TORONTO, Dec. 14,
2022 /CNW/ - TerraVest Industries Inc., (TSX:
TVK) ("TerraVest" or the "Company") announces its results for the
fourth quarter and year ended September 30, 2022 and the
declaration of its quarterly dividend.
FOURTH QUARTER AND YEAR END 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 fourth quarter and year ended
September 30, 2022 and the comparative periods in
fiscal 2021.
|
Fourth quarters
ended
|
|
Years
ended
|
|
Sept. 30, 2022
|
Sept. 30, 2021
|
|
Sept. 30, 2022
|
Sept. 30, 2021
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Sales
|
162,442
|
80,816
|
|
576,704
|
307,463
|
|
|
|
|
|
|
Net
Income
|
16,953
|
9,388
|
|
46,770
|
36,410
|
Add
(subtract):
|
|
|
|
|
|
Income tax
expense
|
2,440
|
2,111
|
|
11,885
|
9,636
|
Financing
costs
|
3,069
|
1,648
|
|
9,342
|
4,505
|
Depreciation and
amortization
|
12,879
|
5,049
|
|
35,289
|
19,253
|
Change in fair value
of derivative
financial instruments
|
2,014
|
606
|
|
1,173
|
(1,345)
|
Change in fair value
of investment in
equity instruments
|
338
|
(1)
|
|
293
|
(3,992)
|
(Gain) loss on foreign
exchange
|
(4,283)
|
(1,365)
|
|
(5,175)
|
2,119
|
(Gain) loss on
disposal of other property, plant
and equipment
|
(76)
|
(64)
|
|
(1,110)
|
(475)
|
(Gain) loss on
disposal of property, plant and
equipment for rental
|
(477)
|
(631)
|
|
(801)
|
(808)
|
(Gain) loss on
disposal of intangible assets
|
-
|
-
|
|
7
|
-
|
(Gain) loss on
remeasurement of an
equity interest
|
-
|
-
|
|
(1,956)
|
-
|
Gain on bargain
purchase
|
(9,468)
|
-
|
|
(9,468)
|
-
|
Acquisition‑related
cost
|
130
|
433
|
|
420
|
433
|
Adjusted
EBITDA
|
23,519
|
17,174
|
|
86,669
|
65,736
|
Sales for the fourth quarter and year ended
September 30, 2022 were $162,442 and $576,704 versus $80,816 and $307,463 for the prior comparable periods. This
represents increases of 101% and 88% respectively. However,
TerraVest acquired all of the issued and outstanding shares of ECR
International, Inc. ("ECR") in August 2021, of
Mississippi Tank and Manufacturing Company ("MTC") in March 2022 and of Platinum Energy Services LTD.
("PES") in July 2022 as well as a
controlling interest of 66.8% in Green Energy Services Inc. ("GES")
in November 2021, of which only ECR
partially contributed to the prior comparable periods. Excluding
ECR, GES, MTC and PES, sales for the fourth quarter and year ended
September 30, 2022 were $100,180 and $373,230 versus $69,707 and $296,354 for the prior comparable periods. This
represents increases of 44% and 26% respectively for TerraVest's
base portfolio (excluding ECR, GES, MTC and PES).
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 structured to pass along raw material and labour
cost increases. The increases in sales were partially offset by
lower demand for some home heating product lines.
Net income for the fourth quarter and year ended
September 30, 2022 were $16,953 and $46,770
versus $9,388 and $36,410 for the prior comparable periods. This
represents increases of 81% and 28% respectively. These increases
are a result of higher sales in TerraVest's base portfolio of
businesses, as well as positive contributions from ECR, GES and
MTC, and the recognition of a gain on bargain purchase and on
foreign exchange, partially offset by the curtailment of pandemic
subsidy programs during the year, cost inflation and supply chain
disruptions. TerraVest's interest expense also increased as debt
levels were higher as a result of business acquisitions and working
capital expansion throughout the year. This was partially mitigated
by the interest rate swap agreement. TerraVest also increased its
depreciation and amortization expense mainly as a result of
additional identifiable property, plant and equipment as well as
intangible assets acquired in business acquisitions. Other
variances are also highlighted in the table above.
