MONCTON, Sept. 6 /CNW Telbec/ - Major Drilling Group International Inc.
(TSX: MDI) today reported results for its first quarter of fiscal year 2007
ended July 31, 2006.
It should be noted that historical financial data in the press release
and in the attached financial statements have been restated to reflect the
disposition of the Company's manufacturing division, UDR Group, on June 7,
2006 and the discontinuation of its operations in China.
<<
Highlights
-------------------------------------------------------------------------
$ millions Q1-07 Q1-06 12 months to 12 months to
(except earnings ----- ----- ------------ ------------
per share) July 31, 2006 July 31, 2005
------------- -------------
-------------------------------------------------------------------------
Revenue 94.5 83.3 327.6 268.9
-------------------------------------------------------------------------
Gross profit 30.5 25.3 95.6 75.5
As percentage
of sales 32.3% 30.4% 29.2% 28.1%
-------------------------------------------------------------------------
Net earnings from
continuing
operations 10.1 8.1 27.2 19.4
-------------------------------------------------------------------------
Earnings per share
from continuing
operations 0.44 0.36 1.18 0.88
-------------------------------------------------------------------------
Cash flow from
continuing
operations(x) 15.8 13.8 48.9 36.3
-------------------------------------------------------------------------
(x) before changes in working capital
- Major Drilling posted the highest quarterly drilling revenues in its
history with revenues of $94.5 million, up 6.2 percent from the
previous record high of $89.0 million, recorded in the fourth quarter
of fiscal 2006, and 13.4 percent above the $83.3 million recorded for
the same quarter last year.
- Gross margin percentage for the quarter was 32.3 percent, compared to
30.4 percent for the corresponding period last year, with good
performance from all regions.
- Earnings from continuing operations were $10.1 million or $0.44 per
share for the quarter, up from $8.1 million or $0.36 per share for the
prior year quarter. This represents the highest quarterly earnings
from continuing operations in the Company's history.
- Net earnings for the quarter, after gain from discontinued operations,
were $22.9 million or $0.99 per share, up from $8.4 million or $0.37
per share for the prior year quarter.
- Cash flow from continuing operations before changes in working capital
was $15.8 million for the quarter compared to $13.8 million for the
same period last year.
- On June 7, 2006, the Company announced the sale of its manufacturing
division (UDR) for A$46 million.
- During the quarter, the Company made the decision to cease operations
in China.
"This quarter has been very satisfying on several fronts. Earnings from
continuing operations were the highest quarterly earnings in the Company's
history at $10.1 million. Drilling revenues grew by $5.5 million from our
fourth quarter," said Francis McGuire, President and CEO of Major Drilling.
"All operating regions performed well and with continued improvements in the
price environment, margins have improved significantly to 32.3 percent, a
level not seen in the last several years. These results have been achieved
despite continuing pressure on labour costs. Labour availability continues to
be the industry's greatest challenge. Year-over-year revenue comparisons
continue to be effected by the strengthening of the Canadian dollar against
both U.S. and Australian currencies. The estimated unfavourable FX impact on
revenue compared to the prior year quarter is $8.4 million although the
estimated impact on net earnings is less than $1.1 million."
"Latin American operations have shown the greatest improvement overall
with strong demand in Mexico, Chile and Argentina, offset somewhat by lower
levels of operations in Venezuela. In Australasia, all branches performed well
with the exception of China. North American operations showed continued
progress in the quarter, although we were less active in the coal bed
methane/shallow gas area in the period. Canadian operations delivered a good
performance during the period while the U.S. operation was impacted by three
low margin contracts, two of which have been renegotiated with effect
August 1, 2006," said Mr. McGuire. "During the quarter, the Company had up to
seven rigs working in the energy sector. The flexibility of our fleet, which
is able to shift between energy drilling and mineral drilling, allowed us to
take advantage of growing opportunities for fixed day-rate work in the mineral
sector."
"During the quarter, the Company also announced the sale of its
manufacturing division, UDR, to Sandvik AB. We made the strategic decision to
focus our corporate resources on the mineral drilling business, where we
compete as one of the world's largest contract drillers," noted Mr. McGuire.
"Cash flow from continuing operations before changes in working capital in
the quarter continued to strengthen, increasing to $15.8 million compared to
the $13.8 million recorded in the prior year quarter," noted Mr. McGuire.
"With the cash generated from the disposition of UDR, our total debt, net of
cash, was reduced to $9.2 million during the quarter. With its strengthened
balance sheet, the Company is well positioned to finance its expanded capital
expenditure program projected to reach $40 million in fiscal 2007. This
quarter, $10.1 million was invested as we continue to invest in future
growth."
