Shawcor Ltd. (TSX: SCL) Mr. Steve Orr, Chief Executive Officer
of Shawcor Ltd. remarked, “Fourth quarter adjusted EBITDA, before
COVID related government assistance, was $40 million, surpassing
the $25 to $30 million range that we expected. Performance was
positively impacted by continued strengthening in the Company’s
non-oil and gas related businesses and a return to profitability
across our oil and gas related businesses, especially offshore pipe
coating. Additionally, in the quarter we continued our actions to
strengthen our balance sheet, including the sale of the Pipeline
Performance Products business, and to keep our employees safe while
servicing customers.”
Mr. Orr added, “Although there will be
volatility on quarterly performance in 2021 due to project
execution timing and yearly seasonal cycles, we have confidence
that we will deliver a stronger annual performance over 2020. This
improvement will be supported by increased demand for our products
and services across all the markets we service, the execution of
secured work in our backlog and the positive impact from our cost
control activities. Growing optimism for 2021 and beyond is
underpinned by supportive long-term fundamentals and our
positioning to deliver sustainable results while maintaining the
ability to participate in our customers’ large capital
projects.”
1 EBITDA, Adjusted EBITDA, adjusted net income
or loss and adjusted earnings or loss per share are Non-GAAP
measures and do not have standardized meanings under GAAP and are
not necessarily comparable to similar measures provided by other
companies. See Section 7.0 – Reconciliation of Non-GAAP Measures
for further details and a reconciliation of these Non-GAAP
measures. 2 Net Income attributable to shareholders of the
Company.
Selected Financial
Highlights
|
(in thousands of Canadian dollars, except per share amounts and
percentages) |
Three Months EndedDecember 31, |
Year EndedDecember 31, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
$ |
|
% |
$ |
% |
$ |
% |
$ |
% |
|
Revenue |
325,678 |
|
|
334,107 |
|
|
1,178,482 |
|
|
1,489,489 |
|
|
|
Gross profit |
95,134 |
|
29.2 |
% |
96,797 |
|
29.0 |
% |
322,536 |
|
27.4 |
% |
427,039 |
|
28.7 |
% |
|
Income (Loss) from Operations(a) |
15,936 |
|
4.9 |
% |
(100,538 |
) |
(30.1 |
%) |
(261,336 |
) |
(22.2 |
%) |
(46,411 |
) |
(3.1 |
%) |
|
Net Income (Loss) for the period(b) |
55,822 |
|
|
(81,783 |
) |
|
(234,167 |
) |
|
(33,293 |
) |
|
|
Loss per share: |
|
|
|
|
|
|
|
|
|
|
Basic |
0.79 |
|
|
(1.17 |
) |
|
(3.33 |
) |
|
(0.47 |
) |
|
|
Diluted |
0.79 |
|
|
(1.17 |
) |
|
(3.33 |
) |
|
(0.47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(c) |
45,995 |
|
14.1 |
% |
29,547 |
|
8.8 |
% |
74,257 |
|
6.3 |
% |
136,401 |
|
9.2 |
% |
|
Adjusted Net Income (Loss)(b)(c) |
8,846 |
|
|
(3,967 |
) |
|
(57,135 |
) |
|
25,093 |
|
|
|
Adjusted EPS(c) |
|
|
|
|
|
|
|
|
|
|
Basic |
0.13 |
|
|
(0.06 |
) |
|
(0.81 |
) |
|
0.36 |
|
|
|
Diluted |
0.13 |
|
|
(0.06 |
) |
|
(0.81 |
) |
|
0.36 |
|
|
|
(a) |
Operating loss in 2020 includes restructuring costs of $32.6
million and impairment charges of $212.6 million, while 2019
includes impairment charges of $104.1 million and gains on sale of
land of $39.3 million. |
|
(b) |
Attributable to shareholders of the Company. |
|
(c) |
Adjusted EBITDA, Adjusted Net Income or Loss and Adjusted EPS are
non-GAAP measures. 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 7.0 –
Reconciliation of Non-GAAP Measures for further details and a
reconciliation of these Non-GAAP measures. |
1.0 KEY DEVELOPMENTS
Sale of Pipeline Performance Products
Business
On December 23, 2020, the Company announced that
it had sold its Pipeline Performance Products business (the
“Products business”) for the purchase price of US$91.5 million
subject to working capital adjustments. This represented a multiple
of approximately 13.0x on the Products business’ adjusted EBITDA1
for the year ended December 31, 2019. During the fourth quarter of
2020, the Company recorded a gain on sale of $52.1 million.
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 7.0 – Reconciliation of
Non-GAAP Measures for further details and a reconciliation of these
Non-GAAP Measures.Impact of COVID-19
In March 2020, a global market downturn caused
by the COVID-19 pandemic and recent changes in oil and gas supply
and demand resulted in an immediate decrease in demand for products
and services supplied by Shawcor. The situation remains dynamic and
the ultimate duration and magnitude of the impact on the global
economy and on the Company remains unknown at this time.
The implications on Shawcor as a result of
decreases in demand may be significant and include:
- Material declines in revenue and
cash flows
- Future impairments charges to
property, plant and equipment
- Increased risk of non-payment of
accounts receivables; and
- Additional restructuring
charges
The Company took immediate measures to address
the reduced demand and the high degree of uncertainty in future
demand. In March 2020, the Company targeted in excess of $60
million in annualized selling, general and administrative
(“SG&A”) and other cost savings and generating in excess of $40
million in cash from working capital reductions and asset
sales.
The Company exceeded its stated targets by completing the
following actions during the year to reduce costs and preserve
cash.
- Suspended the regular quarterly dividend, commencing in the
second quarter of 2020.
- Reduced Board compensation by 30%, CEO cash compensation by 20%
and Senior Executive cash compensation by 10% for the year ended
December 31, 2020.
- With further actions taken in the fourth quarter, reduced
salaried workforce headcount by 22% since March 2020.
- Implemented aggressive cost
controls and with additional actions taken in the fourth quarter,
annualized savings generated has increased to over $15 million.
These savings included the elimination of all non-essential travel,
entertainment and other discretionary spending.
- Further reductions to capital
spending in the fourth quarter resulted in annual expenditures
being limited to $24 million for the year ended December 31, 2020.
This included only essential maintenance capital and select growth
spending to deliver on firm orders, particularly in our Composite
Systems Tank business (formerly ZCL Composites).
- Actioned the controlled shutdowns of 6 pipe coating facilities,
including the closure of a facility in Argentina that was initiated
at the end of the fourth quarter, and several girth weld inspection
branches.
- Reduced working capital by $30.9 million, excluding the impact
of increased restructuring liabilities, during the year.
- Generated cash proceeds from the sale of assets of $129.8
million reflecting the sale of the Products business and $24.4
million related to other assets.
The Company incurred $32.6 million of
restructuring costs in the year as a result of the actions
completed.
As a result of the actions taken and the sale of
the Products business in the fourth quarter, the Company expects
its quarterly normalized SG&A run-rate to improve to
approximately $60 million reflecting completed and planned
initiatives to date. In 2021, the Company will continue to assess
additional optimization actions, including further reductions of
its international operations footprint.
1.1 Fourth
Quarter Highlights and OutlookThe Company experienced
improved results in the fourth quarter and delivered Adjusted
EBITDA1 of $46 million. Excluding the $6 million of COVID-19
related government wage subsidies recorded in the quarter, these
results surpassed the fourth quarter guidance provided in November
2020 by the management team of $25 to $30 million of Adjusted
EBITDA before COVID-19 related government assistance. The improved
results were driven by the recovery in the automotive and
industrial markets, a ramp-up of pipe coating work secured in the
backlog, continued demand for retail fuel tanks in the Composite
Systems segment and actions taken to reduce costs and streamline
operations throughout the year. The Pipeline and Pipe Services and
Composite Systems segments’ financial performance was in-line with
expectations as they continued to execute work secured in their
backlog. The Automotive and Industrial segment surpassed
management’s projections due to a stronger than anticipated global
automotive recovery driven by Original Equipment Manufacturer
(“OEM”) assembly plants and Tier 1 suppliers increasing their
capacity levels and re-stocking inventories, and growth in consumer
demand created by the importance of personal transportation
increasing as a result of COVID-19 and by electrical and hybrid
government incentive programs. The fourth quarter also benefited
from the aggressive cost-cutting and restructuring initiatives
completed by the Company during the year.
During the quarter, the Company commenced
execution on the Payara offshore project in Guyana and continued
the ramp-up of its pipe coating facilities and execution on work
secured in backlog. Improved revenues from higher margin pipe
coating activity resulted in the Pipeline and Pipe Services segment
delivering positive results in the fourth quarter. In addition, the
Company has effectively managed supply chain disruptions resulting
from COVID-19 by working closely with customers to sequence
projects. Employee safety and HSE procedures continued to be
prioritized and the Company experienced no site-wide shutdowns as a
result of COVID-19 during the quarter.
Non-oil and gas businesses experienced higher
activity as automotive demand recovered, industrial markets
strengthened and demand for composite tanks, which was unimpeded by
the events of 2020, remained strong during the quarter. The
Company’s automotive business in China observed customers
experiencing COVID-19 induced supply chain interruptions in the
quarter; however, despite these interruptions, recovery continued
and revenues increased. Overall, increased demand resulted in
material contributions from non-oil and gas businesses which
accounted for 33% of the Company’s total revenues in the fourth
quarter and full year 2020.
During the quarter, OPEC+ maintained production
curtailments and commodity prices started to rebound facilitating
modest improvements in the Company’s oil and gas related
businesses. Despite this market stabilization, composite pipe sales
remained at relatively low levels, similar to the third quarter,
while demand for oilfield asset management services increased with
additional order wins in the quarter.
The Company has exceeded its targets of $60
million in sustainable annualized SG&A cost reductions and $40
million in incremental cash generation. In the fourth quarter, the
Company completed further actions resulting in its salaried
workforce reduction increasing to 22% compared to March 2020
levels, continued actions to optimize its operating footprint with
the initiated closure of a pipe coating facility in Argentina and
additional reductions in discretionary spending. The Company
incurred one-time restructuring charges of $2.8 million during the
quarter.
Based on actions completed to date and the sale
of the Products business, the Company expects its quarterly
normalized SG&A run-rate to improve to approximately $60
million.
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 7.0 – Reconciliation of
Non-GAAP Measures for further details and a reconciliation of these
Non-GAAP Measures.
The Company continues to execute on cash
generation initiatives as evidenced by $113.3 million of proceeds
from asset sales and the reduction of capital expenditures to $7.1
million in the quarter. These were partially offset by an
investment in working capital, excluding the impact of
restructuring activities, of $16.4 million related to the increased
activity during the fourth quarter.
