IBI Announces Q2 Earnings, Update on the Recovery Program and Revised Revenue Guidance
TORONTO, Aug. 8, 2013 /CNW/ - IBI Group Inc. (the "Company") (TSX: IBG) today announced net losses for the three and six months ended June 30, 2013 of $76 million and $75.4 million, respectively. These net losses include an impairment charge on the carrying value of goodwill and intangible assets in the amount of $79.6 million. Excluding the impairment charge, the adjusted net earnings achieved for the three month and six month periods were $2.4 million and $3.1 million, respectively.
Operating Highlights
The Company reported:
- Revenue for the three months ended June 30, 2013 of $86.7 million and revenue for the six months ended June 30, 2013 of $171.3 million. Revenue for the three months ended June 30, 2013 was below expectations reflecting continued weakness in certain parts of the Company's US and UK businesses as well as certain project delays.
- EBITDA1 for the three months ended June 30, 2013 was $7.3 million and EBITDA1 for the six months ended June 30, 2013 was $14.6 million. EBITDA1 in the quarter ended June 30, 2013 was impacted by the lower revenue and delayed benefits from aligning staff with work levels though terminations and furlough programs. These benefits were muted in the second quarter of 2013 due to notice periods and severance costs. (See discussion of Recovery Plan below).
- Results for the second quarter 2013 were impacted by a $79.6 million impairment charge. Management concluded that a write-down of goodwill and intangible assets was warranted given the decline in the company's share price and market capitalization versus the purchase price and the performance of businesses acquired by the Company. The impairment is a non-cash charge that does not impact the Company's day-to-day liquidity, cash flow or the calculation of EBITDA under its senior credit facility covenants.
- Excluding the impairment charge the adjusted net earnings1 achieved for the three months ended June 30, 2013, were $2.4 million and $3.1 million for the six months ended June 30, 2013.
- Borrowings increased in the second quarter of 2013 by $3.0 million compared to an $11.4 million increase in the second quarter of 2012. Borrowings included the funding of $2.0 million previously deferred distributions.
- Staff reductions have been made in Q2. The implementation and full savings in compensation costs will be realized by the end of November 2013. The company calculates the estimated quarterly savings to be $3.0 million (normalized) as the result of these reductions.
- Free cash flow1 improved by $3.5 million and by $12.9 million in the three and six month ended June 30, 2013 compared to the three and six months ended June 30, 2012. The improvement in free cash flow1 is primarily the result of the suspension of the dividend.
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1See "Definition of Non-IFRS Measures" in the MD&A
The highlights are presented in the table below and include the adjusted net earnings before the goodwill and intangible asset impairments.
| Three months ended June 30, 2013 (unaudited) |
Three months ended June 30, 2012 (unaudited) |
Variance | Six months ended June 30, 2013 (unaudited) |
Six months ended June 30, 2012 (unaudited) |
Variance | ||||||||||||
| Number of workings days | 64 | 63 | 1 | 125 | 126 | (1) | |||||||||||
| Revenue | $ | 86,745 | $ | 88,558 | $ | (1,813) | $ | 171,344 | $ | 175,454 | $ | (4,110) | |||||
| Net earnings | $ | (76,039) | $ | 5,680 | $ | (81,719) | $ | (75,383) | $ | 9,413 | $ | (84,796) | |||||
| Basic and diluted earnings per share ("EPS")1 |
$ | (3.4193) | $ | 0.2799 | $ | (3.6992) | $ | (3.4128) | $ | 0.4864 | $ | (3.8992) | |||||
| Goodwill and intangible asset impairment |
$ | 79,601 | - | $ | 79,601 | $ | 79,601 | - | $ | 79,601 | |||||||
| Adjusted net earnings1 | $ | 2,414 | $ | 5,680 | $ | (3,266) | $ | 3,070 | $ | 9,413 | $ | (6,343) | |||||
| Basic and diluted adjusted earnings per share ("Adjusted EPS")1 |
$ | 0.1087 | $ | 0.2799 | $ | (0.1712) | $ | 0.1390 | $ | 0.4864 | $ | (0.3474) | |||||
| EBITDA1 | $ | 7,257 | $ | 12,028 | $ | (4,771) | $ | 14,557 | $ | 23,431 | $ | (8,874) | |||||
| EBITDA1 as a percentage of revenue |
8.4% | 13.6% | (5.2)% | 8.8% | 13.4% | (4.6%) | |||||||||||
| Distributable cash1 | $ | 3,737 | $ | 6,647 | $ | (2,910) | $ | 6,610 | $ | 12,953 | $ | (6,343) | |||||
| Payout ratio1 | 17.9% | 88.6% | (70.7%) | 45.2% | 88.8% | (43.6%) | |||||||||||
| Cash used in operations | $ | (3,077) | $ | (818) | $ | (2,259) | $ | (6,785) | $ | (10,940) | $ | 4,155 | |||||
| 1See "Definition of Non-IFRS Measures" in the MD&A | |||||||||||||||||
Update on the Recovery Program:
On March 21, 2013, the Company announced a number of steps it was taking as part of its Recovery Program to restructure, realign and re-envision the Company in the context of changing business conditions. In order to address the Recovery Program's objectives in a systematic and expedient manner, seven management working groups were established in June 2013 to address and advance the key components of the Recovery Program. These working groups encompass: Compensation, Information and Support Systems, Acquisitions and Integration, Growth of Professional Practice, Communications and Marketing, Staff Development and Governance. "Management recognizes that it needs to accelerate the pace at which it is aligning the Company's costs and integrating acquired businesses in response to the challenging market conditions that are expected to continue for the foreseeable future" said Scott Stewart, Chief Executive Officer of the Company.
