MONCTON, NB,
Sept. 3, 2014 /CNW/ - Major Drilling
Group International Inc. (TSX: MDI) today reported results for its
first quarter of fiscal year 2015, ended July 31, 2014.
Highlights
|
|
|
In millions of Canadian dollars
(except earnings per share) |
Q1-15 |
Q1-14 |
Revenue |
$67.6 |
$108.2 |
Gross profit |
16.7 |
35.1 |
|
As percentage of sales |
24.7% |
32.5% |
EBITDA(1) |
4.8 |
19.6 |
|
As percentage of revenue |
7.0% |
18.1% |
Net (loss) earnings |
(7.3) |
1.5 |
(Loss) earnings per share |
(0.09) |
0.02 |
(1) |
Earnings before interest, taxes, depreciation and amortization,
excluding restructuring charges (see "non-gaap financial
measures")
|
- Cash on hand at quarter-end was $65.5
million while total debt was $22.6
million, for a net cash position of $42.8 million.
- Major Drilling posted quarterly
revenue of $67.6 million, down 38%
from the $108.2 million recorded for
the same quarter last year.
- Gross margin percentage for the quarter was 24.7%, compared to
32.5% for the corresponding period last year.
- General and Administrative costs are down 16% from the same
quarter last year and 13% from the previous quarter three months
ago.
- Net loss was $7.3 million or
$0.09 per share for the quarter,
compared to net earnings of $1.5
million or $0.02 per share for
the prior year quarter.
- Completed acquisition of Taurus Drilling effective August 1st, 2014
- Employees worldwide have worked over 12 months and 6 million
hours without a lost time injury.
- The Board of Directors has declared a semi-annual dividend of
$0.10 per share to be paid on
November 3, 2014.
"In the quarter, revenue and margins reflected
the impact of the lowest pricing that we have seen in 15 years. As
senior mining houses focus on cutting costs, they are more likely
to defer specialized drilling projects, which are more expensive by
nature. The Company, therefore, finds itself competing more often
on a pure price basis, and management has to find the optimum
balance between price and volume. Additionally, in a number
of jurisdictions, uncertainty as to the policies of host
governments or issues around land tenure continues to have an
impact on activity levels," said Francis
McGuire, President and CEO of Major
Drilling. "With decreasing prices, our margins
continue to be affected as we struggle to improve productivity
beyond all the gains we have been able to make over the last 18
months. These levels of pricing are not sustainable beyond
the medium term as it will affect the capacity of the industry to
maintain the quality of its equipment. We should note that
this quarter our margins were affected by higher than normal repair
costs, as we continued to prepare rigs in order to be able to
respond rapidly to any customer requests."
"Despite the difficult environment, Major Drilling remains debt free, with a net
cash position of $42.8 million at the
end of the quarter. During the quarter our net cash decreased
by $3.7 million, as we paid our
semi-annual dividend of $7.9 million,
which was offset by the sale of $9.7
million in equipment in Australia as the Company exited that
country. Capital expenditures for the quarter were
$7.1 million, as we purchased 2 rigs
and added support equipment, while retiring 20 rigs, which included
15 rigs sold in Australia.
This amount of capital expenditures is higher than usual, as the
Company continued to diversify in energy, grade control and our new
operation in Brazil. These
initiatives should generate revenue in coming quarters.
Subsequent to the end of the quarter the Company spent $15 million in cash as part of the purchase price
in relation to the Taurus acquisition. With this acquisition, which
closed on August 1st, the
Company added a new line of activity as well. We can now
provide an even wider range of complimentary services, offering
both underground production drilling as well as our existing
underground core drilling."
