TORONTO, Aug. 11, 2022 (GLOBE NEWSWIRE) -- Shawcor Ltd. (“Shawcor” or the “Company”) (TSX: SCL) reported today its operational and financial results for the three and six months ended June 30, 2022. This press release should be read in conjunction with the Company’s Management Discussion and Analysis (MD&A) and interim consolidated financial statements for the three and six months ended June 30, 2022, which are available on the Company’s website and at www.sedar.com.
Highlights from the second quarter include:
- On a consolidated basis, revenue was $307.0 million, operating income was $33.7 million and Adjusted EBITDA1 was $31.5 million
- Composite Systems segment revenue increased by 40%, to $135 million compared with $97 million in the prior year’s quarter;
- Automotive and Industrial segment revenue increased by 19% to $79 million compared with $67 million in the prior year’s quarter;
- Pipeline and Pipe Services segment revenue decreased by 35% to $93 million compared with $143 million in the prior year’s quarter;
- Shawcor’s businesses serving infrastructure & industrial end markets represented 46% of total revenue during the second quarter of 2022, compared to 40% in the second quarter of 2021;
- Order backlog for execution in the next 12 months rose by 11% to $779 million as at June 30, 2022, compared to $702 million as at March 31, 2022. This increase reflects continued growth in businesses serving infrastructure & industrial markets as well as several offshore pipe coating contracts which were secured or moved into the coming 12-month window during the quarter;
- Received $49 million for the completed sale and three-year lease-back of its Rexdale facility in Toronto;
- Secured $15 million in net cash savings over the next seven years with early exit from a leased facility in Calgary;
- Received $5 million for the sale of assets and exit from the Global Poly product line, previously part of the Composites Systems reporting segment;
- Invested in working capital to support near-term growth resulting in $8.8 million of cash used in operating activities during the quarter;
- As at June 30, 2022, the Company had total net debt of $207.1 million. Since the beginning of 2021, the Company has made debt repayments of $153.5 million and in that same period has improved its trailing twelve-month Net Debt to Adjusted EBITDA1 ratio to approximately 2.0 times through its focus on improving business performance, reducing costs and disposing of non-core assets;
“During the second quarter Shawcor continued to execute on its strategic plan, prioritizing the development and delivery of differentiated, high value, materials-based solutions in support of industrial and critical infrastructure end markets, while continuing the optimization of our portfolio.” said Mike Reeves, President & CEO of Shawcor.
| 1 EBITDA, Adjusted EBITDA and Net debt-to-Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods. |
“Strong operational execution within all business segments led to robust sequential and year-over-year revenue growth, margin improvement and 12-month backlog expansion during the second quarter. We continue to see constructive market conditions for Shawcor’s high value products and services across virtually all end markets and are confident in a developing multi-year offshore pipe coating up-cycle.”
“Shawcor operates a business portfolio that is naturally resilient in recessionary cycles, and although we remain vigilant in the face of continued global supply chain tightness, inflationary fluctuations and geopolitical volatility, we believe the Company is well positioned to navigate market volatility. We continue to expect Adjusted EBITDA1 in the second half of the year to be substantially higher than the first half of this year.”
Selected Financial Highlights
| (in thousands of Canadian dollars, except per share amounts and percentages) | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||
| $ | % | $ | % | $ | % | $ | % | ||||||
| Revenue | 307,018 | 305,895 | 574,812 | 585,226 | |||||||||
| Gross profit | 86,087 | 28.0 | % | 89,879 | 29.4 | % | 158,930 | 27.6 | % | 163,614 | 28.0 | % | |
| Income from Operations(a) | 33,717 | 11.0 | % | 10,434 | 3.4 | % | 35,051 | 6.1 | % | 5,834 | 1.0 | % | |
| Net Income (Loss) for the period(b) | 20,352 | 2,647 | 13,410 | (12,725 | ) | ||||||||
| Earnings (Loss) per share: | |||||||||||||
| Basic | 0.29 | 0.04 | 0.19 | (0.18 | ) | ||||||||
| Diluted | 0.29 | 0.04 | 0.19 | (0.18 | ) | ||||||||
| Adjusted EBITDA(c) | 31,472 | 10.3 | % | 35,206 | 11.5 | % | 51,506 | 9.0 | % | 53,772 | 9.2 | % | |
| (a) Operating income in the three months ended June 30, 2022 includes $43.1 million of gains on sale of land and other, $20.3 million of impairment charges and $3.0 million of restructuring costs and other, net; while three months ended June 30, 2021 includes $5.2 million of restructuring costs and other, net and $3.1 million in COVID-19 related government wage subsidy. Operating income in six months ended June 30, 2022 includes $43.0 million of gain on sale of land and other, $20.3 million of impairment charges and $4.2 million of restructuring costs and other, net; while six months ended June 30, 2021 includes $8.6 million of restructuring costs and other, net and $5.4 million in COVID-19 related government wage subsidy. | |||||||||||||
| (b) Attributable to shareholders of the Company. | |||||||||||||
| (c) Adjusted EBITDA is a non-GAAP measure. Non-GAAP measures do not have standardized meanings prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures. | |||||||||||||
1.0 SECOND QUARTER HIGHLIGHTS
Adjusted EBITDA1 of $31.5 million in the second quarter of 2022 was better than expected, with particularly strong performance in both the Automotive and Industrial and Composite Systems segments attributed to strong demand for higher margin wire and cabling products and composite pipe products. The 2022 second quarter Adjusted EBITDA1 result was 11% lower than the second quarter of 2021, primarily on the comparatively lower pipe coating project activity in the quarter, partially offset by aforementioned strong performance in the Company’s other two segments. The Company’s sales into infrastructure & industrial end markets accounted for over 46% of total revenue during the second quarter, compared to less than 40% in the second quarter of 2021.
