CALGARY, ALBERTA--(Marketwired - Feb. 27, 2014) - Enerflex Ltd. (TSX:EFX) ("Enerflex" or "the Company"), a leading supplier of products and services to the global energy industry, today reported its financial and operating results for the three months and year ended December 31, 2013.
Enerflex reported net earnings from continuing operations for the fourth quarter of 2013 of $10.8 million, or $0.14 per share, which were $16.2 million lower than the same period in 2012. Net earnings for the 2013 year were $57.7 million, or $0.74 per share, a decrease of $24.6 million compared to the 2012 year. The decreases in net earnings for the quarter and for the 2013 year were primarily a result of lower revenue and gross margins.
"We have seen positive market developments of late with improving opportunities in liquids-rich plays in Canada and the U.S., in the Alberta oil sands, and relating to liquefied natural gas development in Canada, the U.S. and AustralAsia. Coupled with a significant increase in bookings in 2013, and the strength of our balance sheet, the Company is well positioned to capitalize on opportunities that should benefit results near-term," said J. Blair Goertzen, Enerflex's President and Chief Executive Officer. "Nonetheless, our 2013 financial results overall were disappointing, as we continued to experience cost increases without corresponding revenue on projects in the International region, which adversely impacted margin performance for the fourth quarter and for the full year. Where the cost increases have been customer driven, variation claims are being vigorously pursued."
| (unaudited) |
Three months ended December 31, |
|
Twelve months ended December 31, |
|
| ($ millions, except per share amounts and percentages) |
2013 |
|
2012 |
|
Change ($) |
|
2013 |
|
2012 |
|
Change ($) |
|
| Financial Highlights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue |
$ |
350.1 |
|
$ |
421.6 |
|
$ |
(71.5 |
) |
$ |
1,405.0 |
|
$ |
1,501.7 |
|
$ |
(96.7 |
) |
| Gross margin |
|
59.1 |
|
|
77.6 |
|
|
(18.4 |
) |
|
245.9 |
|
|
273.2 |
|
|
(27.3 |
) |
| Gross margin % |
|
16.9 |
% |
|
18.4 |
% |
|
|
|
|
17.5 |
% |
|
18.2 |
% |
|
|
|
| EBIT (1) |
|
16.5 |
|
|
36.8 |
|
|
(20.3 |
) |
|
87.3 |
|
|
117.3 |
|
|
(30.0 |
) |
| EBIT % |
|
4.7 |
% |
|
8.7 |
% |
|
|
|
|
6.2 |
% |
|
7.8 |
% |
|
|
|
| Net earnings (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing |
|
10.8 |
|
|
27.0 |
|
|
(16.2 |
) |
|
57.7 |
|
|
82.3 |
|
|
(24.6 |
) |
| |
Discontinued |
|
(0.1 |
) |
|
(0.6 |
) |
|
0.5 |
|
|
(1.9 |
) |
|
(10.5 |
) |
|
8.6 |
|
| Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing |
|
0.14 |
|
|
0.35 |
|
|
(0.21 |
) |
|
0.74 |
|
|
1.06 |
|
|
(0.32 |
) |
| |
Discontinued |
|
- |
|
|
(0.01 |
) |
|
0.01 |
|
|
(0.02 |
) |
|
(0.14 |
) |
|
0.12 |
|
| |
|
| (1) |
Earnings before Interest (Finance Costs) and Taxes ("EBIT") is considered an additional GAAP measure, which may not be comparable with similar additional GAAP measures used by other entities. |
For the 2013 year, gross margin was negatively impacted by $20.0 million as a result of these increased project costs, which were substantially customer driven. Variation claims are filed once forecast costs on a fixed price project exceed budgeted costs, as a result of increased scope or design changes to the project, which are common for engineering, procurement and construction ("EPC") contracts. To the extent that these cost increases are subsequently recovered through approved variation claims from customers, revenue will be recognized in the corresponding period. This results in volatility in gross margins for the International segment as additional costs are recognized as incurred on these projects, while revenue resulting from variation claims is recognized in the period that claims are approved.
During the early part of 2014, two international projects in AustralAsia, which had experienced margin erosion in 2013, were substantially completed. Accordingly, additional material cost increases in respect of these projects are not expected. Effective February 1, 2014, Enerflex made a leadership change with the appointment of Mr. James K. Rodgers as Managing Director for AustralAsia. Mr. Rodgers brings extensive EPC and construction experience through his executive and leadership roles with multi-national oil and gas companies. He is addressing the challenges faced in the region with respect to customer contract and project timing issues, and will take the lead in returning the region to acceptable profitability.