"Due to the uncertainty around economic matters
impacting the mining market, it is very difficult to predict
customer behavior over the next twelve months, as senior customers
are still very cautious about investing in future projects. In the
immediate future, however, we will be adding revenue from the
Taurus acquisition, and 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. For now the Company
will continue to focus on cash generation by limiting capital
expenditures as necessary, by reducing inventory and by closely
managing costs. The Company continues to have a variable cost
structure whereby most of its direct costs, including field staff,
go up or down with contract revenue, and a large part of the
Company's other expenses relates to variable incentive compensation
based on the Company's profitability. Also, during the
quarter, we have been able to reduce our general and administrative
costs by $1.7 million of which
$0.7 million relates to the closure
of our Australian operations. As we did with Australia, we continually review the long-term
viability of all our operations," said Mr. McGuire.
"As a result of the Taurus acquisition the
Company has invested some of its cash in building for the future.
We will continue to look to take advantage of the current market
conditions by using our strong balance sheet to seek out strategic
opportunities to further build our business. Based on our
continuing strong balance sheet the Board of Directors has declared
a semi-annual dividend of $0.10 per
common share, which will be paid on November
3, 2014 to shareholders of record as of October 10, 2014. This dividend is designated as
an "eligible dividend" for Canadian tax purposes. The Board will
continue to closely monitor the Company's balance sheet, and the
market in general, in determining the optimal use of its cash
resources between acquisitions, capital expenditures and
dividends."
First quarter ended July 31, 2014
Total revenue for the quarter was $67.6 million, down 38% from revenue of
$108.2 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. Also, many
junior customers have scaled back or suspended drilling activities
as compared to last year.
Revenue for the quarter from Canada-U.S.
drilling operations decreased by 32% to $36.4 million compared to the same period last
year. All of the decrease came from Canada, as our U.S. operation was able to
maintain its activity at the same levels as the corresponding
quarter last year.
South and Central American revenue was down 35%
to $14.1 million for the quarter,
compared to the prior year quarter. All of the countries in this
region, particularly Mexico,
Chile and Argentina, were affected by a reduction in
work by juniors and the cancellation or reduction of
projects. Additionally, in Colombia, geopolitical factors have slowed
exploration efforts of many mining companies. In Brazil, the Company had its first month 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 $17.0 million,
down 49% from the same period last year. Three main factors
affected the region's revenue: 1) Australia, where the Company has shut down
operations, 2) Mongolia, which is
affected by political uncertainty around mining laws, and 3)
Mozambique, where the cancellation
of one large project had a significant impact on that
operation.
The overall gross margin percentage for the
quarter was 24.7%, 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, margins were
affected by higher than normal repair costs this quarter, as the
Company continued to prepare rigs in order to be able to respond
rapidly to any customer requests.
General and administrative costs were down 16%
from last year at $11.0 million for
the quarter compared to $13.0 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. The
Company continues to review the viability of all its
operations.
Other expenses for the quarter were $0.9 million, down from $1.1 million in the prior year quarter, due
primarily to lower incentive compensation expenses given the
Company's decreased profitability, which was somewhat offset by
higher bad debt provisions.
The Annual General Meeting of the shareholders
of Major Drilling Group International Inc. will be held at The TMX
Broadcast Centre, Gallery, The Exchange Tower, 130 King St. W.,
Toronto, Ontario, on Thursday, September 4, 2014 at 11:00 am EDT.
Non-GAAP Financial Measures
In this news release, the Company uses the
non-GAAP financial measure, EBITDA excluding restructuring charges,
goodwill and intangible impairment and gain on reversal of
contingent consideration. 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.
Major Drilling
will provide a simultaneous webcast of its quarterly conference
call on Thursday, September 4,
2014 at 9:00 AM
(EDT). To access the webcast please go to the
investors/webcast section of Major
Drilling's website at www.majordrilling.com and click the
attached link, or go directly to the CNW Group website at
www.newswire.ca for directions. Participants will
require Windows MediaPlayer, which can be downloaded prior to
accessing the call. Please note that this is listen only
mode.