| 1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods. |
In the second quarter of 2022, the Company recorded impairment charges of $20.3 million after performing evaluations in support of its ongoing strategy of portfolio optimization. The impairment charges included property, plant and equipment and intangible assets for Shaw Pipeline Services of $8.1 million, property, plant and equipment for Oilfield Asset Management of $6.2 million, property, plant and equipment for Lake Superior Consulting of $1.9 million, property, plant and equipment in Socotherm Argentina for $2.9 million and assets in Saudi Arabia within Composite Production Systems of $1.1 million.
Since March of 2020, the Company has undertaken the controlled shutdown or sale of several girth weld inspection branches and 9 fixed pipe coating facilities to reduce its operating cost base and has continued to focus on cost optimization. In the second quarter of 2022, the Company completed the sale of its previously closed pipe coating facility in Adria, Italy. The Company also further reduced its operating footprint with the early exit of a leased manufacturing facility not required to maintain existing and expected operations in Calgary. As a result of this transaction and other restructuring activities, the Company recorded $3.0 million of net restructuring and other costs.
Additionally, in the second quarter of 2022, the Company continued to execute on its strategy to optimize its portfolio. Actions included finalization of the sale and leaseback agreement for its Rexdale facility in Toronto, as well as the sale of assets related to the Global Poly product line, previously part of the Composites Systems reporting segment, which resulted in combined gains on sale of land and other of $43.0 million. Contributions from Global Poly in 2021 and the first half of 2022 were approximately $24.4 million and $18.4 million in revenue respectively, and negative $0.3 million and positive $1.4 million in Adjusted EBITDA1 respectively.
As at June 30, 2022, the Company had cash and cash equivalents totaling $115.8 million, an increase from $85.8 million as at March 31, 2022 (December 31, 2021 – $124.4 million). This increase was primarily due to the receipt of $55.4 million in proceeds from the sale of property, plant and equipment, partially offset by $8.8 million spent to fund operations, reflecting an investment of $26.1 million in working capital excluding the impact of restructuring liabilities, and $10.5 million in growth and maintenance capital expenditures. Since the beginning of 2021, the Company has repaid $153.5 million of long-term debt. The Company will continue to focus on maximizing the conversion of operating income into cash to continue repaying long term debt, support its strategy of portfolio optimization and explore M&A opportunities.
