Mr. Tim Bremner reports

FORACO INTERNATIONAL REPORTS OUTSTANDING PERFORMANCE IN Q2 2023

Foraco International SA has released its second quarter 2023 results. All amounts are denominated in U.S. dollars unless otherwise stated.

In Q2 2023, Foraco achieved remarkable financial results, reinforcing its position as a leader in the industry, and continued to build on its momentum from the previous quarters, maintaining a trajectory of sustained profitable growth. Notably, the revenue figures for Q2 demonstrate substantial progression, reflecting the company's unwavering commitment to delivering advanced drilling services to its clients.

As previously announced, co-founders Daniel Simoncini and Jean-Pierre Charmensat retired from their executive roles but continue to serve on the board of directors. The leadership structure now includes Tim Bremner as chief executive officer, Fabien Sevestre as chief financial officer and Olivier Demesy as senior vice-president, South America, Africa and Europe.

Key facts of the Q2 2023 include:

• Robust revenue growth: Revenue reached $100.1-million, marking a substantial 16-per-cent increase from the same period in 2022, driven by sustained demand in battery metals, gold and water.
• Strong EBITDA (earnings before interest, taxes, depreciation and amortization) margin: Standing at $23.8-million, accounting for 24 per cent of revenue, representing a significant 33-per-cent year-on-year increase.
• Consistent rig utilization rates: Maintained at 59 per cent, comparable with Q2 2022. While there were regional disparities, the reduced operations in CIS (Commonwealth of Independent States) were balanced by increased activity elsewhere.
• Solid TTM performance: Trailing 12-month (TTM) revenue and EBITDA were reported at $364-million and $83-million, respectively, compared with $294-million and $50-million one year ago.

Mr. Bremner, CEO of Foraco, expressed his satisfaction with the company's performance: "We are extremely proud to have achieved record-breaking results in the second quarter of 2023. Our success is the confirmation of the effectiveness of our long-term strategy, the exceptional quality of our drilling services, and the expertise and dedication of our team. Furthermore, the company continues to successfully secure a high volume of orders while receiving a considerable number of pricing inquiries, contract extension requests and new project proposals. As we look to the future, we will continue to explore opportunities for expansion of high-added-value services in selected regions worldwide, while focusing on delivering optimal value to our clients."

Mr. Sevestre, CFO of Foraco, emphasized the remarkable profitability achieved during Q2: "We are delighted to report a very robust EBITDA and cash generation, solidifying our position as a financially resilient company. Our net debt to EBITDA ratio was below 1.0 at quarter-end. The capital expenditure of $5.8-million, which includes the rollout of our new-generation rig we purposedly designed for long-term water drilling contracts. Capitalizing on our continuing profitable trajectory and our strong financial position, we are currently engaged in pro-active negotiations to improve the company's debt profile and reduce its associated costs."

Highlights -- Q2 2023

Revenue:

• In Q2 2023, Foraco's revenue rose to $100.1-million, marking a 16-per-cent increase from the $86.5-million generated in Q2 2022. This growth is attributed to the solid performance of main contracts.

Profitability:

• Q2 2023 gross margin, including depreciation within cost of sales, reached $26-million (representing 25.9 per cent of revenue), a substantial increase of 39 per cent from the $18.8-million (or 21.7 per cent of revenue) recorded in Q2 2022. The uplift was driven by the satisfactory performance of contracts and an increase contribution of value-added drilling services.
• For the quarter, EBITDA totalled $23.8-million (or 23.8 per cent of revenue), a 33-per-cent increase from the $17.9-million (or 20.7 per cent of revenue) for the corresponding quarter of the previous year.
• The free cash flow before debt service for the period stood at $11.3-million. The company had anticipated the increased working capital requirements corresponding to the robust revenue growth seen in H1.

Highlights -- H1 2023

Revenue:

• For the six-month period ending June 30, 2023 (H1 2023), the revenue amounted to $188.4-million, a 22-per-cent increase from $154.2-million in H1 2022. This surge in revenue is due to the solid performance of main contracts and the delivery of more added drilling services.

Profitability:

• In H1 2023, the gross margin, inclusive of depreciation within cost of sales, was $47.1-million (or 25 per cent of revenue), a significant 66-per-cent increase from $28.3-million (or 18.4 per cent of revenue) in H1 2022. This boost resulted from good contract performance, improved selling prices and the delivery of more value-added drilling services.
• During H1, EBITDA amounted to $42.9-million (or 22.8 per cent of revenue), a 63-per-cent increase from $26.4-million (or 17.1 per cent of revenue) for the same period last year.

Financial results

Revenue

Q2 2023

The company's quarterly revenue experienced a 16-per-cent surge, escalating from $86.5-million in Q2 2022 to $100.1-million in Q2 2023. The hike in revenue was driven by the solid performance of main contracts and the provision of more value-added drilling services which more than compensated for the decline in activity in certain regions due to political and economic instability. The rig utilization rate remained stable at 59 per cent for Q2 2023, compared with Q2 2022, with underlying disparities across regions with notably lower rates in CIS and higher rates in other areas.

The uptick in the mining segment's revenue can be attributed to favourable market dynamics. Long-term rolling contracts, renegotiated and extended last year, coupled with the company's proven delivery capability, played a crucial role. In the water segment, revenue experienced a slight dip due to the phasing of contracts.

