All figures quoted in US dollars unless otherwise noted:
- NFI delivered a record 1,845 EUs in the quarter, resulting
in record fourth quarter revenue of $918
million; full year deliveries of 5,315 EUs and revenue of
$2.9 billion.
- Adjusted EBITDA of $103.9
million in 2019 Q4; full year Adjusted EBITDA of
$322.2 million.
- Fourth quarter 2019 Free Cash Flow of $49.0 million and C$1.03 per Share. Full year Free Cash Flow of
$160.4 million and C$3.42 per share. Total Leverage ratio of 3.24x,
down from 3.75x at the end of the previous quarter.
- Declared dividends of C$26.6
million in the quarter; full year declared dividends of
C$105.5 million, representing payout
ratios of 41% and 50%, respectively.
- Net earnings of $34.1 million,
or $0.55 per Share, in 2019 Q4; full
year net earnings of $57.7 million,
or $0.93 per Share.
- 2019 Q4 Adjusted Net Earnings of $30.9 million, or $0.49 per Share, which is normalized for
$3.2 million of non-cash adjustments
impacting net earnings; full year 2019 Adjusted Net Earnings of
$101.7 million, or $1.65 per Share.
- 2019 year ending Backlog, consisting of firm and option
orders, was 10,742 EUs (valued at $5.2
billion).
- 2020 full year Adjusted EBITDA guidance of $320 million to $350
million. This guidance does not include any potential impact
from COVID-19 (which has not materially impacted NFI's operations
to date).
WINNIPEG, March 12, 2020 /PRNewswire/ - (TSX:NFI) NFI
Group Inc., ("NFI" or the "Company"), one of the world's
leading independent bus manufacturers, today announced its
financial results for 2019 Q4(1) and Fiscal 2019.
Fourth quarter Adjusted EBITDA increased to $103.9 million, an improvement of 30% from the
same period in 2018. Other key financial highlights for the quarter
and year:
|
|
|
|
|
(in millions
except EPS)
|
2019
Q4
|
Change
2018
|
FY
2019
|
Change
2018
|
Deliveries
(EUs)
|
1,845
|
719
|
5,315
|
1,002
|
IFRS
Measures
|
|
|
|
|
Revenue
|
$917.7
|
$255.7
|
$2,893.4
|
$374.4
|
Net
earnings
|
$34.1
|
($8.7)
|
$57.7
|
($102.2)
|
Net earnings per
Share
|
$0.55
|
($0.14)
|
$0.93
|
($1.63)
|
Non-IFRS
Measures(2)
|
|
|
|
|
Adjusted
EBITDA
|
$103.9
|
$24.0
|
$322.2
|
$6.8
|
Adjusted Net
Earnings
|
$30.9
|
($14.0)
|
$101.7
|
($65.9)
|
Adjusted Net earnings
per Share
|
$0.49
|
($0.23)
|
$1.65
|
($1.04)
|
Free Cash
Flow
|
$49.0
|
$6.6
|
$160.4
|
$0.7
|
Leverage
|
3.24x
|
(1.15x)
|
3.24x
|
(1.15x)
|
(1)
|
Results noted herein
are for the 13-week period ("2019 Q4") and the 52-week period
("Fiscal 2019") ended December 29, 2019. The comparisons reported
in this press release compare 2019 Q4 to the 13-week period ("2018
Q4") and Fiscal 2019 to the 52-week period ended December 30, 2018
("Fiscal 2018"). Comparisons and comments are also made to the
13-week period ("2019 Q3") ended September 29, 2019. Readers are
advised to view the audited condensed consolidated financial
statements (the "Financial Statements") and the related
Management's Discussion and Analysis (the "MD&A") that are
available at the Company's website at:
https://www.nfigroup.com/investor-relations/performance-reports/
and under the Company's profile on www.sedar.com
|
(2)
|
Adjusted EBITDA,
Adjusted Net Earnings, Adjusted Net Earnings per Share and Free
Cash Flow are not recognized earnings measures and do not have
standardized meanings prescribed by IFRS. Therefore, they may not
be comparable to similar measures presented by other issuers. See
"Non-IFRS Measures" and detailed reconciliations of IFRS Measures
to Non-IFRS Measures in the Appendix of this press
release.
