Marsulex reports strong operating results for fourth quarter and full year 2006



    TORONTO, March 7 /CNW/ - Marsulex Inc. (TSX: MLX) today announced results
for the three months and year ended December 31, 2006. Revenue for the quarter
was $69.4 million compared with $47.5 million in 2005, an increase of 46%.
Gross profit was $27.5 million compared with $17.2 million in 2005, an
increase of 60%. The increases in both revenue and gross profit reflected the
contributions from the Petcoke Services acquisition as well as from the
completion of the Montreal facility expansion. Solid growth in revenue, gross
profit, and pre-tax earnings in the fourth quarter was negatively affected by
a $2.8 million non-cash asset impairment charge with respect to the Long Beach
prilled sulphur facility (recorded as part of depreciation). Earnings before
income taxes for the fourth quarter of 2006 were $2.3 million (compared to
$1.6 million in 2005), reflecting improved operating results offset by higher
depreciation, amortization and net interest costs. Income tax expense for the
quarter was $3.7 million ($2.1 million in 2005), including an increase of
$2.3 million in current tax liability as a result of the Company's assessment
of potential tax obligations. Net loss for the quarter was $1.4 million
(negative $0.04 per share) compared to a net loss of $0.4 million in 2005
(negative $0.01 per share).

    
    -------------------------------------------------------------------------
                                 Three months ending             Year ending
                                         December 31             December 31
    (in millions of dollars,                     %                       %
     except per share)           2006    2005   chg      2006    2005   chg
    -------------------------------------------------------------------------

    Revenue                    $ 69.4  $ 47.5   46.1%  $249.6  $166.5   49.9%
    Gross profit                 27.5    17.2   59.9%    89.0    61.0   45.9%
    Earnings (loss) before
     income taxes                 2.3     1.6   43.8%     9.6     5.4   77.8%
    Net earnings (loss)          (1.4)   (0.4)   n/a      7.1     1.4    n/a
    Earnings (loss) per share   (0.04)  (0.01)   n/a     0.22    0.04    n/a

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Commenting on the results, Marsulex President and Chief Executive
Officer, Mr. Laurie Tugman, said, "The fourth quarter was the culmination of a
successful year for Marsulex. The significant increases in revenue and gross
profit for the quarter and the year reflected strong performances from our
core businesses and contributions from strategic acquisitions in 2005 and 2006
that have expanded our range of industrial services and our customer base. The
growth of our operating businesses is also reflected in cash flow from
operating activities which was $61.9 million for the year compared with $27.7
million in 2005." Cash flow from operations in 2006 included deferred revenue
related to the Montreal expansion, as well as the timing of receipts from
Power Generation projects.
    Mr. Tugman also noted that the Company achieved important milestones with
commissioning of the Company's Fort McMurray facility and the completion and
start-up of the expansion of the Montreal facility. "Both of these
demonstrated our ability to execute large scale projects that are critical to
our customers' operations."

    
    Highlights

    -   On April 1, 2006, Marsulex completed the acquisition of Petcoke
        Services for approximately $32 million. The business provides petcoke
        cutting and handling services for a number of leading oil refineries,
        primarily on the U.S. Gulf Coast.

    -   The Power Generation Group won several new contracts including a
        U.S. $60 million contract with Lower Colorado River Authority (LCRA).

    -   The Montreal facility expansion project was completed and began
        contributing to revenue and earnings in the third quarter.

    -   The Fort McMurray facility was commissioned in the third quarter and
        began producing ammonium sulphate fertilizer from slurry received
        from Syncrude. Under the terms of the revenue sharing formula with
        Syncrude, revenue from the sale of this startup product contributed
        approximately $0.8 million in the fourth quarter.

    -   With the completion of the commissioning phase at Fort McMurray, the
        guarantee provided by Marsulex Inc. under the Long-term Loan used to
        finance the project was released in December 2006. The loan is now
        secured by the assets of Marsol Inc. As a result, approximately
        $9.2 million of cash held in trust was released and made available
        for general corporate purposes.

