Foraco International Q2 2023 Earnings Call Transcript

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Provided by Quartr
July 27, 2023

There are 4 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Foraco International S. A. Second Quarter 2023 Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.

Operator

I would now like to turn the conference over to Mr. Tim Bremner. Please go ahead, sir.

Speaker 1

Thank you, Laura. Good morning, everyone. Thank you for taking the time to join us on our 2023 results conference. I am Tim Bremner, CEO of Foraco and with me today is Fabian Sylvester, CFO. This is our first results call and we're very pleased to be with you today.

Speaker 1

As most of you know, Faraco announced this leadership transition in March 2023, which has come into effect this July 1. Danielle Simonsini and Jean Pierre Jean Marcotte will remain on the Board. Both Fabian and I want to take this opportunity to say thank to Danielle and Jean Pierre, who've been at the helm of 4aco for 26 years, providing the team with solid and guidance. Fortunately, we'll not be too far away and we'll continue to guide the new leadership team at the Board level. The news release of these results was issued this morning prior to the opening of X through CMW Newswire.

Speaker 1

If you did not receive a copy of the release, it is available at the Foraco website, www.foraco.com. After the outline of financial results, we will open the call for your questions moderated by Lara. We're pleased to report yet another good quarter with revenues of just over US100 $1,000,000 up 16% from the same quarter last year. These results lifted our 12 months performance to US264 $1,000,000 revenue and US83 $1,000,000 compared to $294,000,000 revenue and $50,000,000 EBITDA 1 year ago. We continue to experience excellent global performance from our operations.

Speaker 1

Our utilization rate on the quarter remained consistent at 59% compared to 1 year. Net profit for the quarter stands at US11 $1,000,000 up 54% year on year. This performance is a direct result of the better confidence of our team, who we wish to thank for their ongoing commitment and contribution. During the quarter, the outlook for our business remained largely unchanged despite a quarter over quarter reduction in the IMF price index by 8%. We continue to experience a strong demand for our drilling services, especially related to EV Metals in most of our regions.

Speaker 1

Demand from our customers remains strong as we continue to work through our long term contracts. It's my pleasure to now turn the call over to Fabian, who will walk us through the financials in more detail.

Speaker 2

Fabian? Thank you, Kim, and everyone. First of all, and as a reminder, who will report in full IFRS and in U. S. Dollar.

Speaker 2

Revenue for Q2 2023 amounted to EUR 100,000,000 compared to €86,000,000 for the same quarter last year, 50% increase driven by sustained demand in battery metals, gold and water, which represents a total of 80% of our activity. By reporting segment, Mining segment represented 88% of Q2 2023 and Water represented 12%. During this quarter, South and North America were the most active regions. Revenue in South America increased by 56 percent to €39,000,000 All countries reported an increase in activity powered by new long term contracts with senior companies. North America revenues amounted to 13% in Q2 twenty twenty 3, 17% increase driven by long term contracts renewed last year with senior customers.

Speaker 2

Revenue in Asia Pacific increased 20% at €70,000,000 reflecting quarter increase in demand and the gain in market share. Revenue year over quarter was €13,000,000 compared to €21,000,000 in Q2 2022. The activity was stable in Europe and Africa, but the increase in the activity decreased in us due to the political and economic uncertainties in the region. In Q2 2023, the geographical activity split was North America, 31% South America, 39% EMEA, 13% Asia Pacific, 17%. During this quarter, the gross margin, including the decrease in cost of sales after IFRS, was €26,000,000 versus €19,000,000 for the same quarter last year, the percent increase.

Speaker 2

Ongoing contracts reported solid performances. SG and A increased by 15% to €7,000,000 compared to €6,000,000 for the same period last year, but was stable as a percentage of revenue at 7%. EBIT was €19,000,000 profit versus €13,000,000 in Q2 2022. This represents a 50% increase. The EBITDA amounted to €24,000,000 or 24 percent of revenue, a 33% increase compared to €18,000,000 in Q2 2022 or 21% of revenue.