|
Fourth quarter Adjusted Net Earnings is adjusted for
$4.0 million of fair value
adjustments on mark-to-market losses on interest rate swap and
foreign exchange of intangible asset amortization plus $0.5 million related to the unwinding of fair
value adjustments relating to the valuation of Alexander Dennis
Limited (ADL) assets. Full year Adjusted Net Earnings is adjusted
for $13.0 million in costs associated
with assessing strategic and corporate initiatives (primarily the
acquisition of ADL) plus $16.7
million related to the unwinding of fair value adjustments
related to the valuation of ADL assets, and $11.9 million for mark-to-market losses on
interest rate swap and foreign exchange. Full reconciliation
of net earnings to Adjusted Net Earnings is available in the
accompanying tables of this press release.
"Fiscal 2019 was a period of significant milestones for NFI as
we completed the transformative acquisition of ADL and continued to
secure our position as a market leader in zero emission buses,"
said Paul Soubry, President and
Chief Executive Officer of NFI. "We were pleased with our
performance in the fourth quarter as we recovered from a
challenging year with record quarterly vehicle deliveries, revenue
and Adjusted EBITDA. The execution of our plan to reduce
work-in-progress inventory build-up significantly contributed to
lowering our total debt and leverage ratio by year end. These
positives were somewhat offset by challenges with the ramp-up of
our new parts fabrication facility and learning curve associated
with the launch of several new bus and coach models, but we are now
largely past those issues and focused on delivering results in
2020, where we expect to see revenue, Adjusted EBITDA, Free Cash
Flow and EPS growth while we maintain leadership positions in all
of our core markets and deliver an increasingly broad portfolio of
mobility solutions."
2019 Q4 and Fiscal 2019 Impact of the Transition to IFRS
16
Effective December 31, 2018, the
Company adopted IFRS 16, the accounting standard which specifies
how to recognize, present and disclose leases. This standard
provides a single lessee accounting model, requiring lessees to
recognize assets and liabilities for all major leases. On
transition, the Company has elected to use the following practical
expedients and policies:
- To utilize the modified retrospective approach to adopting the
standard, accordingly comparative information for 2018 has not been
restated
- To utilize the definition of a lease under International
Accounting Standard 17 to identify contracts that are, or contain,
leases
- To exclude the recognition of the right-of-use asset and lease
liability for leases with a term of twelve months or less
- To exclude the recognition of the right-of-use asset and lease
liability for leases and of low-value assets
- To value the right-of-use asset as equal to the lease
liability, adjusting for related amounts prepaid or accrued
The impact of the adoption of IFRS 16 primarily impacts NFI's
Gross Margin, Adjusted EBITDA, net earnings and Adjusted Net
Earnings, and the associated per common share ("Share") amounts,
and several balance sheet accounts as reported in the Financial
Statements and MD&A. Outside of the table below all Q4 2019
numbers referenced in this press release reflect the adoption of
IFRS 16 while the comparative numbers do not.
|
|
|
|
|
|
|
Impact of IFRS 16
Transition
(in millions
except EPS)
|
2019
Q4
|
2019
Q4
(excluding
IFRS
16)
|
2018
Q4
|
FY
2019
|
FY
2019
(excluding
IFRS
16)
|
FY
2018
|
IFRS
Measures
|
|
|
|
|
|
|
Gross
Margin
|
$138.0
|
$139.0
|
$118.3
|
$413.5
|
$415.5
|
$454.2
|
Net
earnings
|
$34.1
|
$35.8
|
$42.8
|
$57.7
|
$62.0
|
$160.0
|
Net earnings per
Share
|
$0.55
|
$0.57
|
$0.69
|
$0.93
|
$1.00
|
$2.56
|
Non-IFRS
Measures
|
|
|
|
|
|
|
Adjusted
EBITDA
|
$103.9
|
$100.0
|
$79.9
|
$322.2
|
$308.0
|
$315.4
|
Adjusted Net
Earnings
|
$30.9
|
$32.5
|
$44.8
|
$101.7
|
$106.0
|
$167.6
|
Adjusted Net earnings
per Share
|
$0.49
|
$0.52
|
$0.72
|
$1.65
|
$1.71
|
$2.69
|
2019 Q4 and Fiscal 2019 Segment Highlights
Manufacturing
- Manufacturing Revenue for 2019 Q4 increased by $224.1 million, or 39%, compared to 2018 Q4
primarily driven by the acquisition of ADL, higher motor coach,
transit and medium-duty and low-floor cutaway vehicle deliveries.
