Toronto Stock Exchange: ARF; ARF.DB
GUELPH, ON, May 13, 2013 /CNW/ - Armtec Infrastructure Inc. ("Armtec" or the "Company") (TSX: ARF) (ARF.DB) today reported financial results for the first quarter ended March 31, 2013. As previously announced, Armtec is reporting its 2013 financial performance on the basis of two reporting segments: Drainage Solutions ("Drainage") and Precast Concrete Solutions ("Precast"). Previously, the Company reported its results within one operating segment. The 2012 results have been restated to conform with the new reporting segments for 2013.
Summary of Results:
- Revenue was $78.9 million, a decrease of 5.0% or $4.2 million behind 2012. Drainage revenue was $18.2 million, a decrease of 28.6% or $7.3 million over the same period in 2012, and Precast revenue was $60.7 million representing an increase of 5.4% over the same period in the prior year.
- Gross margin was $10.1 million, an increase of $0.8 million from $9.3 million in the first quarter of 2012. As a percentage of revenue, gross margin increased to 12.9%, an improvement from 11.2% in the prior year.
- Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")1 was $65,000 compared to $137,000 in the same period in 2012.
"In the first quarter of 2013, Armtec's financial results were in line with management's expectations, despite the lower year-over-year activity levels in our infrastructure, agricultural and residential construction markets. These were mainly due to the more typical first quarter installation conditions experienced in 2013 as compared to the very favourable conditions in the same period of 2012. The impact of the harsher winter weather was offset by solid engineered precast volumes that were recorded in the Soundwall and Pacific markets, accompanied by improved operational performance and project mix," said Mark Anderson, President and Chief Executive Officer. "Looking ahead, demand for drainage products is expected to remain flat to slightly favourable, while engineered precast product volumes will benefit from activity in the Pacific and Central market areas. After establishing our new business unit and general manager structure at the beginning of the year, we expect 2013 to be a transition year for the company, with slightly higher revenues over 2012, ongoing performance improvements and improved delivery of EBITDA results."
|For the three months ended|| March 31,
| March 31,
| (in thousands of Canadian dollars except per share amounts)
|As a % of revenue||12.9%||11.2%|
|Selling, general and administrative||$||13,052||$||13,711|
|As a % of revenue||16.5%||16.5%|
|Loss from operations||$||(2,926)||$||(4,060)|
|As a % of revenue||(3.7)%||(4.9)%|
|As a % of revenue||9.4%||15.7%|
|Net loss attributable to owners of the Company||$||(7,729)||$||(12,820)|
|As a % of revenue||(9.8)%||(15.4)%|
|Basic and diluted loss per share||$||(0.32)||$||(0.53)|
|As a % of revenue||0.1%||0.2%|
|Breakdown of depreciation and amortization by financial statement line item:|
|Cost of sales||$||1,632||$||2,381|
|Selling, general and administrative||1,359||2,082|
|Total depreciation and amortization||$||2,991||$||4,463|
|1)|| Please refer to the section entitled "Non-GAAP Measure" of the separately issued management, discussion and
analysis for the three months ended March 31, 2013 for the reconciliation of EBITDA.
FIRST QUARTER RESULTS
Armtec recorded revenue of $78.9 million for the three months ended March 31, 2013, $4.2 million or 5.0% less than revenue of $83.1 million for the three months ended March 31, 2012. Lower activity levels in the Company's infrastructure, agricultural and building trade residential markets, mainly attributable to unfavourable installation conditions, were offset by improved engineered precast volumes in the natural resource end use market.
Revenue from Drainage products was $18.2 million for the three month period, a decrease of 28.6% or $7.3 million over the same period in 2012. The agricultural, residential and infrastructure application markets were impacted across each market area by the weather conditions in 2013 reflecting a more typical installation season. First quarter revenue for 2013 was in line with historical first quarter results. During the first quarter 2012, installation conditions were favourable and resulted in 2012 revenue being brought ahead in the year.
Precast revenue was $60.7 million in the first quarter of 2013 as compared to $57.6 million in the same quarter of 2012. Engineered precast project volumes in the quarter offset the softer standard precast product revenue which was impacted, similar to the drainage products, by the installation conditions in the quarter and the overall market slowdown in Quebec. Engineered precast project volumes were supported by the Kitimat smelter modernization project in the Pacific market area and improved Soundwall volumes in the Central market area offsetting softness in the Prairie and Eastern market areas.
Loss from Operations
The loss from operations for the first quarter of 2013 was $2.9 million as compared to $4.1 million in the same period of 2012. Depreciation and amortization in the quarter of $3.0 million was $1.5 million lower than 2012 at approximately $4.5 million reflecting the continued impact of the significant impairment charges incurred in 2011.
