Armtec Reports Financial Results for the First Quarter 2015 and Court Approval of the Brookfield Transaction
Toronto Stock Exchange: ARF; ARF.DB
CONCORD, ON, May 12, 2015 /CNW/ - Armtec Infrastructure Inc. ("Armtec" or the "Company"). Armtec today reported financial results for the first quarter ended March 31, 2015.
Summary:
- Revenue in the first quarter was $69.0 million, a decrease of $0.6 million or 0.9%, over the same period in 2014. Revenue for the Precast Concrete Solutions business unit was $54.4 million, up $0.7 million, or 1.3%, compared to the first quarter of 2014 and revenue for the Drainage Solutions business unit was $14.6 million, a decrease of $1.3 million, or 8.2%, from the same period in 2014.
- The loss from operations for the quarter was $50.8 million compared to a loss from operations of $10.5 million in the same period of 2014. As a result of the decline in the Company's market enterprise value during the first quarter of 2015, Armtec reviewed the carrying value of its assets as required under International Financial Reporting Standards and as a result recorded a non-cash impairment charge of approximately $33.9 million in the first quarter. Excluding the non-cash impairment charge, loss from operations for the first quarter of 2015 would have been $16.9 million.
- A first quarter EBITDA loss of $15.4 million was greater than t$he prior year by $7.8 million. Removing the impact of strategic review and related costs of 4.0 million, Adjusted EBITDA was a loss of $11.4 million.
- On April 29, 2015, Armtec announced that it has entered into a definitive asset purchase agreement ("Brookfield Purchase Agreement") in respect of the sale of substantially all of its assets to a new entity ("New Armtec") that is an affiliate of Brookfield Capital Partners Fund III LP as previously contemplated and disclosed in Armtec's news release dated February 25, 2015 (the "Brookfield Transaction").
- The Company also announced, on April 29, 2015, that it had obtained an order from the Ontario Superior Court of Justice (the "Court") protecting Armtec and its subsidiaries pursuant to the Companies' Creditors Arrangement Act ("CCAA") in order to permit the company to seek the Court's approval of the Brookfield Transaction. On May 11, 2015, Armtec received approval from the Court for the Brookfield Transaction.
- The Company was advised by the Toronto Stock Exchange on April 29, 2015 that Armtec's securities, being Armtec's Common Shares traded under the symbol ARF and Armtec's 6.50% convertible unsecured subordinated debentures due June 30, 2017 ("Debentures") traded under the symbol ARF.DB, were suspended from trading effective April 29, 2015 and will be delisted effective on May 29, 2015.
- The separately issued interim condensed consolidated financial statements describe matters and conditions related to the announced extension, waiver and sales process agreements that indicate the existence of a material uncertainty that may cast significant doubt upon Armtec's ability to continue as a going concern.
Summary of Results For the three months ended March 31 |
2015 |
2014 |
||||||
(in thousands of Canadian dollars except per share amounts) (unaudited) |
||||||||
Revenue |
$ |
68,964 |
$ |
69,559 |
||||
Gross margin |
$ |
321 |
$ |
3,083 |
||||
As a % of revenue |
0.5% |
4.4% |
||||||
Selling, general and administrative |
$ |
17,219 |
$ |
13,646 |
||||
As a % of revenue |
25.0% |
19.6% |
||||||
Impairment of assets |
$ |
33,924 |
$ |
- |
||||
As a % of revenue |
49.2% |
-% |
||||||
Loss from operations |
$ |
(50,839) |
$ |
(10,523) |
||||
As a % of revenue |
(73.7)% |
(15.1)% |
||||||
Finance expense |
$ |
19,866 |
$ |
7,677 |
||||
As a % of revenue |
28.8% |
11.0% |
||||||
Net loss attributable to owners of the Company |
$ |
(70,705) |
$ |
(13,566) |
||||
As a % of revenue |
(102.5)% |
(19.5)% |
||||||
Basic and diluted loss per share |
$ |
(2.94) |
$ |
(0.56) |
||||
EBITDA 1 |
$ |
(15,372) |
$ |
(7,558) |
||||
As a % of revenue |
(22.3)% |
(10.9)% |
||||||
Adjusted EBITDA |
$ |
(11,393) |
$ |
(7,558) |
||||
As a % of revenue |
(16.5)% |
(10.9)% |
||||||
For the three months ended March 31 |
2015 |
2014 |
||||||
