CALGARY, ALBERTA - Aug. 6, 2014 /CNW/ - Newalta Corporation ("Newalta") (TSX:NAL) today reported results for the three and six months ended June 30, 2014.
FINANCIAL HIGHLIGHTS(1) (2)
| Three months ended June 30, |
Six months ended June 30, |
||||||
| ($000s except per share data) | 2014 | 2013 | % Increase | 2014 | 2013 | % Increase | |
| (unaudited) | (Decrease) | (Decrease) | |||||
| Revenue | 213,114 | 196,138 | 9 | 440,894 | 367,485 | 9 | |
| Gross profit | 53,683 | 45,377 | 18 | 95,335 | 83,212 | 15 | |
| - % of revenue | 25% | 23% | 9 | 24% | 23% | 4 | |
| Net earnings(2) | (8,183) | 4,944 | n/m | (1,680) | 19,103 | (109) | |
| - per share ($) - basic | (0.15) | 0.09 | n/m | (0.03) | 0.35 | (109) | |
| - per share ($) - diluted | (0.14) | 0.09 | n/m | (0.03) | 0.35 | (109) | |
| Adjusted net earnings(3) | 11,842 | 11,894 | - | 22,210 | 17,646 | 26 | |
| - per share ($) - basic(3) | 0.21 | 0.22 | (5) | 0.40 | 0.32 | 25 | |
| Adjusted EBITDA(3) | 46,042 | 38,350 | 20 | 78,093 | 66,070 | 18 | |
| - per share ($)(3) | 0.83 | 0.70 | 19 | 1.40 | 1.21 | 16 | |
| Cash from (used in) operating activities | 25,221 | 29,560 | (15) | 36,858 | 10,558 | n/m | |
| - per share ($) | 0.45 | 0.54 | (17) | 0.66 | 0.19 | n/m | |
| Funds from operations(3) | 26,698 | 27,644 | (3) | 50,801 | 51,343 | (1) | |
| - per share ($)(3) | 0.48 | 0.50 | (4) | 0.91 | 0.94 | (3) | |
| Maintenance capital expenditures(3) | 9,986 | 5,178 | 93 | 13,797 | 8,849 | 56 | |
| Growth capital expenditures(3) | 22,831 | 29,793 | (23) | 46,115 | 46,663 | (1) | |
| Dividends declared | 6,979 | 6,051 | 15 | 13,107 | 11,525 | 14 | |
| - per share ($)(3) | 0.125 | 0.11 | 14 | 0.235 | 0.21 | 12 | |
| Dividends paid | 4,980 | 3,708 | 34 | 9,439 | 8,019 | 18 | |
| Book value per share, June 30, | 11.91 | 12.12 | (2) | 11.91 | 12.12 | (2) | |
| Weighted average shares outstanding | 55,780 | 54,928 | 2 | 56,650 | 54,721 | 4 | |
| Shares outstanding, June 30,(4) | 55,828 | 55,006 | 1 | 55,828 | 55,006 | 1 | |
| (1) | Newalta's unaudited Condensed Consolidated Financial Statements are attached. References to Generally Accepted Accounting Principles ("GAAP") are synonymous with IFRS and references to unaudited Condensed Consolidated Financial Statements are synonymous with Financial Statements. |
| (2) | n/m indicates the percentage change is not meaningful. |
| (3) | These financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP financial measures are identified and defined later in this document. |
| (4) | Newalta has 55,900,974 shares outstanding as at August 6, 2014. |
Management Commentary
"In the second quarter, Adjusted EBITDA was up 20 percent compared to last year, primarily driven by contributions from our growth investments," said Al Cadotte, President and CEO of Newalta.
"We continue to expect 20 percent growth in Adjusted EBITDA for the year, driven by our growth capital investments and market activity. We are making solid progress on the strategic review of our Industrial Division. At the same time, we are evaluating our organization capacity and investment opportunities to accelerate our growth plans in both the Oilfield and New Markets Divisions.
"We remain well positioned to deliver attractive returns for our shareholders for many years ahead."
Consolidated Overview
Second quarter revenue was up 9% to $213.1 million. Adjusted EBITDA increased 20% to $46 million compared to the prior year. Adjusted EBITDA as a percentage of revenue was 22%, up from 20% in 2013. Returns from growth capital investments in New Markets and Oilfield, coupled with the savings realized from the Rationalization Plan in Industrial and favourable commodity prices drove growth.
