Shawcor Ltd. Announces Third Quarter 2010 Results
By Shawcor Ltd., PRNETuesday, November 2, 2010
TORONTO, November 3, 2010 -
- Third Quarter Revenue of $283 Million Increased by 20% Over the $235 Million Reported in the Second Quarter of 2010 - EBITDA Increased by 91% to $58.8 Million From $30.8 Million in the Second Quarter 2010 as Operating Margins Strengthened - Backlog at September 30, 2010 Remained Strong at $382.2 Million but did Decline From $421.8 Million at the Prior Quarter End (TSX: SCL.A, SCL.B)
"I am pleased to report that ShawCor's third quarter financial results
showed a very strong improvement over the levels of the first half of this
year as the Company experienced increased pipeline project activity in North
America and Latin America and our Asia Pacific region reached full production
on the U.S.$185 million PNG LNG pipe coating project and the U.S.$42 million
Epic Energy QSN3 project," said Bill Buckley, President and CEO of ShawCor
Ltd.
Mr. Buckley added, "Also during the third quarter the Company made
significant progress on two strategic growth initiatives by initiating our
investment in Fineglade Ltd, the new company that will hold ShawCor's
investment in Socotherm S.p.A., and by completing the buyout of our joint
venture partners in Brazil in a transaction that closed subsequent to the end
of the third quarter."
FINANCIAL SUMMARY ------------------------------------------------------------------------- (in thousands of Canadian Three Months Ended Nine Months Ended dollars except per share September 30, September 30, amounts) -------------------------------------------- 2010 2009 2010 2009 ------------------------------------------------------------------------- Operating Results Revenue $ 282,959 $ 302,812 $ 742,077 $ 923,067 Gross profit 115,818 129,462 294,729 381,729 Selling, general and administrative expenses 58,733 59,464 171,069 170,919 Foreign exchange (gains) losses (4,698) 2,321 (3,996) 2,506 Research and development expenses 2,983 3,148 8,262 7,864 ----------- ---------- ---------- ---------- EBITDA (note 1) 58,800 64,529 119,394 200,440 Amortization of property, plant and equipment 12,959 13,405 37,571 43,200 Amortization of intangible assets 1,098 1,095 3,288 3,285 ----------- ---------- ---------- ---------- Income from operations 44,743 50,029 78,535 153,955 Interest expense - net 318 675 2,052 3,910 Income taxes 10,679 15,607 21,861 50,121 ----------- ---------- ---------- ---------- Net income 33,746 33,747 54,622 99,924 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- Net income per share (Class A and B) Basic $ 0.48 $ 0.48 $ 0.77 $ 1.42 Diluted 0.47 0.48 0.77 1.42 ------------------------------------------------------------------------- Cash Flow Cash provided by operating activities $ 18,441 $ 60,313 $ 24,935 $ 157,811 Additions to property, plant and equipment 11,564 5,751 33,396 25,926 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (in thousands of Canadian September 30, December 31, dollars except per share amounts) 2010 2009 ------------------------------------------------------------------------- Financial Position Working capital (note 2) $ 145,643 $ 84,972 Total assets 1,187,765 1,185,977 Shareholders' equity per share (Class A and B) (note 3) $ 11.62 $ 11.21 ------------------------------------------------------------------------- Note 1: EBITDA is a non-GAAP measure calculated by adding back to net income, the sum of interest (income)/expense, taxes and depreciation/amortization of property, plant and equipment and intangible assets. EBITDA does not have a standardized meaning prescribed by GAAP and is not necessarily comparable to similar measures prescribed by other companies. EBITDA is used by many analysts in the oil and gas industry as one of several important analytical tools. The following is the calculation of EBITDA for the periods presented above: (in thousands of Canadian Three Months Ended Nine Months Ended dollars except per share September 30, September 30, amounts) 2010 2009 2010 2009 ------------------------------------------------------------------------- Net income $ 33,746 $ 33,747 $ 54,622 $ 99,924 Add: Income taxes 10,679 15,607 21,861 50,121 Interest expense - net 318 675 2,052 3,910 Amortization of property, plant and equipment 12,959 13,405 37,571 43,200 Amortization of intangible assets 1,098 1,095 3,288 3,285 ------------------------------------------------------------------------- EBITDA $ 58,800 $ 64,529 $ 119,394 $ 200,440 ------------------------------------------------------------------------- Note 2: Working capital is defined as working capital minus cash and cash equivalents, current future income taxes, the current portion of long- term debt, current obligations under capital lease and working capital related to discontinued operations. Note 3: Shareholders' equity per share is a non-GAAP measure calculated by dividing shareholders' equity by the number of Class A and Class B shares outstanding at the date of the balance sheet.
OUTLOOK
The attainment of full production in the Asia Pacific region on the PNG
LNG pipe coating project has, as expected, contributed to a significant
improvement in operating results in the third quarter compared with the first
half of the year. The Company expects revenue and income to continue at or
above current levels in the fourth quarter as noted below:
Pipeline Segment - North America
The increase in drilling activity in North America that has occurred
since mid 2010 combined with the effect of seasonality in Western Canada
should favorably impact revenue from the Company's businesses that are
related to well completions, primarily small diameter pipe coating, flexible
composite pipe, and pipe joint protection. This improvement coupled with
steady output at the Company's large diameter pipe coating plants should
translate into a modest improvement on a quarter over quarter basis in
facility utilization and operating margins.
