MONCTON, NB,
Dec. 4, 2013 /CNW/ - Major Drilling
Group International Inc. (TSX: MDI) today reported results for its
second quarter of fiscal year 2014, ended October 31, 2013.
Highlights
|
In millions of Canadian dollars
(except earnings per share) |
|
Q2-14 |
|
Q2-13 |
|
YTD-14 |
|
YTD-13 |
Revenue |
|
$92.3 |
|
$199.6 |
|
$200.5 |
|
$437.2 |
Gross profit |
|
30.0 |
|
66.7 |
|
65.1 |
|
148.0 |
|
As percentage of sales |
|
32.5% |
|
33.4% |
|
32.5% |
|
33.8% |
Adjusted EBITDA(1) |
|
15.7 |
|
47.9 |
|
35.3 |
|
107.9 |
|
As percentage of revenue |
|
17.0% |
|
24.0% |
|
17.6% |
|
24.7% |
Net (loss) earnings |
|
(19.1) |
|
22.3 |
|
(17.6) |
|
54.2 |
(Loss) earnings per share |
|
(0.24) |
|
0.28 |
|
(0.22) |
|
0.69 |
(1) |
Earnings before interest, taxes, depreciation and amortization,
excluding restructuring charges and goodwill impairment (see
"non-GAAP financial measures") |
- Net cash position (net of debt) has improved by $18.1 million and stands at $48.5 million.
- Major Drilling posted quarterly
revenue of $92.3 million, down 54%
from the $199.6 million recorded for
the same quarter last year.
- Gross margin percentage for the quarter was 32.5%, compared to
33.4% for the corresponding period last year.
- During the quarter, the Company posted a goodwill impairment
charge of $12.1 million, a combined
write down and unrecognized tax losses of $5.5 million, and $0.7
million in restructuring charges. Combined, these
charges represent a negative impact to second quarter 2014 earnings
of $18.3 million.
- Net loss was $19.1 million or
$0.24 per share ($0.24 per share diluted) for the quarter,
compared to net earnings of $22.3
million or $0.28 per share
($0.28 per share diluted) for the
prior year quarter.
"The current economic environment continues to
impact drilling in the short to medium-term, particularly on gold
projects where the Company has seen a significant slowdown in
activity in calendar 2013. Sources of funding for junior mining
companies are limited, and as such many of their projects, both in
the base metals and gold sectors, have been delayed or
cancelled. In a number of jurisdictions, uncertainty as to
the policies of host governments or issues of land tenure also
continue to have an impact on results. Accordingly, second
quarter revenue was significantly impacted as compared to revenue
realized in the same period last year. As expected, many
mining companies did not extend their drilling activities beyond
their original 2013 annual budgets during the quarter. Lower
levels of demand have significantly increased competitive pressures
and will likely continue to have an impact for the remainder of
calendar 2013 and beyond. Despite lower pricing levels, the
Company maintained good margin performance thanks to the improved
productivity of our crews, however going forward, further
reductions in pricing will be more difficult to offset by gains and
productivity. Despite current conditions, we are pleased that
Major Drilling was able to improve
its net cash position by $18.1
million during the quarter," said Francis McGuire, President and CEO of
Major Drilling.
"Given current market conditions, the Company
performed a valuation of its assets during the quarter. As a
result, a goodwill impairment of $12.1
million related to Chile
was recognized, primarily due to reduced cash flow expections in
the near term in Chile. The
goodwill write-off is non-cash in nature and does not affect
liquidity or cash flows from operating activities. Also, the
Company wrote down and unrecognized tax losses for a total of
$5.5 million on its Australian and
Colombian deferred tax assets related to carry-forward losses given
the uncertainty in the near-term outlook for adequate taxable
income in Australia and
Colombia. Finally, the Company
incurred additional restructuring charges of $0.7 million as it continues to reduce costs
across the organization."
"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 relate to variable incentive compensation
based on the Company's profitability. 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."
