TORONTO, May 12, 2022
/CNW/ - TerraVest Industries Inc., (TSX: TVK) ("TerraVest" or the
"Company") announces its results for the second quarter ended
March 31, 2022 and the declaration of its quarterly
dividend.
SECOND QUARTER AND SIX MONTHS REVIEW AND OUTLOOK
Business Performance
Management believes that there are certain non‐IFRS financial
measures that can be used to assist shareholders in analyzing the
performance of TerraVest. The table below highlights certain
financial results and reconciles net income to adjusted earnings
before interests, income taxes, depreciation and amortization
("EBITDA") for the second quarter and six months ended
March 31, 2022 and the comparative periods in
fiscal 2021.
|
Second quarters
ended
|
|
Six months
ended
|
|
March 31,
2022
|
March 31,
2021
|
|
March 31,
2022
|
March 31,
2021
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Sales
|
137,764
|
76,477
|
|
269,128
|
158,817
|
|
|
|
|
|
|
Net
Income
|
9,134
|
10,723
|
|
19,712
|
22,675
|
|
|
|
|
|
|
Add
(subtract):
|
|
|
|
|
|
Income tax
expense
|
2,828
|
2,301
|
|
5,975
|
5,651
|
Financing
costs
|
1,994
|
941
|
|
3,924
|
1,917
|
Depreciation and
amortization
|
7,585
|
4,731
|
|
14,356
|
9,448
|
Change in fair
value of derivative
financial instruments
|
(1,027)
|
(624)
|
|
(1,293)
|
(1,704)
|
Change in fair
value of investment in
equity instruments
|
(14)
|
(1,116)
|
|
(31)
|
(3,973)
|
(Gain) loss on
foreign exchange
|
879
|
681
|
|
1,119
|
2,813
|
(Gain) loss on
disposal of other property, plant
and equipment
|
(439)
|
33
|
|
(529)
|
(27)
|
(Gain) loss on
disposal of property, plant and
equipment for rental
|
3
|
(135)
|
|
(76)
|
(177)
|
(Gain) loss on
disposal of intangible assets
|
7
|
-
|
|
7
|
-
|
(Gain) loss on
remeasurement of an
equity interest
|
-
|
-
|
|
(1,956)
|
-
|
Acquisition‑related cost
|
224
|
-
|
|
262
|
-
|
Adjusted
EBITDA
|
21,174
|
17,535
|
|
41,470
|
36,623
|
Sales for the second quarter and six months ended
March 31, 2022 were $137,764 and $269,128 versus $76,477 and $158,817 for the prior comparable periods. This
represents increases of 80% and 69% respectively. However,
TerraVest acquired all of the issued and outstanding shares of ECR
International, Inc. ("ECR") in August 2021 and of
Mississippi Tank and Manufacturing Company ("MTC") in March 2022 as well as a controlling interest of
66.8% in Green Energy Services Inc. ("GES") in November 2021, none of which contributed to the
prior comparable periods. Excluding ECR, GES and MTC, sales for the
second quarter and six months ended March
31, 2022 were $87,222 and
$183,699 versus $76,477 and $158,817 for the prior comparable periods. This
represents increases of 14% and 16% respectively for
TerraVest's base portfolio (excluding ECR, GES and MTC). These
increases are a result of higher demand for LPG and NGL storage and
distribution equipment as well as for oil and gas processing
equipment and services in Western
Canada, as commodity pricing has improved throughout the
year. Inflationary pressure has also contributed to the increase in
sales as many of TerraVest's businesses were required to pass along
raw material and labour cost increases.
Net income for the second quarter and six months ended
March 31, 2022 were $9,134 and $19,712 versus $10,723 and $22,675
for the prior comparable periods. This represents decreases of 15%
and of 13% respectively. During the quarter and first six months of
fiscal 2022, TerraVest received less government subsidies than the
prior comparable period and incurred additional selling and
administrative expenses to support its growth and new market
development. TerraVest also paid more interest as debt levels were
higher as a result of recent business acquisition along with
working capital expansion in certain of TerraVest's businesses to
support increased activity and more costly inventory. Additionally,
raw material pricing and supply chain issues had an impact on
output and profitability in certain of the Company's businesses.
Partially offsetting these factors was the addition of ECR and GES,
which contributed positively to TerraVest's net income. Other
variances are also highlighted in the table above.
Adjusted EBITDA for the second quarter and six months ended
March 31, 2022 were $21,174 and $41,470 versus $17,535 and $36,623
for the prior comparable periods. This represents increases of 21%
and 13% respectively, which are a result of the reasons
explained above.
