TORONTO, Dec. 11, 2019
/CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or
the "Company") announces its results for the fourth quarter and
year ended September 30, 2019.
FOURTH QUARTER AND YEAR END REVIEW AND OUTLOOK
Business Performance
Management believes that there are certain non‐IFRS financial
measures that can be used to assist shareholders in analyzing the
performance of TerraVest. The table below highlights certain
financial results and reconciles net income to adjusted earnings
before interests, income taxes, depreciation and amortization
("EBITDA") for the fourth quarter and year ended
September 30, 2019 and the comparative periods in
fiscal 2018.
|
|
|
|
Fourth quarters
ended
|
Years
ended
|
|
Sept. 30, 2019
|
Sept. 30, 2018
|
Sept. 30, 2019
|
Sept. 30, 2018
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Sales
|
80,345
|
79,297
|
306,286
|
269,927
|
|
|
|
|
|
Net
Income
|
6,308
|
8,266
|
22,555
|
17,152
|
Add
(subtract):
|
|
|
|
|
Income tax
expense
|
2,120
|
1,523
|
8,397
|
5,313
|
Financing
costs
|
1,348
|
1,388
|
5,769
|
5,318
|
Depreciation and
amortization
|
2,866
|
3,902
|
11,705
|
11,758
|
Change in fair value
of derivative financial instruments
|
323
|
(425)
|
629
|
959
|
Acquisition‑related
cost
|
98
|
43
|
98
|
661
|
(Gain) loss on
disposal of property, plant and equipment
|
68
|
(159)
|
(18)
|
305
|
Gain on disposal of
assets held for sale
|
(302)
|
-
|
(302)
|
(28)
|
Loss on contingent
considerations
|
457
|
-
|
457
|
-
|
Impairment of assets
held for sale
|
-
|
129
|
-
|
129
|
Adjusted
EBITDA
|
13,286
|
14,667
|
49,290
|
41,567
|
Sales for the quarter ended September 30, 2019 were
$80,345 versus $79,297 for the prior comparable quarter. This
represents an increase of 1%. However, TerraVest acquired
substantially all of the assets of Iowa Steel Fabrication, LLC
("ISF") on August 30, 2019, which contributed to
TerraVest's sales for one month. Excluding ISF, sales for the
fourth quarter ended September 30, 2019 were $78,590 versus $79,297 for the prior comparable period. This
represents a decrease of less than 1%.
Sales for the year ended September 30, 2019 were
$306,286 versus $269,927 for the prior comparable period,
representing an increase of 14%. However,
MaXfield Group Inc. ("MaXfield") was acquired on
January 1, 2018 and only partially contributed to the prior
comparable period and ISF only partially contributed to the current
fiscal year. Excluding MaXfield and ISF, sales for the year ended
September 30, 2019 were essentially flat at $233,128 versus $233,425 for the prior comparable period. The
stability in fourth quarter and annual sales of TerraVest's base
portfolio (excluding ISF and MaXfield) is a result of stronger
demand for LPG storage and distribution equipment, as well as home
heating products in both Canada
and the United States, offset by
weaker demand for oil and gas process equipment and services in
Western Canada. The overall
increase of TerraVest annual sales is mostly attributable to the
sales growth of MaXfield, where demand for LPG, NGL and anhydrous
ammonia ("NH3") storage and distribution equipment has
been strong.
Net Income for the fourth quarter and year ended
September 30, 2019 was $6,308
and $22,555 versus $8,266 and $17,152
for the prior comparable periods. This represents a decrease of 24%
and an increase of 32% respectively. The decrease in net income for
the fourth quarter is largely attributable to increased income tax
expenses, as well as fluctuations in the value of foreign exchange
contracts versus the prior comparable period. TerraVest also
experienced lower margin in the fourth quarter versus the prior
comparable period as a result of product mix. The increase in net
income for the year is a result of increased sales activity, as
described above, as well as the successful implementation of
certain initiatives aimed at reducing costs.
Adjusted EBITDA for the fourth quarter and year ended
September 30, 2019 were $13,286 and $49,290
versus $14,667 and $41,567 for the prior comparable periods. This
represents a decrease of 9% and an increase of
19% respectively, which is the result of the reasons explained
above.
