TORONTO, March 21, 2013 /CNW/ - IBI Group Inc. (the "Company") (TSX: IBG) today announced its financial results for the three months and year ended December 31, 2012.
The recession that occurred in the fourth quarter of 2009 and its impact on the economies of the United States and Europe, impacted IBI Group initially in the housing sector, in which IBI had relatively high exposure. IBI projects in social and transportation infrastructure have also been affected. Europe continues to contract, recovery in the United States is encouraging but tentative, and a slowdown is being indicated in the Canadian economy. IBI Group, however, continues to move forward in an aggressive manner with its recovery program initiated in the second half of 2012.
The IBI Group recovery program comprises the following:
|1.|| Reduction of the dividend by 50% to $0.55 per share and a corresponding reduction in the distributions on Class B units of IBI Group held by the Management Partnership. This was announced on December 12, 2012. Resetting of the dividend will result in reducing the cash paid out by $13 million annually. Cash retained will be primarily used to pay down debt and to enhance the profitability and the balance sheet of the Company.
|2.|| Aligning staff levels with levels of committed work. This is an ongoing process. Compensation has been reduced in operating units that underperform and staff has been decreased by approximately 160 members in 2012 before taking into account the addition of staff through the two acquisitions in 2012.
|3.|| The introduction of the Dividend Reinvestment Program ("DRIP").
|4.||An assessment that aged accounts receivable and unbilled work in process were no longer probable of recovery on a number of projects. Management determined that uncertain economic conditions, changes to local, State and Federal governing parties and policies, interruptions of projects, and other factors contributed to changes in the estimated value of these assets as at December 31, 2012. IBI Group performs assessments of the recoverability of these assets on a quarterly basis and changes estimates regularly as part of that process.|
|IBI decided that with the continued economic challenges, it was appropriate to make a change in estimate. As a result, the carrying value of aged work in process and accounts receivable was impacted, resulting in adjustment items totalling $16 million. This has been provided for in the fourth quarter of 2012. While write-offs of project-related assets occur on a regular basis in the normal course of operations, Management notes that a change of this magnitude has not previously been made and at this time does not anticipate the need for changes of this amount in the future. Based on this change, IBI Group is adopting an aggressive and conservative approach. The result clears the doubtful accounts receivable and unbilled work in process that commenced at the start of the recession and has continued with subsequent impacts to date.|
| The banking syndicate of IBI Group lenders granted their approval to add back to EBITDA1 the adjustment items. As a result of the approval IBI Group's loan remains in good standing and compliant with all covenants.
|5.|| IBI reduced goodwill related to firms it has acquired, particularly in the United States. Their operations were impacted by the slowdown in the US economy and this recognition of the impairment of goodwill reflects the value of these firms as at December 31, 2012. These firms continue to operate as an integral part of IBI Group and encouraging signs in the US economy could lead to enhancement of value as the profitability and productivity of these firms increases.
|6.|| IBI has established two new executive leadership positions in the Company and appointed Scott Stewart and David Thom as Co-Presidents and Co-Chief Operating Officers. Both have been with IBI Group since the 1970's. Scott Stewart's emphasis is Transportation and Intelligent Systems and David Thom's emphasis is Urban Land and Facilities. IBI Group fully expects their work will continue to follow the IBI Group model of integration of the four areas of practice of IBI Group. These two executives strengthen and broaden the corporate executive leadership group of the Company led by the CEO with support and participation of the CFO.
|7.||IBI Group is continuing its broad based growth strategy. The bold steps that IBI has taken provide for the strengthening of IBI to continue to grow the professional practice and business of the firm with increased profitability.|
IBI is experiencing continued growth in Canadian operations, notwithstanding indications of slowdown in certain aspects of the Canadian economy. This growth, through mandates from loyal repeat clients, as well as relationships established with new clients, includes:
- the diversification of IBI's scope of practice, achieved by moving specialized personnel throughout IBI's Canadian network of offices; an example being the relocation of world experts in health care facility design from IBI - Nightingale in the UK to IBI offices across Canada;
- the penetration of IBI into additional urban areas in Canada, exemplified by the surge of IBI work in the design of a major convention centre, hotel and high-rise condominium projects in Halifax; and
- the growing role of IBI as lead planner/designer in major private and public projects, exemplified by major transportation transit and highway projects.
