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press release

March 9, 2022, 5:01 p.m. EST

Shawcor Ltd. Announces Fourth Quarter and Full Year 2021 Results

TORONTO, March 09, Mar 09, 2022 (GLOBE NEWSWIRE via COMTEX) -- TORONTO, March 09, 2022 (GLOBE NEWSWIRE) -- Shawcor Ltd. ("Shawcor" or the "Company") /zigman2/quotes/209643057/delayed CA:SCL +0.87% reported today its operational and financial results for the three and twelve months ended December 31, 2021. This press release should be read in conjunction with the Company's Management Discussion and Analysis (MD&A) and audited consolidated financial statements for the years ended December 31, 2021 and 2020, which are available on the Company's website and at www.sedar.com .

Highlights from the fourth quarter include:

  • Fourth quarter 2021 consolidated revenue was $266 million with an Adjusted EBITDA [1] of $20.1 million and operating loss of $53.6 million. Non-oil and gas businesses grew to 43% of total revenue.

  • Order backlog increased by 16% to $589 million as at December 31, 2021, compared to $507 million at September 30, 2021. This increase reflects continued growth in non-oil and gas businesses and the recently received notice to proceed for the Scarborough pipe coating project. With the Scarborough award and others, backlog beyond 12 months has grown to $155 million as at December 31, 2021, compared to $27 million at September 30, 2021.

  • The Company published its 2020 Environmental, Social and Governance Report (ESG), setting ambitions for reductions of 2030 greenhouse gas emissions and for the expansion of senior management diversity.

  • The Company signed a letter of intent for the sale and 3 year leaseback of its Rexdale, Ontario facility. This transaction is expected to close during Q2-2022 with net proceeds of at least $45 million. The Company expects to relocate its Toronto area Automotive & Industrial manufacturing activities to an upgraded and modernized facility during the leaseback period.

  • The Company completed the sale of its Shawcor Inspection Services business for approximately $11.2 million.

  • The Company received formal Notice to Proceed for premium pipeline coating services associated with the Scarborough project in Australia.

  • On December 10 [th] , the Company issued unsecured Senior Notes for proceeds of $150 million, which were used to repay amounts outstanding under the Credit Facility, and concurrently, reduced its maximum borrowing limit on its Credit Facility to US$300 million from US$500 million.

  • The Company repaid an additional $33 million of outstanding indebtedness under its Credit Facility during the fourth quarter of 2021, with an additional $10 million repayment made subsequent to the quarter.

  • Subsequent to the quarter, the Company amended its secured Credit Facility, extending the term to 2026 with revised covenants that provide greater financial flexibility.

Mr. Mike Reeves, President & Chief Executive Officer of Shawcor remarked "During the fourth quarter Shawcor continued to execute on its strategic plan, prioritizing the development and delivery of differentiated, high value, materials-based solutions in support of industrial and critical infrastructure end markets. We delivered stronger than originally projected Adjusted EBITDA [1] , robust cash flow from operations and further lowered net debt while exiting business activities which did not align well with our strategic vision."

Mr. Reeves added "Ongoing global supply chain tightness has caused third party steel tubular deliveries for several offshore pipeline projects to be delayed. Consequently, our Pipeline & Pipe Service segment revenue is expected to be more heavily second half weighted in 2022 than previously anticipated, causing Shawcor's Adjusted EBITDA [1] in the first quarter of 2022 to be less than half of the level achieved in the fourth quarter of 2021, but with sequential quarterly improvement through the year."


1EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 - Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods.

Mr. Reeves concluded "We continue to see constructive market conditions for Shawcor's high value products and services across virtually all end markets. The company's 12-month backlog rose to $589 million at year end, with backlog beyond 12-months expanding significantly during the quarter to $155 million. With strong underlying demand across our Composite Systems and Automotive & Industrial segments, increasing expectations of a multi-year up-cycle in offshore pipeline coating activity, and a further lowered SG&A run-rate spend of $50 million per quarter, we believe Shawcor is well positioned to navigate any market volatility arising from current geopolitical events."