The gross margin for the three months ended March 31, 2013 was $10.1 million, an increase of $0.8 million from $9.3 million in the same period of 2012. As a percentage of revenue, the first quarter gross margin of 12.9% was a continued improvement over the 11.2% achieved in the same period of 2012. Before depreciation and amortization, the gross margin was 14.9% in 2013 compared with 14.0% in 2012. Improvements in operational performance and the mix of the engineered precast projects offset the impact of softer volumes of the standard precast and drainage products. Armtec also recognized approximately $0.6 million in annual incentive costs in its cost of goods sold in 2013. During the first half of 2012, Armtec did not recognize costs under its annual incentive plan because it needed to achieve the 2011 Brookfield Facility Debt to EBITDA covenant, measured at June 30, 2012, for the plan to become effective.
Selling, general and administrative expenses for the three months ended March 31, 2013 were $13.1 million, as compared to $13.7 million in 2012. During 2013, approximately $0.6 million was recognized for the annual incentive plan which was not incurred during the first quarter of 2012. Before the cost of the annual incentive plan and depreciation and amortization, selling, general and administration costs were $11.1 million or $0.5 million below prior year levels. As management focuses on Elevate 2015, additional investments in talent, such as certain customer oriented roles, have been identified as key to elevating Armtec's performance. Over the balance of 2013, management will continue to assess the timing of these additional resources with a plan to recruit as market conditions and Company performance remain favourable. Overall, management expects the improved operational performance of the business to more than offset the higher selling, general and administrative costs.
RESULTS BY SEGMENT
|For the three months ended|| March 31,
| March 31,
|(in thousands of Canadian dollars) (unaudited)|
|(Loss) earnings from operations||$||(2,118)||$||154|
|As a % of revenue||(11.6)%||0.6%|
|Depreciation and amortization||$||528||$||762|
|As a % of revenue||2.9%||3.0%|
|As a % of revenue||(8.7)%||3.6%|
Revenue levels in the first quarter of $18.2 million were $7.3 million or 28.6% below 2012 levels and were more in line with historical levels given the more typical 2013 weather conditions in the quarter. Volumes were impacted across all regions of Canada, particularly in Central and Eastern Canada where the agricultural business is a large component of the spring revenue base. During the first quarter of 2012, volumes were stronger in the first half of the year than in the second half as a result of favourable spring weather conditions and the pulling forward of shipping schedules. In addition, 2012 experienced higher international sales in the first quarter. Overall revenue for 2013 is expected to follow a historical seasonal pattern with stronger revenue in the second and third quarters tapering off in the fourth quarter as the winter months begin.
Loss from operations
The loss from operations in the quarter was $2.1 million as compared to earnings of $0.2 million in 2012. Depreciation and amortization were slightly lower for the Drainage BU at $0.5 million for 2013 and $0.8 million for the first quarter of 2012. The Drainage BU is not as capital intensive as the Precast BU.
The EBITDA loss of $1.6 million in the first quarter of 2013 was $2.5 million lower than the EBITDA of $0.9 million in 2012. During the first quarter of 2013, approximately $0.6 million in annual incentive costs were recognized. The loss, after adjusting for the incentives, was driven primarily by the reduced volumes.
Precast Concrete Solutions
|For the three months ended|| March 31,
| March 31,
|(in thousands of Canadian dollars) (unaudited)|
|Earnings (loss) from operations||$||3,043||$||(493)|
|As a % of revenue||5.0%||(0.9)%|
|Depreciation and amortization||$||2,099||$||3,209|
|As a % of revenue||3.5%||5.6%|
|As a % of revenue||8.5%||4.7%|
The first quarter revenue for the Precast BU was $3.1 million or 5.4% higher than 2012 levels. Standard precast volumes were negatively impacted by the weather conditions, similar to Drainage products, and the continued suppressed market activity in Quebec related to the ongoing Charbonneau Commission. As a result, 2013 first quarter revenue standard precast products was 27.6% or $3.6 million lower than 2012 levels. The engineered precast revenue increase of approximately $6.7 million was attributable primarily to the Soundwall and Pacific market areas. In Soundwall, the Turnaround Plan focused on recapturing market share in Central Canada. As a result, there were a number of projects that were awarded in late 2012 that directly contributed to the increased volumes in the first quarter of 2013. The projects included Soundwall barriers for various 400 series highway projects in Ontario. In the Pacific market area the Kitimat smelter modernization project was at full production in the first quarter of 2013 whereas production commenced near the end of the first quarter of 2012. The engineered precast project backlog at March 31, 2013 was approximately $118 million, consistent with March 31, 2012.
Earnings from operations
Earnings from operations in the quarter improved $3.5 million over the first quarter of 2012. Depreciation and amortization was $2.1 million for 2013 as compared to $3.2 million for the first quarter of 2012 reflecting the continued impact of the significant impairment charges incurred in 2011.
