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Press release from CNW Group

Major Drilling Announces Record Revenue and Earnings

Wednesday, September 05, 2012

Major Drilling Announces Record Revenue and Earnings16:00 EDT Wednesday, September 05, 2012MONCTON, NB, Sept. 5, 2012 /CNW/ - Major Drilling Group International Inc. (TSX: MDI) today reported results for its first quarter of fiscal year 2013, ended July 31, 2012.Highlights In millions of Canadian dollars(except earnings per share)Q1-13Q1-12Revenue$237.6$164.2Gross profit81.351.5 As percentage of sales34.2%31.4%EBITDA(1)60.135.7 As percentage of revenue25.3%21.7%Net earnings31.917.9Earnings per share0.400.25(1) Earnings before interest, taxes, depreciation and amortization (see "non-gaap financial measures")Major Drilling maintained record quarterly revenue for the second quarter in a row at $237.6 million, up 45% from the $164.2 million recorded for the same quarter last year.Gross margin percentage for the quarter was 34.2%, compared to 31.4% for the corresponding period last year.EBITDA increased 68% to $60.1 million for the quarter compared to the corresponding period last year.Net earnings were also an all-time record at $31.9 million or $0.40 per share for the quarter, compared to net earnings of $17.9 million or $0.25 per share for the prior year quarter.The Company has increased its semi-annual dividend to $0.10 per share, to be paid on November 1, 2012, which represents an 11.1% increase from the previous dividend."We are pleased to report record quarterly results. Our revenue increased by 45% during the quarter to $238 million and we saw our quarterly EBITDA increase by 68% year-over-year," said Francis McGuire, President and CEO of Major Drilling Group International Inc. "Margins in this quarter improved mainly due to our efforts on training and recruitment, which have allowed us to increase the number of shifts and productivity in the field this quarter.""Looking forward, the demand for drilling services from the senior and intermediate mining houses continues.  Revenue from these clients increased in the last quarter to just over $175 million compared to $102 million in the same quarter last year.  Our customers remain committed to the large majority of their projects in order to replace their reserves.  Senior miners will represent a greater proportion of our drilling projects going forward as junior miners become more and more cautious in their spending, given the difficulty in accessing capital." "Overall, we expect demand for specialized drilling to continue in the year ahead.  At the end of July, specialized drilling represented 76% of our revenue and nearly half of our projects were drilling for gold.  While we are optimistic that our senior customers will continue with the majority of their projects, we anticipate that overall drilling activities will decline somewhat over the next six months, particularly with respect to our junior mining clients. In anticipation of a slight decrease of our activity levels, we have reduced our capital expenditure budget for fiscal 2013 to $70 million, down from the $100 million previously announced.  Because of our ongoing need to be able to respond to demand for specialized services, and the need to continue to modernize our fleet, we currently have 15 additional rigs on order.""Net capital expenditures for the quarter were $23.4 million as we purchased 24 rigs while retiring 10 rigs through our modernization program.  During the quarter, we also added a significant number of support vehicles and other support equipment to meet changing patterns of demand and to ensure that we continue to meet the highest levels of safety standards.  These additions should improve rig utilization and reliability as we focus on increasing the earning power of each crew and each rig.  In fact, 60% of our rigs are now less than five years old in an industry where rigs tend to last 20 years.""Most of our senior and intermediate customers are in a much better financial position than three years ago and while the difficulties experienced by juniors have moderated our growth plans over the short-term, it provides a strong upside potential when their exploration activities pick up, as they must, if the mining industry is to provide the world with the resources it needs toward the end of the decade," said Mr. McGuire.  "In addition, the price of gold is almost double what it was in 2008, the price of copper remains relatively high by historical standards, and both are well above average costs of production.  