Selected Financial Highlights

(in thousands of Canadian
dollars, except per share
amounts and percentages)
Three Months Ended
December 31
Year Ended
December 31
2021 2020 2021 2020
$ % $ % $ % $ %
Revenue 266,381 325,678 1,143,000 1,178,482
Gross profit 70,615 26.5 % 95,134 29.2 % 318,123 27.8 % 322,536 27.4 %
(Loss) Income from Operations(a) (53,551 ) (20.1 %) 15,936 4.9 % (45,225 ) (4.0 %) (261,336 ) (22.2 %)
Net (Loss) Income for the period [(b)] (58,102 ) 55,822 (79,111 ) (234,167 )
(Loss) Earnings per share:
Basic & Diluted (0.82 ) 0.79 (1.12 ) (3.33 )
Adjusted EBITDA [(c)] 20,078 7.5 % 45,995 14.1 % 105,643 9.2 % 74,257 6.3 %
[(a)] [Operating loss in the twelve months ended December 31, 2021 includes restructuring costs and other, net, of $16.4 million and $57.3 million of impairment charges, while 2020 operating loss includes impairment charges of $212.6 million and restructuring and other costs of $32.6 million.]
[(b)] [Attributable to shareholders of the Company.]
[(c)] [Adjusted EBITDA is a non-GAAP measure. Non-GAAP measures do not have standardized meanings prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 - Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures.]

1.0 FOURTH QUARTER HIGHLIGHTS

Adjusted EBITDA [1] of $20.1 million in the fourth quarter was higher than previously communicated expectations primarily due to higher demand for composite pipe in North America, improved margin mix from shipments of 5G communication cable products and lower incentive-based compensation related to share price decline in the period. The 2021 fourth quarter Adjusted EBITDA [1] result was 56% lower than the fourth quarter of 2020. This anticipated decrease versus prior year quarter was attributed to lower pipeline project activity, the absence of the Products business in the Pipeline and Pipe Services segment and a return of seasonal effects within the Automotive and Industrial segment, which were exacerbated by extended holiday shutdowns at automotive manufacturing facilities due to premium micro-chip shortages. Current quarter results also reflect the absence of $6.0 million in COVID-19 related government wage subsidies that were recorded in the prior year quarter. These declines were partially offset by steady delivery of composite tanks and increased demand for composite pipe products in the upstream oil and gas market as well as stronger activity levels in infrastructure and industrial markets. The fourth quarter continued to show growth in the Company's non-oil and gas businesses which accounted for over 43% of total revenue. SG&A expenses of $48.6 million were lower than the previously communicated quarterly normalized SG&A run-rate of $53 million, primarily as a result of lower discretionary spending and incentive-based compensation expense.


1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 - Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures.The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods.

Since March of 2020, the Company has actioned the controlled shutdown or sale of several girth weld inspection branches and 9 fixed pipe coating facilities to reduce its operating cost base. The Company has continued to focus on cost optimization, including right sizing of its salaried workforce for a total headcount reduction of 28% over the course of the last two years. In the fourth quarter of 2021, the Company also sold its Shawcor Inspection Services and Guardian Mexico businesses, closed its CSI Services business, and announced its intent to sell and leaseback its Rexdale, Ontario facility. The Company recorded net restructuring and other costs of $8.9 million in the fourth quarter reflecting actions completed or committed, including executive changes.

In the fourth quarter of 2021, the Company performed its annual asset impairment testing and recorded total impairment charges of $45.7 million. Impairment charges of $12.6 million were recorded for inventory and certain assets related to the decision to abandon the FlexFlow product line, discrete length large diameter composite pipe, in its Composite Systems segment. Additionally, impairment charges of $18.8 million for goodwill and intangibles related to the Lake Superior Consulting operating unit and $1.7 million for intangible assets of Socotherm Americas, the Company's operations in Argentina, were recorded based on current outlook. Lastly, impairment charges of $8.7 million were recorded for property, plant and equipment in the Adria facility in Italy to reflect current valuation information received and $3.9 million for the equity-accounted investment in Power-Feed-Thru Systems and Connectors, LLC ("PFT"), as a result of PFT's continued operating results declines and cash constraints.

