North American Energy Partners Inc. ("NAEP" or "the Company") (TSX:
NOA) (NYSE: NOA) today announced results for the year and for the
three months ended March 31, 2011.
Conversion to US GAAP
The Company has prepared its consolidated financial statements
in conformity with accounting principles generally accepted in the
United States (US GAAP). All comparative financial information
contained herein has been revised to reflect the Company's results
as if they had been historically reported in accordance with US
GAAP. Unless otherwise specified, all dollar amounts discussed are
in Canadian dollars.
Overview of the Year Ended March 31, 2011
- Consolidated revenues for the year ended March 31, 2011
increased $99.1 million, compared to the same period last year.
- NAEP was awarded two new, long-term recurring services
contracts with major oil sands customers, being a four-year master
services agreement with Syncrude Canada Ltd. (Syncrude) for mining
services, reclamation and general construction services and a
three-year contract with Shell Canada Energy (Shell) to remove
muskeg at its Jackpine mine.
- The Piling segment achieved significant revenue and profit
increases on improving commercial and industrial construction
market demand.
- On November 1, 2010, NAEP acquired the assets of Cyntech
Corporation (Cyntech), a Calgary-based designer and manufacturer of
screw piles and pipeline anchoring systems, as well as a provider
of recurring tank maintenance services to the petro-chemical
industry.
- The Company recorded a revenue writedown of $42.5 million,
related to the long-term overburden removal contract with Canadian
Natural Resources Ltd. (Canadian Natural), described in further
detail below.
Consolidated Financial Highlights
Three Months
Year Ended March 31, Ended March 31,
(dollars in thousands,
except per share amounts) 2011 2010 2011 2010
----------------------------------------------------------------------------
Revenue $ 858,048 $758,965 $174,510 $220,569
Gross profit $ 58,136 $139,285 $(17,388) $ 32,723
Gross profit margin 6.8% 18.4% -10.0% 14.8%
General and administrative
expenses $ 59,932 $ 62,530 $ 14,435 $ 19,104
Operating (loss) income $ (10,829) $ 73,474 $(35,452) $ 13,127
Operating margin -1.3% 9.7% -20.3% 6.0%
Net (loss) income $ (34,650) $ 28,219 $(30,452) $ (943)
Per share information
Net (loss) income - basic $ (0.96) $ 0.78 $ (0.84) $ (0.03)
Net (loss) income - diluted $ (0.96) $ 0.77 $ (0.84) $ (0.03)
Consolidated EBITDA(1) $ 84,101 $121,644 $ 24,004 $ 26,428
Capital spending $ 36,957 $ 58,505 $ 5,503 $ 7,312
Cash and cash equivalents $ 722 $103,005 $ 722 $103,005
(1) For a definition of Consolidated EBITDA and reconciliation to net
income, see "Non-GAAP Financial Measures" and "Consolidated EBITDA"
at the end of this release.
"Activity levels in all three of our business segments increased
in fiscal 2011 as economic conditions improved and investment in
the oil sands ramped up," said Rod Ruston, NAEP's President and
CEO. "Our recurring revenue opportunities were enhanced with the
signing of new, long-term contracts with both Syncrude and Shell,
thus increasing our business with each of these customers and we
have the opportunity for further growth with the expected execution
of a new five-year contract with Suncor in the near future. In
addition, we have been tendering on a growing number of oil sands,
construction, piling and pipeline projects and we believe we are
well positioned to compete successfully for a significant portion
of this work. Our business outlook going forward is positive."
Financial results for the year and three months ended March 31,
2011 do not fully reflect the underlying improvement in NAEP's
business environment, primarily due to the above-mentioned revenue
writedown relating to the long-term overburden removal contract
with Canadian Natural at its Horizon Oil Sands project. The $42.5
million writedown reduced unbilled revenue by the same amount and
lowered net income by $31.8 million for the year. NAEP has formed a
joint working group with Canadian Natural to assess the
appropriateness of the indices as they relate to the Fort McMurray
market. This working group is expected to report back such that any
agreed adjustments to the indices can be made by August 31, 2011
(1).
(1) For a discussion of the revenue writedown see the Company's
press release dated May 18, 2011 and Management Discussion &
Analysis for the twelve months ended March 31, 2011.
Despite the negative financial impact of the revenue writedown,
consolidated revenue for the year ended March 31, 2011 increased
13.1% to $858.0 million from $759.0 million last year. This revenue
growth reflects increased mining services and project development
activity with a number of major oil sands mining customers and a
significant increase in piling activity as conditions in the
commercial and industrial construction markets strengthened.