Canadian operations continue to be the largest and most profitable within IBI. Canadian prospects for 2013 continue to be very strong.
The economic challenges in the United States have caused IBI to trim professional resources and to reduce the value of goodwill of acquired firms on a current basis in the United States. However, positive indications of anticipated growth are emerging. IBI has been given mandates to design major new plants in the automotive sector. New opportunities are emerging in residential developments in certain urban markets for which IBI has been selected as designer. Limitations on public funding for social infrastructure are encouraging government and private providers to enter into joint capital investment in social infrastructure, in healthcare and in education. IBI is working in close cooperation with major international construction contractors and financial institutions with whom IBI has performed lead design services for design-build and public private partnership/P3/PFI projects in Canada and in the United Kingdom and elsewhere. All of these are encouraging trends for a resurgence of activity in the Unites States.
IBI will grow by using its existing established broad platform of offices throughout the US market, strengthened by:
- the relocation of leading professionals from other IBI offices, (notably from the UK and Canada) to join local offices in the United States;
- additional hiring of new practice leaders local to these US based markets; and
- joint ventures with local firms to build relationships with professionals in new areas and jointly obtain new work.
(1) See "Definition of Non-IFRS Measures"
IBI is broadening the scope of its practice in international markets. Its current focus includes:
- United Kingdom: Diversifying the practice of IBI in the UK by importing designers with expertise in private real estate development and transportation infrastructure from Canada into the United Kingdom; consolidating the practice in the United Kingdom and creating a more effective operating unit, as well as integration within the network of IBI operations;
- China: Continued growth, diversification and broadening the established practice in China. China is now experiencing increased levels of activity following the slowdown of the past two years;
- India: Diversifying and growing the practice in India which IBI is achieving by continuing work in the transportation sector along with recent mandates won for real estate development in housing, hotels and retail;
- Middle East: Continued development of IBI practices in the Middle East with major new transportation projects;
- Central America: Opening of operations in Central America, based in Mexico, which IBI has launched through success in winning large projects in intelligent systems and transportation;
- Africa: Launching the practice of IBI in South Africa through winning major projects in the national network of freeway traffic management.
Guidance for 2013
Our outlook for 2013 is a cautious one and we will be vigilant in managing our business:
- Fee volume to increase over 2012 by some 4% to approximately $363 million in 2013;
- Strategic growth in fee volume through activity of firms acquired in 2012 constituting approximately 1.5% of the 4%;
- Organic growth from IBI operations approximately 2.5% of the 4%.
As of today 77% of this fee volume is committed for the year 2013. Prospects that IBI deems probable with appropriate discounts, more than match the remaining 25% to be committed. Backlog is the strongest committed position as of this date that IBI has achieved since 2009. The total committed for the twelve months forward is the equivalent of approximately ten months of work at the current pace. IBI's committed backlog is approximately 17% of fee volume for projects outside of North America, 23% for the United States and 60% in Canada which is generally consistent with the distribution of revenue earned in the year.
While the impact of the Recovery Program has had a significant effect on current period results, Management believes that these aggressive steps will provide for enhanced performance going forward and are not indicative of the ongoing performance of the Company. Accordingly, we have presented adjusted figures as part of this Press Release.
- Revenue of $337.7 million compared to $332.3 million for the period ended December 31, 2011.
- EBITDA1 of $27.3 million compared to $48.5 million for the period ended December 31, 2011.
- Net loss of $14.4 million compared to net income of $12.7 million for the period ended December 31, 2011.
