Welcome to Foraco International S.A.'s third quarter 2020 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Daniel Simoncini, Chairman and Co-CEO. Thank you. Please go ahead, sir.
Thank you, Julianne. Thank you all for joining us on our Q3 2020 result conference. I am Daniel Simoncini, Chairman and Co-CEO of Foraco, and with me today is Vice CEO and CFO, Jean-Pierre Charmensat. The news release of this result was issued this morning prior to the opening of the TSX through CNW Newswire. If you did not receive a copy of this, please visit www.foraco.com. After the outline of financial results, we will open the call for questions. When we last addressed Foraco quarterly results back on July 31, the world total reported case of COVID-19 contaminated people was 17 million. As we speak, there have been 44 million reported case, which is a 250% increase over the quarter, especially in the last weeks.
Since the pandemic started, 82 Foraco employees have tested positive, 74 of them have recovered, and eight are still under medical monitoring, exclusively in Russia and Mali. We continue to maintain a very strict sanitary protocol throughout the company, our different branches, and we do partner closely with our customers to maintain the highest barriers against the virus transmission, as most detected contaminations occurred outside our workplaces. In terms of activity, our business in Q3 2020 continued to recover from the Q2 level in our main operation centers, and overall, we continued to outperform the market with a 4% increase year-on-year, adjusted for currency fluctuation, and we do post a revenue of $55.9 million this quarter, net of Forex impact. Our utilization rate was 49% this quarter, compared with 47 last quarter.
All of our regions performed well, and our water related business surged this quarter in Canada and Africa for seasonal reasons, and they reached 20% of our revenue. The profitability of our operations was quite satisfactory in this quarter, and we reached a 23% gross margin, which is eight years high. I will now pass the conference to Jean-Pierre, who will walk us through the financials in more detail. Jean-Pierre?
Thank you, Daniel, and good morning, everyone. After the standby period in H1 2020, due to the COVID-19 pandemic, we managed to remobilize our resources, and we are pleased to report in Q3 improving operating and financial indicators. Revenue for this quarter amounted to $55.9 million, compared to $57.8 million for the same quarter last year, a 3% decrease, but a 4% increase, excluding the effect of foreign exchange fluctuations. By reporting segment, we recorded a 134% increase in the water segment in Africa, Australia, Canada, and Chile. Water represented 22% of Q3 revenue versus 9% in Q3 2019. By geographic region, North America, EMEA, and Asia Pacific were the most active regions.
In North America, mainly Canada, the activity increased at $20.4 million in Q3 2020, compared to $19.8 million in Q3 2019. This is mainly due to new dewatering contracts, which will continue throughout 2020. The revenue in EMEA for the quarter was $17.1 million, compared to $14.3 million in Q3 2019, a 20% increase, mainly in Africa, thanks to the deep water wells contract, which will continue in 2021. Asia Pacific was stable compared to the same quarter last year. Revenue in South America decreased by 40% compared to Q3 2019, or 22% excluding the adverse foreign exchange impact. The activity in Brazil was particularly impacted both by the effect of the pandemic and by the foreign exchange rate.
In Q3 2020, the geographical activity split was North America, 36%; EMEA, 31%; Asia Pacific, 18%; and South America, 15%. During this quarter, the gross margin, including depreciation within cost of sales, as per IFRS rules, was a profit of $ 10.8 million, or 23% of revenue, versus $ 10.5 million, or 18% of revenue for the same quarter last year. This increase is mainly due to the higher contribution of the water segment and solid performance on contracts. SG&A was stable to $ 5.2 million compared to the same quarter last year. The EBIT, our operating result, was a $ 7.6 million profit versus $ 5.3 million in Q3 2019. The EBITDA was eleven point six million compared to ten point two million in Q3 2019.
As a percentage of revenue, 20.7% this quarter versus 17.7% for the same quarter last year. On a nine months basis, revenue amounted to $152.9 million compared to $157.1 million in nine months 2019. A 3% increase, but a 5% increase after adjusting for currency fluctuations. Revenue increased 27% in EMEA, mainly in Africa, 6% in Asia Pacific, while South America and North America respectively decreased by 34% and 7% due to disruption linked to COVID-19 and the impact of currency fluctuations. The year-to-date 2020 gross profit was $29.3 million versus $3.2 million for the same period last year. The 26% improvement, mainly due to the contribution on the water segment and the performance on contracts.
