TORONTO, Feb. 11, 2020 /CNW/ - TerraVest Industries Inc.,
(TSX: TVK) ("TerraVest" or the "Company") announces its results for
the first quarter ended December 31, 2019 and the declaration
of its quarterly dividend.
FIRST QUARTER REVIEW AND OUTLOOK
Business Performance
Management believes that there are certain non‐IFRS financial
measures that can be used to assist shareholders in analyzing the
performance of TerraVest. The table below highlights certain
financial results and reconciles net income to adjusted earnings
before interests, income taxes, depreciation and amortization
("EBITDA") for the first quarter ended December 31, 2019
and the comparative period in fiscal 2019.
|
|
|
|
|
First quarters
ended
|
|
|
Dec. 31, 2019
|
Dec. 31, 2018
|
|
|
$
|
$
|
|
|
|
|
Sales
|
|
88,252
|
79,031
|
|
|
|
|
Net
Income
|
|
6,420
|
6,139
|
|
|
|
|
Add
(subtract):
|
|
|
|
Income tax
expense
|
|
2,689
|
2,490
|
Financing
costs
|
|
1,571
|
1,514
|
Depreciation and
amortization
|
|
3,972
|
3,036
|
Change in fair value
of derivative financial instruments
|
|
(521)
|
1,747
|
(Gain) loss on
foreign exchange
|
|
528
|
(673)
|
Acquisition‑related
cost
|
|
138
|
-
|
Gain on disposal of
property, plant and equipment
|
|
(220)
|
(128)
|
Adjusted
EBITDA
|
|
14,577
|
14,125
|
Sales for the quarter ended December 31, 2019 were
$88,252 versus $79,031 for the prior comparable quarter. This
represents an increase of 12%. However, TerraVest acquired all of
the assets of Argo Sales Inc. ("Argo") and Iowa Steel Fabrication,
LLC ("ISF"), neither of which contributed to the prior comparable
period. Excluding Argo and ISF, sales for the first quarter ended
December 31, 2019 were $80,090 versus $79,031 for the prior comparable period. This
represents an increase of 1% for TerraVest's base portfolio
(excluding Argo and ISF) which is a result of stronger demand for
LPG storage and distribution equipment in both Canada and the
United States, offset by weaker demand for home heating
products and oil and gas process equipment and services in
Western Canada.
Net income for the first quarter ended
December 31, 2019 was $6,420 versus $6,139 for the prior comparable period. This
represents an increase of 5%. The increase is primarily the result
of the addition of ISF contributing to TerraVest's results for the
current period and a positive change in fair value of derivative
financial instruments. The increase in net income is partially
offset by negative results in Argo mainly due to the timing of the
acquisition, a shift in product mix resulting in lower margin
compared to prior period results, and a loss on foreign exchange
versus a gain in the prior comparable quarter.
Adjusted EBITDA for the first quarter ended
December 31, 2019 were $14,577 versus $14,125 for the prior comparable period. This
represents an increase of 3%, which is a result of the reasons
explained above. In addition, as a result of the adoption on IFRS
16 "Leases" on October 1, 2019, rent is no longer
included in adjusted EBITDA. Instead, an interest expense is
recognized on lease liabilities and a depreciation expense is
recognized on right-of-use assets. Rent payments were $1,044 for the quarter ended
December 31, 2019.
The table below reconciles cash flow from operating activities
to cash available for distribution for the first quarter ended
December 31, 2019 and the comparative period in
fiscal 2019.
|
|
|
|
|
First quarters
ended
|
|
|
Dec. 31, 2019
|
Dec. 31, 2018
|
|
|
$
|
$
|
Cash Flow from
Operating Activities
|
|
19,670
|
8,966
|
Add
(subtract):
|
|
|
|
Change in non‑cash
operating working capital items
|
|
(10,990)
|
154
|
Maintenance Capital
Expenditures
|
|
(1,248)
|
(1,551)
|
Cash Available for
Distribution
|
|
7,432
|
7,569
|
Dividends Paid in the
Period
|
|
1,764
|
1,763
|
Dividend Payout
Ratio
|
|
24%
|
23%
|
Cash flow from operating activities for the first quarter ended
December 31, 2019 were $19,670 versus $8,966 for the prior comparable period. This
represents an increase of 119% quarter over quarter. The increased
cash flow is primarily a result of greater emphasis on working
capital management following the elimination of North American
steel tariffs.
Maintenance capital expenditures were $1,248 for the quarter versus $1,551 for the prior comparable period. The
difference is related to timing of capital expenditures during the
year. During the period, TerraVest's total purchase of property,
plant and equipment was $2,385 of
which $1,137 is considered growth
capital. This growth capital includes additions to TerraVest's
desanding rental equipment fleet, as well as manufacturing
equipment to support capacity expansions and process improvements
in several of its businesses.