Adjusted EBITDA for the fourth quarter and year ended
September 30, 2022 were $23,519 and $86,669
versus $17,174 and $65,736 for the prior comparable periods. This
represents increases of 37% and 32% respectively, which are a
result of the reasons explained above.
During the year, TerraVest recognized $1,639 in net income ($12,988 for the year ended of fiscal 2021) in
relation to wage subsidies as part of the Federal Government's
response to the COVID-19 pandemic. TerraVest also recognized
$813 in net income during the year
($5,107 for the year 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 fourth quarter and year
ended September 30, 2022 and the comparative periods in
fiscal 2021.
|
Fourth quarters
ended
|
|
Years
ended
|
|
Sept. 30, 2022
|
Sept. 30, 2021
|
|
Sept. 30, 2022
|
Sept. 30, 2021
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Cash Flow from (used
in) Operating Activities
|
8,342
|
(1,481)
|
|
29,948
|
23,064
|
Add
(subtract):
|
|
|
|
|
|
Change in non‑cash
operating working capital items
|
11,716
|
14,121
|
|
38,346
|
23,874
|
Maintenance capital
expenditures
|
(2,742)
|
(1,353)
|
|
(7,967)
|
(5,829)
|
Repayment of lease
liabilities
|
(1,468)
|
(1,123)
|
|
(5,753)
|
(4,381)
|
Cash Available for
Distribution
|
15,848
|
10,164
|
|
54,574
|
36,728
|
Dividends
Paid
|
1,789
|
1,757
|
|
7,132
|
7,317
|
Dividend Payout
Ratio
|
11 %
|
17 %
|
|
13 %
|
20 %
|
Cash flow from (used in) operating activities for the fourth
quarter and year ended September 30, 2022 were $8,342 and $29,948
versus ($1,481) and $23,064 for the prior comparable periods. This
represents increases of 663% and 30% respectively. The increases in
cash flow from operating activities is largely attributable to
increased net income, partially offset by increased working capital
as activity levels increased throughout the year. The significant
increase in steel and other raw materials pricing has also had a
noticeable effect on working capital levels as well as the increase
in accounts receivable. TerraVest also incurred more interest and
income taxes compared to the prior comparable periods.
Maintenance capital expenditures were $2,742 for the fourth quarter ended
September 30, 2022 versus $1,353
for the prior comparable period representing an increase of 103%,
which is mainly explained by the timing of such expenditures.
During the fourth quarter, TerraVest's total purchase of property,
plant and equipment was $8,888 of
which $6,146 is considered growth
capital. The growth capital incurred during the fourth quarter was
used to add to the Company's rental fleet and automate certain
manufacturing processes. 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 fourth quarter and year
ended September 30, 2022 increased by 56% and 49%
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 fourth quarter and year ended
September 30, 2022 were 11% and 13% versus 17% and 20%
respectively 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 geo-political tensions in
Europe. Over the past year, the
Company and its employees have done an excellent job navigating the
current business environment, all while keeping tight control on
operating costs and improving manufacturing efficiency. The
majority of TerraVest's businesses are experiencing increased
demand, particularly those with exposure to energy end-markets.
However global supply chain disruptions, labour scarcity and rapid
cost inflation have made it challenging to ramp up capacity to meet
this increased demand. 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 July 4, 2022, TerraVest entered into a share purchase
agreement to purchase all of the issued and outstanding shares of
PES, a privately-owned manufacturing company of wellhead processing
and production equipment for the Canadian oil & gas market.
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.
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 non-controlling interest was measured at its
proportionate share in GES' identifiable net assets at acquisition
date.
All business combinations have been accounted for using the
acquisition method with the results of operations included in
earnings from the date of acquisition.
