TORONTO, May 15, 2019 /CNW/ - TerraVest Industries Inc,
(TSX: TVK) ("TerraVest" or the "Company") announces its results for
the second quarter ended March 31, 2019.
SECOND QUARTER AND SIX MONTHS REVIEW AND OUTLOOK
Business Performance
Management believes that there are certain non‐IFRS financial
measures that can be used to assist shareholders in analyzing the
performance of the Company. The table below highlights certain
financial results and reconciles net income to adjusted EBITDA for
the second quarter and six months ended March 31, 2019
and the comparative periods in fiscal 2018.
|
|
|
|
|
Second quarters
ended
|
|
Six months
ended
|
|
March 31,
2019
|
March 31,
2018
|
|
March 31,
2019
|
March 31,
2018
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Sales
|
76,159
|
62,568
|
|
155,190
|
125,171
|
|
|
|
|
|
|
Net
income
|
5,505
|
1,872
|
|
11,644
|
7,019
|
Add
(substract):
|
|
|
|
|
|
Income tax
expense
|
1,792
|
859
|
|
4,282
|
2,800
|
Financing
costs
|
1,578
|
1,413
|
|
3,092
|
2,490
|
Depreciation and
amortization
|
2,930
|
2,686
|
|
5,966
|
5,153
|
Change in fair value
of derivative financial instruments
|
(958)
|
619
|
|
789
|
796
|
Acquisition‑related
cost
|
-
|
192
|
|
-
|
192
|
(Gain) loss on
disposal of property, plant and equipment
|
(78)
|
151
|
|
(206)
|
196
|
(Gain) loss on
disposal of assets held for sale
|
-
|
(45)
|
|
-
|
(45)
|
Adjusted
EBITDA
|
10,769
|
7,747
|
|
25,567
|
18,601
|
Sales for the quarter ended March 31, 2019 were
$76,159 versus $62,568 for the prior comparable quarter, an
increase of 22%. This increase is purely a result of organic growth
across the Company's portfolio of businesses. Sales for the six
months ended March 31, 2019 were $155,190 versus $125,171 for the prior comparable period,
representing an increase of 24%. This increase was the result of
growth through acquisition as MaXfield Group Inc. ("MaXfield") was
acquired on January 1, 2018 and only partially contributed to
the prior period, as well as organic growth of 13.5%. Organic
growth is calculated as the percentage change in sales for the
current period compared to the prior period. In calculating organic
growth for acquired companies, management estimates the sales
achieved for periods prior to the acquisition by TerraVest. The
organic growth in both the quarter and six months is primarily a
result of recently added and expanded LPG tank manufacturing lines,
as well as an increase in the demand for compressed gas storage and
distribution equipment in both Canada and the USA, which is being driven by a strong winter
heating season and increased capital investment in NGL
infrastructure in Western
Canada.
Net Income for the second quarter and six months ended
March 31, 2019 was $5,505 and
$11,644 versus $1,872 and $7,019
for the prior comparable periods. This represents increases of 194%
and 66% respectively. For the quarter, these increases are a result
of increased sales activity, as described above, as well as a
change in the fair value of derivative instruments and ongoing cost
control initiatives. For the six-months, acquisition costs in the
prior period related to the Maxfield acquisition also contributed
to the increase.
Adjusted EBITDA for the second quarter and six months ended
March 31, 2019 were $10,769
and $25,567 versus $7,747 and $18,601
for the prior comparable periods. This represents increases of 39%
and 37% respectively, which are a result of the reasons highlighted
above.
The table below reconciles cash flow from operating activities
to cash available for distribution for the second quarter and six
months ended March 31, 2019 and the comparative periods
in fiscal 2018.
|
|
|
|
|
Second quarters
ended
|
|
Six months
ended
|
|
March 31,
2019
|
March 31,
2018
|
|
March 31,
2019
|
March 31,
2018
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Cash Flow from
Operating Activities
|
3,277
|
227
|
|
12,243
|
7,693
|
Add
(substract):
|
|
|
|
|
|
Change in non‑cash
operating working capital
|
5,233
|
3,245
|
|
5,387
|
3,987
|
Maintenance
Capital Expenditures
|
(828)
|
(882)
|
|
(2,379)
|
(1,695)
|
Cash Available for
Distribution
|
7,682
|
2,590
|
|
15,251
|
9,985
|
Dividends Paid in the
Period
|
1,705
|
1,832
|
|
3,468
|
3,674
|
Dividend Payout
Ratio
|
22%
|
71%
|
|
23%
|
37%
|
Cash flow from operating activities for the second quarter and
six months ended March 31, 2019 were $3,277 and $12,243
versus $227 and $7,693 for the prior comparable periods. This
represents increases of 1,344% and 59% respectively. These
increases are primarily a result of the reasons explained
above.
