Primary Energy Reports Fourth Quarter and Fiscal 2013 Results and an increase to its quarterly dividend

OAK BROOK, IL, March 17, 2014 /CNW/ - Primary Energy Recycling Corporation (TSX: PRI), a clean energy company that generates revenue from capturing and recycling recoverable heat and byproduct fuels from industrial processes, today announced its financial and operational results for the fourth quarter and year ended December 31, 2013.

Financial Results
(in 000's of US$)
		Three Months Ended December 31,						For the Years Ended December 31,
			2013			2012			2013			2012
Revenues		$	13,848		$	13,852		$	56,144		$	54,299
Operations and maintenance expense			7,278			4,709			21,880			17,507
Operating income (loss)			1,160			976			2,268			(907)
Net (loss) income  and comprehensive (loss) income			(174)			12,399			(1,905)			7,285
EBITDA (1)			4,716			7,206			25,030			24,228
Adjusted EBITDA (2)			8,160			8,835			34,266			36,212
Net cash provided by operating activities			4,344			7,487			23,346			19,541
Free Cash Flow (3)			2,538			5,253			14,628			5,585
Cash and cash equivalents			21,226			30,101			-			-
Credit facility debt balance			65,215			80,048			-			-

 

Fourth Quarter and 2013 Highlights

• The Company's revenue of $56.1 million in 2013 increased $1.8 million, or 3.4%, compared with revenue of $54.3 million in 2012.  The increase in revenue for the year is primarily due to the successful operation of the condensing economizer and the boiler turndown upgrade projects at the Company's Portside facility.   The total investment in the Portside upgrade was $8.4 million.
  
  
• Today, the Company is announcing a 40% increase in its quarterly dividend rate from $0.05 to $0.07 or from $0.20 to $0.28 annually due to confidence in the long-term stability in the cash flows from operations.  The expected normalized payout ratio range with this dividend increase is 45% to 55% while the all in cash payout ratio will remain high while the Company executes the Cokenergy upgrade.  Additionally, the Company accelerated Cokenergy retubing within the quarter ahead of plan and has further accelerated the retube work into 2014.
  
  
• Subsequent to the end of the quarter, announced the signing of a new 10-year tolling agreement between Cokenergy and its site host. With the completion of the Cokenergy contract renewal, the weighted average contract life of the Company's five facilities is now 14 years and its next contract expiration is not until 2020.

"With the Cokenergy agreement completed, we are beginning the next stage of value building for our shareholders," said John Prunkl, President and Chief Executive Officer of Primary Energy. "The financial consistency provided by our Waste Heat to Power and Combined Heat and Power assets coupled with long contract life gives us options. The first option we are executing on is the increase to our dividend.  Second, we are highly focused on executing on the Cokenergy capital upgrade program and accelerating this work using operating cash flow.  Third, we remain focused on disciplined capital allocation to grow shareholder value."

Operational Highlights
		Three Months Ending December 31,				For the Years Ending December 31,
		2013		2012		2013		2012
Total Gross Electric Production Megawatt Hours (MWh) (4)		315,515		335,418		1,341,408		1,340,511
Total Thermal Energy Delivered (MMBtu) (5)		660,625		1,164,314		3,361,899		4,590,147
Harbor Coal Utilization (%) (6)		64.5%		63.9%		57.3%		69.3%

 

Fourth Quarter 2013 Financial Results

The Company's revenue totaled $13.8 million for the fourth quarter of 2013 and was flat when compared to the fourth quarter of 2012. The Company's revenue of $56.1 million in 2013 increased $1.8 million, or 3.4%, compared with revenue of $54.3 million in 2012.  Revenue at the Portside facility increased by a total of $2.2 million during 2013 primarily due to $1.8 million of fuel cost savings generated from the condensing economizer and boiler turndown capability and $0.4 million related to increased host operating levels.  Revenue at the North Lake facility increased by $0.4 million primarily due to being fully operational for the twelve months in 2013 compared to only eleven months of operation in 2012.  Revenue at the Ironside facility was impacted by a net decrease of $0.7 million due to an unplanned outage starting in May of 2013 and a decrease of $0.1 million due to reduced host operating levels.