"In China, our objective had been to rapidly tap into a new pool of
experienced drillers. Having had good success in developing new labour pools
in Mongolia, Chile and Mexico, but shown little progress to date in building a
local driller pool in China, we have decided to close the Chinese operation
and concentrate our training efforts elsewhere," said Mr. McGuire.
"The outlook for Major is very positive as the fundamental drivers of our
business continue to be strong. Nickel, copper, gold, silver and zinc prices
are at historically high levels. Demand for drilling services continues to
increase and customers are more often prepared to pay a premium to secure rigs
and crews. With our ongoing training efforts, we anticipate putting
19 additional rigs into service during the second quarter, subject to delivery
schedules. Eight of these rigs will go to Latin America, five to North America
and six to Australasia," noted Mr. McGuire.
"As Major continues to grow, we have added to our senior management team
with the appointment of Mike Jagoe as Executive Vice President. Mike will
initially be focusing his efforts on improving efficiencies and various other
operational responsibilities. He brings to Major some 30 years of senior
management experience in our industry."
"Finally, I would also like to take this opportunity to thank Michael
Pavey, our former CFO and Executive Vice President, for his years of service
to the company. Michael was instrumental in the restructuring of Major which
resulted in the company that we have today. All of us at Major wish him well
in his well deserved retirement," said Mr. McGuire.
First quarter ended July 31, 2006
Total revenue from continuing operations for the quarter was
$94.5 million, up $11.2 million or 13.4 percent from the $83.3 million
recorded in the same quarter last year.
Revenue for the quarter from Canada-U.S. drilling operations increased by
5.2 percent to $34.5 million compared to $32.8 million for the same period
last year.
South and Central America had the largest increase in revenue
year-over-year with revenues at $27.3 million for the quarter, up 34.5 percent
from the $20.3 million posted for the prior year quarter. Revenue growth was
driven primarily by Mexico, Argentina and Chile with a combined growth of
51.9 percent over the prior year quarter. Venezuelan revenues were down
50.6 percent from the prior year quarter due to regulatory uncertainty. This
situation is slowly improving and the Company is gradually increasing
activity.
In Australasian/African drilling operations, encompassing Australia,
Mongolia, Indonesia and Tanzania, revenues were $32.6 million, an increase of
7.9 percent over the $30.2 million in the same quarter last year. Mongolian
and Tanzanian revenues grew during the quarter by a combined 38.1 percent. In
Australia, revenues in Australian dollars improved slightly year-over-year but
were down 6.8 percent in Canadian dollars compared to the prior year quarter
due to the change in the Australian/Canadian exchange rate. Indonesian
revenues were stable year-over-year.
The overall gross margin percentage for the quarter improved to
32.3 percent compared to 30.4 percent for the same period last year, led by
South and Central America. Combined with the increase in sales volume, gross
profit for the quarter increased $5.2 million or 20.6 percent to $30.5 million
from $25.3 million for last year's first quarter.
General and administrative costs were $7.2 million for the quarter,
compared to $6.8 million in the same period last year. The increase is
primarily due to salary increases across the operation.
Other expenses for the quarter increased to $2.8 million, up from
$2.0 million in the prior year quarter, due in part to an increase in bonus
provisions as a result of improved profitability in this quarter and
restructuring charges in Australia.
Foreign exchange loss in the quarter was $0.3 million compared to
$0.2 million in the prior year quarter.
Interest expense on short-term debt was $0.3 million in the quarter
compared to $0.4 million in the prior year quarter. Interest expense on
long-term debt was flat at $0.6 million.
Amortization expense was $4.4 million for the quarter compared to
$4.1 million for the same quarter last year, as a result of the increased
direct investment in equipment.
The provision for income tax was $4.8 million in the quarter compared to
$3.1 million for the prior year quarter, reflecting the increased
profitability of the operations and the fact that the Company has fully
utilized previously non-tax effected losses from Canadian operations. In
addition, with the good performance of the Argentinean operation in the
quarter, previously non-tax effected losses in that operation have now been
utilized.
Net earnings from continuing operations for the quarter were $10.1 million
or $0.44 per share compared to $8.1 million or $0.36 per share in the prior
year period.
Gain from discontinued operations was $12.8 million or $0.55 per share
compared to a gain of $0.3 million for the same period last year. Discontinued
operations include the sale of the manufacturing division and the termination
of operations in China. Gain from discontinued operations in the first quarter
of 2007 largely reflect the gain of $15.4 million (after income taxes) from
the sale of the manufacturing division, partially offset by a loss in the
Chinese operations after close down provisions.