North American operations reported a 17-per-cent revenue increase, reaching $31.2-million in Q2 2023 from $26.6-million in Q2 2022. This improvement was driven by heightened activity on long-term contracts renewed last year with senior customers.

South American revenue swelled by 56 per cent to $39-million in Q2 2023, up from $25-million in Q2 2022. All countries reported an upsurge in activity, powered by new long-term contracts with senior companies.

In the Asia Pacific region, revenue for Q2 2023 rose to $16.7-million, a 20-per-cent increase that reflects a quarter-over-quarter increase in demand and a gain in market share.

Revenue for the EMEA (Europe, Middle East, Africa) region saw a 37-per-cent decrease, moving down to $13.1-million in Q2 2023 from $21-million in Q2 2022. Revenues in Southern Europe and Africa remained stable compared with Q2 2022, while activity in CIS decreased by 56 per cent due to political and economic uncertainties in the region.

H1 2023

The uptick in revenue for the mining and water segments can be attributed to favourable market dynamics, with the company having renegotiated and extended its long-term rolling contracts since the previous year. Coupled with the company's proven capacity to deliver, this has generated significant growth.

North American operations saw a 26-per-cent surge in activity, with revenues climbing to $60.9-million in H1 2023, up from $48.2-million in H1 2022. This increase primarily resulted from the early remobilization of long-term contracts with senior clients, renewed in the previous year.

In South America, revenues spiked by 54 per cent to reach $70.2-million in H1 2023, a notable increase from $45.7-million in H1 2022. This was driven by all countries ramping up their activity levels, supported by new long-term contracts with senior companies.

In the Asia Pacific region, H1 2023 revenues rose to $32.7-million, a 35-per-cent increase, reflecting period-over-period growth in demand and expansion of market share.

In the EMEA region, revenue for H1 2023 was $24.6-million, showing a 32-per-cent decrease compared with the $36.2-million in H1 2022. While revenues in Southern Europe and Africa experienced a slight increase compared to H1 2022, operations in the CIS countries saw a 52-per-cent decline, primarily due to political and economic uncertainties in the region.

Gross profit

Q2 2023

For Q2 2023, the gross margin, inclusive of depreciation within cost of sales, reached $26-million (or 25.9 per cent of the revenue). This shows a substantial rise when compared with Q2 2022's $18.8-million (or 21.7 per cent of the revenue). This reflects the solid operating performance of contracts.

H1 2022

In H1 2023, the gross margin, inclusive of depreciation within the cost of sales, rose to $47.1-million (or 25 per cent of the total revenue). This marked a significant surge compared with the $28.3-million (or 18.4 per cent of revenue) in H1 2022. The substantial increase underscores the robust performance and efficiency of contracts.

Selling, general and administrative expenses

Q2 2023

SG&A increased compared with the same quarter last year mainly due to the level of activity. As a percentage of revenue, SG&A remained stable at 7.1 per cent of the revenue.

H1 2023

SG&A increased compared with the same quarter last year mainly due to the level of activity. As a percentage of revenue, SG&A decreased from 7.9 per cent in H1 2022 to 7.4 per cent in H1 2023.

Q2 2023

The operating profit reached $18.9-million, resulting in a $6.2-million increase driven by heightened activity levels and enhanced profit margins.

H1 2023

The operating profit reached $33.1-million, resulting in a $16.8-million increase driven by heightened activity levels and enhanced operational margins.

Financial position

In H1 2023, the cash generated from operations before working capital requirements amounted to $42.9-million compared with $26.4-million in H1 2022.

During the same period, the working capital requirements reached $14.3-million, slightly up from $12.4-million in the previous year. The additional working capital requirement is a result of the heightened activity levels and the seasonality of the activity.

During the period, capital expenditure totalled $14.2-million in cash compared with $8.6-million in H1 2022. Capex relates essentially to the acquisition of rigs, major rig overhauls, ancillary equipment and rods. Three large rigs were added to the fleet during the period.

Strategy

The company's strategy is to assist its customers in exploring or managing their deposits throughout the entire cycle, with a special focus on the life-of-mines extension activity. The company intends to continue developing and growing its services across the world with a focus on stable jurisdictions, high-tech drilling services, optimal commodities mix, including battery metals and gold -- with a significant presence in water-related drilling services -- and a gradual implementation of advanced digital applications. The company expects to execute its strategy primarily through organic growth and targeted acquisitions.

The company addressed the environmental, social and governance (ESG) requirements, and implements a pragmatic and measurable approach to ESG with quantitative key performance indicators to maximize improvement and efficiencies.

Currency exchange rates.

The exchange rates for the periods under review are provided in the management's discussion and analysis of Q2 2023.

Conference call and webcast

On July 28, 2023, company management will conduct a conference call at 10 a.m. ET to review the financial results. The call will be hosted by Mr. Bremner, CEO, and Mr. Sevestre, CFO.

You can join the call by dialling 1-888-664-6392 or 1-416-764-8659. You will be put on hold until the conference call begins. A live audio webcast of the conference call will also be available.

An archived replay of the webcast will be available for 90 days.

About Foraco International SA

Foraco International is a leading global mineral drilling services company that provides a comprehensive and reliable service offering in mining and water projects. Supported by its founding values of integrity, innovation and involvement, Foraco has grown into the third-largest global drilling enterprise with a presence in 22 countries across five continents.

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