MONCTON, NB,
March 3, 2014 /CNW/ - Major Drilling
Group International Inc. (TSX: MDI) today reported results for its
third quarter of fiscal year 2014, ended January 31, 2014.
Highlights
|
In millions of Canadian dollars
(except earnings per share) |
|
Q3-14 |
|
Q3-13 |
|
YTD-14 |
|
YTD-13 |
Revenue |
|
$71.8 |
|
$123.2 |
|
$272.3 |
|
$560.4 |
Gross profit |
|
17.8
|
|
29.3
|
|
82.9
|
|
177.3
|
|
As percentage of sales |
|
24.7% |
|
23.8% |
|
30.4% |
|
31.6% |
Adjusted EBITDA(1) |
|
0.6
|
|
12.4
|
|
35.9
|
|
120.3
|
|
As percentage of revenue |
|
0.9% |
|
10.0% |
|
13.2% |
|
21.5% |
Net (loss) earnings |
|
(12.8) |
|
(4.3) |
|
(30.4) |
|
49.9 |
(Loss) earnings per share |
|
(0.16) |
|
(0.05) |
|
(0.38) |
|
0.63 |
(1) |
Earnings before interest, taxes, depreciation and amortization,
excluding restructuring charges and goodwill impairment (see
"non-GAAP financial measures")
|
- Major Drilling posted quarterly
revenue of $71.8 million, down 42%
from the $123.2 million recorded for
the same quarter last year.
- Gross margin percentage for the quarter was 24.7%, compared to
23.8% for the corresponding period last year.
- Foreign exchange loss for the quarter was $3.3 million, mostly related to the devaluation
of Argentine pesos.
- Net loss was $12.8 million or
$0.16 per share for the quarter,
compared to net loss of $4.3 million
or $0.05 per share for the prior year
quarter.
- The Company remains in an excellent financial position with a
total net cash position (net of debt) of $33.6 million, after a dividend payment of
$7.9 million last November, and
capital expenditures of $6.2
million.
- Given the Company's ability to generate cash flows, it has
declared a semi-annual dividend of $0.10 per share to be paid on May 1, 2014.
- The Company achieved over 3.4 million hours worked in the last
seven months without a single lost time injury.
"As we had noted in our second quarter news
release, program extentions in November were lower than last
year. Also, subsequent to the holiday season, and as
expected, customers have been, and continue to be, slow in deciding
on their 2014 calendar year drilling plans. This has led to reduced
activity levels as compared to the third quarter last year, and
produced a seasonal loss as anticipated," said Francis McGuire, President and CEO of Major
Drilling Group International Inc. "Quarterly results were also
impacted by a foreign exchange loss of $3.3
million, mostly related to the devaluation of the Argentine
peso, and the Company crystalized currency losses by converting
some of its Argentine pesos into U.S. dollar investments, although
at a significant discount, in order to protect against further
devaluations."
"As we started our fourth quarter, there
continued to be a number of projects for which decisions had not
yet been made regarding start dates and exact drilling
meterage. Weather conditions have also caused start times to
be delayed. This has resulted in reduced activity in
February. In a number of jurisdictions, uncertainty as to the
policies of host governments or issues of land tenure are causing
customers to hold back on investments. This is making it
difficult to predict what might happen in those markets. With
lower utilization rates and a slow start in activity levels, we are
also seeing pricing pressures throughout the industry."
"In Australia
we continue to see no improvement since the beginning of the
year. The utilization rates for surface rigs are extremely
low. Price competition has been especially intense in
Eastern Australia where our
operations are concentrated. We are currently considering all
restructuring options for this branch, including the possibility of
withdrawing from this market."
"On the other hand, in many regions we are
seeing encouraging signs of increased inquiries, especially from
gold customers, which if they result in successful bids, would
generate higher activity levels in the second half of this calendar
year."
"We feel we are in a strong position to react
quickly when the industry begins to recover as the Company's
financial strength has allowed it to invest in safety, to maintain
its equipment in excellent condition, and to retain many of its
skilled employees. The Company will continue to focus on cash
management by limiting capital expenditures, and by closely
monitoring costs. We will, however, react to local conditions
in specific markets when necessary."