Year-to-date, Adjusted EBITDA was $78.1 million, up 18% over the prior year. Year-to-date results reflect the same factors as the quarter and were tempered by the impact of extreme weather on first quarter results. Revenue from contracts generated 16% of consolidated revenue on a trailing-twelve month (TTM) basis compared to 11% in TTM Q2 2013. The net loss in earnings for the quarter and for the year of $8.2 million and $1.7 million, respectively, was driven by higher stock-based compensation expense, restructuring related costs and higher finance charges associated with the early redemption of the Series 1 Senior Unsecured Debentures.
Q2 2014 Adjusted SG&A improved to 10.0% of revenue from 10.8% in 2013, primarily due to overhead reductions in the quarter as part of the rationalization plan initiated in the first quarter focused primarily on our Industrial Division (Rationalization Plan).
Capital expenditures for the three and six months ended June 30, 2014 were $32.8 million and $59.9 million, respectively, focused primarily on growth projects in New Markets and Oilfield. We remain on track to execute our capital expenditures program of approximately $145 million in growth capital and $35 million in maintenance capital this year.
Operational Overview
New Markets revenue and gross profit in the quarter increased 27% and 19%, respectively, to $71.1 million and $22.3 million compared to prior year. Improved performance was primarily driven by strong returns from our growth capital investments, particularly our mature fine tailings (MFT) contracts and U.S. satellites. Year-to-date, revenue and gross profit increased by 31% and 18%, respectively, to $127.2 million and $36.9 million compared to prior year, driven by Heavy Oil and U.S satellites.
Oilfield revenue and gross profit in the quarter increased 15% and 18%, respectively, to $45.3 million and $16.9 million compared to prior year. Performance was driven by returns from our growth capital investments, increased drilling activity, and improved commodity prices. Year-to-date, revenue and gross profit increased by 13% and 10%, respectively, to $99.6 million and $37.5 million compared to prior year. Results were impacted by the same factors as the quarter and were tempered by the impact of extreme weather on operating costs in the first quarter of 2014.
Industrial revenue decreased by 4% to $96.7 million while gross profit increased by 18% to $14.5 million. Year-to-date, revenue decreased 5% to $174.1 million while gross profit increased by 16% to $20.9 million, compared to prior year. Savings realized from the Rationalization Plan and gains from favorable commodity prices were partially offset by lower waste receipts at the Stoney Creek Landfill (SCL).
Recent Developments
During the first quarter, we initiated the Rationalization Plan associated with the comprehensive review announced in December 2013 focused on our Industrial Division. To date, we have closed four facilities, reduced overhead in associated support functions and have redirected lines of business.
In Q2, we engaged RBC Capital Markets to conduct a review of a full range of potential alternatives for our Industrial Division, including a potential sale, IPO or spin-off of the division, in whole or in parts (Strategic Review). We are committed to optimizing value from this division. While this review is underway, we are developing our 2015 to 2018 business plan excluding the Industrial Division. We are allocating resources towards our highest growth areas in both the Oilfield and New Markets Divisions, to accelerate and expand our organic growth.
To date, we realized approximately $4.0 million in savings associated with the Rationalization Plan and remain on track to realize approximately $10 million in annualized cash savings. Including costs associated with the Strategic Review, we incurred approximately $5.5 million in one-time restructuring costs and anticipate incurring an additional $1.0 million before year end. We will assess and update savings and cost estimates throughout the year.
In addition to the Rationalization Plan discussed above, we are assessing our cost structure across all divisions, including SG&A. We have identified areas to better align resources with our business needs and have intiated steps to realize additional cost savings.
Other Highlights
Newalta's Board of Directors declared a second quarter dividend of $0.125 per share ($0.50 per share annualized), paid July 15, 2014, to shareholders on record as at June 30, 2014. This higher dividend rate established earlier this year reflects our positive outlook for the business.
On April 1, 2014, we issued $150 million Series 3 Senior Unsecured Debentures with a seven-year term, bearing interest at the rate of 5.875% per annum. Proceeds from the offering were used to redeem our $125 million 7.675% Series 1 Senior Unsecured Debentures and to repay a portion of outstanding debt on our credit facility.
During the quarter we also secured a contract with Shell Canada Limited (Shell) for construction services to build a new MFT plant at Shell's Jackpine Mine. We began work on this contract in the second quarter and expect work to continue into the first quarter of 2015. This contract is in addition to the contract awarded in 2013.