As at December 31, 2021, the Company had cash and cash equivalents totaling $124.4 million (September 30, 2021 - $116.9 million). This increase was primarily due to the Company's positive cash flow from operations of $42.3 million during the quarter, reflecting a reduction of $35.3 million in working capital excluding the impact of restructuring liabilities. Additionally, the Company received proceeds of $10.2 million from the sale of the Shawcor Inspection Services business. Partially offsetting the increase were the repayment of an additional $33 million on its outstanding debt under its Credit Facility and a $9.9 million investment into growth and maintenance capital expenditures in the fourth quarter of 2021. Subsequent to the quarter, the Company repaid another $10 million under its Credit Facility, bringing total net debt repayments since the beginning of 2021 to $153 million.

On December 10, 2021, the Company issued Senior Notes in Canada for total gross proceeds of $150 million to accredited investors on a private placement basis. The Company utilized the net proceeds to repay amounts outstanding under the Credit Facility. Concurrently with the Senior Notes issuance, the Company amended the Credit Facility, reducing the maximum borrowing availability from US$500 million to US$300 million. As at December 31, 2021, total long-term debt was $292.1 million, lower compared to the $433.4 million at the beginning of the year, reflecting the aforementioned debt repayments. Subsequent to the year-end, the Company renewed its Credit Facility for a term of four years with revised covenants. This new debt structure with the Senior Notes and new Credit Facility provides the Company with additional flexibility to execute on its strategy of portfolio optimization and begin to explore M&A opportunities.

Selected Segment Financial Highlights

Three Months Ended Year Ended
December 31, December 31, December 31, December 31,
2021 2020 2021 2020
(in thousands of Canadian dollars) ($) (%) ($) (%) ($) (%) ($) (%)
Revenue
Composite Systems 103,835 80,361 374,908 320,833
Automotive and Industrial 61,694 56,007 263,477 198,290
Pipeline and Pipe Services 102,633 189,794 507,463 662,220
Elimination [(a)] (1,781 ) (484 ) (2,848 ) (2,861 )
Consolidated revenue 266,381 325,678 1,143,000 1,178,482
Operating (loss) income
Composite Systems (6,867 ) (6.6 %) 6,913 8.6 % 9,524 2.5 % 7,646 2.4 %
Automotive and Industrial 8,418 13.6 % 11,260 20.1 % 40,831 15.5 % 24,776 12.5 %
Pipeline and Pipe Services (42,357 ) (41.3 %) 155 0.1 % (67,301 ) (13.3 %) (276,142 ) (41.7 %)
Financial and Corporate (12,745 ) (2,392 ) (28,279 ) (17,616 )
Operating (loss) income (53,551 ) (20.1 %) 15,936 4.9 % (45,225 ) (4.0 %) (261,336 ) (22.2 %)
Adjusted EBITDA(b)
Composite Systems 14,503 14.0 % 16,077 20.0 % 54,471 14.5 % 55,795 17.4 %
Automotive and Industrial 9,418 15.3 % 11,534 20.6 % 45,248 17.2 % 34,787 17.5 %
Pipeline and Pipe Services (2,970 ) (2.9 %) 18,554 9.8 % 20,897 4.1 % (4,404 ) (0.7 %)
Financial and Corporate (873 ) (170 ) (14,973 ) (11,921 )
Adjusted EBITDA [(b)] 20,078 7.5 % 45,995 14.1 % 105,643 9.2 % 74,257 6.3 %
[(a)] [Represents the elimination of the inter-segment sales between the Composite Systems segment, the Automotive and Industrial segment and the Pipeline and Pipe Services segment.]
[(b)] [Adjusted EBITDA is a non-GAAP measure. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 - Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures.]

The Composite Systems segment experienced increased revenue from composite pipe sales in the quarter as drilling and completion activity levels rose in North America and international deliveries continued. Demand for retail fuel and water/wastewater fiberglass reinforced plastic ("FRP") tanks remained strong while production continued to be constrained by availability of certain raw materials. Improved demand for tubular management services persisted as Western Canadian well counts rose. Revenue in the fourth quarter of 2021 increased by $23.5 million, or 29%, compared to the fourth quarter of 2020, with an operating loss of $6.9 million. Adjusted EBITDA [1] in the fourth quarter of 2021 was $14.5 million, a 10% decrease compared to $16.1 million in the fourth quarter of 2020. This decrease was primarily due to lower utilization in FRP tanks production facilities impacted from raw material shortages and the related impact on the absorption of manufacturing overheads, the absence of $3.0 million in COVID-19 related government wage subsidies received in the fourth quarter of 2020 and the increase in pricing of raw materials used in the manufacturing of FRP tanks and composite pipe products which was partially offset by price increases.