Speaker 2

For the Cyclis, revenue amounted to €188,000,000 compared to €154,000,000 in H1 2022, a 22% increase. This increase in revenue is due to favorable market dynamics with the company having renegotiated and extended its long term rolling contract since the previous year. Coupled with the companion capacity to deliver, this has generated significant growth. Revenue in 26% in North America, 54% in South America and 35% in Asia Pacific compared to H1 twenty twenty two. Revenue decreased 32% in EMEA due to the political and economic uncertainty in CIS.

Speaker 2

The year to date CHF 23 gross profit was CHF 47,000,000 versus CHF 28,000,000 for the same period last year, 6% improvement mainly due to increased activity and the capacity of the company to deliver good performances on contract. Year to date EBIT was a positive €33,000,000 compared to €16,000,000 in the same period last year, €104,000,000 And the year to date, euros 23,000,000 EBITDA for the 6 month period was a positive €43,000,000 compared to €1,000,000 in the same period last year, a 63% increase. In H1 2023, the working capital requirement was €14,000,000 compared to €12,000,000 per year last year. This increase is the result of a ramp up of activity. CapEx amounted to CHF 14,000,000 in cash compared to CHF 9,000,000 in cash in H1 'twenty two.

Speaker 2

CapEx is related to the acquisition of RIGS, major RIGS overall, ancillary equipment and ROPS. At June 30, 2023, our net debt, including lease obligation, amounted to €80,000,000 versus €91,000,000 at June 30, 2022, and €76,000,000 at December 31, 2022. Coverage ratio improved to 0.97. We are taking advantage of our robust financial position to engage in proactive negotiations to improve company debt and significantly reduce interest cost. I will now hand the call back to Tim for his closing remarks.

Speaker 1

Tim? Thank you, Fabian. It was an excellent quarter indeed. We're getting a lot of positive feedback from our customers regarding their future drilling requirements for the near and medium term. We have our long term contracts have already been confirmed for next year.

Speaker 1

Nationally, it seems that inflation fears are diminished as is the potential for a regional or global recession, which bodes well for our business. More than ever, the demand for the main EV mills remain strong as the wind continues to responsibly address climate change. Morocco is well positioned for the future. We have a balanced business, which is the result of our strategy that is generating profitable growth. We are working to restructure our debt that when completed will result in substantial reduction in interest costs.

Speaker 1

Lastly, our culture of innovation, integrity and involvement across key markets is to provide extra value for our customers that make us their contractor of choice. Thank you everyone for your time and interest in Foraco. I'll now turn the call back to Lara, who will take the first question.

Operator

Your first question comes from the line of Steven Reitz from Ordinance Capital. Please go ahead.

Speaker 3

Hi, Tim. How are you? Welcome as the CEO.

Speaker 1

Hi, Steve. Thank you very much and it's a pleasure to hear from you.

Speaker 3

Well, Daniel gave you a great foundation to build from. So hopefully we can take it from here. The company is doing amazing. I mean, doing better than it was back in 2012, the last time it was cyclical high and I think this is going to keep on going. But it's very frustrating.

Speaker 3

It sounds like we're it's like we're talking into the wind. You're going to do $100,000,000 in EBITDA next 12 months and the stock and the valuation of the equity is only $122,000,000 say U. S. I mean, now you have debt and stuff and I guess you're going to address the debt, but what could I mean, I know Danielle never wanted to do a U. S.

Speaker 3

Listing, but we need some liquidity here. We need to be able to take advantage of the fact that we are the player for water for we're a way to play the growth in all the electric metals. We know it's crazy where you doubled the EBITDA in the last year and the stock price is down. I just don't know how do you plan on getting this message out? And I guess the key is getting rid of the debt.

Speaker 1

Stephen, we share the same concern you do and it's a discussion that we have on our on-site, I assure you. And your question is a tough one and it's also very complex to answer. The first and foremost, as you know, we don't control the market and the micro cap market has had a really tough time and that's significant. We combine that with the volatility that we've seen in the metals market as well And it creates even a tougher situation. Look, we need buyers.