Operations and maintenance expense for the fourth quarter of 2013 was $7.3 million compared to $4.7 million for the fourth quarter of 2012, an increase of $2.6 million or 54.5%. Operations and maintenance expense in 2013 was $21.9 million compared to $17.5 million in 2012, an increase of $4.4 million or 24.9%.  The Company incurred periodic costs for the year ended December 31, 2013 comprised of $8.1 million for boiler retubing work, $0.6 million for an emergency boiler repair and $0.1 million for ductwork repairs compared to periodic costs for the year ended December 31, 2012 of 3.9 million for boiler retubing work and $1.5 million for ductwork repairs.

General and administrative expense for the fourth quarter of 2013 was $1.9 million compared to $2.1 million for the fourth quarter of 2012, a decrease of $0.2 million or 7.5%.  General and administrative expense in 2013 was $8.0 million compared to $8.8 million in 2012, a decrease of $0.8 million or 9.3%.  The Company did not incur management fees for the year ended December 31, 2013 resulting in a net cost savings totaling $1.1 million when compared to the same period in 2012.

Employee benefits expense for the fourth quarter of 2013 was $1.4 million compared to $1.3 million for the fourth quarter of 2012, an increase of $0.1 million.  Employee benefits expense in 2013 was $6.4 million compared to $4.0 million in 2012, an increase of $2.4 million.  The increase is due to additional compensation cost of $1.1 million primarily associated with transferred employees hired by the Company upon termination of the Management Agreement, $0.4 million related to dividends paid on stock options, $0.4 million of cost recovery provided to the Company under the Management Agreement in 2012 that did not recur in 2013 and $0.5 million of stock based compensation inclusive of a one-time board compensation award.  Prior to June 1, 2012, the transferred employees were employees of the Company's former manager who previously provided operational and administrative services to the Company under the Management Agreement.  For the year ended December 31, 2012, management fees incurred by the Company of $1.1 million were recorded as general and administrative expenses.

On a combined basis, general and administrative expense and employee benefits expense for the fourth quarter of 2013 was $3.3 million compared to $3.4 million for the fourth quarter of 2012, a decrease of $0.1 million.  The Company had reduced accrued property taxes of $0.3 million, corporate compensation expense of $0.1 million and other general and administrative expenses of $0.1 million.  This reduction in expenses was offset by increased stock based compensation of $0.1 million, plant employee cost of $0.1 million, plant and liability insurance of $0.1 million and professional fees of $0.1 million.

On a combined basis, general and administrative expense and employee benefits expense in 2013 was $14.4 million compared to $12.8 million in 2012, an increase of $1.6 million.  The increase in expenses is comprised of $0.5 million of stock based compensation inclusive of a one-time board compensation award, $0.4 million related to dividends paid on stock options, $0.3 million of plant employee cost, $0.3 million of plant and liability insurance, $0.2 million of IT expenses, $0.1 million of corporate compensation expense and $0.1 million of professional fees. The increase in expenses was offset by reduced accrued property taxes of $0.2 million and other general and administrative expenses of $0.1 million.

Equity in earnings of the Harbor Coal joint venture totaled $0.4 million for the fourth quarter of 2013 and was flat when compared to the fourth quarter of 2012. Equity in earnings of the Harbor Coal joint venture in 2013 was $1.1 million compared to $2.2 million in 2012, a decrease of $1.1 million.  The decrease is the result of reduced revenue based on increased natural gas injection and reductions to coal through-put for the current year as well as blast furnace operation that began in the second quarter of 2013.

Operating income for the fourth quarter of 2013 was $1.2 million compared to $1.0 million for the fourth quarter of 2012, an increase of $0.2 million. Operating income in 2013 was $2.3 million compared to an operating loss of $0.9 million in 2012, an improvement of $3.2 million.

Net loss and comprehensive loss for the fourth quarter of 2013 was $0.2 million compared to net income and comprehensive income of $12.4 million for the fourth quarter of 2012, a decrease of $12.6 million. Net loss and comprehensive loss in 2013 was $1.9 million compared to net income and comprehensive income of $7.3 million in 2012, a decrease of $9.2 million.  The decreases are primarily due to an income tax benefit of $12.8 million recorded in 2012 related to the cancellation of debt gain from the Company's 2009 recapitalization.

Conference Call and Webcast

Management will host a conference call to discuss the fourth quarter results on Tuesday, March 18, 2014 at 10 am ET. Following management's presentation, there will be a question and answer session.  To participate in the conference call, please dial [phone] or [phone].