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Statements of Operations |
(in thousands of Canadian
dollars, except per share information) |
|
|
|
|
|
Three months
ended |
|
July 31 |
|
(unaudited) |
|
|
|
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
TOTAL
REVENUE |
$
67,551 |
|
$ 108,211 |
|
|
|
|
DIRECT
COSTS |
50,884 |
|
73,089 |
|
|
|
|
GROSS
PROFIT |
16,667 |
|
35,122 |
|
|
|
|
OPERATING
EXPENSES |
|
|
|
|
General and administrative |
10,979 |
|
13,047 |
|
Other expenses |
871 |
|
1,065 |
|
(Gain) loss on disposal of
property, plant and equipment |
(15) |
|
170 |
|
Foreign exchange loss |
73 |
|
1,224 |
|
Finance costs |
204 |
|
314 |
|
Depreciation of property, plant
and equipment |
13,353 |
|
13,175 |
|
Amortization of intangible
assets |
321 |
|
342 |
|
Restructuring charge |
591 |
|
2,034 |
|
26,377 |
|
31,371 |
|
|
|
|
(LOSS) EARNINGS
BEFORE INCOME TAX |
(9,710) |
|
3,751 |
|
|
|
|
INCOME TAX -
PROVISION (RECOVERY) (note 7) |
|
|
|
|
Current |
328 |
|
3,791 |
|
Deferred |
(2,707) |
|
(1,562) |
|
(2,379) |
|
2,229 |
|
|
|
|
NET (LOSS)
EARNINGS |
$ (7,331) |
|
$ 1,522 |
|
|
|
|
|
|
|
|
(LOSS) EARNINGS PER
SHARE (note 8) |
|
|
|
Basic |
$ (0.09) |
|
$
0.02 |
Diluted |
$ (0.09) |
|
$
0.02 |
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Statements of Comprehensive (Loss) Earnings |
(in thousands of Canadian
dollars) |
|
|
|
|
|
Three months
ended |
|
July 31 |
|
(unaudited) |
|
|
|
|
|
2014 |
|
2013 |
|
|
|
|
NET (LOSS)
EARNINGS |
$ (7,331) |
|
$ 1,522 |
|
|
|
|
OTHER COMPREHENSIVE
LOSS |
|
|
|
|
|
|
|
Items that may be
reclassified subsequently to profit or loss |
|
|
|
|
Unrealized loss on foreign
currency translations (net of tax) |
(2,500) |
|
(5,097) |
|
|
|
|
COMPREHENSIVE
LOSS |
$ (9,831) |
|
$
(3,575) |
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Statements of Changes in Equity |
For the three months ended July
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 |
|
- |
|
530 |
|
- |
|
- |
|
530 |
|
|
230,985 |
|
14,734 |
|
283,088 |
|
10,052 |
|
538,859 |
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
- |
|
- |
|
1,522 |
|
- |
|
1,522 |
Unrealized loss on foreign
currency translations |
|
- |
|
- |
|
- |
|
(5,097) |
|
(5,097) |
Total comprehensive loss |
|
- |
|
- |
|
1,522 |
|
(5,097) |
|
(3,575) |
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT JULY 31,
2013 |
|
$
230,985 |
|
$
14,734 |
|
$
284,610 |
|
$
4,955 |
|
$ 535,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT MAY 1,
2014 |
|
$ 230,985 |
|
$ 15,937 |
|
$
211,945 |
|
$ 25,480 |
|
$
484,347 |
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
12 |
|
(3) |
|
- |
|
- |
|
9 |
Share-based payments reserve |
|
- |
|
355 |
|
- |
|
- |
|
355 |
|
|
230,997 |
|
16,289 |
|
211,945 |
|
25,480 |
|
484,711 |
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
- |
|
- |
|
(7,331) |
|
- |
|
(7,331) |
Unrealized loss on foreign
currency translations |
|
- |
|
- |
|
- |
|
(2,500) |
|
(2,500) |
Total comprehensive loss |
|
- |
|
- |
|
(7,331) |
|
(2,500) |
|
(9,831) |
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT JULY 31,
2014 |
|
$ 230,997 |
|
$ 16,289 |
|
$ 204,614 |
|
$ 22,980 |
|
$ 474,880 |
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Statements of Cash Flows |
(in thousands of Canadian
dollars) |
|
|
|
|
|
|
Three months
ended |
|
July 31 |
|
(unaudited) |
|
|
|
|
|
2014 |
|
2013 |
|
|
|
|
OPERATING
ACTIVITIES |
|
|
|
(Loss) earnings before