"Long-term, the fundamental drivers of our
business remain positive, with worldwide supply for most metals
expected to tighten. 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."
"Despite the difficult environment, we have one
of the most solid balance sheets in our industry with $62.4 million in cash and total debt of
$28.9 million at the end of the
quarter. This combines for a net cash position of $33.6 million, after payment of our semi-annual
dividend of $7.9 million in
November 2013, and capital
expenditures for the quarter of $6.2
million as we purchased 3 rigs and support equipment in
order to expand our energy services. We also retired 11 older
mineral rigs," observed Mr. McGuire. "Finally, I would like to
congratulate our employees on over 3.4 million hours worked in the
last seven months without a single lost time injury. This is
a substantial achievement."
"Given the Company's ability to continue
generating cash flows, the Company is pleased to announce that its
Board of Directors has declared a cash dividend of $0.10 per common share payable on May 1, 2014 to shareholders of record as of
April 7, 2014. This dividend is
designated as an "eligible dividend" for Canadian tax purposes,"
said Mr. McGuire.
Third quarter ended January 31, 2014
Total revenue for the quarter was $71.8 million, down 42% from revenue of
$123.2 million recorded in the same
quarter last year. There have been continued delays in the decision
making process on the part of many of the Company's senior
customers in regards to their 2014 exploration drilling programs,
and many junior customers have scaled back or suspended drilling
activities as compared to last year. Also, program extensions
in November were lower than the prior year. This has led to
reduced activity levels as compared to the third quarter last
year. The favourable 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 33% to $32.4 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 53%
to $18.6 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 certain
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 $20.8 million,
down 41% from the same period last year. In Australia, projects have been cancelled due to
high costs being incurred by mining companies. Mongolia continues to be affected by political
uncertainty around mining laws and Burkina Faso was affected by a reduction in
work by juniors. Also, the Company closed its operations in
Tanzania earlier in the fiscal
year.
The overall gross margin percentage for the
quarter was 24.7%, up slightly from 23.8% for the same period last
year. Third quarter margins are typically impacted by a
slowdown during the holiday season combined with higher than usual
mobilizations, demobilizations and increased repairs during this
period. Reduced pricing, due to increased competitive pressures and
delays, impacted margins, however the Company has been able to
recapture some of this through productivity gains and cost
cutting.
General and administrative costs decreased 22%
from last year at $12.1 million for
the quarter compared to $15.4 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.
Foreign exchange loss was $3.3 million compared to a gain of $0.5 million last year. Most of this
quarter's loss was related to the devaluation of the Argentine peso
and the Company crystalized currency losses by converting some of
its Argentine pesos into U.S. dollar investments, although at a
significant discount, to protect against further devaluations.
The provision for income tax for the quarter was
a recovery of $0.5 million compared
to an expense of $1.9 million for the
prior year period. This quarter's tax expense was impacted by
differences in tax rates between regions, non-tax affected losses,
and non-deductible expenses, including the foreign exchange loss in
Argentina.
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
Monday, March 3, 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.
