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Summary of Results table. The table has been replaced. Corrected copy
Armtec Infrastructure Inc. Reports Results for the First Quarter 2012
and Appoints Malcolm Buxton-Forman as Chief Financial Officer
Toronto Stock Exchange: ARF; ARF.DB
GUELPH, ON, May 9, 2012 /CNW/ - Armtec Infrastructure Inc. ("Armtec" or the "Company") (TSX: ARF; ARF.DB) today reported financial results for the first quarter ended March 31, 2012.
- Revenue of $83.1 million, an increase of 10.8% or $8.1 million ahead of 2011. Engineered Solutions ("ES") revenue was $46.7 million, consistent with 2011, and Construction Infrastructure Applications ("CIA") revenue was $36.4 million representing an increase of 30.5% over the same period in the prior year.
- Gross margin was $9.3 million, an increase of $4.4 million from the $4.9 million in the first quarter of 2011. As a percentage of revenue, gross margin increased to 11.2%, a significant improvement from 6.5% in the prior year.
- EBITDA1 was $137,000 compared to a loss of $4.0 million in the same period in 2011.
"In the first quarter of 2012, Armtec's improved financial results reflected the benefits derived from the Company's rigorous Turnaround Plan, launched in the fourth quarter of 2011, together with the volume benefits realized as a result of the unseasonably warm Canadian winter, particularly in Central Canada," said Mark Anderson, President and Chief Executive Officer. "At quarter-end, Armtec's ES backlog was solid at $120.0 million, consistent with 2011 levels but with improved bid margins. With the Turnaround Plan now fully underway, management is closely monitoring the actions developed throughout the organization to drive savings and to ensure that performance improvement targets continue to be achieved."
Armtec announced today that Malcolm Buxton-Forman has been appointed as the Company's Chief Financial Officer. Mr. Buxton-Forman has been Interim Chief Financial Officer of Armtec since January 2012. Prior to his appointment, he held the position of Vice President, Finance with responsibility for the operational finance function. Mr. Buxton-Forman has been instrumental in the development and execution of the Company's Turnaround Plan.
Mr. Buxton-Forman has over 20 years of progressive financial experience in the consumer goods industry in South Africa, Canada and the United States ("US"), as well as six years public company experience in the telecommunications industry in Canada. During his years at various companies in the Cadbury Schweppes Group, Mr. Buxton-Forman lead major enterprise resource planning system implementations, integrated newly acquired businesses into existing operations and developed new finance teams. Mr. Buxton-Forman has a Bachelor of Commerce degree and a Certificate in the Theory of Accounting from the University of Cape Town and is a Chartered Accountant.
"Malcolm's extensive financial experience will greatly benefit Armtec and we welcome him to this expanded role," said Mark Anderson, President and Chief Executive Officer.
Summary of Results
|Three Months Ended|
|(in thousands of Canadian dollars except per share amounts)||March 31,||March 31,|
|As a % of revenue||11.2%||6.5%|
|Selling, general and administrative||$||13,711||$||16,644|
|As a % of revenue||16.5%||22.2%|
|Loss from operations||$||(4,060)||$||(11,313)|
|As a % of revenue||(4.9)%||(15.1)%|
|As a % of revenue||15.7%||9.2%|
|Net loss attributable to owners of the Company||$||(12,820)||$||(13,270)|
|As a % of revenue||(15.4)%||(17.7)%|
|Basic and diluted loss per share||$||(0.53)||$||(0.65)|
|As a % of revenue||0.2%||(5.3)%|
|Three Months Ended|
|(in thousands of Canadian dollars except per share amounts)||March 31,||March 31,|
|Breakdown of revenue by product lines2:|
|Breakdown of depreciation and amortization by financial statement line item:|
|Cost of sales||$||2,381||$||3,527|
|Selling, general and administrative||2,082||3,815|
|Total depreciation and amortization||$||4,463||$||7,342|
|1)||Please refer to the section entitled "Non-GAAP Measure" of the separately issued management, discussion and analysis for the interim period ended March 31, 2012 for the reconciliation of EBITDA.|
|2)||Beginning with the first quarter of 2012, the Company has realigned its products within the CIA and ES categories.|
Armtec commenced a rigorous Turnaround Plan during the fourth quarter of 2011. The results for the first three months ended in 2012 reflect the benefits derived from the Turnaround Plan in addition to the volume benefits realized as the result of the unseasonably warm Canadian winter, particularly in Central Canada. Revenue for the quarter ended March 31, 2012 was $83.1 million, an $8.1 million or 10.8% improvement over $75.0 million in the first quarter of 2011. CIA product revenue for 2012 was $36.4 million, representing growth of 30.5% over the first quarter in 2011 at $27.9 million due mainly to the mild winter conditions that supported improved drainage volumes used in agricultural and natural resource applications.