Cash available for distribution decreased by 2% quarter over
quarter. This decrease is a result of reasons explained above
and previously in this press release.
The dividend payout ratio for the first quarter ended
December 31, 2019 was 24% versus 23% for the prior
comparable period.
Outlook
The first quarter of fiscal 2020 carried mixed results as
TerraVest experienced strong demand for its LPG storage and
distribution equipment, but reduced demand for its home heating
product lines and oil and gas processing equipment and services,
which had a negative effect on margins. During the first quarter,
TerraVest closed the acquisition of Argo, which is expected to
bring positive contribution throughout the remainder of the year,
however the initial impact of the acquisition on results was
negative as a result of the timing of the acquisition and a change
in Argo's accounting policy. Management expects an incremental
improvement in results for the remainder of the year compared to
the prior year, as a result of the acquisitions of Argo and ISF, as
well as the realization of certain manufacturing efficiencies
stemming from the transfer of residential oil tank production to a
new facility. Quoting activity has increased for TerraVest's oil
and gas processing equipment businesses, however this has yet to
translate into increased orders. Management is not anticipating a
reversal in activity for its oil and gas related businesses for the
remainder of the year.
Business Combinations
On December 13, 2019, a subsidiary of TerraVest acquired
all the assets of Argo, a privately‑owned Alberta based company primarily focused on
manufacturing wellhead processing and production equipment for the
Canadian Oil & Gas market. The business combination has been
accounted for using the purchase method with the results of
operations included in earnings from the date of acquisition. For
information regarding the fair value of the consideration
transferred, the assets acquired and the liabilities assumed at the
acquisition date, please refer to Note 6 of the interim
condensed consolidated financial statements for the first quarter
ended December 31, 2019, available on SEDAR.
Subsequent event
On December 11, 2019, TerraVest issued a notice of
redemption to redeem all of its outstanding convertible debentures.
From January 1 until January 13, 2020, convertible
debentures with an aggregate principal amount of $3,634 were converted into shares resulting in
the issuance of 440,480 common shares. On
January 13, 2020, TerraVest redeemed the remaining
outstanding convertible debentures with a principal amount of
$1,093 for total consideration of
$1,096, including accrued and unpaid
interest.
CONSOLIDATED RESULTS OF OPERATIONS
The following section provides the financial results of
TerraVest's operations for the first quarter ended
December 31, 2019 and the comparative period in
fiscal 2019.
|
|
|
|
|
First quarters
ended
|
|
|
Dec. 31, 2019
|
Dec. 31, 2018
|
|
|
$
|
$
|
|
|
|
|
Sales
|
|
88,252
|
79,031
|
Cost of
sales
|
|
67,770
|
59,013
|
Gross
profit
|
|
20,482
|
20,018
|
|
|
|
|
Administration
expenses
|
|
8,311
|
7,349
|
Selling
expenses
|
|
1,704
|
1,580
|
Financing
costs
|
|
1,571
|
1,514
|
Other (gains)
losses
|
|
(213)
|
946
|
|
|
11,373
|
11,389
|
|
|
|
|
Earnings before
income taxes
|
|
9,109
|
8,629
|
Income tax
expense
|
|
2,689
|
2,490
|
Net Income
|
|
6,420
|
6,139
|
Allocated to
non‐controlling interest
|
|
(41)
|
46
|
Net income
attributable to common shareholders
|
|
6,461
|
6,093
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
|
17,869,479
|
17,183,864
|
Weighted average
shares outstanding – Diluted
|
|
19,107,518
|
19,187,921
|
Net income per share
– Basic
|
|
$0.36
|
$0.35
|
Net income per share
– Diluted
|
|
$0.35
|
$0.33
|
Sales for the first quarter ended December 31, 2019
increased by 12% over the prior comparable period. The reasons have
been explained previously in this press release.
Gross profit for the first quarter ended December 31, 2019
increased by 2% versus the prior comparable period. This is
primarily explained by the contribution of ISF, and increased sales
volume for TerraVest's LPG storage and distribution equipment,
offset by weaker demand for home heating products and oil and gas
processing equipment and the initial impact of the acquisition of
Argo.
Administration expenses and selling expenses for the first
quarter ended December 31, 2019 increased by 13% and by 8%,
respectively, quarter over quarter, which are mainly the result of
the addition of ISF and Argo's to TerraVest's results and
acquisition‑related expenses.
Financing costs for the first quarter ended December 31,
2019 increased by 4% versus the prior comparable period. The
increase is primarily a result of additional interest expense on
lease liabilities following the adoption of IFRS 16 "Leases"
on October 1, 2019, partially offset by reduced interest
expense and costs associated with the reduction of the convertible
debentures outstanding.