In July we were awarded a contract with Syncrude Canada Ltd (Syncrude) for commissioning its full-scale centrifugation facility that will process MFT at Syncrude's Mildred Lake operations near Fort McMurray, Alberta. This contract builds on our relationship with Syncrude over the past four years.
Outlook
We expect to deliver Adjusted EBITDA growth of 20% over 2013. Growth capital investments combined with improved commodity prices, the rationalization initiatives focused primarily on the Industrial Division and reductions in SG&A, will drive strong returns and improved results over prior year.
- In New Markets, we expect growth to be driven by our onsite contracts as well as continued progress in the U.S. expansion. We continue to work on securing new contracts, including MFT processing in the oil sands, and on the development of our Fort McMurray facility. In 2014, we plan to establish three additional satellites in the U.S.
- In Oilfield, we expect growth to be driven by our satellite program and steady drilling activity. Operations at our satellites commissioned in the second quarter will ramp up in the second half of 2014. In 2014, we plan to establish two additional satellites.
- In Industrial, we expect improved returns from steady activity levels and initiatives implemented under the Rationalization Plan. Full year activity levels at Ville Ste-Catherine (VSC) and SCL are expected to be in line with 2013.
We continue to focus on growing our portfolio of longer term contracts, strengthening our foundation of stable cash flow, and maximizing returns from our existing assets.
Quarterly Conference Call
Management will hold a conference call on Thursday, August 7, 2014 at 11:00 a.m. (ET) to discuss Newalta's performance for the quarter ended June 30, 2014. To participate in the teleconference, please call 416-340-8010 or 866-226-1792. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Thursday, August 14, 2014 by dialing 800-408-3053 and entering passcode 3240258 followed by the pound sign.
About Newalta
Newalta is North America's leading provider of innovative, engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from industrial residues. We serve customers onsite directly at their operations and through a network of 85 locations in Canada and the U.S. Our proven processes, portfolio of more than 250 operating permits and excellent record of safety make us the first choice provider of sustainability enhancing services to oil, natural gas, petrochemical, refining, lead, manufacturing and mining markets. With a skilled team of more than 2,100 people, two decade track record of profitable expansion and commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement. Newalta trades on the TSX as NAL. For more information, visit www.newalta.com.
The press release contains certain statements that constitute forward-looking information. Please refer to the section below "Forward-Looking Information", for further discussion of assumptions and risks relating to this forward looking information. The unaudited interim Condensed Consolidated Financial Statements and MD&A, which contain additional notes and disclosures, are available on our website atwww.newalta.com under Investor Relations/Financial Reports.
SELECTED FINANCIAL INFORMATION
| Three months ended June 30, |
Six months ended June 30, |
||||||
| ($000s, except where otherwise noted) | 2014 | 2013 | % Increase | 2014 | 2013 | % Increase | |
| (unaudited) | (Decrease) | (Decrease) | |||||
| New Markets(1) | |||||||
| Revenue | 71,099 | 56,120 | 27 | 127,208 | 96,978 | 31 | |
| Gross Profit | 22,308 | 18,751 | 19 | 36,935 | 31,242 | 18 | |
| - % of revenue | 31% | 33% | (6) | 29% | 32% | (9) | |
| Revenue by Business Unit | |||||||
| Heavy Oil | 71% | 74% | (4) | 71% | 68% | 4 | |
| U.S. | 29% | 26% | 12 | 29% | 32% | (9) | |
| Divisional EBITDA(2) | 27,924 | 22,953 | 22 | 46,271 | 37,911 | 22 | |
| Assets Employed(3) | 305,152 | 239,279 | 28 | ||||
| Oilfield(1) | |||||||
| Revenue | 45,269 | 39,501 | 15 | 99,597 | 88,133 | 13 | |
| Gross Profit | 16,925 | 14,346 | 18 | 37,537 | 34,048 | 10 | |
| - % of revenue | 37% | 36% | 2 | 38% | 39% | (3) | |
| Divisional EBITDA(2) | 20,140 | 17,324 | 16 | 44,199 | 40,003 | 10 | |
| Assets Employed(3) | 391,538 | 360,055 | 9 | ||||
| Industrial | |||||||
| Revenue | 96,746 | 100,517 | (4) | 174,089 | 182,374 | (5) | |
| Gross Profit | 14,450 | 12,280 | 18 | 20,863 | 17,920 | 16 | |