Major Drilling
Group International Inc. |
Interim Condensed
Consolidated Statements of Operations |
(in thousands of
Canadian dollars, except per share information) |
(unaudited) |
|
|
|
Three months ended |
|
Nine months ended |
|
January 31 |
|
January 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL REVENUE |
$ |
71,830 |
|
$ |
123,189 |
|
$ |
272,309 |
|
$ |
560,391 |
|
|
|
|
|
|
|
|
|
|
|
|
DIRECT COSTS |
|
54,060 |
|
|
93,914 |
|
|
189,406 |
|
|
383,139 |
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
17,770 |
|
|
29,275 |
|
|
82,903 |
|
|
177,252 |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
12,070 |
|
|
15,447 |
|
|
37,386 |
|
|
48,509 |
|
Other expenses |
|
636 |
|
|
644 |
|
|
2,719 |
|
|
9,237 |
|
Loss on disposal of property, plant
and equipment |
|
826 |
|
|
1,353 |
|
|
1,259 |
|
|
1,220 |
|
Loss on short-term investments |
|
307 |
|
|
- |
|
|
307 |
|
|
- |
|
Foreign exchange loss (gain) |
|
3,291 |
|
|
(529) |
|
|
5,295 |
|
|
(2,010) |
|
Finance costs |
|
198 |
|
|
504 |
|
|
736 |
|
|
1,970 |
|
Depreciation of property, plant and
equipment |
|
12,886 |
|
|
12,884 |
|
|
38,862 |
|
|
37,422 |
|
Amortization of intangible
assets |
|
343 |
|
|
408 |
|
|
1,027 |
|
|
2,428 |
|
Impairment of goodwill (note 11) |
|
- |
|
|
- |
|
|
12,057 |
|
|
- |
|
Restructuring charge (note 12) |
|
508 |
|
|
937 |
|
|
3,220 |
|
|
937 |
|
|
31,065 |
|
|
31,648 |
|
|
102,868 |
|
|
99,713 |
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) EARNINGS BEFORE
INCOME TAX |
|
(13,295) |
|
|
(2,373) |
|
|
(19,965) |
|
|
77,539 |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX -
(RECOVERY) PROVISION (note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
886 |
|
|
3,584 |
|
|
9,361 |
|
|
28,487 |
|
Deferred |
|
(1,384) |
|
|
(1,669) |
|
|
1,049 |
|
|
(884) |
|
|
(498) |
|
|
1,915 |
|
|
10,410 |
|
|
27,603 |
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS)
EARNINGS |
$ |
(12,797) |
|
$ |
(4,288) |
|
$ |
(30,375) |
|
$ |
49,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) EARNINGS PER
SHARE (note 9) |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.16) |
|
$ |
(0.05) |
|
$ |
(0.38) |
|
$ |
0.63 |
Diluted |
$ |
(0.16) |
|
$ |
(0.05) |
|
$ |
(0.38) |
|
$ |
0.63 |
Major Drilling
Group International Inc. |
Interim Condensed
Consolidated Statements of Comprehensive Earnings
(Loss) |
(in thousands of
Canadian dollars) |
(unaudited) |
|
|
|
|
Three months ended |
|
Nine months ended |
|
January 31 |
|
January 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS)
EARNINGS |
$ |
(12,797) |
|
$ |
(4,288) |
|
$ |
(30,375) |
|
$ |
49,936 |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE
EARNINGS (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be
reclassified subsequently to profit or loss |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on foreign currency
translations (net of tax) |
|
16,944 |
|
|
1,516 |
|
|
21,557 |
|
|
7,441 |
|
Unrealized gain (loss) on interest
rate swap (net of tax) |
|
134 |
|
|
25 |
|
|
101 |
|
|
(128) |
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE EARNINGS
(LOSS) |
$ |
4,281 |
|
$ |
(2,747) |
|
$ |
(8,717) |
|
$ |
57,249 |
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Statements of Changes in Equity |
For the nine months ended
January 31, 2013 and 2014 |
(in thousands of Canadian
dollars) |
(unaudited) |
|
|
|
|
|
|
|
Share-based |
|
Retained |
