WGI Heavy Minerals Announces Second Quarter and Half Year Earnings
COEUR D'ALENE, ID, Aug. 11 /CNW/ - WGI Heavy Minerals, Incorporated ("WGI") (TSX: WG) today reported second-quarter earnings of $0.010 per share ($0.24 million), compared to earnings of $0.012 per share ($0.28 million) in the same period last year. In addition, the earnings for the six-month period ending June 30, 2010 were $0.016 per share ($0.38 million) compared to earnings of $0.006 per share ($0.14 million) in the same period in 2009.
Overview
WGI's markets continue to be influenced by turbulence and ambiguity in the global markets. Customers are operating under tight cash restrictions and with some uncertainty as to future business, especially in the U.S. market. Demand for abrasives in Europe, the Middle East and Asia has started to improve, especially in the coarse grade markets. WGI's Abrasive segment is growing as planned, although slower than budgeted, due to sharp competition and slower market growth. WGI's Waterjet Parts segment is showing improvement across most markets, especially outside North America. The auto and job shop markets in the U.S. continue to improve slowly, but steadily.
Financially, the improvement WGI realized in the first quarter of 2010 continued into the second quarter. Revenues of $8.46 million were up 20.5% for the three-month period ended June 30, 2010, compared to the same period in 2009. For the first half of 2010 revenues were $16.8 million, increasing 28.3% from the six-month period a year ago. In 2010, WGI identified new business to increase sales volumes by 35% and to June 30, 2010 the Company has successfully added nearly half of this new business. WGI's gross margins have improved from 23.5% in the first quarter of 2010 to 26.0% in the second quarter of 2010, averaging 24.8% for the six-month period.
Pricing pressure remains strong as customers look for low prices in an oversupplied waterjet garnet market, consequently gross margins are off 10% in the first half from the reported margins of 27.5% in the first half of 2009. Increasing ocean freight rates continue to impact profit by lowering margins through the summer peak season. The margin increase seen in the WGI Waterjet Parts market segment offsets the lower Abrasive WGI market segment. Waterjet Parts margins have increased from 24.6% in the year earlier quarter, to 31.8%. Waterjet Parts revenues increased 20% during this time period.
"Each of WGI's operating business units reported profits in the second quarter of 2010 achieving the Company's goal of sustained profitability. This quarter we reported the highest quarterly revenues in the history of the Company and are pleased to report our fifth consecutive quarter of positive earnings," said Greg Emerson, President and CEO. "General and administrative expenses remain under control, up only 1.5% for the half year, adhering to the Company's goal, while increasing its sales force. The Company's net income for the six-month period is up 162% year over year increasing to $0.38 million. The Company continues to actively look for new mineral deposits and capitalize on excess U.S. manufacturing capacity to supplement product offerings for its Waterjet Part business," stated Mr. Emerson.
2010 Second Quarter Results of Operations
WGI revenues for the second quarter of the year improved 20.5% to $8.46 million, exceeding the $7.02 million recorded in the same period in 2009 during recessionary conditions. Revenue from operations was at the highest quarterly level in the history of the Company. However, revenue grew only marginally (1.5%) over first quarter 2010 levels as the growth momentum slowed, especially in North American markets. Compared to the same period in 2009, the increase was broadly based with gains across all markets, all product lines, and all geographic regions. Growth for the quarter was due to higher sales volume, while prices in many markets declined in the face of competitive market conditions. Abrasive products sales volume surged 42% over previous year results, while prices pulled back 14.0%, of which 3.0% was due to unfavourable currency exchange rates.
Gross profit margins declined to 26.0% in the second quarter of 2010 compared with 30.8% in the second quarter of 2009. This was mainly due to lower prices in the Abrasives segment. In addition, the Company's European subsidiary received a government subsidy of (euro)0.09 million in the second quarter of 2009 that has not repeated to the same level in 2010.
Operating general and administrative expenses decreased 5.8% over the second quarter of 2009, made up of increases in travel expenditures and selling and marketing expenses offset by a decrease in professional fees primarily due to bringing legal counsel in-house and lower bad debt expense. Income tax expenses increased to $0.10 million for the second quarter of 2010 from $0.07 in the year ago period and were incurred by the Company's European subsidiary, Kominex.
The Company posted net earnings of $0.24 million, or $0.010 per share compared with a net income of $0.28 million, or $0.012 per share, for the second quarter of 2009.
Financially, the Company's balance sheet remains strong, with net cash, cash equivalents, short term investments and marketable securities in the amount of $6.60 million. The net cash outflow for the second quarter 2010 was $0.39 million, the result of positive cash flow from operations including working capital movement offset by capital investment, repayment of lines of credit and debt and repurchase of shares under the Normal Course Issuers Bid (NCIB).
2010 First Half Results of Operations
Overall revenues for the Company during the first half of the year were 28.3% ahead of the same period in 2009 ($16.80 million-2010 versus $13.09 million-2009). The gains were primarily due to a 30.0% leap in Abrasives revenues to $14.50 million while Waterjet Parts grew 15.7% year over year to $2.30 million. All regions and all product lines saw growth in the first half of 2010, although the growth slowed for our largest product lines in the second quarter and particularly in North American markets.
Abrasives sales volume climbed 46% higher in the first half of 2010 compared to 2009 due to more reliable supply and improved demand in most markets. The cost of this growth was an 11.0% decline in prices as oversupply in some markets and extremely competitive conditions among suppliers resulted in price erosion. Average currency rates were flat year on year and did not significantly impact the comparison of results.
