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Press release from CNW Group

Major Drilling Announces Annual and Fourth Quarter Results for Fiscal 2013

Wednesday, June 05, 2013

Major Drilling Announces Annual and Fourth Quarter Results for Fiscal 2013

17:00 EDT Wednesday, June 05, 2013

MONCTON, NB, June 5, 2013 /CNW/ - Major Drilling Group International Inc. (TSX: MDI) today reported results for the year and fourth quarter ended April 30, 2013.

Highlights

 
In millions of Canadian dollars
(except earnings per share)
Q4-13 Q4-12 Fiscal
2013
Fiscal
2012
Revenue $135.5 $237.2 $695.9 $797.4
Gross profit 43.1 78.5 220.3 251.1
  As percentage of revenue 31.8% 33.1% 31.7% 31.5%
EBITDA(1) 23.5 57.0 142.8 174.4
  As percentage of revenue 17.3% 24.0% 20.5% 21.9%
Net earnings 2.2 30.7 52.1 89.7
Earnings per share - Basic $0.03 $0.39 $0.66 $1.18
(1) Earnings before interest, taxes, depreciation and amortization, excluding restructuring charges, goodwill and intangible impairment and gain on reversal of contingent consideration (see "non-GAAP financial measures")


  • Excluding restructuring charges, impairment charges and gain on reversal of contingent consideration, earnings before taxes for the quarter were $10.1 million.

  • Major Drilling posted quarterly revenue of $135.5 million, down 43% from the $237.2 million record for the same quarter last year.

  • Gross margin percentage for the quarter was 31.8%, compared to 33.1% for the corresponding period last year.

  • The Company posted a restructuring charge of $5.4 million accounting for retrenchment costs, scale down of operations, and write down of assets, and also posted a goodwill and intangible impairment charge of $3.3 million during the quarter, offset by a gain on reversal of contingent consideration of $2.0 million.  Combined, these charges represent a negative impact to fourth quarter 2013 earnings before taxes of $6.8 million.

  • Net earnings (including restructuring and impairment charge) were $2.2 million or $0.03 per share for the quarter, compared to earnings of $30.7 million or 0.39 per share for the prior year quarter.

  • Our total net cash position (net of debt) improved by $8.6 million in the quarter to $38.7 million.  For the year, the Company improved its net cash position by $52 million as compared to last year.

"In February, due to the uncertainty around economic matters impacting the mining market, some customers delayed or cancelled their exploration drilling plans.  In a number of jurisdictions, uncertainty as to the policies of host governments or issues of land tenure also had an impact on this quarter's results.  These factors, combined with the fact that sources of funding for junior mining companies remain limited, have led to significantly decreased activity in certain regions.  As a result, fourth quarter revenue was significantly impacted as compared to the record revenue that the Company realized in the same period last year.  Lower levels of demand have significantly increased competitive pressures and will likely continue to have an impact for the rest of calendar 2013.  Despite lower pricing levels, we maintained good margin performance thanks to the improved productivity of our crews, and despite current conditions, we are pleased that Major Drilling was able to improve its net cash position by $8.6 million as well as show a profit before tax of $10.1 million for the quarter, excluding restructuring charges, impairment charges and gain on reversal of contingent consideration," said Francis McGuire, President and CEO of Major Drilling.

"In light of the slowdown in activity, we have undertaken a review and restructuring of certain operations. During the quarter, we implemented reductions of salaried employees as we target a reduction of 20% in our general and administrative costs from our peak level incurred in the first quarter of this year. As part of this, we decided to significantly scale down our Tanzanian operation and our U.S. environmental division.  The costs relating to these initiatives have been recorded as part of the $5.4 million restructuring charge.  Due to the continuing governmental budgetary constraints in the U.S. affecting its environmental division, we also recorded a goodwill and intangible impairment charge of $3.3 million, but also recorded a gain from reversal of contingent consideration of $2.0 million, related to the acquisition costs of the environmental business, which will no longer be paid.  Finally, as part of these actions, senior management's salaries and directors' fees are being reduced."