Pipeline segment activity was also higher year-over-year primarily
as a result of two projects in northern British Columbia. For the
three months ended March 31, 2011, consolidated revenue declined to
$174.5 million, from $220.6 million last year, primarily reflecting
the negative impact of the revenue writedown, as well as a slight
decline in activity in the Heavy Construction and Mining and
Pipeline segments.
Gross profit for both the 12-month and three-month periods was
significantly below expectations due to the impact of the $42.5
million revenue writedown. Excluding the effect of the revenue
writedown, gross profit for the year ended March 31, 2011 would
have been $100.7 million or 11.2% of revenue, compared to $139.3
million or 18.4% of revenue last year. This change reflects
increased volumes of lower-margin overburden removal work in the
overall project mix, losses incurred on two Pipeline projects and
the impact of competitive pricing pressure in contracts secured
during the economic downturn. For the three months ended March 31,
2011, gross profit, excluding the effect of the writedown, would
have been $25.1 million or 11.6% of revenue, compared to $32.7
million or 14.8% during the same period last year. The weaker
margins in the most recent period reflect a loss on one lump-sum
Pipeline project and lower margins in the Piling segment, due to
project losses and start-up delays.
For the 12 months ended March 31, 2011, the Company recorded a
net loss of $34.7 million, compared to net income of $28.2 million
last year. Excluding the impact of the revenue writedown, net loss
would have been $2.9 million for the year. For the three months
ended March 31, 2011, net income, excluding the impact of the
revenue writedown, would have been $1.3 million, compared to a net
loss of $0.9 million during the same period last year. The
Company's cash balance as at March 31, 2011 was $102.3 million
lower than at March 31, 2010, reflecting completion of two
strategic initiatives earlier in the year. The first initiative was
the refinancing of the Company's senior notes in April 2010, which
reduced its cost of debt and total debt outstanding. The second
initiative was NAEP's entry into the screw piling market with the
acquisition of the assets of Cyntech in November 2010. The
remainder of cash drawdown is primarily due to higher working
capital requirements related to the Canadian Natural contract and
delays in close-out billings on our current-year Pipeline
contracts.
Subsequent Events
Work Suspension at Canadian Natural's Horizon Project
On May 18, 2011, NAEP was notified by its customer, Canadian
Natural, to suspend overburden removal activities at the Horizon
Oil Sands project until January 2, 2012. During this period
Canadian Natural will undertake repairs to its primary upgrading
facility, which was damaged in a fire in January 2011.
Although Canadian Natural is required to cover fixed costs on
contract-related equipment left idle by this suspension, NAEP will
seek to minimize costs for Canadian Natural and at the same time,
assist other customers by redeploying resources to other projects
in the region.
"Given our recent contract wins at Shell and Syncrude, as well
as the anticipated award of a new five-year contract with Suncor,
the availability of this equipment in the short term could provide
a valuable and timely addition to our general contract fleet," said
Mr. Ruston. "Furthermore, the work suspension at Canadian Natural
removes the only low-margin, recurring services activity in our
project mix. Our cash flow and margins are expected to improve if
we can increase service levels for other customers."
Bank Covenant Amendment
On May 20, 2011, the Company's lender syndicate approved an
amendment to NAEP's fourth amended and restated credit agreement
(the "Credit Agreement"). Under the amendment, the lenders will
exclude the $42.5 million revenue writedown when determining
Consolidated EBITDA-related covenant compliance for the year ended
March 31, 2011 and any future periods. The amendment enables NAEP
to remain in compliance with its bank covenants while it conducts
change order negotiations with Canadian Natural.
Segment Results
Heavy Construction and Mining
Three Months
Year Ended March 31, Ended March 31,
(dollars in thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Segment revenue $ 667,037 $ 665,514 $ 146,475 $ 196,002
Segment profit (loss) 50,703 111,016 (14,071) 29,286
Segment margin 7.6% 16.7% -9.6% 14.9%
For the year ended March 31, 2011, the Heavy Construction &
Mining segment reported revenues of $667.0 million, up $1.5 million
from the prior year. Revenue gains associated with increased
activity at Syncrude, Suncor and Canadian Natural were largely
offset by the $42.5 million revenue writedown related to the
Canadian Natural contract. Recurring services revenues were also
impacted by reduced activity at Shell's sites during the
commissioning of the Jackpine mine.
