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December 12, 2013

Integra Group Interim Management Statement and Financial Highlights for the 9M 2013

Integra Group Interim Management Statement and
Financial Highlights for the 9M 2013
 
 
MOSCOW, December 12, 2013 – Integra Group (LSE: INTE) released today its Interim Management Statement and unaudited financial highlights for the nine months period ended September 30, 2013. The financial data are based on management assessment only and have not been reviewed by external auditors.
 
9M 2013 Financial Highlights
 
·         Sales decreased by 9.3% to US$ 418.2 million (vs. US$ 461.0 million in 9M 2012)
·         Adjusted EBITDA [1] 35.1 million (vs. US$ 24.0 million in 9M 2012) increased by 46.3% to US$
·         Adjusted EBITDA margin increased to 8.4% (vs. 5.2% in 9M 2012)
·         Net cash from operating activities decreased to US$ 7.1 million (vs. US$ 35.8 million in 9M 2012)
·         Capital expenditures increased to US$ 57.2 million (vs. US$ 40.8 million in 9M 2012)  
·         Net Debt as of December 6, 2013 amounted to US$ 129.3 million (vs. US$ 155.1 million as of June 30, 2013)

9M 2013 Operating Highlights

·         194 thousand meters drilled (9M 2012: 211 thousand meters)
·         29 active drilling rigs (9M 2012: 29 active drilling rigs)
·         2,634 workover operations conducted (9M 2012: 2,613 workover operations)
·         77 workover crews (9M 2012: 79 workover crews)
·         861 cementing operations (9M 2012: 461 cementing operations)
·         23 cementing fleets (9M 2012: 14 cementing fleets)
·         354 coiled tubing operations (9M 2012: 213 coiled tubing operations)
·         5 coiled tubing units (9M 2012: 4 coiled tubing units)
·         183 wells completed with directional drilling service (9M 2012: 313 wells)
·         21 directional drilling crews (9M 2012: 26 directional drilling crews)
·         437 downhole motors and 7 turbodrills produced (9M 2012: 444 downhole motors and 41 turbodrills produced)
 
 
Felix Lubashevsky, Integra Group’s President and Chief Executive Officer, commented:
 
“Integra’s third quarter results demonstrated a significant improvement in Adjusted EBITDA margin despite lower revenues caused by rig divestment earlier this year. We were able to achieve a strong recovery in the quarterly group margin to 16.9% from just 4.4% in 1H 2013 and from 13.6% in 3Q 2012. In addition to seasonal factors which provide natural support, we have completed a number of structural changes in our business, which have made this result possible. A considerable reduction in corporate overhead, investment in additional capacity in our cementing and coil tubing operations and replenishment of our fleet of active drilling rigs – all have provided a foundation for an ongoing improvement in profitability. In line with our Corporate Strategy 2012-2015, we continue to focus on quality, efficiency and better cross-selling of our services, while maintaining rigorous cost control. In addition, we are actively exploring opportunities to significantly enhance the quality and size of our rig fleet both through acquisitions of contracted rigs and purchases of new rigs from producers.
 
We look in 2014 with cautious optimism given early visibility of our 2014 order book and uncertainty over macroeconomic outlook for the next year.”
  
Discussion of the Group’s Financial Results
 
Group sales from continuing operations during 9M 2013 decreased by 9.3% to US$ 418.2 million compared to US$ 461.0 million during 9M 2012. The decline was driven by a reduction in drilling volumes caused by rig divestments in March, 2013, lower volumes of directional drilling services, a decrease in volumes of well testing services, depreciation of the Russian ruble, which were partially compensated by higher volumes of cementing and coiled tubing services. Adjusted EBITDA increased by 46.3% to US$ 35.1 million from US$ 24.0 million during 9M 2012 due to lower unforeseen expenses related to geological complications compared to 2012, a significant reduction in selling, general and administrative expenses, higher volumes and better margins in cementing, coiled tubing services. The increase in Adjusted EBITDA was partially offset by a continued increase in variable cost of sales that are not compensated by better pricing in some services, lower volumes in well testing and depreciation of the Russian ruble.
 
 
Discussion of Segment Financial Results
 
 
Drilling, Workover
Technology Services
Other revenue, overheads and eliminations
Total Group
 
Revenue (in US$ million)
9M 2012
302.2
162.0
(3.2)
461.0
9M 2013
268.2
161.7
(11.7)
418.2
Chg (%)
(11.3%)
(0.2%)
n/m
(9.3%)
 
Adj. EBITDA (in US$ million)
9M 2012
7.7
34.3
(18.0)
24.0
9M 2013
8.4
36.9
(10.2)
35.1
Chg (%)
9.1%
7.6%
(43.3%)
46.3%
 
Adj. EBITDA Margin (%)
9M 2012
2.5%
21.2%
n/m
5.2%
9M 2013
3.1%
22.8%
n/m
8.4%
 
 
Drilling & Workover
·         In the Drilling & Workover segment, 9M 2013 revenue decreased by 11.3% compared to 9M 2012. The decrease was due to a reduction in drilling volumes caused by rig divestment and by the depreciation of the Russian ruble. Adjusted EBITDA margin increased to 3.1% in 9M 2013 from 2.5% in 9M 2012 due to lower unforeseen expenses related to geological complications compared to 2012, improved profitability in Workover in 3Q 2013, which were partially offset by a continued increase in variable operating expenses that are not compensated by better pricing. Sequentially, 3Q 2013 adjusted EBITDA margin demonstrated a strong recovery to 13.1% from a negative 0.9% in 1H 2013 due to seasonal strength in drilling margins.
 