Work on a project in Oman continues to experience substantial customer driven scope and schedule challenges, which is expected to result in further cost increases of $14.0 million to $17.0 million in 2014, and a corresponding impact on gross margin. The Company intends to pursue further variation claims for such increases, but does not expect resolution before the second half of 2014.
Key Performance Indicators
| (unaudited) |
Three months ended December 31, |
|
Twelve months ended December 31, |
|
| ($ millions, except per share amounts and percentages) |
2013 |
|
2012 |
|
Change ($) |
|
2013 |
|
2012 |
|
Change ($) |
|
| Key Performance Indicators(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recurring revenue as a % of revenue(2) |
|
26.7 |
% |
|
21.5 |
% |
|
|
|
|
26.7 |
% |
|
21.5 |
% |
|
|
|
| EBIT (3) |
$ |
16.5 |
|
$ |
36.8 |
|
$ |
(20.3 |
) |
$ |
87.3 |
|
$ |
117.3 |
|
$ |
(30.0 |
) |
| EBIT % |
|
4.7 |
% |
|
8.7 |
% |
|
|
|
|
6.2 |
% |
|
7.8 |
% |
|
|
|
| EBITDA |
|
26.2 |
|
|
47.1 |
|
|
(20.9 |
) |
|
126.9 |
|
|
156.8 |
|
|
(29.9 |
) |
| Bookings |
|
386.4 |
|
|
242.6 |
|
|
143.8 |
|
|
1,140.8 |
|
|
875.5 |
|
|
265.3 |
|
| Backlog |
|
794.0 |
|
|
683.2 |
|
|
110.8 |
|
|
794.0 |
|
|
683.2 |
|
|
110.8 |
|
| Return on Capital Employed ("ROCE") (2) |
|
9.7 |
% |
|
13.3 |
% |
|
|
|
|
9.7 |
% |
|
13.3 |
% |
|
|
|
| |
|
| (1) |
Non-GAAP measures that do not have standardized meanings and therefore may not be comparable to similar measures presented by other issuers. |
| |
|
| (2) |
Determined by taking a 12-month trailing average. |
| |
|
| (3) |
Earnings before Interest (Finance Costs) and Taxes ("EBIT") is considered an additional GAAP measure, which may not be comparable with similar additional GAAP measures used by other entities. |
During the fourth quarter, Enerflex completed or exceeded most of its 2013 strategic objectives. Firstly, the Company progressed towards its goal of generating 35%-40% recurring revenue on a trailing 12 month basis. Recurring revenue, which is defined as revenue from the Service and Rental product lines, has increased from 21.5% for the year ended December 31, 2012 to 26.7% of revenue for the year ended December 31, 2013. This represents the fifth consecutive quarter of improvement. Enerflex also reduced its Company-wide total recordable injury rate by 42% over its 2012 rate, which considerably exceeded its strategic objective of a 13% improvement in this rate. The Company continues to work towards its objective of a 10% EBIT margin, however EBIT as a percentage of revenue decreased from 7.8% for the year ended December 31, 2012 to 6.2% in 2013, largely due to the aforementioned project cost increases. Lastly, Enerflex has become increasingly active in the Alberta oil sands with bookings of $74.5 million during the 2013 year.
The Company recorded bookings of $386.4 million and $1,140.8 million, respectively, during the fourth quarter of 2013 and the 2013 year, which were $143.8 million and $265.3 million higher, respectively, than the comparable periods in 2012. Bookings for the fourth quarter and the 2013 year were higher in the Canada and Northern U.S. and Southern U.S. and Latin America segments, partially offset by lower booking activity in the International region. Enerflex finished 2013 with a backlog of $794.0 million, compared to $683.2 million at the end of the same period last year, an increase of $110.8 million or 16.2%. Sequentially, backlog has increased by $141.6 million or 21.7% from September 30, 2013.
Segmented Financial Results
Revenue for the fourth quarter of 2013 and the 2013 year was $350.1 million and $1,405.0 million, respectively, representing decreases of $71.5 million and $96.7 million compared to the same periods in 2012. For the quarter, revenue was higher in the Canada and Northern U.S. segment, partially offset by lower revenue from the Southern U.S. and Latin America and International segments. When comparing 2013 to 2012, revenues were lower in all segments.
Canada and Northern U.S. segment revenue increased by $12.9 million during the fourth quarter of 2013 on increased Service revenue from increased parts and engine sales, and higher Rental revenue as a result of an increase in rental unit sales. Segment revenue decreased by $67.2 million for the year ended December 31, 2013, as a result of lower Engineered Systems revenue caused by lower backlog to start 2013, and the closure of the Casper, Wyoming facility. The lower Engineered Systems revenue for the year was partially offset by higher Service revenue on increased parts and engine sales, and higher Rental revenue due to an increase in rental unit sales, compared to the 2012 year.