"The Company continues to have a variable cost structure whereby most of its direct costs, including field staff, go up or down with contract revenue and a large part of the Company's other expenses relates to variable incentive compensation based on the Company's profitability. Despite the difficult environment, we expect operations to generate positive cash flow in fiscal 2014. The Company will continue to focus on cash management by limiting capital expenditures, by reducing inventory and by closely monitoring costs."

"At the same time, the Company's financial strength allows it to continue to invest in safety, to maintain its equipment in excellent condition, and to retain skilled employees, all of which are essential to react quickly when the industry recovers.  The Company remains in an excellent financial position, remaining debt-free, net of cash, during the quarter.  Total cash level, net of long-term debt, stood at $38.7 million at quarter-end.  Capital expenditures for the quarter were $9.5 million as we purchased 14 rigs, while retiring 39 rigs through our modernization program.  At this point, we anticipate continuing to invest at this pace as we see opportunities to expand our capacity in specialized drilling and to expand in other parts of the world, such as Brazil.  This will also allow us to continue our strategy of maintaining a sustainable dividend policy."

"The current economic environment will continue to significantly impact drilling in the short to medium-term, particularly on gold projects where the Company has a significant presence, and the Company is experiencing further delays and cancellations as compared to the quarter just completed.  Also, lower levels of demand have increased competitive pressures, which may impact pricing going forward.  The impact of lower pricing should be partially offset by the increased productivity of our experienced drilling crews."

"Over time, we expect many of the supply issues that face most commodities to come back into focus and that even with moderate growth in the world economy, the need to explore and develop mines will increase.  We believe that the need to develop resources in areas that are increasingly difficult to access will continue to increase over time, which should increase demand for specialized drilling," said Mr. McGuire.

Fourth quarter ended April 30, 2013

Total revenue for the quarter was $135.5 million, down 43% from the $237.2 million record in the same quarter last year. Due to the uncertainty around economic matters impacting the mining market, some customers delayed or cancelled their exploration drilling plans, which impacted the quarter's results compared to last year.  In a number of jurisdictions, uncertainty as to the policies of host governments or issues of land tenure also had an impact on quarter results.  Also, many junior customers have scaled back or suspended drilling activities as compared to last year.

Revenue for the quarter from Canada-U.S. drilling operations decreased by 42% to $61.8 million compared to the same period last year.  Both countries were affected by delays and the cancellation of projects.

South and Central American revenue was down 41% to $43.5 million for the quarter, compared to the prior year quarter. All of the countries in this region, particularly Mexico, Chile and Argentina, were affected by a reduction in work by juniors and the cancellation or reduction of projects.

Australian, Asian and African operations reported revenue of $30.2 million, down 47% from the same period last year.  Australia, where projects have been cancelled due to high costs being incurred by mining companies and new mining taxes, was impacted the most.  The Company also saw decreases in other regions including Mongolia, which is affected by political uncertainty.

The overall gross margin percentage for the quarter was 31.8% compared to 33.1% for the same period last year.  Reduced pricing due to increased competitive pressures and delays impacted margins, however the Company has been able to recapture some of this loss through productivity gains and cost cutting.

General and administrative costs were $15.3 million for the quarter compared to $16.0 million in the same period last year.  With the decrease in activity, the Company has reduced its general and administrative costs, in part related to the integration of the Bradley operations.  At the same time, the Company is opening new branches in Brazil and Calgary.  During the quarter, the Company implemented reductions of salaried employees and restructured certain branches as it targets a reduction of 20% in general and administrative costs from the peak levels incurred in the first quarter of this year.