Results for the year ended 2012 were affected by the following adjustments items of note below:
- Write down of unbilled WIP of $12.6 million.
- Write down of accounts receivable of $3.4 million.
- Impairment of goodwill of $14.5 million.
Excluding the adjustment items IBI reported:
- Adjusted revenue of $350.3 million compared to $332.3 million for the period ended December 31, 2011.
- Adjusted EBITDA1 of $43.3 million compared to $48.5 million for the period ended December 31, 2011.
- Adjusted net income of $12.4 million compared to $12.7 million for the period ended December 31, 2011.
The highlights excluding the adjustment items are:
- Adjusted revenue at $350.3 million for the year ended December 31, 2012 was up $18.0 million compared to $332.3 million for the year ended December 31, 2011. On a quarterly basis, adjusted revenue for the fourth quarter of 2012 was $88.1 million, up $0.1 million compared to the fourth quarter of 2011, up $1.3 million compared to the third quarter of 2012, down $0.5 million compared to the second quarter of 2012 which was the highest quarterly revenue, and up $1.2 million compared to the first quarter of 2012.
- Adjusted EBITDA1 of $43.3 million for the year ended December 31, 2012 was down $5.2 million compared to $48.5 million for the year ended December 31, 2011. On a quarterly basis, adjusted EBITDA1 for the fourth quarter of 2012 of $10.5 million was down $1.7 million compared to the fourth quarter of 2011, up $1.1 million compared to the third quarter of 2012, down $1.5 million compared to the second quarter of 2012 and down $0.9 million compared to the first quarter of 2012.
- Adjusted EBITDA1 as a percentage of adjusted revenue for the year ended December 31, 2012 was 12.4%, down 2.2% compared to 14.6% for the year ended December 31, 2011. On a quarterly basis, adjusted EBITDA1 as a percentage of adjusted revenue for the fourth quarter of 2012 was 11.9%, down 2.0% compared to the fourth quarter of 2011, up 1.1% compared to the third quarter of 2012, down 1.7% compared to the second quarter of 2012 and down 1.2% compared to the first quarter of 2012.
- Adjusted basic and diluted earnings per share ("EPS") for the year ended December 31, 2012 was $0.5962, down $0.2812 compared to adjusted EPS of $0.8774 for the year ended December 31, 2011. On a quarterly basis, adjusted EPS for the fourth quarter of 2012 was $0.0118, down $0.2193 compared to EPS of $0.2311 for the fourth quarter of 2011, down 0.1133 compared to EPS of $0.1250 for the third quarter of 2012, down $0.2681 compared to EPS of $0.2799 for the second quarter of 2012 and down $0.1947 compared to EPS of $0.2065 for the first quarter of 2012.
- Adjusted distributable cash1 of $22.9 million for the year ended December 31, 2012 was down $4.9 million compared to the year ended December 31, 2011 of $27.8 million. On a quarterly basis, adjusted distributable cash1 of $5.1 million for the quarter ended December 31, 2012 was down $1.4 million compared to the fourth quarter of 2011, up $0.3 million compared to the third quarter of 2012, down $1.5 million compared to the second quarter of 2012 and down $1.2 million compared to the first quarter of 2012.
- The payout ratio1 for the year ended December 31, 2012 was 88.9%, up from 80.3% for the year ended December 31, 2011. The payout ratio1 for the quarter ended December 31, 2012 was 83.9%, down from 89.5% for the fourth quarter of 2011, down from 94.5% for the third quarter of 2012, down from 88.6% for the second quarter of 2012 and down from 89.0% for the first quarter of 2012.
- Efforts focused on improving free cash flow1 by enhanced collection of accounts receivable. In the second half of 2012, the total reduction of accounts receivable aged over 90 days totalled $8.9 million of which $3.4 million is from the accounts receivable adjustment item and $5.5 million is from on-going collections. The percentage of accounts aged greater than 90 days now represents 41.2% of the total accounts receivable balance, down from 47.9% and 49.8% from December 2011 and March 2012, respectively.
