Major Drilling Group International Inc.
TSX : MDI

Major Drilling Group International Inc.

June 07, 2016 17:00 ET

Major Drilling Announces Annual and Fourth Quarter Results for Fiscal 2016

MONCTON, NEW BRUNSWICK--(Marketwired - June 7, 2016) - Major Drilling Group International Inc. (TSX:MDI) (the "Company") today reported results for the year and fourth quarter ended April 30, 2016.

Highlights

In millions of Canadian dollars(except loss per share) Q4-16 Q4-15 Fiscal
2016
Fiscal
2015
Revenue $64.1 $81.2 $304.6 $305.7
Gross profit 12.1 20.7 70.0 65.9
As percentage of revenue 18.8 % 25.5 % 23.0 % 21.6 %
EBITDA(1) (0.4 ) 6.8 20.3 13.4
As percentage of revenue (0.6 %) 8.4 % 6.7 % 4.4 %
Net loss (12.9 ) (13.1 ) (45.3 ) (49.6 )
Loss per share ($0.16 ) ($0.16 ) ($0.57 ) ($0.62 )
(1) Earnings before interest, taxes, depreciation and amortization, excluding restructuring charges (see "non-GAAP financial measures")
  • Net cash position, net of debt, improved by $3.2 million during the quarter, to $38.0 million.
  • Quarterly revenue was $64.1 million, down 21% from the $81.2 million recorded for the same quarter last year.
  • Gross margin percentage for the quarter was 18.8%, compared to 25.5% for the corresponding period last year.
  • Net loss was $12.9 million or $0.16 per share for the quarter, compared to a net loss of $13.1 million or $0.16 per share for the prior year quarter.
  • For the fiscal year ended April 30, 2016, although revenue was flat year-over-year, EBITDA increased 52% as compared to last year.

"This was a very difficult quarter and as discussed in the third quarter release, the calendar year got off to a slow start. Most of our customers have reduced their exploration budgets for calendar 2016 based on low commodity prices that were prevailing at the end of calendar 2015. Although some commodity prices have improved over the last four months, most mining companies remain cautious in their spending," said Denis Larocque, President and CEO of Major Drilling Group International Inc.

"During the quarter, we had to adjust pricing to retain certain long-term contracts. As well, our repair costs were higher than usual as our efforts to prepare for a potential upturn continued. These initiatives affected our margins."

"We continue to focus on cash preservation and remain net debt free. Our net cash position improved by $3.2 million during the quarter, to $38.0 million. The Company spent $0.3 million on net capital expenditures this quarter," added Mr. Larocque.

"As we begin a new fiscal year, we are encouraged by the recent increase in mineral financings. There is typically a lag of six to nine months between the timing of these financings and the impact they can have on the drilling industry. Therefore, we will continue our efforts to get prepared in anticipation of a possible recovery in demand for our services in the second half of our fiscal year. In the meantime, we remain disciplined on pricing and focused on cost control. The Company's financial strength allows it to invest in safety, to maintain its equipment in good condition, and to retain many of its skilled employees, strategically positioning us to react quickly when the industry recovers."

"Based on the current level of activity, capital expenditures in fiscal 2017 are expected to be in line with fiscal 2016, although we could invest more should we see clear signs of a recovery."

"In the long-term, we believe that most commodities will face an imbalance between supply and demand as mining reserves continue to decrease due to the lack of exploration. Typically, gold and copper projects represent over 70% of the Company's activity. Mineral reserves of ten of the top senior gold mining companies have decreased by almost 15% over the last two years. As well, many industry experts expect that the copper market will face a deficit position by no later than 2018, due to the continued production and high grading of mines, combined with the lack of exploration work conducted to replace reserves. Therefore, it is expected that at some point in the near future, the need to develop resources in areas that are increasingly difficult to access will significantly increase, at which time we expect to see a resurgence in demand for specialized drilling," said Mr. Larocque.

Fourth quarter ended April 30, 2016

Total revenue for the quarter was $64.1 million, down 21% from revenue of $81.2 million recorded in the same quarter last year. The favorable foreign exchange translation impact for the quarter, when comparing to the effective rates for the same period last year, is estimated at $2 million on revenue, but negligible on net earnings.

Revenue for the quarter from Canada-U.S. drilling operations decreased by 20% to $39.9 million compared to the same period last year. The decrease relates to the Canadian coring and energy operations, which was offset slightly by an increase from the percussive division.

