Winnipeg, Manitoba, November 30, 2009 – Empire Industries Ltd. (TSX-V: EIL) (“Empire” or the “Company”), today announced its unaudited consolidated financial results for its third quarter and nine months ended September 30, 2009. The unaudited consolidated financial statements and related Management’s Discussion and Analysis are available on Empire’s website at www.empind.com and have been filed on SEDAR.
Third Quarter Highlights:
Revenue decreased 64.6% to $20.3 million compared to $57.4 million last year;
Gross margin improved to 16.2% of revenue from 14.1% of revenue for the third quarter of last year;
Operating, general and administrative (“OG&A”) expenses decreased 26.4% to $4.3 million;
Net loss was $4.5 million, or $0.05 per share, compared to restated net earnings of approximately $290,000, or $nil per share, for the third quarter of 2008;
Net loss for the quarter included a non-cash, goodwill write-down of $6.5 million, or $0.07 loss per share.
Working capital increased $2.9 million in the third quarter to $1.8 million at September 30, 2009 from negative working capital of $1.1 million at June 30, 2009
Subsequent to Quarter End:
Immediately after quarter end, the Company completed the sale of assets relating to the combustion portion of the business for net proceeds of $10.2 million. After giving effect to this transaction at September 30, 2009, net funded debt would decrease significantly to $20.7 million (38% net funded debt to total capitalization on a pro forma basis) from $47.7 million at December 31, 2008 (54% net funded debt to total capitalization).
“While our revenue for the third quarter was largely impacted by negative economic conditions, we improved our gross margin as a percentage of revenue, reduced our OG&A expenses and made substantial progress with our restructuring initiatives,” said Guy Nelson, Chairman and CEO of Empire Industries Ltd. “Moreover, through the sale & leaseback of our Kingsway facility, the transferring of other lease obligations to other parties and the October 5th sale of a non-core business unit, the Company has significantly reduced its net funded debt by $27 million since December 31, 2008. We have repaid all our debt to GE and Bank of Montreal and continue to reduce our debt owed to RBC and HSBC. In-spite of the reduced revenue, we improved our working capital by $2.9 million in the third quarter. We are focused on improving our working capital even more substantially in the coming months by re-leveraging our $20 million of long term assets and starting to generate operating profit again in the coming months.”
Financial Results
Revenue for the third quarter decreased to $20.3 million from $57.4 million in the third quarter of last year. The decrease included a 70.2% reduction in steel fabrication and installation services revenue and a 55.5% reduction in specialized engineered products revenue. Revenue was impacted by the substantial completion of fabrication of the large Coast Meridian Overpass project in the second quarter and lower overall activity in the oil and gas sector due to the lingering effect of weak commodity prices.
While down in absolute dollars, gross profit improved to 16.2% from 14.1% in the third quarter of last year. Lower indirect production and overhead costs contributed to the improved gross profit as a percentage of revenue for the quarter.
Despite a $1.6 million reduction in OG&A expenses, the Company incurred a loss before interest, taxes, depreciation and amortization of $1.1 million for the quarter compared to earnings of $2.4 million for the same period last year. The net loss of $4.5 million ($0.05 basic and diluted loss per share) for the quarter was $4.8 million worse than the restated net earnings of $290,000 ($nil basic and diluted earnings per share) for the same quarter in 2008.
The quarterly net loss included a write-down of goodwill of $6.5 million or $0.07 loss per share associated with Petrofield Industries Inc. (formerly Tornado Technologies Inc.)
Outlook
The Company’s steel fabrication backlog at September 30, 2009 was $25 million compared to $33 million at June 30, 2009 and $46 million at March 31, 2009.
In contrast to the previous quarter, the Company now expects its steel fabrication group to start to be positively impacted by the federal and provincial infrastructure spending programs and the strengthening of oil prices, which positively impacts capital projects relating to the oilsands, as well as ongoing maintenance expenditures. These capital projects are the central driver of the western Canadian economy. The steel fabrication group has provided significant quotes on future work that are dependent on the decision of the customer to proceed and notification that the Company’s quote has been accepted. The Company’s aboriginal strategic venture remains well positioned to capitalize on the strong, persisting demand for maintenance services in the Alberta oilsands region and to contract work to the steel fabrication group.
The Company’s outlook for its engineered products group for the balance of fiscal 2009 is mixed. The oil and gas process equipment division is tied to conventional drilling activity and gas prices and the outlook in these two areas continues to be challenging. However, the amusement ride division will be finishing an iconic ride for a client in North America that has carried a low margin throughout and the Company’s unique and growing reputation in the industry is expected to bode well in the coming years. Higher, more standardized margins are expected to be realized on new contract awards going forward. The bidding activity in the amusement ride industry is picking up pace and the Company is uniquely positioned to capitalize on this rapidly growing export market in Asia. The outlook for this division is positive.
As disclosed previously, the Company and the board of directors are continuing to evaluate alternatives to optimize the intrinsic value and financial performance of the Company, including: improved working capital management; the disposition of non-core or redundant assets; cost containment and cost reduction; refinancing of certain long-term assets; and increases in shareholders’ equity.
