TORONTO, May 9, 2013 /CNW/ - IBI Group Inc. (the "Company") (TSX: IBG) today announced its financial results for the three months ended March 31, 2013.
Update on Recovery Plan
The recession that commenced in the fourth quarter of 2008 and its impact on the economies of the United States and Europe, impaired IBI Group initially in the housing sector, in which IBI had relatively high exposure, and subsequently in IBI projects in social and transportation infrastructure. Europe continues to contract, recovery in the United States is encouraging but tentative, and a slowdown is being indicated in the Canadian economy.
Notwithstanding, IBI recorded its highest annual revenue in 2012. Downward pressure on operating margins resulted in an increase in compensation costs relative to revenue. Additionally, the conversion of revenue to cash slowed, resulting in higher working capital and debt levels.
IBI Group continues to move forward with its recovery program initiated in the second half of 2012.The recovery plan is a series of actions to enhance profitability and to improve billings and collections, which will lead to a reduction of working capital and debt. The recovery plan was outlined in full in the 2012 year end reporting.
During the first quarter of 2013, IBI continued action on the recovery plan including:
- Aligning staff levels with levels of committed work. At the end of first quarter of 2013 staff members numbered 2,814 compared to 2,852 at the end of 2012 for a decrease of 38 staff members or a 1.3% reduction of staff. This represents a savings of approximately $2.5 million per annum. The process is continuing in the second quarter of 2013 in an orderly fashion, to ensure the firm's ability to perform work for its clients and to achieve higher productivity.
- Improved cash generation. Cash used in operations in the first quarter of 2013 was a significant improvement of $6.4 million over the first quarter of 2012. The cash used in operations for the first quarter of 2013 would have been even lower had it not been for the dampening impact of the timing of contract billings (fees collectible at completion of certain events only). Management is committed to sustaining this trend over the ensuing quarters.
Operating Highlights
The results for the first quarter ended March 31, 2013 are based on 61 available working days, which is two days less than both the average quarter and the first quarter of 2012, each being 63 days. The impact on the results of an extra two working days would be $2.8 million of revenue, based on the average revenue achieved in the quarter ended March 31, 2013. Operating costs are assumed to remain constant since these are monthly costs not dependent on number of working days. Accordingly, the actual results and the results normalized1 to an average quarter are presented. Comparisons to the 2012 fourth quarter results are to the adjusted figures after the $16 million adjustment items for the year 2012. The highlights are presented in the table below:
| Actual Q1 2013 (unaudited) |
Normalized1 Q1 2013 (unaudited) |
Actual Q1 2012 (unaudited) |
Adjusted Q4 2012 (unaudited) |
Actual Q1 2013 vs. Actual Q1 2012 |
Normalized1 Q1 2013 vs. Actual Q1 2012 |
Actual Q1 2013 vs. Adjusted Q4 2012 |
Normalized1 Q1 2013 vs. Adjusted Q4 2012 |
|||||||||
| Number of workings days |
61 | 63 | 63 | 63 | (2) | - | (2) | - | ||||||||
| Revenue | $ | 84,599 | $ | 87,373 | $ | 86,896 | $ | 88,064 | $ | (2,297) | $ | 477 | $ | (3,465) | $ | (691) |
| Net earnings | $ | 656 | $ | 2,856 | $ | 3,733 | $ | 258 | $ | (3,077) | $ | (877) | $ | 398 | $ | 2,598 |
| Basic and diluted earnings per share ("EPS")1 |
$ | 0.0298 | $ | 0.1299 | $ | 0.2065 | $ | 0.0118 | $ | (0.1767) | $ | (0.0766) | $ | 0.0180 | $ | 0.1181 |
| EBITDA1 | $ | 7,300 | $ | 10,074 | $ | 11,403 | $ | 10,488 | $ | (4,103) | $ | (1,329) | $ | (3,188) | $ | (414) |
| EBITDA1 as a percentage of revenue |
8.6% | 11.5% | 13.1% | 11.9% | (4.5%) | (1.6%) | (3.3%) | (0.4%) | ||||||||
| Distributable cash1 | $ | 2,873 | $ | 5,647 | $ | 6,306 | $ | 5,127 | $ | (3,433) | $ | (659) | $ | (2,254) | $ | 520 |
| Payout ratio1 | 80.6% | 41.0% | 89.0% | 83.9% | (8.4%) | (48.0%) | (3.3%) | (42.9%) | ||||||||
| Cash used in operations |
$ | (3,708) | $ | (1,508) | $ | (10,122) | $ | 1,456 | $ | 6,414 | $ | 8,614 | $ | (5,164) | $ | (2,964) |
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 143 days at March 31, 2013. The total increase of four days compared to December 31, 2012 is comprised of a two day reduction in accounts receivable, a seven day increase in unbilled work in process and a one day increase in deferred revenue. The seven day increase in unbilled work in process is due to the contract timing for billing of work in process on projects. In fact, billings exceeded work in process in the month of March reversing the trend of increasing work in process.