The Pipeline and Pipe Services segment
experienced significant improvement in revenues as a result of
execution of high-margin pipe coating projects. North American
exploration and production (“E&P”) operators continued their
focus on portfolio quality, capital discipline and industry
consolidation. Capital spending reductions by E&P operators
remained in the range of 30% on a year-over-year basis and drilling
activity in North American oil and gas basins showed only slight
improvement with quarter-end rig counts in Canada and the U.S.
totaling 59 and 351, respectively. Demand from operators for
pipeline engineering design and integrity management services
remained strong and continued to be resilient as customers looked
externally for expertise to backfill internal resources gaps to
manage advanced integrity asset programs on existing assets. Work
continued to be executed on several international and offshore
projects, including the Payara project, and production ramp up
continued at facilities in Mexico, Brazil, Scotland, Norway,
Indonesia and Channelview (Texas).
The Composites Systems segment saw continued
strength in demand for retail fuel and water/wastewater tanks and
applications. Revenues decreased slightly over the prior quarter
primarily due to product mix. Revenues continued to reflect
investments in North American convenience store retail
modernization and the trend to replace both early generation
single-wall Fibreglass Reinforced Plastics (“FRP”) and aging,
legacy steel tanks with new double-wall FRP solutions. Completion
activities in North America and international demand for composite
pipe products remained relatively flat over the prior quarter as
large and mid-size operators continued to limit capital spending.
Business development activities in international markets continued
in the quarter with active project bids made for composite pipe in
the Middle East, Asia and Australia. During the quarter, modest
improvements in activity in Western Canada resulted in higher
demand for oilfield asset management services.
The Automotive and Industrial segment had a
record quarter driven by a strong recovery in automotive demand,
particularly for electric vehicles in Europe which are rapidly
gaining market share. In spite of customers experiencing COVID-19
induced supply chain interruptions in the quarter, the Company’s
automotive business was able to deliver strong performance in all
regions. Revenues also increased for the specialty wire and cable
business, primarily from stock business for electrical utilities
and communications providers.
Order Backlog
The Company’s order backlog consists of firm
customer orders only and represents the revenue the Company expects
to realize on booked orders over the succeeding twelve months. The
Company reports the twelve-month billable backlog as a leading
indicator of changes in consolidated revenue. The order backlog of
$453 million as at December 31, 2020, represents a decrease from
the $542 million order backlog as at September 30, 2020. This
decrease reflects revenue generated in the quarter from the
execution of pipe coating projects and the removal of orders
related to the sale of the Products business. The Company is also
starting to experience an increase in secured order backlog beyond
the next twelve-month period.
In addition to the backlog, the Company closely
monitors its bidding activity and the value of outstanding firm
bids, which represents bids provided to customers with firm pricing
and conditions against a defined scope. The Company’s firm bids are
over $841 million as of December 31, 2020, slightly lower compared
to the $870 million as of September 30, 2020. Included in the firm
bids, but not in the backlog, are unsanctioned conditional awards
between engineering, procurement and construction companies
(“EPC’s”) and Shawcor for a scope of work that is estimated at over
$130 million in revenue in respect of which a final investment
decision (“FID”) is expected in 2021. The Company is also working
with customers on several other projects and the value of bid and
budgetary estimates at the end of the fourth quarter exceeded $2.3
billion. Although the timing of these projects is uncertain, the
Company’s bid and budgetary figures represent a diverse portfolio
of opportunities to sustain and build the backlog in the second
half of 2021 and beyond.
Outlook
Shawcor’s financial performance is correlated
with the level of industry activity and the level of investment in
energy and infrastructure for resource development, storage and
transportation around the globe and the resultant demand for the
Company’s products and services.
Although long term outlook remains uncertain and
difficult to forecast as COVID-19 continues to be a significant
variable in the pace and magnitude of a broader market recovery,
the Company expects to deliver improved annual Adjusted EBITDA1 in
2021 over 2020, with some quarterly volatility in revenues due to
project execution timing and typical seasonality. The first quarter
of 2021 is expected to maintain its seasonal profile of lower
activity for composite tanks and engineering and consulting
services and as a result the Company expects the first quarter to
be the lowest financial performance quarter of 2021. The first
quarter performance could also be negatively impacted by recent
supply chain and production interruptions from the severe weather
events in Texas and by other COVID-19 induced events. Due to these
factors, there is an increased likelihood that certain work will be
delayed and moved out of the first quarter of 2021.
The Company’s performance will be determined by
the strength of its diverse base business and return of demand for
its products and services, particularly in the U.S. and
international energy markets, and its ability to continue to
execute work and projects secured in the backlog. Performance will
also be driven by the sustained solid demand for its composite tank
business, continued demand recovery in the automotive and
industrial markets which are serviced by the Company and its cost
savings initiatives completed and planned. Although the Company
expects its order backlog to decline in the first half of 2021 as
the execution on pipe coating projects continues, it anticipates
the backlog will rebuild in the second half of 2021 based on the
Company’s strong competitive position and the expected addition of
conditional awards pending sanctioning and secured for beyond 12
months.
The Company’s base oil and gas business in North
America is heavily tied to the spending programs of E&P
operators. In the U.S. land, rig counts are slowly starting to
rise, largely due to activity from private and small-sized
operators. In Western Canada, rig counts continue to recover from
an all-time low of 13 rigs in June of 2020 reaching 176 rigs in
February of 2021, roughly 31% below the rig count one year prior.
Although the oil and gas markets in North America are showing signs
of improvement, it is projected that the recovery will be a gradual
one and that E&P spending will not reach pre-pandemic levels in
2021. The Company believes that there is a potential for upward
revisions in capital spending plans for the year, which could
result in upside opportunity for the Company’s energy businesses,
in particular the demand for its composite pipe products.
As the economy and energy demand recovers, the
Company continues to expect that the global oil and gas capex cycle
will resume and that large international and offshore projects will
be sanctioned as National Oil Companies (“NOC’s”) and International
Oil Companies (“IOC’s”) realign their portfolios. These investments
are required to replace, maintain and rehabilitate infrastructure
that is at or beyond its useful design life, replace production due
to reservoir depletion, meet requirements for advanced technologies
and non-corrosive materials, or to address geopolitical challenges
which are affecting several important producing regions.
Additionally, higher investments in gas, specifically LNG and for
domestic energy, are being supported by the increased demand for
gas and greener alternatives to support continued energy
transition.
Further detail on the outlook for the Pipeline
and Pipe Services, Composite Systems and Automotive and Industrial
segments are set out below.
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 7.0 – Reconciliation of
Non-GAAP Measures for further details and a reconciliation of these
Non-GAAP Measures.
Pipeline and Pipe Services
Segment
Market demand for the Company’s Pipeline and
Pipe Services segment is driven by capital spending and investments
by international and national oil and gas producers. The Company
has a track record of providing leading solutions and successful
execution on critical international and offshore development
projects.
The Company expects to continue to execute work
secured in its backlog with a number of projects set to be
completed in the first half of the year. The outlook for the pipe
coating business is closely tied to project development and
sanctioning timelines and the Company continues to engage with
EPC’s and producers as they review project portfolios. It is
anticipated that the Company’s execution will outpace project
sanctioning early in the year, but a backlog rebuild is expected in
the second half of 2021.
The Company continues to monitor international
developments including continued exploration success coupled with
attractive investment returns in Guyana, momentum in Brazil’s
pre-salt offshore projects, Middle Eastern offshore projects
designed to meet domestic energy needs and global LNG demand and
new tax incentives introduced in Norway to accelerate project
investments.
North American demand for the Pipeline &
Pipe Services segment is closely tied to drilling and completion
activity, the construction of new and the repair/replacement of old
transmission pipelines and requirements for pipeline integrity and
regulatory compliance. These activities drive the demand for small
and large diameter pipe coatings, girth weld inspection services on
existing pipelines and new projects and engineering design and
consulting services. A gradual recovery in North American land is
anticipated to continue, with private and small-sized operators
being the first to add back rigs. Operators have maintained their
disciplined approach to capital spending and a moderate improvement
in spending is expected to continue throughout 2021 as operators
return to a minimum base level of investment to maintain current
levels of production.
Composite Systems Segment
Demand for composite storage tanks is detached
from the dynamics of oil and gas markets and is expected to remain
strong throughout 2021, while maintaining the normal seasonal
profile of lower revenues in the first quarter. Continued strength
in fuel market demand is anticipated as commercial and convenience
store retailers realize the benefits of higher fuel margins. The
demand for water storage and treatment tanks is expected to be
supported by projected higher infrastructure spending and
commercial and municipal water projects. The Company expects to
deliver on its composite tank order backlog over the balance of the
year with a focus on safe operations and supply chain
management.
Market demand for the segment’s energy related
businesses are driven by North American drilling and completion
activity, demand for international oil and gas gathering line
applications, and advanced materials in Oil Country Tubular Goods
(“OCTG”). The segment benefits from a lower cost of ownership of
composite systems versus steel and other materials, the development
of larger diameter pipe applications and its international market
qualifications. The composite pipe business will continue to
benefit from stabilization in drilling and completion activity
across the customer base as activity levels gradually return.
Demand for the segment’s core pipe products in North America is
expected to remain subdued compared to historical levels, however
the Company believes that the lower demand can be partially offset
by the continued commercialization of the larger diameter pipe
applications, market share gains as operators adopt composite
technology for its overall cost profile and environmental
advantages, and continued business development work on
international energy and infrastructure projects.
Automotive and Industrial
Segment
Demand for the Company’s Automotive and
Industrial segment businesses generally follows GDP activity;
however, the segment continues to be well positioned to capture the
growing trend of electronic content in automobiles with specified
sealing, insulating and customized application equipment systems
for Tier 1 assembly customers and the expected increased spending
on nuclear facility refurbishment.
Automotive demand is expected to continue its
recovery throughout 2021; however, it is anticipated there will be
some volatility in revenues quarter over quarter as OEMs address
supply chain issues. OEM assembly plants in North America have
announced production cuts early in the year as a result of a global
semi-conductor shortage. In spite of this volatility, the Company
expects to see improvement in demand for its automotive products,
particularly in the Asia Pacific and Europe, Middle East, Africa
and Russia (“EMAR”) regions, where electric vehicles adoption rates
are highest.
Over the long-term demand for electric and
plug-in hybrid passenger vehicles and light trucks is expected to
grow and represent more than 50% of global vehicle sales by the
early part of the next decade, with Europe and China to be the
market leaders in vehicle electrification.
Infrastructure spending is expected to increase
in 2021, creating optimism that the Company will see an increase in
new order bookings for its specialty wire and cable products and a
growing backlog primarily from electrical utilities and
communications providers as well as nuclear refurbishment projects
in eastern North America.
