WGI Heavy Minerals Announces Fourth Quarter and 2009 Earnings
COEUR D'ALENE, ID, March 12 /CNW/ - WGI Heavy Minerals, Incorporated ("WGI") (TSX: WG) today reported fourth-quarter earnings of $0.01 per share ($0.13 million), compared to a loss of ($0.15) per share ($3.65 million) in the same period last year. Full year 2009 earnings of $0.04 per share ($0.89 million) were the highest in the Company's last 10 years before extraordinary items such as the sale of its Indian asset in 2008 in which the Company earned $0.24 per share ($5.63 million).
Overview
Discipline and hard work marked a year of change for WGI in 2009. During the last 10 years WGI was a company losing money year over year on an operational basis. In 2009 WGI generated an operating profit of $0.89 million or 3 percent of sales. The improvements were the result of reduced operating costs resulting in improved gross margins and an 11 percent reduction in selling, general and administrative expenses. These improvements were not by chance, but rather came about through the hard work and dedication of every employee at WGI. Administrative costs were reduced through staff reductions, wage freezes, elimination of wasteful spending and the reduction in travel and entertainment expenditures. Management held capital and exploration expenditures to sustainable levels while the Company proved it could operate profitably across all operations.
"We set out in 2009 to re-align the Company along functional lines of operation and position the Company to return sustainable operating profits on an ongoing basis", said Greg Emerson President and CEO. "The Company's worldwide business is now organized into two major segments, abrasive minerals products, and aftermarket replacement parts for ultrahigh pressure waterjet machine cutting systems to more accurately reflect that the Company now makes decisions on a global basis regarding its products and services. With this realignment in place our team achieved a 5% return on equity. Our mining operation returned to profitability in 2009 and is now looking to strengthen its resource base. Our trading business units located in Idaho and Germany focused on expanding our customer base as well as supplying quality products to customers looking for good product at fair prices during a global economic downturn. Our sales groups added new warehouses and stocked those warehouses to provide customers with product on a timely basis. While doing this our administrative departments kept costs under control".
The Company's stock price started the year off at $0.21 per share and closed the year at $0.40, an increase of 90%. "In our opinion the Company's stock is still undervalued," said Gordon Fear, WGIs Chairman. "Consequently on December 18, 2009 the Company purchased 968,500 of its own shares at CA $0.395 per share pursuant to a normal course issuer bid the Company announced on June 29, 2009. The purchase of these shares reflects the Directors confidence in the outlook of the Company. Accordingly, we believe this was an excellent use of WGIs resources as well as beneficial for our shareholders."
Since the sale of Transworld Garnet India (Pvt), Ltd. ("TGI") the Company has worked diligently to maintain a close, friendly and productive relationship with TGI. WGI operates a liaison office in India, headed by our Chief Geologist, working directly and constantly with TGI to ensure good communication, cooperation and quality results. The result of those efforts was a recent extension of the supply agreement to 2016 and the continued supply of quality garnet into the abrasives market.
In 2010 we continue to seek to advance our market position by securing new supplies to feed our markets. We have, and will continue to strengthen the Company's North American reach through the addition of salespersons. A great amount of work was invested in 2009 to identify new customers and sales channels that will be vital in achieving the planned increase in sales volumes in 2010. We recognize that a reduction in gross margins will be necessary to win many new customers.
Market Conditions
In sharp contrast to 2007 and the first half of 2008, the economic slowdown began to reduce demand for our abrasive products in the fourth quarter of 2008 and continued into 2009. Today we believe the garnet industry is operating at 85 percent of capacity, less than what is needed to sustain upward price movement. In general, high freight costs to North America, from key supply sources in India and Australia, have made North America the highest priced market in the world. Shipping costs dropped early in 2009; however, this reduction remained short-lived. In the third quarter of 2009, ocean carriers increased rates by $400 per container or $20 per metric ton for product imported from India. Select markets in Europe, Asia and the Middle East, which require top quality products, have also seen pricing come under pressure. Other markets, particularly swing markets in the Middle East and Asia, still enjoy some of the lowest prices today.
Waterjet parts, a much smaller part of WGIs revenues, did not enjoy strong demand in 2009 even though this technology continues to displace older cutting techniques. Aftermarket parts business, which once represented a $160 million per year market with growth two times gross domestic product, has fallen at least 25 percent. Average prices are under some pressure and have declined as original equipment manufacturers lower prices to be more competitive and producers in China and other developing regions work to develop expertise in manufacturing lower cost parts. Growth outside North America, especially in Asia, is expanding and helping to drive current demand. We are now experiencing a slow recovery with waterjet part sales estimated to increase quarter over quarter for the first time in a year.
Despite the economic slowdown, WGI was well positioned and was able to maintain its market share in 2009. We are seeing market demand increase albeit slowly.