Speaker 1

There's too many sellers at the moment. That's obvious. But honestly feel that once we get the debt restructuring

Speaker 2

done, this

Speaker 1

will help norm the stock, if you know what I mean, and put us in a better position. We have our job to do as well as getting the word out and Danielle and I are going to be doing that. And I think we're doing all of the right things. So I know you and others have been exceptionally patient for that. We're very, very grateful.

Speaker 1

But we're entirely aware of the question that you've posed and working on it diligently.

Speaker 3

Is there any chance for a U. S. Listing or that's still out of the question?

Speaker 1

I think that's sort of the question. Well, it is out of the question at the moment because of other priorities that we've got to deal with. It is a question that we get asked frequently. It is we're aware of that. But truthfully, we need to get through this financial restructuring, focus on the ongoing profitability of the business and maintain that course for now.

Speaker 3

So in your debt covenants, you can prepay the debt at your will?

Speaker 1

Yes, we can.

Speaker 3

Okay. It's just frustrating because I mean the company is doing you guys are doing an amazing job. I mean you don't have to be a microcap with the numbers you're putting up. If you're selling it 10 times earning, you'd be a $1,000,000,000 company. I mean, you don't have to be a petrochemical.

Speaker 3

You don't have to lump yourself into the companies that are losing money. I mean, you guys have solid you have long term contracts. You have everything you have it's like you have a recurring revenue stream. I mean, you have a quite a great base to build from. You saw a broom in your utilization rate to grow the company.

Speaker 3

So I hate to lump ourselves into these micro caps that don't have any chance at all.

Speaker 1

Well, I don't think we're in that category. But really the whole segment has been overlooked. And it's just a matter of us taking the time to get the message out. And it's a grind, but it's our job, Danielle's and my job and we do talk about that frequently. We had a good webinar this past June with a lot of participants.

Speaker 1

We're going to host enough when summer holidays are over and I'm certain that we'll have good participation then. So I really think that pursuing the course that we're on is the right thing to do, to take advantage of any opportunity that we get to speak to somebody. I'm available. I'm in Canada, which would be easy for me to go arrange meetings and we'll do so whatever.

Speaker 3

You can can you put I mean, you have enough cash flow to pay a lot of the debt down as you see fit. I mean, you can pay the debt down if you want to?

Speaker 1

Yes. There are restrictions on us at this time to pay the debt down. And we have been working on a debt restructuring plan. That is a priority. Even after this debt restructuring, our priority is to continue to pay that debt down.

Speaker 1

We'll make have a significant reduction in the interest cost, but that doesn't change of ongoing debt reduction even after the restructuring.

Speaker 3

Okay. All right. Well, thank you. And just one quick is there a conference call tomorrow as well because it says in your press release, you have a conference call tomorrow at 10 am.

Speaker 1

Yes, that was an error. We apologize for that. And we'll make certain that doesn't happen again. We appreciate you adjusting your schedule to be with us.

Speaker 3

All right, great. Well, thank you. And hopefully, we can get this thing going in the right direction because it is a great is it you guys do a great job. Danielle did a great job and it's a great company and it's in all the right places.

Speaker 1

Yes, it is a great company. I've been here for 17 years with Daniel. He's been an absolute listener mentor and will continue to be so. So we look forward to getting this right.

Speaker 3

All right. Well, thank you and nice to talk to you for the first time.

Speaker 1

Thanks, David. It's great to hear from you too.

Operator

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Tim Brammer for any closing remarks.

Speaker 1

Thank you, Lara. Well, everyone, we appreciate your interest in Foraco. Thank you. It was

Speaker 3

a great

Speaker 1

quarter, and we look forward to speaking to you again at the Q3 conference call in late October. Thank you very much everyone and have a good day. Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

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Earnings Conference Call
Foraco International Q2 2023
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