2.0 CONSOLIDATED INFORMATION AND
RESULTS FROM
OPERATIONS2.1 Revenue
The following table sets forth revenue by
reportable operating segment for the following periods:
|
|
|
Three Months Ended |
Year Ended |
|
(in thousands of Canadian dollars) |
|
December 31,2020 |
|
|
December 31,2019 |
|
|
December 31,2020 |
|
|
December 31,2019 |
|
|
Pipeline and Pipe Services |
$ |
189,794 |
|
$ |
188,342 |
|
$ |
662,220 |
|
$ |
863,848 |
|
|
Composite Systems |
$ |
80,361 |
|
$ |
98,620 |
|
$ |
320,833 |
|
$ |
417,329 |
|
|
Automotive and Industrial |
$ |
56,007 |
|
$ |
48,193 |
|
$ |
198,290 |
|
$ |
211,103 |
|
|
Elimination(a) |
$ |
(484 |
) |
$ |
(1,048 |
) |
$ |
(2,861 |
) |
$ |
(2,791 |
) |
|
Consolidated Revenue |
$ |
325,678 |
|
$ |
334,107 |
|
$ |
1,178,482 |
|
$ |
1,489,489 |
|
|
(a) |
Represents the elimination of the inter-segment sales between the
Pipeline and Pipe Services segment, the Composite Systems segment
and the Automotive and Industrial segment. |
Fourth Quarter 2020 versus Fourth
Quarter 2019
Consolidated revenue decreased by $8.4 million,
or 3%, from $334.1 million during the fourth quarter of 2019, to
$325.7 million during the fourth quarter of 2020, reflecting an
$18.3 million decrease in the Composite Systems segment, partially
offset by a $1.5 million increase in the Pipeline and Pipe Services
segment and a $7.8 million increase in the Automotive and
Industrial segment.
In the Pipeline and Pipe Services segment,
revenue in the fourth quarter of 2020 was $189.8 million, or 1%
higher compared to the fourth quarter of 2019, primarily due to
higher revenue levels in EMAR and Asia Pacific, partially offset by
lower revenue levels in North America and Latin America. See
Section 3.1 – Pipeline and Pipe Services Segment for additional
disclosure with respect to the change in revenue in the Pipeline
and Pipe Services segment.
In the Composite Systems segment, revenue in the
fourth quarter of 2020 was $80.4 million, a decrease of 19%
compared to the same quarter in 2019 primarily due to decreased
activity levels in North America. See Section 3.2 – Composite
Systems Segment for additional disclosure with respect to the
change in revenue in the Composite Systems segment.
In the Automotive and Industrial segment,
revenue was $56.0 million, an increase of 16% compared to the
fourth quarter of 2019, primarily due to increased activity levels
in North America, EMAR and Asia Pacific. See Section 3.3 –
Automotive and Industrial Segment for additional disclosure with
respect to the change in revenue in the Automotive and Industrial
segment.
Year ended December 31, 2020 versus Year ended December
31, 2019
Consolidated revenue decreased by $311.0
million, or 21%, from $1,489.5 million for the year ended December
31, 2019 to $1,178.5 million for the year ended December 31, 2020,
reflecting a decrease of $201.6 million in the Pipeline and Pipe
Services segment, $96.5 million in the Composite Systems segment
and $12.8 million in the Automotive and Industrial segment.
Revenue for the Pipeline and Pipe Services
segment decreased by $201.6 million, or 23%, in the year ended
December 31, 2020 compared to the same period in 2019, due to lower
revenues in North America, Latin America and EMAR, partially offset
by higher revenue in Asia Pacific. See Section 3.1 – Pipeline and
Pipe Services Segment for additional disclosure with respect to the
change in revenue in the Pipeline and Pipe Services segment.
Revenue for the Composite Systems segment
decreased by $96.5 million, or 23%, in the year ended December 31,
2020 compared to the same period in 2019, primarily due to lower
activity levels in North America. See Section 3.2 – Composite
Systems Segment for additional disclosure with respect to the
change in revenue in the Composite Systems segment.
Revenue for the Automotive and Industrial
segment decreased by $12.8 million, or 6%, in the year ended
December 31, 2020 compared to the same period in 2019, due to lower
activity levels in EMAR and North America, partially offset by
higher revenue in Asia Pacific. See Section 3.3 – Automotive and
Industrial Segment for additional disclosure with respect to the
change in revenue in the Automotive and Industrial segment.
2.2 Income/Loss from
Operations ("Operating Income/Loss”)
The following table sets forth operating
income/loss and Adjusted EBITDA for the following periods:
|
|
|
Three Months Ended |
Year Ended |
|
(in thousands of Canadian dollars, except percentages) |
|
December 31,2020 |
|
|
December 31,2019 |
|
|
December 31,2020 |
|
|
December 31,2019 |
|
|
Operating income/(loss)(a) |
$ |
15,936 |
|
$ |
(100,538 |
) |
$ |
(261,336 |
) |
$ |
(46,411 |
) |
|
Operating margin(b) |
|
4.9% |
|
|
(30.1% |
) |
|
(22.2% |
) |
|
(3.1% |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(b) |
$ |
45,995 |
|
$ |
29,547 |
|
$ |
74,257 |
|
$ |
136,401 |
|
|
Adjusted EBITDA margin(b) |
|
14.1% |
|
|
8.8% |
|
|
6.3% |
|
|
9.2% |
|
|
(a) |
Operating income/(loss) in 2020 includes $32.6 million of
restructuring costs and $212.6 million of impairment charges, while
2019 includes $104.1 million of impairment charges and $39.3
million of gains on sale of land. |
|
(b) |
Operating margin, Adjusted EBITDA and Adjusted EBITDA Margin are
non-GAAP measures. 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 7.0 –
Reconciliation of Non-GAAP Measures for further details and a
reconciliation of these Non-GAAP measures. |
During 2020, the Company conducted several
reviews of its impairment testing on property, plant and equipment,
intangible assets and goodwill due to the uncertain business
climate and lower demand brought about by the global COVID-19
pandemic and the volatility in the energy markets. In the first
quarter of 2020, the Company recorded impairment charges of $203.1
million, which included $143.6 million and $46.0 million on
intangible assets and goodwill for the Pipeline Performance Group
and Shawcor Inspection Services, respectively, and $13.4 million on
assets at two U.S. land pipe coating facilities and certain assets
related to large diameter products in its Composite Systems
facility in Alberta. In the third quarter of 2020, the Company
recorded an additional impairment of $3.6 million on assets at a
pipe coating facility in Asia Pacific for the Pipeline Performance
Group related to the announced closure plans. In the fourth quarter
of 2020, the Company recorded an impairment charge of $5.9 million
related to intangible assets and goodwill for Socotherm Americas,
its operations in Argentina.
Operating loss in the year ended December 31,
2020 includes an additional quarter of income from the composite
tank business when compared to the same period in 2019, as the
acquisition of the business was completed in April 2019, which had
a net positive impact on the full year 2020 results.
In response to the challenging business
conditions in the year, the Company has completed several cost
reduction and cash preservation initiatives. As a result of the
significant reduction of the salaried workforce and the shutdown of
certain facilities and branch offices throughout the year, the
Company has recorded restructuring costs of $32.6 million.
Fourth Quarter 2020 versus Fourth
Quarter 2019
Operating income in the fourth quarter of 2020
was $15.9 million, a significant increase compared to the $100.5
million operating loss incurred in the fourth quarter of 2019. The
increase was primarily due to the lower impairment charges of $98.2
million in the current quarter, a $17.9 million decrease in
SG&A expenses, and a $5.0 million decrease in depreciation and
amortization, partially offset by a $1.7 million decrease in gross
profit and the Company incurring $2.8 million of restructuring
costs.
The current quarter benefited from COVID-19
related government wage subsidies of $6.0 million, of which $3.0
million was recorded in cost of goods sold and $3.0 million was
recorded in SG&A expenses.
Gross profit decreased by $1.7 million compared
to the fourth quarter of 2019, primarily due to the $8.4 million
decrease in revenue, as explained above, which was partially offset
by a 0.2 percentage point increase in gross margin. The current
quarter benefited from $3.0 million of COVID-19 related government
wage subsidies recorded.
SG&A expenses decreased by $17.9 million
compared to the fourth quarter of 2019, primarily due to the
completed cost control initiatives that resulted in decreases of
$4.6 million in travel and entertainment expenses and $2.5 million
in building and equipment related expenses. The current quarter
also benefited from $3.0 million of COVID-19 related government
wage subsidies recorded and the absence of $7.3 million rework
costs related to the quality issue at our Channelview facility that
occurred at the end of 2019.
Adjusted EBITDA was $46.0 million in the fourth
quarter of 2020 compared to $29.5 million in the fourth quarter of
2019. See Section 7.0 – Reconciliation of Non-GAAP Measures for
additional disclosures regarding Adjusted EBITDA.
Year ended December 31, 2020 versus Year
ended December 31, 2019
Operating loss in the year ended December 31,
2020 was $261.3 million, a significantly higher loss compared to
the operating loss of $46.4 million in the year ended December 31,
2019. The higher loss was primarily due to the $108.5 increase in
impairment charges, the $104.5 million decrease in gross profit,
the $32.6 million in restructuring costs, the $37.1 million lower
gains on sale of land and other assets, and an additional $8.2
million in net foreign exchange losses. These negative impacts were
partially offset by decreases of $65.6 million in SG&A expenses
and $8.2 million in depreciation and amortization as compared to
2019.
The current year benefited from COVID-19 related
government wage subsidies of $30.5 million, of which $12.4 million
was recorded in cost of goods sold and $18.1 million was recorded
in SG&A expenses.
Gross profit decreased by $104.5 million
compared to 2019, primarily due to the $311.0 million decrease in
revenue, as explained above, coupled with a 1.3 percentage point
decrease in gross margin. The decrease in the gross margin
percentage was primarily due to product and project mix, the
decrease in revenue and lower facility utilization and the related
impact on the absorption of manufacturing overheads from the
continued impact of the global COVID-19 pandemic and ongoing
volatility in the energy markets. The current period benefited from
$12.4 million of COVID-19 related government wage subsidies
recorded.
SG&A expenses decreased by $65.6 million
compared to 2019, primarily due to the completed cost control and
headcount reduction initiatives that resulted in decreases of $34.5
million in compensation related costs and $12.2 million in travel
and entertainment expenses. The current period also benefited from
$18.1 million of COVID-19 related government wage subsidies
recorded and the absence of $9.5 million in 2019 non-recurring
integration and acquisition costs related to the composite tank
business. This was partially offset by an additional quarter of
ongoing SG&A expenses of $5.6 million for the composite tank
business as it was acquired in April 2019.