|
Foreign currency |
|
|
|
|
Share capital |
|
Reserves |
|
payments reserve |
|
earnings |
|
translation reserve |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT MAY 1,
2012 |
|
$ |
230,763 |
|
$ |
121 |
|
$ |
11,797 |
|
$ |
246,809 |
|
$ |
(1,791) |
|
$ |
487,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments reserve |
|
|
(93) |
|
|
- |
|
|
2,170 |
|
|
- |
|
|
- |
|
|
2,077 |
|
Dividends |
|
|
- |
|
|
- |
|
|
- |
|
|
(7,915) |
|
|
- |
|
|
(7,915) |
|
|
|
230,670 |
|
|
121 |
|
|
13,967 |
|
|
238,894 |
|
|
(1,791) |
|
|
481,861 |
Comprehensive
earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
- |
|
|
- |
|
|
- |
|
|
49,936 |
|
|
- |
|
|
49,936 |
|
Unrealized gains on foreign currency translations |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
7,441 |
|
|
7,441 |
|
Unrealized loss on interest rate
swap |
|
|
- |
|
|
(128) |
|
|
- |
|
|
- |
|
|
- |
|
|
(128) |
Total comprehensive
earnings |
|
|
- |
|
|
(128) |
|
|
- |
|
|
49,936 |
|
|
7,441 |
|
|
57,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT JANUARY
31, 2013 |
|
$ |
230,670 |
|
$ |
(7) |
|
$ |
13,967 |
|
$ |
288,830 |
|
$ |
5,650 |
|
$ |
539,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT MAY 1,
2013 |
|
$ |
230,985 |
|
$ |
40 |
|
$ |
14,204 |
|
$ |
283,088 |
|
$ |
10,012 |
|
$ |
538,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payments reserve |
|
|
- |
|
|
- |
|
|
1,372 |
|
|
- |
|
|
- |
|
|
1,372 |
|
Dividends |
|
|
- |
|
|
- |
|
|
- |
|
|
(7,916) |
|
|
- |
|
|
(7,916) |
|
|
|
230,985 |
|
|
40 |
|
|
15,576 |
|
|
275,172 |
|
|
10,012 |
|
|
531,785 |
Comprehensive
loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
- |
|
|
- |
|
|
(30,375) |
|
|
- |
|
|
(30,375) |
|
Unrealized gains on foreign currency
translations |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
21,557 |
|
|
21,557 |
|
Unrealized gain on interest rate
swap |
|
|
- |
|
|
101 |
|
|
- |
|
|
- |
|
|
- |
|
|
101 |
Total comprehensive
loss |
|
|
- |
|
|
101 |
|
|
- |
|
|
(30,375) |
|
|
21,557 |
|
|
(8,717) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT JANUARY
31, 2014 |
|
$ |
230,985 |
|
$ |
141 |
|
$ |
15,576 |
|
$ |
244,797 |
|
$ |
31,569 |
|
$ |
523,068 |
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Statements of Cash Flows |
(in thousands of Canadian
dollars) |
(unaudited) |
|
|
|
|
|
Three months
ended |
|
Nine months
ended |
|
|
January 31 |
|
January 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before
income tax |
|
$ |
(13,295) |
|
$ |
(2,373) |
|
$ |
(19,965) |
|
$ |
77,539 |
Operating items not
involving cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
13,229 |
|
|
13,292 |
|
|
39,889 |
|
|
39,850 |
|
Loss on disposal of property, plant
and equipment |
|
|
826 |
|
|
1,353 |
|
|
1,259 |
|
|
1,220 |
|
Loss on short-term investments |
|
|
307 |
|
|
- |
|
|
307 |
|
|
- |
|
Share-based payments reserve |
|
|
391 |
|
|
598 |
|
|
1,372 |
|
|
2,077 |
|
Impairment of goodwill |
|
|
- |
|
|
- |
|
|
12,057 |
|
|
- |
|
Restructuring charge |
|
|
- |
|
|
- |
|
|
665 |
|
|
- |
Finance costs recognized
in earnings before income tax |
|
|
198 |
|
|
504 |
|
|
736 |
|
|
1,970 |
|
|
|
1,656 |
|
|
13,374 |
|
|
36,320 |
|
|
122,656 |
Changes in non-cash
operating working capital items |
|
|
1,890 |
|
|
25,793 |
|
|
1,997 |
|
|
25,151 |
Finance costs paid |
|
|
(195) |
|
|
(497) |
|
|
(722) |
|
|
(1,961) |
Income taxes paid |
