Armtec Infrastructure Inc. Reports Results for the Second Quarter 2013

Toronto Stock Exchange: ARF; ARF.DB

CONCORD, ON, Aug. 7, 2013 /CNW/ - Armtec Infrastructure Inc. ("Armtec" or the "Company") (TSX: ARF; ARF.DB) today reported financial results for the second quarter ended June 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 was $123.9 million, a decrease of $3.5 million or 2.8% from 2012. Year to date, revenue was $202.8 million, $7.7 million or 3.6% lower than 2012. Drainage revenue was $44.9 million, a decrease of $12.2 million or 21.4% from 2012, and Precast revenue was up $8.7 million or 12.4% to $79.0 million compared to 2012. Year to date, Drainage revenue was $63.1 million, 23.6% lower than 2012 and Precast revenue was $139.7 million, up 9.3% over the prior year.
• Gross margin was $26.4 million, a decrease of $1.3 million from $27.7 million in the second quarter of 2012.  As a percentage of revenue, gross margin decreased slightly to 21.3% from 21.8% in the prior year. Year to date, gross margin was $36.6 million, consistent with prior year results.  As a percentage of revenue, first half gross margin of 18.0% was an improvement, on reduced revenue levels, over the 17.6% achieved in 2012.
• Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")¹ was $15.1 million compared to $18.1 million in the same period in 2012. Year to date, EBITDA was $15.1 million compared to $18.2 million in 2012.

"In the second quarter of 2013, Armtec's financial results reflected lower market activity levels for drainage and standard precast products as a result of reduced government spending and unfavourable installation conditions across the country, partially offset by improved engineered precast activity in the Pacific, Central and Soundwall market areas," said Mark Anderson, President and Chief Executive Officer.  "Going forward, the overall outlook for our key markets remains positive. Our engineered precast backlog is currently strong with our recently announced new contracts commencing production in the second half of the year and we expect these gains to favorably impact the business in the second half of the year and into 2014.  However, demand for drainage products will likely remain soft for the balance of 2013.  We are pleased with the transition to the BU structure and we remain focused on our Elevate 2015 mission of elevating performance to return the Company to its core strengths of delivering products and services that meet or exceed the need of our customers."

		Three Months Ended				Six Months Ended
(in thousands of Canadian dollars except per share amounts) (unaudited)		June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Revenue		$	123,897	$	127,408	$	202,833	$	210,504
Gross margin		$	26,412	$	27,740	$	36,557	$	37,028
As a % of revenue			21.3%	21.8%		18.0%		17.6%
Selling, general and administrative		$	14,380	$	12,798	$	27,432	$	26,509
As a % of revenue			11.6%	10.0%		13.5%		12.6%
Earnings from operations		$	12,046	$	14,068	$	9,120	$	10,008
As a % of revenue			9.7%	11.0%		4.5%		4.8%
Finance expense		$	7,715	$	12,060	$	15,158	$	25,093
As a % of revenue			6.2%	9.5%		7.5%		11.9%
Net earnings (loss) attributable to owners of the Company		$	3,228	$	1,506	$	(4,501)	$	(11,314)
As a % of revenue			2.6%	1.2%		(2.2)%		(5.4)%
Basic and diluted earnings (loss) per share		$	0.13	$	0.06	$	(0.19)	$	(0.47)
EBITDA		$	15,057	$	18,092	$	15,122	$	18,229
As a % of revenue			12.2%	14.2%		7.5%		8.7%
Breakdown of depreciation and amortization by financial statement line item:
	Cost of sales	$	1,620	$	1,696	$	3,252	$	4,077
	Selling, general and administrative		1,391	1,496		2,750		3,578
Total depreciation and amortization		$	3,011	$	3,192	$	6,002	$	7,655

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

SECOND QUARTER RESULTS

Revenue
Armtec recorded revenue of $123.9 million for the three months ended June 30, 2013, $3.5 million or 2.8% less than revenue for the three months ended June 30, 2012.  Lower market activity in drainage and standard precast products, primarily related to reduced government spend levels exacerbated by unfavourable installation conditions across the country, were partially offset by improved engineered precast volumes in the Pacific, Central and Soundwall market areas.