Resulting net earnings were $22.9 million or $0.99 per share ($0.97 per
share on a diluted basis) compared to $8.4 million or $0.37 per share ($0.36
diluted) for the same period last year.
On a rolling 12-month basis to July 31, 2006, revenues from continuing
operations increased over 21.8 percent to $327.6 million compared to
$268.9 million for the prior year period. Net earnings from continuing
operations, on the same rolling 12-month basis increased by 40.2 percent to
$27.2 million from $19.4 million for the corresponding period last year.
The Annual General Meeting of the shareholders of Major Drilling Group
International Inc. will be held at The Ontario Club, Engineers' Room, Commerce
Court South, 30 Wellington Street West - 5th Floor, Toronto, Ontario on
September 6, 2006 at 11:00 am EDT.
Some of the statements contained in this press release may be
forward-looking statements, such as estimates and statements that describe or
are with respect to the future price of minerals and metals, the Company's
future plans, objectives or goals, 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 starting on pages 20 to 23 of the 2006 Annual Report
entitled "General Risks and Uncertainties", as filed with the Canadian
Securities Commission (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' mining operations and mineral exploration
activities, Major Drilling maintains operations in Canada, the United States,
Mexico, South and Central America, and in Australia, Indonesia, Tanzania and
Mongolia.
Financial statements are attached.
Major Drilling will provide a simultaneous webcast of its quarterly
conference call on Wednesday, September 6, 2006 at 9:00 AM (EDT). To access
the webcast please go to the Major Drilling 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.
Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share information)
(unaudited)
Three months ended
July 31
2006 2005
---------- -----------
(restated
- note 3)
TOTAL REVENUE $ 94,451 $ 83,310
DIRECT COSTS 63,947 58,005
---------- -----------
GROSS PROFIT 30,504 25,305
---------- -----------
32.3% 30.4%
OPERATING EXPENSES
General and administrative 7,231 6,847
Other expenses 2,833 1,989
Foreign exchange loss 324 198
Interest on short-term debt 256 415
Interest on long-term debt 594 640
Amortization 4,393 4,051
---------- -----------
15,631 14,140
---------- -----------
EARNINGS BEFORE INCOME TAX AND
DISCONTINUED OPERATIONS 14,873 11,165
---------- -----------
INCOME TAX - PROVISION
Current 3,979 1,992
Future 844 1,087
---------- -----------
4,823 3,079
---------- -----------
EARNINGS FROM CONTINUING OPERATIONS 10,050 8,086
GAIN FROM DISCONTINUED OPERATIONS (note 3) 12,833 265
---------- -----------
NET EARNINGS $ 22,883 $ 8,351
---------- -----------
---------- -----------
EARNINGS PER SHARE FROM CONTINUING OPERATIONS
---------------------------------------------
Basic (x) $ 0.44 $ 0.36
---------- -----------
---------- -----------
Diluted (xx) $ 0.43 $ 0.35
---------- -----------
---------- -----------
EARNINGS PER SHARE
------------------
Basic (x) $ 0.99 $ 0.37
---------- -----------
---------- -----------
Diluted (xx) $ 0.97 $ 0.36
---------- -----------
---------- -----------
(x)Based on 23,064,629 and 22,589,681 daily weighted average shares
outstanding for the fiscal year to date 2007 and 2006, respectively.
The total number of shares outstanding on July 31, 2006 was 23,101,241.
(xx)Based on 23,585,174 and 23,121,989 daily weighted average shares
outstanding for the fiscal year to date 2007 and 2006, respectively.
Major Drilling Group International Inc.
Consolidated Statements of Retained Earnings
(in thousands of Canadian dollars)
(unaudited)
Three months ended
July 31
2006 2005
---------- -----------
RETAINED EARNINGS, BEGINNING OF THE PERIOD $ 49,635 $ 20,993
Net earnings 22,883 8,351
---------- -----------
RETAINED EARNINGS, END OF THE PERIOD $ 72,518 $ 29,344
---------- -----------
---------- -----------
Major Drilling Group International Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Three months ended
July 31
2006 2005
---------- -----------
(restated
- note 3)
OPERATING ACTIVITIES
Earnings from continuing operations $ 10,050 $ 8,086
Operating items not involving cash
Amortization 4,393 4,051
Loss on disposal of assets 109 116
Future income tax 844 1,087
Stock-based compensation 361 413
---------- -----------
15,757 13,753
Changes in non-cash operating working
capital items (5,116) (2,010)
---------- -----------
10,641 11,743
Earnings (loss) from discontinued operations,
adjusted for non-cash items (2,500) 1,030
Changes in non-cash operating working capital
items from discontinued operations 4,427 (1,661)
---------- -----------
Cash flow from operating activities 12,568 11,112
---------- -----------
FINANCING ACTIVITIES
Repayment of long-term debt (4,124) (3,855)
Additional long-term debt 459 2,092
Repayment of demand loans (16,721) (6,381)
Issuance of common shares 358 248
---------- -----------
Cash flow used in financing activities (20,028) (7,896)
---------- -----------
INVESTING ACTIVITIES
Net proceeds from sale of discontinued
operations 28,347 -
Acquisition of capital assets, net of direct
financing (7,317) (3,551)
Proceeds from disposal of capital assets 639 227
Discontinued operations (277) 721
---------- -----------
Cash flow used in investing activities 21,392 (2,603)
---------- -----------
OTHER ACTIVITIES
Foreign exchange translation adjustment (848) 153
---------- -----------
INCREASE IN CASH 13,084 766
CASH POSITION, BEGINNING OF THE PERIOD 11,987 6,523
---------- -----------
CASH POSITION, END OF THE PERIOD $ 25,071 $ 7,289
---------- -----------
---------- -----------
Major Drilling Group International Inc.