"Long-term, the fundamental drivers of our
business remain positive, with worldwide supply for most metals
expected to tighten. With the number of projects being either
delayed or cancelled around the world, we believe that in the
medium-term, most commodities could face an imbalance between
supply and demand, and that the need to develop resources in areas
that are increasingly difficult to access will increase, which
should increase demand for specialized drilling. This ongoing
structural change in the industry toward specialized drilling and
our continued focus on specialized drilling over the years has
positioned us favorably relative to the industry."
"It is important to note that we are now in our
third quarter, traditionally the weakest quarter of our fiscal
year, as mining and exploration companies shut down, often for
extended periods over the holiday season. At this time, most
senior and intermediate companies are still working through their
budget process and have yet to decide on post-holiday start-up
dates. Also, due to the time it takes to mobilize once
contracts are awarded, a slow pace of start-ups is expected in
January, which will impact overall third quarter revenue. We expect
pricing to remain competitive until utilization rates pick up
significantly, especially in conventional drilling.
Therefore, as we have experienced in some past years, we expect to
generate a seasonal loss in the upcoming third quarter."
"Despite the difficult environment, we have one
of the most solid balance sheets in our industry with $75.1 million in cash and total debt of
$26.6 million at the end of the
quarter, for a net cash position of $48.5
million. Net capital expenditures for the quarter were
$4.9 million as we purchased 2 rigs
and support equipment, while retiring 13 rigs. This strong
financial position will also allow us to respond to well-priced
opportunities should they arise," observed Mr.
McGuire. "Finally, I would like to congratulate our employees
on over 2.4 million hours worked in the last four months without a
single lost time injury."
Second quarter ended October 31, 2013
Total revenue for the quarter was $92.3 million, down 54% from revenue of
$199.6 million recorded in the same
quarter last year. Uncertainty around economic matters impacting
the mining market caused some customers to delay or cancel 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. Moreover,
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 54% to $43.7 million compared to the same period last
year as both countries were affected by the slowdown in the
industry.
South and Central American revenue was down 66%
to $17.5 million for the quarter,
compared to the same quarter last year. Mexico, Chile
and Argentina were affected by a
reduction in work by juniors and the cancellation of
projects. Additionally, in Colombia and Argentina, geopolitical factors have slowed
the exploration efforts of many mining companies.
Australian, Asian and African operations
reported revenue of $31.1 million,
down 43% from the same period last year. Three main factors
affected the region's revenue: 1) Australia, where projects have been cancelled
due to high costs being incurred by mining companies and new mining
taxes, 2) Mongolia, which is
affected by political uncertainty around mining laws, and 3)
Tanzania, where the Company has
closed its operations.
The overall gross margin percentage for the
quarter was 32.5%, down from 33.4% for the same period last year,
but still a historically strong margin. 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 down 22%
from last year at $12.3 million for
the quarter compared to $15.8 million
in the same period last year. With the decrease in activity,
the Company has reduced its general and administrative costs by
implementing reductions of salaried employees, restructuring
certain branches, and reducing management salaries.
Other expenses for the quarter were $1.0 million, down from $3.3 million in the same quarter last year, due
primarily to lower incentive compensation expenses given the
Company's decreased profitability.
A goodwill impairment of $12.1 million was recognized during the quarter.
The goodwill write-off is non-cash in nature and does not affect
liquidity or cash flows from operating activities. Although
this goodwill impairment is attributable to reduced cash flow
expectations in Chile for the near
term, this does not reflect a change in the Company's commitment to
continue to operate in Chile.
The provision for income tax for the quarter was
an expense of $8.7 million compared
to an expense of $11.4 million for
the prior year period. This quarter's tax expense was impacted by a
combined write down and unrecognized tax losses of $5.5 million on its Australian and Colombian
deferred tax assets related to carry-forward losses given the
uncertainty in the near-term outlook for adequate taxable income in
Australia and Colombia. Also, the tax expense for the
quarter was impacted by differences in tax rates between regions,
non tax affected losses, and non-deductible expenses.
Non-GAAP Financial Measure
In this news release, the Company uses the
non-GAAP financial measure, EBITDA. The Company believes this
non-GAAP financial measure provides useful information to both
management and investors in measuring the financial performance of
the Company. This measure does not have a standardized meaning
prescribed by GAAP and therefore it 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 2013 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' varied exploration drilling
requirements, Major Drilling
maintains field operations and offices in Canada, the United
States, South and Central
America, Australia,
Asia, and Africa.
