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 $3 million and freed up significant cash."
($ millions except per share amounts)
Period ended December 31
Basic and diluted earnings per share
** 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
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
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.
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 sedar.com.
SOURCE: Strongco Corporation
For further information:
J. David Wood
Vice-President and Chief Financial Officer