2009 Results of Operations
WGI generated its highest ever full-year revenue in 2009, in spite of an economic recession in many parts of the world. Revenues of $28.78 million eclipsed the $27.82 million achieved in 2008 by more than 3 percent and extended WGI's record of steady revenue growth over the last several years. Abrasives products (2009 - $24.5 million in sales; 2008 - $22.7 million in sales) led the improvement with garnet revenues gaining 6 percent and other abrasives growing 11 percent compared to previous year results. Sales volume for garnet was down 2 percent but prices improved 8 percent keeping the results positive. WGI generated a small additional contribution of $0.08 million from commissions earned on two ilmenite sales in the second and third quarters. Ilmenite was not available to WGI in 2008, and this is an activity we hope to grow. On the negative side, waterjet parts revenues (2009 - $4.3 million; 2008 - $5.1 million) slipped 16 percent on lower volumes versus 2008. This market struggled all year to regain its footing during a recession that gripped the large waterjet markets in Europe and North America. During the fourth quarter, sales began to improve, beating the quarterly results from 2008 for the first time all year. The Company's revenue growth was also slowed in 2009 by 2 percent related to the US dollar strengthening against the Euro and the adjustment for currency exchange rates related to sales from our European subsidiary.
Gross profit increased $2.2 million year on year. Annual gross profit margins increased to 27.3 percent in 2009 compared to 20.5 percent in 2008. The largest contributors to the favourable increase were productivity gains from mining and to a lesser extent from recycled operations coupled with favourable product mix gains. Increased volumes of garnet sold also contributed to the higher gross margins.
Total expenses have decreased $0.5 million from 2008. The two most significant reductions were seen in professional fees (-$0.7 million) and Board fees (-$0.5 million). Professional fees were higher in 2008 due to a proxy solicitation and special distribution. With the sale of the Indian operation, the Board was reduced by one director, and Board fees set lower. These reductions were offset by the lower interest income ($0.4 million) associated with a smaller cash balance and lower interest rates and the addition of a short-term incentive bonus for management and staff of $0.2 million. Income from continuing operations increased $2.6 million year over year. The primary driver of the increase in income was higher gross profit.
Net income from continuing operation by segment was $0.81 million in abrasive products (2008 - $1.3 million loss) and $0.08 million in waterjet parts (2008 - $0.1 million).
In 2008, there were several one-time occurrences. Write-downs of goodwill and intangibles of $1.3 million in the waterjet parts segment and the write-down of assets at the U.S. mining operations of $1.4 million were offset with the gain from the sale of the India operations ($9.7 million) and the gain from an insurance claim in the amount of $0.5 million. Net income for 2009 was $0.9 million compared to the income in 2008 of $5.6 million.
As of December 31, 2009, the Company had $7.4 million in cash, cash equivalents, and marketable securities sufficient enough to meet the Company's planned operating and capital expenditures.
Outlook
WGI expects to grow its garnet and waterjet business in 2010 by increasing market share and attracting new business. Sales are expected to increase over 2009 primarily through increased volumes of other abrasive products. Logistics costs, as well as pricing competition, are expected to drive gross margins down in 2010.
2010 will be a year of continuous operational improvements in addition to the identification of new resources through expanded mineral exploration at our Emerald Creek operation in North America. Marketing efforts will continue to expand as the Company competes in abrasive markets that are currently over supplied. Waterjet manufacturing will be strengthened through outsourcing in 2010, while the Company continues to market waterjet consumables along with its waterjet garnet.
The Company continues to strive to keep selling, general and administrative costs in line with revenues. These costs as a percentage of revenues sales general and administrative expenses are expected to decline in 2010. Consequently net income after tax and the related earnings per share are expected to increase in 2010 compared to 2009.
About WGI
The principal business of WGI Heavy Minerals, Incorporated is the processing and sale of industrial abrasive minerals and the manufacturing and sale of ultra-high pressure waterjet cutting machine replacement parts. The Company, through its subsidiaries, markets and sells abrasive products and services and waterjet replacement parts globally.
This press release contains forward-looking statements concerning the business, operations, and financial performance and condition of WGI Heavy Minerals, Incorporated. A number of the matters discussed and statements made in the press release contain forward-looking statements reflecting current expectations regarding future assets. When used in this press release, the words "believe", "anticipate", "intend", "estimate", "expect", "project", and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements are based on current expectations and are naturally subject to risks, uncertainties, and changes in circumstances beyond management's control that may cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that may cause such differences include but are not limited to: exploration and development risks; risks related to permits and title to property; risks related to foreign countries and regulatory requirements; operating hazards; foreign currency fluctuations; competition; fluctuations in the market price of mineral commodities and transportation costs; uncertainty as to calculations of mineral deposit estimates; uninsured risks; and dependence upon key management personnel and executives. Actual results may differ materially from those expressed here. You should not place undue reliance on such forward-looking statements. The Company is under no obligation to update or alter such forward-looking statements, whether as a result of new information, future events, or otherwise.