- IBI reports the working capital tied up (accounts receivable, work in process and deferred revenue) in terms of gross billings per day. The current level of the working capital tied up measured in gross billings is 139 days at December 31, 2012 down from the peak of 156 days at the end of the second quarter 2010. The total reduction is 17 days which is comprised of an 11 day reduction due to the impact of the $16.0 million adjustment items on unbilled work in process and accounts receivable and a decrease of the equivalent of 6 days as Management continues its commitment to reduce the total working capital tied up and to enhance free cash flow1.
- IBI Group will continue to focus our efforts to reduce accounts receivable as was achieved in the second half of 2012, and to grow the Company so as to increase revenue and earnings leading to the gradual reduction of the payout ratio1.
(1) See "Definition of Non-IFRS Measures"
IBI Group continued in the fourth quarter of 2012 to expand its capability.
- IBI Group is experiencing continued growth worldwide in the architecture of social infrastructure; including health care, educational and justice related facilities, which includes new projects internationally;
- The application of IBI Group's capability in intelligent systems from transportation and communications to other applications including management of building systems, energy systems in water distribution and other significant applications that have applicability to metropolitan urban regions throughout the world, IBI Group continues to receive new mandates in world markets including the major project for traffic management in South Africa, the major toll project in Mexico and numerous other prospects;
- IBI has invested efforts in software development in conjunction with work on real projects for clients of the firm. These investments in intangible assets add considerable value to the IBI Business by keeping the firm ahead in quality and capability. IBI retains ownership of these assets.
- The growth in major transportation projects in which IBI Group was mandated with a lead role. A notable example is IBI Group being selected, after a rigorous international bidding process, as the prime contractor for the design contract by NTA - Metropolitan Mass Transit System Ltd. for the ten underground transit stations in the Tel Aviv metropolitan area; and the IBI scope is extending as contract negotiations are advanced for the continuation of the work over the ensuing years. Other examples include the selection of IBI for LRT Stations in Ottawa and the selection of IBI for a major transportation/land use planning assignment in the Saudi Kingdom.
- The growth in the private sector work in real estate and industrial developments, which continues to be strong in major Canadian urban areas, in Montreal, Toronto, Calgary, Edmonton and Vancouver. IBI Group in 2012 has been mandated with a surge of projects in the Halifax urban area; private sector work is now starting to increase in the US in automotive and other industrial projects and in real estate, including housing and retail. Activity is increasing again in China;
- The overall growth in the resources and capability of the firm. IBI Group has grown in the number of people reflecting the growth in revenue and now comprises 2,930 members of the firm, compared to 2,901 as at December 31, 2011. When excluding the members who joined in 2012 through acquisitions, the number of members as at December 31, 2012 decreased by approximately 160 members compared to December 31, 2011. With the overall growth in personnel and professional excellence, IBI Group increasingly is awarded leading professional and managerial roles for proponents and owners of development projects.
The scope of these efforts is validation of IBI Group's integrated operating model of providing comprehensive professional services to clients in Canada, the US and international markets.
Strategic Program of Growth
On August 3, 2012, IBI closed the acquisition of the practice of Taylor Young Limited Architects and Master Planners ("Taylor Young") within the IBI Group of Firms. Taylor Young is a full services architectural practice including professional skills in urban planning and design and landscape architecture, based in Manchester, UK with offices in Liverpool and London. The firm has a strong reputation in the design of facilities in healthcare, education, housing, as well as urban planning/design and landscape design for a broad range of clients. The firm is highly experienced in sustainability of design integrated with such facilities. This acquisition will further enhance IBI's professional strength in the UK market as well as contribute to the growing strength of the global practice of the firm in health and education. Professional experience in urban planning and urban design, as well as in landscape architecture and in the architecture of housing in the UK, will broaden the current areas of practice of the IBI capabilities in the UK. Taylor Young has a very broad range of clients in the public sector with over 70% of the business gained on a repeat basis with long established client relationships. The firm has approximately 100 staff members and is well managed with profitable operations and a strong backlog of committed work.
