Strongco Announces Fourth Quarter and Full Year 2015 Results

- Challenging Market Conditions Affect Performance in Key Markets -

TSX Symbol: SQP

MISSISSAUGA, ON, March 23, 2016 /CNW/ - Strongco Corporation (TSX: SQP) today reported financial results for the fourth quarter and year ended December 31, 2015.

2015 Financial Summary*

• Revenue decreased by 5% to $474.3 million 
• Gross margin of $82.7 million after $4.5 million additional inventory reserve, down from $86.3 million in 2014
• Operating loss of $1.5 million, compared to income of $13.0 million in 2014 (inclusive of $8.7 million of gains on sale of real estate sold in 2014)
• Net loss of $7.4 million, compared to net income of $0.9 million in 2014

* Comparisons are between full year 2015 and full year 2014.

"Over the past several years, Strongco has invested heavily in new branches, technology, and product lines; however, difficult market conditions, particularly in resources and energy, along with a weak Canadian dollar, led to disappointing results for the year," said Robert Beutel, Executive Chairman of Strongco. "We believe however, that with focus on our talents and streamlining our operations, we can return to levels of stability and financial strength in the near and long term."

Financial Summary
($ millions except per share amounts)

Period ended December 31	3 months		12 months
	2015	2014	2015	2014
Revenues	$128.2	$128.8	$474.3	$498.3
Gross Margin	$18.0	$21.5	$82.7	$86.3
Operating income (loss)	($6.1)	$0.6	($1.5)	$13.0
EBITDA^*	$1.2	$8.9	$24.7	$43.0
Net income (loss)	($5.3)	($3.3)	($7.4)	$0.9
Basic and diluted earnings (loss) per share	($0.40)	($0.25)	($0.56)	$0.07
Equipment Inventory			$199.0	$226.3
Equipment Notes Payable			$180.3	$197.8

*"EBITDA" refers to earnings before interest, income taxes, impairment of intangible asset, amortization of capital assets, amortization of equipment inventory on rent, and amortization of rental fleet. EBITDA is presented as a measure used by many investors to compare issuers on the basis of ability to generate cash flow from operations. EBITDA is not a measure of financial performance or earnings recognized under International Financial Reporting Standards ("IFRS") and therefore has no standardized meaning prescribed by IFRS and may not be comparable to similar terms and measures presented by other similar issuers. The Company's management believes that EBITDA is an important supplemental measure in evaluating the Company's performance and in determining whether to invest in shares. Readers of this information are cautioned that EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS as indicators of the Company's performance or to cash flows from operating, investing and financing activities as measures of the Company's liquidity and cash flows.

Fourth Quarter 2015 Review

Total revenues were $128.2 million, comparable to $128.8 million in the same quarter of 2014. Overall, equipment sales were up slightly, compared to the prior year while product support and rental revenues were down slightly.

Strongco's overall gross profit was $18.0 million, or 14.0% of revenues, in the fourth quarter of 2015, compared to $21.5 million, or 16.7% of revenues, a year ago. While lower revenues impacted margins, the decline in gross profit resulted mainly from the additional reserve for aged equipment inventory recorded in the fourth quarter of $4.5 million.

Administrative, distribution and selling expenses totaled $24.1 million, compared to $20.9 million in 2014. Expenses were higher in the quarter primarily as a result of the impact of the weaker Canadian dollar on the translation of the US dollar expenses of the Company's U.S. operations.

Other income was $0.1 million, unchanged from the fourth quarter of 2014.

Interest expense was $1.3 million, compared to $2.7 million in the same quarter of 2014, as a result of decreased interest-bearing debt levels primarily related to the financing of the equipment inventory.

EBITDA in the fourth quarter was $1.2 million (1.0% of revenues), compared to $8.9 million (6.9% of revenue) in 2014.

Net loss in the fourth quarter was $5.3 million (loss of $0.40 per share), which compared to net loss of $3.3 million (loss of $0.25 per share) in the same quarter of 2014.