    -   On March 1, 2007, Marsulex completed re-financing of its senior
        credit facility, increasing it to $205 million, and using proceeds
        plus available cash to redeem the U.S $60.8 million 9-5/8% Senior
        Subordinated Notes. As a result the Company is no longer an SEC
        registrant. The amended facility provides Marsulex with approximately
        $66 million in available credit as well as $75 million in additional
        financing for lender approved acquisitions to pursue its growth
        initiatives.
    


    Operating Group Results

    The Industrial Services Group produced gross profit of $17.8 million for
the quarter ($56.0 million for the year ended 2006) compared with
$10.2 million ($33.9 million for the year ended 2005). The full year results
reflected a full year's contribution from Stablex and nine months of Petcoke
Services. In addition, the improved results included contractual
pass-through's of higher energy costs by the spent acid regeneration facility,
the completion of the Montreal facility expansion project and the start of
fertilizer production at the Fort McMurray facility. These increases were
offset by higher start up costs and the impact of foreign exchange
($1.2 million for the quarter).
    The group's U.S. West coast sulphur prilling business was negatively
impacted by lower international prices for sulphur. Prilled sulphur prices
declined approximately 29% during the year. As a result of the decline in
margins and the highly competitive conditions in the Long Beach market, the
Company recorded an asset impairment charge of $2.8 million in the fourth
quarter.
    The Western Markets Group reported gross profit of $6.0 million for the
quarter ($24.8 million for the year ended 2006), compared with $5.4 million
($21.9 million for the year ended 2005). The improvement was generated from
higher sales of sulphides and sulphur-enhanced products and the benefit of
lower costs for sulphur-based raw materials.
    Gross profit for the Power Generation Group increased to $3.7 million in
the quarter compared to $1.7 million for the fourth quarter of 2005. For the
year, gross profit was $8.2 million compared with $5.2 million in 2005. The
increased margin reflects primarily the higher contribution from international
projects, as well as initial contribution from LCRA.
    Corporate Support costs were $5.2 million in the quarter ($13.2 million
for the year ended 2006) compared to $2.8 million ($10.2 million for the year
ended 2005). The higher Corporate Support in the quarter reflects foreign
exchange losses of $1.1 million (or an approximate 4% decline in the Canadian
dollar against the U.S. dollar in the quarter). It also reflects increased
head count, travel, business development, and information technology costs
resulting from a larger organization ($0.4 million), as well as consulting
costs and year-end adjustments for incentive related and other costs
($0.9 million). The increase for the year reflects $1.1 million in increased
head count, travel, business development, and information technology costs;
$1.2 million in legal and consulting costs; and $0.3 million in other costs.
    Higher tax provision in the quarter offset some of the gains in the
previous three quarters. The prior year quarter included $1.8 million in
future tax expense relating mainly to higher Quebec income tax rates that were
substantively enacted in November 2005. For the year the overall effective tax
rate of 26% was below the statutory rate of 36%.
    The Company had a net loss of $1.4 million for the three months ended
December 31, 2006 compared to a net loss of $0.4 million for the same period
in 2005 as a result of higher taxes in the fourth quarter of 2006.

    Outlook

    Marsulex generated significant growth in revenues and profits in 2006.
Within the Industrial Services Group, acquisitions (Petcoke Services and
Stablex) and the Montreal expansion were significant contributors to this
growth. There has been some volatility in commodity pricing, in particular
natural gas (used in the spent acid regeneration facility) and prilled
sulphur. The Western Markets and Power Generation groups continue to
demonstrate gains on sustained demand for their products and services.
    Capital spending on the Montreal facility is substantially complete. The
Fort McMurray facility is in full production having gone through commissioning
in the third and fourth quarters. Maintenance capital spending, while up over
the previous years, is likely to spill over into 2007 with additional spending
at the Prince George facility.
    "As we enter 2007, we are cautiously optimistic in our outlook for the
next year. We have completed our refinancing, which will provide additional
capital to implement strategies to drive shareholder value. Market conditions
are accommodating with strong demand in the industries we serve," Mr. Tugman
said.