Technology Services
·         In the Technology Services segment, 9M 2013 revenue was flat compared to 9M 2012, which was due to significantly higher volumes of cementing and coiled tubing services being offset by lower volumes of directional drilling and well testing services. Adjusted EBITDA margin in 9M 2013 increased to 22.8% from 21.2% in 9M 2012 due to increased volumes and profitability in cementing and coiled tubing, increased profitability in directional drilling despite weaker volumes, which were partially compensated by lower profitability in well testing services. Sequentially, 3Q 2013 adjusted EBITDA margin increased to 26.9% from 20.5% in 1H 2013 due to moderate profitability improvements in all services across the segment.
 
Discussion of Group’s Current Financial Position, Cash Flows and Liquidity
 
Net cash from operating activities in 9M 2013 was US$ 7.1 million compared to US$ 35.8 million in 9M 2012 which was a result of an increase in accounts receivables. This interim increase in receivables is caused by completion of certain service jobs which are expected to be paid before year-end. Free cash flow (defined as net cash generated from operating activities, less purchases of property, plant and equipment) was negative US$ 50.1 million in 9M 2013, compared to negative US$ 5.0 million in 9M 2012 due to a 40.2% increase in capex caused primarily by new rig purchases and weaker operating cash flow.
 
As of December 6, 2013 the Group had approximately US$ 185.0 million of gross debt (up from US$ 182.4 million of gross debt as of June 30, 2013). Net debt as of December 6, 2013 amounted to US$ 129.3 million, down from US$ 155.1 million as of June 30, 2013. Net debt primarily declined due to receipt of the proceeds from the sale of rigs in March, 2013.
 
Recent material events
 
The Group is actively exploring opportunities to significantly enhance the quality and size of its drilling rig fleet. With respect to these plans for growth, the Group’s senior executives are in negotiations regarding both the acquisition of new rigs and the acquisition of an existing drilling business in Russia.
 
At the EGM held on December 2, 2013, the Company’s shareholders have approved John B.  Fitzgibbons as a Class III Director of the Company and did not approve Steven Dashevsky as a Class III director of the Company. In order to ensure the functioning of the Company’s Board of Directors in accordance with the Articles of Association, the Board of Directors has appointed Dmitry Avdeev as a Class III Director subject to the subsequent approval by the general meeting of shareholders all Class III Directors in 2015.
 
Order book update
 
As of December 10, 2013, the total order book, which includes the value of business to be delivered in 2013, contracted and won in tenders, was US$ 581.2 million (RR 18.5 billion).
 
2013 Order book (as of December 10, 2013)

FX 31.8 RR/US$
Contracts signed*
Tenders won, contracts to be signed
Total order book
 
US$ (m)
RR (bn)
US$ (m)
RR (bn)
US$ (m)
RR (bn)
Drilling & Workover
348.0
11.0
20.7
0.7
368.7
11.7
Technology Services
200.3
6.4
12.2
0.4
212.5
6.8
TOTAL
548.3
17.4
32.9
1.1
581.2
18.5
 
2014 Order book (as of December 10, 2013)

FX 33.3 RR/US$
Contracts signed*
Tenders won, contracts to be signed
Total order book
 
US$ (m)
RR (bn)
US$ (m)
RR (bn)
US$ (m)
RR (bn)
Drilling & Workover
145.4
4.9
39.9
1.3
185.3
6.2
Technology Services
55.1
1.8
20.3
0.7
75.4
2.5
TOTAL
200.5
6.7
60.2
2.0
260.7
8.7
*Signed contracts may be subject to renegotiation of volumes and/or other terms or even cancellation, and both signed contracts and tenders won may not proceed as originally planned at all.
 
The order book, which includes the value of business to be delivered in 2014 as of December 10, 2013 was US$ 260.7 million (RR 8.7 billion). Of this amount, estimated value of signed contracts was US$ 200.5 million (RR 6.7 billion). The total 2014 order book (including contracts signed and tenders won) is currently 5.8% higher in Ruble terms and is flat in US dollar terms compared to 2013 order book calculated on December 3, 2012.
The Group is still in the early stage of contracting for 2014 which implies that current order book does not yet provide an accurate indication of revenues in 2014 and current order book trends could change materially.

 
Contacts
 
 
 
Integra Group
 
 
Investor Relations
 
 Tel. +7 495 933 0621
 
 
 
 
 
-END-
Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Integra Group. You can identify forward-looking statements by terms such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “will,” “could,” “may” or “might,” or the negative of such terms or other similar expressions. These statements are only predictions and actual events or results may differ materially. Integra Group does not intend to or undertake any obligation to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in Integra Group’s projections or forward-looking statements, including, among others, general economic and market conditions, Integra Group’s competitive environment, risks associated with operating in Russia, rapid technological and market change, and other factors specifically related to Integra Group and its operations.
 
This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of Integra Group, nor shall any part of it nor the fact of its distribution form part of or be relied on in connection with any contract or investment decision relating thereto, nor does it constitute a recommendation regarding the securities of Integra Group.


[1] Adjusted EBITDA is calculated as profit (loss) from continuing operations before finance income (expense), exchange gains (losses), current and deferred income taxes, depreciation and amortization, impairment, write-off or disposal of property, plant and equipment or intangible assets, gains (losses) on acquisition and disposal of any interest in the Group’s subsidiaries or associates, impairment of goodwill, share of results in associates, share-based compensation and profit (loss) attributable to non-controlling interest.