| - % of revenue | 15% | 12% | 23 | 12% | 10% | 20 | |
| Revenue by Business Unit | |||||||
| Western Industrial | 23% | 23% | - | 24% | 23% | 4 | |
| Eastern Industrial | 77% | 77% | - | 76% | 77% | (1) | |
| VSC as a percent of Industrial Division | 37% | 33% | 12 | 36% | 36% | - | |
| Divisional EBITDA(2) | 19,291 | 19,185 | 1 | 29,742 | 30,377 | (2) | |
| Assets Employed(3) | 399,952 | 426,990 | (6) | ||||
| Capital Expenditures | |||||||
| Maintenance capital expenditures | |||||||
| New Markets | 3,154 | 640 | n/m | 4,209 | 892 | n/m | |
| Oilfield | 1,936 | 2,254 | (14) | 3,179 | 4,106 | (23) | |
| Industrial | 3,435 | 1,426 | 141 | 4,283 | 2,265 | 89 | |
| Growth capital expenditures | |||||||
| New Markets | 10,772 | 15,998 | (33) | 22,762 | 21,321 | 7 | |
| Oilfield | 6,439 | 5,779 | 11 | 12,961 | 11,021 | 18 | |
| Industrial | 2,137 | 3,268 | (35) | 4,016 | 6,105 | (34) | |
| (1) | For comparative purposes, Cost of sales for the three and six months ended June 30, 2013 has been restated for a reclassification of $563 and $1,090, respectively, from Oilfield to New Markets reflecting a change in reporting structure. |
| (2) | Divisional EBITDA does not have any standardized meaning prescribed by GAAP. |
| (3) | Assets employed is provided to assist management and investors in determining the effectiveness of the use of the assets at a divisional level. Assets employed is the sum of capital assets, intangible assets and goodwill allocated to each division. Assets employed as defined does not include capital assets held by corporate. Corporate assets include information technology, leasehold improvements, and technical development. |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| (Unaudited - Expressed in thousands of Canadian Dollars) |
| June 30, 2014 | December 31, 2013 | ||
| Assets | |||
| Current assets | |||
| Cash | 4,676 | - | |
| Accounts and other receivables | 155,586 | 148,998 | |
| Inventories | 53,971 | 57,037 | |
| Prepaid expenses and other assets | 14,812 | 14,441 | |
| Assets held for sale | 10,129 | 2,450 | |
| 239,174 | 222,926 | ||
| Non-current assets | |||
| Property, plant and equipment | 1,040,601 | 1,011,921 | |
| Permits and other intangible assets | 49,711 | 52,595 | |
| Other long-term assets | 16,954 | 24,632 | |
| Goodwill | 96,067 | 96,167 | |
| TOTAL ASSETS | 1,442,507 | 1,408,241 | |
| Liabilities | |||
| Current liabilities | |||
| Bank indebtedness | - | 1,321 | |
| Accounts payable and accrued liabilities | 177,420 | 217,283 | |
| Dividends payable | 6,979 | 6,087 | |
| 184,399 | 224,691 | ||
| Non-current liabilities | |||
| Senior secured debt | 170,149 | 117,136 | |
| Senior unsecured debentures | 270,600 | 246,970 | |
| Other liabilities | 2,073 | 2,537 | |
| Deferred tax liability | 83,856 | 80,646 | |
| Decommissioning liability | 66,733 | 61,099 | |
| TOTAL LIABILITIES | 777,810 | 733,079 | |
| Shareholders' Equity | |||
| Shareholders' capital | 419,096 | 409,894 | |
| Contributed surplus | 10,351 | 15,251 | |
| Retained earnings | 231,047 | 245,834 | |
| Accumulated other comprehensive income | 4,203 | 4,183 | |
| TOTAL SHAREHOLDERS' EQUITY | 664,697 | 675,162 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 1,442,507 | 1,408,241 | |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (Unaudited - Expressed in thousands of Canadian Dollars except per share data) |
| For the three months ended June 30, |
For the six months ended June 30, |
||||
| 2014 | 2013 | 2014 | 2013 | ||
| Revenue | 213,114 | 196,138 | 400,894 | 367,485 | |
| Cost of sales | 159,431 | 150,761 | 305,559 | 284,273 | |
| Gross profit | 53,683 | 45,377 | 95,335 | 83,212 | |
| Selling, general and administrative | 28,574 | 24,739 | 58,792 | 47,905 | |
| Restructuring related costs | 1,666 | - | 6,048 | - | |
| Earnings before finance charges and income taxes | 23,443 | 20,638 | 30,495 | 35,307 | |
| Finance charges | 13,830 | 7,010 | 20,479 | 13,603 | |
| Embedded derivative loss (gain) | 14,883 | 6,931 | 8,327 | (137) | |
| Net financing charges expense | 28,713 | 13,941 | 28,806 | 13,466 | |
| (Loss) earnings before income taxes | (5,270) | 6,697 | 1,689 | 21,841 | |
| Income tax expense | 2,913 | 1,753 | 3,369 | 2,738 | |
| Net (loss) earnings | (8,183) | 4,944 | (1,680) | 19,103 | |
| Net (loss) earnings per share | (0.15) | 0.09 | (0.03) | 0.35 | |
| Diluted (loss) earnings per share | (0.14) | 0.09 | (0.03) | 0.35 | |
| Supplementary information: | |||||