EBITDA of $5.1 million in the first quarter of 2013, which included annual incentive costs of approximately $0.6 million, was an improvement over the $2.7 million in the same period of 2012. In addition to the improved engineered precast project volumes, operational performance improved in 2013 driven by a more favourable mix of projects with continued cost and quality improvements. These improvements offset the impact of the softer standard precast first quarter volumes. In 2012, the tunnel liner project for the Toronto Transit Commission was contributing a break even result at full production volumes, which negatively impacted the engineered precast margins.
Despite the lower seasonal demand experienced in the first quarter, management continues to believe that the overall outlook for Armtec's markets in the short term remains flat to slightly favourable. The demand for Drainage products is expected to remain slightly down due to the ongoing lower demand from the public sector. Although steady demand is anticipated for drainage products from the private construction, natural resource and agricultural end use markets, this demand is not expected to overcome the softness in government spending. Market activity in Eastern Canada is expected to remain depressed while the Charbonneau Commission is ongoing and Armtec's drainage and precast concrete products may be impacted by the resulting slow-down. Overall Drainage revenue for 2013 is expected to follow a historical seasonal pattern with stronger revenue in the second and third quarters tapering off in the fourth quarter as the winter months begin.
Demand for the engineered precast products is expected to be slightly favourable due to activity in light rail transit, primarily in the Pacific market area, the Pan American games and Highway 407 both in the Central market area, and an anticipated increase in commercial building construction. Off-setting the positive impacts of these favourable activities is the anticipated decline in new condominium high-rise construction in Central Canada and the resulting lower demand for precast concrete products.
The backlog of engineered precast projects at the end of the first quarter of 2013 is approximately $118 million and in line with the backlog the Company had at the end of the first quarter of 2012. The most significant individual project remains the Kitimat smelter modernization project in British Columbia. A number of parking garage structures, currently in various stages of completion, remain in backlog and will continue to support revenue levels in 2013. The pipeline of prospects for engineered precast remains solid and management anticipates the level of booking will be relatively favourable in the second and third quarters.
Management views 2013 as a transition year whereby it will establish a strong foundation based on two new BUs and a market area General Manager structure. As Armtec moves toward the goals and ambitions outlined under Elevate 2015, the 2013 capital spend program is expected to be approximately $7.0 million in annual maintenance capital expenditures. Overall, revenue is expected to be slightly favourable in 2013 over 2012 levels and as the business is realigned, a slight increase over 2012 selling, general and administrative cost levels may be realized. Management expects that ongoing improvements in performance will more than offset the higher organizational costs, delivering improved EBITDA results in 2013.
Armtec will continue to focus on the development of its longer term plan: Elevate 2015: elevating performance through a focus on operational excellence. The plan has four key areas of focus: Health & Safety, People, Customers and Financial Success. Management believes that a balanced approach to operational improvement and the new structure will enable the Company to get back to its core strengths of delivering products and services that meet or exceed customer's expectations. Armtec will aim to capitalize on its market leadership positions in Drainage and Precast. Management believes Armtec will be better equipped to develop and execute plans to improve financial results and properly align the Company's leverage to its earnings for sustained future success with Elevate 2015.
CONFERENCE CALL & WEBCAST
Management will host a conference call at 10:00 a.m. (ET) on Tuesday, May 14, 2013 to discuss the results. Investors who wish to participate can access the call using the following numbers: 416-644-3415 or 1-877-974-0445. The call will be webcast live and archived on Armtec's website at www.armtec.com.
A taped rebroadcast will be available to listeners following the call until 12:00 a.m. on Tuesday, May 21, 2013. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4613575#.
ABOUT ARMTEC INFRASTRUCTURE INC.
Armtec is a manufacturer and marketer of a comprehensive range of infrastructure products and engineered construction solutions for customers in a diverse cross-section of industries that are located in every region of Canada, as well as in selected markets globally. These markets include Canada's national and regional public infrastructure markets and private sector markets in agricultural drainage, commercial building, residential construction and natural resources. Armtec operates through a network of offices and production facilities across the country. Armtec operates in two business units: Drainage Solutions manufactures and markets corrugated high-density polyethylene pipe, corrugated steel pipe and other drainage related products including small bridge structures. Precast Concrete Solutions manufactures and markets highly engineered precast systems such as parking garages, bridges, sport venues and building envelopes as well as standard precast products such as steps, paving stones and utility vaults.