Fiscal 2015 Financial Review

Overall revenues for 2015 totalled $474.3 million, down $24 million or 5% from 2014, with most of the decline occurring in Alberta, due to the weak economic conditions in the province. Overall revenues in Canada were down $42.3 million, or 10%, primarily due to the drop in Alberta. This was partially offset by strong growth in Strongco's U.S. operations.

Gross profit was $82.7 million, or 17.4% of revenues for 2015, compared to $86.3 million or 17.3% of revenues in 2014. While lower revenues impacted margins, the decline in gross profit resulted mainly from the additional $4.5 million reserve for aged equipment inventory recorded in the fourth quarter. Before this large reserve, gross profit was $87.2 million, or 18.4% of revenues, compared to $86.3 million, or 17.3% of revenues, in 2014.

Administrative, distribution and selling expenses were $82.6 million, up from $81.3 million in 2014, as a result of $2.1 million of higher lease costs on the four branches sold and leased back in the prior year and $1.9 million from the impact of the weaker Canadian dollar on the translation of the US dollar expenses of Strongco's U.S. operations. In addition, implementation of the Company's new computer system on a SAP platform was successfully completed during the year, which resulted in incremental depreciation of $0.5 million in 2015. Before the incremental lease costs and depreciation and impact of the weaker Canadian dollar, operating expenses were down year-over-year, due to actions taken by management to curtail and reduce costs.

Other expense in 2015 amounted to $1.7 million, the result of foreign exchange losses, which arose on the translation and settlement of the Company's US dollar liabilities due to a decline in the value of the Canadian dollar. This compared to other income of $8.0 million in 2014 which included gains from the sale and leaseback of four properties of $8.7 million.

Strongco's interest expense was $8.6 million in 2015, compared to $11.1 million in 2014. Interest expense was lower in 2015, as a result of decreased interest-bearing debt levels primarily related to the financing of the equipment inventory. Management was successful in selling off aged equipment and reducing the level of equipment inventory and the associated interest-bearing equipment notes in 2015, which resulted in the lower interest.

EBITDA in 2015 was $24.7 million (5.2% of revenues), which compared to $43.0 million (8.6% of revenues) in 2014.

Strongco's net loss in 2015 was $7.4 million (loss of $0.56 per share), compared to net income of $0.9 million ($0.07 per share) in 2014.

Outlook

Management anticipates a continuation of challenging market conditions in Canada in 2016, particularly in Alberta and Quebec, while, in New England, ongoing recovery in traditional markets for residential construction and forestry should continue to benefit heavy equipment markets.

In Alberta, with no recovery in the price of oil anticipated in the near term, economic activity across the entire province is expected to remain depressed. New development in the oil sands region of northern Alberta has been severely curtailed, and low oil prices have had a negative impact on the entire Alberta economy, creating significant uncertainty across the whole construction sector in the province. As a consequence, demand for heavy equipment and cranes is expected to remain weak throughout 2016. In response to the current market conditions and weak outlook, Management has made adjustments to the cost structure with layoffs and other cost reductions, and is focusing on continuously improving operating efficiency and our level of sales execution.

In Quebec, overall, demand for heavy equipment and cranes is expected to remain soft in the near term. While the report on the investigation into corruption in the construction industry by the Charbonneau Commission was issued late in 2015, there has been little improvement in construction activity in the province and with no plans for significant new government infrastructure spending, construction activity in Quebec is expected to remain weak in the near term. There have been positive signs with increased activity on the reconstruction of the Turcot Interchange in Montreal, and construction of a new Champlain Bridge both of which began late in 2015, but beyond these two large projects, activity is expected to remain slow.