| Amortization included within cost of sales | 13,672 | 14,085 | 24,877 | 25,081 | |
| Amortization included within selling, general and administrative | 3,785 | 3,608 | 7,158 | 7,002 | |
| Total amortization | 17,457 | 17,693 | 32,035 | 32,083 | |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (Unaudited - Expressed in thousands of Canadian Dollars) |
| For the three months ended June 30, |
For the six months ended June 30, | ||||
| 2014 | 2013 | 2014 | 2013 | ||
| Net (loss) earnings | (8,183) | 4,944 | (1,680) | 19,103 | |
| Other comprehensive (loss) income: | |||||
| Exchange difference on translating foreign operations | (4,113) | 4,505 | 47 | 6,866 | |
| Unrealized (loss) on available for sale investment | (54) | - | (27) | (32) | |
| Other comprehensive (loss) income | (4,167) | 4,505 | 20 | 6,834 | |
| Total comprehensive (loss) income | (12,350) | 9,449 | (1,660) | 25,937 | |
| CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY |
| (Unaudited - Expressed in thousands of Canadian Dollars) |
| Shareholders' capital |
Contributed surplus | Retained earnings | Accumulated other comprehensive income | Total | |
| Balance, December 31, 2012 | 394,048 | 2,881 | 247,565 | (3,054) | 641,440 |
| Changes in equity for the six months ended June 30, 2013 | |||||
| Exercise of options | 7,832 | - | - | - | 7,832 |
| Reduction of 2012 share issuance costs | 124 | - | - | - | 124 |
| Shares issued under dividend reinvestment plan | 2,881 | - | - | - | 2,881 |
| Dividends declared | - | - | (11,525) | - | (11,525) |
| Other comprehensive income | - | - | - | 6,834 | 6,834 |
| Net earnings for the period | - | - | 19,103 | - | 19,103 |
| Balance, June 30, 2013 | 404,885 | 2,881 | 255,143 | 3,780 | 666,689 |
| Changes in equity for the six months ended December 31, 2013 | |||||
| Expense related to vesting of options | - | 235 | - | - | 235 |
| Reclassification of equity settled options | - | 12,598 | - | - | 12,598 |
| Exercise of options | 2,802 | (463) | - | - | 2,339 |
| Issuance of shares | 2,207 | - | - | - | 2,207 |
| Dividends declared | - | - | (12,146) | - | (12,146) |
| Other comprehensive income | - | - | - | 403 | 403 |
| Net earnings for the period | - | - | 2,837 | - | 2,837 |
| Balance, December 31, 2013 | 409,894 | 15,251 | 245,834 | 4,183 | 675,162 |
| Changes in equity for the six months ended June 30, 2014 | |||||
| Expense related to vesting of options | - | 1,294 | - | - | 1,294 |
| Exercise of options | 6,426 | (6,194) | - | - | 232 |
| Issuance of shares | 2,776 | - | - | - | 2,776 |
| Dividends declared | - | - | (13,107) | - | (13,107) |
| Other comprehensive income | - | - | - | 20 | 20 |
| Net loss for the period | - | - | (1,680) | - | (1,680) |
| Balance, June 30, 2014 | 419,096 | 10,351 | 231,047 | 4,203 | 664,697 |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited - Expressed in thousands of Canadian Dollars) |
| For the three months ended June 30, |
For the six months ended June 30, |
||||
| 2014 | 2013 | 2014 | 2013 | ||
| Cash provided by (used for): | |||||
| Operating Activities | |||||
| Net (loss) earnings | (8,183) | 4,944 | (1,680) | 19,103 | |
| Adjustments for: | |||||
| Amortization | 17,457 | 17,693 | 32,035 | 32,083 | |
| Income tax expense | 2,913 | 1,753 | 3,369 | 2,738 | |
| Income tax recovered (paid) | 25 | 364 | (7) | 157 | |
| Non-cash stock-based compensation expense (recovery) | 1,630 | (332) | 4,845 | (4,645) | |
| Net financing charges | 28,713 | 13,941 | 28,806 | 13,466 | |
| Finance charges paid | (15,989) | (10,942) | (16,847) | (11,948) | |
| Other | 132 | 223 | 280 | 389 | |
| Funds from Operations | 26,698 | 27,644 | 50,801 | 51,343 | |
| (Increase) decrease in non-cash working capital | (491) | 2,788 | (11,244) | (38,885) | |
| Decommissioning costs incurred | (986) | (872) | (2,699) | (1,900) | |
| Cash from Operating Activities | 25,221 | 29,560 | 36,858 | 10,558 | |
| Investing Activities | |||||
| Additions to property, plant and equipment | (36,652) | (29,626) | (97,439) | (69,408) | |
| Other | 945 | 463 | 548 | (3,182) | |
| Cash used in Investing Activities | (35,707) | (29,163) | (96,891) | (72,590) | |
| Financing Activities | |||||
| Issuance of shares | 232 | 714 | 232 | 2,361 | |
| Issuance of Series 3 Senior Unsecured Debentures | 147,069 | - | 147,069 | - | |
| Redemption of Series 1 Senior Unsecured Debentures | (125,000) | - | (125,000) | - | |
| (Decrease) increase in senior secured debt | (1,746) | 3,499 | 53,013 | 53,000 | |