Earnings from Operations
The earnings from operations for the second quarter of 2013 were $12.0 million, or $13.4 million excluding annual incentive costs, as compared to $14.1 million in the second quarter of 2012.  During the first half of 2012, Armtec did not recognize costs under its annual incentive plan as the Company was required to achieve the 2011 Brookfield Facility Debt to EBITDA covenant, measured at June 30, 2012, for the plan to become effective. Depreciation and amortization in the quarter of $3.0 million was consistent with 2012 levels.

The gross margin for the three months ended June 30, 2013 was $26.4 million, a decrease of $1.3 million from $27.7 million in the same period of 2012.  As a percentage of revenue, the gross margin in the second quarter of 2013 was 21.3%, compared with 21.8% in 2012 due mainly to Armtec recognizing approximately $0.5 million, or 0.4% of revenue, in annual incentive costs in 2013.  Improvements in operational performance and the favourable mix of engineered precast projects continued to offset the impact of softer volumes of the standard precast and drainage products and the resulting under-absorption of labor and overheads as the plants managed inventory levels.

Selling, general and administrative expenses for the three months ended June 30, 2013 were $14.4 million, as compared to $12.8 million in 2012.  The increase in expenses in the quarter resulted from the previously announced planned investment in key positions and related costs in the new BU structure to support Elevate 2015 and a provision of $0.9 million for annual incentive costs.

YEAR TO DATE RESULTS

Revenue
Armtec recorded revenue of $202.8 million in the first half of 2013, $7.7 million or 3.6% less than revenue of $210.5 million for the six months ended June 30, 2012.  Lower activity levels in the Company's residential, agricultural and infrastructure markets, mainly attributable to moderated municipal government spending, combined with unfavourable installation conditions due to weather, were offset by improved engineered precast volumes in the natural resource and commercial end use markets.

Earnings from Operations
The earnings from operations for the first six months of 2013 were $9.1 million as compared to $10.0 million in the same period of 2012.  Depreciation and amortization in the first half of the year was $6.0 million or $1.7 million lower than 2012 at approximately $7.7 million reflecting the impact of the significant impairment charges incurred in 2011.

The gross margin for the six months ended June 30, 2013 was $36.6 million, consistent with prior year results, despite the reduced revenue levels.  As a percentage of revenue, the first half gross margin of 18.0% was an improvement over the 17.6% achieved in the same period of 2012.  Armtec recognized approximately $1.1 million in annual incentive costs in cost of goods sold in 2013.  Before depreciation and amortization and annual incentive costs, the gross margin on a comparable basis was 20.2% in 2013 or 0.7 percentage points better than the prior year.  Improvements in operational performance and the favourable mix of engineered precast projects offset the impact of softer volumes of the standard precast and drainage products.

Selling, general and administrative expenses for the six months ended June 30, 2013 were $27.4 million, as compared to $26.5 million in 2012.  To date in 2013, approximately $1.5 million has been recognized for the annual incentive plan which was not incurred during the first half of 2012.  Before the cost of the annual incentive plan and depreciation and amortization, selling, general and administration costs were in line with prior year levels.

RESULTS BY SEGMENT

Drainage Solutions

	Three Months Ended				Six Months Ended
(in thousands of Canadian dollars) (unaudited)	June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Revenue	$	44,891	$	57,108	$	63,107	$	82,619
Earnings from operations	$	6,431	$	10,355	$	4,313	$	10,509
As a % of revenue		14.3%		18.1%		6.8%		12.7%
Depreciation and amortization	$	516	$	624	$	1,044	$	1,386
As a % of revenue		1.1%		1.1%		1.7%		1.7%
EBITDA	$	6,947	$	10,979	$	5,357	$	11,895
As a % of revenue		15.5%		19.2%		8.5%		14.4%

Revenue
Market activity levels continued to be lower than prior year across Canada in the second quarter of 2013.  Revenue for the Drainage BU was $44.9 million for the three-month period, a decrease of $12.2 million or 21.4% from the same period in 2012.  All market areas experienced depressed volumes due to the prolonged unfavourable weather conditions.  In addition, the Prairies, already impacted by the slow start to the construction season and disruption in shipping schedules with the flooding in Alberta, experienced increased competitive intensity in the corrugated steel pipe product group. The Eastern market area continued to experience reduced demand as a result of the Charbonneau Commission Inquiry, lower municipal spending and the effect of the construction strike in Quebec at the end of June. The agricultural, natural resource and infrastructure application markets were impacted across Canada by the shortened 2013 installation season and a continued softness in government spending while residential markets were impacted by the reduced level of new home construction.

