Strongco Announces Fourth Quarter and Full Year 2013 Results

Continued Growth in Overall Revenue and Market Share

TSX Symbol:  SQP

MISSISSAUGA, ON, March 26, 2014 /CNW/ - Strongco Corporation (TSX: SQP) today reported financial results for the fourth quarter and year ended December 31, 2013.

2013 Financial Highlights*

  • Total revenues increased by 5% to $485.7 million
  • Gross margin increased by 3% to $88.9 million
  • Operating income of $14.5 million, compared to $17.7 million in 2012
  • EBITDA of $45.0 million, compared to $48.3 million in 2012
  • Earnings per share of $0.23, compared to $0.53 per share in 2012

* Comparisons are between full year 2013 and full year 2012.

"Given the challenging market conditions in 2013, we were pleased to achieve overall sales increases for Equipment and Product Support, continuing Strongco's record of revenue growth and improved market position in all the regions in which we operate," said Bob Dryburgh, President & CEO of Strongco. "While increased sales and market share in a down market indicates that we are doing the right things, we were not able to completely offset cost increases associated with the new and upgraded branches, and improved sales organization. Our stated goal for 2013 was to reduce equipment inventories and the associated floor-plan debt. By year end, we were successful in reducing year-over-year inventories by $32.4 million. However, in the first half of the year we carried higher levels of inventories ahead of strong sales in the construction season. This contributed to increased interest costs which, together with the costs associated with building Strongco for the future, resulted in a decline in earnings for the year.  Consistent with our strategy of focussing capital on our core business, we completed a sale and leaseback of our new branch in Acheson, Alberta and sold the vacated branch in St. Foy, Quebec. These transactions generated a gain of $3 million and freed up significant cash."

Financial Highlights

($ millions except per share amounts)

Period ended December 31 3 months** 12 months**
  2013 2012 2013 2012
Revenues  $116.4   $115.9   $485.7   $464.2 
Gross margin $21.6 $20.7 $88.9 $86.5
EBITDA $11.0 $12.9 $45.0 $48.3
Net income $0.3 $0.6 $3.0 $7.0
Basic and diluted earnings per share   $0.02 $0.04 $0.23 $0.53

** Comparative figures have been adjusted to reflect the impact of IAS 19, adopted on January 1, 2013.
EBITDA refers to earnings before interest, income taxes, amortization of capital assets, amortization of equipment inventory on rent, and amortization of rental fleet. EBITDA is presented as a measure used by many investors to compare issuers on the basis of ability to generate cash flow from operations. EBITDA is not a measure of financial performance or earnings recognized under International Financial Reporting Standards ("IFRS") and therefore has no standardized meaning prescribed by IFRS and may not be comparable to similar terms and measures presented by other similar issuers. The Company's management believes that EBITDA is an important supplemental measure in evaluating the Company's performance and in determining whether to invest in Shares. Readers of this information are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as indicators of the Company's performance or to cash flows from operating, investing and financing activities as measures of the Company's liquidity and cash flows.

Fourth Quarter 2013 Review

Total revenues in the three months ended December 31, 2013 were $116.4 million, consistent with the fourth quarter of 2012. Equipment sales were up $0.6 million year over year to $75.6 million; product support revenues totalled $32.0 million, compared to $30.5 million from the same period in the prior year; but rentals were down $1.6 million to $8.8 million, compared to $10.4 million in the prior year.

Gross margin increased by $0.9 million to $21.6 million during the fourth quarter of 2013. As a percentage of revenue, the overall gross margin was 18.6%, up from 17.9% in 2012, due in part to a higher proportion of product support revenues, which carry a higher gross margin percentage, as well as higher margin percentages on rentals and equipment sales.

Administrative, distribution and selling expenses in the fourth quarter totalled $20.5 million compared to $17.7 million in 2012. Expenses increased in 2013 primarily as a result of investments made to drive future growth in the business.

Other income, including gains on sales of properties, amounted to $1.7 million in the fourth quarter.

EBITDA for the fourth quarter decreased to $11.0 million from $12.9 million in the prior year.

Strongco's net income in the fourth quarter of 2013 was $0.3 million ($0.02 per share), which compared to net income of $0.6 million ($0.04 per share) in the same quarter of the prior year.

Fiscal 2013 Financial Review

Revenues for 2013 totalled $485.7 million, including $56.8 million from Chadwick-BaRoss in the U.S. This compared to $464.2 million in total revenue for Strongco in 2012. Strongco's equipment sales increased by 5% in 2013 to $321.2 million. Rental revenue in 2013 was $31.3 million, down 3% from 2012. Product support revenues totalled $133.2 million, compared to $126.4 million in 2012. Product support revenues were higher in 2013 across all regions of Canada and at Chadwick-BaRoss, with the exception of Eastern Canada.

As a result of higher overall revenues in 2013, gross margins in the year increased to $88.9 million from $86.5 million in 2012 and $80.6 million 2011. As a percentage of revenues, total gross margin in 2013 was 18.3%, compared to 18.6% in 2012 and 19.0% in 2011. The year over year decrease was primarily the result of a lower gross margin on equipment sales as a result of price competition.

Administrative, distribution and selling expenses in 2013 were $77.7 million which compared to $70.6 million in 2012. As a percentage of revenue, administrative, distribution and selling expenses were 16.0% in 2013, up from 15.2% in 2012 and 15.3% in 2011.  Expenses increased in 2012 and 2013 primarily as a result of investments made to drive future growth in the business.