    Marsulex, which is based in Toronto, Ontario, is a leading provider of
industrial services, including environmental compliance solutions for air
quality control, processing or handling of industrial by-products or waste
streams, and is a producer and marketer of sulphur-based industrial chemicals.
The Company's services and products are provided to a broad base of industrial
customers in a wide range of industries. Website: www.marsulex.com

    A conference call with analysts and portfolio managers to review the
fourth quarter 2006 results will be webcast live on www.marsulex.com and
www.newswire.ca on Thursday, March 8, 2007 at 10:00 a.m. Eastern Time.

    This news release may contain forward-looking statements. These
statements are based on current views and expectations that are subject to
risks, uncertainties and assumptions that are difficult to predict, including
the impact of acquisitions, risks, uncertainties and assumptions relating to
the timing and market acceptance of future products, competition in the
Company's markets, the Company's reliance on customers, fluctuations in
currency exchange rates, commodity prices or interest rates, the Company's
ability to maintain good relations with its employees, changes in laws or
regulations regarding the environment or other environmental liabilities, the
Company's ability to integrate acquisitions and the Company's ability to
protect its intellectual property.
    Actual results might differ materially from results suggested in any
forward-looking statements whether as a result of new information, future
developments or otherwise. Additional information identifying risks,
uncertainties and assumptions is contained in the Company's filings with the
securities regulatory authorities, which are available at www.sedar.com. All
forward-looking statements are expressly qualified in their entirety by this
Cautionary Statement.

    
    Summarized financial information (unaudited)
    (In thousand of dollars, except per share information)

    Summarized Balance Sheet
    -------------------------------------------------------------------------
                                                   December 31,  December 31,
                                                          2006          2005
    -------------------------------------------------------------------------

    Assets:
    Cash and cash equivalents                         $ 40,039      $ 11,650
    Cash held in trust                                   2,151        11,367
    Other current assets                                49,320        34,943
    Property, plant and equipment, intangible and
     other assets, and goodwill                        349,620       316,440
    -------------------------------------------------------------------------
                                                      $441,130      $374,400
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Current liabilities                               $ 65,507      $ 43,051
    Long-term debt                                     206,815       177,126
    Other liabilities                                   25,229        17,795
    Future income tax liability                         30,657        29,537
    Shareholders' equity                               112,922       106,891
    -------------------------------------------------------------------------
                                                      $441,130      $374,400
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Summarized Income Statement
    -------------------------------------------------------------------------
                                     Three months ending         Year ending
                                             December 31,        December 31,
                                          2006      2005      2006      2005
    -------------------------------------------------------------------------

    Revenue                           $ 69,368  $ 47,525  $249,595  $166,456
    Gross profit                        27,453    17,247    88,985    60,997
    Gross profit as a percent of
     revenue                              39.6%     36.3%     35.7%     36.6%
    Selling, general, administrative
     and other                           9,631     6,078    30,079    22,397
    Depreciation, including impairment
     charge                              9,802     5,722    28,618    21,563
    Amortization                         2,058     1,340     8,310     2,641
    Net interest expense                 3,710     2,478    12,413     8,969
    -------------------------------------------------------------------------
    Earnings (loss) before income
     taxes                               2,252     1,629     9,565     5,427
    Income taxes                         3,677     2,056     2,485     4,006
    -------------------------------------------------------------------------
    Net earnings (loss)               $ (1,425) $   (427) $  7,080  $  1,421
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share --
     Basic                            $  (0.04) $  (0.01) $   0.22  $   0.04
    Earnings (loss) per share --
     Diluted                          $  (0.04)  $ (0.01) $   0.21  $   0.04


    Summarized Cash Flow Statement
    -------------------------------------------------------------------------
                                     Three months ending         Year ending
                                             December 31,        December 31,
                                          2006      2005      2006      2005
    -------------------------------------------------------------------------