For the three months ended March 31, 2011, revenue from the
Heavy Construction and Mining segment decreased by $49.5 million,
primarily due to the $42.5 million revenue writedown. Recurring
services revenues also decreased as a result of lower activity
levels at Shell's sites, partially offset by increased volumes of
work with Suncor and Syncrude. The higher volumes with Syncrude
reflect increased activity levels under the new four-year master
services agreement, while increased activity with Suncor reflects
increased demand for mine support services.
For the year ended March 31, 2011, Heavy Construction and Mining
segment margin was 7.6% of revenue, compared to 16.7% last year.
The reduction in segment margin reflects the negative impact of the
revenue writedown, increased volumes of lower-margin overburden
removal activity in the project mix, competitive pressures in the
market and the expanded use of higher-cost rental equipment to
support increased project development activity.
For the three months ended March 31, 2011, Heavy Construction
and Mining reported a negative segment margin of 9.6%, compared to
a segment profit margin of 14.9% during the same period last year,
mainly due to the revenue writedown.
Piling
Three Months
Year Ended March 31, Ended March 31,
(dollars in thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Segment revenue $ 105,559 $ 68,531 $ 22,256 $ 18,263
Segment profit 18,455 11,288 1,955 2,149
Segment margin 17.5% 16.5% 8.8% 11.8%
For the year ended March 31, 2011, Piling segment revenues of
$105.6 million were up $37.0 million compared to the prior year.
This improvement reflects the resurgence of activity in the
commercial and industrial construction markets and an increase in
project development activity on oil sands projects. Revenue results
for the current fiscal year also include a $7.3 million
contribution from Cyntech, which was acquired by NAEP in November
2010. For the three months ended March 31, 2011, Piling segment
revenues increased to $22.3 million, up $4.0 million compared to
last year reflecting the Cyntech asset acquisition and continued
improvement in market conditions.
For the year ended March 31, 2011, Piling profit margin
increased to 17.5% of revenue from 16.5% of revenue last year. The
increase in profit margin reflects the benefits of improved
conditions in the commercial and industrial construction markets,
which offset the negative profit impact of adverse weather
conditions that delayed project start-ups earlier in the current
fiscal year.
For the three months ended March 31, 2011, Piling margins
decreased to 8.8% from 11.8% in the same period last year. Project
start-up delays resulting from an abnormally long and cold winter
in the Prairie provinces and a margin reduction on a larger
lump-sum contract were key contributors to this decline. Profit
margins for the prior-year period also benefited from the
processing of change orders related to large projects completed in
the period.
Pipeline
Three Months
Year Ended March 31, Ended March 31,
(dollars in thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Segment revenue $ 85,452 $ 24,920 $ 5,779 $ 6,304
Segment loss (3,034) (3,851) (1,549) (5,152)
Segment margin -3.6% -15.5% -26.8% -81.7%
For the year ended March 31, 2011, the Pipeline segment reported
revenues of $85.5 million, a $60.5 million increase over a year
ago. The increased segment revenues primarily reflect the execution
of two large-diameter pipeline projects in northern BC, both of
which were substantially completed in the three months ended
December 31, 2010. Complementing these projects was an increase in
tailings-related pipeline projects in the oil sands. For the three
months ended March 31, 2011, Pipeline segment revenues were $5.8
million, compared to $6.3 million last year.
For the year ended March 31, 2011, the Pipeline segment recorded
a loss of $3.0 million, reflecting reduced productivity as a result
of unanticipated weather and ground conditions. Segment loss for
the prior year was $3.9 million due to production impacts related
to unfavourable weather, changes in construction methodology due to
unfavourable environmental conditions, as well as a higher
percentage of rented versus owned equipment. In accordance with the
terms of the contract, NAEP is currently working on a number of
change order requests related to the weather and environmental
impacts and to the significant changes to project scope. For the
three months ended March 31, 2011, the Pipeline segment incurred a
loss of $1.5 million, reflecting projected increases in summer
clean-up costs for the two completed pipeline projects.
Outlook
While the Company may experience some near-term impact to
revenue as a result of the seven-month work suspension on the
overburden removal contract with Canadian Natural, the anticipated
redeployment of resources to higher-margin projects could help to
offset some of this revenue reduction, while also having a positive
impact on margins and cash flow.
NAEP also anticipates some negative impact to first quarter
results due to the recent wild fires near Fort McMurray, which have
impacted the Company's ability to work at several customer sites
during the past two weeks. However, the Company's outlook for
fiscal 2012 continues to improve overall as a result of
strengthening general economic conditions, recently awarded and
anticipated long-term contracts with Shell, Syncrude and Suncor, as
well as increasing investment in the oil sands.