Other income, including gains on sales of properties, amounted to $3.4 million in 2013.

The Company's EBITDA in 2013 was to $45.0 million, compared to $48.3 million in 2012.

Strongco's net income in 2013 was $3.0 million ($0.23 per share), down from $7.0 million ($0.53 per share) in 2012.


"With new and updated branches in key markets, including Fort McMurray, which opened in February 2014, as well as our new sales organization beginning to have an impact, we are now positioned to fully capitalize on the market opportunities that we see. Early indications show that, despite a flat overall market and the long difficult winter, sales growth and market share improvement are continuing for Strongco in 2014," added Dryburgh. "Improved inventory management and debt reduction will continue to be our focus this year with the goal to reduce balance sheet leverage and lower interest costs. In 2013, we saw tangible benefits from our significant investment in facilities and people, and we are optimistic that these improvements will be evident in our bottom line by year end."

After two years of robust growth as construction markets recovered following the recession, the momentum in heavy equipment markets in Canada eased in 2013. Most economists are forecasting modest growth for Canada overall in 2014 with construction markets, by and large, expected to remain active.  Growth is expected to be strongest in Alberta led by ongoing activity in the oil sector and weakest in Quebec where activity continues to be stifled by the ongoing investigation of corruption in the construction industry by the Charbonneau Commission, as well as the suspension of infrastructure spending and increased mining royalties imposed by the provincial government. With this economic backdrop, there is expected to be continued demand for heavy equipment and cranes. While varying from region to region, management anticipates that overall heavy equipment markets across Canada will remain flat year over year in 2014.

Heavy equipment markets in New England are also expected to remain flat in 2014 with a modest improvement in the latter part of the year as a result of a gradual recovery in the housing market.

Over the past two years, Strongco has made significant investments in new branches to expand and improve the Company's presence in key markets.  In 2012, new branches were opened in Acheson, Alberta, on the outskirts of Edmonton, in Baie Comeau, Quebec to replace an old branch and in Orillia, Ontario to further penetrate the aggregates market in the area. In 2013, new branches were built in Saint-Augustin-de-Desmaures, Quebec, to replace the old branch just outside Quebec City and in Fort McMurray, Alberta to better service customers in this key northern Alberta market.  The new branch in Saint Augustin opened in December 2013 and construction of the new Fort McMurray branch was completed in March 2014. While investments were being made in new branches, the Company has also been building and improving its sales organization with additional territory managers, customer sales representatives, product support specialists and an enhanced sales management structure, and has increased the number of skilled service technicians across all business units and regions to better service and meet customer demand.

The benefits of these investments were just beginning to be realized in 2013, as evidenced by the market share gains achieved during the year as well as the increased level of product support revenues. Although the new facilities and additional people have added to the Company's cost structure, Management anticipates to further reap the benefits of these investments in the upcoming year and beyond and is projecting continued revenue growth and improved market share performance in 2014, despite the expected flat overall market, which will lead to an improvement in bottom line profitability.

Conference Call Details

Strongco will hold a conference call on Thursday, March 27, 2014 at 10:00am ET to discuss fourth quarter and year-end results. Analysts and investors can participate by dialing 1-800-319-4610 or +1-604-638-5340 outside of Canada and the USA. Following management's introductory remarks, a question and answer session will take place for analysts and institutional investors.

An archived recording will be available to listeners following the call until midnight on April 10, 2014. To access it, dial 1-800-319-6413 or +1-604-638-9010 outside of Canada and USA and enter passcode 4689#.

About Strongco Corporation

Strongco Corporation is a major multiline mobile equipment dealer with operations across Canada and in the United States, operating through Chadwick-BaRoss, Inc. Strongco sells, rents and services equipment used in diverse sectors such as construction, infrastructure, mining, oil and gas, utilities, municipalities, waste management and forestry. The Company has approximately 750 employees serving customers from 27 branches in Canada and five in the United States. Strongco represents leading equipment manufacturers with globally recognized brands, including Volvo Construction Equipment, Case Construction, Manitowoc Crane, including National and Grove, Terex Cedarapids, Terex Finlay, Terex Equipment, Ponsse, Fassi, Allied Construction, Taylor, ESCO, Dressta, Sennebogen, Jekko, Takeuchi, Link-Belt and Kawasaki. Strongco is listed on the Toronto Stock Exchange under the symbol SQP.

Forward-Looking Statements

This news release contains forward-looking statements that involve assumptions and estimates that may not be realized and other risks and uncertainties. These statements relate to future events or future performance and reflect management's current expectations and assumptions which are based on information currently available to the Company's management. The forward-looking statements include but are not limited to: (i) the ability of the Company to meet contractual obligations through cash flow generated from operations, (ii) the expectation that customer support revenues will grow following the warranty period on new machine sales and (iii) the outlook for 2014. There is significant risk that forward-looking statements will not prove to be accurate. These statements are based on a number of assumptions, including, but not limited to, continued demand for Strongco's products and services. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward looking statements. The inclusion of this information should not be regarded as a representation of the Company or any other person that the anticipated results will be achieved and investors are cautioned not to place undue reliance on such information. These forward-looking statements are made as of the date of this MD&A, or as otherwise stated and the Company does not assume any obligation to update or revise them to reflect new events or circumstances.

Additional information, including the Company's Annual Information Form, may be found on SEDAR at  


SOURCE: Strongco Corporation

For further information:

J. David Wood
Vice-President and Chief Financial Officer

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