Financial statements are attached.
Major Drilling
will provide a simultaneous webcast of its quarterly conference
call on Thursday, December 5, 2013
at 9:00 AM (EST). 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 |
|
|
Six months ended |
|
|
October 31 |
|
|
October 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUE |
$ |
92,268 |
|
$ |
199,637 |
|
$ |
200,479 |
|
$ |
437,202 |
|
|
|
|
|
|
|
|
|
|
|
|
DIRECT COSTS |
|
62,257 |
|
|
132,938 |
|
|
135,346 |
|
|
289,225 |
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
30,011 |
|
|
66,699 |
|
|
65,133 |
|
|
147,977 |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
12,269 |
|
|
15,763 |
|
|
25,316 |
|
|
33,062 |
|
Other expenses |
|
1,018 |
|
|
3,323 |
|
|
2,083 |
|
|
8,593 |
|
Loss (gain) on disposal of property, plant and equipment |
|
263 |
|
|
(141) |
|
|
433 |
|
|
(133) |
|
Foreign exchange loss (gain) |
|
780 |
|
|
(112) |
|
|
2,004 |
|
|
(1,481) |
|
Finance costs |
|
224 |
|
|
728 |
|
|
538 |
|
|
1,466 |
|
Depreciation of property, plant and equipment |
|
12,801 |
|
|
12,416 |
|
|
25,976 |
|
|
24,538 |
|
Amortization of intangible assets |
|
342 |
|
|
955 |
|
|
684 |
|
|
2,020 |
|
Impairment of goodwill (note 10) |
|
12,057 |
|
|
- |
|
|
12,057 |
|
|
- |
|
Restructuring charge (note 11) |
|
678 |
|
|
- |
|
|
2,712 |
|
|
- |
|
|
40,432 |
|
|
32,932 |
|
|
71,803 |
|
|
68,065 |
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) EARNINGS BEFORE INCOME TAX |
|
(10,421) |
|
|
33,767 |
|
|
(6,670) |
|
|
79,912 |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX - PROVISION (note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
4,684 |
|
|
11,394 |
|
|
8,475 |
|
|
24,903 |
|
Deferred |
|
3,995 |
|
|
24 |
|
|
2,433 |
|
|
785 |
|
|
8,679 |
|
|
11,418 |
|
|
10,908 |
|
|
25,688 |
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS |
$ |
(19,100) |
|
$ |
22,349 |
|
$ |
(17,578) |
|
$ |
54,224 |
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) EARNINGS PER SHARE (note 8) |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.24) |
|
$ |
0.28 |
|
$ |
(0.22) |
|
$ |
0.69 |
Diluted |
$ |
(0.24) |
|
$ |
0.28 |
|
$ |
(0.22) |
|
$ |
0.68
|
Major Drilling
Group International Inc. |
Interim Condensed
Consolidated Statements of Comprehensive (Loss) Earnings |
(in thousands of
Canadian dollars) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
October 31 |
|
|
October 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) EARNINGS |
$ |
(19,100) |
|
$ |
22,349 |
|
$ |
(17,578) |
|
$ |
54,224 |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE (LOSS) EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to
profit or loss |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on foreign currency translations (net
of tax) |
|
9,642 |
|
|
(1,726) |
|
|
4,613 |
|
|
5,925 |
|
Unrealized gain (loss) on interest rate swap (net of tax) |
|
35 |
|
|
(9) |
|
|
(33) |
|
|
(153) |
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) EARNINGS |
$ |
(9,423) |
|
$ |
20,614 |
|
$ |
(12,998) |
|
$ |
59,996 |
Major Drilling
Group International Inc. |
Interim Condensed
Consolidated Statements of Changes in Equity |
For the six months
ended October 31, 2012 and 2013 |
(in thousands of
Canadian dollars) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based |
|
|
|
|
|
currency |
|
|
|
|
|
|
|
|
|
|
|
|
payments |
|
|
Retained |