Suncor and Total have formed a strategic alliance to develop the
Fort Hills mine, Voyageur upgrader and Joslyn mine. Exxon continues
with construction of its Kearl project and Syncrude is planning a
number of major mining projects, including the relocation of four
mine trains. The resurgence of project development activity is
resulting in growing demand for the industrial construction, site
preparation and piling services NAEP provides. Oil sands operators
are also increasing spending on tailings and reclamation projects
in response to new environmental regulations. This, in turn, is
creating opportunities for NAEP's new Tailings and Environmental
Construction division to support the construction and operation of
the new reclamation processes.
With respect to the Piling segment, activity levels are expected
to increase in fiscal 2012 as a result of the growing project
development activity in the oil sands and an upsurge in commercial
construction opportunities in Toronto and Calgary. Given the
shorter-term, project-specific nature of piling contracts, margins
are expected to recover more quickly for this division than for
other parts of the business. NAEP is anticipating a strong year for
this segment in fiscal 2012.
In Pipeline, the Company is seeing improving margins and a
reduction in the risk profile expected to be borne by the
contractor.
"Overall, our long-term outlook for the business remains
positive," said Mr. Ruston. "With our new long-term contracts in
place, we are well positioned to capitalize on the many attractive
opportunities we see developing in our core markets."
Conference Call and Webcast
Management will hold a conference call and webcast to discuss
the fourth-quarter and full fiscal-year financial results tomorrow,
Friday, June 3, 2011 at 9:00 am Eastern time.
The call can be accessed by dialing:
Toll free: 1-877-407-9205 or International: 1-201-689-8054
A replay will be available through July 4, 2011 by dialing:
Toll Free: 1-877-660-6853 or International: 1-201-678-7415
(Account: 286 Conference ID: 373650).
Non-GAAP Financial Measures
This release contains non-GAAP financial measures. These
measures do not have standardized meanings under Canadian GAAP or
US GAAP and are therefore unlikely to be comparable to similar
measures used by other companies. The non-GAAP financial measure
disclosed by the Company in this release is Consolidated EBITDA (as
defined within the Credit Agreement). The Company provides a
reconciliation of Consolidated EBITDA to net income reported in
accordance with US GAAP below. Investors and readers are encouraged
to review the reconciliation of this non-GAAP financial measure to
reported net income.
Consolidated EBITDA
Consolidated EBITDA is a measure defined by the Company's Credit
Agreement. This measure is defined as EBITDA (which is calculated
as net income before interest, income taxes, depreciation and
amortization) excluding the effects of unrealized foreign exchange
gain or loss, realized and unrealized gain or loss on derivative
financial instruments, non-cash stock-based compensation expense,
gain or loss on disposal of property, plant and equipment the
impairment of goodwill, the amendment related to the Canadian
Natural overburden removal contract and certain other non-cash
items included in the calculation of net income. The Credit
Agreement requires the Company to maintain a minimum interest
coverage ratio and a maximum senior leverage ratio, which are
calculated using Consolidated EBITDA. Non-compliance with these
financial covenants could result in the Company being required to
immediately repay all amounts outstanding under its credit
facility. Consolidated EBITDA should not be considered as an
alternative to operating income or net income as a measure of
operating performance or cash flows as a measure of liquidity.
Consolidated EBITDA has important limitations as an analytical tool
and should not be considered in isolation or as a substitute for
analysis of the Company's results as reported under Canadian GAAP
or US GAAP. For example, Consolidated EBITDA:
- does not reflect cash expenditures or requirements for capital
expenditures or capital commitments;
- does not reflect changes in cash requirements for working
capital needs;
- does not reflect the interest expense or the cash requirements
necessary to service interest or principal payments on debt;
- excludes tax payments that represent a reduction in cash
available to the Company; and
- does not reflect any cash requirements for assets being
depreciated and amortized that may have to be replaced in the
future.
Consolidated EBITDA also excludes unrealized foreign exchange
gains and losses and realized and unrealized gains and losses on
derivative financial instruments, which, in the case of unrealized
losses, may ultimately result in a liability that will need to be
paid and in the case of realized losses, represents an actual use
of cash during the period.