| 1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future period. |
Selected Segment Financial Highlights
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands of Canadian dollars) | ($) | (%) | ($) | (%) | ($) | (%) | ($) | (%) | ||||||||
| Revenue | ||||||||||||||||
| Composite Systems | 135,443 | 96,756 | 241,856 | 167,877 | ||||||||||||
| Automotive and Industrial | 79,349 | 66,662 | 157,568 | 130,412 | ||||||||||||
| Pipeline and Pipe Services | 93,393 | 142,555 | 177,461 | 287,073 | ||||||||||||
| Elimination(a) | (1,167 | ) | (78 | ) | (2,073 | ) | (137 | ) | ||||||||
| Consolidated revenue | 307,018 | 305,895 | 574,812 | 585,226 | ||||||||||||
| Operating income (loss) | ||||||||||||||||
| Composite Systems | 9,521 | 7.0 | % | 8,151 | 8.4 | % | 16,395 | 6.8 | % | 8,818 | 5.3 | % | ||||
| Automotive and Industrial | 14,832 | 18.7 | % | 9,520 | 14.3 | % | 29,719 | 18.9 | % | 20,956 | 16.1 | % | ||||
| Pipeline and Pipe Services | (22,494 | ) | (24.1 | %) | (2,202 | ) | (1.5 | %) | (38,674 | ) | (21.8 | %) | (11,702 | ) | (4.1 | %) |
| Financial and Corporate | 31,858 | (5,035 | ) | 27,611 | (12,238 | ) | ||||||||||
| Operating income | 33,717 | 11.0 | % | 10,434 | 3.4 | % | 35,051 | 6.0 | % | 5,834 | 1.0 | % | ||||
| Adjusted EBITDA(b) | ||||||||||||||||
| Composite Systems | 22,871 | 16.9 | % | 15,851 | 16.4 | % | 37,577 | 15.5 | % | 24,397 | 14.5 | % | ||||
| Automotive and Industrial | 15,945 | 20.1 | % | 10,667 | 16.0 | % | 31,944 | 20.3 | % | 23,245 | 17.8 | % | ||||
| Pipeline and Pipe Services | (798 | ) | (0.9 | %) | 12,993 | 9.1 | % | (8,249 | ) | (4.6 | %) | 17,039 | 5.9 | % | ||
| Financial and Corporate | (6,546 | ) | (4,305 | ) | (9,766 | ) | (10,909 | ) | ||||||||
| Adjusted EBITDA(b) | 31,472 | 10.3 | % | 35,206 | 11.5 | % | 51,506 | 9.0 | % | 53,772 | 9.2 | % | ||||
| (a) Represents the elimination of the inter-segment sales between the Composite Systems segment, the Automotive and Industrial segment and the Pipeline and Pipe Services segment. (b) Adjusted EBITDA is a non-GAAP measure. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures. | ||||||||||||||||
Revenue in the second quarter of 2022 for Composite Systems increased by $38.7 million, or 40%, compared to the second quarter of 2021, with an operating income of $9.5 million. This increase was primarily attributed to strong order activity for composite pipe products, which benefitted from higher completion activity levels in North America, particularly with larger operators, as well as market share gain in the US. Demand for retail fuel and water/wastewater fiber reinforced plastic (“FRP”) tanks remained strong, with production increasing versus the prior year quarter. The rise in revenue also reflects a roll out of price increases to help offset the increase in raw material and labour costs in all businesses. Adjusted EBITDA1 in the second quarter of 2022 was $22.9 million, a 44% increase compared to $15.9 million in the second quarter of 2021. This increase is due, in large part, to the previously mentioned robust order deliveries for composite pipe.
The Automotive and Industrial segment maintained its strong performance, delivering new record revenue of $79.3 million, which represents an increase of 19% versus the second quarter of 2021, with an operating income of $14.8 million. This record revenue is primarily due to strong project-based activity in industrial markets, particularly in the North American nuclear, communications and transportation markets. The segment delivered strong quarterly Adjusted EBITDA1 of $15.9 million, a 49% increase over the prior year quarter, largely stemming from higher demand in industrial markets and bolstered by a more profitable product mix.
| 1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future period. |
Performance in the Pipeline and Pipe Services segment was as expected, with an operating loss and near breakeven Adjusted EBITDA1 in the second quarter of 2022 resulting from low activity levels across the business. The Pipeline and Pipe Services segment generated revenue of $93.4 million, a decrease of $49.2 million, or 35%, from $142.6 million in the second quarter of 2021, with an operating loss of $22.5 million. This revenue decline was due to lower large pipe coating project activity in Europe, Middle East and Africa (“EMEA”)2, Latin America and Asia Pacific as well as the absence of $9.5 million of revenue attributable to the Shawcor Inspection Services business that was sold in December 2021. Adjusted EBITDA1 in the second quarter of 2022 was negative $0.8 million, a decrease compared to the positive $13.0 million reported in the second quarter of 2021 primarily related to the low levels of pipe coating project activity when compared to the prior year. Despite the year-over-year decrease in revenue and Adjusted EBITDA1, the Company’s cost reduction and site optimization initiatives have substantially lowered fixed expenses for the segment which, in turn, partially offset the lower activity levels in the quarter.