South and Central American revenue was down 29% to $15.0 million for the quarter, compared to the same quarter last year. Mexico, Chile and Colombia were affected by a reduction in work by juniors and the cancellation of certain projects.

Asian and African operations reported revenue of $9.2 million, down 11% from the same period last year, largely as a result of the Company's decision to close its operations in South Africa and Namibia, as well as a general reduction in work and the cancellation of certain projects in other regions.

The overall gross margin percentage for the quarter was 18.8%, down from 25.5% for the same period last year. Reduced pricing due to increased competitive pressures and higher repair costs impacted margins in the current quarter.

General and administrative costs were relatively flat from the same quarter last year at $11.3 million. The Company continues to monitor its general and administrative costs in order to maintain a proper level in preparation for an eventual recovery.

Foreign exchange loss was $0.5 million compared to a loss of $1.2 million in the same quarter last year. This loss was due to exchange rate variations on monetary working capital items.

The Company recorded a restructuring charge of $0.4 million in the quarter, mainly relating to severance charges in various countries.

The income tax provision for the quarter was a recovery of $0.8 million compared to an expense of $5.1 million for the prior year period. The tax recovery for the quarter was impacted by non-tax affected losses and non-deductible expenses.

Net loss was $12.9 million or $0.16 per share ($0.16 per share diluted) for the quarter, compared to a net loss of $13.1 million or $0.16 per share ($0.16 per share diluted) for the prior year quarter.

Non-GAAP Financial Measures

In this news release, the Company uses the non-GAAP financial measure, EBITDA, excluding restructuring charges. 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 news 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 17 to 21 of the 2015 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.

Major Drilling Group International Inc. is one of the world's largest drilling services companies primarily serving the mining industry. To support its customers' varied exploration drilling requirements, Major Drilling maintains field operations and offices in Canada, the United States, Mexico, South America, Asia, Africa and Europe. Major Drilling provides all types of drilling services including surface and underground coring, directional, reverse circulation, sonic, geotechnical, environmental, water-well, coal-bed methane, shallow gas, underground percussive/longhole drilling and a variety of drilling-related mine services.

Financial statements are attached.

Webcast/Conference Call Information

Major Drilling will provide a simultaneous webcast and conference call to discuss its quarterly results on Wednesday, June 8, 2016 at 9:00 AM (EDT). To access the webcast, which includes a slide presentation, please go to the investors/webcast section of Major Drilling's website at www.majordrilling.com and click on the link. Please note that this is listen only mode.

To participate in the conference call, please dial 416-340-2216 and ask for Major Drilling's Fourth Quarter Conference Call. To ensure your participation, please call in approximately five minutes prior to the scheduled start of the call.

For those unable to participate, a taped rebroadcast will be available approximately one hour after the completion of the call until midnight, Wednesday June 22, 2016. To access the rebroadcast, dial 905-694-9451 and enter the passcode 8426283. The webcast will also be archived for one year and can be accessed on the Major Drilling website at www.majordrilling.com.

