Armtec Infrastructure Inc. Reports Results for the Third Quarter 2013

Toronto Stock Exchange: ARF; ARF.DB

CONCORD, ON, Nov. 6, 2013 /CNW/ - Armtec Infrastructure Inc. ("Armtec" or the "Company") (TSX: ARF; ARF.DB) today reported financial results for the third quarter ended September 30, 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 realigned to conform with the new reporting segments for 2013.

Summary of Results:

• Revenue in the quarter of $144.7 million, an increase of 6.9% or $9.4 million over 2012.  Drainage revenue was $60.4 million, consistent with the same period in 2012; Precast revenue was $84.3 million, up 12% or $9.0 million over the prior year.  Year to date, revenue was $347.6 million, consistent with the nine-month period in 2012.  Drainage revenue was $123.5 million, a decrease of 13.5% compared to the same period of 2012. Precast revenue of $224.1 million, represents an increase of 10.3% over the same period of 2012;
• Gross margin was $30.3 million, an increase of $1.1 million from $29.2 million in the third quarter of 2012.  As a percentage of revenue, gross margin was 20.9%, compared to 21.6% achieved in the prior year.  Year to date, gross margin was $66.8 million, or 19.2%, consistent with prior year results on similar revenue levels;
• Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")¹ was $19.0 million in the third quarter compared to $18.0 million in 2012. Year to date, EBITDA was $34.1 million, compared to $36.3 million in 2012;
• The Company's engineered precast backlog at the end of September 2013 of approximately $130 million is in line with the backlog of $135 million for the same period of 2012.

"In the third quarter of 2013, Armtec delivered solid financial results with higher revenues due to improved engineered precast volumes in the Pacific, Central and Soundwall market areas. Despite a slight recovery in the third quarter, results for the Drainage business unit remained below expectations in 2013," said Mark Anderson, President and Chief Executive Officer.  "Overall, fourth quarter revenue is expected to be slightly higher than 2012 on the strength of the Precast business unit performance from large infrastructure projects in Central and Western Canada. Looking ahead, the demand for drainage products is expected to regain some of the softness experienced in 2013, while precast market activity is expected to remain solid given the anticipated level of construction and infrastructure activity throughout Canada over the next two years."

		Three Months Ended				Nine Months Ended
(in thousands of Canadian dollars except per share amounts) (unaudited)			September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Revenue		$	144,725	$	135,330	$	347,558	$	345,834
Gross margin		$	30,277	$	29,212	$	66,834	$	66,240
As a % of revenue			20.9%		21.6%		19.2%		19.2%
Selling, general and administrative		$	14,232	$	15,104	$	41,664	$	41,613
As a % of revenue			9.8%		11.2%		12.0%		12.0%
Earnings from operations		$	16,050	$	15,790	$	25,170	$	25,798
As a % of revenue			11.1%		11.7%		7.2%		7.5%
Finance expense		$	7,926	$	12,956	$	23,084	$	38,049
As a % of revenue			5.5%		9.6%		6.6%		11.0%
Net earnings (loss) attributable to owners of the Company		$	6,089	$	2,526	$	1,588	$	(8,788)
As a % of revenue			4.2%		1.9%		0.5%		(2.5)%
Diluted earnings (loss) per share		$	0.25	$	0.10	$	0.07	$	(0.37)
EBITDA		$	19,025	$	18,033	$	34,147	$	36,262
As a % of revenue			13.1%		13.3%		9.8%		10.5%
Breakdown of depreciation and amortization by financial statement line item:
Cost of sales		$	1,568	$	1,664	$	4,820	$	5,741
Selling, general and administrative			1,407		1,415		4,157		4,993
Total depreciation and amortization		$	2,975	$	3,079	$	8,977	$	10,734

1)	Please refer to the section entitled "Non-GAAP Measure" of the separately issued management, discussion and analysis for the three and nine months ended September 30, 2013 and September 30, 2012 for the reconciliation of EBITDA.

THIRD QUARTER RESULTS

Revenue
Armtec recorded revenue of $144.7 million for the three months ended September 30, 2013, $9.4 million or a 6.9% increase over the three months ended September 30, 2012.  Improved engineered precast volumes in the Pacific, Prairie and Soundwall market areas continued to support the growth in the quarter.  Drainage revenue improved in Central Canada but these gains were offset by reduced demand and more competitive pricing in the Prairie provinces and the continued depressed Eastern construction markets.