Revenue of $46.7 million from ES projects for the first three months of 2012 was consistent with the comparative period in 2011 at $47.0 million. Performance improvements over 2011 were realized in ES projects resulting from a combination of reduced workforce and improved operating practices. Certain lower margin projects have ended and the remaining low margin projects are expected to be completed during the third quarter of 2012. ES bid margins and recently awarded contract margins continue to be better than levels in 2011. The ES backlog at March 31, 2012 was approximately $120.0 million, consistent with the prior year levels.
With the announcement in 2011 of the Turnaround Plan, management remains focused on monitoring the achievement of the detailed action plans which were developed at the various levels throughout the organization to ensure the savings and improvement targets are achieved. The Company has completed the implementation of its Enterprise Resource Planning System ("SAP") and continues to develop the capabilities of the system and associated processes in support of the Turnaround Plan that is focused on restoring the gross margin levels in the business by optimizing pricing, eliminating redundant costs and improving efficiencies. Over 50% of the approximately 200 identified actions have been completed since the plan was announced. Significant progress has been made with regard to the Turnaround Plan initiatives, particularly with regard to reducing workforce levels. Overall workforce at March 31, 2012 remains 282 positions below March 31, 2011 levels. Compared to December 31, 2011, the workforce has increased by 130 people, reflecting the re-opening of CIA facilities that were idled over the winter months and on the ES side of the business, primarily the ramp up of the Kitimat smelter modernization project in the Pacific region. Steps have been made toward reducing costs and improving production efficiencies in the large ES facilities, however these efficiencies have not been fully realized at certain ES facilities, particularly in the Central region.
A small number of the proposed actions originally identified have been challenging, however management continues to identify new opportunities to realize cost reductions in the business and remain on track with the Turnaround Plan to deliver approximately $20.0 million in expected benefits from these initiatives over 12 to 24 months. The results for the first quarter of 2012, particularly related to the performance in the ES projects, reflect improvements identified in the Turnaround Plan.
FIRST QUARTER RESULTS
Armtec recorded revenue of $83.1 million for the three months ended March 31, 2012, $8.1 million or 10.8% ahead of revenue of $75.0 million for the three months ended March 31, 2011. Revenue from CIA products was $36.4 million for the three month period, an increase of 30.5% or $8.5 million over the same period in 2011. During 2011, CIA product deliveries and installations were delayed as a result of the unseasonably wet installation season. Conversely, installation conditions during the first quarter of 2012 were favourable particularly with regard to drainage applications. Activity levels in the Company's agricultural and building trade residential markets, primarily in the Central region, benefited from these conditions. The natural resource end use market showed improvement with year over year growth in the energy and forestry sectors throughout the Prairie and Pacific regions, which offset softness in infrastructure applications in the Pacific region. International CIA revenue improved over the prior year, mainly with regard to steel products.
ES revenue was $46.7 million in the quarter, consistent with the first and fourth quarters of 2011. Production volumes, as compared to the same quarter in 2011, were lower in the Central region's sound wall business reflecting the weak demand in the US. These declines in the infrastructure space were partially offset in the Central region by improved rail infrastructure project volumes related to the recent GO Transit parking garage projects. The Prairie and Pacific regions experienced stronger natural resource and commercial retail project activity which offset slightly softer infrastructure market activity. Near the end of the quarter, the Pacific region commenced production of the Kitimat Smelter Modernization project awarded late in 2011.