income tax |
$
(9,710) |
|
$ 3,751 |
Operating items not
involving cash |
|
|
|
|
Depreciation and amortization |
13,674 |
|
13,517 |
|
(Gain) loss on disposal of property,
plant and equipment |
(15) |
|
170 |
|
Share-based payments reserve |
355 |
|
530 |
|
Restructuring charge |
- |
|
665 |
Finance costs recognized
in (loss) earnings before income tax |
204 |
|
314 |
|
4,508 |
|
18,947 |
Changes in non-cash
operating working capital items |
(1,195) |
|
(9,576) |
Finance costs paid |
(201) |
|
(310) |
Income taxes paid |
(2,200) |
|
(6,351) |
Cash flow from operating
activities |
912 |
|
2,710 |
|
|
|
|
FINANCING
ACTIVITIES |
|
|
|
Repayment of demand
loan |
(3,354) |
|
- |
Repayment of long-term
debt |
(1,739) |
|
(13,066) |
Issuance of common
shares |
9 |
|
- |
Dividends paid |
(7,916) |
|
(7,916) |
Cash flow used in
financing activities |
(13,000) |
|
(20,982) |
|
|
|
|
INVESTING
ACTIVITIES |
|
|
|
Payment of consideration
for previous business acquisition |
- |
|
(205) |
Acquisition of property,
plant and equipment (note 6) |
(7,145) |
|
(5,204) |
Proceeds from disposal of
property, plant and equipment |
10,634 |
|
1,816 |
Cash flow from (used in)
investing activities |
3,489 |
|
(3,593) |
|
|
|
|
Effect of exchange rate
changes |
(170) |
|
613 |
|
|
|
|
DECREASE IN
CASH |
(8,769) |
|
(21,252) |
|
|
|
|
CASH, BEGINNING OF THE
PERIOD |
74,244 |
|
82,311 |
|
|
|
|
CASH, END OF THE
PERIOD |
$ 65,475 |
|
$ 61,059 |
Major Drilling Group
International Inc. |
Interim Condensed Consolidated
Balance Sheets |
As at July 31, 2014 and April 30,
2014 |
(in thousands of Canadian
dollars) |
(unaudited) |
|
|
|
|
|
July 31, 2014 |
|
April 30, 2014 |
ASSETS |
|
|
|
|
|
|
|
CURRENT
ASSETS |
|
|
|
|
Cash |
$
65,475 |
|
$ 74,244 |
|
Trade and other receivables |
58,207 |
|
66,211 |
|
Income tax receivable |
11,613 |
|
12,179 |
|
Inventories |
79,979 |
|
81,308 |
|
Prepaid expenses |
5,892 |
|
4,690 |
|
221,166 |
|
238,632 |
|
|
|
|
PROPERTY, PLANT AND
EQUIPMENT |
288,944 |
|
307,288 |
|
|
|
|
DEFERRED INCOME TAX
ASSETS |
6,491 |
|
5,825 |
|
|
|
|
GOODWILL |
38,056 |
|
38,056 |
|
|
|
|
INTANGIBLE
ASSETS |
1,603 |
|
1,923 |
|
|
|
|
|
$ 556,260 |
|
$ 591,724 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
CURRENT
LIABILITIES |
|
|
|
|
Demand loan |
$ 535 |
|
$ 3,909 |
|
Trade and other payables |
35,883 |
|
52,155 |
|
Income tax payable |
972 |
|
3,416 |
|
Current portion of long-term
debt |
9,294 |
|
9,655 |
|
46,684 |
|
69,135 |
|
|
|
|
LONG-TERM
DEBT |
12,811 |
|
14,187 |
|
|
|
|
DEFERRED INCOME TAX
LIABILITIES |
21,885 |
|
24,055 |
|
81,380 |
|
107,377 |
|
|
|
|
SHAREHOLDERS'
EQUITY |
|
|
|
|
Share capital |
230,997 |
|
230,985 |
|
Share-based payments reserve |
16,289 |
|
15,937 |
|
Retained earnings |
204,614 |
|
211,945 |
|
Foreign currency translation
reserve |
22,980 |
|
25,480 |
|
474,880 |
|
484,347 |
|
|
|
|
|
$ 556,260 |
|
$ 591,724 |
MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED JULY 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, 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 August 29, 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 2010) Financial Instruments
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 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
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
July 31, 2014 were $7,145 (2013 - $5,204). The Company did not obtain direct
financing in either quarter.
