MONCTON, NB, Dec. 4, 2014
/CNW/ - Major Drilling Group International Inc. (TSX: MDI) (the
"Company") today reported results for its second quarter of fiscal
year 2015, ended October 31,
2014.
Highlights
|
|
|
|
|
|
In millions of
Canadian dollars
(except loss per
share)
|
|
Q2-15
|
Q2-14
|
YTD-15
|
YTD-14
|
Revenue
|
|
$87.2
|
$92.3
|
$154.7
|
$200.5
|
Gross
profit
|
|
20.7
|
30.0
|
37.4
|
65.1
|
|
As percentage of
sales
|
|
23.8%
|
32.5%
|
24.2%
|
32.5%
|
EBITDA(1)
|
|
8.4
|
15.7
|
13.1
|
35.3
|
|
As percentage of
revenue
|
|
9.6%
|
17.0%
|
8.5%
|
17.6%
|
Net loss
|
|
(10.1)
|
(19.1)
|
(17.5)
|
(17.6)
|
Loss per
share
|
|
(0.13)
|
(0.24)
|
(0.22)
|
(0.22)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Earnings before
interest, taxes, depreciation and amortization, excluding
restructuring charges and goodwill impairment (see "non-GAAP
financial measures")
|
- Cash on hand at quarter-end was $51
million while total debt was $19
million, for a net cash position of $32 million, following payments of $21 million for the Taurus acquisition.
- Major Drilling posted quarterly revenue of $87.2 million, down 6% from the $92.3 million recorded for the same quarter last
year, but up 29% from $67.6 million
in the previous quarter.
- Gross margin percentage for the quarter was 23.8%, compared to
32.5% for the corresponding period last year.
- Net loss was $10.1 million or
$0.13 per share ($0.13 per share diluted) for the quarter,
compared to a net loss of $19.1
million or $0.24 per share
($0.24 per share diluted) for the
prior year quarter.
- Taurus Drilling acquisition was effective as of August 1, 2014, complementing our underground
services.
"Despite a very difficult environment, we have been able to
increase our revenue by 29% and our EBITDA by 75% over our first
quarter of fiscal 2015, with slightly more than half of the
increases coming from our Taurus acquisition. Our existing coring
business has seen increased utilization, although still at
depressed prices. We should note that last year's revenue
included some $9 million from
Australia and the Democratic Republic of Congo ("DRC"), branches
where operations have since closed. Lower levels of demand
have significantly increased competitive pressures and our margins
continue to be affected as we find it difficult to improve
productivity beyond all the gains we have been able to make over
the last two years," said Francis
McGuire, President and CEO of Major Drilling.
"The operating environment in 2014 has been very difficult as
customers have focused their work almost exclusively on mine
sites. We expect this trend to continue into 2015. As a
result, we have seen a significant decrease in higher margin
specialized drilling and a much greater focus on production related
drilling such as underground drilling, which is less expensive and
has lower margins. We are continuing to adapt to the current
market conditions as demonstrated recently with our acquisition of
Taurus Drilling. With underground activities currently
representing 26% of our revenue, and depressed pricing in our other
operations, margins were lower at 23.8%. Also, during the
quarter the Company recorded a restructuring charge of $2.8 million, primarily relating to the decision
to close its operations in the DRC due to ongoing administrative
difficulties associated with operating in that country. As
the outlook for 2015 becomes clearer, we will continue to evaluate
each of our operations and continue to review the appropriate
levels for our dividend."
"While many branches continue to be profitable in the quarter,
there are some unprofitable branches, including Chile, Colombia, Mongolia, West
Africa and Brazil, which we
continue to support because we believe that they have
potential. We continue to hope that the political stalemate
in Mongolia around mining projects
will get resolved shortly, and we will continue to build our
operation in Brazil. Our most profitable branches are located
in high tax jurisdictions, and in a number of unprofitable
jurisdictions we have not recorded additional tax loss
provisions. As a consequence, net income tax expense was
$2.4 million during the quarter."
"As we go through this challenging period, we continue to focus
on cash generation. Major Drilling remains debt free, with a
net cash position of $32 million at
the end of the quarter. Although we paid $20.9 million on the Taurus acquisition during
the quarter, our net cash only decreased by $10.6 million."
