Shawcor Ltd. (“Shawcor” or the “Company”) (TSX: SCL) reported today
its operational and financial results for the three months ended
March 31, 2023. This press release should be read in conjunction
with the Company’s Management Discussion and Analysis (MD&A)
and interim consolidated financial statements for the three months
ended March 31, 2023, which are available on the Company’s website
and at www.sedar.com.
Highlights from the first quarter include1:
- On a consolidated basis, revenue
was $364 million, income from operations was $36 million and
Adjusted EBITDA was $55 million;
- Composite Systems segment revenue
increased by 25% to $133 million compared to $106 million in the
prior year’s quarter;
- The Automotive and Industrial
segment set a new quarterly revenue record, increasing by 19% to
$93 million compared to $78 million in the prior year’s
quarter;
- Pipeline and Pipe Services segment
revenue increased by 65% to $138 million compared to $84 million in
the prior year’s quarter;
- The order backlog for execution in
the next 12 months increased by 6% to $1,309 million as at March
31, 2023, from $1,230 million as at December 31, 2022. This
increase primarily reflects offshore pipe coating projects which
were secured or moved into the coming 12-month window, including
projects in Mexico, Brazil and elsewhere in Latin America. The
Pipeline and Pipe Services segment continued to account for a
majority of the Company’s 12-month order backlog at March 31,
2023;
- The Composite Systems segment
expanded its water technology portfolio by acquiring the assets of
Triton Stormwater Solutions, a privately owned provider of highly
engineered, lightweight, composite materials-based underground
infiltration chamber products, used primarily within stormwater
management solutions;
- Subsequent to the quarter, the
Company announced further details of its 2023 high-return,
potential capital investment strategy, including the investment in
two new Composite Systems facilities in the US;
- Working capital investments were
made to support growth in all three reporting segments, including
mobilization of the SGP project, which was pre-funded with cash
deposits from the customer. As a result, cash used in operating
activities was $32 million during the quarter, compared to
approximately $13 million of cash used in operating activities
during the first quarter of 2022;
- A $25 million repayment was made on
the Credit Facility (as defined herein). As at March 31, 2023, the
Company had total net debt of $87 million and a Net debt-to-EBITDA1
ratio (using a trailing twelve-month Adjusted EBITDA1) of
approximately 0.46 times;
- The Company remained active under
its Normal Course Issuer Bid (“NCIB”), repurchasing 626,000 of its
common shares during the quarter for an aggregate repurchase price
of $8 million; and
- The composition for Adjusted EBITDA
has been adjusted as noted in Section 5.0 – Reconciliation of
Non-GAAP Measures to include adjustments for share-based incentive
compensation cost and foreign exchange (gain) loss.
1 EBITDA and Adjusted EBITDA are non-GAAP
measures. Order backlog is a supplementary financial measure.
Non-GAAP measures do not have standardized meanings under GAAP and
are not necessarily comparable to similar measures provided by
other companies. See “Section 5.0 – Reconciliation of Non-GAAP
Measures” for further details and a reconciliation of these
non-GAAP measures. Adjusted EBITDA is adjusted for all periods
presented as the Company updated this non-GAAP measure to include
adjustments for share-based incentive compensation cost and foreign
exchange (gain) loss. See Section “5.0 – Reconciliation of Non-GAAP
Measures” for further details on the changes in composition of
Adjusted EBITDA. The amounts presented above reflect restated
figures for the first quarter of 2022 to align with the updated
composition.
“Strong operational performance, combined with
later than normal Canadian spring break-up, enabled significant
year-over-year sales growth in all three reporting segments during
the quarter. The Automotive & Industrial segment set new
quarterly records for revenue and Adjusted EBITDA1, the Composite
Systems segment set new first quarter records for revenue and
Adjusted EBITDA1, and the Pipeline and Pipe Services segment
delivered further Adjusted EBITDA1 margin expansion and 12-month
backlog growth. On a consolidated basis, the Company
more than doubled Adjusted EBITDA margins1 compared to the first
quarter of last year,” said Mike Reeves, President & CEO of
Shawcor.
“During the quarter, Shawcor also initiated the
establishment of two new North American production sites serving
our Composite Systems segment, levering our hard-earned balance
sheet strength to invest in low risk, high return potential
opportunities which are expected, over time, to accelerate revenue
growth and further expand Adjusted EBITDA margins1. In parallel,
the Company continued to be active under its previously launched
NCIB and added important technical and commercial capabilities to
its Composite Systems segment by completing the acquisition of
Triton Stormwater Solutions.”
“The first quarter of 2023 saw Shawcor continue
to execute on its strategy to accelerate growth, expand margins and
lower volatility by focusing on the development and delivery of
differentiated, high value, materials-based solutions in support of
industrial and critical infrastructure end markets.”
“We believe Shawcor is very well positioned to
accelerate value creation for all stakeholders over the coming
years given its strong balance sheet and clear opportunities for
high return organic and inorganic growth. We anticipate Adjusted
EBITDA1 in the second quarter of 2023 will approach that of the
first quarter, followed by a substantial step up in the second half
of the year driven by continued growth in the Composite Systems
segment and significant, high margin, pipe coating activity on the
Southeast Gateway Pipeline and other pipe coating projects.”
1 EBITDA, Adjusted EBITDA and Net
debt-to-Adjusted EBITDA are non-GAAP measures. Non-GAAP measures do
not have standardized meanings under GAAP and are not necessarily
comparable to similar measures provided by other companies. See
“Section 5.0 – Reconciliation of Non-GAAP Measures” for further
details and a reconciliation of these non-GAAP measures. Adjusted
EBITDA is adjusted for all periods presented as the Company updated
this non-GAAP measure to include adjustments for share-based
incentive compensation cost and foreign exchange (gain) loss. See
“Section 5.0 – Reconciliation of Non-GAAP Measures” for further
details on the changes in composition of Adjusted EBITDA. The
amounts presented above reflect restated figures for the first
quarter of 2022 to align with the updated composition. The Company
expects the current calculation methodology of Adjusted EBITDA to
be consistently applied in future periods.