During the first six months of fiscal 2022, TerraVest recognized
$780 in net income ($5,544 for the first six months of fiscal 2021)
in relation to the Canada
Emergency Wage Subsidy ("CEWS") as part of the Federal Government's
response to the COVID-19 pandemic. TerraVest also recognized
$1,532 in net income during the first
six months ($2,448 for the first six
months of fiscal 2021) in relation to other various government
subsidies available in response to the COVID‑19 pandemic.
The table below reconciles cash flow from operating activities
to cash available for distribution for the second quarter and six
months ended March 31, 2022 and the comparative periods
in fiscal 2021.
|
Second quarters
ended
|
|
Six months
ended
|
|
March 31,
2022
|
March 31,
2021
|
|
March 31,
2022
|
March 31,
2021
|
|
$
|
$
|
|
$
|
$
|
Cash Flow from
Operating Activities
|
12,225
|
3,263
|
|
11,888
|
22,300
|
Add
(subtract):
|
|
|
|
|
|
Change in
non‑cash operating working capital items
|
4,749
|
9,129
|
|
20,438
|
1,718
|
Maintenance capital expenditures
|
(1,926)
|
(1,022)
|
|
(3,195)
|
(2,134)
|
Repayment
of lease liabilities
|
(1,348)
|
(1,081)
|
|
(2,623)
|
(2,149)
|
Cash Available for
Distribution
|
13,700
|
10,289
|
|
26,508
|
19,735
|
Dividends
Paid
|
1,793
|
1,848
|
|
3,550
|
3,716
|
Dividend Payout
Ratio
|
13%
|
18%
|
|
13%
|
19%
|
Cash flow from operating activities for the second quarter and
six months ended March 31, 2022 were $12,225 and $11,888
versus $3,263 and $22,300 for the prior comparable periods. This
represents an increase of 275% and a decrease of 47% respectively.
The decrease in cash flow from operating activities is largely
attributable to increased working capital as activity levels are
increasing in certain of TerraVest's businesses. The significant
increase in steel and other raw materials pricing has also had a
noticeable effect on working capital levels. TerraVest also paid
more interest compared to the prior comparable periods. The
decrease was partially offset by increased net income
affecting cash and a reduction in income taxes paid. For the
second quarter ended March 31, 2022,
the investment in working capital was less than the prior
comparable period which contributed to the increase in cash flow
along with the increased net income affecting cash.
Maintenance capital expenditures were $1,926 for the second quarter ended
March 31, 2022 versus $1,022 for
the prior comparable period representing an increase of 88%, which
is mainly explained by the timing of maintenance capital
expenditures. During the second quarter, TerraVest's total purchase
of property, plant and equipment paid was $7,893 of which $5,967 is considered growth capital. The
growth capital incurred during the second quarter was used to add
to the Company's rental fleet, finalize the automation and
improvement of a manufacturing line and to increase its asset base
in one of its service businesses. These growth projects are
expected to result in increased capacity and greater efficiencies
in several of TerraVest's businesses.
Cash available for distribution for the second quarter and six
months ended March 31, 2022 increased by 30% and 33%
respectively versus the prior comparable periods. These increases
are a result of reasons explained above and previously in
this press release.
The dividend payout ratio for the second quarter and six months
ended March 31, 2022 were 13% versus 18% and 19% for the
prior comparable periods.
Outlook
The business environment today remains difficult as many of the
challenges created by the global pandemic continue to persist and
have even been exacerbated by the war in Ukraine. Over the past year, the Company and
its employees have done an excellent job managing through COVID‑19
pandemic related restrictions, all while keeping tight control on
operating costs and improving manufacturing efficiency. However,
new challenges continue to present themselves, and the focus has
shifted from managing COVID-19 pandemic related restrictions to
managing inflation and disruption across the Company's supply
chains. TerraVest will remain vigilant in supporting its
operations, managing its cost structure and will make targeted
investments in manufacturing efficiency improvements, as well as
continue to pursue its acquisition strategy as
opportunities arise.
Business Combinations
On March 11, 2022, a subsidiary of
TerraVest entered into a share purchase agreement to acquire all
the issued and outstanding shares of MTC, a privately-owned
manufacturing company that produces and distributes a
broad range of storage and distribution equipment for
the propane and compressed gas markets in North America, including transport trailers,
bobtail delivery trucks, and various bulk storage tanks.
The business combination has been accounted for using the
acquisition method with the results of operations included in
earnings from the date of acquisition.
Effective on November 1, 2021,
TerraVest entered into share purchase agreements to acquire an
additional 41.4% of the issued and outstanding shares of GES,
thereby bringing TerraVest's ownership interest in GES to 66.8%.