1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 - Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures.

The Automotive and Industrial segment experienced its typical seasonal slowdown as customers shut down for the holiday period. This year's shutdowns were longer than in previous years due to the premium micro-chip shortages impacting automotive manufacturers as a result of global supply chain issues. In industrial markets, the business benefited from continued infrastructure spending to build out communication and transportation networks and support nuclear reactor refurbishments. Revenue was $61.7 million in the fourth quarter of 2021, a 10% increase over the same period of 2020, with an operating income of $8.4 million. The segment's revenues also benefited from the pass through of copper price increases throughout the year, which had a minimal impact on gross profit. Adjusted EBITDA [1] of $9.4 million in the fourth quarter of 2021 represents a decrease compared to $11.5 million in the fourth quarter of 2020. This decrease was primarily due to the lower near-term demand for heat shrink tubing products from the longer seasonal shutdowns of automotive manufacturers and the absence of $0.9 million in COVID-19 related government wage subsidies. This was partially offset by a more profitable industrial product mix, strong demand for wire and cable, and higher plant utilization and the related impact on absorption of manufacturing overheads.

The Pipeline and Pipe Services segment experienced operating loss and negative Adjusted EBITDA [1] in the fourth quarter of 2021 due to low activity levels across all of the segment's businesses and impairment charges recorded. The Pipeline and Pipe Services segment generated revenues of $102.6 million, a decrease of $87.2 million, or 46%, from $189.8 million in the fourth quarter of 2020. This was due to lower large pipe coating project activity in Europe, Middle East, Africa and Russia ("EMAR") and Asia Pacific as well as the absence of $17.3 million of revenue attributable to the Pipeline Performance Products business that was sold in late 2020. Adjusted EBITDA [1] in the fourth quarter of 2021 was negative $3.0 million, a substantial decrease compared to the $18.6 million reported in the fourth quarter of 2020 - primarily related to the decrease in revenue. Despite the decrease in revenue and Adjusted EBITDA [1] , the Company's cost reduction and site optimization initiatives have substantially lowered fixed expenses for the segment which, in turn, partially offset the lower activity levels in the quarter.

The twelve-month order backlog of $589 million as at December 31, 2021, represents an increase over the $507 million order backlog as at September 30, 2021. This growth was attributed to strong order intake in the composite tanks business, pipe coating projects awards and continued growth in the Company's other non-oil and gas offerings. The backlog includes firm customer contracts which will be executed over the next twelve months and is indicative of a generally strengthening business environment. The Company has also experienced significant growth in its backlog that will be executed beyond the succeeding twelve months which grew to over $150 million and provides increased confidence in performance through 2023.

Outstanding firm bids were over $843 million as of December 31, 2021, lower than the $910 million from last quarter as projects moved into backlog. Conditional bids, pending final investment decision, were at $57 million in revenue at the end of the quarter, a substantial decrease versus the $237 million from the prior quarter as several larger projects were sanctioned. Budgetary estimates at the end of the fourth quarter were over $1.5 billion, in line with the budgetary value from the previous quarter.


1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 - Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures

2.0 OUTLOOK

Earnings in 2022 are expected to be heavily weighted to the second half of the year, with the first quarter representing the lowest quarter of the year, and likely the lowest quarter since 2020 reflecting the expected lull in pipe coating project activity arising from very limited project sanctioning which occurred during the COVID-19 impacted period of early 2020 until mid-2021. The Company expects Adjusted EBITDA [1] in the first quarter of 2022 to be less than half of the level achieved in the fourth quarter of 2021 primarily due to lower projected pipe coating activity and the non-recurrence of favourable incentive-based compensation cost movements. Despite this specific near-term challenge, the underlying business trends for all of Shawcor's primary businesses remain favourable and financial performance is expected to improve quarter over quarter throughout 2022. The Company's industrially focused portfolio continues to experience consistent demand growth, while the Company's oil and gas focused offerings are well positioned as the conditions for a potential multi-year upcycle in commodity prices and related activity transpire.