"Due to the uncertainty around economic matters impacting the
mining market, it is very difficult to forecast customer demand
over the next twelve months, as senior customers are still very
cautious about investing in future projects. In the immediate
future, however, we are adding revenue from the Taurus acquisition,
which has allowed us to provide an even wider range of
complementary services, adding underground production drilling to
our existing underground core drilling. Also, we are in a
unique position to react quickly when the industry begins to
recover as the Company's financial strength has allowed it to
invest in safety and to maintain its equipment in excellent
condition."
"Capital expenditures were limited to $2.9 million this quarter, including purchases of
support equipment for our new percussive underground business, as
we see opportunities for this type of service. Additionally,
during the quarter, the Company added 39 percussive underground
drills from the acquisition while retiring 9 rigs," added Mr.
McGuire.
"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. As usual, 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."
Second quarter ended October 31,
2014
Total revenue for the quarter was $87.2
million, down 6% from revenue of $92.3 million recorded in the same quarter last
year, but up 29% from the first quarter. Uncertainty around
economic matters impacting the mining market continues to cause
delays in customers' exploration drilling plans, and in a number of
jurisdictions, uncertainty as to the policies of host governments
or issues of land tenure also had an impact on quarterly
results. Also, many junior customers have scaled back or
suspended drilling activities due to a lack of capital.
Revenue for the quarter from Canada-U.S. drilling operations
increased by 14% to $49.8 million
compared to the same period last year. Both countries continue to
be affected by the slowdown in the industry, but decreased revenue
in exploration drilling was more than offset by the additional
revenue provided by the Taurus acquisition.
South and Central American revenue was up 33% to $23.3 million for the quarter, compared to the
same quarter last year. Mexico,
Chile and Argentina, all showed increased activity
levels although at lower prices. In Brazil, the Company had its first full quarter
of operations, although it is expected that it will take a few
months to attain an adequate volume to become profitable.
Australian, Asian and African operations reported revenue of
$14.0 million, down 55% from the same
period last year. Several factors affected the region's
revenue this quarter compared to last year. The Company
closed its operations in Australia
earlier in the year, and has also closed its operations in the DRC
due to ongoing administrative difficulties associated with
operating in that country. Also, Mongolia continues to be affected by political
uncertainty around mining laws.
The overall gross margin percentage for the quarter was 23.8%,
down from 32.5% for the same period last year. Margins
continue to be affected by reduced pricing due to increased
competitive pressures. As well, our customers are focusing on
mine site drilling, especially underground drilling, which tends to
have lower margins.
General and administrative costs were down 8% from last year at
$11.3 million for the quarter despite
adding the operations of Taurus Drilling. With the decrease
in activity, the Company has reduced its general and administrative
costs by implementing reductions of salaried employees and
restructuring certain branches.
The Company recorded a restructuring charge of $2.8 million, primarily relating to the decision
to shut down operations in the DRC. This consists primarily of
a non-cash write-down of assets and close-down costs relating to
severance and moving costs.
The provision for income tax for the quarter was an expense of
$2.4 million compared to $8.7 million for the prior year period. The tax
expense for the quarter was impacted by non-tax affected losses,
non-deductible expenses and tax audit settlements relating to prior
years.
Net loss was $10.1 million or
$0.13 per share ($0.13 per share diluted) for the quarter,
compared to a net loss of $19.1
million or $0.24 per share
($0.24 per share diluted) for the
prior year quarter, as the Company recorded a goodwill impairment
of $12.1 million last year related to
its Chilean operations.
Non-GAAP Financial Measures
In this news release, the Company uses the non-GAAP financial
measure, EBITDA, excluding restructuring charges and goodwill
impairment. 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 15
to 18 of the 2014 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 services
companies. To support its customers' mining operations, mineral
exploration and environmental activities, Major Drilling maintains
field operations and offices in Canada, the United
States, Mexico, South
America, Asia, and
Africa.
Financial statements are attached.
Webcast/Conference Call Information
Major Drilling will provide a simultaneous webcast and
conference call of its quarterly conference call on Friday, December 5, 2014 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.
To access the conference call, please dial 647-427-7450 and
ask for Major Drilling's Second Quarter Conference Call. To
ensure your participation, please call in approximately five
minutes prior to the scheduled call.