In order to keep our competitive edge through this period, we continue to aggressively and successfully invest in the recruitment and training of new drillers.""Given the Company's continuing ability to generate significant cash, and our minimal debt levels, we have determined that it is appropriate to increase our semi-annual dividend to $0.10 per common share, which will be paid on November 1, 2012 to shareholders of record as of October 10, 2012. This dividend is designated as an "eligible dividend" for Canadian tax purposes."First quarter ended July 31, 2012Total revenue for the quarter was $237.6 million, up 45% from the $164.2 million recorded in the same quarter last year. Most of the Company's regions contributed to this growth. The favourable foreign exchange translation impact for the quarter, when comparing to the effective rates for the same period last year, is estimated at $5 million on revenue.Revenue for the quarter from Canada-U.S. drilling operations increased by 84% to $112.8 million compared to the same period last year.  In Canada, operations from the Bradley acquisition accounted for approximately half of the increase and the pre-existing Canadian operations also saw increased activity levels. Our U.S. operations also continued its growth.South and Central American revenue was up 35% to $69.4 million for the quarter, compared to the prior year quarter. This increase was driven by stronger activity levels in Mexico, Chile and Argentina, combined with additional contracts in Colombia and Suriname from the Bradley acquisition.Australian, Asian and African operations reported revenue of $55.3 million, up 8% from the same period last year.  The increase came mainly from African operations in Burkina Faso, the DRC and Mozambique, which mitigated a decrease in activity levels in Mongolia and Australia.The overall gross margin percentage for the quarter was 34.2%, up from 31.4% for the same period last year.  New pricing on contracts that were signed or renewed for this calendar year reflected the current stronger pricing environment. Also, our training and recruitment efforts allowed the Company to increase the number of shifts and productivity in the field during the quarter.General and administrative costs were $17.3 million for the quarter compared to $12.3 million in the same period last year.  The increase was mainly due to the acquisition of Bradley and the addition of new operations in Burkina Faso.  Increased costs to support the strong growth in activity levels accounted for the rest.Other expenses for the quarter were $5.3 million, up from $2.6 million in the prior year quarter, due primarily to higher incentive compensation expenses given the Company's increased profitability.The Annual 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, on Tuesday, September 18, 2012 at 10:00 am EDT.Non-GAAP Financial MeasuresIn this news release, the Company uses the following non-GAAP financial measures: EBITDA and EBITDA margin. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance of the Company. These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and should not be construed as an alternative to other financial measures determined in accordance with GAAP.Forward-Looking StatementsSome 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 on pages 16 to 18 of the 2012 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 on every continent.Financial statements are attached.Major Drilling will provide a simultaneous webcast of its quarterly conference call on Thursday, September 6, 2012 at 9:00 AM (EDT).  To access the webcast please go to the investors/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.Interim Condensed Consolidated Statements of Operations(in thousands of Canadian dollars, except per share information)(unaudited)        Three months ended  July 31        2012  2011            TOTAL REVENUE$237,565 $164,152      DIRECT COSTS 156,287  112,653      GROSS PROFIT 81,278  51,499      OPERATING EXPENSES      General and administrative 17,299  12,318 Other expenses  5,270  2,603 Loss on disposal of property, plant and equipment 8  600 Foreign exchange (gain) loss (1,369)  321 Finance costs 738  822 Depreciation of property, plant and equipment 12,122  8,395 Amortization of intangible assets 1,065  185  35,133  25,244      EARNINGS BEFORE INCOME TAX  46,145  26,255      INCOME TAX - PROVISION (note 7)      Current 13,509  5,984 Deferred 761  2,379  14,270  8,363      NET EARNINGS$31,875 $17,892            EARNINGS PER SHARE (note 8)     Basic$0.40 $0.25Diluted$0.40 $0.25  Major Drilling Group International Inc.Interim Condensed Consolidated Statements of Comprehensive Earnings (in thousands of Canadian dollars)(unaudited)        Three months ended      July 31        2012  2011      NET EARNINGS $31,875 $17,892      OTHER COMPREHENSIVE EARNINGS (LOSS)      Unrealized gains on foreign currency translations (net of tax) 7,651  1,809 Unrealized loss on