The Company expects its quarterly normalized SG&A run-rate to reduce further to approximately $50 million throughout 2022. The Company has substantially rationalized its footprint, including the thoughtful divestiture of non-core businesses, and will continue to focus on maintaining efficient operations with the technical expertise and geographic footprint that provide the best opportunity for the Company to secure work and drive profitability, particularly as pipeline coating project activity picks up later in 2022.

Backlog is expected to continue to grow through the first half of 2022 as customers seek to secure orders for the Company's non-oil and gas offerings, several pipe coating projects reach final investment decision and contract awards move into the 12-month period. Execution on work secured in the Company's backlog is expected to pick up in the second half of 2022 as resin and premium micro-chip shortages alleviate and coating activities for newly sanctioned pipeline projects commence.

Composite Systems Segment

The Company is expecting robust demand for underground tanks to continue throughout 2022 as retail fuel service station networks expand, upgrade and replace existing aging tanks. In addition, growth in demand for water and storm-water storage and treatment tanks is expected to continue, supported by increasing societal demands to conserve and manage water resources, projected higher infrastructure spending and commercial and municipal water projects. Supply chain constraints are currently expected to continue through the first half of the year, tempering near term production capacity, but these constraints are anticipated to ease in the second half of 2022. In addition to qualifying alternative raw material sources, the business continues to manage production schedules and lead times to minimize impacts, and price surcharges have been implemented to manage raw material cost increases. Growth in demand for the segment's core pipe products and tubular management services in North America are expected as activity levels in Western Canada and in the Permian Basin continue their gradual rise, and international demand for composite pipe persists.

1Adjusted EBITDA is a Non-GAAP measure. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 - Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures

Automotive and Industrial Segment

Activity levels within the Automotive and Industrial segment are expected to rise in the first half of the year, consistent with historical norms, as automotive manufacturers restock inventories. Demand for the Company's automotive products is expected to continue to outpace overall automotive production as a result of electronic content growth in premium, hybrid and full electric vehicle markets, particularly in the Asia Pacific and EMAR regions. While premium micro-chip shortages continue to create challenges for automotive manufacturers, shortages are currently anticipated to ease in the second half of 2022. Nonetheless, the Company's diversified geographies and end markets will provide insulation from the near-term impacts of these shortages. In the industrial side of the business, the Company is expecting to benefit from continued infrastructure spending as new and upgraded communication networks are constructed, nuclear refurbishments continue in Canada, and federal stimulus packages are rolled out, while continuing to effectively manage the volatility of copper raw material costs.

Pipeline and Pipe Services Segment

The Company is expecting its Pipeline and Pipe Services segment to experience its lowest performance in recent history in the first quarter of the year. Several factors contribute to this expectation, including normal seasonal slowdowns in the segment's engineering and integrity management businesses and a lull in pipe coating activity driven by limited project sanctioning in the last two years and further impacted by supply chain induced delays in third party steel tubular production. Consequently, the segment is expected to have limited activity in the first quarter of 2022, with modest improvement in the second quarter and then progressive growth through the back half of the year as backlog converts into incremental increases in quarterly revenue. The Company continues to maintain the resources needed to execute on projects currently in backlog and expected to begin in the second half of the year.

Looking further out, management of an aging North American onshore pipeline infrastructure will continue to require the Company's girth weld inspection and engineering services, while new offshore pipeline installations, both small, mid-size and large in scope, are expected to rise during the second half of 2022 and into the years that follow, driving elevated demand for the Company's market leading pipeline coating technologies.