The table below reconciles cash flow from operating activities
to cash available for distribution for the fourth quarter and year
ended September 30, 2019 and the comparative periods in
fiscal 2018.
|
|
|
|
Fourth quarters
ended
|
Years
ended
|
|
Sept. 30, 2019
|
Sept. 30, 2018
|
Sept. 30, 2019
|
Sept. 30, 2018
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Cash Flow from
(used in) Operating Activities
|
12,248
|
(7,395)
|
30,977
|
7,782
|
Add
(subtract):
|
|
|
|
|
Change in non‑cash
operating working capital items
|
(2,050)
|
20,683
|
4,261
|
23,160
|
Maintenance Capital
Expenditures
|
(1,082)
|
(1,752)
|
(4,459)
|
(4,209)
|
Cash Available for
Distribution
|
9,116
|
11,536
|
30,779
|
26,733
|
Dividends Paid in the
Period
|
1,732
|
1,742
|
6,929
|
7,263
|
Dividend Payout
Ratio
|
19%
|
15%
|
23%
|
27%
|
Cash flow from (used in) operating activities for the fourth
quarter and year ended September 30, 2019 were $12,248 and $30,977
versus ($7,395) and $7,782 for the prior comparable periods. This
represents increases of 266% quarter over quarter and 298% year
over year. The increased cash flow is primarily a result of greater
emphasis on working capital management in the wake of the
elimination of North American steel tariffs. TerraVest also
benefitted from increased sales activity and improved cost control
in certain of its portfolio businesses.
Maintenance capital expenditures were $1,082 for the fourth quarter versus $1,752 for the prior comparable period. During
the fourth quarter ended September 30, 2019, TerraVest's total
purchases of property, plant and equipment was $4,300 of which $3,218 is considered growth capital. During the
fourth quarter, TerraVest paid capital expenditures related to a
major capital project completed in the third quarter that involved
transferring petroleum tank production to a new facility.
Additionally, TerraVest expanded its desanding rental fleet. 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 fourth quarter and year
ended September 30, 2019 decreased by 21% and increased
by 15% respectively versus the prior comparable periods. The
decrease and increase are a result of reasons
explained above.
The dividend payout ratio for the fourth quarter and year ended
September 30, 2019 were 19% and 23% versus 15% and 27%
for the prior comparable periods.
Outlook
In fiscal 2019, TerraVest experienced an improvement in
operating results over the prior year. As mentioned above, this was
driven by increased sales, particularly sales of LPG, NGL and
anhydrous ammonia equipment product lines, as well as the impact of
certain initiatives undertaken to improve manufacturing
efficiencies. TerraVest also experienced greatly improved cash flow
this past year as an emphasis was placed on working capital
management following the elimination of recently imposed steel
tariffs. For fiscal 2020, management is expecting further
incremental improvement driven by continued strong demand for its
LPG, NGL and anhydrous ammonia storage and distribution equipment,
as well as a recently completed major capital project that should
improve the efficiency of its petroleum tank manufacturing.
Additionally, management expects a positive contribution from the
recently acquired ISF. The Western Canadian energy market
continues to be challenged and management is not anticipating a
reversal for fiscal 2020. However, overall management is expecting
TerraVest's operating results for fiscal 2020 to be stronger than
the prior year.
Business Combinations
On August 30, 2019, a subsidiary of TerraVest entered into
an acquisition agreement to acquire substantially all the assets of
Iowa Steel Fabrication, LLC, doing business as Countryside Tank and
Majona Steel Corporation. ISF is an Iowa based company primarily focused on
manufacturing transportation equipment for the propane and
anhydrous ammonia markets as well as structural steel projects. The
business combination has been accounted for using the purchase
method with the results of operations included in earnings from the
date of acquisition. For information regarding the fair value of
the consideration transferred, the assets acquired and the
liabilities assumed at the acquisition date, please refer to
Note 5 of the audited consolidated financial statements for
the year ended September 30, 2019, available
on SEDAR.
