March 20, 2013, Mississauga, Ont. – Strongco Corporation announces fourth quarter and full year 2012 financial results.
Highlights
- total revenues increased by 10 per
cent to $464.2 million - gross margin increased by seven
per cent to $86.5 million - operating earnings increased by
nine per cent to $18.5 million - EBITDA increased to $49.1 million
from $43.1 million - net income totalled $7.6 million
compared to $9.9 million - earnings per share of $0.58
compared to $0.76 per share
*
Comparisons are between full year 2012 and full year 2011
"In
2012, Strongco increased revenues, gross margin and EBITDA [earnings before
interest, taxes, depreciation, and amortization]," said Robert
Dryburgh, president and CEO of Strongco. " At the same time, we expanded
our market presence with the opening of four new branches in regional markets
across Canada. We are already seeing the benefit of the investment in these new
branches as our clients have responded positively to our greater commitment to
better service."
| Financial Highlights | |||||||||||
| ($ millions except per share amounts) | |||||||||||
| Period ended December 31 | 3 months | 12 months | |||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||
| Revenues | $ | 115.9 | $ | 113.2 | $ | 464.2 | $ | 423.2 | |||
| Gross margin | 20.7 | 20.8 | 86.5 | 80.6 | |||||||
| EBITDA | 13.1 | 12.5 | 49.1 | 43.1 | |||||||
| Net income | 0.6 | 2.1 | 7.6 | 9.9 | |||||||
| Basic and diluted earnings per share | $ | 0.05 | $ | 0.15 | $ | 0.58 | $ | 0.76 | |||
| * All financial information conforms to International Financial Reporting Standards. | |||||||||||
Fourth
Quarter 2012 Review
Total
revenues in the three months ended December 31, 2012 were $115.9 million, up
two per cent from the fourth quarter of 2011. Equipment sales increased by one
per cent from last year to $75.0 million; rental revenues were $10.4 million,
up 17 per cent from $8.9 million; and product support revenues totalled $30.5
million compared to $29.8 million from the same period in the prior year.
Gross
margin decreased by $0.1 million to $20.7 million during the fourth quarter of
2012. As a percentage of revenue, the overall gross margin was 17.9 per cent,
down from 18.4 per cent last year due primarily to a lower margin on equipment
sales.
Administrative,
distribution and selling expenses during the fourth quarter totalled $17.7
million compared to $17.0 million in 2011. Expenses were higher in the fourth
quarter of 2012 due in part to the incremental operating expenses of new
branches and as a result of additional employees hired at Canadian operations
to support revenue growth.
EBITDA
for the fourth quarter decreased slightly to $13.1 million from $12.5 million a
year earlier.
Strongco
is now fully taxable whereas the company was able to utilize loss carry
forwards to offset tax expenses in 2011. Consequently, Strongco's net income in
the fourth quarter of 2012 was $0.6 million ($0.05 per share), compared to $2.1
million ($0.15 per share) in the fourth quarter of 2011.
Fiscal
2012 Financial Review
Revenues
for 2012 totalled $464.2 million, including $56.1 million from Chadwick-BaRoss.
This compared to $423.2 million in total revenue for Strongco in 2011.
Strongco's
equipment sales increased by 11 per cent in 2012 to $305.5 million, following a
50 per cent increase in 2011. Rental revenue in 2012 was $32.3 million, which
was up nine per cent from 2011; product support revenues were higher in 2012 in
all regions of Canada, as well as at Chadwick-BaRoss in the United States.
As
a result of higher overall revenues in 2011 and 2012, gross margins increased
by seven per cent in 2012 to $86.5 million. As a percentage of revenues, total
gross margin in 2012 was 18.6 per cent compared to 19 per cent last year. The
slight decrease was primarily the result of a higher proportion of equipment
sales in 2012 and 2011, which offer lower margin percentages than product
support activity and rentals.
Administrative,
distribution and selling expenses in 2012 increased by eight per cent to $69.8
million. As a percentage of revenue, administrative, distribution and selling
expenses were 15 per cent in 2012, down slightly from 15.3 per cent in 2011.
The
Company's EBITDA in 2012 increased to $49.1 million compared to $43.1 million
in 2011.
Strongco
ended the year with a net income of $7.6 million or $0.58 per share, compared
to $9.9 million or $0.76 per share in 2011.
Outlook
"Management
remains cautiously optimistic that while demand for heavy equipment may soften
in the near term in certain regions, Strongco's recent investments, new
branches and planned investment in additional new facilities, will lead to an
increase in revenues in 2013 and further growth in the future," said
Dryburgh.
The
demand will vary from region to region. While the long-term outlook for Alberta
is positive, the high cost of refining oil from bitumen (the oil sand raw
material) and the high cost of transportation have created an air of caution
regarding the pace of activity in the oil sands. As a result, there is concern
that the demand for heavy equipment in the region could soften with most of the
reduction affecting large equipment used directly in the oil sands. We expect
that less expensive equipment used for infrastructure development in the region
would be less impacted and that the increased presence in the market with new
branches will mitigate any market softness.
Demand
for heavy equipment in Quebec has declined, prompted by the Charbonneau
Commission's investigation of corruption in the construction industry and the
announcement of a suspension of infrastructure spending by the newly elected
provincial government in Quebec. Both of these government actions are viewed as
temporary as there is growing pressure to resume spending to repair and replace
the seriously deteriorating infrastructure in the province. In addition, mining
and infrastructure activity in Northern Quebec continues despite the
uncertainty surrounding development activity following last year's provincial
election.
While
construction markets have shown recovery from the recession in Ontario, there
remains an overall lack of optimism and uncertainty over the economy which has
caused many customers to curtail spending on heavy equipment and take a
wait-and-see approach toward the marketplace in general. Increased activity and
planned development in the mining sector in northern Ontario and continued
spending on infrastructure across the province are expected to lead to ongoing
demand for heavy equipment.
With
the recent evidence of recovery in residential housing markets and the
increased level of new job creation, economists are also projecting modest
economic growth in 2013 in the United States with a bias towards second half
growth. This is a positive indicator for ongoing recovery in construction
markets and demand for heavy equipment.
Strongco's
sales backlogs grew during the first quarter of 2012 and remained robust
through the balance of the year. In addition, the level of rental contracts
with purchase options (RPOs) activity increased throughout 2012 and at year
end, there was $48.0 million of equipment inventory on RPO contracts. The
strong backlog and level of RPOs are a positive indication of the continued
demand for heavy equipment.
Strongco
held a conference call on Wednesday, March 20, 2013 to discuss fourth quarter
and year end results. An audio recording will be available until midnight on
April 3, 2013. To access it, dial 416-640-1917 and enter passcode 4589630#.
About
Strongco Corporation
Strongco
Corporation is a major multiline mobile equipment dealer with operations across
Canada and in the U.S. Strongco sells, rents and services equipment used in
sectors such as construction, infrastructure, mining, oil and gas, utilities,
municipalities, waste management and forestry.
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