7. INCOME TAXES
The income tax expense for the period can be reconciled to
accounting profit as follows:
|
Q1 2015 |
|
Q1 2014 |
|
|
|
|
(Loss) earnings before income
tax |
$ (9,710) |
|
$ 3,751 |
|
|
|
|
Statutory Canadian corporate
income tax rate |
27% |
|
28% |
|
|
|
|
Expected income tax expense based
on statutory rate |
$
(2,622) |
|
$ 1,050 |
Non-recognition of tax benefits
related to losses |
750 |
|
76 |
Other foreign taxes paid |
94 |
|
125 |
Rate variances in foreign
jurisdictions |
(257) |
|
454 |
Other |
(344) |
|
524 |
|
$ (2,379) |
|
$ 2,229 |
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.
|
Q1 2015 |
|
Q1 2014 |
|
|
|
|
Net (loss) earnings for the
period |
$ (7,331) |
|
$ 1,522 |
|
|
|
|
Weighted average common shares
outstanding - basic (000's) |
79,162 |
|
79,161 |
|
|
|
|
Net effect of dilutive
securities: |
|
|
|
Stock options (000's) |
- |
|
31 |
Weighted average common shares -
diluted (000's) |
79,162 |
|
79,192 |
|
|
|
|
(Loss) earnings per
share: |
|
|
|
Basic |
$
(0.09) |
|
$ 0.02 |
Diluted |
$
(0.09) |
|
$ 0.02 |
The calculation of the diluted (loss) earnings
per share for the three months ended July
31, 2014 excludes the effect of 1,956,271 options (2013 -
2,815,212) as they were anti-dilutive.
The total number of shares outstanding on July 31, 2014 was 79,163,388 (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:
|
Q1 2015 |
|
Q1
2014 |
Revenue |
|
|
|
|
Canada - U.S. |
$ 36,419 |
|
$ 53,367 |
|
South and Central America |
14,105 |
|
21,738 |
|
Australia, Asia and Africa |
17,027 |
|
33,106 |
|
|
|
|
|
$ 67,551 |
|
$ 108,211 |
|
|
|
|
(Loss) earnings from operations |
|
|
|
|
Canada - U.S. |
$ (613) |
|
$ 7,363 |
|
South and Central America |
(4,718) |
|
(2,087) |
|
Australia, Asia and Africa |
(2,282) |
|
1,447 |
|
(7,613) |
|
6,723 |
Eliminations |
- |
|
(152) |
|
(7,613) |
|
6,571 |
Finance costs |
204 |
|
314 |
General corporate expenses* |
1,893 |
|
2,506 |
Income tax |
(2,379) |
|
2,229 |
Net (loss) earnings |
$ (7,331) |
|
$ 1,522 |
*General and corporate expenses include expenses for corporate
offices and stock options. |
Canada - U.S.
includes revenue for the period ended July
31, 2014 of $22,450
(July 31, 2013 - $38,345) for Canadian operations.