Expressed in U.S. dollars unless otherwise stated.
WGI Heavy Minerals, Incorporated
Financial Information
(in thousands, except for per share amounts)
Dec. 31,
Consolidated Balance Sheet 2009 2008
---------------------
Assets
Cash and Short term deposits $ 7,398 $ 28,201
Other Current Assets 11,045 8,250
---------------------
Total Current Assets 18,442 36,450
---------------------
Property, plant and equipment 3,686 3,758
Goodwill and Intangible Assets 487 543
Other Assets - -
---------------------
Total Assets 22,616 40,752
---------------------
---------------------
Liabilities & Equity
Current Liabilities 4,899 23,618
Long-term debt 292 488
Liabilities of discontinued operations - -
---------------------
Total Liabilities 5,191 24,106
---------------------
Capital stock 38,360 38,456
Stock-based compensation 2,021 2,215
Deficit (23,297) (24,186)
Foreign currency translation account 340 161
---------------------
Total Equity 17,424 16,646
---------------------
Total Liabilities & Equity 22,616 40,752
---------------------
---------------------
Consolidated Statements of Operations and Deficit
For the three
months ended For the year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2009 2008 2009 2008
--------------------- ---------------------
Sales $ 7,653 $ 6,758 $ 28,782 $ 27,819
Operating Costs 5,632 5,232 20,293 21,246
Depreciation, depletion, and
amortization 162 216 628 877
--------------------- ---------------------
Gross Profit 1,859 1,311 7,861 5,696
--------------------- ---------------------
Gross Margin % 24.3% 19.4% 27.3% 20.5%
Expenses
G&A 1,595 1,843 6,608 7,280
Interest Income 15 (162) (67) (475)
Interest Expense 9 32 58 95
Stock based compensation 17 (32) 53 181
Development costs 15 11 100 21
Other Expenses (Income) (8) 33 (98) 32
--------------------- ---------------------
Total 1,643 1,725 6,654 7,134
--------------------- ---------------------
Income/(Loss) from continuing
operations 216 (414) 1,207 (1,438)
Write down of goodwill and
customer list - (1,299) - (1,299)
Write down of Emerald Creek
assets - (1,446) - (1,446)
--------------------- ---------------------
lncome/(Loss) before taxes 216 (3,159) 1,207 (4,183)
--------------------- ---------------------
Net Provision for taxes 88 45 318 240
--------------------- ---------------------
Income from operations 128 (3,204) 889 (4,423)
--------------------- ---------------------
Extraordinary item - 0 - 544
Sales of discontinued
operations, net of
related taxes - (449) - 9,693
Realized currency translation
loss - 0 - (121)
Net gain from discontinued
operations - - - (60)
--------------------- ---------------------
128 (3,654) 889 5,633
--------------------- ---------------------
--------------------- ---------------------
Basic earning per common share $ 0.01 $ (0.15) $ 0.04 $ 0.24
Diluted earnings per
common share $ 0.01 $ (0.15) $ 0.04 $ 0.24
Consolidated Statements of For the three For the twelve
Cash Flows months ended months ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
$(000's) 2009 2008 2009 2008
--------------------- ---------------------
Cash flows from operating
activities $ (1,302) $ (1,270) $ (781) $ (1,151)
Cash flows from operating
activities of discontinued
operations $ - $ - $ - $ (60)
Cash flows from investing $ (95) $ (531) $ (430) $ 12,719
Cash flows from financing $ (112) $ 164 $ (503) $ (4)
Payment of cash distribution $ - $ - $(19,245) $ -
Effect of exchange rate
changes on Cash & Cash Eq. $ (9) $ 174 $ 155 $ (76)
--------------------- ---------------------
--------------------- ---------------------
Inc./(dec.) in Cash and
Securities $ (1,518) $ (1,463) $(20,804) $ 11,428
--------------------- ---------------------
Beginning Cash & Securities $ 8,915 $ 29,664 $ 28,201 $ 16,773
Ending Cash & Securities $ 7,397 $ 28,201 $ 7,397 $ 28,201
For further information: Greg Emerson, Ed Kok, 810 Sherman Ave., Coeur d'Alene, ID, 83814, U.S.A., (208) 666-6000, Fax (208) 666-4000, www.wgiheavyminerals.com; Greg Emerson, President & CEO, (208) 770-2202, E-mail [email protected]; Ed Kok, General Counsel, Investor Relations, (208) 770-2208, E-Mail [email protected]
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