Earnings from Operations
The earnings from operations for the third quarter of 2013 were $16.1 million or 11.1% of revenue as compared to $15.8 million or 11.7% of revenue for the 2012 comparative period.  Depreciation and amortization in the quarter of $3.0 million was consistent with 2012 levels.

The gross margin for the three months ended September 30, 2013 was $30.3 million, an increase of $1.1 million from $29.2 million in the same period of 2012.  As a percentage of revenue, the gross margin in the quarter was 20.9%, compared with 21.6% in the same period of 2012.  Despite similar revenue levels, operating results for the Drainage business unit ("BU") were lower than prior year mainly because of lower pricing experienced in the Prairie provinces and a slight increase in raw material costs as compared to 2012.  Total Company results were in line with prior year as the shortfall in Drainage results were offset by Precast due to higher revenue, improvements in operational performance and the favourable mix of engineered precast projects.

Selling, general and administrative expenses for the three months ended September 30, 2013 were $14.2 million, as compared to $15.1 million in 2012.  The decrease in expenses in the quarter related to the timing of the provision of annual incentive costs.

EBITDA performance for the quarter of $19.0 million was slightly favourable to the prior year of $18.0 million; however, the results did not meet management's expectations for Drainage products in the quarter following the slow start to the construction season in the first half of 2013.  Although the Precast BU continued to demonstrate solid revenue gains with associated operating performance improvements, the soft market conditions in Eastern Canada combined with the overall lower results in the Drainage BU resulted in $0.4 million being provided for the annual incentive plan as compared to $2.8 million in the same quarter of 2012.

YEAR TO DATE RESULTS

Revenue
Armtec recorded revenue of $347.6 million in the first nine months of 2013, which was consistent with the nine months ended September 30, 2012.  During the third quarter, revenue from transportation related projects increased, however, municipal government projects continued to lag prior year levels.  Agricultural drainage product revenue was impacted by the unfavourable installation conditions due to weather during the first half of 2013 and while year over year revenue was better in the third quarter than prior year, the shortfall was not fully recovered.  The year to date softness in the infrastructure and agricultural markets was offset by improved engineered precast volumes, with year over year growth in commercial building applications.

Earnings from Operations
The earnings from operations for the nine months ended September 30, 2013 were $25.2 million as compared to $25.8 million in the same period of 2012.  Depreciation and amortization was $9.0 million or $1.7 million lower than 2012 levels at approximately $10.7 million.

Year to date gross margin was $66.8 million, consistent with prior year results, on similar revenue levels.  As a percentage of revenue, gross margin was 19.2% in both years.  Improvements in operational performance and the favourable mix of engineered precast projects especially in the Pacific and Central market areas offset the impact of softer volumes of standard precast products and the impact of the depressed construction activity in Eastern Canada.  Competitive corrugated steel pipe pricing pressures in the Prairies combined with the impact of lower volumes and a slight increase in raw material costs to negatively impact year over year performance in the Drainage BU.

Selling, general and administrative expenses for the nine months ended September 30, 2013 were $41.7 million, comparable to 2012 at 12.0% of revenue.

EBITDA of $34.1 million was below the prior year by $2.1 million or 5.8%.  The $7.5 million decline in EBITDA for the Drainage BU and the Corporate cost increase of $1.2 million was partially offset by the $6.6 million improvement in earnings from the Precast BU.  On a year to date basis, the provision for the annual incentive plan was $3.0 million compared to $2.8 million in 2012.

RESULTS BY SEGMENT

Drainage Solutions

		Three Months Ended				Nine Months Ended
(in thousands of Canadian dollars) (unaudited)			September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Revenue		$	60,388	$	60,048	$	123,495	$	142,667
Earnings from operations		$	9,673	$	10,676	$	13,986	$	21,185
As a % of revenue			16.0%		17.8%		11.3%		14.8%
Depreciation and amortization		$	551	$	549	$	1,595	$	1,935
As a % of revenue			0.9%		0.9%		1.3%		1.4%
EBITDA		$	10,224	$	11,225	$	15,581	$	23,120
As a % of revenue			16.9%		18.7%		12.6%		16.2%

Revenue
Revenue for the Drainage BU was $60.4 million in the quarter ended September 30, 2013, consistent with the same period in 2012.  Improvements were experienced in Central Canada where some of the softness related to weather in the first half of the year was recovered in building trades, agricultural and municipal infrastructure applications.  The Eastern market area continued to experience reduced demand as a result of the Charbonneau Commission Inquiry, lower municipal spending and a significant reduction in forestry projects due to the suspension of government grants in 2013.