Fiscal 2019 Manufacturing Revenue increased by $334.2 million, or 16%, compared to Fiscal 2018
primarily driven by the acquisition of ADL.
- The company had significant deliveries during 2019 Q4
catching-up on vehicles impacted by the previously reported
production and delivery challenges related to new product launches
at New Flyer and MCI, the extended start-up of KMG, the Company's
new parts fabrication facility, external supply issues and lost
production days due to inclement weather.
- Manufacturing gross margins for 2019 Q4 increased by
$9.3 million, or 10%, compared to
2018 Q4, with a margin percentage of 12.8%. The increase was driven
by the acquisition of ADL and overall higher delivery volumes
somewhat offset by costs associated with production inefficiencies
and work-in-progress ("WIP") reduction efforts within both the
heavy-duty transit and coach businesses. Fiscal 2019 Manufacturing
gross margins decreased by $55.8
million, or 16%, compared to Fiscal 2018 with higher revenue
and deliveries offset by temporary production inefficiencies within
both the motor coach and transit bus businesses. These
inefficiencies were a result of learning curves related to the
production of new products, startup costs at the KMG parts
fabrication facility and higher remediation costs.
- Included in manufacturing gross margin is a charge of
$2.2 million for 2019 Q4 and
$31.0 million for Fiscal 2019 related
to the unwind of fair value adjustments related to the valuation of
ADL acquired assets. Also contributing to the decrease in gross
margin is amortization of intangible assets of $5.3 million for 2019 Q4 and $14.4 million for Fiscal 2019 related to the
acquisition of ADL. This decreased gross margin as a percentage of
revenue by 0.9% for 2019 Q4 and 1.8% for Fiscal 2019.
- 2019 Q4 Manufacturing Adjusted EBITDA increased by $12.9 million, or 18%, compared to 2018 Q4 due to
the addition of ADL and overall higher vehicle deliveries, somewhat
offset by the items that impacted gross margins and higher selling
and general and administrative costs ("SG&A") from the addition
of ADL. Fiscal 2019 Manufacturing Adjusted EBITDA decreased by
$19.9 million, or 7%, when compared
to Fiscal 2018, as the addition of ADL and overall higher
heavy-duty transit vehicle deliveries were offset by the impact of
KMG, learning curve on new model launches, product mix, margin
pressure within the coach business and lower cutaway and
medium-duty deliveries.
Aftermarket
- Aftermarket revenue in 2019 Q4 increased by $31.7 million, or 37%, compared to 2018 Q4 with
the acquisition of ADL being the primary driver along with higher
volumes in NFI's traditional private and public North American
markets. Fiscal 2019 Aftermarket revenue increased by $40.3 million, or 11%, compared to Fiscal 2018
with the acquisition of ADL being partially offset by lower sales
volumes in the legacy aftermarket business due to competitive
pressures in the private motor coach market. Revenue was also
impacted by Daimler's 2018 cancellation of MCI's Distribution
Rights Agreement ("DRA") relating to the distribution of Daimler's
Setra motor coaches and parts. The cancellation of the DRA resulted
in a $4.0 million decrease in the
aftermarket parts revenue in Fiscal 2019 compared to Fiscal
2018.
- Aftermarket gross margins increased by $10.4 million, or 42%, compared to 2018 Q4, with
a gross margin percentage of 30.4%, primarily due to the addition
of ADL and sales mix within NFI's traditional parts business.
Fiscal 2019 Aftermarket gross margins increased by $15.0 million, or 14%, compared to Fiscal 2018,
primarily due to the acquisition of ADL plus favourable sales mix,
offset by cancellation of the DRA.