|
|
(2,422) |
|
|
(10,438) |
|
|
(11,882) |
|
|
(25,881) |
Cash flow from operating
activities |
|
|
929 |
|
|
28,232 |
|
|
25,713 |
|
|
119,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in demand loan
(note 7) |
|
|
4,066 |
|
|
- |
|
|
4,066 |
|
|
- |
Repayment of long-term
debt |
|
|
(1,683) |
|
|
(1,945) |
|
|
(18,717) |
|
|
(7,580) |
Dividend paid |
|
|
(7,916) |
|
|
(7,915) |
|
|
(15,832) |
|
|
(15,038) |
Cash flow used in
financing activities |
|
|
(5,533) |
|
|
(9,860) |
|
|
(30,483) |
|
|
(22,618) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Payment of consideration
for previous business acquisition |
|
|
- |
|
|
(885) |
|
|
(205) |
|
|
(1,698) |
Acquisition of short-term
investments |
|
|
(3,587) |
|
|
- |
|
|
(3,587) |
|
|
- |
Acquisition of property,
plant and equipment (note 6) |
|
|
(6,227) |
|
|
(20,006) |
|
|
(17,436) |
|
|
(59,518) |
Proceeds from disposal of
property, plant and equipment |
|
|
502 |
|
|
1,259 |
|
|
3,385 |
|
|
2,525 |
Cash flow used in
investing activities |
|
|
(9,312) |
|
|
(19,632) |
|
|
(17,843) |
|
|
(58,691) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes |
|
|
1,203 |
|
|
(302) |
|
|
2,713 |
|
|
(410) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(DECREASE) INCREASE IN
CASH |
|
|
(12,713) |
|
|
(1,562) |
|
|
(19,900) |
|
|
38,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF THE
PERIOD |
|
|
75,124 |
|
|
77,045 |
|
|
82,311 |
|
|
37,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF THE
PERIOD |
|
$ |
62,411 |
|
$ |
75,483 |
|
$ |
62,411 |
|
$ |
75,483 |
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Balance Sheets |
As at January 31, 2014 and April
30, 2013 |
(in thousands of Canadian
dollars) |
(unaudited) |
|
|
|
|
|
|
|
|
|
January 31, 2014 |
|
April 30, 2013 |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS |
|
|
|
|
|
|
|
Cash |
|
$ |
62,411 |
|
$ |
82,311 |
|
Trade and other receivables |
|
|
68,583 |
|
|
98,079 |
|
Short-term investments |
|
|
3,396 |
|
|
- |
|
Income tax receivable |
|
|
10,812 |
|
|
10,013 |
|
Inventories |
|
|
89,755 |
|
|
88,118 |
|
Prepaid expenses |
|
|
7,950 |
|
|
6,119 |
|
|
|
242,907 |
|
|
284,640 |
|
|
|
|
|
|
|
PROPERTY, PLANT AND
EQUIPMENT |
|
|
325,936 |
|
|
339,971 |
|
|
|
|
|
|
|
DEFERRED INCOME TAX
ASSETS |
|
|
5,448 |
|
|
5,601 |
|
|
|
|
|
|
|
GOODWILL (note
11) |
|
|
40,371 |
|
|
52,736 |
|
|
|
|
|
|
|
INTANGIBLE
ASSETS |
|
|
2,255 |
|
|
3,279 |
|
|
|
|
|
|
|
|
|
$ |
616,917 |
|
$ |
686,227 |
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES |
|
|
|
|
|
|
|
Demand loan (note 7) |
|
$ |
4,085 |
|
$ |
- |
|
Trade and other payables |
|
|
34,655 |
|
|
73,315 |
|
Income tax payable |
|
|
3,210 |
|
|
5,251 |
|
Current portion of long-term
debt |
|
|
9,512 |
|
|
9,097 |
|
|
|
51,462 |
|
|
87,663 |
|
|
|
|
|
|
|
LONG-TERM
DEBT |
|
|
15,263 |
|
|
34,497 |
|
|
|
|
|
|
|
DEFERRED INCOME TAX
LIABILITIES |
|
|
27,124 |
|
|
25,738 |
|
|
|
93,849 |
|
|
147,898 |
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY |
|
|
|
|
|
|
|
Share capital |
|
|
230,985 |
|
|
230,985 |
|
Reserves |
|
|
141 |
|
|
40 |
|
Share-based payments reserve |
|
|
15,576 |
|
|
14,204 |
|
Retained earnings |
|
|
244,797 |
|
|
283,088 |
|
Foreign currency translation
reserve |
|
|
31,569 |
|
|
10,012 |
|
|
|
523,068 |
|
|
538,329 |
|
|
|
|
|
|
|
|
|
$ |
616,917 |
|
$ |
686,227 |
MAJOR DRILLING GROUP INTERNATIONAL INC.