Adjusted EBITDA was $74.3 million in the year
ended December 31, 2020 compared to $136.4 million in the prior
year. See Section 7.0 – Reconciliation of Non-GAAP Measures for
additional disclosures regarding Adjusted EBITDA.
2.3 Income from Investments in
Associates
The following table sets forth the income from
investments in associates for the following periods:
|
|
Three Months Ended |
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
(in thousands of Canadian dollars) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
Income from investments in associates |
$ |
1,959 |
|
$ |
5,483 |
|
$ |
10,134 |
|
$ |
14,459 |
|
The Company has equity-accounted investments in
Zedi Inc. ("Zedi") and Power-Feed-Thru Systems and Connectors, LLC
("PFT"). In the first quarter of 2020, the Company received $8.9
million of proceeds pertaining to the partial redemption of the
investment in Zedi. In the third and fourth quarters of 2020, the
Company recorded an additional gain of $8.2 million and $2.1
million, respectively, based on a current valuation of the
investment and favourable results from the wind-down activities
currently being performed. During the second quarter of 2019, Zedi
disposed of its software and automation businesses which
represented a substantial part of its operations and as a result,
the Company received $29.2 million of proceeds and recorded a gain
of $9.7 million.
2.4 Gain
from Disposal of an Operating Unit
In the fourth quarter of 2020, the Company sold its Products
business for the purchase price of US$91.5 million subject to
working capital adjustments. As a result, the Company recorded sale
proceeds of $105.4 million, net of working capital adjustments and
related expenses, and a gain on sale of $52.1 million in the fourth
quarter results.
3.0 SEGMENT
INFORMATION
3.1 Pipeline and Pipe
Services Segment
The following table sets forth, by geographic
location, the revenue, operating (loss) income and adjusted EBITDA
for the Pipeline and Pipe Services segment for the following
periods:
|
|
|
Three Months Ended |
Year Ended |
|
(in thousands of Canadian dollars, except percentages) |
|
December 31,2020 |
|
|
December 31,2019 |
|
|
December 31,2020 |
|
|
December 31,2019 |
|
|
North America |
$ |
61,516 |
|
$ |
103,318 |
|
$ |
298,322 |
|
$ |
487,817 |
|
|
Latin America |
|
21,484 |
|
|
27,750 |
|
|
49,990 |
|
|
113,350 |
|
|
EMAR |
|
71,065 |
|
|
49,591 |
|
|
224,797 |
|
|
232,847 |
|
|
Asia Pacific |
|
35,729 |
|
|
7,683 |
|
|
89,111 |
|
|
29,834 |
|
|
Total revenue |
$ |
189,794 |
|
$ |
188,342 |
|
$ |
662,220 |
|
$ |
863,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)(a) |
$ |
155 |
|
$ |
(129,273 |
) |
$ |
(276,142 |
) |
$ |
(119,736 |
) |
|
Operating margin(b) |
|
0.1% |
|
|
(68.6% |
) |
|
(41.7% |
) |
|
(13.9% |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(b) |
$ |
18,554 |
|
$ |
(8,209 |
) |
$ |
(4,404 |
) |
$ |
16,307 |
|
|
Adjusted EBITDA margin(b) |
|
9.8% |
|
|
(4.4% |
) |
|
(0.7% |
) |
|
1.9% |
|
|
(a) |
Operating income/loss in 2020 includes $19.0 million of
restructuring costs, $202.8 million of impairment charges, and $1.2
million of a gain on sale of land, while 2019 includes $104.1
million of impairment charges and $32.6 million of a gain on sale
of land. |
|
(b) |
Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are
non-GAAP measures. 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 7.0 –
Reconciliation of Non-GAAP Measures. |
Fourth Quarter 2020 versus Fourth
Quarter 2019
Revenue in the fourth quarter of 2020 increased
by $1.5 million, or 1%, compared to the fourth quarter of 2019
primarily due to higher revenues in EMAR and Asia Pacific,
partially offset by lower revenues in North America and Latin
America:
- North America revenue decreased by
$41.8 million, or 40%, primarily as a result of lower demand for
small and large diameter pipe coating and girth weld inspection
services in the region and the completed closures of U.S. land pipe
coating facilities during the current year, partially offset by
higher revenue from engineering services. The fourth quarter of
2019 results reflect the negative impact caused by the quality
issue at our Channelview facility.
- Revenue in Latin America decreased
by $6.3 million, or 23%, primarily due to lower revenue from the
Liza II project, partially offset by other pipe coating project
activity in Mexico.
- In EMAR, revenue increased by $21.5
million, or 43%, primarily due to the execution of the Baltic pipe
project at the Leith, Scotland facility, and higher activity in the
Orkanger, Norway facility and field joint coating projects in the
region. This was partially offset by lower activity levels at Ras
Al Khaimah, UAE (“RAK”) facilities and Italy facilities, as well as
lower revenue levels for offshore girth weld inspection
activity.
- Revenue in Asia Pacific increased
by $28.0 million, or 365%, mainly due to higher pipe coating
project activities at the Kuantan, Malaysia facility and the Kabil,
Indonesia facility.
Operating income in the fourth quarter of 2020
was $0.2 million compared to the $129.3 million operating loss in
the fourth quarter of 2019. The increase was primarily due to the
lower impairment charges of $98.2 million in the current quarter, a
$7.1 million increase in gross profit, a $5.5 million decrease in
depreciation and amortization and a $18.4 million decrease in
SG&A expenses.
The current quarter benefited from COVID-19
related government wage subsidies of $1.0 million, of which $0.5
million was recorded in cost of goods sold and $0.5 million was
recorded in SG&A expenses.
Gross profit increased by $7.1 million compared
to the fourth quarter of 2019, primarily due to the $1.5 million
increase in revenue, as explained above, coupled with a 3.5
percentage points increase in gross margin. The increase in the
gross margin percentage was primarily due to product and project
mix and higher facility utilization in EMAR and Asia Pacific and
the related impact on the absorption of manufacturing overheads.
The current quarter also benefited from $0.5 million of COVID-19
related government wage subsidies recorded.
SG&A expenses decreased by $18.4 million
compared to the fourth quarter of 2019, primarily due to the
restructuring initiatives and site closures that resulted in
decreases of $6.1 million in compensation related costs, $2.4
million in travel and entertainment expenses and $1.4 million in
building and equipment related costs. The current quarter also
benefited from $0.5 million of COVID-19 related government wage
subsidies recorded and the absence of $7.3 million rework costs
related to the quality issue at our Channelview facility that
occurred at the end of 2019.
Adjusted EBITDA in the fourth quarter of 2020
was positive $18.6 million compared to negative $8.2 million in the
fourth quarter of 2019. See Section 7.0 – Reconciliation of
Non-GAAP Measures for additional disclosures regarding Adjusted
EBITDA.
Year Ended December 31, 2020 versus Year Ended December
31, 2019
Revenue in the year ended December 31, 2020
decreased $201.6 million compared to the prior year primarily due
to lower revenues in North America, Latin America and EMAR,
partially offset by higher revenue in Asia Pacific:
- In North America, revenue decreased
by $189.5 million, or 39%, primarily as a result of lower demand
for small and large diameter pipe coating and girth weld inspection
services and the completed closures of U.S. land pipe coating
facilities during 2020, which was partially offset by higher
revenue from engineering services. 2019 was also negatively
impacted by the delay of revenue caused by the quality issue at our
Channelview facility.
- Latin America revenue was lower by
$63.4 million, or 56%, mainly due to lower activity levels in
Brazil, Argentina, and Mexico compared to 2019.
- Revenue in EMAR decreased by $8.1
million, or 3%, primarily due to lower revenue levels at the Italy
facilities, partially offset by higher pipe coating project
activity levels at the Orkanger, Norway, RAK, UAE and Leith,
Scotland facilities.
- In Asia Pacific, revenue increased
by $59.3 million, or 199%, mainly due to higher pipe coating
project activity at the Kabil, Indonesia and Kuantan, Malaysia
facilities.
Operating Loss for the year ended December 31,
2020 was $276.1 million compared to $119.7 million in the prior
year. The higher loss was primarily due to an additional $98.7
million in impairment charges, a $62.9 million decrease in gross
profit and $19.0 million of restructuring costs, while the prior
year benefited from an additional $31.3 million gains on sale of
land. These negative impacts were partially offset by decreases of
$41.6 million in SG&A expenses and $12.6 million in
depreciation and amortization as compared to 2019.
The current year benefited from COVID-19 related
government wage subsidies recorded of $8.5 million, of which $4.0
million was recorded in cost of goods sold and $4.5 million was
recorded in SG&A expenses.
Gross profit decreased by $62.9 million compared
to 2019, primarily due to the $201.6 million decrease in revenue,
as explained above, coupled with a 1.4 percentage points decrease
in gross margin. The decrease in gross margin percentage was
primarily due to product and project mix and lower facility
utilization in North America, Latin America, and EMAR and the
related impact on the absorption of manufacturing overheads. The
current period benefited from $4.0 million of COVID-19 related
government wage subsidies recorded.
SG&A expenses decreased by $41.6 million
compared to 2019, primarily due to the restructuring initiatives
and site closures that resulted in decreases of $15.5 million in
compensation related costs, $6.6 million in travel and
entertainment expenses, $2.3 million in building and equipment
related costs, and $1.1 million in advertising costs. The current
period also benefited from $4.5 million of COVID-19 related
government wage subsidies recorded and the absence of $7.3 million
rework costs related to the quality issue at our Channelview
facility that occurred at the end of 2019.
Adjusted EBITDA in the year ended December 31,
2020 was negative $4.4 million compared to positive $16.3 million
in the prior year. See Section 7.0 – Reconciliation of Non-GAAP
Measures for additional disclosures regarding Adjusted EBITDA.