Revenue for the nine months ended September 30, 2013 was $123.5 million, a decrease of $19.3 million or 13.5% from the same period in 2012.  While recovery was noted in certain areas during the third quarter, it did not offset the softness experienced throughout the first half of the year.  The agricultural, residential, natural resource and infrastructure application markets were impacted across each market area by the weather conditions in the first half of 2013.  In addition, the release of new municipal projects in Eastern Canada has slowed as a result of the ongoing investigation into the Quebec construction market and suspension of forestry grants.  Also in the Prairies, competition in the corrugated steel pipe market has impacted selling prices.  By comparison, installation conditions were favourable and resulted in stronger demand in 2012. In addition Eastern and Western Canada were not experiencing the challenges noted in 2013.

Earnings from operations
The earnings from operations in the quarter were $9.7 million, a decrease of $1.0 million or 9.4% as compared to the same quarter of 2012.  On a year to date basis, earnings from operations decreased $7.2 million, or 34.0%, relative to the prior year.  Volume declines, competitive pricing in the corrugated steel pipe market in the Prairies and the investment in additional sales and operations personnel were the main drivers of the lower year over year performance.  Depreciation and amortization were consistent as a percentage of revenue in both the three and nine month periods as compared to the same periods in 2012.  EBITDA for the Drainage BU of $10.2 million in the third quarter of 2013 was $1.0 million lower than the same period in 2012.  On a year to date basis, EBITDA for 2013 of $15.6 million was $7.5 million below 2012.

Precast Concrete Solutions

		Three Months Ended				Nine Months Ended
(in thousands of Canadian dollars) (unaudited)			September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012
Revenue		$	84,337	$	75,282	$	224,063	$	203,167
Earnings from operations		$	10,938	$	8,622	$	24,659	$	16,795
As a % of revenue			13.0%		11.5%		11.0%		8.3%
Depreciation and amortization		$	2,059	$	2,155	$	6,263	$	7,494
As a % of revenue			2.4%		2.9%		2.8%		3.7%
EBITDA		$	12,997	$	10,777	$	30,922	$	24,289
As a % of revenue			15.4%		14.3%		13.8%		12.0%

Revenue
Precast revenue for the third quarter of 2013 was $84.3 million as compared to $75.3 million in the same quarter of 2012.  Engineered precast projects were the main contributor of the favourable variance, driven by improved volumes in the Prairie and Soundwall market areas and the Kitimat smelter modernization project in the Pacific market area.  These improvements offset softness in the Eastern market area which has experienced lower government spend levels and project delays influenced by the ongoing Charbonneau Commission Inquiry.

Precast revenue to date for 2013 at $224.1 million was up 10.3% on the $203.2 million in the first nine months of 2012.  Engineered precast project volume improvements continued to offset the softer standard precast product revenue which was impacted by the unfavourable installation conditions in 2013 and overall lower market demand, especially in the Prairies.  Revenue to date in 2013 for standard precast products was 3.0% or $1.4 million lower than 2012 levels.  Engineered precast revenue increased by $23.5 million, or 15.5%, and was attributable to improved market conditions across the country excluding the Eastern market area.  The projects driving the revenue increase included Soundwall barriers in Ontario, the Kitimat smelter modernization project in the Pacific market area, the Pan American games in the Central market area, and the improved project activity in the Prairies.  Engineered precast project backlog at September 30, 2013 was approximately $130 million compared with the backlog of $135 million in September 2012.

