Winnipeg, Manitoba, May 29th, 2009 – Empire Industries Ltd. (TSX-V: EIL) (“Empire” or the “Company”), today announced its unaudited consolidated financial results for its first quarter ended March 31, 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.
First Quarter Highlights:
Revenue increased 8.4% to $42.0 million;
Engineered products group revenue increased 19.3% to $21.0 million;
Steel fabrication group revenue decreased slightly to $20.9 million.
Gross margin was 9.2% of revenue compared to 17.4% of revenue for the first quarter of last year;
Net Loss was $1.6 million, or $0.02 per share, compared to net earnings of $16 thousand, or $0.00 per share, for the first quarter of 2008.
Free cash flow increased $7.3 million which was all used to reduce bank indebtedness leaving the Company with $4.6 million available on its revolving facilities at March 31, 2009.
“Stronger revenues from our engineered products group, contributions from our expansion into the maintenance services market through our Aboriginal partnership and a significant improvement in our free cash flow were the bright spots in an otherwise challenging quarter,” said Guy Nelson, Chairman and CEO of Empire Industries Ltd. “Our steel fabrication group was negatively impacted by the contraction and deferral of large construction projects and number of jobs generating lower margins compared to the prior year. The profits from our engineered products group were not large enough to offset the losses in the steel fabrication group and we had a net loss for the quarter of $1.6 million, or $0.02 per share. On the positive side, all our business units were focused on maximizing free cash flow to ensure that we weathered the economic storm and our free cash flow increased to $7.3 million in the first quarter.”
Financial Results
For the quarter ending March 31, 2009, revenue increased 8.4% to $42.0 million due to a 19.3% increase in engineered products revenue compared to the first quarter of last year. Gross profit was reduced by 42.7% to $2.9 million, primarily the result of a 71.1% reduction in contribution from the steel fabrication group. Gross margin was 9.2% compared to 17.4% for the first quarter a year ago.
EBITDA (earnings before interest, taxes, depreciation, and amortization) loss was $1.1 million compared to EBITDA of $2.1 million for the same quarter last year. In addition to the lower gross profit achieved, profitability was impacted by a $0.4 million increase in operating, general and administrative expenses resulting from: higher costs associated with the establishment of a central office for the Company’s B.C.-based steel fabrication businesses and a $0.2 million increase in selling expenses associated with higher underlying sales activity in wholly-owned subsidiary, Tornado Technologies Inc. The Company had a net loss for the quarter amounting to $1.6 million or $0.02 per share, compared to net earnings of $16 thousand, or $0.00 per share, for the first quarter of 2008.
Outlook
“We expect negative economic conditions to continue to impact the performance of our steel fabrication group throughout 2009,” said Mr. Nelson. “However, we are cautiously optimistic that lower steel prices and strengthening oil prices will lead to the restoration of business capital investment which should stimulate demand for non-residential construction. This in turn will provide more bidding opportunities for fabrication and installation work. Federal and various provincial government announcements in recent months indicating a willingness to invest up to $21 billion in infrastructure spending over the next two years, provide for a potentially much brighter outlook for our steel fabrication group for 2010.”
The Company’s outlook for its engineered products group and its aboriginal partnership both remain relatively positive for 2009. Empire’s engineered products group expects to benefit from a general improvement in capital spending by the customers in the markets it serves with its proprietary products. The Company’s unique aboriginal partnership is also well-positioned to capitalize on the high demand for maintenance services in the Alberta oil sands region.
As stated in the Company’s news release dated April 30, 2009, the Company and its board of directors are evaluating specific alternatives to continue to improve free cash flow and liquidity in order to rectify its covenant breaches concurrent with maximizing shareholder value. Options being considered by the Company are the sale of non-core assets, strategic equity partnerships, equity raises, rigorous working capital management, continued cost containment and reduction, and refinancing.