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)
2016 2015 2016 2015
TOTAL REVENUE $ 64,133 $ 81,191 $ 304,621 $ 305,718
DIRECT COSTS 52,082 60,484 234,660 239,822
GROSS PROFIT 12,051 20,707 69,961 65,896
OPERATING EXPENSES
General and administrative 11,302 11,006 44,081 44,913
Other expenses 577 1,892 4,079 5,872
Loss (gain) on disposal of property, plant and equipment 32 (179 ) (2,149 ) (1,740 )
Foreign exchange loss 491 1,157 3,638 3,479
Finance costs 113 114 554 686
Depreciation of property, plant and equipment 12,141 12,973 49,702 51,080
Amortization of intangible assets 660 959 3,265 3,158
Restructuring charge 377 784 8,377 4,610
25,693 28,706 111,547 112,058
LOSS BEFORE INCOME TAX (13,642 ) (7,999 ) (41,586 ) (46,162 )
INCOME TAX - (RECOVERY) PROVISION
Current 1,965 2,977 8,652 7,297
Deferred (2,748 ) 2,111 (4,953 ) (3,894 )
(783 ) 5,088 3,699 3,403
NET LOSS $ (12,859 ) $ (13,087 ) $ (45,285 ) $ (49,565 )
LOSS PER SHARE
Basic $ (0.16 ) $ (0.16 ) $ (0.57 ) $ (0.62 )
Diluted $ (0.16 ) $ (0.16 ) $ (0.57 ) $ (0.62 )
Major Drilling Group International Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands of Canadian dollars)
Three months ended Twelve months ended
April 30 April 30
(unaudited)
2016 2015 2016 2015
NET LOSS $ (12,859 ) $ (13,087 ) $ (45,285 ) $ (49,565 )
OTHER COMPREHENSIVE LOSS
Items that may be reclassified subsequently to profit or loss
Unrealized (loss) gain on foreign currency translations (net of tax) (28,757 ) (18,442 ) 11,252 25,177
Unrealized gain on derivatives (net of tax) 318 7 302 11
COMPREHENSIVE LOSS $ (41,298 ) $ (31,522 ) $ (33,731 ) $ (24,377 )
Major Drilling Group International Inc.
Condensed Consolidated Statements of Changes in Equity
For the twelve months ended April 30, 2015 and 2016
(in thousands of Canadian dollars)
Share-based Retained Foreign currency
Share capital Reserves payments reserve earnings translation reserve Total
BALANCE AS AT MAY 1, 2014 $ 230,985 $ 13 $ 15,937 $211,945 $ 25,467 $484,347
Exercise of stock options 52 - (13 ) - - 39
Share issue 8,689 - - - - 8,689
Share-based payments reserve - - 1,310 - - 1,310
Dividends - - - (9,616 ) - (9,616 )
239,726 13 17,234 202,329 25,467 484,769
Comprehensive loss:
Net loss - - - (49,565 ) - (49,565 )
Unrealized gains on foreign currency translations - - - - 25,177 25,177
Unrealized gain on derivatives - 11 - - - 11
Total comprehensive loss - 11 - (49,565 ) 25,177 (24,377 )
BALANCE AS AT APRIL 30, 2015 $ 239,726 $ 24 $ 17,234 $152,764 $ 50,644 $460,392
BALANCE AS AT MAY 1, 2015 $ 239,726 $ 24 $ 17,234 $152,764 $ 50,644 $460,392
Share-based payments reserve - - 1,083 - - 1,083
Dividends - - - (1,603 ) - (1,603 )
239,726 24 18,317 151,161 50,644 459,872
Comprehensive loss:
Net loss - - - (45,285 ) - (45,285 )
Unrealized gains on foreign currency translations - - - - 11,252 11,252
Unrealized gain on derivatives - 302 - - - 302
Total comprehensive loss - 302 - (45,285 ) 11,252 (33,731 )
BALANCE AS AT APRIL 30, 2016 $ 239,726 $ 326 $ 18,317 $105,876 $ 61,896 $426,141
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
(unaudted)
2016 2015 2016 2015
OPERATING ACTIVITIES
Loss before income tax $ (13,642 ) $ (7,999 ) $ (41,586 ) $ (46,162 )
Operating items not involving cash
Depreciation and amortization 12,801 13,932 52,967 54,238
Loss (gain) on disposal of property, plant and equipment 32 (179 ) (2,149 ) (1,740 )
Share-based payments reserve 276 295 1,083 1,310
Restructuring charge - - 6,554 1,953
Finance costs recognized in loss before income tax 113 114 554 686
(420 ) 6,163 17,423 10,285
Changes in non-cash operating working capital items 5,041 (5,684 ) 9,277 12,731
Finance costs paid (113 ) (121 ) (554 ) (670 )
Income taxes recovered (paid) 1,543 (837 ) (3,816 ) (7,776 )
Cash flow from (used in) operating activities 6,051 (479 ) 22,330 14,570
FINANCING ACTIVITIES
Decrease in demand loan - (2,714 ) - (4,038 )
Repayment of long-term debt (2,088 ) (1,683 ) (7,858 ) (9,837 )
Issuance of common shares - 5 - 39
Dividends paid - - (3,206 ) (15,930 )
Cash flow used in financing activities (2,088 ) (4,392 ) (11,064 ) (29,766 )
INVESTING ACTIVITIES
Business acquisition - - (1,783 ) (20,834 )
Acquisition of property, plant and equipment (net of direct financing) (973 ) (1,161 ) (12,125 ) (14,754 )
Proceeds from disposal of property, plant and equipment 660 1,875 6,997 18,717
Cash flow (used in) from investing activities (313 ) 714 (6,911 ) (16,871 )
Effect of exchange rate changes (2,782 ) (1,692 ) 976 2,720
INCREASE (DECREASE) IN CASH 868 (5,849 ) 5,331 (29,347 )
CASH, BEGINNING OF THE PERIOD 49,360 50,746 44,897 74,244
CASH, END OF THE PERIOD $ 50,228 $ 44,897 $ 50,228 $ 44,897
Major Drilling Group International Inc.
Condensed Consolidated Balance Sheets
As at April 30, 2016 and 2015
(in thousands of Canadian dollars)
April 30, 2016 April 30, 2015
ASSETS
CURRENT ASSETS
Cash $ 50,228 $ 44,897
Trade and other receivables 55,829 58,559
Note receivable 457 -
Income tax receivable 7,513 12,182
Inventories 74,144 79,248
Prepaid expenses 2,498 2,968
190,669 197,854
NOTE RECEIVABLE 1,531 -
PROPERTY, PLANT AND EQUIPMENT 240,703 276,594
DEFERRED INCOME TAX ASSETS 9,564 4,722
GOODWILL 57,641 57,274
INTANGIBLE ASSETS 3,193 6,260
$ 503,301 $ 542,704
LIABILITIES
CURRENT LIABILITIES
Trade and other payables $ 34,068 $ 33,820
Income tax payable 1,859 2,388
Current portion of contingent consideration 3,000 2,735
Current portion of long-term debt 5,288 6,776
44,215 45,719
CONTINGENT CONSIDERATION 5,347 7,395
LONG-TERM DEBT 6,936 8,569
DEFERRED INCOME TAX LIABILITIES 20,662 20,629
77,160 82,312
SHAREHOLDERS' EQUITY
Share capital 239,726 239,726
Reserves 326 24
Share-based payments reserve 18,317 17,234
Retained earnings 105,876 152,764
Foreign currency translation reserve 61,896 50,644
426,141 460,392
$ 503,301 $ 542,704
MAJOR DRILLING GROUP INTERNATIONAL INC.
SELECTED FINANCIAL INFORMATION
FOR THE THREE AND TWELVE MONTHS ENDED APRIL 30, 2016 AND 2015
(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 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, 2016. 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:

Q4 2016 Q4 2015 YTD 2016 YTD 2015
Revenue (unaudited) (unaudited)
Canada - U.S. $ 39,949 $ 49,863 $ 194,552 $ 177,210
South and Central America 14,962 20,989 65,658 75,604
Asia and Africa 9,222 10,339 44,411 52,904
$ 64,133 $ 81,191 $ 304,621 $ 305,718
Loss from operations
Canada - U.S.* $ (4,481 ) $ 316 $ (4,306 ) $ (5,250 )
South and Central America** (2,799 ) (28 ) (9,675 ) (10,828 )
Asia and Africa*** (3,624 ) (4,850 ) (17,658 ) (18,871 )
(10,904 ) (4,562 ) (31,639 ) (34,949 )
Finance costs 113 114 554 686
General and corporate expenses **** 2,625 3,323 9,393 10,527
Income tax (783 ) 5,088 3,699 3,403
Net loss $ (12,859 ) $ (13,087 ) $ (45,285 ) $ (49,565 )
Depreciation and amortization
Canada - U.S. $ 7,005 $ 7,057 $ 27,975 $ 26,755
South and Central America 3,042 3,138 12,614 12,749
Asia and Africa 2,469 3,140 11,299 12,996
Unallocated and corporate assets 285 597 1,079 1,738
$ 12,801 $ 13,932 $ 52,967 $ 54,238
*Canada - U.S. includes restructuring charges for the current quarter of $63 (2015 - $149) and the current year of $106 (2015 - $367).
** South and Central America includes restructuring charges in the current quarter of $314 (2015 - $269) and the current year of $495 (2015 - $882).
*** Asia and Africa includes restructuring charges in the current quarter of nil (2015 - $226) and the current year of $6,844 (2015 - $3,221).
**** General and corporate expenses include expenses for corporate offices, stock options and certain unallocated costs and restructuring charges for the current quarter of nil (2015 - $140) and the current year of $932 (2015 -$140).

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