Other expenses for the quarter were $0.4 million, down from the $4.0 million reported in the prior year quarter.  This quarter's amount consists of incentive compensation expenses and bad debt provisions, offset by a gain on reversal of contingent consideration of $2.0 million, whereas other expenses for the same quarter last year were mainly composed of incentive compensation expenses given the Company's profitability in that quarter.

The Company recorded a restructuring charge of $5.4 million consisting primarily of scale down costs of its U.S. environmental division and its Tanzanian operations, as well as retrenchment costs following staff reduction initiatives implemented during the quarter across the Company.

Due to the continuing governmental budgetary constraints in the U.S. affecting its environmental division, the Company recorded a goodwill and intangible impairment charge of $3.3 million.

Non-GAAP Financial Measures

In this news release, the Company uses the following non-GAAP financial measures: EBITDA and EBITDA as a percentage of revenue. 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 Statements

Some 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, June 6, 2013 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.
Condensed Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share information)
 
     
    Three months ended   Twelve months ended
    April 30   April 30
    (unaudited)    
                         
      2013     2012     2013     2012
                         
                         
TOTAL REVENUE   $ 135,537   $ 237,238   $  695,928   $ 797,432
                         
DIRECT COSTS     92,450     158,786     475,589     546,306
                         
GROSS PROFIT     43,087     78,452     220,339     251,126
                         
OPERATING EXPENSES                        
  General and administrative     15,318     16,024     63,827     57,980
  Other expenses     411     4,019     10,585     16,055
  Loss on disposal of property, plant and equipment     1,232     54     2,452     1,370
  Foreign exchange loss (gain)     699     1,338     (1,311)     1,319
  Finance costs     346     707     2,316     3,367
  Depreciation of property, plant and equipment     12,575     11,587     49,997     39,975
  Amortization of intangible assets     412     1,054     2,840     2,629
  Impairment of goodwill and intangible assets     3,324     -     3,324     -
  Restructuring charge     5,440     -     5,440     -
      39,757     34,783     139,470     122,695
                         
EARNINGS BEFORE INCOME TAX     3,330     43,669     80,869     128,431
                         
INCOME TAX - PROVISION (RECOVERY)                        
  Current     3,590     11,215     32,077     24,592
  Deferred     (2,434)     1,723     (3,318)     14,090
      1,156     12,938     28,759     38,682
                         
NET EARNINGS   $ 2,174   $ 30,731   $ 52,110   $ 89,749
                         
                         
EARNINGS PER SHARE                         
Basic   $ 0.03   $ 0.39   $ 0.66   $ 1.18
Diluted   $ 0.03   $ 0.38   $ 0.65   $ 1.16

 

Major Drilling Group International Inc.
Condensed Consolidated Statements of Comprehensive Earnings 
(in thousands of Canadian dollars)
 
     
    Three months ended   Twelve months ended
    April 30   April 30
    (unaudited)    
                         
    2013   2012   2013   2012
                         
NET EARNINGS    $ 2,174   $ 30,731   $ 52,110   $ 89,749
                         
OTHER COMPREHENSIVE EARNINGS                         
  Unrealized gains (losses) on foreign currency translations (net of tax)     4,362     (7,989)     11,803     1,871
  Unrealized gain (loss) on interest swap (net of tax)     47     240     (81)     121
                         
COMPREHENSIVE EARNINGS    $ 6,583   $ 22,982   $ 63,832   $ 91,741

Major Drilling Group International Inc.
Condensed Consolidated Statements of Changes in Equity
For the twelve months ended April 30, 2012 and 2013
(in thousands of Canadian dollars)
 
                         

  Share capital   Reserves   Share-based
payments reserve
  Retained
earnings
  Foreign currency
translation reserve
  Total
                                 