In Ontario, while construction activity remains somewhat buoyant, most activity is of a smaller scale and there remains an overall air of caution, which is affecting the purchase decisions for heavy equipment. The current low oil prices and weak Canadian dollar should be of benefit to Ontario's manufacturing sector which could lead to improved confidence and new investment and increased demand for heavy equipment. However, no significant government infrastructure spending has been announced and few large projects are underway or planned for the near term. As a result, larger scale construction activity is expected to remain low and demand for heavy equipment, especially general purpose equipment, is not expected to increase significantly in 2016.

As the majority of heavy equipment is priced in US dollars, the weak Canadian dollar has resulted in the cost of new equipment to Canadian dealers rising. In the current weak construction markets, it has become more difficult for dealers to pass on these higher costs, which has resulted in lower sales and margins. The Canadian dollar is expected to remain weak in the near term in response to continuing low oil prices, which will continue to impact sales and margins.

With this economic backdrop, the overall markets for heavy equipment across Canada are expected to be flat to down while competition is expected to remain strong. In response to the weak market conditions in Canada during 2015, particularly in Alberta, actions were taken to contain and reduce costs. Layoffs in 2015 resulted in a reduction in headcount of 45, or 7%, of the Company's workforce in Canada. Management has taken additional measures early in 2016 to further reduce costs without impacting the Company`s ability to service its customers. In addition, with the expectation of continuing weak markets, management is taking further aggressive action to reduce aged equipment inventory and the associated financing to lessen balance sheet leverage and free up cash.

Heavy equipment markets in New England are expected to show further modest improvement in 2016 as the U.S. economy continues to grow. The traditional markets for residential construction and forestry, which experienced an uptick in 2015, are expected to remain active in 2016, which will result in continued demand for heavy equipment.

Conference Call Details

Strongco will hold a conference call on Thursday, March 24 at 10:00am ET to discuss fourth quarter and year-end results. Analysts and investors can participate by dialing 1-800-319-4610 or [phone] outside of Canada and the USA. Following management's introductory remarks, a question and answer session will take place for analysts and institutional investors.

An archived recording will be available to listeners following the call until midnight on April 25, 2016. To access it, dial 1-855-669-9658 or [phone] outside of Canada and USA and enter passcode 00305#.

About Strongco Corporation

Strongco Corporation is a major multiline mobile equipment dealer with operations across Canada and in the United States, operating through Chadwick-BaRoss, Inc. Strongco sells, rents and services equipment used in diverse sectors such as construction, infrastructure, mining, oil and gas, utilities, municipalities, waste management and forestry. The Company has approximately 720 employees serving customers from 27 branches in Canada and five in the United States. Strongco represents leading equipment manufacturers with globally recognized brands, including Volvo Construction Equipment, Case Construction, Manitowoc Crane, including National and Grove, Terex Cedarapids, Terex Finlay, Terex Fuchs, Terex Trucks, Ponsse, Fassi, Sennebogen, Konecranes and SDLG. Strongco is listed on the Toronto Stock Exchange under the symbol SQP.   

Forward-Looking Statements

This news release contains forward-looking statements that involve assumptions and estimates that may not be realized and other risks and uncertainties. These statements relate to future events or future performance and reflect management's current expectations and assumptions which are based on information currently available to the Company's management. The forward-looking statements include but are not limited to: (i) the ability of the Company to meet contractual obligations through cash flow generated from operations, (ii) the expectation that customer support revenues will grow following the warranty period on new machine sales and (iii) the outlook for 2016. There is significant risk that forward-looking statements will not prove to be accurate. These statements are based on a number of assumptions, including, but not limited to, continued demand for Strongco's products and services. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward looking statements. The inclusion of this information should not be regarded as a representation of the Company or any other person that the anticipated results will be achieved and investors are cautioned not to place undue reliance on such information. These forward-looking statements are made as of the date of this news release, or as otherwise stated and the Company does not assume any obligation to update or revise them to reflect new events or circumstances.

Additional information, including the Company's Annual Information Form, may be found on SEDAR at sedar.com.

SOURCE Strongco Corporation

J. David Wood, Vice-President and Chief Financial Officer, 905-670-5100, [email protected], strongco.com