To further assist in planning and implementing critical aspects of the Recovery Program, the Company has retained independent financial advisors and compensation and governance advisors to assist senior management and the working groups in developing recommendations for an action plan, assisting board oversight of the Recovery Program and communicating this plan to our investors.
The Company reduced approximately 240 full time positions in market areas and sectors where there was excess capacity. In other areas where there was a shortfall of resources, 200 staff and seasonal employees were hired. This realignment will now enhance the company's ability to perform client work by better integrating and sharing resources across the Company while reducing costs as noted above. The implementation and full savings in compensation costs will be realized by the end of November 2013 and the ongoing quarterly savings from the Recovery Program are expected to total $3.0 million per quarter.
Guidance for the Remainder of 2013
We expect market conditions to remain challenging for certain parts of the Company's US and UK businesses. In Canada, we are experiencing continued strength in our major urban markets but we are seeing some weakness in smaller markets.
- Currently, the Company's committed contractual work for 2013 is approximately $337.0 million. However, given our current outlook for our markets we have modestly reduced the Company's revenue forecast for 2013 to $346.0 million. The Company's committed contractual work for 2013 represents over 97% of this revised revenue forecast.
- The Company has nine months of committed fee volume for the ensuing twelve months. (This is calculated on the basis of the current pace of work that the Company has achieved during the last twelve months ended June 30, 2013.) Backlog for government and public institutional clients now represents approximately 65% of total backlog.
Key Priorities
- Addressing the upcoming maturity of the Company's 7% convertible debentures due December 31, 2014. We are working with our financial advisors to develop a plan of action.
- Improvements to reduce accounts receivable and unbilled work in process and steps to bring those closer in line with industry norms.
- Integration of areas of professional practise and offices to improve operational efficiency.
- Continuing to re-align our human resources.
- Suspend new acquisition activity and prioritize organic growth.
Caution Regarding Forward-Looking Information
Statements contained in this news release which are not historical facts are forward-looking statements that involve risk, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. This forward looking information includes, or may be based upon, estimates, forecasts, guidance, and statements as to management's expectations. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, such statements are not guarantees of future performance and actual results or developments may differ materially from those in forward-looking statements. A number of factors could cause actual results to differ materially from those in forward-looking statements, including general economic, market or business conditions and the factors discussed in the Company's Annual Information Form filed with the Canadian securities regulatory authorities. Undue reliance should not be placed on these statements, which only apply as of the date of this news release. The Company undertakes no obligation to update or revise any forward- looking statement, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.
Investor Conference Call
The Company will hold a conference call on Friday August 9, 2013 at 8:30 a.m. Eastern Standard Time (EST). To participate in the conference call, please dial in before 8:30 a.m. EST to 1-800-906-5924 for local and toll-free North American access, or 1-416-641-6684 for international access.
An audio replay of the call will be available for 14 days, by dialling 416-626-4100 for local and international access, or 1-800-558-5253 for toll-free North American access, pass code 2166858 followed by the number sign on your telephone keypad.
SOURCE: IBI Group Inc.
Tony Long, CFO
IBI Group Inc.
230 Richmond Street West, 5th Floor
Toronto, ON M5V 1V6
Tel: 416-596-1930
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