Pipeline Segment - Latin America
The completion of the acquisition of 100% of ShawCor's pipe coating
operation in Brazil in early October will positively impact revenue in the
fourth quarter. This improvement will be partially offset by lower activity
in Mexico where the Company completed some large offshore coating projects at
the Coatzacoalcos concrete weight coating plant in the third quarter.
Pipeline Segment - EMAR
Project activity in the Europe, Middle East, Africa, Russia ("EMAR")
region is expected to continue to improve in the fourth quarter with the
Statoil P12 and US$93 million Total Laggan projects now in full production in
Leith, Scotland and the Ras Al Zur water pipeline project under production in
Saudi Arabia
Pipeline Segment - Asia Pacific
The Asia Pacific region is not expected to generate any growth in revenue
in the fourth quarter but with the U.S.$185.0 million PNG LNG project in full
production, should be a source of reliable operating income in the quarter.
Petrochemical and Industrial Segment
The Petrochemical and Industrial segment's markets have improved over the
recessionary conditions of the first half of 2009; however, higher product
sales have been largely offset by the weakening of the U.S. dollar and Euro
year over year. Based on current exchange rates and market conditions,
revenue and operating income in the fourth quarter should continue to report
year over year improvement.
Order Backlog
The Company's order backlog, representing customer orders expected to be
completed within one year, did decrease during the third quarter to $382.2
million at September 30, 2010 from $421.8 million at June 30, 2010. The
Company has however been very active in bidding a number of large projects in
Asia Pacific, Middle East, Latin America, and the Gulf of Mexico. As these
projects advance towards investment approval, the Company remains confident
that this level of bidding activity will result in growth in the backlog in
2011.
THIRD QUARTER 2010 RESULTS
1.0 Core Business Segments
As at September 30, 2010, the Company operated its seven divisions
through two reportable operating segments, Pipeline & Pipe Services; and
Petrochemical & Industrial:
Pipeline and Pipe Services
The Pipeline and Pipe Services segment is the largest segment of the
Company and accounted for 88% of consolidated revenue for the nine month
period ended September 30, 2010. This segment includes the Bredero Shaw,
Canusa-CPS, Shaw Pipeline Services, Flexpipe Systems and Guardian divisions
providing products and services for pipeline applications globally.
Petrochemical and Industrial
The Petrochemical and Industrial segment, which includes the DSG-Canusa
and ShawFlex divisions, accounted for 12% of consolidated revenue for the
nine month period ended September 30, 2010. Operations within this segment
utilize polymer and adhesive technology that was developed for the Pipeline
and Pipe Services segment and is now being applied to applications in
Petrochemical and Industrial markets.
2.0 Financial highlights
2.1 Selected Third Quarter and Nine Month Financial Information
Revenue
Revenue has decreased by $19.8 million, or 7%, from $302.8 million during
the third quarter of 2009 to $283.0 million during the third quarter of 2010,
primarily as a result of reduced market activity in the Pipeline and Pipe
Services segment and the unfavourable effect of foreign exchange
fluctuations. For these same reasons, revenue has also decreased by $181.0
million, or 20%, from $923.1 million during the nine month period ended
September 30, 2009, to $742.1 million during the nine month period ended
September 30, 2010.
Income from operations
Income from operations decreased by $5.3 million, or 11%, and $ 75.5
million, or 49%, to $44.7 million and $78.5 million, respectively, for the
three and nine month period ended September 30, 2010. This change was
primarily due to the decrease in revenue and the reduction in operating
income margins in the current year periods compared with the prior year,
partially offset by foreign exchange gains of $4.7 million.
Net income
Net income for the third quarter 2010 at $33.7 million, was unchanged
from the third quarter of the prior year as a decrease in income from
operations was offset by lower taxes. For the nine months ended September 30,
2010, net income at $54.6 million decreased by $45.3 million from $99.9
million in the comparable prior year period due to the decline in revenue and
income from operations experienced in the first half of 2010.
2.2 Foreign Exchange Impact
The following table sets forth the significant currencies in which the
Company operates and the average year-to-date foreign exchange rates for
these currencies versus Canadian dollars, for the following periods:
------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------------- 2010 2009 2010 2009 ------------------------------------------------------------------------- U.S. dollar 1.0447 1.0845 1.0409 1.1722 Euro 1.3527 1.5643 1.3781 1.6074 British Pounds 1.6142 1.7790 1.6003 1.7946 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The following table sets forth the impact on revenues, income from operations and net income, compared with the noted prior period, as a result of foreign exchange fluctuations on the translation of foreign currency operations. ------------------------------------------------------------------------- 3 months ended 3 months ended 9 months ended September 30, September 30, September 30, 2010 versus 2010 versus 2010 versus 3 months ended 3 months ended 9 months ended June 30, September 30, September 30, 2010 2009 2009 --------------- --------------- ---------------- Revenue $ (851) $ (10,250) $ (76,000) Income from operations 16 (1,881) (19,730) Net income (917) (1,692) (13,754) ------------------------------------------------------------------------- -------------------------------------------------------------------------
3.0 Results from Operations
3.1 Business Developments for the Year
Acquisition of Brazilian Joint Ventures
On October 5, 2010, a subsidiary of the Company completed the acquisition
of the remaining 50% interest in Thermotite Brasil Ltda. and BS Servicios de
Injecao that it did not previously own. The purchase price was US$35.7
million,and is to be paid in two installments, with the first amount of
US$19.4 million paid upon completion of the transaction, and a second payment
of US$16.3 million to be paid in 2013. As a consequence of the adoption of
CICA Handbook section 1582, "Business Combinations," the carrying value of
the Company's current investment will be restated to fair value resulting in
an after tax gain of approximately $14 million, which will be recorded in the
fourth quarter.