Southern U.S. and Latin America segment revenue decreased by $29.3 million in the fourth quarter of 2013, and by $8.4 million for the year ended December 31, 2013, due to lower Engineered Systems revenue, partially offset by higher Service revenue on increased service calls and parts sales, compared to the same periods in 2012. Engineered Systems revenue was lower due to the impact of lower opening backlog to start 2013.
International segment revenue decreased by $55.1 million in the fourth quarter of 2013 compared to 2012 on account of lower Engineered Systems revenue resulting from lower opening backlog. Revenue for the International segment decreased by $21.1 million for the year ended December 31, 2013 due to lower Engineered Systems revenue resulting from lower opening backlog, partially offset by higher Service revenue on increased activity in AustralAsia.
Gross margin for the quarter ended December 31, 2013 was $59.1 million or 16.9% of revenue compared to $77.6 million or 18.4% of revenue for the same period in 2012. Gross margin for the 2013 year was $245.9 million or 17.5% of revenue as compared to $273.2 million or 18.2% of revenue for the same period of 2012.
The decrease in gross margin during the fourth quarter of 2013 was attributable to lower margin in the Southern U.S. and Latin America and International segments. For the 2013 year, the gross margin decrease reflected lower margins in the Canada and Northern U.S. and International segments, partially offset by higher margin in the Southern U.S. and Latin America segment. The decrease in gross margin in Canada and the Northern U.S. in 2013 was primarily due to lower revenues, weaker manufacturing utilization, and warranty costs incurred on Engineered Systems jobs in Casper, Wyoming, partially offset by improved project margin in backlog and more favourable project pick ups as a result of improved project execution. The lower gross margin in the Southern U.S. and Latin America segment in the fourth quarter of 2013 was due to lower revenue and less favourable job pick ups, partially offset by improved project margin in backlog. For the 2013 year, gross margin in this segment was higher as a result of improved project margin performance, partially offset by weaker manufacturing utilization, less favourable but still strong project pick ups as a result of good project execution, and the impact of lower revenue. In the International segment, gross margin decreased due to significant cost increases on three projects due to scope and design variations, and to a lesser degree due to project execution challenges, and due to lower revenues.
Bookings in the fourth quarter of 2013 increased over the same period in 2012 by $143.8 million to $386.4 million, and were $265.3 million higher at $1,140.8 million for the 2013 year. The increases were due to higher bookings in the Southern U.S. and Latin America, and Canada and Northern U.S. segments, primarily driven by customer orders destined for both domestic and international markets. Bookings in the Canada and the Northern U.S. segment for the quarter and the 2013 year were $81.6 million and $133.2 million higher than 2012, respectively, at $167.0 million and $434.8 million. In the Southern U.S. and Latin America segment, bookings for the quarter were $185.8 million, which was $67.8 million higher than 2012, and for the 2013 year, $162.8 million higher at $574.8 million. Bookings for the International segment were $5.6 million and $30.6 million lower, respectively, at $33.6 million and $131.2 million, in the fourth quarter and 2013 year when compared to the same periods in 2012. The decreases were primarily due to lower booking levels in Australia related to coal seam gas exploration and gas storage projects when compared to 2012 and due to backlog conversion exceeding new bookings in 2013.
Subsequent to the end of 2013, Enerflex declared a quarterly dividend of $0.075 per share, payable on April 3, 2014, to shareholders of record on March 13, 2014.
Advance Notice By-Law
Enerflex's Board of Directors has adopted By-Law No. 3, which requires advance notice to the Company in circumstances where nominations of persons for election as a director of the Company are made by shareholders. The terms of the by-law are consistent with those advance notice by-laws adopted by a majority of the S&P/TSX Composite Index companies in the past year, which have been endorsed by proxy advisory firms and overwhelmingly approved by their shareholders. The by-law is currently in effect.
At the next meeting of shareholders, shareholders will be asked to confirm and ratify the by-law. If the by-law is not confirmed at the shareholders' meeting by an ordinary resolution of the shareholders, it will be of no further force and terminate. A copy of the by-law has been filed and is available under the Company's profile at www.sedar.com.
Quarterly Results Material
Enerflex's Consolidated Financial Statements as at and for the year ended December 31, 2013, and the accompanying Management's Discussion and Analysis, will be available on the Enerflex website at www.enerflex.com under the Investors section and on SEDAR at www.sedar.com.