The twelve-month order backlog of $779 million as at June 30, 2022, represents an 11% increase over the $702 million order backlog as at March 31, 2022. This growth was attributed to stronger pipe coating backlog as well as continued growth in demand for the Company’s infrastructure and industrial offerings. The backlog includes firm customer contracts which will be executed over the next twelve months and is indicative of a generally stronger outlook for all of our current product lines.
Outstanding firm bids were nearly $1.5 billion as of June 30, 2022, an increase versus the $946 million from the previous quarter largely attributed to several projects that moved from budgetary to bid during the quarter. Conditional awards, pending final investment decision, were at $61 million, up slightly from the $56 million recorded in the prior quarter. Budgetary estimates were nearly $1.2 billion at the end of the second quarter, a decrease from the budgetary value of $1.5 billion from the previous quarter as movement of projects from budgetary to bid exceeded the addition of new projects into budgetary.
2.0 OUTLOOK
The Company expects earnings in the second half of 2022 to be substantially higher than the first half of the year. The underlying business trends for all of Shawcor’s primary businesses remain favourable as its infrastructure and industrial focused portfolio continues to experience consistent demand growth, while the Company’s oil and gas focused offerings remain well-positioned as commodity prices and energy availability challenges drive for a multi-year upcycle in both onshore and offshore activity. Looking forward for the remainder of 2022, raw material and labour costs continue to rise and, as a result, the Company will continue to monitor its pricing and roll out price increases to help offset the cost increases it experiences. Supply chain volatility is expected to continue, including availability of gas supply to suppliers, customers and Shawcor’s plant in Europe which may present challenges through the balance of 2022.
The Company has substantially rationalized its footprint, including the divestiture of non-core businesses, and will continue to focus on optimizing and maintaining efficient operations with the technical expertise and geographic footprint that provide the best opportunity for the Company to secure work and drive profitability, particularly as pipe coating project activity is anticipated to pick up during the second half of 2022.
| 1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures. |
| 2 The EMEA geographic location group was previously referred to by the Company as EMAR (Europe, Middle East, Africa and Russia). The Company has updated this group reference to more appropriately reflect the geographic locations where the Company conducts its business and where the majority of customers are. |
Backlog is expected to continue to grow through the rest of 2022 as customers seek to secure orders for the Company’s infrastructure and industrial offerings, several pipe coating projects reach final investment decision and contract awards move into the 12-month period. Execution on work secured in the Company’s backlog is expected to increase in the second half of 2022 as FRP tank resin supply shortages alleviate and coating activities for newly sanctioned pipeline projects commence.
Composite Systems Segment
The Company is expecting robust demand for underground FRP tanks to continue throughout 2022 as retail fuel service station networks expand, upgrade and replace existing aging tanks. In addition, growth in demand for water and storm-water storage and treatment systems is expected to continue, supported by increasing societal demands to conserve and manage water resources, and projected higher infrastructure spending on commercial and municipal water projects. Specific supply chain constraints which have tempered FRP tank production output during the first half of the year are anticipated to ease over the course of the second half of 2022. In addition to qualifying alternative raw material sources, the business continues to manage production schedules and lead times to minimize impacts, and price surcharges have been implemented to manage raw material cost increases. Additionally, labour shortages and capacity constraints are being managed to ensure adequate personnel and facilities are available to meet the robust demand in the market. Growth in demand for the segment’s core composite pipe products and tubular management services in North America are expected to continue as activity levels in Western Canada and in the Permian Basin gradually rise. Further opportunities for the Company’s composite pipe products are expected as the commercial adoption of larger diameter products continues.
Automotive and Industrial Segment
Activity levels within the Automotive and Industrial segment are expected to remain high throughout 2022, though not at the level experienced in the first half of the year, which benefitted from increased demand for higher margin nuclear and other industrial products as project-based work continued. While the Company expects that industrial markets will dominate demand for the segment’s products, demand for the Company’s heat shrinkable tubing products within the automotive sector is expected to continue to outpace overall automotive production as a result of electronic content growth in premium, hybrid and full electric vehicle markets, particularly in the Asia Pacific and EMEA regions. Broad supply chain impacts, including the global semiconductor shortage, and energy supply shortages related to the Russia-Ukraine conflict continue to create challenges for automotive manufacturers and consequently the Company’s full year outlook does not incorporate any expectation of meaningful growth in total global vehicle output. The Company’s diversified geographies and end markets are expected to provide insulation from the near-term impacts of these automotive industry challenges. On the industrial side of the business, which represented approximately 70% of the Segment’s revenue in Q2 2022, the Company is expecting to benefit from continued infrastructure spending as new and upgraded communication networks are constructed, nuclear refurbishments continue in Canada, and federal stimulus packages are rolled out, while continuing to effectively manage the volatility of copper raw material costs.