Selected Financial
Highlights
(in thousands of Canadian dollars, except per share amounts and
percentages) |
Three Months EndedMarch 31 |
|
2023 |
|
2022 |
|
|
|
$ |
% |
$ |
|
% |
Revenue |
364,405 |
|
267,794 |
|
|
Gross profit |
113,068 |
31.0% |
72,843 |
|
27.2% |
Income from Operations(a) |
35,630 |
9.8% |
1,334 |
|
0.5% |
Net Income (Loss) for the period(b) |
25,239 |
|
(6,942 |
) |
|
Income (Loss) per share: |
|
|
|
|
Basic & Diluted |
0.36 |
|
(0.10 |
) |
|
|
|
|
|
|
Adjusted EBITDA(c)& (d) |
54,529 |
15.0% |
19,683 |
|
7.4% |
(a) Operating income in the three months ended
March 31, 2023 includes no restructuring costs and other, net,
while 2022 operating income includes restructuring costs and other,
net of $1.2 million.(b) Attributable to
shareholders of the Company.(c) Adjusted EBITDA is
a non-GAAP measure. Non-GAAP measures do not have standardized
meanings prescribed by GAAP and are not necessarily comparable to
similar measures provided by other companies. SeeSection 5.0 –
Reconciliation of Non-GAAP Measuresfor further details and a
reconciliation of these non-GAAP
measures.(d) Adjusted EBITDA is adjusted for all
periods presented as the Company updated this non-GAAP measure to
include adjustments for share-based incentive compensation cost and
foreign exchange (gain) loss. SeeSection 5.0 – Reconciliation of
Non-GAAP Measuresfor further details on the changes in the
composition in Adjusted EBITDA. The amounts presented above reflect
restated figures for the first quarter of 2022 to align with the
updated composition. |
1.0 FIRST QUARTER
HIGHLIGHTSThe Company delivered Income from Operations of
$35.6 million and Adjusted EBITDA1 of $54.5 million in the first
quarter of 2023, an improvement of $34.3 million and $34.8 million,
respectively, compared to the first quarter of 2022. This
substantial growth was driven by stronger North American sales of
composite pipe, elevated demand for fiberglass reinforced plastic
(“FRP”) tanks in the retail fuel and water sectors of North
America, robust demand across all markets served by our Automotive
and Industrial segment, particularly in the utilities market and
increased activity levels across the Company’s pipe coating
facilities.
The Company continues to execute on its strategy
to optimize its portfolio and evaluate strategic alternatives for
portions of its business, including the businesses in its Pipeline
and Pipe Services segment, while exploring organic and inorganic
investment opportunities. In March of 2023, the Company acquired
the assets of Triton Stormwater Solutions which will be integrated
into its Xerxes® business. Subsequent to the quarter, the Company
detailed organic growth capital commitments including the addition
of a new Flexpipe facility in Texas and a new Xerxes facility in
South Carolina for its Composites Systems segment.
1 EBITDA, Adjusted EBITDA and Net
debt-to-Adjusted EBITDA are non-GAAP measures. Non-GAAP measures do
not have standardized meanings under GAAP and are not necessarily
comparable to similar measures provided by other companies. See
“Section 5.0 – Reconciliation of Non-GAAP Measure” for further
details and a reconciliation of these non-GAAP measures. Adjusted
EBITDA is adjusted for all periods presented as the Company updated
this non-GAAP measure to include adjustments for share-based
incentive compensation cost and foreign exchange (gain) loss. See
Section “5.0 – Reconciliation of Non-GAAP Measures” for further
details on the changes in composition of Adjusted EBITDA. The
amounts presented above reflect restated figures for the first
quarter of 2022 to align with the updated composition. The Company
expects the current calculation methodology of Adjusted EBITDA to
be consistently applied in future periods.
As at March 31, 2023, the Company had cash and
cash equivalents totaling $162.0 million (December 31, 2022 –
$264.0 million). This decrease was driven by an investment of $85.9
million in working capital related to increased business activity
and the timing of spend related to the mobilization of the SGP
project, a repayment of $25.0 million of the Company’s syndicated
credit facility (the “Credit Facility”), $22.8 million of growth
and maintenance capital expenditures and $8.6 million on the
acquisition of Triton Stormwater Solutions. Since the beginning of
2021 and up to March 31, 2023, the Company has repaid $247.5
million against the Credit Facility. Subsequent to the quarter, the
Company drew an additional $5 million against the Credit Facility
for short-term working capital needs. The Company will continue to
focus on maximizing the conversion of operating income into cash,
managing its long-term debt, exploring organic and inorganic growth
opportunities, and maximizing returns to shareholders.
Selected Segment Financial
Highlights
|
Three Months Ended |
|
March 31, |
March 31, |
|
2023 |
2022 |
(in thousands of Canadian dollars) |
($) |
(%) |
($) |
(%) |
Revenue |
|
|
|
|
Composite Systems |
132,549 |
|
|
106,413 |
|
|
Automotive and Industrial |
93,459 |
|
|
78,219 |
|
|
Pipeline and Pipe Services |
138,397 |
|
|
84,068 |
|
|
Elimination(a) |
– |
|
|
(906 |
) |
|
Consolidated revenue |
364,405 |
|
|
267,794 |
|
|
Operating income (loss) |
|
|
|
|
Composite Systems |
20,722 |
|
15.6 |
% |
6,874 |
|
6.5 |
% |
Automotive and Industrial |
17,865 |
|
19.1 |
% |
14,887 |
|
19.0 |
% |
Pipeline and Pipe Services |
4,703 |
|
3.4 |
% |
(16,180 |
) |
(19.2 |
%) |
Financial and Corporate |
(7,660 |
) |
|
(4,247 |
) |
|
Operating income |
35,630 |
|
9.8 |
% |
1,334 |
|
0.5 |
% |
Adjusted EBITDA(b) |
|
|
|
|
Composite Systems |
26,748 |
|
20.2 |
% |
14,984 |
|
14.1 |
% |
Automotive and Industrial |
19,199 |
|
20.5 |
% |
16,208 |
|
20.7 |
% |
Pipeline and Pipe Services |
14,910 |
|
10.8 |
% |
(7,067 |
) |
(8.4 |
%) |
Financial and Corporate |
(6,328 |
) |
|
(4,442 |
) |
|
Adjusted EBITDA(b) |
54,529 |
|
15.0 |
% |
19,683 |
|
7.4 |
% |
(a) Represents the elimination of the inter-segment
sales between the Composite Systems segment, the Automotive and
Industrial segment and the Pipeline and Pipe Services
segment.(b) Adjusted EBITDA is a non-GAAP measure.