Consolidated Balance Sheets
As at July 31, 2006 and April 30, 2006
(in thousands of Canadian dollars)
(unaudited)
ASSETS July April
2006 2006
---------- -----------
(restated
- note 3)
CURRENT ASSETS
Cash $ 25,071 $ 11,987
Marketable securities 135 135
Accounts receivable 61,778 56,193
Income tax receivable 2,785 3,947
Inventories 44,980 45,054
Prepaid expenses 5,179 3,746
Future income tax assets 4,133 4,402
Assets from discontinued operations (note 3) 732 20,923
---------- -----------
144,793 146,387
CAPITAL ASSETS 124,443 117,887
FUTURE INCOME TAX ASSETS 2,558 3,839
OTHER ASSETS 987 1,049
ASSETS FROM DISCONTINUED OPERATIONS (note 3) 3,427 1,898
---------- -----------
$ 276,208 $ 271,060
---------- -----------
---------- -----------
LIABILITIES
CURRENT LIABILITIES
Demand loans $ - $ 16,721
Accounts payable and accrued charges 39,372 39,510
Income tax payable 3,506 4,171
Current portion of long-term debt 14,222 12,220
Liabilities from discontinued
operations (note 3) 8,961 9,601
---------- -----------
66,061 82,223
LONG-TERM DEBT 20,138 22,651
FUTURE INCOME TAX LIABILITIES 6,461 6,715
DEFERRED GAIN 600 619
LIABILITIES FROM DISCONTINUED
OPERATIONS (note 3) - 18
NON-CONTROLLING INTEREST FROM DISCONTINUED
OPERATIONS (note 3) - 434
---------- -----------
93,260 112,660
---------- -----------
SHAREHOLDERS' EQUITY
Share capital 135,408 135,050
Contributed surplus 4,325 3,964
Retained earnings 72,518 49,635
Cumulative translation adjustments (29,303) (30,249)
---------- -----------
182,948 158,400
---------- -----------
$ 276,208 $ 271,060
---------- -----------
---------- -----------
MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED JULY 31, 2006 AND 2005
(in thousands of Canadian dollars)
1. BASIS OF PRESENTATION
---------------------
These interim financial statements were prepared using accounting policies
and methods consistent with those used in the preparation of the Company's
audited financial statements for the year ended April 30, 2006. These interim
financial statements conform in all respects to the requirements of Canadian
generally accepted accounting principles for annual financial statements, with
the exception of certain note disclosures. As a result, these interim
financial statements should be read in conjunction with the Company's audited
financial statements and notes for the year ended April 30, 2006 contained in
the Company's 2006 annual report.
2. SEASONALITY OF OPERATIONS
-------------------------
The geographic distribution of our growth is having an impact on our
historical seasonal patterns. With the exception of the third quarter, the
Company exhibits comparatively less seasonality than in the past in quarterly
revenues since a relatively higher proportion of revenues is coming from
regions with more temperate or tropical climates that are not impacted by
winter weather conditions, and strong cyclical growth tends to mute normal
seasonal patterns. Historically, the Company's operations tended to exhibit a
seasonal pattern whereby its fourth quarter (February to April) was its
strongest. The third quarter (November to January) is normally the Company's
weakest quarter due to the shutdown of mining and exploration activities for
extended periods over the holiday season, particularly in South and Central
America.