    Cash provided by operations
     before changes in working
     capital                          $ 12,234  $  8,894  $ 42,107  $ 30,433
    Changes in non-cash working
     capital                             8,806    (5,451)   19,809    (2,708)
    -------------------------------------------------------------------------
    Cash from operating activities    $ 21,040  $  3,443  $ 61,916  $ 27,725
    Financing activities                  (422)     (384)   30,850    70,594
    Investing activities:
      Additions to property, plant
       and equipment
      - Maintenance capital
         expenditures(1)                (4,219)   (4,087)   (9,665)   (7,784)
      - Expansion capital
         expenditures                   (2,228)  (13,861)  (33,188)  (41,198)
      Acquisitions, net of cash
       acquired                            (84)     (548)  (29,076)  (70,633)
      Decrease in cash held in trust     9,083      (172)    9,216     2,530
      Net increase in other assets        (662)      (84)   (2,042)     (250)
    -------------------------------------------------------------------------
                                         1,890   (18,752)  (64,755) (117,335)
    Foreign exchange gain (loss) on
     cash held in foreign currency         559       143       378      (256)
    -------------------------------------------------------------------------
    Increase (decrease) in cash and
     cash equivalents                   23,067   (15,550)   28,389   (19,272)
    Cash and cash equivalents -
     beginning of period                16,972    27,200    11,650    30,922
    -------------------------------------------------------------------------
    Cash and cash equivalents -
     end of period                    $ 40,039  $ 11,650  $ 40,039  $ 11,650
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) including expenditures for deferred placement cells



    Supplement Business Segment Information (unaudited)
    -------------------------------------------------------------------------

    For the three
     months ended
     December 31        Industrial            Western             Power
     (in thousands       Services             Markets           Generation
     of dollars)      2006      2005      2006      2005      2006      2005
    -------------------------------------------------------------------------
    Revenue       $ 47,403  $ 29,637  $ 14,776  $ 13,940  $  7,189  $  3,948
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross profit  $ 17,789  $ 10,182  $  5,964  $  5,391  $  3,700  $  1,674

    SGA(1)           2,677     2,129       545       469     1,256     1,088

    Foreign
     exchange
     losses
     (gains)             -         -         -         -         -         -

    Unusual items -
     gain                -         -         -         -         -      (370)
    -------------------------------------------------------------------------
    Earnings (loss)
     before the
     under noted  $ 15,112  $  8,053  $  5,419  $  4,922  $  2,444  $    956

    Depreciation,
     including
     impairment
     charge          9,079     5,049       619       601        28        20
    Amortization
     of deferred
     charges and
     intangible
     assets          2,256     1,386         -         -          -        -

    Net Interest
     expense             -         -         -         -         -         -

    -------------------------------------------------------------------------
    Earnings (loss)
     before income
     taxes         $ 3,777  $  1,618  $  4,800  $  4,321  $  2,416  $    936

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital
     expenditures  $ 4,224  $ 16,477  $    779  $    500  $      2  $      -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -----------------------------------------------------
    For the three      Inter-segment
     months ended         Revenue
     December 31         Corporate
     (in thousands        Support              Total
     of dollars)      2006      2005      2006      2005
    -----------------------------------------------------
    Revenue       $      -  $      -  $ 69,368  $ 47,525
    -----------------------------------------------------
    -----------------------------------------------------
    Gross profit  $      -  $      -  $ 27,453  $ 17,247

    SGA(1)           4,093     2,792     8,571     6,478

    Foreign
     exchange
     losses
     (gains)         1,060       (30)    1,060       (30)

    Unusual items -
     gain                -         -         -      (370)
    -----------------------------------------------------
    Earnings (loss)
     before the
     under noted  $ (5,153) $ (2,762) $ 17,822  $ 11,169

    Depreciation,
     including
     impairment
     charge             76        52     9,802     5,722
    Amortization
     of deferred
     charges and
     intangible
     assets           (198)      (46)    2,058     1,340

    Net Interest
     expense         3,710     2,478     3,710     2,478

    -----------------------------------------------------
    Earnings (loss)
     before income
     taxes        $ (8,741) $ (5,246) $  2,252  $  1,629

    -----------------------------------------------------
    -----------------------------------------------------
    Capital
     expenditures $    246  $    198  $  5,251  $ 17,175
    -----------------------------------------------------
    -----------------------------------------------------


    -------------------------------------------------------------------------
    For the year
     ended
     December 31        Industrial            Western             Power
     (in thousands       Services             Markets           Generation
     of dollars)      2006      2005      2006      2005      2006      2005
    -------------------------------------------------------------------------
    Revenue from
     external
     customers    $165,423  $ 97,274  $ 62,113  $ 57,192  $ 22,115  $ 11,990
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gross profit  $ 55,972  $ 33,894  $ 24,840  $ 21,912  $  8,173  $  5,191