Non-GAAP measures do not have a standardized meaning prescribed by
GAAP and are not necessarily comparable to similar measures
provided by other companies. See Section 5.0 – Reconciliation of
Non-GAAP Measures for further details and a reconciliation of these
non-GAAP measures. Adjusted EBITDA is adjusted for all periods
presented as the Company updated this non-GAAP measure to include
adjustments for share-based incentive compensation cost and foreign
exchange (gain) loss. See Section 5.0 – Reconciliation of Non-GAAP
Measures for further details on the changes in composition for
Adjusted EBITDA. The amounts presented above reflect restated
figures for the first quarter of 2022 to align with the updated
composition. |
Composites Systems segment revenue in the first
quarter of 2023 was $132.5 million, an increase of $26.1 million,
or 25%, compared to the first quarter of 2022, with an operating
income of $20.7 million. This revenue represents a record high for
a first quarter for this segment despite the absence of revenue
from the Oilfield Asset Management operating unit which was sold in
the fourth quarter of 2022. Demand for composite pipe products in
North America continued to grow as the business continued to take
market share through its larger diameter offerings. Favourable
weather in Canada delayed typical spring break-up activities,
resulting in steady demand in both Western Canada and the US
throughout the quarter. Demand for underground FRP tanks for liquid
fuel and water management systems remained strong despite normal
seasonal slowdowns as winter ground conditions limited tank
installations in parts of North America. Adjusted EBITDA1 in the
first quarter of 2023 was $26.7 million, a 79% increase compared to
$15.0 million in the first quarter of 2022. This increase was
primarily attributed to elevated sales of composite pipe products,
with growing volumes of larger diameter products driving higher
margins.
The Automotive and Industrial segment rebounded
from its typical fourth quarter slowdown to deliver record revenue
of $93.5 million. This represents an increase of 19% versus the
first quarter of 2022. In industrial markets, the business
benefitted from continued infrastructure spending, particularly in
North American utilities. The segment’s revenue also benefitted
from price increases implemented to offset inflationary increases
in raw material and labour costs. The segment delivered quarterly
Adjusted EBITDA1 of $19.2 million, a 18.5% increase over the prior
year quarter, largely stemming from higher demand in industrial
markets and bolstered by a favourable product mix. Segment margins
were elevated both by manufacturing efficiencies as well as from
substantial shipments of high-margin wire & cable product in
support of nuclear and aerospace projects.
The Pipeline and Pipe Services segment delivered
revenue of $138.4 million, an increase of $54.3 million or 65%
compared to the first quarter of 2022 despite the absence of $9.6
million from the LSC business which was sold in the third quarter
of 2022. The segment’s performance was driven by strong coating
activity on projects across multiple sites including in Canada,
Norway, Indonesia, Brazil and Mexico. Adjusted EBITDA1 in the first
quarter of 2023 was $14.9 million, an increase compared to the
negative $7.1 million reported in the first quarter of 2022,
primarily related to higher revenue and improved utilization. The
segment continues to execute SGP project mobilization activities
and expects project coating activity to commence late in the second
quarter of 2023 as previously communicated.
The twelve-month order backlog1 of $1,309
million as at March 31, 2023, represents a 6% increase over the
$1,230 million twelve-month order backlog1 as at December 31, 2022.
This growth was primarily attributed to several offshore pipe
coating project commitments which were secured or moved into the
12-month window during the quarter, including the SGP project in
Mexico. The order backlog1 includes firm customer contracts which
are expected to be executed over the next twelve months and a
majority is related to the Pipeline and Pipe Services segment.
Outstanding firm bids, which are bids provided
to customers with firm pricing and conditions against defined
scope, were $847 million as of March 31, 2023, an increase versus
the $793 million from the previous quarter. Conditional awards,
pending final investment decision, were at $168 million, up from
the $150 million as at the prior quarter. Budgetary estimates were
nearly $2.5 billion at the end of the quarter, an increase from
approximately $2.1 billion at the end of the previous quarter, as
customers continued to develop scopes for new projects. Outstanding
firm bids and budgetary estimates are measures used primarily for
the Pipeline and Pipe Services segment, and as such, the vast
majority of the numbers reported relate to this segment.
1 EBITDA, Adjusted EBITDA and Net
debt-to-Adjusted EBITDA are non-GAAP measures. Order backlog is a
supplementary financial measure. Non-GAAP measures do not have
standardized meanings under GAAP and are not necessarily comparable
to similar measures provided by other companies. See “Section 5.0 –
Reconciliation of Non-GAAP Measures” for further details and a
reconciliation of these non-GAAP measures. Adjusted EBITDA is
adjusted for all periods presented as the Company updated this
non-GAAP measure to include adjustments for share-based incentive
compensation cost and foreign exchange (gain) loss. See Section
“5.0 – Reconciliation of Non-GAAP Measures” for further details on
the changes in composition of Adjusted EBITDA. The amounts
presented above reflect restated figures for the first quarter of
2022 to align with the updated composition. The Company expects the
current calculation methodology of Adjusted EBITDA to be
consistently applied in future periods.