For those unable to participate, a taped rebroadcast will be
available approximately two hours after the completion of the call
until midnight, Friday, December 12,
2014. To access the rebroadcast, dial 416-849-0833,
514-807-9274, 403-451-9481 or 902-455-3955 and enter the passcode
35519099. The webcast will also be archived for 90 days and
can be accessed on the Major Drilling website at
www.majordrilling.com or on the CNW Group website at
www.newswire.ca.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
REVENUE
|
$
|
87,192
|
|
$
|
92,268
|
|
$
|
154,743
|
|
$
|
200,479
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECT
COSTS
|
|
66,456
|
|
|
62,257
|
|
|
117,340
|
|
|
135,346
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
20,736
|
|
|
30,011
|
|
|
37,403
|
|
|
65,133
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative
|
|
11,261
|
|
|
12,269
|
|
|
22,240
|
|
|
25,316
|
|
Other
expenses
|
|
1,673
|
|
|
1,018
|
|
|
2,544
|
|
|
2,083
|
|
(Gain) loss on
disposal of property, plant and equipment
|
|
(2,015)
|
|
|
263
|
|
|
(2,030)
|
|
|
433
|
|
Foreign exchange
loss
|
|
1,445
|
|
|
780
|
|
|
1,518
|
|
|
2,004
|
|
Finance
costs
|
|
190
|
|
|
224
|
|
|
394
|
|
|
538
|
|
Depreciation of
property, plant and equipment
|
|
12,609
|
|
|
12,801
|
|
|
25,962
|
|
|
25,976
|
|
Amortization of
intangible assets
|
|
527
|
|
|
342
|
|
|
848
|
|
|
684
|
|
Impairment of
goodwill
|
|
-
|
|
|
12,057
|
|
|
-
|
|
|
12,057
|
|
Restructuring
charge
|
|
2,830
|
|
|
678
|
|
|
3,421
|
|
|
2,712
|
|
|
28,520
|
|
|
40,432
|
|
|
54,897
|
|
|
71,803
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME
TAX
|
|
(7,784)
|
|
|
(10,421)
|
|
|
(17,494)
|
|
|
(6,670)
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX -
PROVISION (RECOVERY) (note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
4,187
|
|
|
4,684
|
|
|
4,515
|
|
|
8,475
|
|
Deferred
|
|
(1,823)
|
|
|
3,995
|
|
|
(4,530)
|
|
|
2,433
|
|
|
2,364
|
|
|
8,679
|
|
|
(15)
|
|
|
10,908
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
$
|
(10,148)
|
|
$
|
(19,100)
|
|
$
|
(17,479)
|
|
$
|
(17,578)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE
(note 8)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.13)
|
|
$
|
(0.24)
|
|
$
|
(0.22)
|
|
$
|
(0.22)
|
Diluted
|
$
|
(0.13)
|
|
$
|
(0.24)
|
|
$
|
(0.22)
|
|
$
|
(0.22)
|
Major Drilling
Group International Inc.
|
Interim Condensed
Consolidated Statements of Comprehensive Loss
|
(in thousands of
Canadian dollars)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
|
Six months
ended
|
|
|
October 31
|
|
|
October 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
$
|
(10,148)
|
|
$
|
(19,100)
|
|
$
|
(17,479)
|
|
$
|
(17,578)
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be
reclassified subsequently to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on
foreign currency translations (net of tax)
|
|
8,846
|
|
|
9,677
|
|
|
6,346
|
|
|
4,580
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
LOSS
|
$
|
(1,302)
|
|
$
|
(9,423)
|
|
$
|
(11,133)
|
|
$
|
(12,998)
|
Major Drilling
Group International Inc.