Earnings from operations
Overall, earnings from operations in Precast improved in both the three and nine month periods ending September 30, 2013 by $2.3 million and $7.9 million respectively over the comparative periods of 2012.  In addition to the improved engineered precast project volumes, operational performance continued to improve in 2013 driven by a more favourable mix of projects.  These improvements offset the impact of the softer standard precast volumes which were impacted by weather in the first half of the year and softer demand for single family residential markets resulting in lower margin performance on these products.  Depreciation and amortization was slightly higher than prior year for the nine months ended September 30, 2013 as a result of the generative capital expenditures made to support the Highway 407 East Expansion project, which is expected to commence production in the fourth quarter of 2013.  The resulting EBITDA for the three and nine months ended September 30, 2013 improved over 2012 levels by $2.2 million and $6.6 million respectively.

OUTLOOK

The overall outlook for Canada's infrastructure and construction markets in the short term remains similar to our recent quarterly reports.  Overall revenue for the fourth quarter is expected to be slightly higher than 2012 levels, as the demand for precast products remains positive.  Standard precast product volumes are anticipated to remain relatively soft given the reduced activity in the single family residential market.  However, engineered precast product revenue and performance is anticipated to remain favourable because of the large infrastructure projects in Central and Western Canada.  Engineered precast projects approximating $37 million were booked during the third quarter of 2013 resulting in backlog of approximately $130 million, similar to the backlog of $135 million at September 30, 2012.  The demand for Drainage products in the final quarter of 2013 is anticipated to be slightly down to 2012 levels as the construction season comes to a close.  Gross margin pressure is expected to continue due to the competitive situation in the Prairie provinces and higher commodity prices anticipated in the fourth quarter.

Total revenue is expected to be slightly favourable for 2013 as compared to 2012 levels on the strength of engineered precast products.  As revenue in the Drainage BU has been lower than planned, the full year EBITDA for the Company is expected to be similar or slightly favourable to prior year.  The 2013 annual incentives are expected to be substantially lower than those paid in 2012, with only minor adjustments in the fourth quarter to reflect the actual level of provision required.  The 2013 capital spend, excluding assets under finance lease, is expected to be approximately $8 million in annual sustaining and generative capital expenditures.

Looking ahead, management continues to believe the overall outlook for Canada's infrastructure and construction markets remains flat to slightly favourable.  The demand for drainage products is expected to regain some, but not all, of the softness experienced across Canada in 2013.  Steady demand is anticipated from government spending and the private construction and natural resource end use markets, offset by the potential slowdown in agricultural drainage installations, which are heavily impacted by crop prices.  Precast market activity is expected to be favourable with the current level of building construction and infrastructure projects announced throughout Canada over the next two years.  Market activity in Eastern Canada is expected to remain depressed while the Charbonneau Commission continues.

Armtec remains focused on its mission, Elevate 2015: elevating performance through a focus on operational excellence, with ambitions relating to People, Health & Safety, Customers and Financial Success.  The transition to the new BU structure has resulted in an improved focus on the core competencies in each of Precast and Drainage.  Each BU has identified areas of performance improvement and will strive to leverage best practices and improve execution capabilities in 2014.

CONFERENCE CALL AND WEBCAST

Management will host a conference call at 10:00 a.m. (ET) on Thursday, November 7, 2013 to discuss the results.  Investors who wish to participate can access the call using the following numbers: 1-800-319-4610 or [phone] outside of Canada and the USA. 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 Thursday, November 21, 2012.  To access the rebroadcast, please dial 1-800-319-6413 or [phone] and quote the passcode 3271#.

Armtec's full consolidated financial statements, notes to financial statements and management's discussion and analysis are available at www.sedar.com or at www.armtec.com.

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; and 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.

NON-GAAP MEASURE

EBITDA
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.

FORWARD-LOOKING STATEMENTS

This news release contains "forward-looking" statements (including those set out under the section entitled "Outlook" including statements relating to the overall outlook for Armtec's markets; the level of revenue expected for the fourth quarter and full year; the anticipated demand and performance related to standard and engineered precast products; the relative year over year demand for Drainage products; the effects of competitive pressure and commodity prices in Prairie provinces; the overall anticipated financial performance for the Company; the expected level and timing of costs related to Armtec's annual incentive plan; the approximate level of the Company's capital spend program; the effect of market activity on Precast products and the effect of the Charbonneau Commission on Eastern Canada;  and that Armtec's business units will strive to leverage best practices and improve execution capabilities in 2014) 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.

DEFINED TERMS

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 and nine months ended September 30, 2013.

SOURCE: Armtec Infrastructure Inc.

Carrie Boutcher
Vice President & Corporate Secretary

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