(in thousands of Canadian dollars except per share amounts) (unaudited) |
||||||||
Breakdown of depreciation and amortization by financial statement line item: |
||||||||
Cost of sales |
$ |
983 |
$ |
1,517 |
||||
Selling, general and administrative |
560 |
1,448 |
||||||
Total depreciation and amortization |
$ |
1,543 |
$ |
2,965 |
(1) Please refer to the section entitled "Non-GAAP Measure" below for a definition of EBITDA and to the separately issued management, discussion and analysis for the three months ended March 31, 2015 and March 31, 2014 for a reconciliation of this non-GAAP measure. |
First Quarter Results
Revenue
Armtec recorded revenue of $69.0 million in the first quarter of 2015 which was $0.6 million, or 0.9% lower, than 2014 levels at $69.6 million. Lower activity levels in the infrastructure and natural resource markets offset improved activity in agriculture and building construction markets. Improved engineered precast volumes related to the rail infrastructure project running from Toronto Pearson International Airport to Union Station in downtown Toronto, Ontario ("UP Express") were offset by lower infrastructure activity in the Prairie and Central market areas. Improved institutional and commercial activity in the Prairie and Central building construction applications helped offset the lower Prairie infrastructure results. The Kitimat Smelter Modernization ("Kitimat") project reached completion in 2014 and hasn't been replaced with a similar project in the Pacific market area. Armtec's portion of the Kitimat smelter modernization project was announced in December of 2011 to supply precast components to expand and upgrade Rio Tinto Alcan's aluminum smelter in Kitimat, British Columbia.
The start to 2014 was heavily impacted in Central Canada by adverse weather conditions causing the postponement of many infrastructure projects and agricultural drainage installations. With slightly more favourable weather conditions in the first quarter of 2015, the Drainage Solutions ("Drainage") business unit ("BU" or "BUs") agricultural results have improved in the Central market area although infrastructure activity remains light. Oil & gas and municipal infrastructure activity remains compressed, particularly in Western Canada, where sales into the energy sector have declined due to the depressed oil & gas market. International Drainage product revenue remains below prior year levels primarily due to the loss of exports to Russia.
Loss from Operations
The loss from operations for the first quarter of 2015 was $50.8 million compared to a loss from operations of $10.5 million in the same period of 2014. As a result of the continued decline in the Company's market enterprise value during the first quarter of 2015, Armtec reviewed the carrying value of its assets as required under International Financial Reporting Standards and as a result recorded a non-cash impairment charge of approximately $33.9 million during the first quarter. The non-cash impairment charge was allocated on a pro rata basis to property, plant and equipment and intangible assets in the impaired cash-generating units as identified by the Company. Please refer to the separately issued interim condensed consolidated financial statements for more details on the non-cash impairment charge. Excluding the non-cash impairment charge, loss from operations for the first quarter of 2015 would have been $16.9 million.
Gross margin in the first three months of 2015 of $0.3 million, or 0.5% of revenue, declined from $3.1 million, or 4.4% of revenue in the same period of 2014. Despite the improvements supported by the UP Express project, performance in the Precast Concrete Solutions ("Precast") BU for the first three months of 2015 has lagged 2014 results due to an adverse project mix, project delays and adverse execution of certain projects. The completion of the Kitimat project and a rapid transit project in 2014 resulted in declining revenue in the Pacific market area. At the same time the Prairie market area experienced softer revenue due to the completion of a significant bridge and oil & gas project. Institutional and commercial work in the Prairie and Central market areas mitigated these declines.