|
Interim Condensed
Consolidated Statements of Changes in Equity
|
For the six months
ended October 31, 2013 and 2014
|
(in thousands of
Canadian dollars)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
|
|
|
Retained
|
|
|
Foreign
currency
|
|
|
|
|
|
|
Share
capital
|
|
|
payments
reserve
|
|
|
earnings
|
|
|
translation
reserve
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT MAY
1, 2013
|
|
$
|
230,985
|
|
$
|
14,204
|
|
$
|
283,088
|
|
$
|
10,052
|
|
$
|
538,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments
reserve
|
|
|
-
|
|
|
981
|
|
|
-
|
|
|
-
|
|
|
981
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
(7,916)
|
|
|
-
|
|
|
(7,916)
|
|
|
|
230,985
|
|
|
15,185
|
|
|
275,172
|
|
|
10,052
|
|
|
531,394
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
(17,578)
|
|
|
-
|
|
|
(17,578)
|
Unrealized gains on
foreign currency translations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,580
|
|
|
4,580
|
Total comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
(17,578)
|
|
|
4,580
|
|
|
(12,998)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT
OCTOBER 31, 2013
|
|
$
|
230,985
|
|
$
|
15,185
|
|
$
|
257,594
|
|
$
|
14,632
|
|
$
|
518,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT MAY
1, 2014
|
|
$
|
230,985
|
|
$
|
15,937
|
|
$
|
211,945
|
|
$
|
25,480
|
|
$
|
484,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock
options
|
|
|
46
|
|
|
(12)
|
|
|
-
|
|
|
-
|
|
|
34
|
Share issue (note
10)
|
|
|
8,689
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,689
|
Share-based payments
reserve
|
|
|
-
|
|
|
702
|
|
|
-
|
|
|
-
|
|
|
702
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
(8,014)
|
|
|
-
|
|
|
(8,014)
|
|
|
|
239,720
|
|
|
16,627
|
|
|
203,931
|
|
|
25,480
|
|
|
485,758
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
-
|
|
|
(17,479)
|
|
|
-
|
|
|
(17,479)
|
Unrealized gains on
foreign currency
translations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,346
|
|
|
6,346
|
Total comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
(17,479)
|
|
|
6,346
|
|
|
(11,133)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT
OCTOBER 31, 2014
|
|
$
|
239,720
|
|
$
|
16,627
|
|
$
|
186,452
|
|
$
|
31,826
|
|
$
|
474,625
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income
tax
|
$
|
(7,784)
|
|
$
|
(10,421)
|
|
$
|
(17,494)
|
|
$
|
(6,670)
|
Operating items not
involving cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
13,136
|
|
|
13,143
|
|
|
26,810
|
|
|
26,660
|
|
(Gain) loss on
disposal of property, plant and equipment
|
|
(2,015)
|
|
|
263
|
|
|
(2,030)
|
|
|
433
|
|
Share-based payments
reserve
|
|
347
|
|
|
451
|
|
|
702
|
|
|
981
|
|
Impairment of
goodwill
|
|
-
|
|
|
12,057
|
|
|
-
|
|
|
12,057
|
|
Restructuring
charge
|
|
1,953
|
|
|
-
|
|
|
1,953
|
|
|
665
|
Finance costs
recognized in loss before income tax
|
|
190
|
|
|
224
|
|
|
394
|
|
|
538
|
|
|
5,827
|
|
|
15,717
|
|
|
10,335
|
|
|
34,664
|
Changes in non-cash
operating working capital items
|
|
3,596
|
|
|
9,683
|
|
|
2,401
|
|
|
107
|
Finance costs
paid
|
|
(187)
|
|
|
(217)
|
|
|
(388)
|
|
|
(527)
|
Income taxes
paid
|
|
(2,009)
|
|
|
(3,109)
|
|
|
(4,209)
|
|
|
(9,460)
|
Cash flow from
operating activities
|
|
7,227
|
|
|
22,074
|
|
|
8,139
|
|
|
24,784
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Increase in demand
loan
|
|
658
|
|
|
-
|
|
|
658
|
|
|
-
|
Repayment of demand
loan
|
|
-
|
|
|
-
|
|
|
(3,354)
|
|
|
-
|
Repayment of
long-term debt
|
|
(4,760)
|
|
|
(3,968)
|
|
|
(6,499)
|
|
|
(17,034)
|
Issuance of common
shares
|
|
25
|
|
|
-
|
|
|
34
|
|
|
-
|
Dividends
paid
|
|
-
|
|
|
-
|
|
|
(7,916)
|
|
|
(7,916)
|
Cash flow used in
financing activities
|
|
(4,077)
|
|
|
(3,968)
|
|
|
(17,077)
|
|
|
(24,950)
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisition
(note 10)
|
|
(20,891)
|
|
|
-
|
|
|
(20,891)
|
|
|
(205)
|
Acquisition of
property, plant and equipment (net of direct financing) (note
6)
|
|
(2,912)
|
|
|
(6,005)
|
|
|
(10,057)
|
|
|
(11,209)
|
Proceeds from
disposal of property, plant and equipment
|
|
5,246
|
|
|
1,067
|
|
|
15,880
|
|
|
2,883
|
Cash flow used in
investing activities
|
|
(18,557)
|
|
|
(4,938)
|
|
|
(15,068)
|
|
|
(8,531)
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes
|
|
985
|
|
|
897
|
|
|
815
|
|
|
1,510
|
|
|
|
|
|
|
|
|
|
|
|
|
(DECREASE)
INCREASE IN CASH
|
|
(14,422)
|
|
|
14,065
|
|
|
(23,191)
|
|
|
(7,187)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF
THE PERIOD
|
|
65,475
|
|
|
61,059
|
|
|
74,244
|
|
|
82,311
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF THE
PERIOD
|
$
|
51,053
|
|
$
|
75,124
|
|
$
|
51,053
|
|
$
|
75,124
|
Major Drilling
Group International Inc.