3.0 CONFERENCE CALL AND ADDITIONAL INFORMATION

Shawcor will be hosting a Shareholder and Analyst Conference Call and Webcast on Thursday, March 10 [th] , 2022 at 9:00 AM ET, which will discuss the Company's Fourth Quarter 2021 Financial Results. To participate via telephone, please dial 1-877-776-4039 or 1-315-625-6955. Conference Call ID: 3216937. Alternatively, please go to the following website address to participate via webcast: https://edge.media-server.com/mmc/p/k8gnmq3b

About Shawcor

Shawcor Ltd. is a growth-oriented, global material sciences company serving the Infrastructure, Energy, and Transportation markets. The Company operates through a network of fixed and mobile manufacturing and service facilities. Its three business segments, Composite Systems, Automotive & Industrial and Pipeline & Pipe Services enable responsible renewal and enhancement of critical infrastructure while lowering risk and environmental impact.

For further information, please contact:

Meghan MacEachern
Director, External Communications & ESG
Tel: 437-341-1848
Email: meghan.maceachern@shawcor.com
Website: www.shawcor.com

Source: Shawcor Ltd.
Shawcor.ER

4.0 FORWARD-LOOKING INFORMATION

This news release includes certain statements that reflect management's expectations and objectives for the Company's future performance, opportunities and growth, which statements constitute "forward-looking information" and "forward-looking statements" (collectively "forward-looking information") under applicable securities laws. Such statements, other than statements of historical fact, are predictive in nature or depend on future events or conditions. Forward-looking information involves estimates, assumptions, judgements and uncertainties. These statements may be identified by the use of forward-looking terminology such as "may", "will", "should", "anticipate", "expect", "believe", "predict", "estimate", "continue", "intend", "plan" and variations of these words or other similar expressions. Specifically, this news release includes forward-looking information in the Outlook Section and elsewhere in respect of, among other things, the level of the Company's overall financial performance in the first quarter of 2022, for the balance of 2022 and into 2023; the reduction of quarterly normalized SG&A; the optimization of the Company's portfolio by means of selective acquisitions and divestitures; the continuance of certain raw material shortages and supply chain disruptions for the first half of 2022 and their abatement in the second half of 2022; the demand for the Company's products in each of its business segments; the impact of raw material shortages on the Company's Composite Systems segment; the impact of shortages of premium micro-chips on automobile manufacturers and the impact thereof on the Company's Automobile and Industrial segment; the growth in the Company's order backlog; the anticipated increase in drilling and completion related capital spending in North America and an increase in offshore pipeline installations and the impact on the Company's business; the impact on the Company's business of the anticipated increase in infrastructure spending, including in the areas of water management, communication networks and nuclear refurbishment; and the impact on the Company's business of increasing adoption rates for electric vehicles.

Forward-looking information involves known and unknown risks and uncertainties that could cause actual results to differ materially from those predicted by the forward-looking information. We caution readers not to place undue reliance on forward-looking information as a number of factors could cause actual events, results and prospects to differ materially from those expressed in or implied by the forward-looking information. Significant risks facing the Company include, but are not limited to: shortages in the supply of or increases in the prices of raw materials used by the Company; changes in underlying economic factors affecting demand for the Company's products and services; the duration and impact of the COVID-19 pandemic and future public health crises and other events outside the Company's control on the Company, its employees, customers, suppliers, energy and commodity markets and on the global economy; a decline in the level of North American drilling and completion activity; a decline in the level of global pipeline construction; the impact of divestitures and acquisitions on the Company; changes in competitive conditions within the markets that the Company operates in; the requirement to comply with various covenants under the Company's existing and future debt obligations, the ability to make the scheduled payments thereunder and the potential for changes to the Company's credit rating; rising interest and inflation rates; fluctuations in foreign exchange rates; exposure to product, environmental and other liability claims; the impact of expanding environmental, social and governance practices and disclosure requirements and changing investor sentiment in respect thereof; compliance with environmental, trade, health, safety, tax and other laws in multiple jurisdictions; the impact of activist shareholders; the impact of climate change on operations, supply chains and demand for the Company's products and services; political, economic, health, global supply chain and other risks arising from the Company's international operations; changes in trade, tax or other laws in Canada or internationally; disruptions of informational technology systems or cybersecurity breaches; as well as other risks and uncertainties described under "Risks and Uncertainties" in the Company's annual MD&A and in the Company's Annual Information Form under "Risk Factors".