BALANCE AS AT MAY 1, 2011   $ 150,642   $ -   $ 10,280   $170,425   $ (3,662)   $327,685
                                 
  Exercise of stock options     2,932     -     (909)   -     -   2,023
  Share issue (net of issue costs)     77,189     -     -   -     -   77,189
  Share-based payments reserve     -     -     2,426   -     -   2,426
  Dividends     -     -     -   (13,365)     -   (13,365)
      230,763     -     11,797   157,060     (3,662)   395,958
Comprehensive earnings:                                
  Net earnings     -     -     -   89,749     -   89,749
 
Unrealized gains on foreign currency translations     -     -     -   -     1,871    1,871
  Unrealized gain on interest swap     -     121     -   -     -   121
Total comprehensive earnings      -     121     -   89,749     1,871   91,741
                                 
BALANCE AS AT APRIL 30, 2012   $ 230,763   $ 121   $ 11,797   $246,809   $ (1,791)   $487,699
                                 
                                 
BALANCE AS AT MAY 1, 2012   $ 230,763   $ 121   $ 11,797   $246,809   $ (1,791)   $487,699
                                 
  Exercise of stock options     222     -     (114)   -     -   108
  Share-based payments reserve     -     -     2,521   -     -   2,521
  Dividends     -     -     -   (15,831)     -   (15,831)
      230,985     121     14,204   230,978     (1,791)   474,497
Comprehensive earnings:                                
  Net earnings     -     -     -   52,110     -   52,110
 
Unrealized gains on foreign currency translations     -     -     -   -     11,803   11,803
  Unrealized loss on interest swap     -     (81)     -   -     -   (81)
Total comprehensive earnings      -     (81)     -   52,110     11,803   63,832
                                 
BALANCE AS AT APRIL 30, 2013   $ 230,985   $ 40   $ 14,204   $283,088   $ 10,012   $538,329

 

Major Drilling Group International Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
 
         
    Three months ended   Twelve months ended
    April 30   April 30
    (unaudited)     
                         
      2013     2012     2013     2012
                         
OPERATING ACTIVITIES                        
Earnings before income tax   $ 3,330   $ 43,669   $ 80,869   $ 128,431
Operating items not involving cash                        
  Depreciation and amortization      12,987     12,641     52,837     42,604
  Loss on disposal of property, plant and equipment     1,232     54     2,452     1,370
  Share-based payments reserve     444     660     2,521     2,426
  Impairment of goodwill and intangible assets     3,324     -     3,324     -
  Restructuring charge     1,425     -     1,425     -
Finance costs recognized in earnings before income tax     346     707     2,316     3,367
      23,088     57,731     145,744     178,198
Changes in non-cash operating working capital items      5,305     (28,158)     30,456     (32,787)
Finance costs paid     (345)     (708)     (2,306)     (3,432)
Income taxes paid     (11,081)     (11,262)     (36,962)     (27,502)
Cash flow from operating activities     16,967     17,603     136,932     114,477
                         
FINANCING ACTIVITIES                        
Repayment of long-term debt     (1,716)     (1,573)     (9,296)     (17,390)
Proceeds from long-term debt     -     -     -     25,000
Repayment of short-term debt     -     (7,847)     -     (12,988)
Issuance of common shares     108     1,073     108     79,212
Dividends paid     -     -     (15,038)     (11,525)
Cash flow (used in) from financing activities     (1,608)     (8,347)     (24,226)     62,309
                         
INVESTING ACTIVITIES                        
Business acquisitions (net of cash acquired)      -     (1,825)     (1,698)     (76,304)
Acquisition of property, plant and equipment (net of direct financing)     (9,487)     (21,097)     (69,005)     (81,129)
Proceeds from disposal of property, plant and equipment     884     517     3,409     2,228
Cash flow used in investing activities     (8,603)     (22,405)     (67,294)     (155,205)
                         
Effect of exchange rate changes     72     269     (338)     (559)
                         
INCREASE (DECREASE) IN CASH     6,828     (12,880)     45,074     21,022
                         
CASH, BEGINNING OF THE PERIOD     75,483     50,117     37,237     16,215
                         
CASH, END OF THE PERIOD   $ 82,311   $ 37,237   $ 82,311   $ 37,237

 