Significant Business Contract
In May 2010, the Company was awarded a contract with a value of U.S.$93.0
million from Corus UK Limited to provide pipeline coatings for the Total E&P
UK Ltd. Laggan-Tormore project. Laggan-Tormore is an offshore gas field which
lies 125 km north-west of the Shetland Islands in water depths of up to 600
meters. The work, consisting of 3-layer polypropylene anticorrosion coating,
internal flow efficiency coating and concrete weight coating, will be
executed at the Bredero Shaw pipe coating facility in Leith, Scotland and is
expected to commence during the fourth quarter of 2010.
Investment in Socotherm S.p.A.
On May 18, 2010, the Company announced that the Board of Directors of
Socotherm S.p.A. ("Socotherm") had accepted an offer from an investor group
consisting of the Company and two private equity firms, 4D Global Energy
Advisors of Paris, France and Sophia Capital of Buenos Aires, Argentina (the
"Investor Group") whereby the Investor Group would complete a share capital
investment in Socotherm of (euro)50 million attaining a 95% ownership
interest in Socotherm. The Investor Group has also entered into an
undertaking to invest a further (euro)25 million in Socotherm, if necessary,
to discharge potential liabilities that arise subsequent to the completion of
Socotherm's court supervised restructuring. The Company's interest in the
Investor Group is 40%.
On July 2, 2010, the Investor Group established a new entity, Fineglade
Limited (Ireland) ("Fineglade") to hold the proposed investment in Socotherm.
Also on this date, the Investor Group capitalized Fineglade with (euro)50
million and Fineglade transferred this amount into an escrow account, such
funds to be released to Socotherm upon court approval of the share capital
investment. The Company's investment in Fineglade was (euro)20 million
(CDN$25.7 million). The Company also entered into a shareholders' agreement
with the other shareholders of Fineglade that provides the Company with
significant influence over the strategic operating, investing and financing
activities of Fineglade, without having joint control. Furthermore, on August
17, 2010, the Company made an incremental investment in Fineglade of (euro)4
million (CDN$5.6 million) as its pro rata share of a secured bridge loan
provided by Fineglade to Socotherm.
On October 29, 2010, the Court of Vicenza issued a Homologation Decree
that approved the share capital investment and the agreement between the
Investor Group and Socotherm was subsequently completed.
Repayment of 5.11% Senior Notes ("Senior Notes")
Under the terms of the Senior Notes, the Company is required to repay the
Senior Notes in three equal installments of U.S.$25.0 million on June 30,
2009, 2010 and 2011. On June 30, 2010, the Company made the second repayment
of U.S.$25.0 million (CDN$26.0 million at the then current exchange rate).
3.2 Consolidated Information
Revenue
The following table sets forth revenue by reportable operating segment
for the following periods:
------------------------------------------------------------------------- Three months ended Nine Months ended --------------------------------- --------------------- September June September September September 30, 2010 30, 2010 30, 2009 30, 2010 30, 2009 --------------------------------- --------------------- Pipeline and Pipe Services $ 253,447 $ 204,350 $ 273,262 $ 652,377 $ 837,101 Petrochemical and Industrial 28,921 30,590 29,916 89,905 89,334 Elimination 591 (394) (366) (205) (3,368) ------------------------------------------------------------------------- $ 282,959 $ 234,546 $ 302,812 $ 742,077 $ 923,067 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Third Quarter 2010 versus Second Quarter 2010
Consolidated revenue increased by $48.5 million, or 21%, from $234.5
million for the second quarter of 2010 to $283.0 million for the third
quarter of 2010, mainly due to an increase of approximately the same amount
in the Pipeline and Pipe Services segment.
Revenue for the Pipeline and Pipe Services segment was $49.0 million
higher in the third quarter of 2010 than in the second quarter, because of
higher revenue in North America, Asia Pacific and Latin America which was
partially offset by lower revenue in EMAR. See section 3.3 - Segment
Information for additional disclosure with respect to the change in revenue
in the Pipeline and Pipe Services segment.
Third Quarter 2010 versus Third Quarter 2009
Consolidated revenue decreased by $19.8 million, or 7%, from $302.8
million during the third quarter of 2009 to $283.0 million during the third
quarter of 2010, mainly due to a decrease of approximately the same amount in
the Pipeline and Pipe Services segment.
Revenue for the Pipeline and Pipe Services segment was $19.9 million
lower in the third quarter of 2010 than in the third quarter of 2009, mainly
because of lower revenue in Latin America, which was partially offset by
higher revenue in Asia Pacific. See section 3.3 - Segment Information for
additional disclosure with respect to the change in revenue in the Pipeline
and Pipe Services segment.
Nine Months ended September 30, 2010 versus Nine Months ended September
30, 2009
Consolidated revenue decreased by $181.0 million, or 20%, from $923.1
million for the nine month period ended September 30, 2009, to $742.1 million
for the nine month period ended September 30, 2010, mainly due to a decrease
of approximately the same amount in the Pipeline and Pipe Services segment.
Revenue for the Pipeline and Pipe Services segment was $184.7 million
lower during the nine month period ended September 30, 2010 than in the nine
month period ended September 30, 2009, because of lower revenue in North
America, Latin America and EMAR of $59.7 million, $120.8 million and $44.6
million, respectively, partially offset by higher revenue of $40.5 million in
Asia Pacific. See section 3.3 - Segment Information for additional disclosure
with respect to the change in revenue in the Pipeline and Pipe Services
segment.