A digital conference call replay will be available until midnight on April 1, 2014 (ET) by calling [phone] or [phone]. Please enter the password 2138234 when instructed. A webcast replay will be available for 365 days by accessing a link through the Events section at www.primaryenergyrecycling.com.

Forward-Looking Statements

When used in this news release, the words "intend", "likely", "anticipate", "expect", "project", "believe", "estimate", "forecast", "outlook" and similar expressions, are intended to identify forward-looking statements, including statements regarding maintenance and capital expenditures and the acquisition of the minority interest in PERH and the termination of Primary Energy's management agreement. Such statements are subject to certain risks, uncertainties and assumptions pertaining, but not limited, to recovery in the steel industry, continued strong performance from the mills we serve consistent with historical patterns, timely renewal of contracts at the Company's facilities, no protracted outages (planned or unplanned) for any of our facilities, operating and maintenance costs and general and administrative costs being similar to recent years except as described in this press release, regulatory parameters, weather and economic conditions and other factors discussed in the Company's public filings available on SEDAR at www.sedar.com. Additional risks and uncertainties not currently known or that are currently deemed to be immaterial may also materially and adversely affect the Company's business operations and outlook. Any of the matters highlighted in the Company's risk factor disclosure could have a material adverse effect on the Company's results of operations, business prospects and outlook, financial condition or cash flow, in which case, the market price or value of the Company's Common Shares could be adversely affected. These forward-looking statements are made as of the date of this press release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

About Primary Energy Recycling Corporation

Primary Energy Recycling Corporation, headquartered in Oak Brook, Illinois, owns and operates four recycled energy projects and a 50 percent interest in a pulverized coal facility (collectively, the "Projects"). The Projects have a combined electrical generating capacity of 298 megawatts and a combined steam generating capacity of 1.8M lbs/hour. Primary Energy Recycling Corporation creates value for its customers by capturing and recycling waste energy from industrial and electric generation processes and converting it into reliable and economical electricity and thermal energy for resale back to its customers. For more information, please see www.primaryenergy.com.

¹As used herein, EBITDA means earnings before interest, taxes, depreciation and amortization and certain other adjustments.   EBITDA is reconciled to net (loss) income and comprehensive (loss) income in the table below.  EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other companies.

²As used herein, references to Adjusted EBITDA are to EBITDA as adjusted for certain non-recurring adjustments for major maintenance/outage work expenses, professional fees and other general and administrative expenses related to the buyout of the non-controlling interest and internalization of management and stock based compensation that represent recorded expenses based on specific circumstances and are not expected to be part of the Company's ongoing business activity. Adjusted EBITDA is reconciled to net income (loss) and comprehensive income (loss) in the table below. Adjusted EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other companies.

³As used herein, Free Cash Flow means net cash provided by operating activities as adjusted for capital expenditures.  Free Cash Flow is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, Free Cash Flow may not be comparable to similar measures presented by other companies.

⁴Total Gross Electric Production means the aggregate amount of electricity produced by all of the Company's facilities during the period. The amount is gross generation and is not reduced by internal electric usage of the facilities' auxiliary equipment. The unit of measure is megawatt hours (MWh).  Due to the fixed and variable nature of customer contracts, MWh production cannot be directly tied to financial performance.

⁵Total Thermal Energy Delivered means the aggregate amount of heat energy contained in the steam and heated water delivered to customers by all of the Company's facilities during the period. The unit of measure is million of British Thermal Units (MMBTU). Due to the fixed and variable nature of customer contracts, MMBTU production cannot be directly tied to financial performance.

⁶Harbor Coal Utilization is a factor that incorporates the production level of a blast furnace and the amount of coal utilization per unit of blast furnace production as compared to a reference blast furnace production level and coal utilization rate per unit of blast furnace production. The measurement unit is a ratio expressed as a percentage.

Management believes that EBITDA, Adjusted EBITDA, Free Cash Flow, Total Gross Electric Production, Total Thermal Energy Delivered and Harbor Coal Utilization provide useful supplemental information regarding the performance of the Company, facilitate comparisons of historical periods and are indicative of the Company's operating results.  Note however, that these items are performance measures only, and do not provide any measure of the Company's cash flow or liquidity, and are not a substitute for IFRS financial measures.