GES is a privately‑owned Alberta
based company operating under the name Fraction Energy Services and
is an industry leader in water management and environmental
solutions. GES offers a diverse range of fluid management solutions
including water transfer, containment, heating, fluid trucking, and
oilfield rentals. The business combination has been accounted for
using the acquisition method with the results of operations
included in earnings from the date of acquisition. The
non-controlling interest was measured at its proportionate share in
GES' identifiable net assets at acquisition date.
CONSOLIDATED RESULTS OF OPERATIONS
The following section provides the financial results of
TerraVest's operations for the second quarter and six months ended
March 31, 2022 and the comparative periods in
fiscal 2021.
|
Second quarters
ended
|
|
Six months
ended
|
|
March 31,
2022
|
March 31,
2021
|
|
March 31,
2022
|
March 31,
2021
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Sales
|
137,764
|
76,477
|
|
269,128
|
158,817
|
Cost of
sales
|
107,628
|
55,644
|
|
210,471
|
115,892
|
Gross profit
|
30,136
|
20,833
|
|
58,657
|
42,925
|
|
|
|
|
|
|
Administration
expenses
|
12,613
|
6,354
|
|
23,504
|
12,467
|
Selling
expenses
|
4,129
|
1,675
|
|
8,144
|
3,283
|
Financing
costs
|
1,994
|
941
|
|
3,924
|
1,917
|
Share of associate and
joint venture net loss
|
29
|
-
|
|
157
|
-
|
Other (gains)
losses
|
(591)
|
(1,161)
|
|
(2,759)
|
(3,068)
|
|
18,174
|
7,809
|
|
32,970
|
14,599
|
|
|
|
|
|
|
Earnings before income
taxes
|
11,962
|
13,024
|
|
25,687
|
28,326
|
Income tax
expense
|
2,828
|
2,301
|
|
5,975
|
5,651
|
Net Income
|
9,134
|
10,723
|
|
19,712
|
22,675
|
Allocated to
non‐controlling interests
|
701
|
(63)
|
|
605
|
(128)
|
Net income attributable
to common shareholders
|
8,433
|
10,786
|
|
19,107
|
22,803
|
|
|
|
|
|
|
Weighted average shares
outstanding – Basic
|
17,929,118
|
18,473,942
|
|
17,851,619
|
18,483,713
|
Weighted average shares
outstanding – Diluted
|
18,141,795
|
18,766,033
|
|
18,073,583
|
18,763,319
|
Net income per share –
Basic
|
$0.47
|
$0.58
|
|
$1.07
|
$1.23
|
Net income per share –
Diluted
|
$0.46
|
$0.57
|
|
$1.06
|
$1.22
|
Sales for the second quarter and six months ended
March 31, 2022 increased by 80% and 69% respectively
versus the prior comparable periods. The reasons have been
explained previously in this press release.
Gross profit for the second quarter and six months ended
March 31, 2022 increased by 45% and 37% respectively
versus the prior comparable periods. This is primarily explained by
the contribution of ECR, GES and MTC and by increased sales volume
for most of TerraVest's base portfolio businesses,
partially offset by a less favorable product mix, reduced
government wage subsidies and increased raw materials and supply
costs due to inflationary pressure.
Administration expenses for the second quarter and six months
ended March 31, 2022 increased by 99% and 89%
respectively versus the prior comparable periods. The increases are
the result of the addition of ECR, GES and MTC as well as reduced
government subsidies, increased travelling costs and additional
wage expense to support the growth of its businesses and develop
its market and product lines in renewable gases and fuels.
Selling expenses for the second quarter and six months ended
March 31, 2022 increased by 147% and 148% respectively
versus the prior comparable periods. This is a result of the
addition of ECR and GES, the hiring of additional sales personnel,
increased marketing expenses as well as reduced government wage
subsidies.
Financing costs for the second quarter and six months ended
March 31, 2022 increased by 112% and 105% respectively
versus the prior comparable periods. The increase is primarily
explained by additional interest expenses as a result of increased
debt balance following the acquisition of ECR, GES and MTC.
Other (gains) losses variance for the second quarter and six
months ended March 31, 2022 is a result of a lower loss
on foreign exchange (increased loss for the second quarter) and a
gain on remeasurement of an equity interest, partially offset by
unfavorable changes in fair value of derivative financial
instruments (favorable for the second quarter) and investment in
equity instruments. TerraVest also realized a gain on disposal of
other property, plant and equipment in the second quarter ended
March 31, 2022.
Income tax expense for the second quarter and six months ended
March 31, 2022 increased versus the prior comparable
periods, which is the result of increased taxable earnings and the
timing of income tax expense adjustments.