Guidance for the Remainder of 2013
Our outlook for the remainder of 2013 is cautious and we will be vigilant in managing our business:
- Total fee revenue for 2013 of approximately $360 million compared to adjusted revenue1 of $350.3 million in 2012, which will be achieved through a combination of strategic and organic growth. IBI has confidence in the expectation of revenue based on committed work for 2013 being the equivalent of approximately 10 months; and
- EBITDA1 is targeted at slightly above 12% of revenue.
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1 See "Definition of Non-IFRS Measures"
Outlook
IBI Group's operating structure and seasoned, experienced leadership which provided the motivation and discipline in the management of growth over the past 38 years, equally provides the experience of managing in the context of recessionary times such as the current worldwide financing and economic challenges. Accordingly, IBI Group continues to be confident in its ability to achieve a program of continuing to build with successful financial results, the global practice in the comprehensive planning/design of urban environments, including infrastructure, urban and facilities development. This confidence is based on the following approach of diversity and resilience of IBI Group as follows:
- Practise Diversity;
- Global Platform;
- Public/Private Clients;
- Diversity of Clientele.
Based on this model, IBI's resilience is demonstrated by the following factors:
- IBI has ten months of committed fee volume for the ensuing twelve months. (This is calculated on the basis of the current pace of work that IBI Group has achieved during the last twelve months ended March 31, 2013.) Backlog for government and public institutional clients now represents approximately 65% of total backlog. Backlog continues to be very strong in building facility areas in health care, education, and housing, the industrial sector, in transportation terminals, transportation networks and intelligent systems. IBI Group is increasingly receiving new mandates for a wide range of substantial projects in the design stage, as well as numerous projects now moving into design development and working drawings as projects proceed to realization;
- IBI Group's committed backlog is approximately 17% of fee volume for projects outside of North America, 23% in the United States and 60% in Canada which is generally consistent with the distribution of revenue earned in the prior year; and
- This backlog of committed work is being achieved throughout IBI's network; however the amount of work in certain operating units is insufficient for the current level of staffing and, as noted above, management is working conscientiously to realign staff resources to committed work.
Additional Factors to be Noted
- IBI practice in Canada continues to be very strong and is growing geographically, with new areas of practice, such as the establishment of IBI Group Architects in Halifax, which has emerged through organic growth this past year. IBI is also intensifying skills in certain functional areas such as transportation engineering. IBI is successfully increasing its backlog of new work in major urban areas in which IBI practices. However, real estate and other physical development activity is slowing. As a result, competition is increasingly intensive, and IBI activity is being affected in smaller urban areas.
- IBI practice in the United States is experiencing some encouraging growth in private sector real estate development and in intelligent system work. However, projects for state and local governments are lacking in funding and are subject to greater competition. While the prospects for future activity are encouraging in the Unites States, there remain challenges in the current environment.
- IBI practice in the UK has slowed as a result of the third consecutive quarter of contraction of national economic activity. Notwithstanding, IBI is competing for major projects that continue to be sponsored by governments for social needs and for economic stimulus.
- IBI's activity in other international markets is increasing and provides encouraging prospects.
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 alliances. This growth process, which has now been largely accomplished in Canada, continues in the United States. IBI will similarly consider alliances in other international markets including Mexico, China, India, Eastern Europe/Middle East and South Africa. Similarly to Canada, the United States and the UK, the long-term growth in these emerging markets for IBI will be based on continuing organic growth with some strategic growth in the future to accelerate the pace. In the 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.