- 2019 Q4 Aftermarket Adjusted EBITDA increased by $1.1 million, or 6%, compared to 2018 Q4 with
higher volumes and gross margins from the addition of ADL and sales
mix in the traditional aftermarket business being offset by higher
SG&A costs from the addition of ADL. Fiscal 2019 Aftermarket
Adjusted EBITDA increased by $0.9
million, or 1%, with volume increases from ADL offset by
increased SG&A costs from the addition of ADL and decreased
contribution due to cancellation of the DRA.
Liquidity
NFI's liquidity position as at December
29, 2019 was $209.3 million an
increase from the position of $86.6
million at September 29, 2019.
The increase in liquidity primarily relates to changes in non-cash
working capital from decreased WIP offset by the amount of capital
returned to shareholders through dividends. Management believes
these funds, together with share and debt issuances, other
borrowings capacity and the cash generated from NFI's operating
activities, will provide the Company with sufficient liquidity and
capital resources to meet its current financial obligations as they
come due, as well as provide funds for its financing requirements,
capital expenditures, dividend payments and other operational needs
for the foreseeable future.
Outlook
Management remains optimistic about the Company's overall end
markets. Public transit remains a primary method of transportation
for millions of users, the age of the population is increasing, and
numerous jurisdictions are implementing strategies to improve
accessibility through advanced mobility solutions while improving
air quality through the migration to zero-emission propulsion
technology for buses and coaches. While the Company's
overall outlook is positive, management does expect increased
competition, softness in some segments and geographic regions and
timing of the zero-emission buses ("ZEB") transition to impact
project awards, deliveries and margins during Fiscal 2020.
As the Company's product offering and geographic diversity is
now broader, for the first-time management is introducing annual
Adjusted EBITDA guidance for Fiscal 2020 with a range of
$320 million to $350 million, which could represent Adjusted
EBITDA growth of up to 9% on a year-over-year basis.
Management continues to expect its transformative acquisition of
ADL to be a platform for international growth as ADL is the largest
bus and coach provider in the UK and the global market leader in
double deck vehicles, with an established presence in numerous
geographic jurisdictions. Details of Management's 2020 guidance are
as follows:
|
Financial Guidance
Full Year 2020
|
Adjusted
EBITDA
|
$320 million - $350
million
|
Cash Capital
Expenditures
|
$45 million - $55
million
|
Effective Tax Rate
("ETR")
|
31% - 33%
|
Free Cash Flow
("FCF") Conversion (as a % of Adjusted EBITDA)
|
45% - 50%
|
Seasonality
|
Q1 Flat, growth in
Q2, Q3 and Q4
|
The above table outlines guidance ranges for selected Fiscal
2020 consolidated financial metrics. These ranges take into
consideration our current outlook and our Fiscal 2019 results and
are based on the assumptions below. The purpose of the
financial guidance is to assist investors, shareholders and others
in understanding certain financial metrics relating to expected
Fiscal 2020 financial results for evaluating the performance of our
business. The information may not be appropriate for other
purposes. Information about our guidance, including the various
assumptions underlying it, is forward looking and should be read in
conjunction with the "Forward-looking Statements" of this press
release and the related disclosure and information about various
economic competitive and regulatory assumptions, factors and risks
that may cause actual future financial and operating results to
differ from management's current expectations. Note that potential
impact of COVID-19 (also known as Coronavirus) is not included in
guidance ranges provided above. COVID-19 has not had a material
impact on NFI's operations as of March 12,
2020.
The guidance ranges provided above are driven by numerous
assumptions including, but not limited to, the following:
- Does not include any potential impact from COVID-19
- Adjusted EBITDA expectations are based on management's
expectations of mid-teen revenue percentage growth, assisted by a
full year of ADL operations plus the Company's existing backlog and
anticipated new orders and margin improvement as NFI's KMG parts
fabrication facility shifts from a loss position to profitability
with operations no longer delaying new vehicle production.
- The lower end of the Adjusted EBITDA range is based on
scenarios where production is negatively impacted by new model
learning curves, weather delays and supply disruption.
- Expected Fiscal 2020 cash capital expenditures are primarily
maintenance expenditures with some growth spending following
periods of increased investment from 2017 to 2019, primarily driven
by strategic projects.