|
|
translation |
|
|
|
|
|
|
Share capital |
|
|
Reserves |
|
|
reserve |
|
|
earnings |
|
|
reserve |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT MAY 1,
2012 |
|
$ |
230,763 |
|
$ |
121 |
|
$ |
11,797 |
|
$ |
246,809 |
|
$ |
(1,791) |
|
$ |
487,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments reserve |
|
|
(93) |
|
|
- |
|
|
1,572 |
|
|
- |
|
|
- |
|
|
1,479 |
|
Dividends |
|
|
- |
|
|
- |
|
|
- |
|
|
(7,915) |
|
|
- |
|
|
(7,915) |
|
|
|
230,670 |
|
|
121 |
|
|
13,369 |
|
|
238,894 |
|
|
(1,791) |
|
|
481,263 |
Comprehensive
earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
- |
|
|
- |
|
|
- |
|
|
54,224 |
|
|
- |
|
|
54,224 |
|
Unrealized gains on foreign currency
translations |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
5,925 |
|
|
5,925 |
|
Unrealized loss on interest rate
swap |
|
|
- |
|
|
(153) |
|
|
- |
|
|
- |
|
|
- |
|
|
(153) |
Total comprehensive
earnings |
|
|
- |
|
|
(153) |
|
|
- |
|
|
54,224 |
|
|
5,925 |
|
|
59,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT OCTOBER
31, 2012 |
|
$ |
230,670 |
|
$ |
(32) |
|
$ |
13,369 |
|
$ |
293,118 |
|
$ |
4,134 |
|
$ |
541,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT MAY 1,
2013 |
|
$ |
230,985 |
|
$ |
40 |
|
$ |
14,204 |
|
$ |
283,088 |
|
$ |
10,012 |
|
$ |
538,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments reserve |
|
|
- |
|
|
- |
|
|
981 |
|
|
- |
|
|
- |
|
|
981 |
|
Dividends |
|
|
- |
|
|
- |
|
|
- |
|
|
(7,916) |
|
|
- |
|
|
(7,916) |
|
|
|
230,985 |
|
|
40 |
|
|
15,185 |
|
|
275,172 |
|
|
10,012 |
|
|
531,394 |
Comprehensive
loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
- |
|
|
- |
|
|
(17,578) |
|
|
- |
|
|
(17,578) |
|
Unrealized gains on foreign currency
translations |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
4,613 |
|
|
4,613 |
|
Unrealized loss on interest rate
swap |
|
|
- |
|
|
(33) |
|
|
- |
|
|
- |
|
|
- |
|
|
(33) |
Total comprehensive
loss |
|
|
- |
|
|
(33) |
|
|
- |
|
|
(17,578) |
|
|
4,613 |
|
|
(12,998) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT OCTOBER
31, 2013 |
|
$ |
230,985 |
|
$ |
7 |
|
$ |
15,185 |
|
$ |
257,594 |
|
$ |
14,625 |
|
$ |
518,396 |
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Statements of Cash Flows |
(in thousands of Canadian
dollars) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended |
|
|
Six months
ended |
|
|
|
October 31 |
|
|
October 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income tax |
|
$ |
(10,421) |
|
$ |
33,767 |
|
$ |
(6,670) |
|
$ |
79,912 |
Operating items not involving cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
13,143 |
|
|
13,371 |
|
|
26,660 |
|
|
26,558 |
|
Loss (gain) on disposal of property, plant and equipment |
|
|
263 |
|
|
(141) |
|
|
433 |
|
|
(133) |
|
Share-based payments reserve |
|
|
451 |
|
|
712 |
|
|
981 |
|
|
1,479 |
|
Impairment of goodwill |
|
|
12,057 |
|
|
- |
|
|
12,057 |
|
|
- |
|
Restructuring charge |
|
|
- |
|
|
- |
|
|
665 |
|
|
- |
Finance costs recognized in earnings before income
tax |
|
|
224 |
|
|
728 |
|
|
538 |
|
|
1,466 |
|
|
|
15,717 |
|
|
48,437 |
|
|
34,664 |
|
|
109,282 |
Changes in non-cash operating working capital
items |
|
|
9,683 |
|
|
19,053 |
|
|
107 |
|
|
(642) |
Finance costs paid |
|
|
(217) |
|
|
(729) |
|
|
(527) |
|
|
(1,464) |
Income taxes paid |
|
|
(3,109) |
|
|
(7,554) |
|
|
(9,460) |