Major Drilling Group International Inc.
Condensed Consolidated Balance Sheets
As at April 30, 2013 and 2012
(in thousands of Canadian dollars)
             
             
      2013     2012
ASSETS            
             
CURRENT ASSETS            
  Cash   $ 82,311   $ 37,237
  Trade and other receivables     98,079     159,770
  Income tax receivable     10,013     3,314
  Inventories     88,118     95,905
  Prepaid expenses     6,119     7,476
      284,640     303,702
             
PROPERTY, PLANT AND EQUIPMENT     339,971     318,171
             
DEFERRED INCOME TAX ASSETS     5,601     2,859
             
GOODWILL     52,736     54,946
             
INTANGIBLE ASSETS     3,279     6,295
             
    $ 686,227   $ 685,973
             
             
LIABILITIES            
             
CURRENT LIABILITIES            
  Trade and other payables   $ 73,315   $ 115,805
  Income tax payable     5,020     3,142
  Current portion of long-term debt     9,097     8,712
      87,432     127,659
             
CONTINGENT CONSIDERATION     231     2,760
             
LONG-TERM DEBT     34,497     42,274
             
DEFERRED INCOME TAX LIABILITIES     25,738     25,581
      147,898     198,274
             
SHAREHOLDERS' EQUITY            
  Share capital      230,985     230,763
  Reserves     40     121
  Share-based payments reserve     14,204     11,797
  Retained earnings      283,088     246,809
  Foreign currency translation reserve     10,012     (1,791)
      538,329     487,699
             
    $ 686,227   $ 685,973

 

MAJOR DRILLING GROUP INTERNATIONAL INC.
SELECTED FINANCIAL INFORMATION
FOR THE THREE AND TWELVE MONTHS ENDED APRIL 30, 2013 AND 2012
(in thousands of Canadian dollars)


SEGMENTED INFORMATION

The 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 segments are essentially the same. The accounting policies of the segments are the same as those described in Note 4 presented in the Notes to Consolidated Financial Statements for the year ended April 30, 2013. Management evaluates performance based on earnings from operations in these three geographic segments before finance costs and income tax.  Data relating to each of the Company's reportable segments is presented as follows:

    Three months ended   Twelve months ended
    April 30   April 30
    (unaudited)    
                         
      2013     2012     2013     2012
Revenue                        
  Canada - U.S.   $ 61,827   $ 106,653   $ 317,091   $ 322,047
  South and Central America     43,489     73,311     203,233     251,833
  Australia, Asia and Africa     30,221     57,274     175,604     223,552
    $ 135,537   $ 237,238   $ 695,928   $ 797,432
                         
Earnings from operations                        
  Canada - U.S.   $ 2,874   $ 23,375   $ 47,020   $ 57,629
  South and Central America     7,629     19,061     36,114     55,790
  Australia, Asia and Africa     (5,112)     6,553     12,945     36,365
      5,391     48,989     96,079     149,784
Eliminations     (13)     (235)     (987)     (939)
      5,378     48,754     95,092     148,845
Finance costs     346     707     2,316     3,367
General corporate expenses *     1,702     4,378     11,907     17,047
Income tax     1,156     12,938     28,759     38,682
Net earnings   $ 2,174   $ 30,731   $ 52,110   $ 89,749
                         
* General corporate expenses include expenses for corporate offices, stock options and certain un-allocated costs
                         
Depreciation and amortization                        
  Canada - U.S.   $ 5,849   $ 5,448   $ 22,713   $ 17,813
  South and Central America     2,928     2,406     11,493     9,877
  Australia, Asia and Africa     4,003     3,428     15,522     11,672
  Unallocated and corporate assets     207     1,359     3,109     3,242
    $ 12,987   $ 12,641   $ 52,837   $ 42,604

 

 

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

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