Notes to INTERIM CONDENSED Consolidated Financial
Statements
FOR THE NINE MONTHS ended JANUARY 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") 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.
On February 28,
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 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 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, 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 (amended) Impairment of Assets
IAS 39 (amended) Financial Instruments: Recognition and
Measurement
IFRIC 21 Levies
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
January 31, 2014 were $6,227 (2013 - $20,126) and for the nine months ended
January 31, 2014 were $17,436 (2013 - $61,342). The Company obtained direct financing
of nil for the three months ended January
31, 2014 (2013 - $120) and of
nil for the nine months ended January 31,
2014 (2013 - $1,824).
7. DEMAND LOAN
In the third quarter of the current fiscal year,
the Company borrowed 2,000 million Chilean pesos (CAD $4.1 million), secured by a USD
$4.4 million stand-by letter of
credit drawn from the Company's demand credit facility, carrying
interest at an annual rate of 6.85%.
8. INCOME TAXES
The income tax expense for the period can be reconciled to
accounting profit as follows:
|
|
|
2014
Q3 |
|
|
2013
Q3 |
|
|
YTD
2014 |
|
|
YTD
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income tax |
|
$ |
(13,295) |
|
$ |
(2,373) |
|
$ |
(19,965) |
|
$ |
77,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Canadian corporate income tax rate |
|
|
28% |
|
|
28% |
|
|
28% |
|
|
28% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax (recovery) expense based on
statutory rate |
|
|
(3,723) |
|
|
(664) |
|
|
(5,590) |
|
|
21,711 |
Non-recognition of tax benefits related to
losses |
|
|
1,275 |
|
|
554 |
|
|
2,356 |
|
|
1,185 |
Other foreign taxes paid |
|
|
71 |
|
|
1,069 |
|
|
273 |
|
|
1,767 |
Rate variances in foreign jurisdictions |
|
|
(854) |
|
|
(181) |
|
|
990 |
|
|
1,210 |
Permanent differences |
|
|
1,726 |
|
|
- |
|
|
5,394 |
|
|
- |
De-recognition of previously recognized tax
losses |
|
|
- |
|
|
- |
|
|
4,536 |
|
|
- |
Other |
|
|
1,007 |
|
|
1,137 |
|
|
2,451 |
|
|
1,730 |
Income tax (recovery) expense recognized in net
(loss) earnings |
|
$ |
(498) |
|
$ |
1,915 |
|
$ |
10,410 |
|
$ |
27,603 |
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.
9. (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
Q3 |
|
|
2013 Q3 |
|
|
YTD
2014 |
|
|
YTD
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
(12,797) |
|
$ |
(4,288) |
|
$ |
(30,375) |
|
$ |
49,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
(000's) |
|
|
79,161 |
|
|
79,147 |
|
|
79,161 |
|
|
79,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options (000's) |
|
|
- |
|
|
- |
|
|
- |
|
|
490 |
Weighted average number of shares - diluted
(000's) |
|
|
79,161 |
|
|
79,147 |
|
|
79,161 |
|
|
79,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.16) |
|
$ |
(0.05) |
|
$ |
(0.38) |
|
$ |
0.63 |
Diluted |
|
$ |
(0.16) |
|
$ |
(0.05) |
|
$ |
(0.38) |
|
$ |
0.63 |
The three and nine months ended January 31, 2014 exclude the effect of 62,438
options (2013 - nil) and 39,122 options (2013 - 214,677),
respectively, as they were anti-dilutive.