2.0 OUTLOOK
The Company expects performance in the second
quarter of 2023 to approach the levels experienced in the first
quarter of the year. Modest growth in demand is expected for its
underground storage tanks, water products and composite pipe,
including its large diameter offerings, and higher activity levels
are expected across its pipe coating facilities. This will be
partially offset by the normal seasonal cycles within the
Automotive and Industrial Segment, for which the first quarter is
typically the strongest quarter of the year. The Company continues
to expect a substantial step up in the second half of the year,
driven by further anticipated growth in the Composite Systems
segment and a material increase in pipe coating activity within the
Pipeline and Pipe Services segment, including SGP and other
projects.
In management’s view, the underlying business
trends for all of Shawcor’s primary businesses remain favourable as
its infrastructure and industrial focused portfolio continues to
experience consistent demand growth, while the Company’s oil and
gas focused offerings remain well-positioned as commodity prices
and energy availability challenges drive a multi-year upcycle in
both onshore and offshore activity. The Company continues to
experience raw material and labour cost pressures and, as a result,
will continue to monitor its pricing and, if needed, roll out
further price increases to help offset these costs.
The Company expects to make sizeable organic
investments during 2023 and 2024 to expand capacity within its
Composite Systems and Automotive and Industrial segments.
Subsequent to the quarter, the Company detailed certain planned
2023 and 2024 capital investments to be deployed into high-return
growth opportunities within in the Composite Systems segment. These
investments include the construction of new composite pipe and
composite tanks manufacturing facilities in the US. In aggregate,
once completed, these planned growth capital investments are
expected to result in the Company creating at least $100 million
per year of incremental revenue generating capacity with comparable
margins to those realized in the segment. Both facilities which
will be populated in a phased manner, are expected to be
operational by the end of 2024 and to approach normalized levels of
production in 2026.
The Company continues to take an “all of the
above” approach to disciplined capital allocation, skewed towards
investment in organic opportunities viewed as having the highest
risk adjusted return-on-investment potential. High return potential
growth capital investments and continued share repurchases under
the NCIB program are expected to consume the vast majority of
available cash generated from operations during 2023. The
outstanding SGP project mobilization activities, and then
commencement of pipe coating activity, are expected to consume most
of the remaining available cash which the Company collected from
SGP project progress billings during the second half of 2022.
While further industrial, infrastructure and
pipe coating order awards are expected to be added to the Company’s
twelve-month order backlog1 over the remainder of 2023, the
twelve-month order backlog1 is expected to decline upon the
commencement of coating operations on the SGP project.
1 Order backlog is a supplementary financial
measure. See “Section 5.0 – Reconciliation of Non-GAAP Measures”
for additional information.
Composite Systems Segment
The Company is expecting continued strong demand
for underground FRP tanks throughout 2023 as liquid fuel service
station networks expand, upgrade and replace existing aging tanks.
Growth in demand for water and storm-water storage and treatment
systems is expected to persist, supported by increasing societal
demands to conserve and manage water resources and projected higher
infrastructure spending on commercial and municipal water projects.
The Company’s ability to serve water-oriented markets is further
enhanced by the product portfolio acquired from Triton Stormwater
Solutions during the first quarter of 2023. Price increases have
been implemented to manage raw material cost escalations.
Additionally, labour shortages and capacity constraints are being
managed to ensure adequate personnel and facilities are available
to meet the robust demand in the market. The Company anticipates
that normal seasonal impacts within its composite pipe business
related to spring break up in the second quarter, which normally
limits Canadian drilling and completions activity will be minimal.
Overall growth in demand for the segment’s composite pipe products
in North America is expected to continue in 2023 as activity levels
in Western Canada and in the Permian Basin remain robust and the
commercial adoption of the Company’s larger diameter products
continues.
Automotive and Industrial
Segment
Consistent with normal customer re-stocking
cycles, the Company expects the first quarter to be the strongest
quarter of 2023 for its Automotive and Industrial segment. While
the Company expects the segment to deliver year-over-year revenue
growth in the remaining quarters of 2023, driven by underlying
healthy demand, particularly in nuclear and industrial sectors,
this revenue growth will be offset by additional costs incurred in
advance of the 2024/25 facility relocation. The Company
continues to monitor recessionary concerns and broad supply chain
impacts. The Company’s full year outlook does not incorporate any
expectation of meaningful change in total global vehicle output
within the automotive end markets, which represented approximately
28% of the segment’s revenue in the first quarter of 2023. Despite
the macroeconomic backdrop, demand for the Company’s automotive
products is expected to continue to outpace overall automotive
production as a result of electronic content growth in premium,
hybrid and full electric vehicle markets, particularly in the Asia
Pacific and EMAR regions. In industrial and infrastructure end
markets, which represented approximately 72% of the segment’s
revenue in the first quarter of 2023, the Company is expecting to
benefit from continued infrastructure spending in 2023 and beyond
as new and upgraded utility and communication networks are
constructed, nuclear refurbishments continue in Canada, and federal
stimulus packages are rolled out. Additionally, the Company will
continue to manage the volatility of copper raw material costs.
Pipeline and Pipe Services
Segment
The Company expects the timing and mix of
specific pipe coating projects to drive its Pipeline and Pipe
Services segment results during the second quarter of 2023 to be
modestly lower when compared to the first quarter, as it executes
on work that has been secured in its order backlog1. Coating for
the SGP project is expected to commence late in the second quarter
of 2023 thus the majority of the revenue and related Adjusted
EBITDA1 contribution from the project is expected to be realized in
the second half of 2023 and the first half of 2024.
1 EBITDA and Adjusted EBITDA are non-GAAP
measures. Order backlog is a supplementary financial measure.
