Terravest Announces Second Quarter Results for Fiscal 2021 and Dividend Declaration

TORONTO, May 12, 2021 /CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the "Company") announces its results for the second quarter ended March 31, 2021 and the declaration of its quarterly dividend.

SECOND QUARTER AND SIX MONTHS REVIEW AND OUTLOOK

Business Performance

Management believes that there are certain non–IFRS financial measures that can be used to assist shareholders in analyzing the performance of TerraVest. The table below highlights certain financial results and reconciles net income to adjusted earnings before interests, income taxes, depreciation and amortization ("EBITDA") for the second quarter and six months ended March 31, 2021 and the comparative periods in fiscal 2020.

	Second quarters ended			Six months ended
	March 31, 2021	March 31, 2020		March 31, 2021	March 31, 2020
	$	$		$	$
Sales	76,477	86,751		158,817	175,003
Net Income	10,723	5,272		22,675	11,692
Add (subtract):
Income tax expense	2,301	498		5,651	3,187
Financing costs	941	1,456		1,917	3,027
Depreciation and amortization	4,731	4,306		9,448	8,278
Change in fair value of derivative     financial instruments	(624)	2,886		(1,704)	2,365
Change in fair value of investment in     equity instruments	(1,116)	-		(3,973)	-
(Gain) loss on foreign exchange	681	(2,551)		2,813	(2,023)
Acquisition–related cost	-	33		-	171
(Gain) loss on disposal of property, plant     and equipment	(102)	(55)		(204)	(275)
(Gain) loss on disposal of assets held for sale	-	(931)		-	(931)
(Gain) loss on contingent considerations	-	(61)		-	(61)
Adjusted EBITDA	17,535	10,853		36,623	25,430

Sales for the second quarter and six months ended March 31, 2021 were $76,477 and $158,817 versus $86,751 and $175,003 for the prior comparable periods. This represents decreases of 12% and 9% respectively. However, TerraVest acquired all of the assets of Argo Sales Inc. ("Argo") in December 2019, which only partially contributed to the prior comparable period of six months. Excluding Argo, sales for the six months ended March 31, 2021 were $143,156 versus $158,858 for the prior comparable period. This represents a decrease of 10% for TerraVest's base portfolio (excluding Argo).

The decreases in sales for the second quarter and six months are a result of weaker demand for TerraVest's LPG and NGL storage and distribution equipment as well as for oil and gas processing equipment in Western Canada. This was partially offset by increased demand for home heating products versus the prior comparable periods. Despite commodity pricing increasing during the second quarter ended March 31, 2021, customer demand for oil and gas processing equipment in Western Canada is still lagging. 

Net income for the second quarter and six months ended March 31, 2021 were $10,723 and $22,675 versus $5,272 and $11,692 for the prior comparable periods. This represents increases of 103% and 94% respectively. The increases are a result of a more favorable product mix, government wage subsidies to help maintain employment during the COVID–19 pandemic and other government subsidies available for entities experiencing significant revenue decreases as well as cost control measures put in place. A favorable change in the fair value of investment in equity instruments also contributed to the increases. The increases in net income were partially offset by decreased sales activities as explained above and are also a result of the variations highlighted in the table above.

Adjusted EBITDA for the second quarter and six months ended March 31, 2021 were $17,535 and $36,623 versus $10,853 and $25,430 for the prior comparable periods. This represents increases of 62% and 44% respectively, which are a result of the reasons explained above.

During the first six months, TerraVest recognized $5,544 in net income in relation to the Canada Emergency Wage Subsidy ("CEWS") as part of the Federal Government's response to the COVID-19 pandemic. Had the CEWS program not been available, TerraVest would have made incremental significant personnel reductions to mitigate reduced business activity. TerraVest also recognized $2,448 in net income during the first six months in relation to other various government subsidies available in response to the COVID–19 pandemic.

The table below reconciles cash flow from operating activities to cash available for distribution for the second quarter and six months ended March 31, 2021 and the comparative periods in fiscal 2020.

	Second quarters ended			Six months ended
	March 31, 2021	March 31, 2020		March 31, 2021	March 31, 2020
	$	$		$	$
Cash Flow from Operating Activities	3,263	11,628		22,300	31,298
Add (subtract):
Change in non–cash operating working capital items	9,129	(2,690)		1,718	(13,680)
Maintenance capital expenditures	(1,022)	(897)		(2,134)	(2,145)
Repayment of lease liabilities	(1,081)	(912)		(2,149)	(1,631)
Cash Available for Distribution	10,289	7,129		19,735	13,842
Dividends Paid	1,848	1,831		3,716	3,595
Dividend Payout Ratio	18%	26%		19%	26%

Cash flow from operating activities for the second quarter and six months ended March 31, 2021 were $3,263 and $22,300 versus $11,628 and $31,298 for the prior comparable periods. This represents decreases of 72% and 29% respectively. The decreases in cash flow are a result of working capital fluctuations and increased income taxes paid, partially offset by increased net income.