interest swap (net of tax) (144)  -       COMPREHENSIVE EARNINGS $39,382 $19,701Major Drilling Group International Inc.Interim Condensed Consolidated Statements of Changes in EquityFor the three months ended July 31, 2011 and 2012(in thousands of Canadian dollars)(unaudited)                          Share-based Retained Foreign currency     Share capital Reserves payments reserve earnings translation reserve Total                 BALANCE AS AT MAY 1, 2011 $150,642 $- $10,280 $170,425 $(3,662) $327,685                    Share-based payments reserve  -  -  554  -  -  554   150,642  -  10,834  170,425  (3,662)  328,239Comprehensive earnings:                   Net earnings   -  -  -  17,892  -  17,892 Unrealized gains on foreign currency translations  -  -  -  -  1,809  1,809Total comprehensive earnings  -  -  -  17,892  1,809  19,701                   BALANCE AS AT JULY 31, 2011 $150,642 $- $10,834 $188,317 $(1,853) $347,940                                      BALANCE AS AT MAY 1, 2012 $230,763 $121 $11,797 $ 246,809 $(1,791) $487,699                    Share-based payments reserve  (93)  -  860  -  -  767   230,670  121  12,657  246,809  (1,791)  488,466Comprehensive earnings (loss):                   Net earnings   -  -  -  31,875  -  31,875 Unrealized loss on interest swap  -  (144)  -  -  -  (144) Unrealized gains on foreign currency translations      -    -    -    -      7,651    7,651Total comprehensive earnings (loss)  -  (144)  -  31,875  7,651  39,382                   BALANCE AS AT JULY 31, 2012 $230,670 $(23) $12,657 $ 278,684 $5,860 $527,848Major Drilling Group International Inc.Interim Condensed Consolidated Statements of Cash Flows(in thousands of Canadian dollars)(unaudited)        Three months ended  July 31        2012  2011      OPERATING ACTIVITIES     Earnings before income tax$46,145 $26,255Operating items not involving cash       Depreciation and amortization 13,187  8,580  Loss on disposal of property, plant and equipment 8  600  Share-based payments reserve 767  554  Finance costs recognized in earnings before income tax 738  822  60,845  36,811Changes in non-cash operating working capital items (19,695)  (8,833)Finance costs paid (735)  (822)Income taxes paid (7,889)  (5,013)Cash flow from operating activities 32,526  22,143        FINANCING ACTIVITIES     Repayment of long-term debt (1,564)  (2,190)Proceeds from long-term debt -  10,000Dividends paid (7,123)  (5,283)Cash flow (used in) from financing activities (8,687)  2,527      INVESTING ACTIVITIES     Payment of consideration for previous business acquisition (813)  -Acquisition of property, plant and equipment (note 6) (23,401)  (21,410)Proceeds from disposal of property, plant and equipment 268  684Cash flow used in investing activities (23,946)  (20,726)      Effect of exchange rate changes (395)  (367)      (DECREASE) INCREASE IN CASH  (502)  3,577      CASH, BEGINNING OF THE PERIOD 37,237  16,215      CASH, END OF THE PERIOD$36,735 $19,792Major Drilling Group International Inc.Interim Condensed Consolidated Balance SheetsAs at July 31, 2012 and April 30, 2012(in thousands of Canadian dollars)(unaudited)                  July 31, 2012  April 30, 2012ASSETS               CURRENT ASSETS        Cash$36,735 $37,237 Trade and other receivables 161,798  159,770 Income tax receivable 4,841  3,314 Inventories 98,752  95,905 Prepaid expenses 11,792  7,476  313,918  303,702      PROPERTY, PLANT AND EQUIPMENT 334,586  318,171      DEFERRED INCOME TAX ASSETS   2,630  2,859      GOODWILL 55,366  54,946      INTANGIBLE ASSETS 5,249  6,295       $711,749 $685,973            LIABILITIES           CURRENT LIABILITIES      Trade and other payables$95,096 $115,805 Income tax payable 10,330  3,142 Current portion of long-term debt 8,675  8,712  114,101  127,659      CONTINGENT CONSIDERATION 2,159  2,760      LONG-TERM DEBT 40,890  42,274      DEFERRED INCOME TAX LIABILITIES   26,751  25,581  183,901  198,274      SHAREHOLDERS' EQUITY      Share capital 230,670  230,763 Reserves (23)  121 Share-based payments reserve 12,657  11,797 Retained earnings 278,684  246,809 Foreign currency translation reserve 5,860  (1,791)   527,848  487,699         $711,749 $685,973MAJOR DRILLING GROUP INTERNATIONAL INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JULY 31, 2012 AND 2011 (UNAUDITED)(in thousands of Canadian dollars, except per share information)1.NATURE OF ACTIVITIESMajor Drilling Group International Inc. ("the Company") is incorporated under the Canada Business Corporations Act and has its head office at 111 St. George Street, Suite 100, Moncton, NB, Canada. The Company's common shares are listed on the Toronto Stock Exchange ("TSX").  