The total number of shares outstanding on January 31, 2014 was 79,161,378.
10. 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
Q3 |
|
|
2013
Q3 |
|
|
YTD
2014 |
|
|
YTD
2013 |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S. |
|
$ |
32,389 |
|
$ |
48,447 |
|
$ |
129,421 |
|
$ |
255,264 |
|
South and Central America |
|
|
18,633 |
|
|
39,433 |
|
|
57,895 |
|
|
159,743 |
|
Australia, Asia and Africa |
|
|
20,808 |
|
|
35,309 |
|
|
84,993 |
|
|
145,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
71,830 |
|
$ |
123,189 |
|
$ |
272,309 |
|
$ |
560,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S. |
|
$ |
(4,278) |
|
$ |
(1,630) |
|
$ |
7,246 |
|
$ |
44,146 |
|
South and Central America* |
|
|
(5,731) |
|
|
3,112 |
|
|
(22,304) |
|
|
28,485 |
|
Australia, Asia and Africa |
|
|
(1,934) |
|
|
(777) |
|
|
1,763 |
|
|
18,057 |
|
|
|
(11,943) |
|
|
705 |
|
|
(13,295) |
|
|
90,688 |
Eliminations |
|
|
(135) |
|
|
(508) |
|
|
(419) |
|
|
(974) |
|
|
|
(12,078) |
|
|
197 |
|
|
(13,714) |
|
|
89,714 |
Finance costs |
|
|
198 |
|
|
504 |
|
|
736 |
|
|
1,970 |
General corporate expenses** |
|
|
1,019 |
|
|
2,066 |
|
|
5,515 |
|
|
10,205 |
Income tax |
|
|
(498) |
|
|
1,915 |
|
|
10,410 |
|
|
27,603 |
Net (loss) earnings |
|
$ |
(12,797) |
|
$ |
(4,288) |
|
$ |
(30,375) |
|
$ |
49,936 |
|
|
*
|
Loss from South and Central American operations includes an
impairment of goodwill totaling $12,057 for the nine month period
ending January 31, 2014 (2013 - nil). |
** |
General corporate expenses include expenses for corporate
offices and stock options. |
Canada - U.S.
includes revenue of $18,627 and
$27,959 for Canadian operations for
the three months ended January 31,
2014 and 2013, respectively, and $81,413 and $150,566 for the nine months ended January 31, 2014 and 2013, respectively.
|
|
|
2014
Q3 |
|
|
2013 Q3 |
|
|
YTD 2014 |
|
|
YTD 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S. |
|
$ |
5,727 |
|
$ |
5,799 |
|
$ |
17,199 |
|
$ |
16,864 |
|
South and Central America |
|
|
2,929 |
|
|
2,740 |
|
|
8,923 |
|
|
8,565 |
|
Australia, Asia and Africa |
|
|
4,053 |
|
|
3,820 |
|
|
12,146 |
|
|
11,519 |
|
Unallocated corporate assets |
|
|
520 |
|
|
933 |
|
|
1,621 |
|
|
2,902 |
Total depreciation and
amortization |
|
$ |
13,229 |
|
$ |
13,292 |
|
$ |
39,889 |
|
$ |
39,850 |
|
|
|
|
|
|
|
|
|
|
January 31, 2014 |
|
|
April
30, 2013 |
Identifiable assets |
|
|
|
|
|
|
|
Canada - U.S. |
|
$ |
194,916 |
|
$ |
243,027 |
|
South and Central America |
|
|
191,535 |
|
|
224,878 |
|
Australia, Asia and Africa |
|
|
162,391 |
|
|
165,318 |
|
|
|
548,842 |
|
|
633,223 |
Eliminations |
|
|
- |
|
|
(38) |
Unallocated and corporate assets |
|
|
68,075 |
|
|
53,042 |
|
|
$ |
616,917 |
|
$ |
686,227 |
Canada - U.S.
includes property, plant and equipment at January 31, 2014 of $89,877 (April 30,
2013 - $97,110) for Canadian
operations.