| (Decrease) increase in bank indebtedness | (739) | (1,630) | (1,321) | 13,137 | |
| Dividends paid | (4,980) | (3,708) | (9,439) | (8,019) | |
| Cash from (used in) Financing Activities | 14,836 | (1,125) | 64,554 | 60,479 | |
| Effect of foreign exchange on cash | 326 | 728 | 155 | 1,144 | |
| Change in cash | 4,676 | - | 4,676 | (409) | |
| Cash, beginning of period | - | - | - | 409 | |
| Cash, end of period | 4,676 | - | 4,676 | - | |
FORWARD-LOOKING INFORMATION
Certain statements contained in this document constitute "forward-looking information" as defined under applicable securities laws. When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "potential", "strategy", "target", and similar expressions, as they relate to Newalta Corporation and the subsidiaries of Newalta Corporation, or their management, are intended to identify forward-looking information. In particular, forward-looking information included or incorporated by reference in this document include statements with respect to:
- future operating and financial results;
- business prospects and strategy including related timelines;
- capital expenditure programs and other expenditures;
- realization of anticipated benefits of growth capital investments, acquisitions and our technical development initiatives;
- realization of anticipated benefits from our Rationalization Plan and in particular the anticipated value and sustainability of the cash savings from such initiatives;
- anticipated industry activity levels;
- expected demand for our services;
- the amount of dividends declared or payable in the future;
- our projected cost structure; and
- expectations and implications of changes in legislation.
Our strategic objectives for the Business Plan period 2014 to 2017, including anticipated growth capital investments and our action plan for 2014 and 2015, are set out under "Strategy" on page 33 in our Annual Report for the year ended December 31, 2013.
Such information reflects our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation:
- general market conditions of the industries we service;
- strength of the oil and gas industry, including drilling activity;
- fluctuations in commodity prices for oil and the price we received for our recovered oil;
- fluctuations in commodity prices for lead including the price differential we pay for lead feedstock and the price we receive for our lead products;
- fluctuations in base oil prices including the price differential we pay for used oil and the price we receive for our finished lube oil products;
- fluctuations in interest rates and exchange rates;
- supply of waste lead acid batteries as feedstock to support direct lead sales;
- demand for our finished lead products by the battery manufacturing industry;
- our ability to secure future capital to support and develop our business, including the issuance of additional common shares;
- the highly regulated nature of the environmental services and waste management business in which we operate;
- dependence on our senior management team and other operations management personnel with waste industry experience;
- the competitive environment of our industry in Canada and the U.S.;
- success of our growth, acquisition and technical development strategies including integration of businesses and processes into our operations and potential liabilities from acquisitions;
- potential operational and safety risks and hazards, obtaining insurance for such risks and hazards on reasonable financial terms, and potential failure of meeting customer safety standards;
- the seasonal nature of our operations;
- costs associated with operating our landfills and reliance on third party waste volumes;
- risk of pending and future legal proceedings;
- risk to our reputation;
- our ability to attract, retain, and integrate skilled employees and maintain positive labour union relationships;
- open access for new industry entrants and the general unprotected nature of technology used in the waste industry;
- possible volatility of the price of, and the market for, our common shares, and potential dilution for shareholders in the event of a sale of additional shares;
- financial covenants in our debt agreements that may restrict our ability to engage in transactions or to obtain additional financing; and
- such other risks or factors described from time to time in reports we file with securities regulatory authorities.