Non-IFRS Measures

The Company reports its financial results in accordance with IFRS. The Company's management also evaluates and makes operating decisions using various other measures.  Three such measures are EBITDA, Adjusted EBITDA and Free Cash Flow, which are non-IFRS financial measures. We believe these measures provide useful supplemental information regarding the performance of Company's business.

Reconcilation of Net (Loss) Income and Comprehensive (Loss) Income
	to Adjusted EBITDA
(in 000's of US$)			Three Months Ended December 31,						For the Years Ended December 31,
				2013			2012			2013			2012
Net (loss) income and comprehensive (loss) income			$	(174)		$	12,399		$	(1,905)		$	7,285
Adjustment to net (loss) income and comprehensive (loss) income:
	Depreciation and amortization			2,547			5,221			18,609			21,053
	Depreciation and amortization included in equity in
	earnings of Harbor Coal joint venture			1,009			1,009			4,036			4,036
	Interest expense			1,176			1,450			4,939			5,690
	Deferred finance fees expensed upon extinguishment of debt			-			-			-			765
	Realized and unrealized loss (gain) on derivative contracts			56			(18)			(24)			554
	Loss on derecognition			-			-			117			46
	Income tax expense (benefit)			102			(12,855)			(742)			(15,201)
EBITDA			$	4,716		$	7,206		$	25,030		$	24,228
Adjustments to EBITDA:
	Major maintenance ^(1)			3,371			1,475			8,729			5,432
	Management Agreement termination fee			-			-			-			6,000
	Professional fees and other general and administrative expenses related to
	the buyout of the non-controlling interest and internalization of management			-			76			-			369
	Stock based compensation ^(2)			73			78			507			183
Adjusted EBITDA			$	8,160		$	8,835		$	34,266		$	36,212

 

1)	Represents nonrecurring major maintenance expenditures for such items as boiler retubing work and other related maintenance expenditures and ductwork repairs.
2)	The year ended December 31, 2013 is inclusive of a one-time board compensation award.

Reconcilation of Net Cash Provided by Operating Activities
to Free Cash Flow
(in 000's of US$)			Three Months Ended December 31,						For the Years Ended December 31,
				2013			2012			2013			2012
Net cash provided by operating activities			$	4,344		$	7,487		$	23,346		$	19,541
Less: Capital expenditures				(1,806)			(2,234)			(8,718)			(13,956)
Free Cash Flow			$	2,538		$	5,253		$	14,628		$	5,585

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of U.S. dollars)
ASSETS									December 31, 2013			December 31, 2012
Current assets:
	Cash and cash equivalents							$	21,226		$	30,101
	Accounts receivable								8,120			8,266
	Inventory, net								1,455			1,126
	Tax receivable								118			691
	Prepaid expenses								1,200			987
	Other current assets								-			336
Total current assets									32,119			41,507
Non-current assets:
	Property, plant and equipment, net								183,249			185,355
	Intangible assets, net								3,101			12,321
	Restricted cash								3,175			3,445
	Interest rate cap								105			85
	Investment in Harbor Coal joint venture								54,615			58,600
Total assets								$	276,364		$	301,313
LIABILITIES AND EQUITY
Current liabilities:
	Accounts payable							$	1,195		$	971
	Short-term debt								7,624			11,133
	Accrued property taxes								1,522			1,725
	Accrued expenses								6,892			6,558
Total current liabilities									17,233			20,387
Non-current liabilities:
	Long-term debt								54,684			64,913
	Deferred income tax liability, net								979			1,753
	Interest rate swap								76			155
	Asset retirement obligations								2,938			3,063
Total liabilities									75,910			90,271
Equity
Common stock: no par value, unlimited shares authorized;
	44,706,186 issued and outstanding								274,479			274,479
Contributed surplus									37,723			37,466
Accumulated shareholders' deficit									(111,748)			(100,903)
Total equity									200,454			211,042
Total liabilities and equity								$	276,364		$	301,313

 

 