11. 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,
Asia 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.
In the previous quarter, 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.
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%).
12. RESTRUCTURING CHARGE
Restructuring charges for the three months ended
January 31, 2014 were $508 (2013 - $937)
and for the nine months ended January 31,
2014 were $3,220 (2013 -
$937), consisting 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.
13. DIVIDENDS
The Company declared two dividends during the
year, $0.10 per common share paid on
November 1, 2013 to shareholders of
record as of October 10, 2013, and
$0.10 per common share to be paid on
May 1, 2014 to shareholders of record
as of April 7, 2014.
The Company declared two dividends during the
previous year, $0.10 per common share
paid on November 1, 2012 to
shareholders of record as of October 10,
2012, and $0.10 per common
share paid on May 2, 2013 to
shareholders of record as of April 5,
2013.
14. FINANCIAL INSTRUMENTS
There have been 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
short-term investments, which are measured at fair value through
profit or loss, and 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.
|
|
January 31, 2014 |
|
April 30, 2013 |
|
|
|
|
|
|
|
Short-term investments |
|
$ |
3,396 |
|
$ |
- |
Long-term debt |
|
|
(24,775) |
|
|
(43,594) |
Fair value hierarchy
The Company has certain financial assets and liabilities that are
held at fair value. Financial assets and financial liabilities are
classified and disclosed in one of the following categories
reflecting the significance of inputs used in making the fair value
measurement:
- Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;
- Level 2 - inputs other than quoted prices included in Level 1
that are observable for the assets or liabilities, either directly
(i.e., as prices) or indirectly (i.e., derived from prices);
and
- Level 3 - inputs for the assets or liabilities that are not
based on observable market data (unobservable inputs).
The fair value hierarchy requires the use of
observable market inputs whenever such inputs exist. A financial
instrument is classified to the lowest level of the hierarchy for
which a significant input has been considered in measuring fair
value.
As at January 31,
2014, short-term investments are classified as a Level 1
financial instrument as the fair value is determined using quoted
prices in the active market.
There were no transfers of amounts between Level
1, Level 2 and Level 3 financial instruments for the period ended
January 31, 2014. Additionally, there
are no financial instruments classified in Level 3.
Other price risk
Sensitivity analysis relating to short-term investments has been
determined based on the exposure to equity price risks as at
January 31, 2014. If the equity
prices had been 5% higher or lower, the value of the investment and
the impact on short-term investment recognized in net earnings
would be approximately $170.
Credit risk
As at January 31,
2014, 74% of the Company's trade receivables were aged as
current (April 30, 2013 - 86%) and
4.2% of the trade receivables were impaired (April 30, 2013 - 3.1%).
The movements in the allowance for impairment of
trade receivables during the nine-month periods were as
follows:
|
|
January 31, 2014 |
|
January 31, 2013 |
|
|
|
|
|
|
|
Opening balance |
|
$ |
2,790 |
|
$ |
2,236 |
Increase in impairment allowance |
|
|
744 |
|
|
1,000 |
Write-off charged against allowance |
|
|
(844) |
|
|
(395) |
Foreign exchange translation differences |
|
|
10 |
|
|
(2) |
Ending balance |
|
$ |
2,700 |
|
$ |
2,839 |
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 Company'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 Company
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 Company 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 $393
as of January 31, 2014. If the
Canadian dollar moved by plus or minus 10% at January 31, 2014, the unrealized foreign exchange
gain or loss recognized in net earnings would move by approximately
$39.
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 |
|
$ |
34,655 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
34,655 |
Long-term debt |
|
|
9,512 |
|
|
10,613 |
|
|
2,067 |
|
|
2,583 |
|
|
24,775 |
|
|
$ |
44,167 |
|
$ |
10,613 |
|
$ |
2,067 |
|
$ |
2,583 |
|
$ |
59,430 |
SOURCE MAJOR DRILLING GROUP INTERNATIONAL INC.