During the first quarter of 2015, the Drainage BU has been successful in increasing product selling prices to offset higher input costs experienced throughout 2014 related to rising steel and resin prices and the weaker Canadian dollar. These costs were primarily passed on in the Central market area for both infrastructure and agricultural applications. In addition to higher selling prices, the Drainage BU continues to implement various manufacturing cost improvements to improve product margins.
When removing the $4.0 million impact of strategic review and related costs during the first quarter, selling general and administrative expenses were slightly down at $13.2 million, compared to $13.6 million in the same period of 2014.
Depreciation and amortization was $1.5 million, which declined from a 2014 balance of $3.0 million, due to the non-cash impairment charge of $46.9 million recognized during the fourth quarter of 2014.
A first quarter EBITDA loss of $15.4 million was greater than the prior year by $7.8 million. Removing the impact of strategic review and related costs of $4.0 million, Adjusted EBITDA was a loss of $11.4 million.
Results by Segment
Drainage Solutions For the three months ended March 31 |
2015 |
2014 |
||||
(in thousands of Canadian dollars) (unaudited) |
||||||
Revenue |
$ |
14,599 |
$ |
15,908 |
||
Loss from operations |
$ |
(13,157) |
$ |
(2,792) |
||
As a % of revenue |
(90.1)% |
(17.6)% |
||||
Depreciation and amortization |
$ |
447 |
$ |
537 |
||
As a % of revenue |
3.1% |
3.4% |
||||
Impairment of assets |
$ |
10,366 |
$ |
- |
||
EBITDA |
$ |
(2,344) |
$ |
(2,255) |
||
As a % of revenue |
(16.1)% |
(14.2)% |
Revenue
Revenue for Drainage for the first three months of 2015 was $14.6 million, a decrease of $1.3 million, or 8.2%, from the same period in 2014. A decline in revenue in Western Canada and International market areas was offset by improved sales in Central Canada. Western Canada experienced softness in municipal infrastructure as well as natural resources as energy sales have declined due to the depressed oil & gas market. International did not have any large projects in 2015 due to the loss of a major Russian customer and no other major products in the pipeline. Central Canada saw higher agricultural sales in January due to improved weather conditions versus the same month of the prior year.
Loss from Operations
The loss from operations in Drainage in the first three months of 2015, excluding the non-cash impairment charge of $10.4 million, was the same as the comparable period of 2014 at $2.8 million. During the first quarter of 2015, steel and resin prices continued to increase due mainly to the weaker Canadian dollar; however, Drainage was able to pass on the higher input costs through selling price increases primarily in the Central market area for both infrastructure and agriculture applications. Manufacturing cost improvements were delivered in the quarter through the focus on controllable expenses and other performance improvement plans including a focus on efficiencies in corrugated high-density polyethylene pipe products as a result of favourable resin optimization and more efficient inter-branch transfers.
Depreciation and amortization were slightly down compared with 2014 due to the non-cash impairment charge in the fourth quarter of 2014. The EBITDA loss for the Drainage BU of $2.3 million was similar to the same period of 2014.
Precast Solutions For the three months ended March 31 |
2015 |
2014 |
||||
(in thousands of Canadian dollars) (unaudited) |
||||||
Revenue |
$ |
54,365 |
$ |
53,651 |
||
Loss from operations |
$ |
(28,041) |
$ |
(3,377) |
||
As a % of revenue |
(51.6)% |
(6.3)% |
||||
Depreciation and amortization |
$ |
767 |
$ |
2,029 |
||
As a % of revenue |
1.4% |
3.8% |
||||
Impairment of assets |
$ |
22,541 |
$ |
- |
||
EBITDA |
$ |
(4,733) |
$ |
(1,348) |
||
As a % of revenue |
(8.7)% |
(2.5)% |
Revenue
Precast revenue for the first three months of 2015 was $54.4 million which was up $0.7 million, or 1.3%, over the $53.7 million in 2014. The growth in engineered precast revenue was mainly attributable to the UP Express project in the Soundwall market area. The Pacific and Prairies market areas recorded lower revenue over the prior year with revenue in the Pacific market area declining due to the completion of Kitimat and a rapid transit project in 2014. The Prairie market area experienced reduced revenue mainly due to the completion of a large bridge and oil & gas project compounded by delays in certain projects expected to commence during the quarter. Standard precast revenue was consistent with prior year levels with growth in the Prairie market area offsetting revenue declines related to on-going unfavourable market conditions in the Eastern market area for the first three months of 2015.