CONSOLIDATED RESULTS OF OPERATIONS
The following section provides the financial results of
TerraVest's operations for the fourth quarter and year ended
September 30, 2019 and the comparative periods in
fiscal 2018.
|
|
|
|
Fourth quarters
ended
|
Years
ended
|
|
Sept. 30, 2019
|
Sept. 30, 2018
|
Sept. 30, 2019
|
Sept. 30, 2018
|
|
$
|
$
|
$
|
$
|
|
|
|
|
|
Sales
|
80,345
|
79,297
|
306,286
|
269,927
|
Cost of
sales
|
61,617
|
59,869
|
235,544
|
208,338
|
Gross
profit
|
18,728
|
19,428
|
70,742
|
61,589
|
|
|
|
|
|
Administration
expenses
|
7,223
|
7,179
|
28,152
|
26,562
|
Selling
expenses
|
1,311
|
1,313
|
5,537
|
6,404
|
Financing
costs
|
1,348
|
1,388
|
5,769
|
5,318
|
Share of an
associate's net income
|
(136)
|
-
|
(136)
|
-
|
Other (gains)
losses
|
554
|
(241)
|
468
|
840
|
|
10,300
|
9,639
|
39,790
|
39,124
|
|
|
|
|
|
Earnings before
income taxes
|
8,428
|
9,789
|
30,952
|
22,465
|
Income tax
expense
|
2,120
|
1,523
|
8,397
|
5,313
|
Net Income
|
6,308
|
8,266
|
22,555
|
17,152
|
Allocated to
non‐controlling interest
|
(12)
|
(2)
|
60
|
(116)
|
Net income
attributable to common shareholders
|
6,320
|
8,268
|
22,495
|
17,268
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
17,390,014
|
17,424,852
|
17,239,597
|
17,951,835
|
Weighted average
shares outstanding – Diluted
|
19,115,542
|
19,797,358
|
19,116,577
|
20,554,770
|
Net income per share
– Basic
|
$0.36
|
$0.47
|
$1.30
|
$0.96
|
Net income per share
– Diluted
|
$0.34
|
$0.43
|
$1.24
|
$0.89
|
Sales for the fourth quarter increased slightly over the prior
comparable period, while sales for the year ended
September 30, 2019 increased by 14% year over year.
The reasons for the variations have been explained previously in
this press release.
Gross profit for the fourth quarter and year ended
September 30, 2019 decreased by 4% and increased by 15%
respectively versus the prior comparable periods. Gross profit
quarter over quarter was comparable and the slight decrease was
primarily the result of product mix contributing to a slightly
lower margin. The gross profit increase for the year is largely
attributable to the increase in sales for the period as well as
improvements in cost control.
Administration expenses for the fourth quarter and year ended
September 30, 2019 increased by less than 1% quarter over
quarter and increased by 6% year over year. The increase for the
year is attributable to increased expenses associated with the
transfer of petroleum tank production into a new facility as well
as MaXfield only partially contributing to the
prior period.
Selling expenses for the fourth quarter and year ended
September 30, 2019 is comparable quarter over quarter and
decreased by 14% year over year as a result of staffing reductions
and cost control initiatives.
Financing costs for the fourth quarter and year ended
September 30, 2019 decreased by 3% and increased by 9%
respectively versus the prior comparable periods. The decrease for
the fourth quarter is primarily a result of the reduced costs
associated with the reduction of convertible debentures
outstanding, partially offset by higher interest expense on
revolving credit facilities and long-term debt. The increase for
the year is a result of increased levels of debt as a result of
several growth capital projects, increased levels of working
capital versus the prior year and the acquisition of ISF.
Income tax expense for the fourth quarter and year ended
September 30, 2019 increased versus comparable periods, which
is the result of increased profitability partially offset by a
reduction of deferred income tax expense recognized in the fourth
quarter of 2018 related to prior period adjustment. TerraVest has
income tax loss carry-forwards which are available to shelter
income taxes in certain subsidiaries.
As a result of the above, net income attributable to common
shareholders for the fourth quarter and year ended
September 30, 2019 decreased by 24% and increased by 30%
respectively versus the prior comparable periods.
DIVIDENDS
TerraVest is pleased to announce that The Board of Directors has
declared its quarterly dividend of 10
cents per common share payable on January 10, 2020 to
shareholders of record as at the close of business on
December 31, 2019. The dividend is designated an "eligible
dividend" for Canadian income tax purposes.
Redemption of 7.00% Convertible Unsecured Subordinated
Debentures
TerraVest is also pleased to announce that it has issued a
notice of redemption to AST Trust Company, as indenture trustee for
holders of the 7.00% convertible unsecured subordinated debentures
due June 30, 2020 (the "Debentures"),
representing a redemption in full of all of the currently
outstanding Debentures.