|
Interim Condensed
Consolidated Balance Sheets
|
As at October 31,
2014 and April 30, 2014
|
(in thousands of
Canadian dollars)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2014
|
|
April 30,
2014
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
|
$
|
51,053
|
|
$
|
74,244
|
|
Trade and other
receivables
|
|
72,369
|
|
|
66,211
|
|
Income tax
receivable
|
|
9,494
|
|
|
12,179
|
|
Inventories
|
|
77,542
|
|
|
81,308
|
|
Prepaid
expenses
|
|
4,699
|
|
|
4,690
|
|
|
215,157
|
|
|
238,632
|
|
|
|
|
|
|
PROPERTY, PLANT
AND EQUIPMENT
|
|
287,803
|
|
|
307,288
|
|
|
|
|
|
|
DEFERRED INCOME
TAX ASSETS
|
|
7,374
|
|
|
5,825
|
|
|
|
|
|
|
GOODWILL
|
|
65,041
|
|
|
38,056
|
|
|
|
|
|
|
INTANGIBLE
ASSETS
|
|
1,212
|
|
|
1,923
|
|
|
|
|
|
|
|
$
|
576,587
|
|
$
|
591,724
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
Demand
loan
|
$
|
1,236
|
|
$
|
3,909
|
|
Trade and other
payables
|
|
49,345
|
|
|
52,155
|
|
Income tax
payable
|
|
818
|
|
|
3,416
|
|
Current portion of
long-term debt
|
|
6,507
|
|
|
9,655
|
|
|
57,906
|
|
|
69,135
|
|
|
|
|
|
|
CONTINGENT
CONSIDERATION (note 10)
|
|
11,500
|
|
|
-
|
|
|
|
|
|
|
LONG-TERM
DEBT
|
|
11,055
|
|
|
14,187
|
|
|
|
|
|
|
DEFERRED INCOME
TAX LIABILITIES
|
|
21,501
|
|
|
24,055
|
|
|
101,962
|
|
|
107,377
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
Share
capital
|
|
239,720
|
|
|
230,985
|
|
Share-based payments
reserve
|
|
16,627
|
|
|
15,937
|
|
Retained
earnings
|
|
186,452
|
|
|
211,945
|
|
Foreign currency
translation reserve
|
|
31,826
|
|
|
25,480
|
|
|
474,625
|
|
|
484,347
|
|
|
|
|
|
|
|
$
|
576,587
|
|
$
|
591,724
|
MAJOR DRILLING GROUP INTERNATIONAL INC.
Notes to
INTERIM CONDENSED Consolidated Financial Statements
FOR
THE THREE AND SIX MONTHS ended october 31,
2014 and 2013 (UNAUDITED)
(in thousands of
Canadian dollars, except per share information)
1. NATURE OF ACTIVITIES
Major Drilling Group International Inc. (the "Company" or "Major
Drilling") 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, Mexico, South
America, 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, 2014.
On December 4, 2014 the Board of
Directors authorized the financial statements for issue.
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 when the Company is exposed, or has rights, to
variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the
investee.
The results of subsidiaries acquired or disposed of during the
period are included in the Consolidated Statements 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, 2014, 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, 2014.