Income from operations
The following table sets forth income from operations ("Operating
Income") and operating margin for the following periods:
------------------------------------------------------------------------- Three months ended Nine Months ended --------------------------------- --------------------- September June September September September 30, 2010 30, 2010 30, 2009 30, 2010 30, 2009 --------------------------------- --------------------- Operating Income $ 44,743 $ 17,328 $ 50,029 $ 78,535 $ 153,955 Operating Margin(a) 15.8% 7.4% 16.5% 10.6% 16.7% ------------------------------------------------------------------------- -------------------------------------------------------------------------
(a) Operating margin is defined as operating income divided by revenue.
Third Quarter 2010 versus Second Quarter 2010
Operating Income increased by $27.4 million, or 158%, from $17.3 million
during the second quarter of 2010 to $44.7 million during the third quarter
of 2010 due to an increase in gross profit of $23.0 million from higher
revenue as explained above and foreign exchange gains of $4.7 million.
Third Quarter 2010 versus Third Quarter 2009
Operating Income decreased by $5.3 million, or 11%, from $50.0 million
for the third quarter of 2009 to $44.7 million for the third quarter of 2010,
mainly due to lower gross profit from the reduction in revenue as explained
above and partially offset by foreign exchange gains of $4.7 million.
Nine Months ended September 30, 2010 versus Nine Months ended September
30, 2009
Operating Income decreased by $75.5 million, or 49%, from $154.0 million
for the nine month period ended September 30, 2009 to $78.5 million for the
nine month period ended September 30, 2010, mainly due to the reduction in
revenue as explained above, and a decrease in the operating margin of 6.1%
percentage points, which was the result of under absorption of fixed
manufacturing overhead (included in cost of goods sold) and selling, general
and administrative expenses associated with the 20% year over year revenue
decline.
Interest expense - net
The following table sets forth the components of interest expense - net
for the following periods:
------------------------------------------------------------------------- Three months ended Nine Months ended --------------------------------- --------------------- September June September September September 30, 2010 30, 2010 30, 2009 30, 2010 30, 2009 --------------------------------- --------------------- Interest income on short-term deposits $ 410 $ 312 $ 191 $ 949 $ 507 Interest expense, other (339) (323) (368) (1,106) (1,343) Interest expense on long-term debt (389) (781) (498) (1,895) (3,074) ------------------------------------------------------------------------- Interest expense - net $ (318) $ (792) $ (675) $ (2,052) $ (3,910) ------------------------------------------------------------------------- -------------------------------------------------------------------------
Third Quarter 2010 versus Second Quarter 2010
The interest expense - net balance decreased by $0.5 million, or 63%,
from $0.8 million during the second quarter of 2010 to $0.3 million during
the third quarter of 2010, due to the repayment of US$25 million of long term
debt at the end of June 2010, and the resulting reduction in interest on
long-term debt in the amount of $0.4 million for the current quarter.
Third Quarter 2010 versus Third Quarter 2009
The interest expense - net balance decreased by $0.4 million, or 57%,
from $0.7 million during the third quarter of 2009 to $0.3 million during the
third quarter of 2010, mainly due to lower interest expense on long-term debt
in the current period as a result of the repayment of U.S.$25.0 million of
the Senior Notes on June 30, 2010.
Nine Months ended September 30, 2010 versus Nine Months ended September
30, 2009
The interest expense - net balance decreased by $1.8 million, or 46%,
from $3.9 million for the nine month period ended September 30, 2009 to $2.1
million for the nine month period ended September 30, 2010, due to lower
interest expense on long-term debt in the current period and higher interest
income of $0.4 million. The interest expense on long-term debt was lower in
the nine month period ended September 30, 2010, because two installments of
U.S.$25.0 million of the Senior Notes were repaid on June 30, 2009 and 2010.
Income taxes
Third Quarter 2010 versus Second Quarter 2010
The Company recorded income tax expense of $10.7 million (24.0% of income
before income taxes) in the third quarter of 2010, compared to income tax
expense of $5.7 million (34.2% of income before income taxes) in the second
quarter of 2010. The effective income tax rate in the third quarter was lower
than the Company's expected effective income tax rate of 30.5%, mainly due to
the fact that a substantial portion of the Company's taxable income in the
third quarter 2010 was earned in Asia Pacific and other jurisdictions where
the expected tax rate is 25% or less.
Third Quarter 2010 versus Third Quarter 2009
The Company recorded income tax expense of $10.7 million (24.0% of income
before income taxes) in the third quarter of 2010, compared to income tax
expense of $15.6 million (31.6% of income before income taxes) in the third
quarter of 2009. The effective income tax rate in the third quarter was lower
than the Company's expected effective income tax rate of 30.5%, as discussed
above.
Nine Months ended September 30, 2010 versus Nine Months ended September
30, 2009
The Company recorded income tax expense of $21.9 million (28.6% of income
before income taxes) for the nine month period ended September 30, 2010,
compared to income tax expense of $50.1 million (33.4% of income before
income taxes) for the nine month period ended September 30, 2009. The
effective income tax rate for the nine month period ended September 30, 2010
was lower than the Company's expected effective income tax rate of 30.5%,
primarily due to the fact that a significant portion of the Company's taxable
income was earned in Asia Pacific and other jurisdictions where the expected
tax rate is 25% or less. In the nine months ended 2009, the effective income
tax rate at 33.4% was marginally higher than the Company's expected tax rate
of 31.0%, primarily as a result of foreign withholding taxes on
inter-corporate dividends and the impact of certain costs which are not
deductible for income tax purposes.