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars, except share and per share amounts)
						For the Years Ended December 31,
							2013			2012
Revenue:
	Capacity					$	36,071		$	36,071
	Energy service						20,073			18,228
							56,144			54,299
Expenses:
	Operations and maintenance						21,880			17,507
	General and administrative						7,961			8,778
	Management Agreement termination fee						-			6,000
	Employee benefits						6,404			4,023
	Depreciation and amortization						18,609			21,053
	Loss on derecognition						117			46
Total operating expenses							54,971			57,407
Equity in earnings of Harbor Coal joint venture							1,095			2,201
Operating income (loss)							2,268			(907)
Other expense
	Interest expense						(4,939)			(5,690)
	Deferred finance fees expensed upon extinguishment of debt						-			(765)
	Realized and unrealized gain (loss) on derivative
	contracts						24			(554)
Loss before income taxes							(2,647)			(7,916)
Income tax benefit							742			15,201
Net (loss) income and comprehensive (loss) income						$	(1,905)		$	7,285
Net (loss) income and comprehensive (loss) income attributable to:
	Owners of the Company					$	(1,905)		$	9,080
	Non-controlling interest						-			(1,795)
						$	(1,905)		$	7,285
Net (loss) income per share attributable
	to owners of the Company:
Weighted average number of shares outstanding - basic							44,706,186			44,706,186
Weighted average number of shares outstanding - diluted							44,706,186			44,706,186
Basic and diluted net (loss) income per share attributable to owners of the Company						$	(0.04)		$	0.20

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of U.S. dollars)
			Common			Contributed			Accumulated						Non-controlling			Total
			stock			surplus			deficit			Total			interest			equity
Balance - January 1, 2012		$	274,479		$	3,316		$	(107,748)		$	170,047		$	79,502		$	249,549
Net income and comprehensive income
for the year ended December 31, 2012			-			-			9,080			9,080			(1,795)			7,285
Dividends on Common Shares			-			-			(2,235)			(2,235)			-			(2,235)
Buyout of non-controlling interest			-			33,967			-			33,967			(77,707)			(43,740)
Stock-based compensation			-			183			-			183			-			183
Balance - December 31, 2012		$	274,479		$	37,466		$	(100,903)		$	211,042		$	-		$	211,042
Balance - January 1, 2013		$	274,479		$	37,466		$	(100,903)		$	211,042		$	-		$	211,042
Net loss and comprehensive loss
for the year ended December 31, 2013			-			-			(1,905)			(1,905)			-			(1,905)
Dividends on Common Shares			-			-			(8,940)			(8,940)			-			(8,940)
Stock-based compensation			-			257			-			257			-			257
Balance - December 31, 2013		$	274,479		$	37,723		$	(111,748)		$	200,454		$	-		$	200,454

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
								For the Years Ended December 31,
									2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss and comprehensive loss for the period								$	(1,905)		$	7,285
Adjustments for:
Depreciation and amortization									18,609			21,053
Loss on derecognition									117			46
Unrealized loss (gain) on derivative contracts									(145)			320
Deferred finance fees expensed upon extinguishment of debt									-			765
Equity in earnings of Harbor Coal joint venture									(1,095)			(2,201)
Distributions from investment in Harbor Coal joint venture									5,080			6,790
Non-cash interest expense									1,563			2,221
Non-cash stock based compensation									257			183
Income tax									(774)			(15,243)
									21,707			21,219
Net change in non-cash working capital balances									1,639			(1,678)
	Net cash provided by operating activities								23,346			19,541
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash									270			(1,515)
Capital expenditures									(8,718)			(13,956)
	Net cash used in investing activities								(8,448)			(15,471)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt									-			85,000
Purchase of non-controlling interest									-			(24,225)
Payments of deferred financing costs									-			(5,351)
Repayment of debt									(14,833)			(47,725)
Dividends on Common Shares									(8,940)			(2,235)
	Net cash (used in) provided by financing activities								(23,773)			5,464
Net (decrease) increase in cash									(8,875)			9,534
Cash and cash equivalents - beginning of period									30,101			20,567
Cash and cash equivalents - end of period								$	21,226		$	30,101
Supplemental disclosure of cash flow information:
Cash paid during the period for interest								$	3,514		$	3,510
Cash paid during the period for income taxes								$	12		$	168

 

 

 

 

SOURCE: Primary Energy Recycling Corporation

Chief Commercial Officer
Christopher Fanella
Primary Energy Recycling
630.560.4227
[email protected]

Media and Investor Relations
Adam Peeler
TMX Equicom
416.815.0700 ext. 225
[email protected]