3. APPLICATION OF NEW AND REVISED IFRS
The following IASB standards, now in effect, have had no
significant impact on the Company's Consolidated Financial
Statements:
IAS 32 (amended) Financial Instruments:
Presentation
IAS 36 (amended) Impairment of
Assets
IAS 39 (amended) Financial Instruments:
Recognition and Measurement
IFRIC 21 Levies
The Company has not applied the following revised IASB standards
that have been issued, but are not yet effective:
IFRS 9 (as amended in 2014) Financial Instruments
IFRS 10 (amended) Consolidated Financial Statements
IFRS
11 (amended) Joint Arrangements - Accounting for Acquisitions of
Interests in Joint Operations
IFRS 15 Revenue from
Contracts with Customers
IAS 16 (amended) Property, Plant
and Equipment
IAS 27 (amended) Separate Financial
Statements
IAS 28 (amended) Investments in Associates and
Joint Ventures
IAS 38 (amended) Intangible Assets
The Company is currently in the process of assessing the impact
of the adoption of these standards on the 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 contingent considerations, 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, 2014 were $3,124 (2013 - $6,005) and for the six months ended October 31, 2014 were $10,269 (2013 - $11,209). The Company obtained direct financing
of $212 for the three and six months
ended October 31, 2014 and nil for
the three and six months ended October 31,
2013.
7. INCOME TAXES
The income tax expense for the period can be reconciled to
accounting loss as follows:
|
|
Q2
2015
|
|
|
Q2 2014
|
|
|
YTD
2015
|
|
|
YTD 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income
tax
|
$
|
(7,784)
|
|
$
|
(10,421)
|
|
$
|
(17,494)
|
|
$
|
(6,670)
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Canadian
corporate income tax rate
|
|
27%
|
|
|
28%
|
|
|
27%
|
|
|
28%
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax
recovery based on statutory
rate
|
|
(2,102)
|
|
|
(2,918)
|
|
|
(4,723)
|
|
|
(1,868)
|
Non-recognition of
tax benefits related to losses
|
|
2,814
|
|
|
1,005
|
|
|
3,564
|
|
|
1,081
|
Other foreign taxes
paid
|
|
77
|
|
|
77
|
|
|
171
|
|
|
202
|
Rate variances in
foreign jurisdictions
|
|
(19)
|
|
|
1,390
|
|
|
(276)
|
|
|
1,844
|
Permanent
differences
|
|
95
|
|
|
3,308
|
|
|
434
|
|
|
3,668
|
De-recognition of
previously recognized tax
losses
|
|
-
|
|
|
4,536
|
|
|
-
|
|
|
4,536
|
Other
|
|
1,499
|
|
|
1,281
|
|
|
815
|
|
|
1,445
|
Income tax expense
(recovery) recognized in net
loss
|
$
|
2,364
|
|
$
|
8,679
|
|
$
|
(15)
|
|
$
|
10,908
|
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 PER SHARE
All of the Company's earnings are attributable to common shares
therefore net earnings are used in determining earnings per
share.
|
|
Q2
2015
|
|
|
Q2 2014
|
|
|
YTD
2015
|
|
|
YTD 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(10,148)
|
|
$
|
(19,100)
|
|
$
|
(17,479)
|
|
$
|
(17,578)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – basic
(000's)
|
|
80,124
|
|
|
79,161
|
|
|
79,643
|
|
|
79,161
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of
dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
(000's)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Weighted average
number of shares – diluted
(000's)
|
|
80,124
|
|
|
79,161
|
|
|
79,643
|
|
|
79,161
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.13)
|
|
$
|
(0.24)
|
|
$
|
(0.22)
|
|
$
|
(0.22)
|
Diluted
|
$
|
(0.13)
|
|
$
|
(0.24)
|
|
$
|
(0.22)
|
|
$
|
(0.22)
|
There were no anti-dilutive options for the three and six months
ended October 31, 2014 and 2013.