As a result of the above, net income attributable to common
shareholders for the second quarter and six months ended
March 31, 2022 decreased by 22% and 16% versus the prior
comparable periods.
DIVIDENDS
TerraVest is pleased to announce that The Board of Directors has
declared its quarterly dividend of 10 cents per common share
payable on July 11, 2022 to shareholders of record as at the
close of business on June 30, 2022. The dividend is designated
an "eligible dividend" for Canadian income tax purposes.
Additional information can be found in TerraVest's annual
consolidated financial statements and MD&A which are available
on SEDAR at www.sedar.com.
Non‑IFRS Financial Measures
This news release makes reference to certain non‑IFRS
financial measures. These measures are not recognized measures
under IFRS and do not have a standardized meaning prescribed by
IFRS. TerraVest's definitions may differ from those of other
issuers and therefore may not be comparable to similarly titled
measures used by other issuers. The Company uses non‑IFRS financial
measures including adjusted EBITDA, cash available for
distribution, dividend payout ratio and maintenance capital
expenditures.
Adjusted EBITDA: is defined as net income
adjusted for income tax expense, financing costs, depreciation,
amortization, gains or losses on disposal of other property, plant
and equipment, property, plant and equipment for rental and on
disposal of assets held for sale, change in fair value of
derivative financial instruments, change in fair value of
investment in equity instruments, gains or losses on foreign
exchange, non-recurring acquisition‑related costs, impairment
charges, gains or losses on remeasurement of equity interest and
other non‑recurring and/or non‑operations related items that do not
reflect the current ongoing operations of TerraVest. Management
believes this is a useful metric in evaluating the ongoing
operating performance of TerraVest. Readers are cautioned that
adjusted EBITDA should not be construed as an alternative to net
income determined in accordance with IFRS as an indicator of
TerraVest's performance.
Cash Available for Distribution: is defined as cash
flow from operating activities adjusted for changes in non-cash
operating working capital, maintenance capital expenditures and
repayment of lease liabilities. Management believes that cash
available for distribution, as a liquidity measure, is a useful
metric that provides an indication of the cash available from
ongoing operations that can be distributed to shareholders as a
dividend. Readers are cautioned that cash available for
distribution should not be construed as an alternative to cash flow
from operating activities determined in accordance with IFRS as an
indicator of TerraVest's liquidity and cash flows.
Dividend Payout Ratio: is defined as dividends paid in
cash during the period divided by cash available for distribution
for the period. Management believes that dividend payout ratio is a
useful metric as it provides an indication of TerraVest's ability
to sustain its current dividend policy. There is no directly
comparable IFRS measure for dividend payout ratio.
Maintenance Capital Expenditures: is defined as
capital expenditures made to sustain the operations of TerraVest's
operating businesses and to maintain the productive capacity of the
businesses over an economic cycle, whether or not they yield
significant cost or production efficiencies. Management believes
that maintenance capital expenditures should be funded by cash flow
from existing operating activities and, therefore, deducted in
determining cash available for distribution. There is no directly
comparable IFRS measure for maintenance
capital expenditures.
Caution Regarding Forward-Looking Statements
This news release contains forward-looking statements.
All statements other than statements of historical fact contained
in this news release are forward-looking statements, including,
without limitation, statements regarding our strategic direction
and evaluation of the business segments and TerraVest as a whole,
and other plans and objectives of or involving TerraVest. Readers
can identify many of these statements by looking for words such as
"expects" and "will" or similar terms or variations of these words.
Although management believes that the expectations represented in
such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct.
By their nature, forward-looking statements require us to
make assumptions and, accordingly, forward looking statements are
subject to inherent risks and uncertainties. There is significant
risk that the forward-looking statements will not prove to be
accurate. We caution readers of this news release not to place
undue reliance on our forward-looking statements because a number
of factors may cause actual future circumstances, results,
conditions, actions or events to differ materially from the plans,
expectations, estimates or intentions expressed in the
forward-looking statements and the assumptions underlying the
forward-looking statements.
Assumptions and analysis about the performance of TerraVest
as a whole and its business segments, the markets in which the
business segments compete and the prospects and values of the
business segments are considered in setting the business plan for
TerraVest, plans and/or ability to pay dividends, outlook for
operations, financial position, results and cash flows, other plans
and objectives and in making related forward-looking statements.
Such assumptions include, without limitation, demand for
products and services of the business segments in respect of the
Canadian and other markets in which the businesses are active will
be stable, and that input costs to business segments do not vary
significantly from levels experienced
historically. Should any of these factors or
assumptions vary, actual results may differ materially from the
forward-looking statements.
SOURCE TerraVest Industries Inc.