During the second quarter, we engaged a financial advisor to conduct a Strategic Review for our Industrial Division which is ongoing. As such, forward-looking information in this document is made subject to any changes that may be implemented as a result of this Strategic Review.
By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur. Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking information and readers are cautioned that the foregoing list of factors is not exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Furthermore, the forward-looking information contained in this document is made as of the date of this document and, in each case, is expressly qualified by this cautionary statement. Unless otherwise required by law, we do not intend, or assume any obligation, to update any such forward-looking information.
The information contained on our website does not form part of this press release.
RECONCILIATION OF NON-GAAP MEASURES
This Press Release contains references to certain financial measures, including some that do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS" or "GAAP") and may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below:
"EBITDA", "EBITDA per share", "Adjusted EBITDA", and "Adjusted EBITDA per share" are measures of our operating profitability. EBITDA provides an indication of the results generated by our principal business activities prior to how these activities are financed, assets are amortized or impaired, or how the results are taxed in various jurisdictions. In addition, Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation and restructuring related costs. Adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time. Stock-based compensation, a component of employee remuneration, can vary significantly with changes in the price of our common shares while restructuring costs are outside of our normal course of business. Restructuring related costs are charges primarily attributable to the Rationalization Plan and Strategic Review. EBITDA and Adjusted EBITDA are derived from the consolidated statements of operations and comprehensive income. EBITDA per share and Adjusted EBITDA per share are derived by dividing EBITDA and Adjusted EBITDA by the basic weighted average number of shares.
They are calculated as follows:
| Three months ended June 30, |
Six months ended June 30, |
||||
| ($000s) | 2014 | 2013 | 2014 | 2013 | |
| Net (loss) earnings | (8,183) | 4,944 | 1,680 | 19,103 | |
| Add back: | |||||
| Income taxes | 2,913 | 1,753 | 3,369 | 2,738 | |
| Net finance expense | 28,713 | 13,941 | 28,806 | 13,466 | |
| Amortization(1) | 17,457 | 17,693 | 32,035 | 32,083 | |
| EBITDA | 40,900 | 38,331 | 62,530 | 67,390 | |
| Add back (deduct): | |||||
| Stock-based compensation expense (recovery) | 3,476 | 19 | 9,515 | (1,320) | |
| Restructuring related costs | 1,666 | - | 6,048 | - | |
| Adjusted EBITDA | 46,042 | 38,350 | 78,093 | 66,070 | |
| Weighted average number of shares | 55,780 | 54,928 | 55,650 | 54,721 | |
| EBITDA per share | 0.73 | 0.70 | 1.12 | 1.23 | |
| Adjusted EBITDA per share | 0.83 | 0.70 | 1.40 | 1.21 | |
| (1) | Includes impairment charges, non-cash gains or losses on asset disposal and other non-cash charges. |
"Divisional EBITDA" provides an indication of the results generated by the division's principal business activities prior to how the assets are amortized, and before allocation of Selling, general and administrative costs ("SG&A"). Divisional EBITDA is the sum of gross profit and amortization for the respective division. Divisional EBITDA is derived from Gross Profit as follows:
| Three months ended June 30, |
Six months ended June 30, |
||||
| ($000s) | 2014 | 2013 | 2014 | 2013 | |
| Gross Profit | 53,683 | 45,377 | 95,335 | 83,212 | |
| Add back: | |||||
| Amortization included in cost of sales | 13,672 | 14,085 | 34,877 | 25,081 | |
| Divisional EBITDA | 67,355 | 59,462 | 120,212 | 108,293 | |
| New Markets(1) | 27,924 | 22,953 | 46,271 | 37,911 | |
| Oilfield(1) | 20,140 | 17,324 | 44,199 | 40,005 | |
| Industrial | 19,291 | 19,185 | 29,742 | 30,377 | |
| Deduct: | |||||
| SG&A(2) | 24,789 | 21,131 | 51,634 | 40,903 | |
| Restructuring related costs | 1,666 | - | 6,048 | - | |
| EBITDA | 40,900 | 38,331 | 62,530 | 67,390 | |