In the recent years IBI has achieved major strategic growth in the UK. IBI initiated operations in the UK in the early 1990's and established through organic growth, a presence in intelligent systems applied to transportation and communications. This practice was involved recently in traffic control planning and management for the London Olympics. More recently, IBI acquired the firm of Nightingale, architects with an international reputation as a centre of excellence in the planning and design of hospitals and other health care facilities, and now more recently in the third quarter of 2012, the acquisition of Taylor Young.
On November 1, 2012 IBI closed the acquisition of the practice of M•E Companies, Inc., a professional management and engineering firm in Ohio, USA. M•E Companies, established in 1973, is a full-service civil engineering firm with expertise in comprehensive management, engineering design, surveying, and construction services. The firm applies these professional skills to transportation infrastructure, water and wastewater systems, and land development.
M•E Companies is based in Columbus, Ohio, with offices in the Canton and Cincinnati areas. The firm has a strong reputation and standing with the Ohio Department of Transportation in the engineering design of transportation facilities, as well as safety programs; a broad practice in water and wastewater systems for municipalities and counties; and land development activity for many public and private clients.
The US continues to be the largest economy in the world and as such IBI will continue to focus on building our US business. IBI Group will continue to pursue existing areas of practise as well as an enhanced focus going forward on the architecture of health care facilities. In the context of the continuing under-performing economic environment in the US, there are outstanding opportunities for acquisition/strategic alliances with outstanding professional firms. The resources from these firms can also participate with IBI Group on work in Canada as well as other international markets as the economy of the US recovers.
The basic model of IBI is to initiate its presence through organic growth in geographic regions in which IBI believes it can effectively provide its professional services in the four broad areas of practice. Following that initial organic growth creating an initial core group, IBI then accelerates the growth through strategic acquisitions as has now been largely accomplished in Canada and the UK.
IBI will similarly consider acquisitions/alliances in other international markets including China, India, Eastern Europe, Brazil and Mexico. Similarly to Canada and the UK, the long-term growth in these emerging markets for IBI will be based on continuing organic growth on top of the expanded base achieved through strategic growth. In longer term, that will place IBI in a sustainable model of generating additional net fee revenues, income and cash earned through continuing organic growth on a global platform and mitigate the requirement for significant amounts of additional capital for financing strategic growth. In the fourth quarter of 2012 IBI Group succeeded in securing significant new projects in international markets.
Selected Consolidated Financial Information and Reconciliation of Non-IFRS Measures
| in thousands of dollars except for per Share and per
Unit amounts and ratios
| Adjusted Three
| Three months
| Adjusted Year
| Year ended
| Earnings before income taxes, interest and
| Change in fair value of financial instruments and other
|Income taxes - current||3,872||426||6,521||5,129|
|Income taxes - deferred||(3,257)||(423)||(4,318)||1,310|
| Amortization of property and equipment and intangible
|Foreign exchange loss||221||(15)||725||346|
|Adjusted Earnings before non-controlling interest||$||258||$||4,165||$||12,374||$||12,655|
| Adjusted Earnings attributable to owners of the
|One time non-cash tax on conversion to a corporation||-||-||-||3,131|
| Proportion of earnings attributable to Class B
|Adjusted Net Earnings1||$||198||$||3,004||$||9,271||$||11,381|
|Basic and diluted adjusted net earnings per share2||$||0.0118||$||0.2311||$||0.5962||$||0.8774|
|Cash flow from (used in) operating activities||$||1,456||$||7,431||$||(3,484)||$||(4,835)|
|Less: Capital expenditures||(721)||(1,065)||(2,876)||(3,037)|
|Standardized Distributable Cash1||$||735||$||6,366||$||(6,360)||$||(7,872)|
|Change in non-cash operating working||(107)||(691)||20,981||28,674|
|Current income tax expense||3,872||427||6,521||5,129|
|Exchange (gain) loss||221||(15)||725||346|
| Adjusted weighted average basic and diluted