The principal source of revenue consists of contract drilling for companies primarily involved in mining and mineral exploration. The Company has operations in Canada, the United States, South and Central America, Australia, Asia and Africa.2.BASIS OF PRESENTATIONStatement of complianceThese interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and using the accounting policies as outlined in the annual notes to consolidated financial statements for the year ended April 30, 2012.Basis of consolidationThese interim condensed consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate.Intra-group transactions, balances, income and expenses are eliminated on consolidation, where appropriate.Basis of preparationThese interim condensed consolidated financial statements have been prepared based on the historical cost basis except for certain financial instruments that are measured at fair value, using the same accounting policies and methods of computation as presented in the annual consolidated financial statements for the year ended April 30, 2012.3. FUTURE ACCOUNTING CHANGESThe Company has not applied the following new and revised IFRSs that have been issued but are not yet effective:IFRS 7 (as amended in 2011) Financial Instruments: DisclosuresIFRS 9 (as amended in 2010) Financial InstrumentsIFRS 10 Consolidated Financial StatementsIFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement IAS 1 Presentation of Financial Statements IAS 12 (amended) Income Taxes - recovery of underlying assets IAS 19 Employee BenefitsIAS 27 (reissued) Separate Financial Statements IAS 28 (reissued) Investments in Associates and Joint VenturesIAS 32 (amended) Financial Instruments: PresentationThe Company is currently evaluating the impact of applying these standards to its consolidated financial statements.4.KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTSThe preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Significant areas requiring the use of management estimates relate to the useful lives of property, plant and equipment for amortization purposes, property, plant and equipment and inventory valuation, determination of income and other taxes, assumptions used in compilation of share-based payments, fair value of assets acquired and liabilities assumed in business acquisitions, amounts recorded as accrued liabilities, and impairment testing of goodwill and intangible assets. The Company applied judgment in determining the functional currency of the Company and its subsidiaries, determination of cash generating units ("CGUs"), the degree of componentization of property, plant and equipment, and the recognition of provisions and accrued liabilities.5.SEASONALITY OF OPERATIONSWith the exception of the third quarter, the Company exhibits comparatively less seasonality in quarterly revenue than in the past. 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.6.PROPERTY PLANT & EQUIPMENTCapital expenditures were $23,401 for the quarter ended July 31, 2012 compared to $21,410 for the same period last year.  During the quarter, the Company added 24 drill rigs through its capital expenditure program while retiring or disposing of 10 drill rigs through its modernization program.7.INCOME TAXESThe income tax expense for the period can be reconciled to accounting profit as follows:  2013 Q1  2012 Q1      Earnings before income tax$46,145 $26,255      Statutory Canadian corporate income tax rate 29%  29%      Expected income tax expense based on statutory rate$13,382 $7,614Non-recognition of tax benefits related to losses 315  48Other foreign taxes paid 355  51Rate variances in foreign jurisdictions 119  (298)Other 99  948 $14,270 $8,363The Company periodically assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. For those matters where it is probable that an adjustment will be made, the Company recorded its best estimate of these tax liabilities, including related interest charges. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax laws. While management believes they have adequately provided for the probable outcome of these matters, future results may include favorable or unfavorable adjustments to these estimated tax liabilities in the period the assessments are made, or resolved, or when the statute of limitation lapses.8.EARNINGS PER SHAREAll of the Company's earnings are attributable to common shares therefore net earnings are used in determining earnings per share.  2013 Q1  2012 Q1      Net earnings for the period$31,875 $17,892      Weighted average shares outstanding - basic (000's) 79,147  72,040      Net effect of dilutive securities:     Stock options (000's) 637  881Weighted average number of shares - diluted (000's) 79,784  72,921      Earnings per share:     Basic$0.40 $0.25Diluted$0.40 $0.25There were no anti-dilutive options for the three months ended July 31, 2012.  