3. DISCONTINUED OPERATIONS
-----------------------
On June 7, 2006, the Company sold its manufacturing subsidiary ("UDR") for
A$46 million (C$38.6 million). The consideration for the sale was
A$42.5 million (C$35.6 million) cash and a holdback due in 18 months in the
amount of A$3.5 million (C$3.0 million). In addition the sale price is subject
to customary working capital related post closing adjustments which are yet to
be finalized. The net gain before income taxes is C$21.7 million being the
proceeds of C$38.6 million less the book value of the assets of C$13.3 million
and expenses relating to the sale of C$3.6 million. UDR previously constituted
the Company's entire manufacturing segment. The Company made the strategic
decision to focus its corporate resources on the mineral drilling business,
where it competes as one of the world's largest contract drillers.
The gain from discontinued operations of UDR is summarized as follows:
2007 YTD 2006 YTD
---------- -----------
Revenue $ 4,291 $ 9,311
---------- -----------
---------- -----------
Earnings before income tax 290 1,306
Gain from disposal of discontinued operations
before income tax 21,677 -
Income tax (6,398) (980)
---------- -----------
Gain from discontinued operations $ 15,569 $ 326
---------- -----------
---------- -----------
The Company made the strategic decision to close its operations in China
in July, 2006. The Company opened a branch in China with the goal of quickly
developing a large pool of Chinese drillers. Having shown little progress to
date in building a local driller pool in China, the Company decided to close
the operation. Chinese operations were previously reported within the
Australasia and Africa region segment.
The loss from discontinued operations of the branch in China is summarized
as follows:
2007 YTD 2006 YTD
---------- -----------
Revenue $ 487 $ -
---------- -----------
---------- -----------
Loss (1,955) (61)
Loss on disposition including write-down of
assets (781) -
---------- -----------
Loss from discontinued operations $ (2,736) $ (61)
---------- -----------
---------- -----------
The assets and liabilities of discontinued operations of UDR and China are
summarized as follows:
UDR China Jul-06 UDR China Apr-06
------- ------- ------- ------- ------- -------
Current Assets
Accounts
receivable $ 543 $ 115 $ 658 $ 6,048 $ 1,167 $ 7,215
Inventories - - - 13,587 13,587
Other assets - 74 74 113 8 121
------- ------- ------- ------- ------- -------
543 189 732 19,748 1,175 20,923
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Long-Term Assets
Receivable 3,039 - 3,039 - - -
Capital assets - 388 388 1,167 731 1,898
------- ------- ------- ------- ------- -------
3,039 388 3,427 1,167 731 1,898
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Current Liabilities
Accounts payable $ 3,759 $ 191 $ 3,950 $ 9,162 $ 329 $ 9,491
Income tax
payable 5,010 1 5,011 99 11 110
------- ------- ------- ------- ------- -------
8,769 192 8,961 9,261 340 9,601
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Long-Term
Liabilities - - - 18 - 18
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Non-Controlling
Interest - - - 434 - 434
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
The comparative figures have been restated to reflect the discontinuation
of these components.
4. COMMITMENTS
-----------
The Company, as part of the sale of its manufacturing division ("UDR"),
entered into a Strategic Cooperation and Supply Agreement with Sandvik AB.
Pursuant to this Agreement, the Company is required to make minimum purchases
from Sandvik of certain products and services totaling at least A$10.5 million
during the first year of the Agreement, A$9.2 million during the second year,
and A$7.9 million during the third year. The third year commitment will be
increased by A$1.0 million should certain products be available. Additionally,
the minimum purchase amounts are subject to downward adjustments if certain
products are not available, and/or if there are significant decreases in
annual worldwide exploration expenditures.
The Company also has various commitments, primarily for rental of
premises, with arms-length parties as follows: 2007 - $1,507, 2008 - $697,
2009 - $424, 2010 - $300, 2011 - $295, thereafter - $308.
5. SEGMENTED INFORMATION
---------------------
2007 YTD 2006 YTD
(restated
- note 3)
---------- -----------
Revenue
Canada - U.S. $ 34,518 $ 32,845
South and Central America 27,326 20,254
Australasia and Africa 32,607 30,211
---------- -----------
$ 94,451 $ 83,310
---------- -----------
---------- -----------
Earnings from continuing operations
Canada - U.S. $ 6,698 $ 5,964
South and Central America 5,903 2,876
Australasia and Africa 7,077 5,644
---------- -----------
19,678 14,484
Eliminations (290) 17
---------- -----------
19,388 14,501
Interest expense, net 850 1,055
General corporate expenses 3,665 2,281
Income taxes 4,823 3,079
---------- -----------
Earnings from continuing operations 10,050 8,086
Gain from discontinued operations 12,833 265
---------- -----------
Net earnings $ 22,883 $ 8,351
---------- -----------
---------- -----------
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