Maintenance capital expenditures were $828 for the second quarter versus $882 for the prior comparable period. During the
second quarter ended March 31, 2019, the Company's total
purchase of property, plant and equipment was $4,507 of which $3,679 is considered growth capital. The Company
currently has several large growth projects ongoing, including the
expansion and optimization of an LPG tank manufacturing line,
expanding its desanding equipment fleet and transferring
residential oil tank production to a new automated facility. These
growth projects are expected to result in increased capacity and
greater efficiencies in several of TerraVest's businesses.
Cash available for distribution for the second quarter and six
months ended March 31, 2019 increased by 197% and 53%
respectively versus the prior comparable periods. These increases
are a result of reasons previously explained in this MD&A.
The dividend payout ratio for the second quarter and six month
ended March 31, 2019 were 22% and 23% versus 71% and 37% for
the prior comparable periods.
Outlook
Year-to-date, the Company has experienced improved results over
the prior comparable period. Management expects this trend to
continue for the remainder of the fiscal year. The Fuel Containment
segment has benefited from a strong winter heating season and
continues to see increased demand for its LPG storage and
distribution equipment and heating equipment product lines. The
situation for the Processing Equipment segment remains mixed as
strong demand for NGL storage and distribution equipment is
expected to persist throughout the remainder of the fiscal year.
However, demand for this segment's oil and gas processing equipment
continues to be stable but faces pricing pressure. The outlook for
the Service segment remains challenging as pricing pressure
continues to persist despite moderately improving commodity
prices.
CONSOLIDATED RESULTS OF OPERATIONS
The following section provides the financial results of
TerraVest's operations for the second quarter and six months ended
March 31, 2019 and the comparative periods in fiscal
2018.
|
|
|
|
|
Second quarters
ended
|
|
Six months
ended
|
|
March 31,
2019
|
March 31,
2018
|
|
March 31,
2019
|
March 31,
2018
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Sales
|
76,159
|
62,568
|
|
155,190
|
125,171
|
Cost of
sales
|
60,307
|
49,445
|
|
119,320
|
96,462
|
Gross
profit
|
15,852
|
13,123
|
|
35,870
|
28,709
|
Administration
expenses
|
6,540
|
6,940
|
|
13,889
|
12,764
|
Selling
expenses
|
1,268
|
1,718
|
|
2,848
|
3,105
|
Financing
costs
|
1,578
|
1,413
|
|
3,092
|
2,490
|
Other (gains)
losses
|
(831)
|
321
|
|
115
|
531
|
Earnings before
income taxes
|
7,297
|
2,731
|
|
15,926
|
9,819
|
Income tax
expense
|
1,792
|
859
|
|
4,282
|
2,800
|
Net Income
|
5,505
|
1,872
|
|
11,644
|
7,019
|
Allocated to
non‐controlling interest
|
33
|
(20)
|
|
79
|
(81)
|
Net income
attributable to common shareholders
|
5,472
|
1,892
|
|
11,565
|
7,100
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
17,086,419
|
18,273,806
|
|
17,135,676
|
18,308,954
|
Weighted average
shares outstanding – Diluted
|
19,056,906
|
18,455,115
|
|
19,139,056
|
21,128,361
|
Net income per share
– Basic
|
$0.32
|
$0.10
|
|
$0.67
|
$0.39
|
Net income per share
– Diluted
|
$0.30
|
$0.10
|
|
$0.64
|
$0.36
|
Sales for the second quarter and six months ended
March 31, 2019 increased by 22% and 24% respectively
versus the prior comparable periods. The reasons for these
increases have been explained previously in this MD&A.
Gross profit for the second quarter and six months ended
March 31, 2019 increased 21% and 25% respectively versus the
prior comparable periods. These increases are largely attributable
to the increases of sales for the periods as well as ongoing cost
control efforts.
Administration expenses for the second quarter and six months
ended March 31, 2019 decreased 6% and increased 9%
respectively versus the prior comparable periods. The increase for
the six months is primarily a result of the acquisition of
MaXfield, which only partially contributed to the prior six months.
The decrease for the second quarter is largely attributable to a
reduction of overhead employees versus the prior period, partially
offset by increased expenses relating to the transfer of a
production line to a new facility. Additionally, expenses were
incurred in the second quarter of 2018 related to the acquisition
of MaXfield, which did not repeat in the current period.
Selling expenses for the second quarter and six months ended
March 31, 2019 decreased 26% and 8% versus the prior
comparable periods as a result of staffing reductions and cost
control initiatives.
Financing costs for the second quarter and six months ended
March 31, 2019 increased 12% and 24% respectively versus the
prior comparable periods. This is a result of increased levels of
debt as a result of several growth capital projects and recent
substantial issuer bids. Rate increases from the Bank of
Canada throughout the year also
contributed to rising financing costs as TerraVest has floating
rate debt facilities.