Non-GAAP measures do not have standardized meanings under GAAP and
are not necessarily comparable to similar measures provided by
other companies. Adjusted EBITDA is adjusted for all periods
presented as the Company updated this non-GAAP measure to include
adjustments for share-based incentive compensation cost and foreign
exchange (gain) loss. See Section 5.0 – Reconciliation of Non-GAAP
Measures for further details on this modification. The amounts
presented above reflect restated figures for the first quarter of
2022 to align with the updated composition. The Company expects the
current calculation methodology of Adjusted EBITDA to be
consistently applied in future periods. See “Section 5.0 –
Reconciliation of Non-GAAP Measure” for further details and a
reconciliation of these non-GAAP Measures.
The Company continues to monitor international
developments including sustained exploration success and additional
project phases in Guyana and Brazil, and Middle Eastern offshore
projects designed to meet domestic energy needs and global LNG
demand. Increases in inbound subsea orders have been observed
across the Company’s customer base, particularly in Latin America,
Europe and Asia-Pacific, where the Company is well-positioned to
secure and execute work. New offshore pipeline installations that
range from small and mid-size to large in scope are expected to
arise throughout 2023 and into subsequent years. Project
sanctioning activity, bid, budgetary, and general interest from
customers to install more pipelines, are all expected to drive
elevated demand for the Company’s market leading pipe coating
technologies. Despite successfully executing substantial cost
reduction activities within the Pipeline and Pipe Services segment
in the last two years, the Company has maintained the resources
needed to execute on projects currently in order backlog1 and those
projects for which the Company is currently bidding.
1 Order backlog is a supplementary financial
measure. See Section “5.0 – Reconciliation of Non-GAAP Measures”
for additional information.
3.0 CONFERENCE CALL AND
ADDITIONAL INFORMATIONShawcor will be hosting a
Shareholder and Analyst Conference Call and Webcast on Friday, May
12th, 2023, at 9:00 AM ET, which will discuss the Company’s First
Quarter 2023 Financial Results. To participate via telephone,
please register at
https://register.vevent.com/register/BI6b8f4d16622740f5aa1c0a31d338b3de
and a telephone number and pin will be provided.
Alternatively, please go to the following
website address to participate via webcast:
https://edge.media-server.com/mmc/p/e2cpfyyc. The webcast recording
will be available within 24 hours of the live presentation and will
be accessible for 90 days.
About Shawcor
Shawcor Ltd. is a growth-oriented, global
material sciences company serving the Infrastructure, Energy, and
Transportation markets. The Company operates through a network of
fixed and mobile manufacturing and service facilities. Its three
business segments, Composite Systems, Automotive and Industrial and
Pipeline and Pipe Services enable responsible renewal and
enhancement of critical infrastructure while lowering risk and
environmental impact.
For further information, please contact:
Meghan
MacEachernDirector, External Communications & ESGTel:
437-341-1848Email: meghan.maceachern@shawcor.comWebsite:
www.shawcor.com
Source: Shawcor
Ltd.Shawcor.ER4.0 FORWARD-LOOKING
INFORMATIONThis news release includes certain statements
that reflect management’s expectations and objectives for the
Company’s future performance, opportunities and growth, which
statements constitute “forward-looking information” and
“forward-looking statements” (collectively “forward-looking
information”) under applicable securities laws. Such statements,
other than statements of historical fact, are predictive in nature
or depend on future events or conditions. Forward-looking
information involves estimates, assumptions, judgements and
uncertainties. These statements may be identified by the use of
forward-looking terminology such as “may”, “will”, “should”,
“anticipate”, “expect”, “believe”, “predict”, “estimate”,
“continue”, “intend”, “plan” and variations of these words or other
similar expressions. Specifically, this news release includes
forward-looking information in the Outlook Section and elsewhere in
respect of, among other things; the ability of the Company to
deliver higher returns to all stakeholders; the evolution of the
Company’s portfolio of products and services beyond the energy
sector; the effect of the decreased diversification and future
downcycles in the Company’s businesses; the level of competition
within the markets that the Company operates in; the Company’s
continued ability to execute on its portfolio optimization
strategy; the Company’s ability to execute projects under contract;
the Company’s intention to mobilize facilities and conduct work on
the SGP project; the Company’s plans for the acquired assets of
Triton Stormwater Solutions; the Company’s ability to execute on
its business plan and strategies, including the pursuit, execution
and integration of potential organic and inorganic growth
opportunities, as applicable; level of financial performance
throughout 2023 and 2024; the expected upcycle in pipe coating
activity in the second half of 2023; the demand for, and activity
in, the Company’s products in the Composite Systems, the Automotive
and Industrial and the Pipeline and Pipe Services segments of the
Company’s business; the Company’s expected investments during 2023
and 2024 to expand capacity within the Composite Systems and
Automotive Industrial segments; continued share repurchases under
the NCIB program; the anticipated results and timing of the
Company’s capital expenditures investments and the expected impact
on the Company’s revenue generating capacity, operational
efficiencies, margin profile enhancement, and financial results;
statements regarding timing for completion of the new facilities,
and timing of achievement of anticipated production levels the
growth in and the successful execution of the Company’s order
backlog during 2023 and the increased execution of work secured in
the backlog; the opportunity to obtain greater market share in the
Composite Systems segment; the seasonal impacts to, and increased
demand in, the Company’s composite pipe business; the growth in
premium, hybrid and full electric vehicle markets and the impact
thereof on the Company’s financial performance; the impact of
increased infrastructure spending, including in the areas of water
management, communication networks and nuclear refurbishment on the
Company’s financial performance; the Company’s management of raw
material costs; 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; 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
ability of the Company to fund its operating and capital
requirements; the ability of the Company to comply with its debt
covenants; and the ability to finance increases in working
capital.
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. Readers are cautioned 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 risks and uncertainties described in the Company’s
Management Discussion and Analysis under “Risks and Uncertainties”
and in the Company’s Annual Information Form under “Risk
Factors”.