The Debentures will be redeemed on January 13, 2020 (the "Redemption Date") in
accordance with their terms. The Debentures will be redeemed at a
redemption price of $1,000 plus
accrued and unpaid interest of $2.30,
both per $1,000 principal amount of
Debentures. As of the close of trading on December 11, 2019, the aggregate principal amount
of the Debentures outstanding was $8,805.
The Debentures are currently listed for trading on the Toronto
Stock Exchange under the symbol "TVK.DB" and will cease trading
subsequent to the Redemption Date.
Additional information can be found in TerraVest's audited
consolidated financial statements and MD&A which are available
on SEDAR at www.sedar.com.
Non‑IFRS Financial Measures
This news release makes reference to certain non‑IFRS
financial measures. These measures are not recognized measures
under IFRS and do not have a standardized meaning prescribed by
IFRS. TerraVest's definitions may differ from those of other
issuers and therefore may not be comparable to similarly titled
measures used by other issuers. The Company uses non‑IFRS financial
measures including adjusted EBITDA, cash available for
distribution, dividend payout ratio and maintenance capital
expenditures.
Adjusted EBITDA: is defined as net income adjusted for
income tax expense, financing costs, depreciation, amortization,
gains or losses on disposal of property, plant and equipment and on
disposal of assets held for sale, change in fair value of
derivative financial instruments, non-recurring acquisition‑related
costs, impairment charges and other non‑recurring and/or
non‑operations related items that do not reflect the current
ongoing operations of TerraVest. Management believes this is a
useful metric in evaluating the ongoing operating performance of
TerraVest. Readers are cautioned that adjusted EBITDA should not be
construed as an alternative to net income determined in accordance
with IFRS as an indicator of TerraVest's performance.
Cash Available for Distribution: is defined as cash
flow from operating activities adjusted for changes in non-cash
operating working capital and maintenance capital expenditures.
Management believes that cash available for distribution, as a
liquidity measure, is a useful metric that provides an indication
of the cash available from ongoing operations that can be
distributed to shareholders as a dividend. Readers are cautioned
that cash available for distribution should not be construed as an
alternative to cash flow from operating activities determined in
accordance with IFRS as an indicator of TerraVest's liquidity and
cash flows.
Dividend Payout Ratio: is defined as dividends paid in
cash during the period divided by cash available for distribution
for the period. Management believes that dividend payout ratio
is a useful metric as it provides an indication of TerraVest's
ability to sustain its current dividend policy. There is no
directly comparable IFRS measure for dividend
payout ratio.
Maintenance Capital Expenditures: is defined as
capital expenditures made to sustain the operations of TerraVest's
operating businesses and to maintain the productive capacity of the
businesses over an economic cycle, whether or not they yield
significant cost or production efficiencies. Management believes
that maintenance capital expenditures should be funded by cash flow
from existing operating activities and, therefore, deducted in
determining cash available for distribution. There is no directly
comparable
IFRS measure for maintenance capital expenditures.
Caution Regarding Forward-Looking Statements
This news release contains forward-looking statements.
All statements other than statements of historical fact contained
in this news release are forward-looking statements, including,
without limitation, statements regarding our strategic direction
and evaluation of the business segments and TerraVest as a whole,
and other plans and objectives of or involving TerraVest. Readers
can identify many of these statements by looking for words such as
"expects" and "will" or similar terms or variations of these words.
Although management believes that the expectations represented in
such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct.
By their nature, forward-looking statements require us to
make assumptions and, accordingly, forward looking statements are
subject to inherent risks and uncertainties. There is significant
risk that the forward-looking statements will not prove to be
accurate. We caution readers of this news release not to place
undue reliance on our forward-looking statements because a number
of factors may cause actual future circumstances, results,
conditions, actions or events to differ materially from the plans,
expectations, estimates or intentions expressed in the
forward-looking statements and the assumptions underlying the
forward-looking statements.
Assumptions and analysis about the performance of TerraVest
as a whole and its business segments, the markets in which the
business segments compete and the prospects and values of the
business segments are considered in setting the business plan for
TerraVest, plans and/or ability to pay dividends, outlook for
operations, financial position, results and cash flows, other plans
and objectives and in making related forward-looking statements.
Such assumptions include, without limitation, demand for
products and services of the business segments in respect of the
Canadian and other markets in which the businesses are active will
be stable, and that input costs to business segments do not vary
significantly from levels experienced
historically. Should any of these factors or
assumptions vary, actual results may differ materially from the
forward-looking statements.
SOURCE TerraVest Industries Inc.