Maintenance capital expenditures were $1,022 for the second quarter ended March 31, 2021 versus $897 for the prior comparable period representing an increase of 14%, which is mainly explained by the timing of maintenance capital expenditures. During the second quarter, TerraVest's total purchase of property, plant and equipment paid was $4,036 of which $3,014 is considered growth capital. The growth capital incurred during the second quarter consisted of additions to the Company's rental fleet, the automation of a production line and building expansions.

Cash available for distribution for the second quarter and six months ended March 31, 2021 increased by 44% and 43% respectively versus the prior comparable periods. These increases are a result of reasons explained above.

The dividend payout ratio for the second quarter and six months ended March 31, 2021 were 18% and 19% versus 26% for the prior comparable periods.

Outlook

The current global pandemic continues to create a challenging business environment for TerraVest on many fronts. Over the past year, the Company and its employees have done an excellent job managing through COVID–19 pandemic related restrictions, all while keeping tight control on operating costs and improving manufacturing efficiency. However, new challenges continue to present themselves, as a result of the COVID–19 pandemic, such as disrupted global supply chains resulting in rising raw material prices and, in many cases, supply shortages. In addition, many sectors are experiencing a much longer recovery profile, such as travel, which continues to weigh on oil and gas demand and ultimately certain of TerraVest's businesses. Navigating these challenges, while continuing to keep our employees, our customers and our vendors safe will be the primary focus for the Company for the remainder of the year. Additionally, TerraVest will remain vigilant in managing its cost structure and will make targeted investments in manufacturing efficiency improvements as well as continue to pursue its acquisition strategy.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides the financial results of TerraVest's operations for the second quarter and six months ended March 31, 2021 and the comparative periods in fiscal 2020.

	Second quarters ended			Six months ended
	March 31, 2021	March 31, 2020		March 31, 2021	March 31, 2020
	$	$		$	$
Sales	76,477	86,751		158,817	175,003
Cost of sales	55,644	69,451		115,892	137,221
Gross profit	20,833	17,300		42,925	37,782
Administration expenses	6,354	9,048		12,467	17,359
Selling expenses	1,675	1,738		3,283	3,442
Financing costs	941	1,456		1,917	3,027
Other (gains) losses	(1,161)	(712)		(3,068)	(925)
	7,809	11,530		14,599	22,903
Earnings before income taxes	13,024	5,770		28,326	14,879
Income tax expense	2,301	498		5,651	3,187
Net Income	10,723	5,272		22,675	11,692
Allocated to non–controlling interest	(63)	(51)		(128)	(92)
Net income attributable to common shareholders	10,786	5,323		22,803	11,784
Weighted average shares outstanding – Basic	18,473,942	18,712,670		18,483,713	18,288,770
Weighted average shares outstanding – Diluted	18,766,033	19,056,299		18,763,319	19,104,265
Net income per share – Basic	$0.58	$0.28		$1.23	$0.64
Net income per share – Diluted	$0.57	$0.28		$1.22	$0.63

Sales for the second quarter and six months ended March 31, 2021 decreased by 12% and 9% respectively versus the prior comparable periods. The reasons have been explained previously in this press release.

Gross profit for the second quarter and six months ended March 31, 2021 increased by 20% and 14% respectively versus the prior comparable periods. This is primarily explained by a more favorable product mix and government subsidies, partially offset by decreased sales volume for some of TerraVest's base portfolio businesses and the contribution of Argo.

Administration expenses for the second quarter and six months ended March 31, 2021 decreased by 30% and 28% respectively versus the prior comparable periods. The variation is mainly the result of government wage subsidies, cost control measures and non-recurring acquisition–related expenses incurred in fiscal 2020, offset by the addition of Argo to TerraVest's results.

Selling expenses for the second quarter and six months ended March 31, 2021 decreased by 4% and 5% respectively versus the prior comparable periods. This is a result of reduced travelling expenses due to travel restrictions and cost control initiatives.

Financing costs for the second quarter and six months ended March 31, 2021 decreased by 35% and 37% respectively versus the prior comparable periods. The decreases are primarily explained by lower interest expense because of the prime rate reductions in March 2020 and April 2020 and by reduced debt balances.