    SGA(1)          10,570     4,550     2,078     1,865     4,235     4,038

    Foreign
     exchange
     gains               -         -         -         -         -         -

    Unusual items -
     loss                -         -         -         -         -     1,718
    -------------------------------------------------------------------------
    Earnings (loss)
     before the
     under noted  $ 45,402  $ 29,344  $ 22,762  $ 20,047  $  3,938  $   (565)

    Depreciation,
     including
     impairment
     charge         25,876    18,474     2,391     2,367         99      515
    Amortization
     of deferred
     charges and
     intangible
     assets          6,995     2,167         -          -          -       -
    Net interest
     expense             -         -         -         -           -       -

    -------------------------------------------------------------------------
    Earnings (loss)
     before income
     taxes        $ 12,531  $  8,703  $ 20,371  $ 17,680  $  3,839  $ (1,080)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital
     expenditures $ 38,691  $ 47,136  $  1,411  $    771  $      9  $      -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Addition to
     goodwill     $  5,916  $ 31,170  $      -  $      -  $      -  $      -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Acquisition,
     excluding
     goodwill     $ 25,884  $ 42,520  $      -  $      -  $      -  $      -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total assets
     before
     goodwill and
     intangible
     assets       $244,462  $208,931  $ 31,274  $ 30,275  $    919  $  3,061
    Goodwill and
     intangible
     assets, net of
     accumulated
     amortization  107,332    94,595     4,468     4,468     5,847     5,850
    -------------------------------------------------------------------------
    Total assets  $351,794  $303,526  $ 35,742  $ 34,743  $  6,766  $  8,911
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -----------------------------------------------------
    For the year       Inter-segment
     ended                Revenue
     December 31         Corporate
     (in thousands        Support              Total
     of dollars)      2006      2005      2006      2005
    -----------------------------------------------------
    Revenue from
     external
     customers    $    (56) $      -  $249,595  $166,456
    -----------------------------------------------------
    -----------------------------------------------------
    Gross profit  $      -  $      -  $ 88,985  $ 60,997

    SGA(1)          13,232    10,663    30,115    21,116

    Foreign
     exchange
     gains             (36)     (437)      (36)     (437)

    Unusual items -
     loss                -         -         -     1,718
    -----------------------------------------------------
    Earnings (loss)
     before the
     under noted  $(13,196) $(10,226) $ 58,906  $ 38,600

    Depreciation,
     including
     impairment
     charge            252       207    28,618    21,563
    Amortization
     of deferred
     charges and
     intangible
     assets          1,315       474     8,310     2,641
    Net interest
     expense        12,413     8,969    12,413     8,969

    -----------------------------------------------------
    Earnings (loss)
     before income
     taxes        $(27,176) $(19,876) $  9,565  $  5,427

    -----------------------------------------------------
    -----------------------------------------------------
    Capital
     expenditures $    837  $    261  $ 40,948  $ 48,168
    -----------------------------------------------------
    -----------------------------------------------------
    Addition to
     goodwill     $      -  $      -  $  5,916  $ 31,170
    -----------------------------------------------------
    -----------------------------------------------------
    Acquisition,
     excluding
     goodwill     $      -  $      -  $ 25,884  $ 42,520
    -----------------------------------------------------
    -----------------------------------------------------
    Total assets
     before
     goodwill and
     intangible
     assets       $ 46,828  $ 27,220  $323,483  $269,487
    Goodwill and
     intangible
     assets, net of
     accumulated
     amortization        -         -   117,647   104,913
    -----------------------------------------------------
    Total assets  $ 46,828  $ 27,220  $441,130  $374,400
    -----------------------------------------------------
    -----------------------------------------------------
    (1) Selling, general, and administrative costs.
    





For further information:

For further information: Laurie Tugman, President and CEO, Tel: (416)
496-4157 or William Martin, Chief Financial Officer, Tel: (416) 496-4164

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MARSULEX INC.

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