distributable cash per Share2
| Aggregate of dividends and Class B partnership
| Dividends and Class B partnership distributions
issued under DRIP
| Net dividends and Class B partnership
| Aggregate of dividends and Class B partnership
distributions per Share
|(1)||See "Definition of Non-IFRS Measures".|
|(2)||Distributable cash per Share amounts are calculated by including both the common shares of the Company and the Class B partnership units in the denominator which is a non-IFRS measure.|
Definition of Non-IFRS Measures
References in this MD&A to EBITDA are to earnings before interest, income taxes, depreciation and amortization, acquisition-related costs, foreign exchange gains and losses, fund distributions treated as an expense, fair value adjustment on financial liabilities and restructuring and special charges. Management of the Company believes that in addition to net earnings, EBITDA is a useful supplemental measure as it provides readers with an indication of cash available for dividend prior to debt service, capital expenditures and income taxes. Readers should be cautioned, however, that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of the Company's performance or to cash flows from operating activities as a measure of liquidity and cash flows. EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS, and the Company's method of calculating EBITDA may differ from the methods used by other similar entities. Accordingly, EBITDA may not be comparable to similar measures used by such entities. Reconciliations of net earnings to EBITDA have been provided under the headings "Selected Consolidated Financial Information and Reconciliation of Non-IFRS Measures".
References to adjusted EBITDA are to EBITDA excluding any adjustment items.
The Company defines distributable cash as cash flow from operating activities before change in non-cash operating working capital, interest paid, income tax expense, acquisition-related costs, foreign exchange losses and after capital expenditures, foreign exchange gains, interest recovered, and income tax recovery, where applicable. Reconciliations of distributable cash to cash flow from operating activities have been provided under the headings "Distributable Cash" and "Summary of Quarterly Results". The Company's method of calculating distributable cash may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to distributable cash as reported by such entities. Management of the Company believes that distributable cash is a useful supplemental measure that may assist readers in assessing the return on an investment in Common Shares.
Adjusted distributable cash is defined by the Company as distributable cash excluding any adjustment items.
Payout ratio is defined by the Company as dividends declared plus Class B partnership distributions less shares issued under the DRIP in the period divided by distributable cash.
Free cash flow is defined by the Company as net cash provided by (used in) operating activities less purchases of property, plant and equipment in the period.
Other operating costs (other than interest) is defined by the Company as the sum of rent, other operating expenses and impairment of financial assets.
Other finance costs is defined by the Company for the purposes of the News Release as other finance costs as recorded in the consolidated financial statements of the Company less deferred transaction costs and change in the fair value of interest rate swap.
Acquisition-related costs are defined by the Company as legal, accounting and other fees incurred in the period relating to acquisitions.
Adjusted revenue is equal to revenue plus the impact of any adjustments to unbilled work in process.
Adjusted net earnings are equal to the earnings for the period plus the after tax impact of any adjustment items and non-cash adjustment on conversion to a corporation for 2011.
Adjusted basic and diluted adjusted net earnings per share is equal to the adjusted net earnings for the period divided by the weighted average number of Class A shares outstanding during the period.
Standardized distributable cash is defined by the Company as net cash from (used in) operating activities less capital expenditures.
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 March 22, 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 1-800-771-7838 for local and toll-free North American access, or 1-212-231-2939 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, passcode 21650639 followed by the number sign on your telephone keypad.
SOURCE: IBI Group Inc.
For further information:
Tony Long, CFO
IBI Group Inc.
230 Richmond Street West, 5th Floor
Toronto, ON M5V 1V6