The total number of shares outstanding on October 31, 2014 was 80,135,883 (2013 -
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, 2014. Management
evaluates performance based on (loss) 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:
|
Q2
2015
|
|
Q2 2014
|
|
YTD
2015
|
|
YTD 2014
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada –
U.S.
|
$
|
49,813
|
|
$
|
43,665
|
|
$
|
86,232
|
|
$
|
97,032
|
|
South and Central
America
|
|
23,331
|
|
|
17,524
|
|
|
37,436
|
|
|
39,262
|
|
Australia, Asia and
Africa
|
|
14,048
|
|
|
31,079
|
|
|
31,075
|
|
|
64,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,192
|
|
$
|
92,268
|
|
$
|
154,743
|
|
$
|
200,479
|
Earnings (loss) from
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada –
U.S.
|
$
|
2,580
|
|
$
|
4,161
|
|
$
|
1,967
|
|
$
|
11,524
|
|
South and Central
America
|
|
(794)
|
|
|
(14,486)
|
|
|
(5,512)
|
|
|
(16,573)
|
|
Australia, Asia and
Africa
|
|
(6,528)
|
|
|
2,250
|
|
|
(8,810)
|
|
|
3,697
|
|
|
(4,742)
|
|
|
(8,075)
|
|
|
(12,355)
|
|
|
(1,352)
|
Eliminations
|
|
-
|
|
|
(133)
|
|
|
-
|
|
|
(285)
|
|
|
(4,742)
|
|
|
(8,208)
|
|
|
(12,355)
|
|
|
(1,637)
|
Finance
costs
|
|
190
|
|
|
224
|
|
|
394
|
|
|
538
|
General corporate
expenses*
|
|
2,852
|
|
|
1,989
|
|
|
4,745
|
|
|
4,495
|
Income tax
|
|
2,364
|
|
|
8,679
|
|
|
(15)
|
|
|
10,908
|
Net
loss
|
$
|
(10,148)
|
|
$
|
(19,100)
|
|
$
|
(17,479)
|
|
$
|
(17,578)
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
General and corporate
expenses include expenses for corporate offices and stock
options.
|
Canada – U.S. includes revenue
of $29,187 and $24,442 for Canadian operations for the three
months ended October 31, 2014 and
2013, respectively, and $51,637 and
$62,786 for the six months ended
October 31, 2014 and 2013,
respectively.
|
Q2
2015
|
|
Q2 2014
|
|
YTD
2015
|
|
YTD 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada –
U.S.
|
$
|
6,440
|
|
$
|
5,662
|
|
$
|
12,484
|
|
$
|
11,472
|
|
South and Central
America
|
|
2,930
|
|
|
2,980
|
|
|
6,584
|
|
|
5,994
|
|
Australia, Asia and
Africa
|
|
3,390
|
|
|
3,970
|
|
|
6,995
|
|
|
8,093
|
Unallocated corporate
assets
|
|
376
|
|
|
531
|
|
|
747
|
|
|
1,101
|
Total depreciation
and amortization
|
$
|
13,136
|
|
$
|
13,143
|
|
$
|
26,810
|
|
$
|
26,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
2014
|
|
April 30,
2014
|
Identifiable
assets
|
|
|
|
|
|
|
Canada –
U.S.
|
$
|
229,994
|
|
$
|
197,673
|
|
South and Central
America
|
|
182,503
|
|
|
178,026
|
|
Australia, Asia and
Africa
|
|
116,980
|
|
|
148,806
|
|
|
529,477
|
|
|
524,505
|
Unallocated and
corporate assets
|
|
47,110
|
|
|
67,219
|
|
$
|
576,587
|
|
$
|
591,724
|
Canada – U.S. includes
property, plant and equipment at October 31,
2014 of $87,721 (April 30, 2014 - $88,347) for Canadian operations.
10. BUSINESS ACQUISITION
Taurus Drilling Services
Effective August
1, 2014, the Company entered into the underground
percussive/longhole drilling sector with its purchase of the
operations of Taurus Drilling Services ("Taurus"), based in
Canada and the United States.
The acquisition has been accounted for using the acquisition
method and the results of this operation have been included in the
Interim Condensed Consolidated Statements of Operations from the
closing date. Through this purchase, which fits with the Company's
strategic focus on specialized drilling, the Company acquired 39
underground drill rigs, support equipment and inventory, existing
contracts and receivables, the operation's management team, and
other employees, including experienced drillers.
The purchase price for the transaction was $29.6 million (consisting of $20.7 million in cash, $8.7 million in Major Drilling shares, and
$0.2 million in assumption of debt),
and an additional maximum amount of $11.5
million tied to performance. The additional payout period
extends for three years, commencing on August 1, 2014, and payments are contingent on
growing EBITDA run rates above current levels.