These statements of forward-looking information are based on assumptions, estimates and analysis made by management in light of its experience and perception of trends, current conditions and expected developments as well as other factors believed to be reasonable and relevant in the circumstances. These assumptions include those in respect of the reduction of certain COVID 19 related restrictions and the impact thereof on global economic activity, the Company's ability to manage supply chain disruptions caused by the COVID-19 pandemic, other health crises or by natural disasters, global oil and gas prices, a lull in pipe coating activity during the first quarter of 2022 followed by improving activity levels throughout the balance of 2022; sustained strong demand for the Company's FRD tanks, including for retail fuel storage and water treatment and storage; increased demand for composite pipe; the easing of microchip shortages in the automotive sector and increased demand in the automotive and industrial markets; heightened demand for electric and hybrid vehicles; heightened infrastructure spending in Canada, including in respect of nuclear plant refurbishment and upgraded communication networks; the likelihood of projects tied to securing long-term domestic energy supply or drilling rights being sanctioned, the recommencement of increased capital expenditures in the global offshore oil and gas segment, the continued recovery of the global economy, a gradual recovery of oil and gas markets in North America, the Company's ability to execute projects under contract, the Company's continuing ability to provide new and enhanced product offerings to its customers, the higher level of investment in working capital by the Company, the continued supply of and stable pricing or the ability to pass on higher prices to its customers for commodities used by the Company, the availability of personnel resources sufficient for the Company to operate its businesses, the maintenance of operations in major oil and gas producing regions, the adequacy of the Company's existing accruals in respect of environmental compliance and in respect of litigation and tax matters and other claims generally, and the level of payments under the Company's performance, bid and surety bonds and the ability of the Company to satisfy all covenants under its Credit Facility and other debt obligations and having sufficient liquidity to fund its obligations and planned initiatives. The Company believes that the expectations reflected in the forward-looking information are based on reasonable assumptions in light of currently available information. However, should one or more risks materialize, or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking information included in this document and the Company can give no assurance that such expectations will be achieved.

When considering the forward-looking information in making decisions with respect to the Company, readers should carefully consider the foregoing factors and other uncertainties and potential events. The Company does not assume the obligation to revise or update forward-looking information after the date of this document or to revise it to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.

To the extent any forward-looking information in this document constitutes future oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future oriented financial information and financial outlooks, as with forward-looking information generally, are based on the assumptions and subject to the risks noted above.

5.0 RECONCILIATION OF NON-GAAP MEASURES

The Company reports on certain non-GAAP measures that are used to evaluate its performance and segments, as well as to determine compliance with debt covenants and to manage its capital structure. These non-GAAP measures do not have standardized meanings under IFRS and are not necessarily comparable to similar measures provided by other companies. The Company discloses these measures because it believes that they provide further information and assist readers in understanding the results of the Company's operations and financial position. These measures should not be considered in isolation or used in substitution for other measures of performance prepared in accordance with GAAP. The following is a reconciliation of the non-GAAP measures reported by the Company.

EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation, and amortization. Adjusted EBITDA is also a non-GAAP measure defined as EBITDA adjusted for items which do not impact day to day operations. Adjusted EBITDA is calculated by adding back to EBITDA the sum of impairments, costs associated with repayment of long-term debt and credit facilities, gain on sale of land and other, gain on sale of investment in associates, gain on sale of operating unit, acquisition costs, restructuring costs and other, net and hyperinflationary adjustments. The Company believes that EBITDA and Adjusted EBITDA are useful supplemental measures that provide a meaningful indication of the Company's results from principal business activities prior to the consideration of how these activities are financed or the tax impacts in various jurisdictions and for comparing its operating performance with the performance of other companies that have different financing, capital or tax structures. The Company presents Adjusted EBITDA as a measure of EBITDA that excludes the impact of transactions that are outside the Company's normal course of business or day to day operations. Adjusted EBITDA is used by many analysts as one of several important analytical tools to evaluate financial performance and is a key metric in business valuations. It is also considered important by lenders to the Company and is included in the financial covenants of the Company's Credit Facility.