Conference Call and Webcast Details
Enerflex will host a conference call for analysts, investors, members of the media and other interested parties on Friday, February 28, 2014 at 9:00 a.m. MST (11:00 a.m. EST) to discuss the fourth quarter 2013 financial results and operating highlights. The call will be hosted by Mr. J. Blair Goertzen, President and Chief Executive Officer and Mr. D. James Harbilas, Vice President and Chief Financial Officer of Enerflex Ltd.
If you wish to participate in this conference call, please call 1.800.269.0310. Please dial in 10 minutes prior to the start of the call. No passcode is required. The live audio webcast of the conference call will be available on the Enerflex website at www.enerflex.com under the Investors section on February 28, 2014 at 9:00 a.m. MST (11:00 a.m. EST). Approximately one hour after the call, a recording of the event will be available on the Company's website. A replay of the teleconference will be available one hour after the conclusion of the call until midnight, March 7, 2014. Please call 1.800.558.5253 or 1.416.626.4100 and enter passcode 21705882.
About Enerflex
Enerflex Ltd. is a single source supplier of natural gas compression, oil and gas processing, refrigeration systems and electric power equipment - plus in-house engineering and mechanical service expertise. The Company's broad in-house resources provide the capability to engineer, design, manufacture, construct, commission and service hydrocarbon handling systems. Enerflex's expertise encompasses field production facilities, compression and natural gas processing plants, CO2 processing plants, refrigeration systems and electric power equipment servicing the natural gas production industry.
Headquartered in Calgary, Canada, Enerflex has approximately 2,900 employees worldwide. Enerflex, its subsidiaries, interests in associates and joint-ventures operate in Canada, the United States, Colombia, Australia, the United Kingdom, Russia, the United Arab Emirates, Oman, Bahrain, Indonesia, Malaysia and Singapore. Enerflex's shares trade on the Toronto Stock Exchange under the symbol "EFX". For more information about Enerflex, go to www.enerflex.com.
Advisory Regarding Forward-Looking Statements
To provide Enerflex shareholders and potential investors with information regarding Enerflex, including management's assessment of future plans, Enerflex has included in this news release certain statements and information that are forward-looking statements or information within the meaning of applicable securities legislation, and which are collectively referred to in this advisory as "forward-looking statements". Information included in this news release that is not a statement of historical fact may be forward-looking information. When used in this document, words such as "plans", "expects", "will", "may" and similar expressions are intended to identify statements containing forward-looking information. Forward-looking statements and information contained in this press release include, but are not limited to: (i) the anticipated duration of weak natural gas prices and the effect thereof in Canada and Northern U.S. markets; (ii) expected bookings in Southern U.S. and Latin America; and (iii) the nature and scope of challenges and opportunities in the International segment, including the nature and magnitude of cost estimates and variation claims. In developing the forward-looking information in this news release, the Company has made certain assumptions with respect to general economic and industry growth rates, commodity prices, currency exchange and interest rates, competitive intensity and regulatory approvals. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes or results anticipated in or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur.
Forward-looking information involves known and unknown risks and uncertainties and other factors, which may cause or contribute to Enerflex achieving actual results that are materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Such risks and uncertainties include, among other things, the impact of general economic conditions; industry conditions, including the adoption of new environmental, taxation and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and gas prices; oil and gas product supply and demand; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations, including future dividends to shareholders of the Company; increased competition; the lack of availability of qualified personnel or management; labour unrest; political unrest; fluctuations in foreign exchange or interest rates; stock market volatility; opportunities available to, or pursued by, the Company; obtaining financing; and other factors, many of which are beyond its control. The foregoing list of factors and risks is not exhaustive. For an augmented discussion of the risk factors and uncertainties that affect or may affect Enerflex, the reader is directed to the section entitled "Risk Factors" in Enerflex's most recently filed Annual Information Form, as well as Enerflex's other publicly filed disclosure documents, available on www.sedar.com. The reader is cautioned that these factors and risks are difficult to predict and that the assumptions used in the preparation of such information, although considered reasonably accurate at the time of preparation, may prove to be incorrect. Readers are cautioned that the actual results achieved will vary from the information provided in this press release and that such variation may be material. Consequently, Enerflex does not represent that actual results achieved will be the same in whole, or in part, as those set out in the forward-looking information. Furthermore, the statements containing forward-looking information that are included in this news release are made as of the date of this news release, and Enerflex does not undertake any obligation, except as required by applicable securities legislation, to update publicly or to revise any of the included forward-looking information, whether as a result of new information, future events or otherwise. The forward-looking information contained in this news release is expressly qualified by this cautionary statement.