- The Company's ETR range for Fiscal 2020 is based on the
Company's corporate structure, operating jurisdictions, existing
and proposed tax legislation. It excludes the impact of purchase
accounting adjustments related to the acquisition of ADL and other
one-time items which may increase the expected ETR. Looking
forward, management expects the ETR to decline as global activities
are reflected in the Company's financial results.
- FCF conversion is based on the Company's Adjusted EBITDA
expectations, historic FCF conversion, projected cash capital
expenditures and cash interest and tax expectations.
Management notes that the Company's annual delivery schedule has
notable seasonality due to the nature of each unique market segment
and the varied annual production and vacation schedules of each
production facility. Even after accounting for the addition of ADL,
management expects that the first quarter will be the Company's
slowest period, and potentially flat with the prior-year, with
increased activity expected to occur in the second, third and
fourth quarters. Some vehicle deliveries may shift from
quarter-to-quarter depending on timing of client inspections and
acceptance processes.
NFI is closely monitoring the COVID-19 virus outbreak and while
NFI is experiencing some supply delays, the virus has not
materially impacted NFI's production operations nor has the Company
experienced any adverse impact on delivery of our products.
Additional supply delays and possible shortages of critical
components may arise if the disruption of certain suppliers'
operations and/or subcomponent supply from China or elsewhere continue or escalate.
Such occurrences or negative impacts of the outbreak on customer
demand for our products could potentially have a material adverse
effect on NFI's operations. NFI is monitoring the dynamic situation
and actively assessing supply alternatives and developing
appropriate mitigation plans. Given that it is nearly impossible to
accurately forecast the impact of COVID-19 on NFI, the Company has
not included any adjustment related to it in the 2020 guidance or
other outlook information contained herein or in the MD&A.
To date, COVID-19 has not caused any delays or reductions in
planned vehicle deliveries but could potentially have an impact on
our end-customers. While every operator is different, they are all
focused on continuing to offer a clean and safe experience for
their customers. If the virus continues to spread and prevention
policies are escalated there could potentially be an impact on
travel of customer inspectors which could impact NFI's new build or
bus/coach delivery and acceptance programs. There could also be an
impact of lower ridership for operators, which could decrease
demand for new and pre-owned vehicles.
"As we begin 2020, we look forward with increased confidence
following a strong fourth Quarter in 2019" said Paul Soubry. "We do expect continued mild
headwinds in the transit and coach businesses due to price pressure
from specific contracts, which appear to be amplified in the
short-term as operators evaluate their ZEB transition plans that
has resulted in more competitions with less units per contract.
However, around the world our customers are increasingly
focusing on replacing their aging fleets, transitioning to ZEBs and
improving customer accessibility – all of which NFI excels
at. We expect to be the beneficiary of market share, revenue
and margin growth as these shifts happen over the long term."
Corporate Social Responsibility
NFI's vision is to enable the future of mobility with innovative
and sustainable solutions through the design and delivery of
exceptional transportation solutions that are safe, accessible,
efficient and reliable. NFI's end products are a key driver
to enable cities to lower emissions, decrease congestion and drive
economic opportunity for less-fortunate members of various
communities. NFI is committed to employees, customers and
shareholders, while also being responsible to the environment and
the communities that we live and work in, by focusing on using
renewable power, reducing waste, purchasing supplies from
disadvantaged business enterprises, promoting diversity and
adhering to our detailed governance structure. NFI's Environmental
Social Governance Report can be accessed on the Company's
website.
About NFI Group
With more than 9,000 team members operating from 50 facilities
across ten countries, NFI is a leading independent global bus
manufacturer providing a comprehensive suite of mass transportation
solutions under brands: New Flyer® (heavy-duty transit
buses), Alexander Dennis Limited (single and double-deck buses),
Plaxton (motor coaches), MCI® (motor coaches),
ARBOC® (low-floor cutaway and medium-duty buses), and
NFI Partsâ„¢. NFI vehicles incorporate the widest range of
drive systems available including: clean diesel, natural gas,
diesel-electric hybrid, and zero-emission electric (trolley,
battery, and fuel cell). In total, NFI now supports over
105,000 buses and coaches currently in service around the
world.