As the acquisition occurred early in the current quarter, the
Company is in the process of finalizing the valuation of assets. As
at October 31, 2014, the values
allocated to net tangible and intangible assets are preliminary and
are subject to adjustments as additional information is
obtained.
Goodwill arising from this acquisition will represent the excess
of the total consideration paid over the fair market value of the
net assets acquired and the benefit of expected synergies, revenue
growth, future market development and the assembled workforce of
Taurus and Major Drilling.
The estimated net assets acquired at fair market value at
acquisition are as follows:
Assets
acquired
|
|
|
Trade and other
receivables
|
$
|
5,511
|
Inventories
|
|
606
|
Prepaid
expenses
|
|
40
|
Property, plant and
equipment
|
|
9,287
|
Goodwill
|
|
26,650
|
Trade and other
payables
|
|
(1,014)
|
Total
assets
|
$
|
41,080
|
|
|
|
Consideration
|
|
|
Cash
|
$
|
20,680
|
Trade and other
payable
|
|
211
|
Contingent
consideration
|
|
11,500
|
Shares of Major
Drilling
|
|
8,689
|
|
$
|
41,080
|
The above consideration includes non-cash investing activities,
which are not reflected in the Interim Condensed Consolidated
Statements of Cash Flows, including the issuance of 966,495 shares
of Major Drilling at $8.99 for a
total of $8,689 and contingent
consideration of $11,500.
The Company incurred acquisition-related costs of $308 relating to external legal fees and due
diligence costs. These acquisition costs have been included in the
other expense line of the Interim Condensed Consolidated Statements
of Operations.
The revenue for the three months ended October 31, 2014 attributable to the additional
business generated by Taurus was $11,151. Due to the integration of the
Taurus acquisition with existing operations, it is impracticable to
estimate the revenue and net income of the combined entity for the
year as though the acquisition date was May
1, 2014.
11. FINANCIAL INSTRUMENTS
Fair value
The carrying values of cash, trade
and other receivables, demand credit facility, demand loan and
trade and other payables approximate their fair value due to the
relatively short period to maturity of the instruments. The
following table shows the carrying value of long-term debt, which
approximates its fair value, as most debts carry variable interest
rates and the remaining fixed rate debts 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,
2014
|
|
April 30,
2014
|
|
|
|
|
|
|
Long-term
debt
|
$
|
17,562
|
|
$
|
23,842
|
During the current quarter, the Company entered into an amending
agreement amending the current credit agreement with its lenders.
As a result, the Company is in compliance with all covenants and
other conditions imposed in this credit agreement.
Credit risk
As at October 31, 2014, 81.6% of the Company's trade
receivables were aged as current (April 30,
2014 - 79.8%) and 5.1% of the trade receivables were
impaired (April 30, 2014 - 5.1%).
The movement in the allowance for impairment of trade
receivables during the six month periods were as follows:
|
October 31,
2014
|
|
October 31,
2013
|
|
|
|
|
|
|
Opening
balance
|
$
|
3,016
|
|
$
|
2,790
|
Increase in
impairment allowance
|
|
1,258
|
|
|
445
|
Recovery of amounts
previously impaired
|
|
(186)
|
|
|
-
|
Write-off charged
against allowance
|
|
(814)
|
|
|
(844)
|
Foreign exchange
translation differences
|
|
(52)
|
|
|
14
|
Ending
balance
|
$
|
3,222
|
|
$
|
2,405
|
Foreign currency risk
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, is US $12,922 as of October 31,
2014.
If the Canadian dollar moved by plus or minus 10% at
October 31, 2014, the unrealized
foreign exchange gain or loss recognized in net loss would move by
approximately US $1,292.
Liquidity risk
The following table details
contractual maturities for the Company's financial liabilities.
|
1 year
|
2-3 years
|
4-5 years
|
thereafter
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Demand
loan
|
$
|
1,236
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,236
|
Trade and other
payables
|
|
49,345
|
|
-
|
|
-
|
|
-
|
|
49,345
|
Long-term
debt
|
|
6,761
|
|
7,473
|
|
2,149
|
|
1,942
|
|
18,325
|
|
$
|
57,342
|
$
|
7,473
|
$
|
2,149
|
$
|
1,942
|
$
|
68,906
|
SOURCE MAJOR DRILLING GROUP INTERNATIONAL INC.