Gross profit margins declined to 24.8% in the first half of 2010 compared with 27.5% in the first half of 2009. This was mainly due to the pricing concessions involved with gaining market share. In addition, ocean freight rates for containers increased significantly lowering margins on delivered product by approximately ten percent.
General and administrative expenses of $3.4 million increased 1.5% year on year primarily made up of increases in selling and marketing expenses utilized in gaining and retaining customers offset by lower professional fees associated with bringing legal counsel in-house.
Exploration costs at Emerald Creek increased significantly to $0.18 million as the Company continues to look for new mineral deposits. Costs were incurred while pursuing new garnet deposits. Exploration will continue in 2010 utilizing Emerald Creek resources but at a more modest rate.
The Company posted net earnings of $0.38 million, or $0.016 per share compared with a net income of $0.14 million, or $0.010 per share, for the first half of 2009.
Outlook
The instability of the current economic climate affects our businesses on many levels. Asia, Europe and the Middle East continue to be strong for our Company. Abrasives and Waterjet Parts sales in Asia and the Middle East regions are expected to remain steady and to grow in Europe. However, as the supply of coarse grade garnet tightens, the ability of WGI to expand market share could be affected. The growing trade deficit in the U.S.A. along with slow job growth has contained business growth in many regions. Fresh signs of weakness in the U.S.A. housing market are raising concerns about the economy, and the deep water drilling moratorium has affected business in the Gulf of Mexico, impacting the rest of the country. Despite the harsh economic times, the Company is working with long-term customers to continue to grow abrasive and waterjet business in the U.S. The Company anticipates growth in revenues mainly through increased volumes. Competitive forces and the increase in ocean freight and logistics costs will continue to place margins under pressure.
2010 will be a year of continuous operational improvements in addition to the identification of new resources through mineral exploration. Marketing efforts will continue to increase as the Company competes in abrasive markets that are currently over supplied in most grades. Waterjet Parts will strengthen through outsourcing in 2010 as the Company takes advantage of underutilized capacity. The Company continues to market waterjet consumables engineered to its high quality standards in the U.S. along with its waterjet garnet.
Profitability still remains the focus of the Company in these uncertain times. WGI will strive for increased sales, and to keep general and administrative costs in line with revenues. These costs as a percentage of revenues are expected to decline in 2010 as they have in the first half of 2010. 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 news 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)
June 30, Dec. 31,
Consolidated Balance Sheet 2010 2009
-----------------------
Assets
Cash and Marketable Securities $ 6,646 $ 7,398
Other Current Assets 10,954 11,044
-----------------------
Total Current Assets 17,600 18,442
-----------------------
Property, plant and equipment 3,528 3,686
Goodwill and Intangible Assets 458 487
-----------------------
Total Assets $ 21,586 $ 22,616
-----------------------
-----------------------
Liabilities & Equity
Current Liabilities $ 4,392 $ 4,899
Long-term debt 140 292
-----------------------
Total Liabilities 4,532 5,191
-----------------------
Capital stock 35,520 35,915
Stock-based compensation 4,780 4,466
Deficit (22,922) (23,297)
Foreign currency translation account (324) 341
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Total Equity 17,054 17,425
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Total Liabilities & Equity $ 21,586 $ 22,616
-----------------------
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Consolidated Statements of Operations
For the three For the six
months ended months ended
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
-----------------------------------------------
Sales $ 8,461 $ 7,024 $ 16,798 $ 13,090
Operating Costs 6,118 4,708 12,323 9,178
Depreciation, depletion,
and amortization 140 156 312 308
-----------------------------------------------
Gross Profit 2,203 2,161 4,164 3,605
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Gross Margin % 26.0% 30.8% 24.8% 27.5%
Expenses
G&A 1,713 1,817 3,382 3,334
Interest Income (16) (15) (33) (52)
Interest Expense 10 17 23 38
Stock based compensation 22 25 37 34
Exploration costs 120 9 184 11
Other Expenses (Income) 18 (48) 24 (55)
-----------------------------------------------
Total 1,867 1,805 3,617 3,310
-----------------------------------------------
-----------------------------------------------
Income/(Loss) before taxes 336 356 547 295
-----------------------------------------------
Net Provision for taxes 101 71 172 152
-----------------------------------------------
Net Income 235 284 $ 375 $ 143
-----------------------------------------------
-----------------------------------------------
Basic earnings per common
share $ 0.010 $ 0.012 $ 0.016 $ 0.006
Diluted earnings per
common share $ 0.010 $ 0.012 $ 0.015 $ 0.006
Consolidated Statements of Cash Flows
For the three For the six
months ended months ended
June 30, June 30, June 30, June 30,
$(000's) 2010 2009 2010 2009
-----------------------------------------------
Cash flows from operating
activities $ 995 $ (413) $ 840 $ (15)
Cash flows from investing $ (216) $ (223) (434) (232)
Cash flows from financing $ (701) $ (147) (801) (466)
Payment of cash
distribution $ - $ - - (19,245)
Effect of exchange rate
changes on Cash &
Cash Eq. $ (224) $ 108 (357) 100
-----------------------------------------------
Inc./(dec.) in Cash and
Securities $ (146) $ (675) $ (752) $ (19,858)
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Beginning Cash &
Securities $ 6,792 $ 9,018 $ 7,398 $ 28,201
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Ending Cash & Securities $ 6,646 $ 8,343 $ 6,646 $ 8,343
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Expressed in U.S. dollars unless otherwise stated.
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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