Loss from Operations
Overall, loss from operations in the first three months of 2015, excluding the non-cash impairment charge of $22.5 million, was $5.5 million, an increase of $2.1 million, from the $3.4 million loss in 2014. Engineered precast gross margin declined due to an unfavourable mix of projects in the Pacific, Central and Prairie market areas which was only partially offset by work performed for the UP Express project in Soundwall. During 2014, Kitimat and other higher margin projects were being completed as compared to those during the first quarter of 2015.
The Central, Pacific, and Prairie market areas have experienced increased pricing pressure and an unfavourable mix of projects in the first three months of 2015 when compared to the prior year. Excluding Soundwall, the mix of projects was at lower margins than in the same period of 2014. In addition, the Central, Pacific, and Prairie market areas continued to experience lower than targeted efficiencies due to the under-estimated complexity and costs of certain projects. In addition, weather conditions in the Central market area continued to contribute to poor productivity by significantly increasing production costs for labour and overheads.
Depreciation and amortization decreased from the comparable period of the prior year due to the non-cash impairment charge in the fourth quarter of 2014. The EBITDA loss for the Precast BU of $4.7 million was $3.4 million worse than the same period of 2014.
Outlook
Management continues to work towards the June 1, 2015 closing of the Brookfield Purchase Agreement, as announced on April 29, 2015.
New Armtec will not assume any of Armtec's obligations under its 8.875% senior notes due 2017 (the "Senior Notes") or the Debentures. The Brookfield Transaction will not provide any recovery for the holders of the Senior Notes, Debentures or Common Shares.
Ernst & Young Inc. is serving as the Court-appointed monitor as part of the CCAA proceedings. Documents relating to the CCAA proceedings are available on the monitor's website: www.ey.com/ca/armtec.
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, building 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. 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, 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 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, and the trading price of Armtec's securities. These risks and uncertainties are largely derived from Armtec's capital structure and business environment.
For a full description of the risks and uncertainties facing the Company. Please refer to the section entitled "Risks and Uncertainties" in Armtec's separately issued management's discussion and analysis available at www.sedar.com or at armtec.com.
Caution Regarding Forward-Looking Statements
This news release contains "forward-looking" statements 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. These factors also include, but are not limited to, known and unknown risks with respect to: capital and liquidity risk: restrictive covenants and obligations under debt instruments; access to bonding and letters of credit; delisting of securities; competition; cost estimates vs. actual profit in respect of large projects; credit risk in respect of Armtec's receivables; fluctuations in operating results; seasonality and adverse weather; relationships with suppliers; lack of long-term agreements; the outcome of existing legal proceedings, including the CCAA proceedings; future claims and litigation; industry cyclicality; ineffective change management; availability and price volatility of raw materials; acquisition and expansion risk; current global financial conditions; reduction in demand for Armtec's products; the ability to attract and retain key personnel; competition for labour; current and future environmental obligations pursuant to federal, provincial and municipal environmental laws and regulations; currency rate fluctuations; product liability in respect of both Armtec's products and the products incorporated from third parties; expiration of rights under license and distribution arrangements; operating hazards; potential infringement in respect of Armtec's intellectual property and any of Armtec's licensed intellectual property; collective bargaining; pension plans; interest rates; information management; uninsured and underinsured losses with respect to Armtec's insurance policies; current insurance coverage; changes to securities laws and corporate governance standards; changes in and Armtec's compliance with respect to income tax and other tax laws; geographical risk; and geopolitical risk.
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. These cautionary statements qualify all forward-looking statements in this news release. 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.
SOURCE Armtec Infrastructure Inc.
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Carrie Boutcher, Vice President & Corporate Secretary, Tel: (647) 795-9290
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