The year-to-date 2020 EBIT was a positive $13.8 million compared to $7.4 million in the same period last year, mainly as a result of increased gross margin. The year-to-date 2020 EBITDA for the nine months period was a positive $26.2 million or 17.1% of revenue, compared to $21 million, 13.4% of revenue in the same period last year. In the 2020 nine months period, the cash flow generated by operating activity was $26.2 million compared to $21.9 million during the same period last year. Working capital requirement was $1.6 million versus $2.4 million in the same period last year. During the same period, CapEx amounted to $7.3 million in cash compared to $9.4 million in year-to-date nine months, 2019.
This CapEx relates to rigs overhaul, roads, and ancillary equipment. The free cash flow before debt servicing was $15.6 million year-to-date 2020, compared to $6 million for the same period last year. At September 30, 2020, our net debt, excluding the effect of IFRS 16, amounted to $130.5 million, compared to $129.8 million at 2019 year-end. The net debt is penalized by the adverse foreign exchange variation, $6.7 million, and cost of financing, including capitalized interest, $4.9 million. We met our covenant at September 30, 2020. Now, our focus for the next quarters will be to continue to generate free cash flow and to deleverage the company's balance sheet. I will now return the call to Daniel for his closing remarks. Daniel?
Thank you, Jean-Pierre. Thanks to our customers' willingness to reach solid drilling activity levels in most of our regions, and the dedication and passion of our employees for their work, we delivered a good quarter. However, the situation remains very volatile, as the recent outbreaks in Europe and USA show the pandemic is far to be over and the virus is still in circulation. We remain very focused on our employee health and safety, and the best possible execution of our contract pipeline under these very special circumstances. The bidding season has started in certain jurisdictions, and the early signs of a good demand for drilling services in 2021 are encouraging. Although the pandemic impact on GDP and metal prices is a big one now.
We're confident that our mix of commodities, including water, and our client portfolio will help us to go through the challenging period to come. Thank you for listening. I will now turn the call to Julianne, who will take the first question. Julianne?
Thank you. As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press the pound key. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Nicholas Cortellucci from M Partners. Please go ahead. Your line is open.
Good morning, guys. Congrats on the great quarter. I just had a question. I saw you guys had some strong growth out of the Europe, Middle East, and Africa region of 20%. I was wondering if you could provide some color on which regions or countries you're seeing that growth coming from?
You're talking about actual results in Africa?
Yeah.
Yeah, in Africa, we are limited to two regions because of terrorism threat, and we operate exclusively in Ivory Coast, Niger. And we still have a couple of rigs, one in Burkina and one in Mali, but we are going to shut down these countries.
Okay. Those countries are driving the increase in the EMEA region?
These are the African region, and EMEA does include Russia, Europe, Middle East, Africa, and Russia is a big, the big factor of our business.
Okay, great. And then I was also wondering when I saw the increase in gross margin, I was wondering if you guys could talk a bit about whether the increase in margin is coming from-
... the water segment or, both mining and water?
Well, I would say a little bit of both, because on one side, the water business we do is highly technical, and therefore is less competitive, more risky, but it's complex job to be done. On the other side, our mining business is doing better and better because we have reached a very good execution level in terms of quality, time, and also, we were able to, on a year-to-year contract-basis, we were able to pass some cost increase into our pricing to our customers.
Okay, great. That makes sense. Those are all my questions. Have a great weekend, guys.
You too.
Thanks.
Once again, to ask a question, please press star followed by the number one. Your next question comes from Steven Green from Ordnance Capital. Please go ahead, your line is open.
Hi, Daniel. I'm glad you guys are doing well and you're all safe. I know you emphasize that, so I'm glad you're keeping everybody safe. I'm surprised this is the first time in about, what, three or four years that somebody else asked a question.
Yeah, I mean, you just miss it.
That's a good sign. I don't know, maybe there's interest coming back into the company. Just in terms of water, you asked—I guess the gross margins are pretty good in water. But what, how big is the total—how big is the water market, the total addressable market? Is it a big market?
Steven, we, we address specifically two different water markets. One is what is fresh water for people, which is a tradition in West Africa, where we do help the, the big international donors or financing bodies such as the World Bank, blah, blah, blah, to equip the, the villagers with water well for people. This is fluctuating depending on the politics, you know, and the financing schemes. And it has shrunk because of the, the inability to operate in most of the West Africa region because of the Islamist terrorism. Okay?