References to EBITDA are to earnings before finance (income) expense - net, income taxes (other than capital taxes), depreciation and amortization, certain non-recurring expenses and certain other non-cash amounts. Management believes that in addition to net earnings, EBITDA is a useful supplemental measure of cash available for dividends prior to debt service, changes in working capital, capital expenditures and income taxes. However, EBITDA is not a recognized measure under GAAP. Investors are cautioned that EBITDA should not be construed as an alternative to net and comprehensive earnings determined in accordance with GAAP as an indicator of Armtec's performance or as an alternative to cash flows from operating, investing and financing activities as a measure of Armtec's liquidity and cash flows. Armtec's method of calculating EBITDA may differ from the methods used by other issuers and, accordingly, Armtec's EBITDA may not be comparable to similarly named measures used by other issuers.
RISKS AND UNCERTAINTIES
Armtec is subject to certain risks and uncertainties that could have a material adverse effect on Armtec's results of operations, business prospects, financial condition, dividends to shareholders and the trading price of Armtec's shares. These uncertainties and risks include, but are not limited to: capital and liquidity risk; access to bonding and letters of credit; credit risk; fluctuations in operating results; seasonality and adverse weather; existing legal proceedings; industry cyclicality; competition; acquisition and expansion risk; current global economic conditions; reduction in demand for products; information management; change management; risk of future legal proceedings; relationships with suppliers; lack of long-term agreements; expiration of rights under license and distribution arrangements; availability and price volatility of raw materials; product liability; intellectual property; reliance on key personnel; labour markets; environmental; collective bargaining; pension plans; currency fluctuations; interest rates; uninsured and underinsured losses; insurance coverage; operating hazards; securities laws compliance and corporate governance standards; income tax and other taxes; geographical risk; and geopolitical. Dividends are not guaranteed. Further information about these and other risks and uncertainties can be found in the disclosure documents filed by Armtec Infrastructure Inc. with the securities regulatory authorities, available at www.sedar.com..
This news release contains "forward-looking" statements (including those set out under the sections entitled "First Quarter Results" and "Outlook" including statements such as management expects the improved operational performance of the business to more than offset the higher selling, general and administrative costs; that overall Drainage revenue for 2013 is expected to follow a historical seasonal pattern; the overall outlook for Armtec's markets; the demand for drainage products from the public and private sectors; the effects on Armtec's products via the suppression of construction activity in Eastern Canada; that overall Drainage revenue for 2013 is expected to follow a historical seasonal pattern; the slightly favourable demand for engineered precast concrete products due to positive activity in the Pacific market area and both positive and negative activity in the Central market area; the ability for a number of parking garage structures to continue to support revenue levels; the anticipation that the level of bookings will be relatively favourable in the second and third quarters of 2013; the relative level of revenues and selling, general and administrative costs in 2013 versus 2012; the improvement in EBITDA results; the belief that Armtec's Elevate 2015 plan will enable a balanced approach to operational improvement and the new structure will enable the Company to get back to its core strengths; and that Armtec will be better equipped to develop and execute plans to improve financial results with Elevate 2015) within the meaning of applicable securities legislation which involve known and unknown risks, uncertainties and other factors which may cause the actual results, events, performance or achievements of Armtec or industry results, to be materially different from any future results, events, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements typically contain such words or phrases as "may", "outlook", "objective", "intend", "estimate", "anticipate", "should", "could", "would", "will", "expect", "believe", "plan" and other similar terminology suggesting future outcomes or events. Forward-looking statements reflect current expectations regarding future results, events, performance and achievements and are based on information currently available to Armtec's management, anticipated operating and financial results of Armtec, and current and anticipated market conditions.
Forward-looking statements involve numerous assumptions and should not be read as guarantees of future results, events, performance or achievements. Such statements will not necessarily be accurate indications of whether or not such future results, events, performance or achievements will be achieved. You should not unduly rely on forward-looking statements as a number of factors, many of which are beyond the control of Armtec, could cause actual results, events, performance or achievements to differ materially from the results, events, performance or achievements discussed in the forward-looking statements, including, but not limited to the factors discussed in Armtec's materials filed with the Canadian securities regulatory authorities from time to time. Although the forward-looking statements contained in this news release are based upon what management of Armtec believes are reasonable assumptions, Armtec cannot assure investors that actual results, events, performance or achievements will be consistent with these forward-looking statements. All forward-looking statements in this news release are qualified by these cautionary statements. These forward-looking statements are made as of the date of this news release and, except as required by applicable law, Armtec assumes no obligation to update or revise them to reflect new events or circumstances.
Capitalized terms that are not otherwise defined in this news release shall have the meanings given to them in Armtec's management's discussion and analysis for the three months ended March 31, 2013.
SOURCE: Armtec Infrastructure Inc.
For further information:
Vice President & Corporate Secretary
Armtec Infrastructure Inc.
Tel: (519) 822-0210
Fax: (519) 822-8894