| (1) | New Markets and Oilfield Divisional EBITDA for the three and six months ended June 30, 2013 has been restated to reflect a change in reporting structure. New Markets was reduced and Oilfield was increased by $563 and $1,090, in the respective periods. |
| (2) | SG&A excludes amortization of $3,785 and $7,158 for Q2 2014 and 2014 year-to-date, respectively, and $3,608 and $7,002 for Q2 2013 and 2013 year-to-date, respectively. |
"Adjusted net earnings" and "Adjusted net earnings per share" are measures of our profitability. Adjusted net earnings provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation recovery or expense, the gain or loss on embedded derivatives and restructuring related charges. Stock-based compensation expense, a component of employee remuneration, can vary significantly with changes in the price of our common shares. The gain on the embedded derivative is a result of the change in the trading price of the debentures and the volatility of the applicable bond market. Restructuring related costs are related to initiatives outside of our normal course of business. As such, Adjusted net earnings provides improved continuity with respect to the comparison of our results over a period of time. Adjusted net earnings per share is derived by dividing Adjusted net earnings by the basic weighted average number of shares.
| Three months ended June 30, |
Six months ended June 30, |
||||
| ($000s) | 2014 | 2013 | 2014 | 2013 | |
| Net (loss) earnings | (8,183) | 4,944 | (1,680) | 19,103 | |
| Add back (deduct): | |||||
| Stock-based compensation expense (recovery) | 3,476 | 19 | 9,515 | (1,320) | |
| Embedded derivative (gain) | 14,883 | 6,931 | 8,327 | (137) | |
| Restructuring related costs | 1,666 | - | 6,048 | - | |
| Adjusted net earnings | 11,842 | 11,894 | 22,210 | 17,646 | |
| Weighted average number of shares | 55,780 | 54,928 | 55,650 | 54,721 | |
| Adjusted net earnings per share | 0.21 | 0.22 | 0.40 | 0.32 | |
"Book value per share" is used to assist management and investors in evaluating the book value compared to the market value.
| Three months ended June 30, |
||
| ($000s) | 2014 | 2013 |
| Total Equity | 664,697 | 666,689 |
| Shares outstanding, June 30, | 55,828 | 55,006 |
| Book value per share | 11.91 | 12.12 |
"Cash Basis Return on Capital" (ROC - Cash) is used to assist management and investors in measuring the returns realized at the consolidated level from capital employed. ROC - Cash is derived from Adjusted EBITDA less cash stock-based compensation, cash taxes and maintenance capital divided by Net Assets. Net Assets is an average of the beginning and ending balances of our total assets less current liabilities for the period.
"Divisional Return on Capital" is used to assist management and investors in measuring the returns realized at the Divisional level from capital employed. It is derived from Divisional EBITDA divided by the average of the beginning and ending balances of assets employed for the period.
"Funds from operations" is used to assist management and investors in analyzing cash flow and leverage. Funds from operations as presented is not intended to represent operating funds from operations or operating profits for the period, nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. Funds from operations is derived from the consolidated statements of cash flows and is calculated as follows:
| Three months ended June 30, |
Six months ended June 30, |
||||
| ($000s) | 2014 | 2013 | 2014 | 2013 | |
| Cash from Operating Activities | 25,221 | 29,560 | 36,858 | 10,558 | |
| Add back: | |||||
| Increase (decrease) in non-cash working capital | 491 | (2,788) | 11,244 | 38,885 | |
| Decommissioning obligations incurred | 986 | 872 | 2,699 | 1,900 | |
| Funds from operations | 26,698 | 27,644 | 50,801 | 51,343 | |
| Weighted average number of shares | 55,780 | 54,928 | 55,650 | 54,721 | |
| Funds from operations per share | 0.48 | 0.50 | 0.91 | 0.94 | |
References to EBITDA, EBITDA per share, Adjusted EBITDA, Adjusted EBITDA per share, Divisional EBITDA, Adjusted net earnings, Adjusted net earnings per share, ROC - Cash, Divisional Return on Capital, Funds from operations, and Funds from operations per share throughout this document have the meanings set out above. Adjusted SG&A is defined as SG&A adjusted for stock-based compensation and amortization.