Pipeline and Pipe Services Segment
The Company continues to expect progressive growth throughout the year in its Pipeline and Pipe Services segment as seasonal activity picks up and the segment begins to execute on the increasing volume of work that has been secured in its backlog. The Company continues to monitor international developments including sustained exploration success and additional project phases in Guyana and Brazil, and Middle Eastern offshore projects designed to meet domestic energy needs and global LNG demand. Increases in inbound subsea orders have been observed across the Company’s customer base, particularly in Brazil and Norway where the Company is well-positioned to secure and execute work. Activity levels in Western Canada are expected to remain strong, yielding steady demand for small diameter coating solutions. New offshore pipeline installations that range from small and mid-size to large in scope, are expected to arise during the second half of 2022 and into subsequent years, driving elevated demand for the Company’s market leading pipe coating technologies. The Company has maintained the resources needed to execute on projects currently in backlog in which coating is scheduled to commence in the second half of the year.
3.0 CONFERENCE CALL AND ADDITIONAL INFORMATION
Shawcor will be hosting a Shareholder and Analyst Conference Call and Webcast on Friday, August 12th, 2022 at 9:00 AM ET, which will discuss the Company’s Second Quarter 2022 Financial Results. To participate via telephone, please register at https://register.vevent.com/register/BI8488fd08cf064e03a349ff656bbef5c6 and a telephone number and pin will be provided.
Alternatively, please go to the following website address to participate via webcast: https://edge.media-server.com/mmc/p/4zczouq9. The webcast recording will be available within 24 hours of the live presentation and will be accessible for 90 days.
About Shawcor
Shawcor Ltd. is a growth-oriented, global material sciences company serving the Infrastructure, Energy, and Transportation markets. The Company operates through a network of fixed and mobile manufacturing and service facilities. Its three business segments, Composite Systems, Automotive and Industrial and Pipeline and Pipe Services enable responsible renewal and enhancement of critical infrastructure while lowering risk and environmental impact.
For further information, please contact:
Meghan MacEachern
Director, External Communications & ESG
Tel: 437-341-1848
Email: meghan.maceachern@shawcor.com
Website: www.shawcor.com
Source: Shawcor Ltd.
Shawcor.ER
4.0 FORWARD-LOOKING INFORMATION
This news release includes certain statements that reflect management’s expectations and objectives for the Company’s future performance, opportunities and growth, which statements constitute "forward-looking information" and "forward-looking statements" (collectively "forward-looking information") under applicable securities laws. Such statements, other than statements of historical fact, are predictive in nature or depend on future events or conditions. Forward-looking information involves estimates, assumptions, judgements and uncertainties. These statements may be identified by the use of forward-looking terminology such as "may", "will", "should", "anticipate", "expect", "believe", "predict", "estimate", "continue", "intend", "plan" and variations of these words or other similar expressions. Specifically, this news release includes forward-looking information in the Outlook Section and elsewhere in respect of, among other things, the ability of the Company to deliver higher returns to all stakeholders; the level of the Company’s anticipated overall financial performance in 2022; the Company’s focus on maximizing the conversion of operating income into cash and the uses thereof; continuing demand growth in the Company’s infrastructure and industrial focused offerings; the impact from the potential upcycle in commodity prices and related activities on the Company’s oil and gas focused offerings; the level of quarterly normalized SG&A; the optimization of the Company’s portfolio by means of selective acquisitions and divestitures; the continuance of certain raw material shortages and supply chain disruptions for the second half of 2022 and the abatement of others in this same timeframe; the demand for the Company’s products in each of its business segments; the impact of the Russia and Ukraine conflict on the Company’s demand for products and supply chains; the impact of raw material shortages on the Company’s Composite Systems segment; the impact of shortages of premium micro-chips, COVID-19 related lockdowns (including the institution and re-institution of lockdowns and other public health restrictions) in China or other geographical locations where the Company carries on a part of its business, natural gas availability in Western Europe and other supply chain disruptions on automobile manufacturers and the impact thereof on the Company’s Automobile and Industrial segment; the growth in the Company’s order backlog during the second half of 2022 and the increased execution of work secured in the backlog during the second half of 2022; the anticipated increase in drilling and completion related capital spending in North America and an increase in offshore pipeline installations and the impact on the Company’s business; the impact on the Company’s business of the anticipated increase in infrastructure spending, including in the areas of water management, communication networks and nuclear refurbishment; and the impact on the Company’s business of increasing adoption rates for electric vehicles.