Revenue from drainage products for the six months ended June 30, 2013 was $63.1 million, a decrease of $19.5 million or 23.6% from the same period in 2012.  The agricultural, residential, natural resource and infrastructure application markets were impacted across each market area by the weather conditions in 2013.  The extended cold weather followed by above average precipitation and flooding in Western Canada, has significantly impacted the demand for drainage products 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.  By comparison, during the first half of the prior year, installation conditions were favourable and resulted in revenue being brought forward in 2012.

Earnings from Operations
The earnings from operations in the quarter were $6.4 million, a decrease of $3.9 million or 37.9% as compared to the same quarter of 2012.  On a year to date basis, earnings from operations decreased $6.2 million or 59.0% relative to the prior year.  Gross margin percentage for both the quarter and the year to date, adjusted for incentives, tracked favourably to 2012 levels.  Volume declines and the investment in new operations and sales positions were the main drivers of the lower year over year performance.   During the first half of 2013, approximately $0.9 million in annual incentive costs were recognized. No incentives were recognized in the comparative 2012 period.  Depreciation and amortization were consistent in both the three and six-month periods as compared to the same periods in 2012.

EBITDA for the Drainage BU of $6.9 million in the second quarter of 2013 was $4.0 million lower than the same period in 2012.  On a year to date basis, EBITDA for 2013 of $5.4 million was $6.5 million below 2012 levels.

Precast Concrete Solutions

	Three Months Ended				Six Months Ended
(in thousands of Canadian dollars) (unaudited)	June 30, 2013		June 30, 2012		June 30, 2013		June 30, 2012
Revenue	$	79,006	$	70,300	$	139,726	$	127,885
Earnings from operations	$	10,678	$	8,666	$	13,721	$	8,173
As a % of revenue		13.5%		12.3%		9.8%		6.4%
Depreciation and amortization	$	2,105	$	2,130	$	4,204	$	5,339
As a % of revenue		2.7%		3.0%		3.0%		4.2%
EBITDA	$	12,783	$	10,796	$	17,925	$	13,512
As a % of revenue		16.2%		15.4%		12.8%		10.6%

Revenue
Precast revenue for the second quarter of 2013 was $79.0 million as compared to $70.3 million in the same quarter of 2012.  Engineered precast project volumes offset the softer standard precast product revenue which was impacted, similar to the drainage products, by the installation conditions in the quarter, lower residential demand and the market slowdown in Quebec.  Engineered precast project volumes were supported by the Kitimat smelter modernization project in the Pacific market area, parking structures in the Central and Prairie market areas and improved Soundwall volumes in Ontario.  These improvements offset softness in the Eastern market area which has experienced lower government spend levels and project delays influenced by the Charbonneau Commission Inquiry and the recent Quebec construction strike.

Precast revenue for the first half of 2013 was $139.7 million as compared to $127.9 million in the first six months of 2012.  Engineered precast project volumes continued to offset the softer standard precast product revenue which was impacted, similar to the drainage products, by the installation conditions across Canada and the overall market slowdown in Quebec. Revenue to date in 2013 for standard precast products was 15.0% or $5.0 million lower than 2012 levels.  Engineered precast revenue increased approximately $16.7 million or 17.6% and was attributable primarily to the Pacific, Central and Soundwall market areas offsetting continued project delays in the Eastern market area.  The projects driving the revenue increase included Soundwall barriers for various 400 series highway projects in Ontario, the Kitimat smelter modernization project in the Pacific market area and parking structures in the Central and Prairie markets area.  Engineered precast project backlog at June 30, 2013 was approximately $158 million, an increase of $8 million over June 2012 levels.

Earnings from Operations
Earnings from operations for the three and six months ended June 30, 2013 improved $2.0 million and $5.5 million respectively over 2012 results.  During 2013, annual incentive costs of $1.4 million were recognized as compared to none in the same period of 2012.  Adjusting for the timing of the annual incentive costs, results for the first six months of 2013 were $5.8 million ahead of the same period in 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 resulting in lower margin performance on these products.  Depreciation and amortization was consistent with the prior year for the three months ended June 30, 2013 and slightly lower for the first half of the year as compared to 2012.

