Winnipeg, Manitoba, August 28, 2009 – Empire Industries Ltd. (TSX-V: EIL) (“Empire” or the “Company”), today announced its unaudited consolidated financial results for its second quarter and six months ended June 30, 2009. The unaudited consolidated financial statements and Management’s Discussion and Analysis for the first quarter are available on Empire’s website at www.empind.com and have been filed on SEDAR.
Second Quarter Highlights:
Revenue decreased 34.7% to $28.6 million compared to $43.7 million last year;
Gross margin was 5.4% of revenue compared to 15.1% of revenue for the second quarter of last year;
Operating, general and administrative (“OG&A”) expenses declined 22.6% to $4.5 million compared to $5.8 million for the same quarter last year;
Net Loss from operations was $2.2 million, or $0.02 per share, compared to a loss of $0.3 million, or $nil per share, for the second quarter of 2008.
Subsequent to quarter end the Company completed a sale and leaseback of its Kingsway facility as announced July 31, 2009 and used the proceeds of sale to repay $8.8 million of debt.
Financial Results
Revenue for the second quarter decreased 34.7% to $28.6 million due to reductions from both the engineered products and steel fabrication groups. The engineered products group had lower sales of oilfield equipment as a result of shifts in seasonal buying patterns as well as an overall reduction in activity in the oil and gas sector in the quarter due to weak commodity prices. In the steel fabrication group, larger projects in the first six months of fiscal 2008 were replaced by fewer and smaller projects during the first half of fiscal 2009 following the contraction and deferral of large construction projects in the Alberta oil sands.
Gross margin deteriorated to 5.4% of revenue from 15.1% of revenue for the second quarter of last year. The deterioration arose from higher erection costs associated with the first cable-stayed bridge (Coast Meridian Overpass) launched in North America, incorporating the greatest single span ever launched, as well as lower sales activity relative to underlying fixed production and indirect overhead expenses.
Despite a $1.3 million reduction in OG&A expenses in the second quarter, the Company incurred an operating loss of $3.8 million for the quarter compared to operating income of $0.1 million for the same period last year. The net loss for the quarter widened to $2.2 million, or $0.02 per share, from $0.3 million, or $nil per share, a year ago.
Focus on Cash Flow and Managing Costs
“While certainly disappointed by our financial results for the quarter and the year-to-date, Empire has taken a number of decisive actions to improve cash flow, contain costs and strengthen its balance sheet,” said Guy Nelson, Chairman and CEO of Empire Industries Ltd. “In light of the economic recession and the contraction and deferral of large construction projects in western Canada, we have implemented significant cost reductions throughout the year in both our engineered products and steel fabrication groups contributing to a 22.6% reduction in OG&A expenses for the quarter and 9% for the year-to-date.”
Staff reductions undertaken in late fiscal 2008 as well as further staff and salary reductions late in the second quarter are expected to contribute to lower OG&A and cost of sales throughout the balance of fiscal 2009. Additional cost reductions have been implemented subsequent to quarter end that coincided with substantial completion of the Coast Meridian Overpass project.
Concurrent with the sale of the Kingsway property subsequent to quarter end in July 2009, the Company entered into a ten year fixed rate lease with the purchaser. The fixed rate lease cost under the agreement provides an initial cash flow saving of about $840,000 per year compared to the former debt servicing cost associated with the property.
Outlook
“We remain focused on the long-term growth opportunities inherent in each of our business segments,” said Mr. Nelson. “However, for the remainder of the year we expect our steel fabrication group to continue to be negatively impacted by the current contraction and deferral of large construction projects in western Canada. Our steel fabrication backlog at June 30, 2009 was about $33 million compared to $46 million at March 31, 2009 although bidding activity has recently increased. We are confident that when the current economic contraction subsides, the non-residential construction market in western Canada will continue its long-term growth trend led in part by the expected positive impact of federal and provincial infrastructure spending announcements and in part by the strengthening of commodity prices which are the central driver of the western Canadian economy. The outlook for our engineered products group and our aboriginal partnership remains positive for the balance of fiscal 2009, supported by increasing backlogs and increased bidding activity.”
The Company and its board of directors continue to evaluate alternatives to optimize the value and performance of its steel fabrication group and to improve free cash flow and liquidity in order to reduce debt and rectify its previously disclosed covenant breaches. In addition to the cost reduction steps already taken and the sale and leaseback of the Kingsway facility completed, options being considered by the Company include the disposition of additional non-core or redundant assets, further cost containment and cost reduction, refinancing of certain long-term assets and increases in shareholder equity.