Forward-looking information involves known and unknown risks and uncertainties that could cause actual results to differ materially from those predicted by the forward-looking information. We caution readers not to place undue reliance on forward-looking information as a number of factors could cause actual events, results and prospects to differ materially from those expressed in or implied by the forward-looking information. Significant risks facing the Company include, but are not limited to: shortages and delays in the supply of or increases in the prices of raw materials used by the Company, as well as the impact of overall cost inflation; changes in underlying economic factors affecting demand for the Company’s products and services; the duration and impact of the COVID-19 pandemic and future public health crises and other events outside the Company’s control on the Company, its employees, customers, suppliers, energy and commodity markets and on the global economy; the actual and potential risks and uncertainties relating to the ultimate geographic spread of COVID-19, the severity of the disease and the duration of the COVID-19 pandemic, the issues relating to the resurgence of COVID-19 and/or new strains of COVID-19, and actions that have been and may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact and the availability, effectiveness and use of treatments and vaccines (including the effectiveness of boosters), including potential material adverse effects on our business, operations and financial performance; a decline in the level of North American drilling and completion activity; a decline in the level of global pipeline construction; the impact of divestitures and acquisitions on the Company; changes in competitive conditions within the markets that the Company operates in; the requirement to comply with various covenants under the Company’s existing and future debt obligations, the ability to make the scheduled payments thereunder and the potential for changes to the Company’s credit rating; rising interest and inflation rates; fluctuations in foreign exchange rates; exposure to product, environmental and other liability claims; the impact of expanding environmental, social and governance practices and disclosure requirements and changing investor sentiment in respect thereof; compliance with environmental, trade, health, safety, tax and other laws in multiple jurisdictions; the impact of activist shareholders; the impact of climate change on operations, supply chains and demand for the Company’s products and services; political, economic, health, global supply chain and other risks arising from the Company’s international operations including the Russia and Ukraine conflict; the Company’s ability to continue to optimize its portfolio and identify and successfully execute on opportunities for acquisitions and dispositions in alignment with its strategic plan; changes in trade, tax or other laws in Canada or internationally; disruptions of informational technology systems or cybersecurity breaches; as well as other risks and uncertainties described under "Risks and Uncertainties" in the Company’s annual MD&A and in the Company’s Annual Information Form under "Risk Factors".
These statements of forward-looking information are based on assumptions, estimates and analysis made by management in light of its experience and perception of trends, current conditions and expected developments as well as other factors believed to be reasonable and relevant in the circumstances. These assumptions include those in respect of the reduction and/or continuing easing of certain COVID 19 related restrictions (including that governmental and public health authorities will not be required to institute or re-institute lockdowns or other public health restrictions) and the impact thereof on global economic activity, the Company’s ability to manage supply chain disruptions caused by the COVID-19 pandemic, other health crises or by natural disasters, global oil and gas prices, improving pipe coating activity levels throughout the balance of 2022; sustained strong demand for the Company’s FRP tanks, including for retail fuel storage and water treatment and storage; increased demand for composite pipe; the future easing of microchip shortages in the automotive sector and increased demand in the automotive and industrial markets; heightened demand for electric and hybrid vehicles and for electronic content within those vehicles; heightened infrastructure spending in Canada, including in respect of nuclear plant refurbishment and upgraded communication and transportation networks; the likelihood of projects tied to securing long-term domestic energy supply or drilling rights being sanctioned, the recommencement of increased capital expenditures in the global offshore oil and gas segment replace, maintain and rehabilitate existing infrastructure, replace production due to reservoir depletion and to address geopolitical challenges impacting several producing regions, the continued recovery of the global economy, a gradual rise of oil and gas markets in North America, the Company’s ability to execute projects under contract, the Company’s continuing ability to provide new and enhanced product offerings to its customers, that the Company will continue to be able to optimize its portfolio and identify and successfully execute on opportunities for acquisitions and dispositions in alignment with its strategic plan, the higher level of investment in working capital by the Company, the easing of resin shortages and the continued supply of and stable pricing or the ability to pass on higher prices to its customers for commodities used by the Company, the availability of personnel resources sufficient for the Company to operate its businesses, the maintenance of operations in major oil and gas producing regions, the adequacy of the Company’s existing accruals in respect of environmental compliance and in respect of litigation and tax matters and other claims generally, the adequacy of the impairment charges taken, and the level of payments under the Company's performance, bid and surety bonds and the ability of the Company to satisfy all covenants under its Credit Facility and other debt obligations and having sufficient liquidity to fund its obligations and planned initiatives. The Company believes that the expectations reflected in the forward-looking information are based on reasonable assumptions in light of currently available information. However, should one or more risks materialize, or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking information included in this document and the Company can give no assurance that such expectations will be achieved.