3.3 Segment Information
3.3.1 Pipeline and Pipe Services segment
The following table sets forth, by geographic location, the revenue,
income from operations ("Operating Income") and operating margin for the
Pipeline and Pipe Services segment for the following periods:
------------------------------------------------------------------------- Three months ended Nine Months ended --------------------------------- --------------------- September June September September September 30, 2010 30, 2010 30, 2009 30, 2010 30, 2009 --------------------------------- --------------------- North America $ 113,590 $ 89,046 $ 109,802 $ 295,653 $ 355,393 Latin America 19,730 11,028 81,289 38,753 159,550 EMAR 39,204 47,862 30,097 119,710 164,314 Asia Pacific 80,923 56,414 52,074 198,261 157,844 ------------------------------------------------------------------------- Total Revenue $ 253,447 $ 204,350 $ 273,262 $ 652,377 $ 837,101 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating Income $ 43,712 $ 24,329 $ 53,490 $ 88,005 $ 169,303 Operating Margin 17.2% 11.9% 19.6% 13.5% 20.2% -------------------------------------------------------------------------
Third Quarter 2010 versus Second Quarter 2010
Revenue in the third quarter of 2010 was $253.4 million, an increase of
$49.0 million or 24% over the second quarter of 2010, with significant
improvements in Latin America, North America and Asia Pacific offsetting
softness in the EMAR region:
- In North America, revenue increased by $24.6 million or 28% due to strong large diameter project volumes in Canada from the TransCanada Keystone XL and Groundbirch pipelines combined with increased volumes of small diameter pipe coating, flexible composite pipe, and drill pipe inspection volumes from the general improvement in well completion activity throughout North America, and the rebound in Western Canada following the end of the spring break-up. - Revenue in Latin America improved by $8.7 million as a result of several offshore pipe coating projects executed at the Company's Coatzacoalcos concrete weight coating plant in Mexico. - EMAR revenue declined by $8.7 million, or 18%, as activity was reduced at the Orkanger Norway facility following the completion of the Block 31 Angola project in the second quarter. The reduction at Orkanger was partially offset by higher revenue from the launch of production of the Statoil P12 and Total Laggan projects at the Leith Scotland facility. - In Asia Pacific, revenue increased $24.5 million, or 43%, following the attainment of full production in Kuantan, Malaysia on the PNG LNG pipeline project coupled with higher volumes in Australia from the Epic Energy QSN3 project.
Operating Income in the third quarter of 2010 was $43.7 million compared
to $24.3 million in the second quarter of 2010, an increase of $19.4 million
or 80%. The increase was primarily due to the increase in revenue explained
above and in particular the impact of revenue on facility utilization in
Kuantan Malaysia. Operating margins improved by 5.3 percentage points as the
higher revenue led to an improvement in the absorption of the fixed
manufacturing overhead (included in cost of goods sold) and selling, general
and administrative expenses.
Third Quarter 2010 versus Third Quarter 2009
Revenue in the third quarter of 2010 decreased by $19.9 million or 7%,
from $273.3 million in the third quarter of 2009. Major contributors to the
revenue decline were the unfavourable impact of foreign exchange fluctuations
on the translation of foreign currency operations (See section 2.2 - Foreign
Exchange Impact) and the following regional factors:
- In North America, revenue increased by $3.8 million or 3%, as a result of stronger small diameter pipe coating and drill pipe inspection volumes in Canada, partially offset by lower large diameter pipe coating and pipeline weld inspection in the USA. - The $61.6 million decrease in revenue in Latin America was due to the completion in 2009 of the Trinidad North East Offshore and Tobago Pipelines project that had generated quarterly revenue in the second quarter of 2009 of US$48 million, as well as lower project activity in Mexico. - Revenue in EMAR increased by $9.1 million or 30% due to the remobilization of the Leith Scotland facility for several major concrete weight coating projects, including the Total Laggan project, as well as the start up of production of the Ras Al Zur water pipeline coating project in Saudi Arabia. - In Asia Pacific, revenue increased by $28.8 million or 55%, as the Company reached full volume production on the Epic Energy QSN3 project in Kembla Grange, Australia and the PNG LNG pipeline project at Kabil, Indonesia and Kuantan, Malaysia.
Operating Income in the third quarter of 2010 decreased by $9.8 million,
or 18% from the $53.5 million reported in the third quarter of 2009. The
decrease was primarily due to the lower revenue explained above and the
unfavourable effect of foreign exchange fluctuations. The operating margin
declined by 2.4 percentage points as a result of the under absorption of the
fixed manufacturing overhead (included in cost of goods sold) and selling,
general and administrative expenses as a result of the year over year revenue
decline.
Nine Months ended September 30, 2010 versus Nine Months ended September
30, 2009
Revenue in the Pipeline and Pipe Services segment for the nine months
ended September 30, 2010 was $652.4 million, a decrease of $184.7 million, or
22%, from the comparable period of 2009. The decrease was due to the
unfavourable impact of foreign exchange fluctuations on the translation of
foreign currency operations (See section 2.2 - Foreign Exchange Impact)
combined with lower project activity in North America, Latin America, and
EMAR, partially offset by increased volumes in Asia Pacific.