These statements of forward-looking information
are based on assumptions, estimates and analysis made by management
in light of its experience and perception of trends, current
conditions and expected developments as well as other factors
believed to be reasonable and relevant in the circumstances. These
assumptions include those in respect of the reduction and/or
continued easing of certain COVID-19 related restrictions
(including that governmental and public health authorities will not
be required to institute or re-institute lockdowns or other public
health restrictions) and the impact thereof on global economic
activity, the Company’s ability to manage supply chain disruptions
caused by COVID-19 or other pandemics, other health crises or by
natural disasters; the Company’s ability to manage supply chain
disruptions and other business impacts caused by, among other
things, geopolitical events or conflicts, such as the conflict in
Ukraine and related sanctions on Russia; global oil and gas prices
stabilizing at current levels; improved pipe-coating activity
throughout 2023; the impact of the Russia and Ukraine conflict on
the Company’s demand for products and the strength of its and its
customers supply chains; the impact of raw material shortages on
the Company; the costs of raw materials and labour, including as a
result of labour shortages and capacity constraints; seasonal
impacts on the Company’s FRP tanks business due to North American
ground conditions; sustained strong demand for the Company’s FRP
tanks, including for retail fuel storage and water treatment and
storage; seasonal impacts to the Company’s composite pipe business
due to spring break-up conditions; increased demand for composite
pipe; expected demand for the Company’s products in the Composite
Systems segment, including the ability to grow such demand over the
timeline expected to complete such facilities and achieve desired
operational levels; the Company being able to complete the
construction and commissioning of these facilities on their
expected timeline and budget, as applicable, and its ability to
achieve and maintain necessary production and efficiency levels
once operational; expectations regarding the Company’s ability to
attract new customers and develop and maintain relationships with
existing customers; the continued availability of funding required
to meet our anticipated operating and capital expenditure
requirements over such time; continued competitive intensity in the
segments in which the Company operates consistent with levels
experienced in 2022 and to date in 2023; no significant legal or
regulatory developments, other shifts in economic conditions, or
macro changes in the competitive environment affecting our business
activities; key interest rates remaining relatively stable
throughout 2023 to 2026; expectations regarding the Company’s
ability to continue to manage its supply chain and any future
disruptions; the increased demand for the Company’s products within
the automotive and industrial markets; heightened demand for
electric and hybrid vehicles and for electronic content within
those vehicles; the growth in demand for water and storm-water
storage and treatment systems; heightened infrastructure spending
in Canada, including in respect of commercial and municipal water
projects, transportation networks, communication networks and
nuclear refurbishments; the recommencement of increased capital
expenditures in the global offshore oil and gas pipeline segment to
replace, maintain and rehabilitate existing infrastructure, replace
production due to reservoir depletion and to address geopolitical
challenges impacting several producing regions; the continued
recovery of the global economy; a gradual recovery of oil and gas
markets in North America; the Company’s ability to execute projects
under contract; the Company’s continuing ability to provide new and
enhanced product offerings to its customers; that the Company will
continue to be able to optimize its portfolio and identify and
successfully execute on opportunities for acquisitions and
dispositions in alignment with its strategic plan; the higher level
of investment in working capital by the Company; the easing of
supply chain shortages and the continued supply of and stable
pricing or the ability to pass on higher prices to its customers
for commodities used by the Company; the availability of personnel
resources sufficient for the Company to operate its businesses; the
maintenance of operations by the Company in major oil and gas
producing regions; the adequacy of the Company’s existing accruals
in respect of environmental compliance and in respect of litigation
and tax matters and other claims generally; the increase in order
backlog and contracts; the adequacy of the impairment charges
taken; and the ability of the Company to satisfy all covenants
under the Credit Facility and other debt obligations and having
sufficient liquidity to fund its obligations and planned
initiatives. The Company believes that the expectations reflected
in the forward-looking information are based on reasonable
assumptions in light of currently available information. However,
should one or more risks materialize, or should any assumptions
prove incorrect, then actual results could vary materially from
those expressed or implied in the forward-looking information
included in this document and the Company can give no assurance
that such expectations will be achieved.
When considering the forward-looking information
in making decisions with respect to the Company, readers should
carefully consider the foregoing factors and other uncertainties
and potential events. The Company does not assume the obligation to
revise or update forward-looking information after the date of this
document or to revise it to reflect the occurrence of future
unanticipated events, except as may be required under applicable
securities laws.
To the extent any forward-looking information in
this document constitutes future oriented financial information or
financial outlooks, within the meaning of securities laws, such
information is being provided to demonstrate the potential of the
Company and readers are cautioned that this information may not be
appropriate for any other purpose. Future oriented financial
information and financial outlooks, as with forward-looking
information generally, are based on the assumptions and subject to
the risks noted above.
5.0 RECONCILIATION OF
NON-GAAP MEASURES
The Company reports on certain non-GAAP measures
that are used to evaluate its performance and segments, as well as
to determine compliance with debt covenants and to manage its
capital structure. These non-GAAP measures do not have standardized
meanings under IFRS and are not necessarily comparable to similar
measures provided by other companies. The Company discloses these
measures because it believes that they provide further information
and assist readers in understanding the results of the Company’s
operations and financial position. These measures should not be
considered in isolation or used in substitution for other measures
of performance prepared in accordance with GAAP. The following is a
reconciliation of the non-GAAP measures reported by the
Company.
EBITDA and Adjusted EBITDA
In an effort to reduce the volatility of the
Adjusted EBITDA metric imposed by factors outside of the Company’s
control and to provide enhanced comparability of the Company’s
results from its principal business activities with those of the
Company’s peer group, the Company has modified the composition of
Adjusted EBITDA. Beginning in the first quarter of 2023, Adjusted
EBITDA will include adjustments for share-based incentive
compensation costs and foreign exchange (gains) losses. Share-based
incentive compensation costs have recently experienced a high
degree of volatility derived from movements in the market value of
the Company’s shares and the related impact on such plans. Given
the Company’s global presence and its exposure to several foreign
currency rates, the Company experiences fluctuation from foreign
exchange gains or losses outside of its control. The Company
believes this modified composition will present a more accurate
representation of the Company’s results from principal business
activities. The amounts presented below reflect restated figures
for prior periods as needed to align with the updated
definition.