Selected Consolidated Financial Information and Reconciliation of Non-IFRS Measures
| in thousands of dollars except for per share and per unit amounts and ratios |
Three months ended March 31, 2013 (unaudited) |
Normalization1 | Normalized1 Three months ended March 31, 2013 (unaudited) |
Three months ended March 31, 2012 (unaudited) |
|||||
| Revenue | $ | 84,599 | $ | 2,774 | $ | 87,373 | $ | 86,896 | |
| Expenses | 77,299 | - | 77,299 | 75,493 | |||||
| Earnings before income taxes, interest and amortization (EBITDA1) |
7,300 | 2,774 | 10,074 | 11,403 | |||||
| Interest | 3,382 | - | 3,382 | 3,603 | |||||
| Change in fair value of financial instruments and other finance costs1 |
69 | - | 69 | 59 | |||||
| Income taxes - current | 1,113 | 574 | 1,687 | 1,090 | |||||
| Income taxes - deferred | (344) | - | (344) | (138) | |||||
| Amortization of property and equipment and intangible assets |
2,354 | - | 2,354 | 2,559 | |||||
| Foreign exchange (gain) loss | (135) | - | (135) | 289 | |||||
| Acquisition-related costs | 205 | - | 205 | 208 | |||||
| Net earnings | $ | 656 | $ | 2,200 | $ | 2,856 | $ | 3,733 | |
| Non-controlling interest | 151 | 506 | 657 | 1,037 | |||||
| Net earnings attributable to the owners | $ | 505 | $ | 1,694 | $ | 2,199 | $ | 2,696 | |
| Basic and diluted adjusted net earnings per share2 |
$ | 0.0298 | $ | 0.1001 | $ | 0.1299 | $ | 0.2065 | |
| Distributable cash1 | |||||||||
| Cash flow from (used in) operating activities | $ | (3,708) | $ | 2,200 | $ | (1,508) | $ | (10,122) | |
| Less: Capital expenditures | (456) | - | (456) | (870) | |||||
| Standardized distributable cash1 | $ | (4,164) | $ | 2,200 | $ | (1,964) | $ | (10,992) | |
| Add (deduct): | |||||||||
| Change in non-cash operating working | 5,854 | - | 5,854 | 15,711 | |||||
| Acquisition-related costs | 205 | - | 205 | 208 | |||||
| Current income tax expense | 1,113 | 574 | 1,687 | 1,090 | |||||
| Exchange (gain) loss | (135) | - | (135) | 289 | |||||
| Distributable cash1 | $ | 2,873 | $ | 2,774 | $ | 5,647 | $ | 6,306 | |
| Adjusted weighted average basic and diluted distributable cash per share2 |
$ | 0.1312 | $ | 0.1266 | $ | 0.2578 | $ | 0.3487 | |
| Aggregate of dividends and Class B partnership distributions |
$ | 2,316 | $ | - | $ | 2,316 | $ | 5,615 | |
| Dividends and Class B partnership distributions issued under DRIP |
- | - | - | - | |||||
| Net dividends and Class B partnership distributions |
$ | 2,316 | $ | - | $ | 2,316 | $ | 5,615 | |
| Aggregate of dividends and Class B partnership distributions per share |
$ | 0.1057 | $ | - | $ | 0.1057 | $ | 0.3105 | |
| Payout ratio1 | 80.6% | 41.0% | 89.0% | ||||||
| (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 news release to EBITDA are to earnings before interest, income taxes, depreciation and amortization, acquisition-related costs, foreign exchange gains and losses, dividends 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 dividends 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 "Summary of Quarterly Results" in the Company's MD&A.
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" in the Company's MD&A. 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.
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 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.
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 adjustments to unbilled work in process and uncollectible accounts receivable.
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 common shares outstanding during the period.
Standardized distributable cash is defined by the Company as net cash from (used in) operating activities less capital expenditures.
Normalized is defined by the Company as estimating the financial impact of an increase from 61 working days to 63 working days in the quarter ended March 31, 2013.
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 May 10, 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 1-800-755-6634 for local and toll-free North American access, or 1-416-981-9033 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 21654567 followed by the number sign on your telephone keypad.
SOURCE: IBI Group Inc.
Tony Long, CFO
IBI Group Inc.
230 Richmond Street West, 5th Floor
Toronto, ON M5V 1V6
Tel: 416-596-1930
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