A reconciliation of net (loss) income to Consolidated EBITDA is
as follows:
Three Months
Year Ended March 31, Ended March 31,
(dollars in thousands) 2011 2010 2011 2010
----------------------------------------------------------------------------
Net (loss) income $ (34,650) $ 28,219 $(30,452) $ (943)
Adjustments:
Interest expense 29,991 26,080 7,361 6,355
Income taxes (benefit) (6,448) 13,679 (10,305) 3,278
Depreciation 39,440 42,636 12,682 11,943
Amortization of intangible assets 3,540 1,719 1,288 281
Unrealized foreign exchange gain
on senior notes - (48,920) - (6,200)
Realized and unrealized (gain)
loss on derivative financial
instruments (2,305) 54,411 (1,965) 11,226
Loss on disposal of property,
plant and equipment and assets
held for sale 2,773 1,606 497 189
Stock-based compensation expense 2,191 2,258 529 277
Equity in loss (earnings) of
unconsolidated joint venture 2,720 (44) 1,844 22
Loss on debt extinguishment 4,324 - - -
Revenue writedown on Canadian
Natural project 42,525 - 42,525 -
------------------------------------------
Consolidated EBITDA $ 84,101 $121,644 $ 24,004 $ 26,428
------------------------------------------
------------------------------------------
Forward-Looking Information
This release contains forward-looking information that is based
on expectations and estimates as of the date of this release.
Forward-looking information is subject to known and unknown risks
and other factors that may cause future actions, conditions or
events to differ materially from the anticipated actions,
conditions or events expressed or implied by such forward-looking
information. Forward-looking information does not relate strictly
to historical or current facts and can be identified by the use of
the future tense or other forward-looking words such as "believe",
"expect", "anticipate", "intend", "plan", "estimate", "should",
"may", "could", "would", "target", "objective", "projection",
"forecast", "continue", "strategy", "position" or the negative of
those terms or other variations of them or comparable
terminology.
Examples of such forward-looking information in this release
include but are not limited to, the following: that the joint
working group formed with Canadian Natural will report
recommendations for changes to the contract indices such that any
agreed upon adjustments can be made by August 31, 2011; that the
availability of Canadian Natural overburden contract-related
equipment will provide a valuable and timely addition to NAEP's
general fleet; that the Company may experience some near-term
impact to revenue as a result of the recently announced work
suspension on the long-term overburden removal contract with
Canadian Natural; that NAEP will seek to minimize costs for
Canadian Natural and assist other customers by redeploying
resources to other projects in the region; that this redeployment
of resources to partially offset the expected decline in revenues
from Canadian Natural; that NAEP's cash flows and margins will
improve as service levels for customers increase; (that the new
five-year contract with Suncor will generate a significant volume
of work despite the lack of specified volumes in the contract;)
that the work suspension at Canadian Natural will reduce recurring
services revenues over the next nine months; that demand for
recurring services will grow at other sites and further expand as
Exxon's Kearl mine begins production in 2012; that activity levels
in the Piling segment will increase in fiscal 2012 as a result of
the growing project development activity in the oil sands and an
upsurge in commercial construction opportunities in markets like
Toronto and Calgary; that Piling margins will recover more quickly
than in other parts of the business; and that fiscal 2012 will be a
strong year for the Piling segment.
There can be no assurance that forward-looking information will
prove to be accurate, as actual results and future events could
differ materially from those expected or estimated in such
statements. Accordingly, readers should not place undue reliance on
forward-looking information. Each of the forward-looking statements
in this news release is subject to significant risks and
uncertainties and is based on a number of assumptions which may
prove to be incorrect. The material factors or assumptions used to
develop the above forward-looking statements and the risks and
uncertainties that could cause actual results to differ materially
from the information presented in the above are discussed in NAEP's
Management Discussion & Analysis for the three months and year
ended March 31, 2011. While management anticipates that subsequent
events and developments may cause its views to change, the Company
does not intend to update this forward-looking information, except
as required by applicable securities laws. This forward-looking
information represents management's views as of the date of this
document and such information should not be relied upon as
representing their views as of any date subsequent to the date of
this document.
For more complete information about NAEP, you should read the
disclosure documents filed with the SEC and the CSA. You may obtain
these documents for free by visiting the SEC website at www.sec.gov
or SEDAR on the CSA website at www.sedar.com.
About the Company
North American Energy Partners Inc. (www.naepi.ca) is one of the
largest providers of heavy construction, mining, piling and
pipeline services in Western Canada. For more than 50 years, NAEP
has provided services to large oil, natural gas and resource
companies, with a principal focus on the Canadian oil sands. NAEP
maintains one of the largest independently owned equipment fleets
in the region.
Contacts: North American Energy Partners Inc. Kevin Rowand
Investor Relations (780) 969-5528 (780) 969-5599 (FAX)
krowand@nacg.ca www.naepi.ca
North American Construct... (NYSE:NOA)
Historical Stock Chart
From Jul 2024 to Aug 2024
North American Construct... (NYSE:NOA)
Historical Stock Chart
From Aug 2023 to Aug 2024