Loss from Operations
The loss from operations for the first quarter of 2012 was $4.1 million as compared to $11.3 million in the same period of 2011. Depreciation and amortization levels in the quarter were lower than 2011 levels at approximately $4.5 million as compared to $7.3 million due to reductions in the carrying value of certain intangible assets and property, plant and equipment as a result of the impairment charges recognized in 2011. Depreciation and amortization of $2.4 million (2011 - $3.5 million) and $2.1 million (2011 - $3.8 million) were allocated to cost of goods sold and selling, general and administration respectively.
The gross margin for the three months ended March 31, 2012 was $9.3 million, an increase of $4.4 million from $4.9 million in the same period of 2011. As a percentage of revenue, the first quarter gross margin of 11.2% was a significant improvement over the 6.5% achieved in the same period of 2011 and more in line with levels achieved in the first quarter of 2010. Before depreciation and amortization, the gross margin was 14.0% in 2012 compared with 11.2 % in 2011. Total hourly workforce at March 31, 2012 was 1,085 as compared to 1,327 at March 31, 2011. Total workforce levels remain below prior year while maintaining similar revenue. The workforce at March 31, 2012 increased slightly as compared to levels at the end of December 31, 2011 as the Pacific region begins to ramp up production for the Kitimat smelter modernization project and the Central region sound wall business prepares for increased production levels anticipated for the second quarter.
Gross margin performance in the CIA products business improved in the quarter compared to the first three months of 2011 as a result of increased production volumes and better plant efficiencies supported by the improved installation conditions. Higher international volumes favourably impacted product mix and contributed to the margin improvement.
The ES gross margin continued to show improvement in the three months ended March 31, 2012 as compared to the same period in 2011 while revenue remained consistent. Performance on the Toronto Transit Commission ("TTC") tunnel liner project continued at a slightly positive contribution during the quarter confirming the previously stated position that the project should break even beginning from the third quarter of 2011 and continuing over the remainder of the project. During the first quarter of 2011, Armtec completed the Calgary West Light Rail Transit project, a complex project that did not achieve expected gross margin levels. The new projects commencing in the first quarter of 2012 were more traditional in nature with improved bid margins.
In addition, improvement in the ES project performance continues to be driven by the reduction in the Company's hourly workforce, particularly in the Prairie region where the majority of reductions took place commencing in the second half of 2011. The management teams have been focused on production process improvements which translated into reduced costs and better utilization of resources. Progress has been achieved during the quarter, however opportunities remain to improve results through further reductions in manufacturing overheads and improved resource utilization through volume improvements. The Kitimat smelter modernization project in the Pacific region is in the early stages of production where required labour forces have been added and trained while volumes are still in a ramp up stage.
Selling, general and administrative expenses for the three months ended March 31, 2012 were $13.7 million, or $2.9 million lower than 2011 levels. Before depreciation and amortization, selling, general and administration costs were $11.6 million or $1.2 million lower than prior year levels. The reduction in total spend reflects reduced staffing year over year and other cost reduction measures that were part of the identified initiatives under the Turnaround Plan.
Armtec's ES backlog at the end of March 2012 remains strong at approximately $120.0 million, consistent with March 2011 levels. The most significant project is the smelter modernization project in Kitimat, British Columbia secured during the fourth quarter. The Pacific region is now beginning the changeover process to prepare for this project which will contribute approximately $32.0 million in revenue over 2012 and 2013. The current backlog, at improved bid margins, will be primarily realized in ES revenue throughout 2012 with some projects continuing into 2013. These projects will replace the TTC and other complex projects that negatively impacted 2011 performance. Management continues to estimate that the TTC contract will perform at a break even level for the balance of the contract. At March 31, 2012, backlog for the TTC project was approximately $9.5 million and is expected to be completed during the third quarter of 2012. The combination of underperforming projects reaching completion during the second and third quarters of 2012, projects currently in backlog which are more representative of traditional structural projects, and the continued results derived from the Turnaround Plan are expected to deliver improved performance over 2011 levels. Current ES bid activity remains solid in most areas of the country, with bid margins holding and the sound wall business in the Central region regaining momentum. Management expects continued strength in bookings during the second quarter of 2012.