3.2 Composite Systems
Segment
The following table sets forth, by geographic
location, the revenue, operating (loss) income and adjusted EBITDA
for the Composite Systems segment for the following periods:
|
|
|
Three Months Ended |
Year Ended |
|
(in thousands of Canadian dollars, except percentages) |
|
December 31,2020 |
|
|
December 31,2019 |
|
|
December 31,2020 |
|
|
December 31,2019 |
|
|
North America |
$ |
76,709 |
|
$ |
95,651 |
|
$ |
313,758 |
|
$ |
405,192 |
|
|
Latin America |
|
641 |
|
|
1,191 |
|
|
2,967 |
|
|
5,869 |
|
|
EMAR |
|
302 |
|
|
479 |
|
|
1,371 |
|
|
3,418 |
|
|
Asia Pacific |
|
2,709 |
|
|
1,299 |
|
|
2,737 |
|
|
2,850 |
|
|
Total revenue |
$ |
80,361 |
|
$ |
98,620 |
|
$ |
320,833 |
|
$ |
417,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income(a) |
$ |
6,913 |
|
$ |
15,249 |
|
$ |
7,646 |
|
$ |
55,608 |
|
|
Operating margin(b) |
|
8.6% |
|
|
15.5% |
|
|
2.4% |
|
|
13.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(b) |
$ |
16,077 |
|
$ |
22,317 |
|
$ |
55,795 |
|
$ |
89,851 |
|
|
Adjusted EBITDA Margin(b) |
|
20.0% |
|
|
22.6% |
|
|
17.4% |
|
|
21.5% |
|
|
(a) |
Operating income in 2020 includes $4.5 million of restructuring
costs and $9.8 million of impairment charges, while 2019 includes
$6.8 million gain from sale of land and $10.8 million of composite
tank business acquisition costs and other related items. |
|
(b) |
Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are
non-GAAP measures. 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 7.0 –
Reconciliation of Non-GAAP Measures. |
Fourth Quarter 2020 versus Fourth
Quarter 2019
Revenue in the fourth quarter of 2020 decreased
by $18.3 million, or 19%, compared to the fourth quarter of 2019,
primarily due to the negative impact of the global COVID-19
pandemic and the volatility in the energy markets. North American
revenue decreased by $18.9 million, or 20%, from lower demand for
composite pipe products, which resulted from the continued capital
discipline focus of exploration and production operators despite
the gradual increase in oil and gas prices seen in the quarter. In
addition, tubular management service activity was lower in Western
Canada. This was partially offset by higher revenues for composite
tank products as the business continues to focus on the execution
of its backlog and benefits from North American infrastructure
spending.
Operating income in the fourth quarter of 2020
was $6.9 million compared to $15.2 million in the fourth quarter of
2019. This decrease was primarily due to a $10.3 million decrease
in gross profit and a $1.3 million gain on sale of land in the
fourth quarter of 2019, partially offset by a $5.3 million decrease
in SG&A expenses.
The current quarter benefited from COVID-19
related government wage subsidies of $3.0 million, of which $1.8
million was recorded in cost of goods sold and $1.2 million was
recorded in SG&A expenses.
Gross profit decreased by $10.3 million compared
to the fourth quarter of 2019, primarily due to the $18.3 million
decrease in revenue, as explained above, coupled with a 5.0
percentage point decrease in gross margin. The decrease in gross
margin percentage was primarily due to lower utilization in
composite pipe facilities and the related impact on the absorption
of manufacturing overheads caused by the continued impact of the
global COVID-19 pandemic and ongoing volatility in the energy
markets. The current quarter benefited from $1.8 million of
COVID-19 related government wage subsidies recorded.
SG&A expenses decreased by $5.3 million
compared to the fourth quarter of 2019, primarily due to the
completed cost control and headcount reduction initiatives that
resulted in decreases of $3.1 million in compensation related costs
and $1.1 million in travel & entertainment expenses. The
current quarter also benefited from $1.2 million of COVID-19
related government wage subsidies recorded.
Adjusted EBITDA in the fourth quarter of 2020
was $16.1 million compared to $22.3 million in the fourth quarter
of 2019. See Section 7.0 – Reconciliation of Non-GAAP Measures for
additional disclosures regarding Adjusted EBITDA.
Year Ended December 31, 2020 versus Year Ended December
31, 2019
Revenue decreased by $96.5 million in the year
ended December 31, 2020, or 23%, compared to the prior year
primarily due to the negative impact of the ongoing global COVID-19
pandemic and the volatility in the energy markets. North American
revenue decreased by $91.4 million, or 23%, primarily due to lower
demand level in composite pipe products, attributed to the
continued capital discipline focus of exploration and production
operators and low oil and gas prices. In addition, tubular
management service activity levels were lower in Western Canada.
These decreases were partially offset by the increased revenue in
the composite tank business from continued strong demand in the
retail fuel market. Also, the current year included an additional
quarter of revenues from the composite tank business which was
acquired in April 2019.
Operating income in the year ended December 31,
2020 was $7.6 million compared to $55.6 million in the prior year.
The operating results for the current year included an additional
quarter of operating income from the composite tank business, which
was acquired in April 2019. The decrease in operating income was
primarily due to a $34.8 million decrease in gross profit, a $3.6
million increase in depreciation and amortization, $4.5 million of
restructuring costs and $9.8 million of impairment charges, while
the prior year benefited from a $6.8 million gains on sale of land.
These negative impacts were partially offset by a decrease of $11.5
million in SG&A expenses as compared to 2019.
The current year benefited from COVID-19 related
government wage subsidies of $13.5 million; of which $6.1 million
was recorded in cost of goods sold and $7.4 million was recorded in
SG&A expenses.
Gross profit decreased by $34.8 million compared
to 2019, primarily due to the $96.5 million decrease in revenue, as
explained above, coupled with a 1.0 percentage point decrease in
gross margin. The decrease in gross margin percentage was primarily
due to lower utilization in composite pipe facilities and the
related impact on the absorption of manufacturing overheads caused
by the continued impact of the global COVID-19 pandemic and ongoing
volatility in the energy markets. The current year benefited from
$6.1 million of COVID-19 related government wage subsidies
recorded.
SG&A expenses decreased by $11.5 million
compared to 2019, primarily due to the completed headcount
reductions that resulted in a decrease of $8.1 million in
compensation related costs. The current year also benefited from
$7.4 million of COVID-19 related government wage subsidies recorded
and the absence of $3.8 million in 2019 non-recurring integration
and acquisition costs related to the composite tank business. These
positive impacts were partially offset by the inclusion of an
additional quarter of ongoing SG&A expenses of $5.6 million for
the composite tank business which was acquired in April 2019.
Adjusted EBITDA in the year ended December 31,
2020 was $55.8 million compared to $89.9 million in the prior year.
See Section 7.0 – Reconciliation of Non-GAAP Measures for
additional disclosures regarding Adjusted EBITDA.
3.3 Automotive and
Industrial Segment
The following table sets forth, by geographic
location, the revenue, operating (loss) income and adjusted EBITDA
for the Automotive and Industrial segment for the following
periods:
|
|
|
Three Months Ended |
Year Ended |
|
(in thousands of Canadian dollars, except percentages) |
|
December 31,2020 |
|
|
December 31,2019 |
|
|
December 31,2020 |
|
|
December 31,2019 |
|
|
North America |
$ |
33,174 |
|
$ |
29,311 |
|
$ |
122,570 |
|
$ |
126,164 |
|
|
EMAR |
|
18,970 |
|
|
16,178 |
|
|
63,518 |
|
|
74,585 |
|
|
Asia Pacific |
|
3,863 |
|
|
2,704 |
|
|
12,202 |
|
|
10,354 |
|
|
Total revenue |
$ |
56,007 |
|
$ |
48,193 |
|
$ |
198,290 |
|
$ |
211,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income(a) |
$ |
11,260 |
|
$ |
6,801 |
|
$ |
24,776 |
|
$ |
33,215 |
|
|
Operating margin(b) |
|
20.1% |
|
|
14.1% |
|
|
12.5% |
|
|
15.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(b) |
$ |
11,534 |
|
$ |
7,942 |
|
$ |
34,787 |
|
$ |
37,696 |
|
|
Adjusted EBITDA margin(b) |
|
20.6% |
|
|
16.5% |
|
|
17.5% |
|
|
17.9% |
|
|
(a) |
Operating Income in 2020 includes $6.4 million of restructuring
costs and $1.0 million of a gain on sale of other. |
|
(b) |
Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are
non-GAAP measures. 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 7.0 –
Reconciliation of Non-GAAP Measures for further details and a
reconciliation of these Non-GAAP measures. |
Fourth Quarter 2020 versus Fourth
Quarter 2019
Revenue in the fourth quarter of 2020 increased
by $7.8 million, or 16%, compared to the fourth quarter of 2019,
primarily due to strong demand for automotive heat shrink tubing
products as a result of OEM assembly plants and Tier 1 suppliers
increasing capacity levels and re-stocking inventories and
increased shipments for wire and cable products in North
America.
Operating income in the fourth quarter of 2020
was $11.3 million compared to $6.8 million in the fourth quarter of
2019. The increase was primarily due to a $1.6 million increase in
gross profit, a $1.8 million decrease in SG&A expenses and a
$1.0 million gain on sale of other assets.
The current quarter benefited from COVID-19
related government wage subsidies recorded of $0.9 million, of
which $0.6 million was recorded in cost of goods sold and $0.3
million was recorded in SG&A expenses.
Gross profit increased by $1.6 million compared
to the fourth quarter of 2019, primarily due to the $7.8 million
increase in revenue, as explained above, partially offset by a 0.9
percentage point decrease in gross margin. The decrease in gross
margin was primarily due to the product mix and lower plant
utilization and the related impact on the absorption of
manufacturing overheads. The current quarter also benefited from
$0.6 million of COVID-19 related government wage subsidies
recorded.
SG&A expenses decreased by $1.8 million
compared to the fourth quarter of 2019, primarily due to the
completed cost control and headcount reduction initiatives that
resulted in decreases of $0.9 million in compensation related costs
and $0.5 million in travel & entertainment expenses. The
current quarter also benefited from $0.3 million of COVID-19
related government wage subsidies recorded.
Adjusted EBITDA in the fourth quarter of 2020
was $11.5 million compared to $7.9 million in the fourth quarter of
2019. See Section 7.0 – Reconciliation of Non-GAAP Measures for
additional disclosures regarding Adjusted EBITDA.
Year Ended December 31, 2020 versus Year
Ended December 31, 2019
Revenue decreased in the year ended December 31,
2020 by $12.8 million, or 6%, compared to the prior year, due to
lower demand for heat shrink tubing products in the automotive
sector in North America and EMAR, slightly offset by higher revenue
in Asia Pacific. The decline in the automotive sector reflects that
a majority of global automotive OEM assembly plants temporarily
halted production and suspended operations in the first half of
2020 as a result of COVID-19, while demand started to increase in
the second half of that year as OEM assembly plants and Tier 1
suppliers increased capacity levels and re-stocked inventories.
Operating income in the year ended December 31,
2020 was $24.8 million compared to $33.2 million in the prior year.
The decrease was primarily due to the negative impact of $6.4
million in restructuring costs and a $6.8 million decrease in gross
profit. These negative impacts were partially offset by a $1.0
million gain on sale of other assets and a $3.6 million decrease in
SG&A expenses.
The current year benefited from COVID-19 related
government wage subsidies recorded of $4.1 million, of which $2.3
million was recorded in cost of goods sold and $1.8 million was
recorded in SG&A expenses.
