March 1, 2016 – Wajax Corporation announced that it will reduce its Canadian ‘head count’ by 10 per cent in 2016. The announcement came as part of the company’s release of its fourth quarter financial results.
Strategic Reorganization
The Corporation announced that, during 2016, it will be transitioning from its current three independent product divisions to a leaner and more integrated organization. The new organization will be based on three main functional groups: business development, service operations and vendor development. These groups will be supported by centralized functions including supply chain, information systems, human resources, environmental health and safety and finance.
The new structure is intended to improve the Corporation’s cross-company customer focus, closely align resources to the 4 Points of Growth strategy, improve operational leverage, and lower costs through productivity gains and the elimination of redundancy inherent in the current structure. Excluding an estimated $12 million restructuring provision in the first quarter of 2016, an estimated net benefit of approximately $4 million is expected to occur in 2016, with anticipated annual cost savings of approximately $15 million flowing into 2017 earnings.
While ongoing cost reduction is necessary due to market conditions, it is a byproduct of the Corporation’s primary objective to re-align its organizational structure to enhance the execution of its strategy. Upon successful completion of this restructuring, the Corporation will have reduced headcount across its Canada-wide organization by approximately 10 per cent since the beginning of 2015.
Fourth Quarter Results
Consolidated fourth quarter revenue of $324.4 million decreased $61.7 million, or 16 per cent, compared to last year. All three segments recorded reduced revenue compared to the previous year primarily as a result of the energy sector related slowdown in western Canada.
A net loss for the quarter of $33.3 million included a $41.2 million ($37.3 million after-tax) impairment of goodwill and intangible assets related to the Power Systems and Industrial Components segments. Segment earnings before impairment of goodwill and intangible assets and restructuring recovery declined in all three segments largely as a result of the lower volume. On a consolidated basis, the negative effect of lower revenue was only partially offset by a $3.6 million reduction in selling and administrative expenses as a result of lower personnel costs and a $0.4 million reduction in finance costs on lower debt levels.
Acquisition of Wilson Machine Co. Ltd.
On February 12, 2016, the Corporation entered into an agreement to acquire the assets of Montreal- based Wilson Machine Co. Ltd for approximately $5 million. Subject to the satisfaction of customary closing conditions, the acquisition is expected to be completed within the next 60 days. Wilson is a North American leader in the manufacturing and repair of precision rotating machinery and gearboxes with annual sales of approximately $6 million, and its major customers in eastern Canada align well with Wajax’s existing customer base. Wilson’s service offerings are an ideal fit for Wajax’s 4 Points of Growth strategy and management believes it can leverage the Corporation’s sales force and larger geographic footprint to significantly grow the business.
Outlook
Commenting on the fourth quarter of 2015 and the Corporation’s outlook for 2016, Mark Foote, President and CEO, stated:
“On an adjusted net earnings basis, fourth quarter results were significantly negatively impacted by the energy sector related slowdown in western Canada. Results from the Power Systems and Industrial Components segments were softer than expected, as reductions in selling and administrative costs could not offset lower than expected volumes and gross margins, primarily in western Canada. However, in light of the economic pressures faced in western Canada, we were pleased with results from the Equipment segment.
The Power Systems segment continued to progress as expected in executing the restructuring plan announced in the second quarter of 2015, with anticipated cost savings realized in the fourth quarter. In addition, the company generated $22.0 million of cash from reduced operating working capital, the majority of which was used to reduce indebtedness.
The outlook for 2016 is that market conditions will remain very challenging. Wajax expects that earnings will be under significant pressure due to ongoing market conditions in western Canada, resource customer capital and operating expenditure reductions and a weak Canadian dollar.
Excluding the impact of the $12 million restructuring provision, the company expects lower year-over-year earnings in the first half of 2016. During the second half of 2016, earnings are expected to improve slightly, driven by customer equipment deliveries and cost reductions.
As a result of the greater than expected decline in the western Canada economy and the difficulty in predicting the duration of this decline, Wajax will no longer provide a net earnings CAGR target for the 2015 – 2019 outlook period. While conditions remain challenging, the company is very confident in the growth activities outlined in its 4 Points of Growth strategy.
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