2015 was another successful year for Empire. The $8.0 million of EBITDA that was generated demonstrates that our strategy of recent years has been a good one. While remaining profitable, we have also put the wheels in motion for Empire’s continued growth and development.
- The creation of our Unlimited Attractions Demonstration Centre in Orlando, Florida will ensure that we remain on the cutting edge of new attraction development and add another revenue stream to further enhance our product offering in the Media-based Attractions business segment. The investment in this new capability will drive more ride system sales through fulfilment of our customers need for turn-key solutions to unique guest experiences.
- Our proposed spin-out of Tornado Hydrovacs will allow Empire to increase its focus and capital allocation on its core business of Media Based Attractions, while allowing Tornado to capitalize on exciting opportunities in North America and China by leveraging its proprietary hydrovac technology and unique business strategy. Empire’s shareholders as of the Record Date for this transaction, will have the ability to participate in this opportunity through their direct ownership of 54.5% of Tornado Global Hydrovacs Inc., which will become an independently operated, publicly listed company on the TSXV.
- The Thirty Metre Telescope partnership has decided to open up the question of where to locate the telescope and we remain confident the enclosure will be designed and built by Empire, albeit a little bit delayed.
There are tremendous opportunities in front of us, and we are well positioned to capitalize on them. There are plenty of reasons to be bullish on our long term future.”
2015 Highlights
- Revenues increased by $10.2 million (7.2%), to $151.4 million from $141.2 million in 2014. The increase was driven by an increase of $35.2 million in the Media-based Attractions segment, offset by decreases totaling $24.8 million in the Manufactured Products and Steel Fabrication segments.
- Adjusted EBITDA was consistent with 2014 at $8.0 million. The mix of contribution to EBITDA was significantly different in 2015, with the Media-Based Attractions segment increasing its EBITDA by $5.2 million to $11.7 million. The Manufactured Products and Steel Fabrication segments were unable to contribute EBITDA due to significantly reduced volumes because of a market slow-down in western Canada.
- Net Income was down $4.7 million to $1.4 million from $6.1 million in 2014. Per Share Net Income (Basic) was $0.005 in 2015 (from $0.024 in 2014). The vast majority of this decrease was from non-cash changes in deferred taxes and an increase in the unrealized loss in hedging contracts.
- Backlog of $130 million, down from $155 million at of the Group’s third quarter report. Despite our backlog decline, our pipeline of active projects has never been larger or more high quality and robust.
Business Unit Update
Media-based Attractions
Over the past four years, we have invested heavily in creating and designing our own line of proprietary media-based attractions to complement our historical business of providing complex engineering, design and manufacturing solutions to some the world’s largest theme park customers. We have successfully developed our own proprietary product line through numerous contract awards during this time. In 2015, we have been executing numerous contracts for our own proprietary products as well as traditional work for the world’s largest theme park owners.
We opened two new office locations during 2015, one in Port Coquitlam, British Columbia and the other in Orlando, Florida. We have also invested in expanding the services we provide, introducing our Unlimited AttractionsTM, which offers our customers a much broader range of the products and services that transform a ride into a true media-based attraction. These services include story concept, lighting, scenery, media, special effects, etc. This service offering differentiates our line-up of iconic dark rides and theatre products from our competitors.
Hydrovac Trucks
As we write, we are in the process of spinning out our hydrovac truck segment into a new TSXV listed and traded company called Tornado Global Hydrovacs Ltd. We believe that the business has real prospects that will thrive better as a standalone company with its own capital structure and a $10 million capital infusion from a strategic investor. Empire’s shareholders will still have the ability to benefit from this opportunity through the common shares they receive from the spin-out transaction. You can read more about this exciting transaction on our website at www.empind.com. The Information Circular will also be available on-line and it will disclose the transaction in greater detail. In short, Empire has done an extensive market study, developed a unique plan, and found a strategic partner, giving Tornado the capacity to grow rapidly as the new plan is executed.
Telescopes
We are disappointed with the delays in on-site construction of the Thirty Meter Telescope because of a local protest in Hawaii. We remain very confident that the telescope enclosure will be designed and built by Empire. We as a company have designed and built more than half the world’s large telescope enclosures over the past four decades so are uniquely positioned to deliver what will be the largest telescope enclosure ever built. The TMT partnership has decided to open up the question of where to locate the telescope and are actively looking at alternative sites to Hawaii. The preferred site remains Hawaii, but the partnership remains committed to building what will become a scientific wonder of the world, if not Hawaii, then the next best location. The Government of Canada remains a committed partner in the global TMT partnership that includes the United States, Japan, Canada, China and India.
Steel Fabrication
Low oil prices through 2015, and the associated significant reduction in capital expansion by energy firms in Western Canada, have taken a toll on this segment’s profitability. We are continuing to execute our strategy to lower steel fabrication costs by complementing our domestic steel fabrication capacity with available capacity at lower costs from our 45% owned, steel fabrication joint venture in China. Our energy customers absolutely need to reduce the capital cost per barrel of their expansions. In spite of the current difficult conditions in this segment, we see long term value here. Therefore, we also continue to evaluate strategic options that can unlock intrinsic value. The devastating forest fires have added a level of personal trauma that can not be understated. We remain steadfast in supporting our joint venture in Fort McMurray and its employees in these particularly difficult and challenging times.
Outlook
The Company expects to continue to improve its operating performance in 2016 as a result of the following:
- The Media-based Attractions segment will continue to execute its backlog of high value added products and services. This segment continues to build multiple new products and services, including Unlimited AttractionsTM. It is anticipated that there will still be some learning curve challenges from an earned revenue and profit perspective because of the sheer number of new complex ride systems and service offerings being introduced. Our profit performance is expected to improve as second generation products get produced that take advantage of the one-time development costs associated with the first generation products.
- The weak Canadian dollar will continue to positively impact profit margins because the media based attractions are primarily sold in US dollars. There are costs that are incurred in US dollars as well, but there continues to be a net advantage of manufacturing in Canada and exporting in US dollars.
Our backlog remains healthy at $130 million, down from $155 million, as of December 31, 2014. The Company has a very healthy pipeline of sales prospects it is working on to turn into backlog, and has never felt more bullish about its sales pipeline.
Our plans to spin-out the Tornado hydrovac truck division into its own public company are proceeding on schedule. We anticipate closing the transaction by the end of June.
Summary
We have successfully repositioned Empire into being an industry leader in the higher margin and higher growth global market of media-based attractions. We still have work in front of us with respect to the Steel Fabrication segment, but we feel the opportunities are there, and we are up to the challenge. The Tornado spin out is an excellent example of an innovative way to unlock the intrinsic value of a business unit and allow it the opportunity to thrive as a standalone entity, while allowing Empire’s shareholders the ability to continue to benefit as direct shareholders of that business.
We will continue to shelter Empire’s profits from tax through the use of our Deferred Tax Assets. We expect our balance sheet to continue to strengthen throughout the year through our tax sheltered equity earnings.
We would like to welcome any new shareholders that have decided to join us on our mission and thank our “old” shareholders who have stuck with us patiently as the management, directors and employees guided us through the challenges and capitalized on the opportunities of the past few years. We are confident the future will be exciting and unfold as planned.
Guy Nelson Ian Macdonald
Executive Chairman and CEO Non-executive Chairman of the Board