Gross profit decreased by $6.8 million compared
to 2019, primarily due to the $12.8 million decrease in revenue, as
explained above, coupled with a 1.6 percentage point decrease in
gross margin. The decrease in gross margin was primarily due to the
product mix and lower plant utilization and the related impact on
the absorption of manufacturing overheads. The current year
benefited from $2.3 million of COVID-19 related government wage
subsidies recorded.
SG&A expenses decreased by $3.6 million
compared to 2019, primarily due to the completed headcount
reductions that resulted in a decrease of $2.3 million in
compensation related costs. The current year also benefited from
$1.8 million of COVID-19 related government wage subsidies
recorded.
Adjusted EBITDA in the year ended December 31,
2020 was $34.8 million compared to $37.7 million in the prior year.
See Section 7.0 – Reconciliation of Non-GAAP Measures for
additional disclosures regarding Adjusted EBITDA.
3.4 Financial and Corporate
Financial and corporate costs include corporate
expenses not allocated to the operating segments and other
non-operating items, including foreign exchange gains and losses on
foreign currency denominated cash and working capital balances. The
corporate division of the Company only earns revenue that is
considered incidental to the activities of the Company. As a
result, it does not meet the definition of a reportable operating
segment as defined under IFRS.
The following table sets forth the Company’s
unallocated financial and corporate expenses for the following
periods:
|
|
|
Three Months Ended |
Year Ended |
|
(in thousands of Canadian dollars) |
|
December 31,2020 |
|
|
December 31,2019 |
|
|
December 31,2020 |
|
|
December 31,2019 |
|
|
Financial and corporate expenses(a) |
$ |
(2,392 |
) |
$ |
6,685 |
|
$ |
(17,616 |
) |
$ |
(15,498 |
) |
|
(a) |
2020 includes $2.6 million of restructuring costs, while 2019
includes $5.7 million in professional consulting and legal fees for
the composite tank business acquisition. |
Fourth Quarter 2020 versus Fourth
Quarter 2019
Financial and corporate costs in the fourth
quarter of 2020 were $2.4 million compared to a recovery of $6.7
million in the fourth quarter of 2019. The $9.1 million variance
was primarily due to the incentive-based compensation change from a
$7.4 million recovery in the fourth quarter of 2019 to an expense
of $2.2 million in the current quarter and a $0.6 million decrease
in foreign exchange gains. The current quarter also benefited from
$1.0 million of COVID-19 related government wage subsidies
recorded.
Year Ended December 31, 2020 versus Year
Ended December 31, 2019
Financial and corporate costs for the year ended
December 31, 2020 were $17.6 million compared to $15.5 million for
the year ended December 31, 2019. The $2.1 million variance was
primarily due to the $8.2 million increase in foreign exchange
losses and $2.6 million in restructuring costs, partially offset by
the absence of $5.7 million in 2019 non-recurring acquisition costs
related to the composite tanks business. The current year also
benefited from $4.4 million of COVID-19 related government wage
subsidies recorded.
4.0 LIQUIDITY AND
CAPITALIZATION
As at December 31, 2020, the Company had cash
and cash equivalents totalling $214.5 million (December 31,
2019 – $98.2 million) and had unutilized lines of credit
available to use of $246.3 million (December 31, 2019 – $275.6
million). The decline in unutilized lines of credit available is
primarily due to the weakening of the U.S. dollar against the
Canadian dollar as the Company’s credit facility is U.S. dollar
denominated.
The effects of the COVID-19 pandemic and the
rapid decline in 2020 of oil prices adversely impacted demand for
the Company’s products and services and its operating results,
financial position and access to sources of liquidity. With the
uncertainty about the extent and depth of the market contraction
and its impact on financial results, the Company turned its focus
to the reduction of costs and cash preservation to protect its
balance sheet. As communicated in March 2020, the Company targeted
$60 million in sustainable annualized SG&A savings and $40
million in incremental cash generation. The Company has
significantly exceeded these targets by completing several
initiatives during the year. These initiatives included reducing
CEO, executive and Board compensation, reducing the salaried
workforce levels by 22%, optimizing its footprint with the closure
of six pipe coating facilities and several girth weld inspection
branch offices and making significant cuts to other operating costs
and capital expenditure budgets. During the year ended December 31,
2020, the Company also delivered significant positive cash flow,
reflecting $30.9 million from reduced working capital, excluding
the impact of increased restructuring liabilities, and $129.8
million from proceeds from sales of the Products business and other
assets. Based on the actions completed and planned, its diversified
business and current backlog, the Company expects to generate
sufficient cash flows and have continued access to its credit
facilities to fund its operations, working capital requirements and
capital program.
5.0 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 impact and duration of the
global COVID-19 pandemic and the related impacts on the Company’s
operations and on the global supply and demand of oil and gas, the
completion of cost savings initiatives, including the reduction of
the Company’s international operations footprint, the future
outlook for capital expenditures in the offshore oil and gas sector
and North American land drilling and completion activity, the
demand for its products in retail fuel, automotive and industrial
markets, the successful execution of the Company’s order backlog
and the anticipated fluctuations in the order backlog throughout
2021 including the rebuilding of the backlog in the second-half of
2021 and the impact thereof on the Company’s revenue and operating
income, the execution of definitive contracts on outstanding bids
for and the timing to complete certain pipe coating projects, the
likelihood that international and offshore projects will be
sanctioned in the future, and the impact thereof on the Company’s
business, the level of financial performance in 2021, the effect of
the Company’s diversified portfolio of products on revenue and
operating income, the demand for the Company’s products in the
Pipeline and Pipe Services, Composite Systems and the Automotive
and Industrial segments of the Company’s business, the impact of
global economic activity on the demand for the Company's products,
the impact of continuing demand for oil and gas, the impact of
global oil and gas commodity prices, the impact of changing energy
demand, supply and prices and the impact and likelihood of changes
in competitive conditions in the markets in which the Company
participates.
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: the duration and impact of the COVID-19 pandemic on the
Company, its employees, customers, suppliers, energy and commodity
markets and on the global economy, the impact on the Company of the
continued heightened focus by North American oil and gas operators
on capital discipline, the impact on the Company of reduced demand
for its products and services, including the delay, suspension or
cancellation of existing or anticipated contracts, as a result of
lower investment in global oil and gas extraction, infrastructure
and transportation activity following the previous declines in the
global price of oil and gas, long term changes in global or
regional economic activity and changes in energy supply and demand,
which with other factors, impact on the level of global pipeline
infrastructure construction; exposure to product and other
liability claims; shortages of or significant increases in the
prices of raw materials used by the Company; compliance with
environmental, trade and other laws; political, economic and other
risks arising from the Company’s international operations; the
impact of climate change on the demand for the Company’s products
and fluctuations in foreign exchange rates, 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 continuation or renewal
of certain COVID-19 related restrictions on a more limited and
targeted basis than the basis on which those restrictions were
previously imposed and the impact thereof on global economic
activity, the Company’s ability to manage supply chain disruptions
caused by the COVID-19 pandemic or by natural disasters, global oil
and gas prices, the delay in the near term of certain projects and
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, the commencement of recovery of the
global economy, a gradual recovery of oil and gas markets in North
America, the continued recovery of demand in the automotive and
industrial markets, particularly in North America and Europe and
the heightened demand for hybrid and fully electric vehicles,
tempered somewhat by automobile production delays arising from a
global shortage of semi-conductors, sustained solid demand in the
retail fuel market and stable demand in the industrial markets with
storage tank demand supported by higher infrastructure spending and
commercial and municipal water projects, the Company’s ability to
execute projects under contract, the Company’s continuing ability
to provide new and enhanced product offerings to its customers, the
higher level of investment in working capital by the Company, the
continued supply of and stable pricing 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,
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 the Credit Facility 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.
6.0 CONFERENCE CALL AND ADDITIONAL
INFORMATION
Shawcor will be hosting a Shareholder and
Analyst Conference Call and Webcast on Thursday, March 11th, 2021
at 9:00 AM ET, which will discuss the Company’s Fourth Quarter 2020
Financial Results. To participate via telephone, please dial
1-877-776-4039 or 1-315-625-6955. Conference Call ID: 5544569;
alternatively, please go to the following website address to
participate via webcast:
https://edge.media-server.com/mmc/p/pez8t8bt
The Company’s fourth quarter MD&A and
financial statements are available on Shawcor’s website at
www.shawcor.com.
Additional information relating to the Company,
including its Annual Information Form, is available on SEDAR at
www.sedar.com.