Income tax expense for the first quarter ended December 31,
2019 increased marginally versus comparable period, which is the
result of slightly increased profitability.
As a result of the above, net income attributable to common
shareholders for the first quarter ended December 31, 2019
increased by 6% versus the prior comparable period.
DIVIDENDS
TerraVest is pleased to announce that The Board of Directors has
declared its quarterly dividend of 10 cents per common share
payable on April 10, 2020 to shareholders of record as at the
close of business on March 31, 2020. The dividend is
designated an "eligible dividend" for Canadian income tax
purposes.
Additional information can be found in TerraVest's interim
condensed consolidated financial statements and MD&A which are
available on SEDAR at www.sedar.com.
Non‑IFRS Financial Measures
This news release makes reference to certain non‑IFRS
financial measures. These measures are not recognized measures
under IFRS and do not have a standardized meaning prescribed by
IFRS. TerraVest's definitions may differ from those of other
issuers and therefore may not be comparable to similarly titled
measures used by other issuers. The Company uses non‑IFRS financial
measures including adjusted EBITDA, cash available for
distribution, dividend payout ratio and maintenance capital
expenditures.
Adjusted EBITDA: is defined as net income adjusted for
income tax expense, financing costs, depreciation, amortization,
gains or losses on disposal of property, plant and equipment and on
disposal of assets held for sale, change in fair value of
derivative financial instruments, gains or losses on foreign
exchange, non-recurring acquisition‑related costs, impairment
charges and other non‑recurring and/or non‑operations related items
that do not reflect the current ongoing operations of TerraVest.
Management believes this is a useful metric in evaluating the
ongoing operating performance of TerraVest. Readers are cautioned
that adjusted EBITDA should not be construed as an alternative to
net income determined in accordance with IFRS as an indicator of
TerraVest's performance.
Cash Available for Distribution: is defined as cash
flow from operating activities adjusted for changes in non-cash
operating working capital and maintenance capital expenditures.
Management believes that cash available for distribution, as a
liquidity measure, is a useful metric that provides an indication
of the cash available from ongoing operations that can be
distributed to shareholders as a dividend. Readers are cautioned
that cash available for distribution should not be construed as an
alternative to cash flow from operating activities determined in
accordance with IFRS as an indicator of TerraVest's liquidity and
cash flows.
Dividend Payout Ratio: is defined as dividends paid in
cash during the period divided by cash available for distribution
for the period. Management believes that dividend payout ratio
is a useful metric as it provides an indication of TerraVest's
ability to sustain its current dividend policy. There is no
directly comparable IFRS measure for dividend
payout ratio.
Maintenance Capital Expenditures: is defined as
capital expenditures made to sustain the operations of TerraVest's
operating businesses and to maintain the productive capacity of the
businesses over an economic cycle, whether or not they yield
significant cost or production efficiencies. Management believes
that maintenance capital expenditures should be funded by cash flow
from existing operating activities and, therefore, deducted in
determining cash available for distribution. There is no directly
comparable
IFRS measure for maintenance capital expenditures.
Caution Regarding Forward-Looking Statements
This news release contains forward-looking statements.
All statements other than statements of historical fact contained
in this news release are forward-looking statements, including,
without limitation, statements regarding our strategic direction
and evaluation of the business segments and TerraVest as a whole,
and other plans and objectives of or involving TerraVest. Readers
can identify many of these statements by looking for words such as
"expects" and "will" or similar terms or variations of these words.
Although management believes that the expectations represented in
such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct.
By their nature, forward-looking statements require us to
make assumptions and, accordingly, forward looking statements are
subject to inherent risks and uncertainties. There is significant
risk that the forward-looking statements will not prove to be
accurate. We caution readers of this news release not to place
undue reliance on our forward-looking statements because a number
of factors may cause actual future circumstances, results,
conditions, actions or events to differ materially from the plans,
expectations, estimates or intentions expressed in the
forward-looking statements and the assumptions underlying the
forward-looking statements.
Assumptions and analysis about the performance of TerraVest
as a whole and its business segments, the markets in which the
business segments compete and the prospects and values of the
business segments are considered in setting the business plan for
TerraVest, plans and/or ability to pay dividends, outlook for
operations, financial position, results and cash flows, other plans
and objectives and in making related forward-looking statements.
Such assumptions include, without limitation, demand for
products and services of the business segments in respect of the
Canadian and other markets in which the businesses are active will
be stable, and that input costs to business segments do not vary
significantly from levels experienced
historically. Should any of these factors or
assumptions vary, actual results may differ materially from the
forward-looking statements.
SOURCE TerraVest Industries Inc.