Foraco International - Third Quarter 2016 Report

TORONTO, ON and MARSEILLE, France, Nov. 4, 2016

"During the quarter, we continued to suffer from low prices and had to cope with the postponement or temporary suspension of certain contracts, and this impacted again our level of activity and thus our financial performance." said Daniel Simoncini, Chairman and co-CEO of Foraco. "We enter now into the bidding season and for the first tendered jobs, we observed a significant increase of the duration of the proposed contracts. We view this as an indicator of regained confidence and visibility from clients. The next months will tell us if the annual drilling volumes will also be on the rise, which – if confirmed – will mark the turning point of the drilling market trend. We are also pleased to report the positive development of certain niche services offering new technically complex resources with higher added value, in underground and directional drilling. We dedicate the majority of our development capex to such niche markets.

"Despite the continuing global adverse market conditions, the Company managed to maintain a positive EBITDA for the quarter and the first nine months of 2016. Focus continues to be placed on cash management as working capital requirements increased due to the mobilization of contracts and extended terms of payments from certain clients" commented Jean-Pierre Charmensat, co-CEO and Chief Financial Officer. "As agreed in 2015, we met with our French lenders to resume discussions regarding the future of the credit facilities granted and new requirements for upcoming years. Our objective is to finalize the negotiations during the fourth quarter."

Three months Q3 2016 Highlights

Revenue

• Q3 2016 revenue amounted to US$ 30.0 million compared to US$ 31.1 million in Q3 2015, a decrease of 3%. Mining activity remains stable compared to the same quarter last year.
• The utilization rate was 35% in Q3 2016 (compared to 30% in Q3 2015).

Profitability

• The Q3 2016 gross margin including depreciation within cost of sales was US$ 2.1 million compared to US$ 4.4 million in Q3 2015, this reduction can mainly be explained by continued pressure on prices in the current challenging environment.
• SG&A costs were stable at US$ 4.1 million for the quarter.
• EBIT amounted to US$ (2.5) million in Q3 2016 compared to US$ 0.2 million in Q3 2015.
• During the quarter, EBITDA amounted to US$ 2.5 million compared to US$ 6.2 million for the same quarter last year.

Net debt