However, having said so, we have a strong exposure in Niger, where we do a lot of very deep water wells for people, and given the recent strengthening of the, let's say, protection of the population in that specific state, jurisdiction, the business has been able to resume. So that has participated into the surge of our business. It's not a massive business. It's not infinitely expandable, but it's a good business to be in. That's number one. Number two, it's a much more vast segment. It's a water management for the miners. And as you know, the water is a big issue for most of the miners. Either, you know, they have too much water or they are not enough.
In all cases, they have to deal with the local communities to make sure that, you know, everybody has his own share and they protect the resources. And we have developed that for big, big mining houses such as Teck in Canada and Rio Tinto in Australia, where we do help them to build large-diameter, deep water wells both for extraction and protection. That means they, they pump out the water from the groundwater tables, and they transport, and then they store this water, precious water, somewhere else. And this is a big, big market which is growing. Okay?
For the moment, because of the CapEx limitation, we are working exclusively in, let's say, Australia, Canada, and a little bit in Russia on that segment, and this is a big one. I cannot give you a number, but it's, you know, I would say $a few hundred million a year.
And so are you doing, are you doing the water projects on projects that you're not doing the mining on, or are you doing only projects that you're doing the mining on?
When it relates to fresh water for people, there is no mining activity around.
Right.
It's just, it's just for the people. Okay?
Right. But the other one, when you're doing water for mines, for extraction, do you do the water and the mining or just the water in those projects?
No, usually we do both because we expand our toolbox locally, and you will understand that, increasing our activity on the same spot, we amortize and we share the fixed cost, the local fixed cost, and so we improve our competitiveness.
Right. And do you—are you the leader in this? Do you, do you feel you have competitive advantages in this?
Well, we think that we are among the very few companies able to do this kind of hybrid service from mining drilling to the water management drilling as well. Not so many people do that. And this is why we have better margins, because we are under less pressure from competition.
To address the previous question, we have a difference of 3% in gross margin between water and mining in our financials.
... And just 'cause I wanna get back to the, the debt, 'cause that seems to be the big issue here that we're-- that's holding us back. 'Cause, you know, the company is, you're doing a fantastic job. We're earning-- You're gonna earn $40-$50 million this year in EBITDA, you know, with a market cap of $32 million and a, I guess, a debt of $130 million. I guess the debt is the big, is the big hindrance here why we can't get this company to look like a, a company that has a re- a proper valuation. Have you-- I, I think about a couple quarters ago, you said you were gonna explore talking to the, the debt holder again. I know they bought the debt really cheap, and I was curious, have you, have you reopened those conversations?
Is there any inkling on the debt holder side to come and sell you the debt for cheaper than it's listed on our books for?
Well, yes, we are on the verge to start again discussions with our current lenders, as we told you a quarter ago, okay? Q2 was just, you know, in the middle of a COVID pandemic. Q3 is in the bag. So for us, it's now time to resume discussions. But we have nothing to tell you today. But yes, it's on our front burner now.
All right, good. 'Cause it just, you know, obviously it makes so much sense. The debt, these are debt players. They bought the debt for 10, 15 cents on the dollar. They could sell it for 40, 50 cents, make a huge profit for them. I don't know what they're doing. Also, is there, are there restrictions on paying dividends for you?
Oh, yeah, yeah, yeah. Our covenants do prevent dividends for the moment, and... But you will understand that, once we have, and if we have, restructure our debt, the company will looks much, much better, okay?
All right.
So that's our number one job.
Okay. Because you're doing such a great job. I mean, to where, you know, the utilization rate is going up and we are at $200 million. I remember we were back at 130 or 140, and we were looking to get to 200, and now I think you can go further. So you're doing a great job, it's just the debt is just holding us back, I guess.
Yeah. Yep.
All right, well, great. I'm so glad you guys are doing well, and there's not much I can say. The business, you're really doing an unbelievable job, and hopefully, metal prices will stay high and water will continue to grow.
Yeah, we are working on it, Steve.
Okay.
Thank you for your support.
Oh, yeah. No, this is my... I love this company.
Okay, thank you so much.
Okay. Bye-bye.
Okay, bye.
We have no further questions in queue. I'd like to turn the call back over to Daniel Simoncini for closing remarks.
Thank you all, and, talk to you for Q4 reporting, which will be-
Beginning of March.
Very beginning of March. Have a good weekend and stay safe. Bye-bye.
Bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.