|
|
(15,443) |
Cash flow from operating activities |
|
|
22,074 |
|
|
59,207 |
|
|
24,784 |
|
|
91,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt |
|
|
(3,968) |
|
|
(4,071) |
|
|
(17,034) |
|
|
(5,635) |
Dividend paid |
|
|
- |
|
|
- |
|
|
(7,916) |
|
|
(7,123) |
Cash flow used in financing activities |
|
|
(3,968) |
|
|
(4,071) |
|
|
(24,950) |
|
|
(12,758) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of consideration for previous business
acquisition |
|
|
- |
|
|
- |
|
|
(205) |
|
|
(813) |
Acquisition of property, plant and equipment (note
6) |
|
|
(6,005) |
|
|
(16,111) |
|
|
(11,209) |
|
|
(39,512) |
Proceeds from disposal of property, plant and
equipment |
|
|
1,067 |
|
|
998 |
|
|
2,883 |
|
|
1,266 |
Cash flow used in investing activities |
|
|
(4,938) |
|
|
(15,113) |
|
|
(8,531) |
|
|
(39,059) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
897 |
|
|
287 |
|
|
1,510 |
|
|
(108) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH |
|
|
14,065 |
|
|
40,310 |
|
|
(7,187) |
|
|
39,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF THE PERIOD |
|
|
61,059 |
|
|
36,735 |
|
|
82,311 |
|
|
37,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF THE PERIOD |
|
$ |
75,124 |
|
$ |
77,045 |
|
$ |
75,124 |
|
$ |
77,045 |
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Balance Sheets |
As at October 31, 2013 and April
30, 2013 |
(in thousands of Canadian
dollars) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
October 31, 2013 |
|
|
April
30, 2013 |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Cash |
|
$ |
75,124 |
|
$ |
82,311 |
|
Trade and other receivables |
|
|
74,335 |
|
|
98,079 |
|
Income tax receivable |
|
|
10,497 |
|
|
10,013 |
|
Inventories |
|
|
83,330 |
|
|
88,118 |
|
Prepaid expenses |
|
|
7,578 |
|
|
6,119 |
|
|
|
250,864 |
|
|
284,640 |
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT |
|
|
323,326 |
|
|
339,971 |
|
|
|
|
|
|
|
DEFERRED INCOME TAX ASSETS |
|
|
4,113 |
|
|
5,601 |
|
|
|
|
|
|
|
GOODWILL (note 10) |
|
|
40,223 |
|
|
52,736 |
|
|
|
|
|
|
|
INTANGIBLE ASSETS |
|
|
2,597 |
|
|
3,279 |
|
|
|
|
|
|
|
|
|
$ |
621,123 |
|
$ |
686,227 |
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Trade and other payables |
|
$ |
45,403 |
|
$ |
73,315 |
|
Income tax payable |
|
|
4,565 |
|
|
5,251 |
|
Current portion of long-term debt |
|
|
9,717 |
|
|
9,097 |
|
|
|
59,685 |
|
|
87,663 |
|
|
|
|
|
|
|
LONG-TERM DEBT |
|
|
16,875 |
|
|
34,497 |
|
|
|
|
|
|
|
DEFERRED INCOME TAX LIABILITIES |
|
|
26,167 |
|
|
25,738 |
|
|
|
102,727 |
|
|
147,898 |
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
Share capital |
|
|
230,985 |
|
|
230,985 |
|
Reserves |
|
|
7 |
|
|
40 |
|
Share-based payments reserve |
|
|
15,185 |
|
|
14,204 |
|
Retained earnings |
|
|
257,594 |
|
|
283,088 |
|
Foreign currency translation reserve |
|
|
14,625 |
|
|
10,012 |
|
|
|
518,396 |
|
|
538,329 |
|
|
|
|
|
|
|
|
|
$ |
621,123 |
|
$ |
686,227 |
MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31,
2013 AND 2012 (UNAUDITED)
(in thousands of Canadian dollars, except per share
information)
1. NATURE OF ACTIVITIES
Major 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 PRESENTATION
Statement of compliance
These 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
Company's annual Consolidated Financial Statements for the year
ended April 30, 2013.