|
|
|
|
|
Q1
2015 |
|
Q1
2014 |
Depreciation and amortization |
|
|
|
|
Canada - U.S. |
$ 6,043 |
|
$ 5,809 |
|
South and Central America |
3,654 |
|
3,014 |
|
Australia, Asia and Africa |
3,605 |
|
4,123 |
|
Unallocated corporate assets |
372 |
|
571 |
Total depreciation and
amortization |
$ 13,674 |
|
$
13,517 |
|
|
|
|
|
|
|
|
|
July 31, 2014 |
|
April 30, 2014 |
Identifiable assets |
|
|
|
|
Canada - U.S. |
$ 210,093 |
|
$ 197,673 |
|
South and Central America |
163,653 |
|
178,026 |
|
Australia, Asia and Africa |
130,627 |
|
148,806 |
|
504,373 |
|
524,505 |
Unallocated and corporate assets |
51,887 |
|
67,219 |
|
$ 556,260 |
|
$ 591,724 |
Canada - U.S.
includes property, plant and equipment at July 31, 2014 of $86,995 (April 30,
2014 - $88,347) for Canadian
operations.
10. 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
carrying values of long-term debt, which approximates its fair
values, 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.
|
July
31, 2014 |
|
April
30, 2014 |
|
|
|
|
Long-term debt |
$ 22,105 |
|
$ 23,842 |
During the period, certain covenants were not
met under the debt agreement. Due to the level of EBITDA this
quarter the debt service ratio of 1.5 to 1 was not met (actual 1.33
to 1). The debt continues to be presented as long-term, consistent
with the debt agreement, as the lenders have provided a waiver and
the Company's cash position is three times the amount of its
debt.
Credit risk
As at July 31, 2014, 81.1% of the
Company's trade receivables were aged as current (April 30, 2014 - 79.8%) and 5.9% of the trade
receivables were impaired (April 30,
2014 - 5.1%).
The movement in the allowance for impairment of
trade receivables during the three month periods were as
follows:
|
July 31, 2014 |
|
July 31, 2013 |
|
|
|
|
Opening balance |
$ 3,016 |
|
$ 2,790 |
Increase in impairment
allowance |
588 |
|
203 |
Write-off charged against
allowance |
(742) |
|
- |
Foreign exchange translation
differences |
4 |
|
(41) |
Ending balance |
$ 2,866 |
|
$ 2,952 |
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 $430 as of
July 31, 2014.
If the Canadian dollar moved by plus or minus
10% at July 31, 2014, the unrealized
foreign exchange gain or loss recognized in net (loss) earnings
would move by approximately US $43.
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 |
$ 535 |
|
$ - |
|
$ - |
|
$ - |
|
$ 535 |
Trade and other payables |
35,883 |
|
- |
|
- |
|
- |
|
35,883 |
Long-term debt |
9,904 |
|
8,956 |
|
2,213 |
|
2,206 |
|
23,279 |
|
$ 46,322 |
|
$ 8,956 |
|
$ 2,213 |
|
$ 2,206 |
|
$
59,697 |
11. SUBSEQUENT EVENT
On August 1, 2014,
the Company entered into the underground percussive/longhole
drilling sector with its purchase of the operations of Taurus
Drilling Services, based in Canada
and the United States.
Through this purchase, which fits with the
Company's strategic focus on specialized drilling, the Company
acquired 39 underground drill rigs. In addition to the rigs, this
acquisition involved support equipment and inventory, existing
contracts and receivables, the operation's management team, and
other employees, including experienced drillers.
Over the past 12 months the operations of Taurus
have produced revenue of approximately $38
million.
Goodwill arising from this acquisition will be
the excess of the total consideration paid over the fair market
value of the net assets acquired and amounts in relation to the
benefit of expected synergies, revenue growth, future market
development and the assembled workforce of Taurus and
Major.
The purchase price for the transaction was
$28.9 million (consisting of
$15.9 million in cash, $8.7 million in Major
Drilling shares, and $4.3
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 Company's process of valuing the assets
acquired is ongoing, valuation of equipment, inventory,
receivables, goodwill, intangible assets and the range of possible
outcomes of contingent consideration, is currently in the
preliminary stages.
SOURCE MAJOR DRILLING GROUP INTERNATIONAL INC.