- A decrease in revenue in North America of $59.7 million was primarily due to reduced drilling and well completions in Canada and the U.S., which negatively impacted volumes in the first half of 2010 in several of the Company's key product markets including small diameter pipe coating, spoolable composite pipe and pipeline weld inspection services. - A decrease in revenue in Latin America of $120.8 million was due to the Trinidad North East Offshore and Tobago Pipelines project that had generated revenue in 2009 of U.S.$76 million and for which production was completed in the fourth quarter of 2009, as well as lower project activity in both Brazil and Mexico. - The decrease in EMAR revenue of $44.6 million was mainly due to lower pipe coating volumes in Europe and the Middle East as a result of a reduction in large project activity, as well as a reduction in associated field joint coating project activity and offshore pipeline weld inspection. - In Asia Pacific revenue has increased by $40.5 million as a result of the Epic Energy QSN3 project in Kembla Grange, Australia and the PNG LNG pipeline project at Kabil, Indonesia and Kuantan, Malaysia.
Operating Income in the Pipeline and Pipe Services segment for the nine
months ended September 30, 2010 was $88.0 million, a decrease of $81.3
million or 48% from $169.3 million in the comparable period of 2009,
primarily due to the reduction in revenue explained above and the
unfavourable effect of foreign exchange fluctuations. The reduction in
operating margin of 6.7 percentage points was a result of the under
absorption of fixed manufacturing overhead (included in cost of goods sold)
and selling, general and administrative expenses associated with the 22%
revenue decline discussed above.
3.3.2 Petrochemical and Industrial segment
The following table sets forth, by geographic location, the revenue,
Operating Income and operating margin for the Petrochemical and Industrial
segment for the following periods:
------------------------------------------------------------------------- Three months ended Nine Months ended --------------------------------- --------------------- September June September September September 30, 2010 30, 2010 30, 2009 30, 2010 30, 2009 --------------------------------- --------------------- North America $ 16,819 $ 17,147 $ 18,317 $ 50,774 $ 53,241 EMAR 11,575 13,093 11,599 37,962 35,911 Asia Pacific 527 350 - 1,169 182 ------------------------------------------------------------------------- Total Revenue $ 28,921 $ 30,590 $ 29,916 $ 89,905 $ 89,334 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating Income $ 2,832 $ 3,954 $ 2,092 $ 9,707 $ 4,625 Operating Margin 9.8% 12.9% 7.1% 10.8% 5.2% -------------------------------------------------------------------------
Third Quarter 2010 versus Second Quarter 2010
In the Petrochemical and Industrial segment, revenue in the third quarter
of 2010 totaled $28.9 million compared to $30.6 million in the second quarter
of 2010, a decrease of $1.7 million or 6%. The decrease was attributable to
reduced revenue in EMAR.
Operating Income in the third quarter of 2010 was $2.8 million compared
to $4.0 million in the second quarter of 2010, a decrease of $1.2 million, or
30%. The decrease was primarily due to the decrease in revenue explained
above with the operating margin declining by 3.1 percentage points on lower
facility utilization and a change in product mix.
Third Quarter 2010 versus Third Quarter 2009
Revenue in the Petrochemical and Industrial segment in the third quarter
of 2010 at $28.9 million was down 3% from the third quarter of 2009 as
improved product shipments in EMAR was offset by the year over year weakening
of the Euro versus the Canadian dollar and the resulting effect on the
translation of the EMAR operating results.
Operating Income in the third quarter of 2010 was $2.8 million compared
to $2.1 million in the third quarter of 2009, an increase of $0.7 million or
33%. The increase was due to improved operating performance at the segment's
EMAR operations, which offset softness in wire and cable project activity in
Canada.
Nine Months ended September 30, 2010 versus Nine Months ended September
30, 2009
Revenue in the Petrochemical and Industrial segment for the nine months
ended September 30, 2010 was $89.9 million, basically unchanged from the
comparable period of 2009, as increased heat shrink sleeve product shipments
resulting from a strengthening in industrial and automotive markets in North
America and EMAR were largely offset by the impact on the translation of the
EMAR operations, due to the weakening of the Euro versus the Canadian dollar
(See section 2.2 - Foreign Exchange Impact).
Operating Income in the Petrochemical and Industrial segment for the nine
months ended September 30, 2010 was $9.7 million, an increase of $5.1
million, or 111%, from $4.6 million in the comparable period of 2009. The
operating margin improved by 5.6 percentage points primarily due to the
improvement in facility utilization from the higher product shipments noted
above and the one time fixed costs incurred in 2009 related to restructuring
at DSG-Canusa.
3.3.3 Financial and Corporate
Financial and corporate costs include corporate expenses not allocated to
the operating segments and other non-operating items, including foreign
exchange gains and losses on foreign currency denominated cash and working
capital balances. The corporate division of the Company only earns revenue
that is considered incidental to the activities of the Company. As a result,
it does not meet the definition of a reportable operating segment as defined
under GAAP.
The following table sets forth the Company's unallocated financial and
corporate expenses, before foreign exchange gains and losses, for the
following periods:
------------------------------------------------------------------------- Three months ended Nine Months ended --------------------------------- --------------------- September June September September September 30, 2010 30, 2010 30, 2009 30, 2010 30, 2009 --------------------------------- --------------------- Income (loss) from operations $ (6,497) $ (8,835) $ (3,232) $ (23,173) $ (17,467) -------------------------------------------------------------------------
Third Quarter 2010 versus Second Quarter 2010
Financial and corporate costs decreased by $2.3 million from a loss of
$8.8 million during the second quarter of 2010 to a loss of $6.5 million
during the third quarter of 2010 mainly due to a reduction in professional
fees that were incurred in the second quarter relating to corporate
development activities.