Income tax expense for the second quarter and six months ended
March 31, 2019 increased, which is the result of increased
profitability. The Company has tax loss carry-forwards which are
available to shelter taxes in certain subsidiaries.
As a result of the above, net income attributable to common
shareholders for the second quarter and six months ended
March 31, 2019 increased 189% and 63% versus the prior
comparable periods.
DIVIDENDS
TerraVest is also pleased to announce that The Board of
Directors has declared its quarterly dividend of 10 cents per Common share payable on July 9,
2019 to shareholders of record as at the close of business on
June 28, 2019. The dividend is designated an "eligible
dividend" for Canadian income tax purposes.
Additional information can be found in TerraVest's interim
condensed consolidated financial statements and MD&A which are
available on SEDAR at www.sedar.com.
Non‑IFRS Financial Measures
This news
release makes reference to certain non‑IFRS financial measures.
These measures are not recognized measures under IFRS and do not
have a standardized meaning prescribed by IFRS. TerraVest's
definitions may differ from those of other issuers and therefore
may not be comparable to similarly titled measures used by other
issuers. The Company uses non‑IFRS financial measures including
adjusted EBITDA, maintenance capital expenditures, cash available
for distribution and dividend payout ratio.
Adjusted EBITDA: is defined as net income adjusted for
income tax expense, financing costs, depreciation, amortization,
gains or losses on disposal of property, plant and equipment and on
disposal of assets held for sale, change in fair value of
derivative financial instruments, non-recurring acquisition‑related
costs, impairment charges and other non‑recurring and/or
non‑operations related items that do not reflect the current
ongoing operations of TerraVest. Management believes this is a
useful metric in evaluating the ongoing operating performance of
the Company. Readers are cautioned that adjusted EBITDA should not
be construed as an alternative to net income determined in
accordance with IFRS as an indicator of the Company's
performance.
Cash Available for Distribution: is defined as cash
flow from operating activities adjusted for changes in non-cash
operating working capital and maintenance capital expenditures.
Management believes that cash available for distribution, as a
liquidity measure, is a useful metric that provides an indication
of the cash available from ongoing operations that can be
distributed to shareholders as a dividend. Readers are cautioned
that cash available for distribution should not be construed as an
alternative to cash flow from operating activities determined in
accordance with IFRS as an indicator of the Company's liquidity and
cash flows.
Maintenance Capital Expenditures: is defined as
capital expenditures made to sustain the operations of TerraVest's
operating businesses and to maintain the productive capacity of the
businesses over an economic cycle, whether or not they yield
significant cost or production efficiencies. Management believes
that maintenance capital expenditures should be funded by cash flow
from existing operating activities and, therefore, deducted in
determining cash available for distribution. There is no directly
comparable IFRS measure for maintenance capital
expenditures.
Dividend Payout Ratio: is defined as dividends paid in
cash during the period divided by cash available for distribution
for the period. Management believes that dividend payout ratio is a
useful metric as it provides an indication of the Company's ability
to sustain its current dividend policy. There is no directly
comparable IFRS measure for dividend payout ratio.
Caution Regarding Forward-Looking
Statements
This news release contains forward-looking
statements. All statements other than statements of
historical fact contained in this news release are forward-looking
statements, including, without limitation, statements regarding our
strategic direction and evaluation of the business segments and
TerraVest as a whole, and other plans and objectives of or
involving TerraVest. Readers can identify many of these statements
by looking for words such as "expects" and "will" and similar words
or the negative thereof. Although management believes that the
expectations represented in such forward-looking statements are
reasonable, there can be no assurance that such expectations will
prove to be correct.
By their nature, forward-looking statements require us to
make assumptions and, accordingly, forward looking statements are
subject to inherent risks and uncertainties. There is significant
risk that the forward-looking statements will not prove to be
accurate. We caution readers of this news release not to place
undue reliance on our forward-looking statements because a number
of factors may cause actual future circumstances, results,
conditions, actions or events to differ materially from the plans,
expectations, estimates or intentions expressed in the
forward-looking statements and the assumptions underlying the
forward-looking statements.
Assumptions and analysis about the performance of TerraVest
as a whole and its business segments, the markets in which the
business segments compete and the prospects and values of the
business segments are considered in setting the business plan for
TerraVest, plans and/or ability to pay dividends, outlook for
operations, financial position, results and cash flow, other plans
and objectives and in making related forward-looking statements.
Such assumptions include, without limitation, demand for
products and services of the business segments in respect of the
Canadian and other markets in which the businesses are active will
be stable, and that input costs to business segments do not vary
significantly from levels experienced
historically. Should any of these factors or
assumptions vary, actual results may differ materially from the
forward-looking statements.
SOURCE TerraVest Industries Inc.