CONSOLIDATED RESULTS OF OPERATIONS
The following section provides the financial results of
TerraVest's operations for the fourth quarter and year ended
September 30, 2022 and the comparative periods in
fiscal 2021.
|
Fourth quarters
ended
|
|
Years
ended
|
|
Sept. 30, 2022
|
Sept. 30, 2021
|
|
Sept. 30, 2022
|
Sept. 30, 2021
|
|
$
|
$
|
|
$
|
$
|
|
|
|
|
|
|
Sales
|
162,442
|
80,816
|
|
576,704
|
307,463
|
Cost of
sales
|
129,011
|
59,161
|
|
452,318
|
226,829
|
Gross profit
|
33,431
|
21,655
|
|
124,386
|
80,634
|
|
|
|
|
|
|
Administration
expenses
|
17,678
|
7,435
|
|
54,900
|
26,816
|
Selling
expenses
|
5,290
|
2,745
|
|
18,464
|
7,690
|
Financing
costs
|
3,069
|
1,648
|
|
9,342
|
4,505
|
Share of associates and
joint venture net
(income) loss
|
(47)
|
(217)
|
|
62
|
78
|
Other (gains)
losses
|
(11,952)
|
(1,455)
|
|
(17,037)
|
(4,501)
|
|
14,038
|
10,156
|
|
65,731
|
34,588
|
|
|
|
|
|
|
Earnings before income
taxes
|
19,393
|
11,499
|
|
58,655
|
46,046
|
Income tax
expense
|
2,440
|
2,111
|
|
11,885
|
9,636
|
Net Income
|
16,953
|
9,388
|
|
46,770
|
36,410
|
Allocated to
non‐controlling interests
|
498
|
(7)
|
|
1,518
|
(208)
|
Net income attributable
to common shareholders
|
16,455
|
9,395
|
|
45,252
|
36,618
|
|
|
|
|
|
|
Weighted average shares
outstanding – Basic
|
17,886,320
|
17,567,469
|
|
17,877,941
|
18,099,965
|
Weighted average shares
outstanding – Diluted
|
18,100,130
|
17,762,042
|
|
18,093,678
|
18,352,184
|
Net income per share –
Basic
|
$0.92
|
$0.53
|
|
$2.53
|
$2.02
|
Net income per share –
Diluted
|
$0.91
|
$0.53
|
|
$2.50
|
$2.00
|
Sales for the fourth quarter and year ended
September 30, 2022 increased by 101% and 88% respectively
versus the prior comparable periods. The reasons have been
explained previously in this press release.
Gross profit for the fourth quarter and year ended
September 30, 2022 both increased by 54% 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 costs due to inflationary pressure.
Administration expenses for the fourth quarter and year ended
September 30, 2022 increased by 138% and 105% respectively
versus the prior comparable periods. The increases are the result
of the addition of ECR, GES, MTC and PES as well as reduced
government subsidies 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 fourth quarter and year ended
September 30, 2022 increased by 93% and 140% respectively
versus the prior comparable periods. This is a result of the
addition of ECR, GES and MTC, the hiring of additional sales
personnel, increased travel and marketing expenses as well as
reduced government wage subsidies.
Financing costs for the fourth quarter and year ended
September 30, 2022 increased by 86% and 107% respectively
versus the prior comparable periods. The increases are primarily
explained by additional interest expense as a result of increased
debt balances following the acquisitions of ECR, GES, MTC and PES
and increases in interest rates since March
2022 on floating rate debt.
Other (gains) losses variance for the fourth quarter and year
ended September 30, 2022 are a result of a gain on foreign
exchange, on remeasurement of an equity interest and on disposal of
property, plant and equipment, partially offset by unfavorable
changes in fair value of derivative financial instruments and of
investment in equity instruments. TerraVest also realized a gain on
bargain purchase in the fourth quarter ended September 30,
2022.
Income tax expense increased for the fourth quarter and for the
year ended September 30, 2022 versus the prior comparable
periods. The increases are mainly explained by 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 fourth quarter and year ended
September 30, 2022 increased by 75% and 24% respectively
versus the prior comparable periods.
DIVIDENDS
TerraVest is pleased to announce that The Board of Directors has
declared a quarterly dividend of $0.125 per common share payable on
January 10, 2023 to shareholders of record as at the close of
business on December 31, 2022. This represents a 25% increase
over the prior quarterly dividend. 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, gain
on bargain purchase 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.