Other (gains) losses variance for the second quarter and six months ended March 31, 2021 is a result of favorable changes in the fair value of derivative financial instruments and investment in equity instruments, partially offset by an increased loss on foreign exchange.

Income tax expense for the second quarter and six months ended March 31, 2021 increased versus the prior comparable periods, which is the result of increased taxable earnings, partially offset by a reduction of the tax rates for certain subsidiaries of TerraVest.

As a result of the above, net income attributable to common shareholders for the second quarter and six months ended March 31, 2021 increased by 103% and 94% respectively versus the prior comparable periods.

DIVIDENDS

TerraVest is pleased to announce that The Board of Directors has declared its quarterly dividend of 10 cents per common share payable on July 12, 2021 to shareholders of record as at the close of business on June 30, 2021. The dividend is designated an "eligible dividend" for Canadian income tax purposes.

Additional information can be found in TerraVest's annual consolidated financial statements and MD&A which are available on SEDAR at www.sedar.com.

Non–IFRS Financial Measures

This news release makes reference to certain non–IFRS financial measures. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS. TerraVest's definitions may differ from those of other issuers and therefore may not be comparable to similarly titled measures used by other issuers. The Company uses non–IFRS financial measures including adjusted EBITDA, cash available for distribution, dividend payout ratio and maintenance capital expenditures.

Adjusted EBITDA: is defined as net income adjusted for income tax expense, financing costs, depreciation, amortization, gains or losses on disposal of property, plant and equipment and on disposal of assets held for sale, change in fair value of derivative financial instruments, change in fair value of investment in equity instruments, gains or losses on foreign exchange, non-recurring acquisition–related costs, impairment charges and other non–recurring and/or non–operations related items that do not reflect the current ongoing operations of TerraVest. Management believes this is a useful metric in evaluating the ongoing operating performance of TerraVest. Readers are cautioned that adjusted EBITDA should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of TerraVest's performance.

Cash Available for Distribution: is defined as cash flow from operating activities adjusted for changes in non-cash operating working capital, maintenance capital expenditures and repayment of lease liabilities. Management believes that cash available for distribution, as a liquidity measure, is a useful metric that provides an indication of the cash available from ongoing operations that can be distributed to shareholders as a dividend. Readers are cautioned that cash available for distribution should not be construed as an alternative to cash flow from operating activities determined in accordance with IFRS as an indicator of TerraVest's liquidity and cash flows.

Dividend Payout Ratio: is defined as dividends paid in cash during the period divided by cash available for distribution for the period. Management believes that dividend payout ratio is a useful metric as it provides an indication of TerraVest's ability to sustain its current dividend policy. There is no directly comparable IFRS measure for dividend payout ratio.

Maintenance Capital Expenditures: is defined as capital expenditures made to sustain the operations of TerraVest's operating businesses and to maintain the productive capacity of the businesses over an economic cycle, whether or not they yield significant cost or production efficiencies. Management believes that maintenance capital expenditures should be funded by cash flow from existing operating activities and, therefore, deducted in determining cash available for distribution. There is no directly comparable IFRS measure for maintenance capital expenditures.

Caution Regarding Forward-Looking Statements

This news release contains forward-looking statements.  All statements other than statements of historical fact contained in this news release are forward-looking statements, including, without limitation, statements regarding our strategic direction and evaluation of the business segments and TerraVest as a whole, and other plans and objectives of or involving TerraVest. Readers can identify many of these statements by looking for words such as "expects" and "will" or similar terms or variations of these words. Although management believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements require us to make assumptions and, accordingly, forward looking statements are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. We caution readers of this news release not to place undue reliance on our forward-looking statements because a number of factors may cause actual future circumstances, results, conditions, actions or events to differ materially from the plans, expectations, estimates or intentions expressed in the forward-looking statements and the assumptions underlying the forward-looking statements. 

Assumptions and analysis about the performance of TerraVest as a whole and its business segments, the markets in which the business segments compete and the prospects and values of the business segments are considered in setting the business plan for TerraVest, plans and/or ability to pay dividends, outlook for operations, financial position, results and cash flows, other plans and objectives and in making related forward-looking statements. Such assumptions include, without limitation, demand for products and services of the business segments in respect of the Canadian and other markets in which the businesses are active will be stable, and that input costs to business segments do not vary significantly from levels experienced historically. Should any of these factors or assumptions vary, actual results may differ materially from the forward-looking statements.

SOURCE TerraVest Industries Inc.

Dustin Haw, TerraVest Industries Inc., Chief Executive Officer, [phone], [email protected]

Related Links

https://www.terravestcapital.com/