These statements were authorized for issue on
December 4, 2013 by the Board of
Directors.
Basis of consolidation
These 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 preparation
These 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 Company's annual Consolidated Financial Statements for the year
ended April 30, 2013, with the
exception of the impact of certain amendments to accounting
standards or new interpretations issued by the IASB, which were
applicable for fiscal years beginning on or after January 1, 2013. The adoption of these amendments
and standards has not had a material impact on the accounting
policies, methods of computation or presentation applied by the
Company.
3. FUTURE ACCOUNTING CHANGES
The Company has not applied the following new
and revised IASB standards that have been issued but are not yet
effective:
IFRS 9 (as amended in 2010) Financial
Instruments
IAS 32 (amended) Financial Instruments: Presentation
IAS 36 Impairment of Assets
IAS 39 Financial Instruments: Recognition and
Measurement
The adoption of the above standards is not
expected to have a significant impact on the Company's Consolidated
Financial Statements.
4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND
CRITICAL ACCOUNTING JUDGMENTS
The preparation of financial statements in
conformity with International Financial Reporting Standards
("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, the
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 OPERATIONS
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 & EQUIPMENT
Capital expenditures for the three months ended
October 31, 2013 were $6,005 (2012 - $17,815) and for the six months ended
October 31, 2013 were $11,209 (2012 - $41,216). The Company obtained direct financing
for the three and six months ended October
31, 2013 of nil (2012 - $1,704).
7. INCOME TAXES
The income tax expense for the period can be
reconciled to accounting profit as follows:
|
|
2014
Q2 |
|
|
2013
Q2 |
|
|
YTD
2014 |
|
|
YTD
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income tax |
$ |
(10,421) |
|
$ |
33,767 |
|
$ |
(6,670) |
|
$ |
79,912 |
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Canadian corporate income tax rate |
|
28% |
|
|
28% |
|
|
28% |
|
|
28% |
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax (recovery) expense based on statutory
rate |
|
(2,918) |
|
|
9,455 |
|
|
(1,868) |
|
|
22,375 |
Non-recognition of tax benefits related to losses |
|
1,005 |
|
|
316 |
|
|
1,081 |
|
|
631 |
Other foreign taxes paid |
|
77 |
|
|
343 |
|
|
202 |
|
|
698 |
Rate variances in foreign jurisdictions |
|
1,390 |
|
|
810 |
|
|
1,844 |
|
|
1,390 |
Permanent differences |
|
3,308 |
|
|
242 |
|
|
3,668 |
|
|
391 |
De-recognition of previously recognized tax losses |
|
4,536 |
|
|
- |
|
|
4,536 |
|
|
- |
Other |
|
1,281 |
|
|
252 |
|
|
1,445 |
|
|
203 |
Income tax expense recognized in net earnings |
$ |
8,679 |
|
$ |
11,418 |
|
$ |
10,908 |
|
$ |
25,688 |
The 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 records
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 statutes of
limitations lapse.
8. (LOSS) EARNINGS PER SHARE
All of the Company's earnings are attributable
to common shares therefore net earnings are used in determining
earnings per share.
|
|
2014
Q2 |
|
|
2013
Q2 |
|
|
YTD
2014 |
|
|
YTD
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings for the period |
$ |
(19,100) |
|
$ |
22,349 |
|
$ |
(17,578) |
|
$ |
54,224 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic (000's) |
|
79,161 |
|
|
79,147 |
|
|
79,161 |
|
|
79,147 |
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
Stock options (000's) |
|
- |
|
|
453 |
|
|
- |
|
|
537 |
Weighted average number of shares - diluted (000's) |
|
79,161 |
|
|
79,600 |
|
|
79,161 |
|
|
79,684 |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.24) |
|
$ |
0.28 |
|
$ |
(0.22) |
|
$ |
0.69 |
Diluted |
$ |
(0.24) |
|
$ |
0.28 |
|
$ |
(0.22) |
|
$ |
0.68 |
There were no anti-dilutive options for the
three and six months ended October 31,
2013. The calculation of the diluted earnings per
share for the three and six months ended October 31, 2012 exclude the effect of 349,252
and 126,820 options, respectively, as they were anti-dilutive.