CIA revenue is highly influenced by weather conditions. These product groups remain subject to competitive pricing pressures combined with the challenge of fluctuations in raw material costs. Historical seasonal patterns indicate the first and fourth quarters would be lower than the second and third quarter volumes in the fiscal year. With the favourable installation conditions in the first quarter of 2012, it is difficult to determine the extent to which purchases have shifted ahead in the year and the potential impact on the balance of 2012. Overall, operational performance for CIA products is expected to improve over 2011 levels due to improved manufacturing efficiencies and an expectation that we will be able to pass on some cost increases to our customers.
The long-term outlook for infrastructure, the Company's largest end use market, remains favourable. Governments continue to reiterate their commitment to infrastructure renewal which continues to be augmented through the use of public-private partnerships.
The outlook for Armtec's private markets remains mixed:
- Residential market activity is anticipated to remain at low levels reflecting anticipated single family housing forecasted starts. Multi-residential starts are showing a favourable trend;
- Commercial facility construction will benefit from projects such as those related to the upcoming Pan American games which are anticipated to offset lower industrial starts;
- Agricultural market activity is influenced by commodity prices. Currently, the outlook remains favourable. Volumes in this market are also impacted by weather. With the mild winter, it is difficult to determine the extent to which installations were pulled ahead in 2012; and
- Natural resources markets are heavily influenced by US residential starts impacting the demand for Canadian forestry products. The oil and gas market activity is influenced by commodity pricing. Major natural gas export initiatives with the US have been suspended, however alternate projects have been proposed to support the transport of natural gas from Canada to Asia.
The Turnaround Plan was developed with very clear, attainable actions with delivery accountabilities throughout every level of the organization. In parallel with operational actions, continuous improvement activities continue around the utilization of the SAP system. Gains continue to be made on the management of input costs with over half of the approximately 200 identified Turnaround Plan actions completed that will benefit the operations throughout the balance of 2012. Based on the current outlook and initiatives undertaken to date, the plan remains on target to achieve improved earnings in 2012. In addition, as a result of this outlook management currently believes the Company will remain in compliance with the covenants as outlined in the Brookfield Facility.
Management remains focused on delivering improved performance through the implementation of cost reductions, returning discipline to operating processes and tapping into the full benefits available through SAP while ensuring Armtec's response to changing market conditions is appropriate.
CONFERENCE CALL & WEBCAST
Management will host a conference call at 10:00 a.m. (ET) on Thursday, May 10, 2012 to discuss the results. Investors who wish to participate can access the call using the following numbers: 416-644-3418 or 1-800-814-4861. 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, May 17, 2012. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4533121#.
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 leading 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. Operating through its network of regional offices and production facilities across the country, Armtec's broad range of engineered solutions include products for drainage, bridge applications, soil retention, rehabilitation and water management systems including corrugated high-density polyethylene, corrugated steel and concrete pipe; an array of architectural and structural precast and pre-stressed concrete products from steps, paving stones, slabs and wall panels to highly engineered structural components designed and installed for projects such as bridges, sports venues and parking garages; and a full suite of noise barriers, acoustic enclosure and wall systems along with associated retaining wall and traffic barrier systems.
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")
References to EBITDA are to earnings before finance cost, taxes (other than capital taxes), depreciation and amortization, certain non-recurring expenses and certain non-cash amounts resulting from purchase accounting. 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; seasonality and adverse weather; existing legal proceedings; industry cyclicality; competition; acquisition and expansion risk; current 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; 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.
This news release contains "forward-looking" statements (including those set out under the heading "Overview", "First Quarter Results" and "Outlook" and those relating to timing of project completion; EBITDA improvement target; anticipated production levels; profitability on the TTC tunnel liner project; improved resource utilization through volume improvements; the timing of cash tax liability; backlog levels; improved margins in the current backlog; improved performance and margins; strength in bookings; installation outlook; and the outlook for Armtec's markets) 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.
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 months ended March 31, 2012.
For further information:
Vice President, Investor Relations & Treasurer
Tel: (519) 822-0210
Fax: (519) 822-8894