For further information, please contact:
Meghan MacEachernDirector, External
Communications & ESGTelephone: 437.341.1848E-mail:
meghan.maceachern@shawcor.com
Source: Shawcor Ltd.Shawcor.ER
Shawcor Ltd.Consolidated Balance
Sheets (Unaudited)
|
|
|
December 31, |
|
|
December 31, |
|
|
(in thousands of Canadian dollars) |
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
| |
|
|
|
|
|
| Current
Assets |
|
|
|
|
|
| Cash and cash equivalents |
$ |
214,514 |
|
$ |
98,218 |
|
| Loans receivable |
|
– |
|
|
712 |
|
| Accounts receivable |
|
200,871 |
|
|
246,745 |
|
| Contract assets |
|
52,530 |
|
|
41,616 |
|
| Income taxes receivable |
|
12,304 |
|
|
33,493 |
|
| Inventory |
|
126,328 |
|
|
160,792 |
|
| Prepaid expenses |
|
12,446 |
|
|
17,560 |
|
|
Derivative financial instruments |
|
691 |
|
|
177 |
|
|
Total current assets |
|
619,684 |
|
|
599,313 |
|
|
|
|
|
|
|
|
| Non-current
Assets |
|
|
|
|
|
| Property, plant and
equipment |
|
360,329 |
|
|
420,027 |
|
| Right-of-use assets |
|
67,352 |
|
|
84,269 |
|
| Intangible assets |
|
200,168 |
|
|
271,514 |
|
| Investments in associates |
|
11,594 |
|
|
15,400 |
|
| Deferred income tax
assets |
|
31,633 |
|
|
37,462 |
|
| Other assets |
|
3,266 |
|
|
5,396 |
|
|
Goodwill |
|
231,570 |
|
|
377,704 |
|
|
Total non-current assets |
|
905,912 |
|
|
1,211,772 |
|
|
TOTAL ASSETS |
$ |
1,525,596 |
|
$ |
1,811,085 |
|
|
|
|
|
|
|
|
| LIABILITIES AND
EQUITY |
|
|
|
|
|
| |
|
|
|
|
|
| Current
Liabilities |
|
|
|
|
|
| Accounts payable and accrued
liabilities |
$ |
177,140 |
|
$ |
177,452 |
|
| Provisions |
|
18,394 |
|
|
25,694 |
|
| Income taxes payable |
|
17,924 |
|
|
18,918 |
|
| Derivative financial
instruments |
|
728 |
|
|
330 |
|
| Contract liabilities |
|
32,377 |
|
|
43,693 |
|
| Lease liabilities |
|
18,590 |
|
|
21,461 |
|
| Other liabilities |
|
4,434 |
|
|
9,518 |
|
|
Total current liabilities |
|
269,587 |
|
|
297,066 |
|
|
|
|
|
|
|
|
| Non-current
Liabilities |
|
|
|
|
|
| Long-term debt |
|
433,387 |
|
|
435,462 |
|
| Lease liabilities |
|
53,576 |
|
|
67,768 |
|
| Provisions |
|
17,857 |
|
|
20,477 |
|
| Employee future benefits |
|
19,807 |
|
|
15,390 |
|
| Deferred income tax
liabilities |
|
6,874 |
|
|
19,306 |
|
| Other
liabilities |
|
7,815 |
|
|
5,669 |
|
|
Total non-current liabilities |
|
539,316 |
|
|
564,072 |
|
|
Total liabilities |
|
808,903 |
|
|
861,138 |
|
|
|
|
|
|
|
|
| Equity |
|
|
|
|
|
| Share capital |
|
719,615 |
|
|
710,563 |
|
| Contributed surplus |
|
26,494 |
|
|
32,615 |
|
| Retained earnings |
|
(51,686 |
) |
|
193,027 |
|
| Non-controlling interests |
|
3,995 |
|
|
4,647 |
|
|
Accumulated other comprehensive income |
|
18,275 |
|
|
9,095 |
|
|
Total equity |
|
716,693 |
|
|
949,947 |
|
|
TOTAL LIABILITIES AND EQUITY |
$ |
1,525,596 |
|
$ |
1,811,085 |
|
Shawcor Ltd.Consolidated Statements of
Income (Loss) (Unaudited)
|
|
Three Month EndedDecember
31, |
Year EndedDecember 31, |
|
(in thousands of Canadian dollars, except per share amounts) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
|
|
|
|
|
|
|
|
| Sale of products |
$ |
138,742 |
|
$ |
154,984 |
|
$ |
542,764 |
|
$ |
662,533 |
|
|
Rendering of services |
|
186,936 |
|
|
179,123 |
|
|
635,718 |
|
|
826,956 |
|
|
|
|
325,678 |
|
|
334,107 |
|
|
1,178,482 |
|
|
1,489,489 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold and Services Rendered |
|
230,544 |
|
|
237,310 |
|
|
855,946 |
|
|
1,062,450 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
95,134 |
|
|
96,797 |
|
|
322,536 |
|
|
427,039 |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
48,363 |
|
|
66,270 |
|
|
234,187 |
|
|
299,758 |
|
|
Research and development expenses |
|
1,427 |
|
|
2,236 |
|
|
10,517 |
|
|
12,647 |
|
|
Foreign exchange (gain) loss |
|
(568 |
) |
|
(1,220 |
) |
|
3,674 |
|
|
(4,572 |
) |
|
Depreciation and amortization |
|
22,257 |
|
|
27,296 |
|
|
92,532 |
|
|
100,858 |
|
| Gains
on sale of land and other |
|
(1,033 |
) |
|
(1,350 |
) |
|
(2,246 |
) |
|
(39,344 |
) |
|
Impairment |
|
5,905 |
|
|
104,103 |
|
|
212,612 |
|
|
104,103 |
|
|
Restructuring costs |
|
2,847 |
|
|
– |
|
|
32,596 |
|
|
– |
|
|
Income (loss) from Operations |
|
15,936 |
|
|
(100,538 |
) |
|
(261,336 |
) |
|
(46,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from investments in associates |
|
1,959 |
|
|
5,483 |
|
|
10,134 |
|
|
14,459 |
|
|
Finance costs, net |
|
(7,010 |
) |
|
(5,707 |
) |
|
(25,078 |
) |
|
(21,175 |
) |
| Cost
associated with repayment of long-term debt and credit
facilities |
|
– |
|
|
– |
|
|
– |
|
|
(12,308 |
) |
| Gain
on sale of operating unit |
|
52,118 |
|
|
– |
|
|
52,118 |
|
|
– |
|
| Net
monetary loss |
|
(523 |
) |
|
(1,606 |
) |
|
(1,768 |
) |
|
(3,997 |
) |
|
Income (loss) before Income Taxes |
|
62,480 |
|
|
(102,368 |
) |
|
(225,930 |
) |
|
(69,432 |
) |
| |
|
|
|
|
|
|
|
|
| Income
tax expense (recovery) |
|
6,662 |
|
|
(20,345 |
) |
|
8,625 |
|
|
(36,137 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
$ |
55,818 |
|
$ |
(82,023 |
) |
$ |
(234,555 |
) |
$ |
(33,295 |
) |
|
|
|
|
|
|
|
|
|
|
| Net Income (Loss)
Attributable to: |
|
|
|
|
|
|
|
|
|
Shareholders of the Company |
$ |
55,822 |
|
$ |
(81,783 |
) |
$ |
(234,167 |
) |
$ |
(33,293 |
) |
|
Non-controlling interests |
|
(4 |
) |
|
(240 |
) |
|
(388 |
) |
|
(2 |
) |
|
Net Income (Loss) |
$ |
55,818 |
|
$ |
(82,023 |
) |
$ |
(234,555 |
) |
$ |
(33,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per Share (“EPS”) |
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.79 |
|
$ |
(1.17 |
) |
$ |
(3.33 |
) |
$ |
(0.47 |
) |
|
Diluted |
$ |
0.79 |
|
$ |
(1.17 |
) |
$ |
(3.33 |
) |
$ |
(0.47 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding
(000s) |
|
|
|
|
|
|
|
|
|
Basic |
|
70,423 |
|
|
70,155 |
|
|
70,364 |
|
|
70,142 |
|
|
Diluted |
|
70,423 |
|
|
70,155 |
|
|
70,364 |
|
|
70,142 |
|
Shawcor Ltd.Consolidated Statements of
Cash Flows (Unaudited)
|
(in thousands of Canadian dollars) |
Three Months EndedDecember
31, |
Year Ended December 31, |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
Operating Activities |
|
|
|
|
|
|
|
|
| Net Income (Loss) |
$ |
55,818 |
|
$ |
(82,023 |
) |
$ |
(234,555 |
) |
$ |
(33,295 |
) |
| Add (deduct) items not
affecting cash |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
22,257 |
|
|
27,296 |
|
|
92,532 |
|
|
100,858 |
|
|
Impairment |
|
5,905 |
|
|
104,103 |
|
|
212,612 |
|
|
104,103 |
|
|
Impact of inventory revaluation adjustment |
|
– |
|
|
– |
|
|
– |
|
|
7,000 |
|
|
Interest expense on right-of-use asset leases |
|
874 |
|
|
1,145 |
|
|
3,770 |
|
|
3,566 |
|
|
Share-based compensation and incentive-based compensation |
2,697 |
|
|
(9,038 |
) |
|
956 |
|
|
3,442 |
|
|
Deferred income taxes |
|
293 |
|
|
(16,737 |
) |
|
(3,182 |
) |
|
(45,272 |
) |
|
Gain on disposal of property, plant and equipment |
(925 |
) |
|
(570 |
) |
|
(1,578 |
) |
|
(181 |
) |
|
Gain on sale of land and other |
|
(1,033 |
) |
|
(1,350 |
) |
|
(2,246 |
) |
|
(39,344 |
) |
|
Unrealized loss (gain) on derivative financial instruments |
|
73 |
|
|
(226 |
) |
|
(116 |
) |
|
1,029 |
|
|
Income from investments in associates |
|
(1,959 |
) |
|
(5,483 |
) |
|
(10,134 |
) |
|
(14,459 |
) |
|
Gain from sale of operating unit |
|
(52,118 |
) |
|
– |
|
|
(52,118 |
) |
|
– |
|
|
Other |
|
(2,950 |
) |
|
(645 |
) |
|
(6,415 |
) |
|
(6,847 |
) |
| Change
in non-cash working capital and foreign exchange |
(18,521 |
) |
|
32,543 |
|
|
44,913 |
|
|
(26,437 |
) |
|
Cash Provided by Operating Activities |
$ |
10,411 |
|
$ |
49,015 |
|
$ |
44,439 |
|
$ |
54,163 |
|
| Investing
Activities |
|
|
|
|
|
|
|
|
| Decrease in loans
receivable |
|
– |
|
|
356 |
|
|
748 |
|
|
2,180 |
|
| Decrease in short-term
investments |
|
– |
|
|
– |
|
|
– |
|
|
2,046 |
|
| Purchase of property, plant
and equipment |
|
(7,091 |
) |
|
(10,301 |
) |
|
(24,021 |
) |
|
(44,890 |
) |
| Proceeds on disposal of
property, plant and equipment |
|
3,113 |
|
|
2,604 |
|
|
10,763 |
|
|
50,263 |
|
| Proceeds on sale of operating
unit |
|
105,442 |
|
|
– |
|
|
105,442 |
|
|
– |
|
| (Increase) decrease in other
assets |
|
(627 |
) |
|
60 |
|
|
– |
|
|
426 |
|
| Proceeds from redemption of
investments in associate |
|
4,764 |
|
|
– |
|
|
13,642 |
|
|
29,171 |
|
| Business acquisition, net of
cash acquired |
|
– |
|
|
– |
|
|
– |
|
|
(291,477 |
) |
|
Cash Provided by (Used in) Investing
Activities |
|
105,601 |
|
|
(7,281 |
) |
|
106,574 |
|
|
(252,281 |
) |
| Financing
Activities |
|
|
|
|
|
|
|
|
| Decrease in bank
indebtedness |
|
– |
|
|
– |
|
|
– |
|
|
(17,608 |
) |
| (Decrease) Increase of
long-term debt |
|
(1,604 |
) |
|
(10,001 |
) |
|
(3,328 |
) |
|
165,692 |
|
| Repayment of lease
liabilities |
|
(6,097 |
) |
|
(5,958 |
) |
|
(22,985 |
) |
|
(24,635 |
) |
| Issuance of shares |
|
– |
|
|
– |
|
|
– |
|
|
357 |
|
|
Dividends paid to shareholders |
|
– |
|
|
(10,524 |
) |
|
(10,546 |
) |
|
(42,086 |
) |
|
Cash (Used in) Provided by Financing
Activities |
$ |
(7,701 |
) |
$ |
(26,483 |
) |
$ |
(36,859 |
) |
$ |