When considering the forward-looking information in making decisions with respect to the Company, readers should carefully consider the foregoing factors and other uncertainties and potential events. The Company does not assume the obligation to revise or update forward-looking information after the date of this document or to revise it to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.
To the extent any forward-looking information in this document constitutes future oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future oriented financial information and financial outlooks, as with forward-looking information generally, are based on the assumptions and subject to the risks noted above.
5.0 RECONCILIATION OF NON-GAAP MEASURES
The Company reports on certain non-GAAP measures that are used to evaluate its performance and segments, as well as to determine compliance with debt covenants and to manage its capital structure. These non-GAAP measures do not have standardized meanings under IFRS and are not necessarily comparable to similar measures provided by other companies. The Company discloses these measures because it believes that they provide further information and assist readers in understanding the results of the Company’s operations and financial position. These measures should not be considered in isolation or used in substitution for other measures of performance prepared in accordance with GAAP. The following is a reconciliation of the non-GAAP measures reported by the Company.
EBITDA and Adjusted EBITDA
EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation, and amortization. Adjusted EBITDA is also a non-GAAP measure defined as EBITDA adjusted for items which do not impact day to day operations. Adjusted EBITDA is calculated by adding back to EBITDA the sum of impairments, costs associated with repayment of long-term debt and credit facilities, gain on sale of land and other, gain on sale of investment in associates, gain on sale of operating unit, acquisition costs, restructuring costs and other, net and hyperinflationary adjustments. The Company believes that EBITDA and Adjusted EBITDA are useful supplemental measures that provide a meaningful indication of the Company’s results from principal business activities prior to the consideration of how these activities are financed or the tax impacts in various jurisdictions and for comparing its operating performance with the performance of other companies that have different financing, capital or tax structures. The Company presents Adjusted EBITDA as a measure of EBITDA that excludes the impact of transactions that are outside the Company’s normal course of business or day to day operations. Adjusted EBITDA is used by many analysts as one of several important analytical tools to evaluate financial performance and is a key metric in business valuations. It is also considered important by lenders to the Company and is included in the financial covenants of the Company’s Credit Facility.
| Three Months Ended | Six Months Ended | ||||||||||
| June 30, | June 30, | June 30, | June 30, | ||||||||
| (in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | |||||||
| Net Income (Loss) | $ | 19,947 | $ | 2,592 | $ | 12,831 | $ | (13,200 | ) | ||
| Add: | |||||||||||
| Income tax expense | 6,199 | 483 | 8,436 | 3,330 | |||||||
| Finance costs, net | 6,062 | 5,765 | 10,407 | 12,798 | |||||||
| Amortization of property, plant, equipment, intangible and ROU assets | 17,483 | 19,487 | 34,955 | 39,458 | |||||||
| EBITDA | $ | 49,691 | $ | 28,327 | $ | 66,629 | $ | 42,386 | |||
| Gain on sale of land and other | (43,017 | ) | – | (43,017 | ) | – | |||||
| Hyperinflation adjustment for Argentina | 1,533 | 1,678 | 3,423 | 2,790 | |||||||
| Impairment | 20,269 | – | 20,269 | – | |||||||
| Restructuring costs, net | 2,996 | 5,201 | 4,202 | 8,596 | |||||||
| Adjusted EBITDA(a) | $ | 31,472 | $ | 35,206 | $ | 51,506 | $ | 53,772 | |||
| (a) Adjusted EBITDA includes COVID-19 related government wage subsidies of $3.1 million in the second quarter of 2021, and $5.4 million in the first half of 2021. |
