Operating profit increased to US$ 5.0 million in Q4 2010 compared to US$ 2.8 million in Q4 2009. This variation is primarily due to this year's higher gross profit which exceeded the increase in selling, general and administrative expenses, a large portion of which are fixed costs.In spite of the improvement seen in the second half of the year, operating profit decreased to US$ 16.9 million in 2010 compared to US$ 20.3 million in 2009.Financial PositionThe following table provides a summary of the Company's cash flows for FY 2010 and FY 2009:(In thousands of US$)FY 2010FY 2009   Cash generated from operations before working capital requirements37,46633,329Working capital requirements, interest and tax(20,103)(8,259)   Net cash flow from operating activities17,363 25,070    Purchase of equipment in cash(13,735)(9,459)Acquisition of subsidiaries, net of cash acquired(7,019)(2,509)   Net cash used in investing activities(20,754)(11,968)   Repayment of financial debts, net of proceeds(2,154)(5,049)Dividends paid(2,039)(1,221)Exchange differences and other items(3,401)(487)   Net cash used in financing activities(7,594)(6,757)   Variation in cash and cash equivalents(10,985)6,345 FY 2010 cash generated from operations before changes in operating assets and liabilities increased to US$ 37.5 million in 2010 from US$ 33.3 million in 2009.The additional working capital requirement is largely due to the increased activity together with the effect of the corporate administrative reorganization in South America which resulted in delays to the billing of customers at the end of 2010, for approximately US$ 6 million in Q4 2010. This has since been resolved.In 2010, the Company acquired operating equipment through US$ 13.7 million in cash purchases and US$ 2.6 million in finance leases not shown in the table above as they were non cash transactions, compared to a total of US$ 9.5 million in 2009.As at December 31, 2010, cash and cash equivalents totaled US$ 14.9 million compared to US$ 25.9 million as at December 31, 2009.As at December 31, 2010, financial debts and equivalents amounted to US$ 49.6 million (US$ 12.4 million at December 31, 2009).Number of shares outstandingAs at December 31, 2010, the number of shares was 74,678,750 along with 4,756,539 warrants, i.e. a total of 79,435,289 including warrants to be issued at no consideration. Included in this figure are 845,500 treasury shares.Currency and Exchange RateThe exchange rates for the periods under review are provided in the Management's Discussion and Analysis of Q4 2010.OutlookThe Company's business strategy is to continue to grow through the development and optimization of the services it offers across geographical regions and industry segments, as well through the expansion of its customer base. Foraco expects to continue to execute its strategy through a combination of organic growth and development and acquisitions of complementary businesses in the drilling services industry.As at December 31, 2010, the Company's order backlog for continuing operations was US$ 289 million, of which US$ 209 million is expected to be executed during the 2011 fiscal year. This compares to an order backlog as at December 31, 2009 of US$ 80 million of which US$ 70 million was expected to be executed during the 2010 fiscal year.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 as of any particular date might not be indicative of actual operating results for any succeeding period.Foraco's unaudited Financial Statements and Management's Discussion & Analysis ("MD&A") for the three month period and year ended December 31, 2010 are available via Foraco's website at www.foraco.com and will be available on www.sedar.com.   Conference Call and WebcastOn Tuesday March 8, 2011, Company Management will conduct a conference call at 10:00 am ET to review the financial results. The call will be hosted by Daniel Simoncini, Chairman and CEO, and Jean-Pierre Charmensat, Vice-CEO and CFO.You can join the call by dialing 1-888-231-8191 or 647-427-7450. Please call in 15 minutes ahead of time to secure a line. You will be put on hold until the conference call begins. A live audio webcast of the conference call will also be available through www.foraco.com or at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3414840.An archived replay of the webcast will be available for 90 days.About Foraco International SA Foraco International SA (TSX: FAR) is a global leading drilling services company that provides turnkey solutions for mining, energy, water and infrastructure projects. Supported by its founding values of integrity, innovation and commitment, Foraco has grown into a global enterprise with operations in 22 countries across five continents. For more information about Foraco, visit www.foraco.com.To receive Company press releases, please email jennie@chfir.com and mention "Foraco News" on the subject line."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, 2010, 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.For further information: please contact CHF Investor Relations at:Jeanny So, Director of Operations    Email: jeanny@chfir.com     Tel: +1-416-868-1079 x 225