Third Quarter 2010 versus Third Quarter 2009
Financial and corporate costs increased by $3.3 million from $3.2 million
during the third quarter of 2009 to $6.5 million during the third quarter of
2010 due to higher employee benefit costs and expenses related to the
introduction of new management incentive compensation plans, coupled with
provision reversals that had favorably impacted the third quarter of 2009.
Nine Months ended September 30, 2010 versus Nine Months ended September
30, 2009
Financial and corporate costs increased by $5.7 million from $17.5
million for the nine month period ended September 30, 2009 to $23.2 million
for the nine month period ended September 30, 2010, mainly due to increases
in professional fees relating to corporate development activities, higher
employee benefit costs and expenses related to the introduction of new
management incentive compensation plans.
4.0 Forward-Looking Information
This document 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 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, judgments 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 document includes forward-looking information in respect
of, among other things, the impact of global economic activity on the demand
for the Company's products as well as the prices of commodities used by the
Company, the impact of changing energy demand, supply and prices, the impact
of changes in competitive conditions in the markets in which the Company
participates, the impact of changing laws for environmental compliance on the
Company's capital and operating costs, the Company's relationships with its
employees, the continued establishment of international operations, the
effect of continued development in emerging economies, as well as the
Company's plans as they relate to research and development activities, the
maintenance of its current dividend policies, the outlook for revenue and
operating income in upcoming quarters and the expected development in the
Company's order backlog.
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. We caution readers 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: changes in global
economic activity; changes in energy supply and demand, which impact on the
level of drilling activity and pipeline construction; exposure to product and
other liability claims; compliance with environmental, trade and other laws;
political, economic and other risks arising from the Company's international
operations; fluctuations in foreign exchange rates; as well as other risks
and uncertainties, as more fully described herein under the heading "Risks
and Uncertainties".
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 assumptions in respect of the potential for
improvement in demand for the Company's products and services as a result of
the following: Continued global economic recovery; the potential for
increased investment in global energy infrastructure as a result of
stabilization of capital markets; the Company's ability to execute projects
under contract; the continued supply of and stable pricing for commodities
used by the Company; and the availability of personnel resources sufficient
for the Company to operate its businesses. 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. ShawCor Ltd. 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.
Other information relating to the Company, including its Annual
Information Form, is available on SEDAR at www.sedar.com.
ShawCor will be hosting a Shareholder and Analyst conference call and
webcast on November 3, 2010 at 10:00 am EDT to discuss the Company's third
quarter 2010 financial results. Please visit our website at
www.shawcor.com for further details.
SHAWCOR LTD. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands of Canadian dollars) ------------------------------------------------------------------------- As at September 30, December 31, 2010 2009 ------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 171,700 $ 249,988 Accounts receivable 237,191 191,821 Taxes receivable 7,533 14,055 Inventories 120,350 109,379 Prepaid expenses 19,254 14,392 Derivative financial instruments 1,397 1,782 Current future income taxes 4,697 4,668 ------------------------------------------------------------------------- 562,122 586,085 Property, plant and equipment, net 267,310 270,219 Intangible assets 59,577 62,784 Future income taxes 41,311 36,249 Derivative financial instruments 63 39 Long-term investments 33,629 24 Other assets 16,229 16,128 Goodwill 207,524 214,449 ------------------------------------------------------------------------- TOTAL ASSETS $ 1,187,765 $ 1,185,977 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Current liabilities Accounts payable and accrued liabilities $ 121,898 $ 127,932 Taxes payable 48,926 42,971 Deferred revenue 68,919 75,100 Derivative financial instruments 339 510 Current portion of long-term debt 25,818 26,235 Current obligations under capital lease 372 371 ------------------------------------------------------------------------- 266,272 273,119 Long-term debt - 26,052 Obligations under capital lease 387 492 Derivative financial instruments 59 - Future income taxes 73,785 76,552 Other non-current liabilities 26,950 19,340 ------------------------------------------------------------------------- TOTAL LIABILITIES 367,453 395,555 ------------------------------------------------------------------------- Shareholders' Equity Capital stock 205,513 204,151 Contributed surplus 18,728 17,277 Retained earnings 735,161 695,800 Accumulated other comprehensive loss (139,090) (126,806) ------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 820,312 790,422 ------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,187,765 $ 1,185,977 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SHAWCOR LTD. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands of Canadian dollars, except per share amounts) ------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ----------------------- -------------------- 2010 2009 2010 2009 ---------------------------------------------------- -------------------- Revenue $ 282,959 $ 302,812 $ 742,077 $ 923,067 Cost of goods sold 167,141 173,350 447,348 541,338 ---------------------------------------------------- -------------------- Gross profit 115,818 129,462 294,729 381,729 Selling, general and administrative expenses 58,733 59,464 171,069 170,919 Research and development expenses 2,983 3,148 8,262 7,864 Foreign exchange (gain) losses (4,698) 2,321 (3,996) 2,506 Amortization of property, plant and equipment 12,959 13,405 37,571 43,200 Amortization of intangible assets 1,098 1,095 3,288 3,285 ------------------------------------------------------------------------- Income from operations 44,743 50,029 78,535 153,955 Interest income on short term deposits 410 191 949 507 Interest expense, other (339) (368) (1,106) (1,343) Interest expense on long-term debt (389) (498) (1,895) (3,074) ------------------------------------------------------------------------- Income before income taxes 44,425 49,354 76,483 150,045 Income taxes 10,679 15,607 21,861 50,121 ------------------------------------------------------------------------- Net income for the period $ 33,746 $ 33,747 $ 54,622 $ 99,924 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share Basic $ 0.48 $ 0.48 $ 0.77 $ 1.42 Diluted $ 0.47 $ 0.48 $ 0.77 $ 1.42 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of shares outstanding (000's) Basic 70,572 70,464 70,552 70,440 Diluted 71,372 71,058 71,373 70,784 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SHAWCOR LTD. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) (in thousands of Canadian dollars) ------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ----------------------- -------------------- 2010 2009 2010 2009 ---------------------------------------------------- -------------------- Balance, beginning of period $ 706,618 $ 640,229 $ 695,800 $ 601,407 Net income for the period 33,746 33,747 54,622 99,924 ------------------------------------------------------------------------- 740,364 673,976 750,422 701,331 Dividends declared (5,203) (4,850) (15,261) (32,205) ------------------------------------------------------------------------- Balance, end of period $ 735,161 $ 669,126 $ 735,161 $ 669,126 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) ------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ----------------------- -------------------- 2010 2009 2010 2009 ---------------------------------------------------- -------------------- Net income for the period $ 33,746 $ 33,747 $ 54,622 $ 99,924 Other comprehensive income (loss), net of income taxes: Unrealized gain (loss) on translating financial statements of self sustaining foreign operations 4,442 (15,822) (12,455) (41,374) Gain on translating financial statements of self-sustaining foreign operations transferred to net income in the current period - - - 678 Gain on hedges of unrealized foreign currency translation 225 3,460 610 6,948 Income tax expense (43) (592) (439) (1,189) ------------------------------------------------------------------------- Unrealized foreign currency translation gain (loss), net of hedging activities 4,624 (12,954) (12,284) (34,937) ------------------------------------------------------------------------- Unrealized loss on available for sale financial assets arising in the period - - - (336) Unrealized gain on available-for-sale financial assets transferred to net income in the current period - - - 336 ------------------------------------------------------------------------- Change in unrealized loss on available for sale financial assets - - - - ------------------------------------------------------------------------- Other comprehensive income (loss) 4,624 (12,954) (12,284) (34,937) ------------------------------------------------------------------------- Comprehensive income for the period $ 38,370 $ 20,793 $ 42,338 $ 64,987 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SHAWCOR LTD. CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (in thousands of Canadian dollars) ------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ----------------------- -------------------- 2010 2009 2010 2009 ------------------------------------------------------------------------- Operating activities Net income for the period $ 33,746 $ 33,747 $ 54,622 $ 99,924 Add (deduct) items not affecting cash: Amortization of property, plant and equipment 12,959 13,405 37,571 43,200 Amortization of intangible assets 1,098 1,095 3,288 3,285 Amortization of transaction costs (225) 111 (426) 333 Amortization of long-term prepaid expenses (8) (467) 38 - Asset retirement obligations expense (2,306) (427) (1,336) 2,033 Stock-based compensation (658) 772 1,747 2,394 Future income taxes (6,585) (1,977) (7,858) (327) Loss (gain) on disposal of property, plant and equipment 329 1,028 (885) 1,361 Gain on short-term investments - (73) - (1,202) Impairment of available-for-sale financial asset - - - 336 Settlement of asset retirement obligations 1,649 (280) (725) (2,244) Change in employee future benefits 958 1,272 1,718 3,087 Change in non-cash working capital and foreign exchange (22,516) 12,107 (62,819) 5,631 ------------------------------------------------------------------------- Cash provided by operating activities 18,441 60,313 24,935 157,811 ------------------------------------------------------------------------- Investing activities Purchases of property, plant and equipment (11,564) (5,751) (33,396) (25,926) Proceeds on disposal of property, plant and equipment - (61) 3,420 44 Acquisition of long-term investment (31,339) (31,339) Increase (decrease) in long-term notes receivable 10 180 6 (4,068) ------------------------------------------------------------------------- Cash used in investing activities (42,893) (5,632) (61,309) (29,950) ------------------------------------------------------------------------- Financing activities Decrease in bank indebtedness - (689) - (15,418) Increase (decrease) in capital lease (46) (104) Repayment of long-term debt - - (26,043) (28,705) Issuance of shares 258 816 1,066 1,301 Dividends paid to shareholders (5,203) (4,850) (15,261) (32,205) ------------------------------------------------------------------------- Cash used in financing activities (4,991) (4,723) (40,342) (75,027) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Foreign exchange gain (loss) on foreign cash and cash equivalents (606) (4,479) (1,572) (8,395) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net change in cash and cash equivalents for the period (30,049) 45,479 (78,288) 44,439 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents, at beginning of period 201,749 77,892 249,988 78,932 ------------------------------------------------------------------------- Cash and cash equivalents, at end of period $ 171,700 $ 123,371 $ 171,700 $ 123,371 -------------------------------------------------------------------------
For further information: For further information: Gary Love, Vice
President, Finance and CFO, Telephone: +1-416-744-5818, e-mail:
glove@shawcor.com, website: www.shawcor.com
For further information: For further information: Gary Love, Vice President, Finance and CFO, Telephone: +1-416-744-5818, e-mail: glove at shawcor.com, website: www.shawcor.com
Tags: canada, November 3, Shawcor Ltd., Toronto