The resulting EBITDA for the three and six months ended June 30, 2013 improved over 2012 levels by $2.0 million and $4.4 million respectively.

OUTLOOK

Management still believes the overall outlook for Armtec's key markets, in the short term, remains flat to slightly favourable.  The demand for drainage products is expected to remain down over the balance of the year due to the ongoing lower demand from the public sector.  Although steady demand is anticipated for drainage products from the private construction and natural resource end use markets, this demand is not expected to overcome the softness in government spending and the lost agricultural installation season in the first half of 2013.  Market activity in Eastern Canada is expected to remain depressed while the Charbonneau Commission Inquiry is ongoing and the demand for Armtec's drainage and standard precast products will continue to be adversely affected.

The backlog of engineered precast projects at June 30, 2013 is approximately $158 million, exceeding prior year levels by $8 million.  The most significant individual project remains the Kitimat smelter modernization project in British Columbia.  The recently announced project wins for the Highway 407 East expansion and Pan American games in Ontario as well as the elevated guide-way project for the Evergreen Light Rail Transit system in British Columbia and certain Soundwall projects will commence production in the second half of 2013 effectively replacing the parking structures and the first phase of the Kitimat project which are nearing completion.

Management views 2013 as a transition year whereby a strong foundation based on two new BUs and a market area General Manager structure will be built.  As Armtec moves toward the goals and ambitions outlined under Elevate 2015, the 2013 capital spend program is expected to be approximately $7.0 million in annual maintenance capital expenditures.  Overall, revenue is expected to be slightly favourable in 2013 over 2012 levels on the strength of the current engineered precast projects which will offset the expected softness in the drainage and standard precast markets.  As the business is realigned, a slight increase over 2012 selling, general and administrative cost levels is expected however, management will continue to assess the timing of incremental resources relative to market conditions and Company performance.  Management expects that ongoing improvements in performance will offset the higher organizational costs, delivering improved EBITDA results in 2013. Based on the current outlook, Armtec will continue to provide for the annual incentives at a similar annualized rate as recognized in 2012.  The impact in the second half of the year will, however, be lower than 2012, as $2.6 million of the incentive was recognized in the first half of 2013.

Armtec will continue to focus on the development and execution of its mission: Elevate 2015: elevating performance through a focus on operational excellence. The mission has four key areas of focus:  Health & Safety, People, Customers and Financial Success.  Management believes that a balanced approach to operational improvement and the new structure will enable the Company to get back to its core strengths of delivering products and services that meet or exceed customer's expectations.

CONFERENCE CALL & WEBCAST

Management will host a conference call at 10:00 a.m. (ET) on Thursday, August 8, 2013 to discuss the results.  Investors who wish to participate can access the call using the following numbers: 416-644-3414 or 1-800-814-0859.  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, August 15, 2013.  To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4626576#.

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 sections entitled "Outlook" including statements relating to the overall outlook for Armtec's markets; the demand for drainage products from the public and private sectors; the effects on Armtec's products via the suppression of market activity in Eastern Canada due to the Charbonneau Commission; the timing of the commencement of certain engineered precast projects during the second half of 2013; the expectation that the 2013 capital spend program is expected to be approximately $7.0 million; the expectation that revenue would be slightly favourable in 2013 over 2012 levels on the strength of the current engineered precast projects which will offset the expected softness in the drainage and standard precast markets; the anticipation that as the business is realigned that there will be a slight increase over 2012 selling, general and administrative cost levels; the expectation that ongoing improvements in performance will offset higher organizational costs, delivering improved EBITDA results in 2013; that Armtec will continue to provide for the annual incentives at a similar annualized rate as recognized in 2012 but the impact in the second half of the year will, however, be lower than 2012; and the belief that Armtec's Elevate 2015 plan will enable a balanced approach to operational improvement and the new structure will enable the Company to get back to its core strengths) 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 six months ended June 30, 2013.

SOURCE: Armtec Infrastructure Inc.

Carrie Boutcher
Vice President & Corporate Secretary
Armtec Infrastructure Inc.
Tel:  [phone]
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