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, share-based incentive
compensation cost, foreign exchange (gain) loss and other, net and
hyperinflationary adjustments. The Company believes that EBITDA and
Adjusted EBITDA are useful supplemental measures that provide a
meaningful indication of the Company’s results from principal
business activities prior to the consideration of how these
activities are financed or the tax impacts in various jurisdictions
and for comparing its operating performance with the performance of
other companies that have different financing, capital or tax
structures. The Company presents Adjusted EBITDA as a measure of
EBITDA that excludes the impact of transactions that are outside
the Company’s normal course of business or day to day operations.
Adjusted EBITDA is used by many analysts as one of several
important analytical tools to evaluate financial performance and is
a key metric in business valuations. It is also considered
important by lenders to the Company and is included in the
financial covenants of the Credit Facility.
|
Three Months Ended |
|
|
March 31, |
|
|
March 31, |
|
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
|
|
|
|
Net Income (Loss) |
$ |
25,229 |
|
$ |
(7,116 |
) |
|
|
|
|
|
Add: |
|
|
|
|
Income tax expense |
|
5,257 |
|
|
2,237 |
|
Finance costs, net |
|
5,144 |
|
|
4,345 |
|
Amortization of property, plant, equipment, intangible and ROU
assets |
|
19,230 |
|
|
17,472 |
|
EBITDA |
$ |
54,860 |
|
$ |
16,938 |
|
Share-based incentive compensation (recovery) cost |
|
(602 |
) |
|
2,685 |
|
Foreign
exchange loss (gain) |
|
271 |
|
|
(3,036 |
) |
Hyperinflation adjustment for Argentina |
|
– |
|
|
1,890 |
|
Restructuring costs and other, net |
|
– |
|
|
1,206 |
|
Adjusted EBITDA |
$ |
54,529 |
|
$ |
19,683 |
|
|
|
Three Months Ended |
(in thousands of Canadian dollars) |
|
March 31,2022 |
|
|
June 30,2022 |
|
|
September 30,2022 |
|
|
December 31,2022 |
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income |
$ |
(7,116 |
) |
$ |
19,947 |
|
$ |
23,003 |
|
$ |
(66,810 |
) |
|
|
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
|
|
Income tax expense (recovery) |
|
2,237 |
|
|
6,199 |
|
|
(18,365 |
) |
|
(9,349 |
) |
Finance costs, net |
|
4,345 |
|
|
6,062 |
|
|
6,495 |
|
|
4,813 |
|
Amortization of property, plant, equipment, intangible and ROU
assets |
|
17,472 |
|
|
17,483 |
|
|
16,443 |
|
|
20,019 |
|
EBITDA |
$ |
16,938 |
|
$ |
49,691 |
|
$ |
27,576 |
|
$ |
(51,327 |
) |
Share-based incentive compensation cost |
|
2,685 |
|
|
2,722 |
|
|
9,465 |
|
|
16,618 |
|
Foreign
exchange (gain) loss |
|
(3,036 |
) |
|
(1,506 |
) |
|
(6,585 |
) |
|
1,414 |
|
Gain on
sale of land and other |
|
– |
|
|
(43,017 |
) |
|
– |
|
|
– |
|
Loss on
sale of operating unit |
|
– |
|
|
– |
|
|
5,932 |
|
|
78,819 |
|
Hyperinflation adjustment for Argentina |
|
1,890 |
|
|
1,533 |
|
|
5,510 |
|
|
3,843 |
|
Impairment |
|
– |
|
|
20,269 |
|
|
– |
|
|
2,164 |
|
2019 ZCL
Composites Inc. purchase trust release |
|
– |
|
|
– |
|
|
(1,059 |
) |
|
– |
|
Restructuring costs and other, net |
|
1,206 |
|
|
2,996 |
|
|
2,070 |
|
|
4,927 |
|
Adjusted EBITDA |
$ |
19,683 |
|
$ |
32,688 |
|
$ |
42,909 |
|
$ |
56,458 |
|
Composite Systems Segment
|
|
Three Months Ended |
|
|
March 31, |
|
|
March 31, |
|
December 31, |
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
2022 |
|
|
|
|
|
|
|
Operating Income |
$ |
20,722 |
|
$ |
6,874 |
$ |
15,204 |
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
Amortization of property, plant, equipment, intangible and ROU
assets |
|
6,627 |
|
|
7,409 |
|
7,250 |
EBITDA |
$ |
27,349 |
|
$ |
14,283 |
$ |
22,454 |
Impairment |
|
– |
|
|
– |
|
2,164 |
Share-based incentive compensation (recovery) cost |
|
(601 |
) |
|
278 |
|
2,724 |
Restructuring costs and other |
|
– |
|
|
423 |
|
– |
Adjusted EBITDA |
$ |
26,748 |
|
$ |
14,984 |
$ |
27,342 |
|
|
|
Automotive and Industrial
Segment
|
|
Three Months Ended |
|
|
March 31, |
|
March 31, |
|
December 31, |
(in thousands of Canadian dollars) |
|
2023 |
|
2022 |
|
2022 |
|
|
|
|
|
|
|
Operating Income |
$ |
17,865 |
$ |
14,887 |
$ |
11,404 |
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
Amortization of property, plant, equipment, intangible and ROU
assets |
|
1,308 |
|
1,085 |
|
1,112 |
EBITDA |
$ |
19,173 |
$ |
15,972 |
$ |
12,516 |
Share-based incentive compensation cost |
|
26 |
$ |
209 |
|
1,766 |
Restructuring costs and other |
|
– |
|
27 |
|
– |
Adjusted EBITDA |
$ |
19,199 |
$ |
16,208 |
$ |
14,282 |
|
|
|
Pipeline and Pipe Services Segment
|
|
Three Months Ended |
|
|
March 31, |
|
|
March 31, |
|
|
December 31, |
(in thousands of Canadian dollars) |
|
2023 |
|
|
2022 |
|
|
2022 |
|
|
|
|
|
|
|
Operating Income (loss) |
$ |
4,703 |
|
$ |
(16,180 |
) |
$ |
419 |
|
|
|
|
|
|
|
Add: |
|
|
|
|
|
|
Amortization of property, plant, equipment, intangible and ROU
assets |
|
10,711 |
|
|
8,600 |
|
|
11,337 |
EBITDA |
$ |
15,414 |
|
$ |
(7,580 |
) |
$ |
11,756 |
Share-based incentive compensation (recovery) cost |
|
(504 |
) |
$ |
384 |
|
|
3,872 |
Hyperinflation adjustment for Argentina |
|
– |
|
|
(2 |
) |
|
124 |
Restructuring costs and other |
|
– |
|
|
131 |
|
|
794 |
Adjusted EBITDA |
$ |
14,910 |
|
$ |
(7,067 |
) |
$ |
16,546 |
|
|
|
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.