Composite Systems Segment
| Three Months Ended | Six Months Ended | |||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||
| (in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | ||||||
| Operating Income | $ | 9,521 | $ | 8,151 | $ | 16,395 | $ | 8,818 | ||
| Add: | ||||||||||
| Amortization of property, plant, equipment, intangible and ROU assets | 7,910 | 7,699 | 15,319 | 15,555 | ||||||
| EBITDA | $ | 17,431 | $ | 15,850 | $ | 31,714 | $ | 24,373 | ||
| Gain on sale of Land | (3,820 | ) | – | (3,820 | ) | – | ||||
| Impairment | 7,293 | – | 7,293 | – | ||||||
| Restructuring costs, net | 1,967 | – | 2,390 | 24 | ||||||
| Adjusted EBITDA(a) | $ | 22,871 | $ | 15,850 | $ | 37,577 | $ | 24,397 | ||
| (a) Adjusted EBITDA includes COVID-19 related government wage subsidies of $1.6 million in the second quarter of 2021, and $3.0 million in the first half of 2021. |
Automotive and Industrial Segment
| Three Months Ended | Six Months Ended | |||||||
| June 30, | June 30, | June 30, | June 30, | |||||
| (in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | ||||
| Operating Income | $ | 14,832 | $ | 9,519 | $ | 29,719 | $ | 20,955 |
| Add: | ||||||||
| Amortization of property, plant, equipment, intangible and ROU assets | 1,059 | 1,101 | 2,144 | 2,211 | ||||
| EBITDA | $ | 15,891 | $ | 10,620 | $ | 31,863 | $ | 23,166 |
| Restructuring costs, net | 54 | 46 | 81 | 78 | ||||
| Adjusted EBITDA(a) | $ | 15,945 | $ | 10,666 | $ | 31,944 | $ | 23,244 |
| (a) Adjusted EBITDA includes COVID-19 related government wage subsidies of $0.5 million in the second quarter of 2021, and $1.0 million in the first half of 2021. |
Pipeline and Pipe Services Segment
| Three Months Ended | Six Months Ended | |||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||
| (in thousands of Canadian dollars) | 2022 | 2021 | 2022 | 2021 | ||||||||
| Operating Loss | $ | (22,494 | ) | $ | (2,202 | ) | $ | (38,674 | ) | $ | (11,701 | ) |
| Add: | ||||||||||||
| Amortization of property, plant, equipment, intangible and ROU assets | 8,143 | 10,082 | 16,743 | 20,439 | ||||||||
| EBITDA | $ | (14,351 | ) | $ | 7,880 | $ | (21,931 | ) | $ | 8,738 | ||
| Hyperinflation adjustment for Argentina | 1 | 111 | (1 | ) | 28 | |||||||
| Impairment | 12,976 | – | 12,976 | – | ||||||||
| Restructuring costs, net | 576 | 5,003 | 707 | 8,274 | ||||||||
| Adjusted EBITDA(a) | $ | (799 | ) | $ | 12,994 | $ | (8,249 | ) | $ | 17,040 | ||
| (a) Adjusted EBITDA includes COVID-19 related government wage subsidies of $0.6 million in the second quarter of 2021, and $0.9 million in the first half of 2021. |
Net debt-to-Adjusted EBITDA
Net debt-to-Adjusted EBITDA is a non-GAAP measure defined as the sum of long-term debt, current lease liabilities and long-term lease liabilities, less cash and cash equivalents, divided by Adjusted EBITDA, as defined above, for the trailing twelve-month period. The Company believes Net debt-to-Adjusted EBITDA is a useful supplementary measure to assess the borrowing capacity of the Company. Net debt-to-Adjusted EBITDA is used by many analysts as one of several important analytical tools to evaluate how long a company would need to operate at its current level to pay of all its debt. It is also considered important by credit rating agencies to determine the probability of a company defaulting on its debt.
| June 30, | December 31, | |||||
| (in thousands of Canadian dollars, except Net debt-to-EBITDA ratio) | 2022 | 2021 | ||||
| Long-term debt | $ | 278,893 | $ | 292,140 | ||
| Lease liabilities | 44,047 | 54,439 | ||||
| Cash and cash equivalents | (115,835 | ) | (124,449 | ) | ||
| Total Net Debt | $ | 207,105 | $ | 222,130 | ||
| Q1 2021 Adjusted EBITDA | $ | – | $ | 18,566 | ||
| Q2 2021 Adjusted EBITDA | – | 35,206 | ||||
| Q3 2021 Adjusted EBITDA | 31,793 | 31,793 | ||||
| Q4 2021 Adjusted EBITDA | 20,078 | 20,078 | ||||
| Q1 2022 Adjusted EBITDA | 20,034 | – | ||||
| Q2 2022 Adjusted EBITDA | 31,472 | – | ||||
| Trailing twelve-month Adjusted EBITDA | $ | 103,377 | $ | 105,643 | ||
| Total Net debt-to-Adjusted EBITDA | $ | 2.00 | $ | 2.10 | ||