81,720 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Foreign Exchange on Cash and Cash Equivalents and
Net Monetary Loss |
(627 |
) |
|
701 |
|
|
2,142 |
|
|
(2,648 |
) |
|
|
|
|
|
|
|
|
|
|
| Net
Increase (Decrease) in Cash and Cash Equivalents |
107,684 |
|
|
15,952 |
|
|
116,296 |
|
|
(119,046 |
) |
| Cash and Cash
Equivalents - Beginning of Period |
|
106,830 |
|
|
82,266 |
|
|
98,218 |
|
|
217,264 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents - End of Period |
$ |
214,514 |
|
$ |
98,218 |
|
$ |
214,514 |
|
$ |
98,218 |
|
7.0 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 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 in the oil and gas industry 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 |
Year Ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
(in thousands of Canadian dollars) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
$ |
55,818 |
|
$ |
(82,023 |
) |
$ |
(234,555 |
) |
$ |
(33,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
Income tax expense (recovery) |
|
6,662 |
|
|
(20,345 |
) |
|
8,625 |
|
|
(36,137 |
) |
|
Finance costs, net |
|
7,010 |
|
|
5,707 |
|
|
25,078 |
|
|
21,175 |
|
|
Amortization of property, plant, equipment, intangible and ROU
assets |
|
22,257 |
|
|
27,296 |
|
|
92,532 |
|
|
100,858 |
|
|
Cost associated with repayment of long-term debt and credit
facilities |
|
– |
|
|
– |
|
|
– |
|
|
12,308 |
|
|
EBITDA(a) |
$ |
91,747 |
|
$ |
(69,365 |
) |
$ |
(108,320 |
) |
$ |
64,909 |
|
| ZCL
acquisition costs and other related items |
|
– |
|
|
157 |
|
|
– |
|
|
16,514 |
|
|
Hyperinflation adjustment for Argentina |
|
771 |
|
|
1,102 |
|
|
2,107 |
|
|
5,006 |
|
| Gain on
sale of land and other |
|
(1,033 |
) |
|
(1,350 |
) |
|
(2,246 |
) |
|
(39,344 |
) |
| Gain on
sale of operating unit |
|
(52,118 |
) |
|
– |
|
|
(52,118 |
) |
|
– |
|
| Gain on
redemption of investment in associate |
|
(2,125 |
) |
|
(5,100 |
) |
|
(10,374 |
) |
|
(14,787 |
) |
|
Impairment |
|
5,905 |
|
|
104,103 |
|
|
212,612 |
|
|
104,103 |
|
|
Restructuring costs |
|
2,848 |
|
|
– |
|
|
32,596 |
|
|
– |
|
|
Adjusted EBITDA(a) |
$ |
45,995 |
|
$ |
29,547 |
|
$ |
74,257 |
|
$ |
136,401 |
|
|
(a) |
Adjusted EBITDA includes COVID-19 related government wage subsidies
of $6.0 million and $30.5 million in the fourth quarter and year of
2020, respectively. |
Pipeline and Pipe Services
Segment
|
|
|
Three Months Ended |
Year Ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
(in thousands of Canadian dollars) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) |
$ |
155 |
|
$ |
(129,273 |
) |
$ |
(276,142 |
) |
$ |
(119,736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
Amortization of property, plant, equipment, intangible and ROU
assets |
|
11,625 |
|
|
17,109 |
|
|
51,439 |
|
|
64,069 |
|
|
EBITDA |
$ |
11,780 |
|
$ |
(112,164 |
) |
$ |
(224,703 |
) |
$ |
(55,667 |
) |
|
Hyperinflation adjustment for Argentina |
|
(144 |
) |
|
(150 |
) |
|
(304 |
) |
|
372 |
|
|
Gain on sale of land and other |
|
– |
|
|
– |
|
|
(1,213 |
) |
|
(32,552 |
) |
|
Loss on investment in associate |
|
– |
|
|
2 |
|
|
– |
|
|
51 |
|
|
Impairment |
|
5,905 |
|
|
104,103 |
|
|
202,784 |
|
|
104,103 |
|
|
Restructuring costs |
|
1,013 |
|
|
– |
|
|
19,032 |
|
|
– |
|
|
Adjusted EBITDA(a) |
$ |
18,554 |
|
$ |
(8,209 |
) |
$ |
(4,404 |
) |
$ |
16,307 |
|
|
(a) |
Adjusted EBITDA includes COVID-19 related government wage subsidies
of $1.0 million and $8.5 million in the fourth quarter and year of
2020, respectively. |
Composite Systems Segment
|
|
|
Three Months Ended |
Year Ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
(in thousands of Canadian dollars) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
$ |
6,913 |
|
$ |
15,249 |
|
$ |
7,646 |
|
$ |
55,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of property, plant, equipment, intangible and ROU
assets |
|
8,869 |
|
|
8,418 |
|
|
33,780 |
|
|
30,214 |
|
|
EBITDA |
$ |
15,782 |
|
$ |
23,667 |
|
$ |
41,426 |
|
$ |
85,822 |
|
|
ZCL acquisition costs and other related items |
|
– |
|
|
– |
|
|
– |
|
|
10,822 |
|
|
Gain on sale of land and other |
|
– |
|
|
(1,350 |
) |
|
– |
|
|
(6,793 |
) |
|
Impairment |
|
– |
|
|
– |
|
|
9,828 |
|
|
– |
|
|
Restructuring costs |
|
295 |
|
|
– |
|
|
4,541 |
|
|
– |
|
|
Adjusted EBITDA(a) |
$ |
16,077 |
|
$ |
22,317 |
|
$ |
55,795 |
|
$ |
89,851 |
|
|
(a) |
Adjusted EBITDA includes COVID-19 related government wage subsidies
of $3.0 million and $13.5 million in the fourth quarter and year of
2020, respectively. |
Automotive and Industrial Segment
|
|
|
Three Months Ended |
Year Ended |
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
(in thousands of Canadian dollars) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
$ |
11,260 |
|
$ |
6,801 |
|
$ |
24,776 |
|
$ |
33,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of property, plant, equipment, intangible and ROU
assets |
|
1,137 |
|
|
1,141 |
|
|
4,619 |
|
|
4,481 |
|
|
EBITDA |
$ |
12,397 |
|
$ |
7,942 |
|
$ |
29,395 |
|
$ |
37,696 |
|
|
Gain on sale of land and other |
|
(1,033 |
) |
|
– |
|
|
(1,033 |
) |
|
– |
|
|
Restructuring costs |
|
170 |
|
|
– |
|
|
6,425 |
|
|
– |
|
|
Adjusted EBITDA(a) |
$ |
11,534 |
|
$ |
7,942 |
|
$ |
34,787 |
|
$ |
37,696 |
|
|
(a) |
Adjusted EBITDA includes COVID-19 related government wage subsidies
of $0.9 million and $4.1 million in the fourth quarter and year of
2020, respectively. |
Adjusted EBITDA Margin
Adjusted EBITDA margin is defined as Adjusted
EBITDA divided by revenue and is a non-GAAP measure. The Company
believes that adjusted EBITDA margin is a useful supplemental
measure that provides meaningful assessment of the business results
of the Company and its Operating Segments from principal business
activities excluding the impact of transactions that are outside of
the Company’s normal course of business.
Adjusted Net (Loss) Income and Adjusted EPS
Adjusted net income (loss) is a non-GAAP measure
defined as net income before acquisition-related and integration
items, including transaction costs and financing fees; cost
reduction and integration related initiatives such as separation
benefits, retention payments, other exit costs, impact of inventory
revaluation adjustment and certain costs associated with
integrating an acquired company’s operations; gains or losses from
early termination of debt and hedging activities; gains and losses
on the disposal of land and other; gain on investment in associate;
asset impairment charges; restructuring cost; hyperinflation
adjustment for Argentina; gain from sale of operating unit and the
tax effect of the pre-tax adjustments above at applicable tax rates
and certain other tax items. We define adjusted EPS as adjusted net
(loss) income attributable to shareholders divided by the
weighted average number of shares and the weighted average number
of diluted shares.
|
|
Three Months Ended |
Year Ended |
|
(in thousands of Canadian dollars, except per share amounts) |
|
December 31,2020 |
|
|
December 31,2019 |
|
|
December 31,2020 |
|
|
December 31,2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
$ |
55,818 |
|
$ |
(82,023 |
) |
$ |
(234,555 |
) |
$ |
(33,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
|
ZCL acquisition costs and other related items |
|
– |
|
|
157 |
|
|
– |
|
|
16,514 |
|
|
Hyperinflation adjustment for Argentina |
|
1,194 |
|
|
1,844 |
|
|
4,165 |
|
|
7,676 |
|
| Cost
associated with repayment of long-term debt and credit
facilities |
|
– |
|
|
– |
|
|
– |
|
|
12,308 |
|
| Gain on
sale of land and other |
|
(1,033 |
) |
|
(1,350 |
) |
|
(2,246 |
) |
|
(39,344 |
) |
| Gain on
investment in associate |
|
(2,125 |
) |
|
(5,100 |
) |
|
(10,374 |
) |
|
(14,787 |
) |
|
Restructuring costs |
|
2,847 |
|
|
– |
|
|
32,596 |
|
|
– |
|
|
Impairment |
|
5,905 |
|
|
104,103 |
|
|
212,612 |
|
|
104,103 |
|
| Gain on
sale of operating unit |
|
(52,118 |
) |
|
– |
|
|
(52,118 |
) |
|
– |
|
|
Tax effect of the above adjustments |
|
(1,646 |
) |
|
(21,838 |
) |
|
(7,603 |
) |
|
(28,084 |
) |
|
Adjusted Net Income (Loss) |
$ |
8,842 |
|
$ |
(4,207 |
) |
$ |
(57,523 |
) |
$ |
25,091 |
|
|
Adjusted Net Income (Loss) Attributable to
Shareholders |
$ |
8,846 |
|
$ |
(3,967 |
) |
$ |
(57,135 |
) |
$ |
25,093 |
|
|
Adjusted EPS |
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.13 |
|
$ |
(0.06 |
) |
$ |
(0.81 |
) |
$ |
0.36 |
|
|
Diluted |
$ |
0.13 |
|
$ |
(0.06 |
) |
$ |
(0.81 |
) |
$ |
0.36 |
|
Operating Margin
Operating margin is defined as operating (loss) income divided
by revenue and is a non-GAAP measure. The Company believes that
operating margin is a useful supplemental measure that provides
meaningful assessment of the business performance of the Company
and its Operating Segments. The Company uses this measure as a key
indicator of financial performance, operating efficiency and cost
control based on volume of business generated.
ShawCor (TSX:SCL)
Historical Stock Chart
From Nov 2024 to Dec 2024
ShawCor (TSX:SCL)
Historical Stock Chart
From Dec 2023 to Dec 2024