See reconciliation above for the changes in
composition of Adjusted EBITDA, as a result of which the table
below reflects restated figures for the prior year quarter to align
with the updated composition.
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.
Total Net debt-to-Adjusted EBITDA
Total Net debt-to-Adjusted EBITDA is a non-GAAP
measure defined as the sum of long-term debt, current lease
liabilities and long-term lease liabilities, less cash and cash
equivalents, divided by Adjusted EBITDA, as defined above, for the
trailing twelve-month period. The Company believes Total Net
debt-to-Adjusted EBITDA is a useful supplementary measure to assess
the borrowing capacity of the Company. Total Net debt-to-Adjusted
EBITDA is used by many analysts as one of several important
analytical tools to evaluate how long a company would need to
operate at its current level to pay of all its debt. It is also
considered important by credit rating agencies to determine the
probability of a company defaulting on its debt.
See discussion above for the changes in
composition of Adjusted EBITDA. The table below reflects restated
figures for the prior year quarters to align with the updated
composition.
|
|
March 31, |
|
|
December 31, |
|
(in thousands of Canadian dollars, except Net debt-to-EBITDA
ratio) |
|
2023 |
|
|
2022 |
|
Long-term debt |
$ |
186,364 |
|
$ |
210,832 |
|
Lease liabilities |
|
62,401 |
|
|
59,439 |
|
Cash and cash equivalents |
|
(162,009 |
) |
|
(263,990 |
) |
Total Net Debt |
$ |
86,756 |
|
$ |
6,281 |
|
|
|
|
|
|
Q1 2022 Adjusted EBITDA |
$ |
– |
|
$ |
19,683 |
|
Q2 2022 Adjusted EBITDA |
|
32,688 |
|
|
32,688 |
|
Q3 2022 Adjusted EBITDA |
|
42,909 |
|
|
42,909 |
|
Q4 2022 Adjusted EBITDA |
|
56,458 |
|
|
56,458 |
|
Q1 2023 Adjusted EBITDA |
|
54,529 |
|
|
– |
|
Trailing twelve-month Adjusted EBITDA |
$ |
186,584 |
|
$ |
151,738 |
|
|
|
|
|
|
Total Net debt-to-Adjusted EBITDA |
|
0.46 |
|
|
0.04 |
|
Total Interest Coverage Ratio
Total Interest Coverage Ratio is a non-GAAP
measure defined as Adjusted EBITDA, as defined above, for the
trailing twelve-month period, divided by Finance costs, net, for
the trailing twelve-month period. The Company believes Total
Interest Coverage Ratio is a useful supplementary measure to assess
the Company’s ability to honour its debt payments. Total Interest
Coverage Ratio is used by many analysts as one of several important
analytical tools to gauge how easily a company can pay interest on
its outstanding debt. It is also considered important by credit
rating agencies to determine a company’s riskiness relative to its
current debt or for future borrowing.
See discussion above for the changes in
composition of Adjusted EBITDA. The table below reflects restated
figures for the prior year quarters to align with the updated
composition.
|
|
March 31, |
|
|
December 31, |
(in thousands of Canadian dollars, except Interest Coverage
Ratio) |
|
2023 |
|
|
2022 |
Q1 2022 Adjusted EBITDA |
$ |
– |
|
$ |
19,683 |
Q2 2022 Adjusted EBITDA |
|
32,688 |
|
|
32,688 |
Q3 2022 Adjusted EBITDA |
|
42,909 |
|
|
42,909 |
Q4 2022 Adjusted EBITDA |
|
56,458 |
|
|
56,458 |
Q1 2023 Adjusted EBITDA |
|
54,529 |
|
|
– |
Trailing twelve-month Adjusted EBITDA |
$ |
186,584 |
|
$ |
151,738 |
|
|
|
|
|
|
Q1 2022 Finance costs, net |
$ |
– |
|
$ |
4,345 |
Q2 2022 Finance costs, net |
|
6,062 |
|
|
6,062 |
Q3 2022 Finance costs, net |
|
6,495 |
|
|
6,495 |
Q4 2022 Finance costs, net |
|
4,813 |
|
|
4,813 |
Q1 2023 Finance costs, net |
|
5,144 |
|
|
– |
Trailing twelve-month Finance costs, net |
$ |
22,514 |
|
$ |
21,715 |
|
|
|
|
|
|
Total Interest Coverage Ratio |
|
8.29 |
|
|
6.99 |
Order Backlog
Order backlog is a supplementary financial
measure commonly used in the industries in which the Company
operates and represents the expected future revenue from existing
unfulfilled customer contracts. The order backlog will fluctuate
over time due to several factors including the duration of ongoing
contracts, work progression and the timing of receipt of new
contracts.
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