The total number of shares outstanding on
October 31, 2013 was 79,161,378.
9. 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 the
Company's annual 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, general corporate
expenses and income taxes. Data relating to each of the
Company's reportable segments is presented as follows:
|
|
2014
Q2 |
|
|
2013
Q2 |
|
|
YTD
2014 |
|
|
YTD
2013 |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S. |
$ |
43,665 |
|
$ |
93,980 |
|
$ |
97,032 |
|
$ |
206,817 |
|
South and Central America |
|
17,524 |
|
|
50,897 |
|
|
39,262 |
|
|
120,310 |
|
Australia, Asia and Africa |
|
31,079 |
|
|
54,760 |
|
|
64,185 |
|
|
110,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
92,268 |
|
$ |
199,637 |
|
$ |
200,479 |
|
$ |
437,202 |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from operations |
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S. |
$ |
4,161 |
|
$ |
20,305 |
|
$ |
11,524 |
|
$ |
45,776 |
|
South and Central America |
|
(14,486) |
|
|
8,622 |
|
|
(16,573) |
|
|
25,373 |
|
Australia, Asia and Africa |
|
2,250 |
|
|
9,813 |
|
|
3,697 |
|
|
18,834 |
|
|
(8,075) |
|
|
38,740 |
|
|
(1,352) |
|
|
89,983 |
Eliminations |
|
(133) |
|
|
(987) |
|
|
(285) |
|
|
(466) |
|
|
(8,208) |
|
|
37,753 |
|
|
(1,637) |
|
|
89,517 |
Finance costs |
|
224 |
|
|
728 |
|
|
538 |
|
|
1,466 |
General corporate expenses* |
|
1,989 |
|
|
3,258 |
|
|
4,495 |
|
|
8,139 |
Income tax |
|
8,679 |
|
|
11,418 |
|
|
10,908 |
|
|
25,688 |
Net (loss) earnings |
$ |
(19,100) |
|
$ |
22,349 |
|
$ |
(17,578) |
|
$ |
54,224 |
*General and corporate expenses include expenses
for corporate offices and stock options. Amounts presented in the
previous period under general corporate expenses have been
allocated to other segments consistent with current year
presentation.
Canada - U.S.
includes revenue of $24,442 and
$55,582 for Canadian operations for
the three months ended October 31,
2013 and 2012, respectively, and $62,786 and $122,607 for the six months ended October 31, 2013 and 2012, respectively.
|
|
2014
Q2 |
|
|
2013
Q2 |
|
|
YTD
2014 |
|
|
YTD
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S. |
$ |
5,662 |
|
$ |
5,585 |
|
$ |
11,472 |
|
$ |
11,065 |
|
South and Central America |
|
2,980 |
|
|
2,613 |
|
|
5,994 |
|
|
5,825 |
|
Australia, Asia and Africa |
|
3,970 |
|
|
3,672 |
|
|
8,093 |
|
|
7,699 |
|
Unallocated corporate assets |
|
531 |
|
|
1,501 |
|
|
1,101 |
|
|
1,969 |
Total depreciation and amortization |
$ |
13,143 |
|
$ |
13,371 |
|
$ |
26,660 |
|
$ |
26,558 |
|
|
October 31, 2013 |
|
|
April
30, 2013 |
Identifiable assets |
|
|
|
|
|
|
Canada - U.S. |
$ |
206,942 |
|
$ |
243,027 |
|
South and Central America |
|
189,500 |
|
|
224,878 |
|
Australia, Asia and Africa |
|
162,025 |
|
|
165,318 |
|
|
558,467 |
|
|
633,223 |
Eliminations |
|
- |
|
|
(38) |
Unallocated and corporate assets |
|
62,656 |
|
|
53,042 |
|
$ |
621,123 |
|
$ |
686,227 |
Canada - U.S.
includes property, plant and equipment at October 31, 2013 of $90,097 (April 30,
2013 - $97,110) for Canadian
operations.