The calculation of the diluted earnings per share for the period ended July 31, 2011 exclude the effect of 75,271 options as they were anti-dilutive.The total number of shares outstanding on July 31, 2012 was 79,147,378.9.SEGMENTED INFORMATIONThe Company's operations are divided into three geographic segments corresponding to its management structure, Canada - U.S., South and Central America, and Australia, Asia and Africa. The services provided in each of the reportable drilling segments are similar. The accounting policies of the segments are the same as those described in the annual consolidated financial statements for the year ended April 30, 2012. Management evaluates performance based on earnings from operations in these three geographic segments before finance costs and income taxes.  Data relating to each of the Company's reportable segments is presented as follows:  2013 Q1  2012 Q1       Revenue      Canada - U.S.$112,837 $61,438 South and Central America 69,413  51,292 Australia, Asia and Africa 55,315  51,422       $237,565 $164,152      Earnings from operations      Canada - U.S.$25,471 $9,986 South and Central America 16,751  10,599 Australia, Asia and Africa 9,021  11,058  51,243  31,643Eliminations 521  (25)  51,764  31,618Finance costs 738  822General and corporate expenses* 4,881  4,541Income tax 14,270  8,363Net earnings  $31,875 $17,892      *General and corporate expenses include expenses for corporate offices and stock options      Depreciation and amortization      Canada - U.S.$5,480 $3,341 South and Central America 3,212  2,271 Australia, Asia and Africa 4,027  2,664Unallocated corporate assets 468  304Total depreciation and amortization$13,187 $8,580              July 31, 2012  April 30, 2012Identifiable assets      Canada - U.S.$276,970 $252,233 South and Central America 220,792  212,861 Australia, Asia and Africa 195,951  186,442  693,713  651,536Eliminations (771)  (573)Unallocated and corporate assets 18,807  35,010 $711,749 $685,973Canada - U.S. includes revenue for the period ended July 31, 2012 of $67,025 (July 31, 2011 - $33,225) for Canadian operations and property, plant and equipment at July 31, 2012 of $88,034 (April 30, 2012 - $87,629).10. FINANCIAL INSTRUMENTSThere are no significant changes to financial instruments compared to the Company's annual consolidated financial statements for the year ended April 30, 2012 except for the following:Fair valueThe carrying values of cash, trade and other receivables, demand credit facility and trade and other payables approximate their fair value due to the relatively short period to maturity of the instruments.  The following table shows carrying values of long-term debt and contingent consideration and approximates their fair value, as most debts carry variable interest rates and the remaining fixed rate debts have been acquired recently and their carrying value continues to reflect fair value.  The fair value of the interest rate swap included in long-term debt is measured using quoted interest rates. July 31, 2012 April 30, 2012      Contingent consideration$2,159 $2,760Long-term debt 49,565  50,986Credit riskAs at July 31, 2012, 80.5% of the Company's trade receivables were aged as current and 1.5%of the trade receivables were impaired.The movement in the allowance for impairment of trade receivables during the period was as follows:Balance as at April 30, 2012$2,236Increase in impairment allowance 38Foreign exchange translation differences 25Balance as at July 31, 2012$2,299Foreign currency riskThe most significant carrying amounts of net monetary assets that: (1) are denominated in currencies other than the functional currency of the respective Company subsidiary; (2) cause foreign exchange rate exposure; and (3) may include intercompany balances with other subsidiaries, at the reporting dates are as follows: July 31, 2012 April 30, 2012U.S. Dollars$14,688 $          45,555If the Canadian dollar moved by plus or minus 10% at July 31, 2012, the unrealized foreign exchange gain or loss would move by approximately $1,469 (April 30, 2012 - $4,556).Liquidity riskThe following table details the Company's contractual maturities for its financial liabilities.Non-derivative financial liabilities:   1 year2-3 years4-5 yearsthereafterTotal           Trade and other payables$95,096$-$-$-$95,096Contingent consideration 753 1,255 151 - 2,159Long-term debt 8,659 17,679 19,121 4,083 49,542 $104,508$18,934$19,272$4,083$146,797            Derivative financial liabilities:   1 year2-3 years4-5 yearsthereafterTotal           Interest rate swap$16$12$(5)$-$23   SOURCE: MAJOR DRILLING GROUP INTERNATIONAL INC.For further information: Denis Larocque, Chief Financial Officer   Tel: (506) 857-8636 Fax: (506) 857-9211 ir@majordrilling.com