Three Months Ended Year Ended
December 31, December 31, December 31, December 31,
(in thousands of Canadian dollars) 2021 2020 2021 2020
Net (Loss) Income $ (58,983 ) $ 55,818 $ (80,620 ) $ (234,555 )
Add:
Income tax expense 2,811 6,662 12,060 8,625
Finance costs, net 4,287 7,010 22,213 25,078
Amortization of property, plant, equipment,
intangible and Right-of-Use assets
19,111 22,257 77,767 92,532
EBITDA $ (32,774 ) $ 91,747 $ 31,420 $ (108,320 )
Hyperinflation adjustment for Argentina 1,424 771 5,529 2,107
Impairment 45,719 5,905 57,328 212,612
Gain on redemption of investment in associate - (2,125 ) (1,834 ) (10,374 )
Gain on sale of land and other - (1,033 ) - (2,246 )
Gain on sale of operating unit (3,212 ) (52,118 ) (3,212 ) (52,118 )
Restructuring costs and other, net 8,921 2,848 16,412 32,596
Adjusted EBITDA(a) $ 20,078 $ 45,995 $ 105,643 $ 74,257
[(a)] [Adjusted EBITDA includes COVID-19 related government wage subsidies of $6.0 million in the fourth quarter of 2020, and $4.8 million and $30.5 million in the year of 2021 and 2020 respectively.]

Composite Systems Segment

Three Months Ended Year Ended
December 31, December 31, December 31, December 31,
(in thousands of Canadian dollars) 2021 2020 2021 2020
Operating (Loss) Income $ (6,867 ) $ 6,913 $ 9,524 $ 7,646
Add:
Amortization of property, plant, equipment,
intangible and Right-of-Use assets
7,475 8,869 30,611 33,780
EBITDA $ 608 $ 15,782 $ 40,135 $ 41,426
Impairment 12,618 - 12,618 9,828
Restructuring costs and other 1,277 295 1,718 4,541
Adjusted EBITDA(a) $ 14,503 $ 16,077 $ 54,471 $ 55,795
[(a)] [Adjusted EBITDA includes COVID-19 related government wage subsidies of $3.0 million in the fourth quarter of 2020, and $2.1 million and $13.5 million in the year of 2021 and 2020 respectively.]

Automotive and Industrial Segment

Three Months Ended Year Ended
December 31, December 31, December 31, December 31,
(in thousands of Canadian dollars) 2021 2020 2021 2020
Operating Income $ 8,418 $ 11,260 $ 40,831 $ 24,776
Add:
Amortization of property, plant, equipment,
intangible and Right-of-Use assets
1,088 1,137 4,396 4,619
EBITDA $ 9,506 $ 12,397 $ 45,227 $ 29,395
Gain on sale of land and other - (1,033 ) - (1,033 )
Restructuring costs and other (88 ) 170 21 6,425
Adjusted EBITDA(a) $ 9,418 $ 11,534 $ 45,248 $ 34,787
[(a)] [Adjusted EBITDA includes COVID-19 related government wage subsidies of $0.9 million in the fourth quarter of 2020, and $0.9 million and $4.1 million in the year of 2021 and 2020 respectively.]

Pipeline and Pipe Services Segment

Three Months Ended Year Ended
December 31, December 31, December 31, December 31,
(in thousands of Canadian dollars) 2021 2020 2021 2020
Operating (Loss) Income $ (42,357 ) $ 155 $ (67,301 ) $ (276,142 )
Add:
Amortization of property, plant, equipment,
intangible and Right-of-Use assets
9,571 11,625 39,981 51,439
EBITDA $ (32,786 ) $ 11,780 $ (27,320 ) $ (224,703 )
Hyperinflation adjustment for Argentina 25 (144 ) 105 (304 )
Impairment 29,193 5,905 40,802 202,784
Gain on sale of land - - - (1,213 )
Restructuring costs and other, net 598 1,013 7,310 19,032
Adjusted EBITDA(a) $ (2,970 ) $ 18,554 $ 20,897 $ (4,404 )
[(a)] [Adjusted EBITDA includes COVID-19 related government wage subsidies of $1.0 million in the fourth quarter of 2020, and $1.0 million and $8.5 million in the year of 2021 and 2020 respectively.]

COMTEX_403819880/2471/2022-03-09T17:00:58

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Aug. 5, 2022 4:00p
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