10. IMPAIRMENT OF GOODWILL
For the purposes of assessing impairment, the
Company's assets are grouped and tested at the cash generating unit
("CGU") level. The Company has operations in Canada, the United
States, South and Central
America, Australia and
Africa and management has
determined that its CGUs are identifiable at the country level as
this is the smallest identifiable group of assets that generate
cash inflows that are largely independent of cash inflows from
other assets or groups of assets.
Due to the weakness in the Chilean market caused
by the recent changes in labor laws and the severity of the
downturn in that market, the Company recorded an impairment of
goodwill of $12,057 in the South and
Central American segment during the current quarter.
Cash flow projections were calculated over a
five-year period based on budgeted earnings, forecasted from
historical earnings, using the value-in-use method, with a discount
rate of 13.22% (2012 13.00%).
11. RESTRUCTURING CHARGE
Restructuring charges of $678 and $2,712 for
the three and six months ended October 31,
2013 consist of employee severance charges relating to the
restructuring plan implemented in some of the Company's operations
in the previous year and continued in the current year.
12. FINANCIAL INSTRUMENTS
There are no significant changes to financial
instruments compared to the Company's annual Consolidated Financial
Statements for the year ended April 30,
2013 except for the following:
Fair value
The 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, which approximates its fair value, as most debts
carry variable interest rates and the remaining fixed rate debts
have been acquired recently and their carrying values continue to
reflect fair value. The fair value of the interest rate swap
included in long-term debt is measured using quoted interest
rates.
|
October 31, 2013 |
|
April
30, 2013 |
|
|
|
|
Long-term debt |
$ 26,592 |
|
$ 43,594 |
Credit risk
As at October 31, 2013, 79.0% of the
Company's trade receivables were aged as current (April 30, 2013 - 86.0%) and 3.5% of the trade
receivables were impaired (April 30,
2013 - 3.1%).
The movements in the allowance for impairment of
trade receivables during the six-month periods were as follows:
|
October 31, 2013 |
|
October
31, 2012 |
|
|
|
|
Opening balance |
$ 2,790 |
|
$ 2,236 |
Increase in impairment allowance |
445 |
|
317 |
Write-off charged against allowance |
(844) |
|
(113) |
Foreign exchange translation differences |
14 |
|
(6) |
Ending balance |
$ 2,405 |
|
$ 2,434 |
Foreign currency risk
Currency risk is the risk that the value of financial instruments
will fluctuate due to changes in foreign exchange rates. Currency
risk arises when future commercial transactions and recognized
assets and liabilities are denominated in a currency that is not
the Corporation's reporting currency. The Company monitors the
exchange rate fluctuations and manages the foreign currency
monetary accounts on a regular basis and acts accordingly. The
Corporation operates in several geographic areas and is exposed to
foreign currency risk, primarily, but not limited to, the Canadian
dollar to United States dollar
exchange rate. The Corporation does not use currency derivative
instruments to manage its exposure to foreign currency
fluctuations.
The carrying amounts of net monetary assets
that: (i) are denominated in currencies other than the functional
currency of the respective Company subsidiary; (ii) cause foreign
exchange rate exposure; and (iii) may include intercompany balances
with other subsidiaries, are USD $215
as of October 31, 2013. If the
Canadian dollar moved by plus or minus 10% at October 31, 2013, the unrealized foreign exchange
gain or loss recognized in net earnings would move by approximately
$22.
Inherent uncertainties exist in the foreign
currency markets due to some countries' economic difficulties.
While management continues to monitor and manage the currency
risks, future results may include favorable or unfavorable
adjustments to foreign exchange gain or loss.
Liquidity risk
The following table details contractual maturities for the
Company's financial liabilities.
|
|
|
1 year |
|
|
2-3 years |
|
|
4-5 years |
|
|
thereafter |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
$ |
45,403 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
45,403 |
Long-term debt |
|
|
9,717 |
|
|
11,946 |
|
|
2,095 |
|
|
2,834 |
|
|
26,592 |
|
|
$ |
55,120 |
|
$ |
11,946 |
|
$ |
2,095 |
|
$ |
2,834 |
|
$ |
71,995 |
SOURCE Major Drilling Group International Inc.