NFI common shares are traded on the Toronto Stock Exchange under
the symbol NFI. Further information is available at
www.nfigroup.com, www.newflyer.com, www.mcicoach.com,
www.arbocsv.com, www.nfi.parts, www.alexander-dennis.com,
and www.carfair.com.
Conference Call
A conference call for analysts and interested listeners will be
held on March 12, 2020 at
8 a.m. (ET). The call-in number for
listeners is 888-231-8191, 647-427-7450 or 403-451-9838. An
accompanying results presentation will be available prior to the
call at
https://www.nfigroup.com/investor-relations/performance-reports/
A live audio feed of the call will also be available at:
https://event.on24.com/wcc/r/2177532/6159C6CFED8A162767305608E9809B73
A replay of the call will be available from 11:00 a.m. (ET) on March
12, 2020 until 11:59 p.m. (ET)
on April 12, 2020. To access the
replay, call 855-859-2056 or 416-849-0833 and then enter pass code
number 5662858. The replay will also be available on NFI's web site
at www.nfigroup.com
Appendix – Reconciliation Tables
Reconciliation of Net Earnings to Adjusted
EBITDA
Management believes that Adjusted EBITDA is an important measure
in evaluating the historical operating performance of the Company.
However, Adjusted EBITDA is not a recognized earnings measure under
IFRS and does not have a standardized meaning prescribed by IFRS.
Accordingly, Adjusted EBITDA may not be comparable to similar
measures presented by other issuers. Readers of this press release
are cautioned that Adjusted EBITDA should not be construed as an
alternative to net earnings or loss determined in accordance with
IFRS as indicators of the Company's performance, or cash flows from
operating activities determined in accordance with IFRS as a
measure of liquidity and cash flow. See Non-IFRS measures for the
definition of Adjusted EBITDA. The following table reconciles net
earnings to Adjusted EBITDA based on the historical Financial
Statements of the Company for the periods indicated.
|
|
|
|
|
|
|
|
|
|
(Unaudited, U.S.
dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
2019
Q4
|
|
2018
Q4
|
|
|
Fiscal
2019
|
|
Fiscal
2018
|
|
Net
earnings
|
34,127
|
|
42,815
|
|
|
57,698
|
|
159,942
|
|
Addback(1)
|
|
|
|
|
|
Income
taxes
|
26,118
|
|
7,933
|
|
|
41,997
|
|
50,711
|
|
Interest
expense
|
11,301
|
|
10,657
|
|
|
73,355
|
|
27,693
|
|
Amortization
|
31,134
|
|
18,017
|
|
|
104,570
|
|
67,796
|
|
Loss (gain) on
disposition of property, plant and equipment
|
52
|
|
(8)
|
|
|
(46)
|
|
267
|
|
Fair value adjustment
for total return swap(10)
|
273
|
|
5,629
|
|
|
949
|
|
6,547
|
|
Unrealized foreign
exchange loss (gain) on non-current monetary items and
forward foreign
exchange contracts
|
(1,640)
|
|
1,311
|
|
|
60
|
|
1,381
|
|
Costs associated with
assessing strategic and corporate
initiatives(7)
|
(616)
|
|
—
|
|
|
13,069
|
|
137
|
|
Past service
costs(11) and other pension costs
|
70
|
|
—
|
|
|
(1,601)
|
|
6,482
|
|
Non-recurring
restructuring costs (8)
|
364
|
|
—
|
|
|
364
|
|
—
|
|
Fair value adjustment
to acquired subsidiary company's inventory and
deferred
revenue(9)
|
2,156
|
|
—
|
|
|
31,004
|
|
266
|
|
Proportion of the
total return swap realized(8)
|
(203)
|
|
(4,382)
|
|
|
(626)
|
|
(5,139)
|
|
Equity settled
stock-based compensation
|
437
|
|
34
|
|
|
1,566
|
|
1,409
|
|
Recovery on currency
transactions(13)
|
—
|
|
—
|
|
|
(4,287)
|
|
—
|
|
Prior year sales tax
provision (14)
|
300
|
|
—
|
|
|
4,094
|
|
—
|
|
Release of provisions
related to purchase accounting(12)
|
—
|
|
(2,138)
|
|
|
—
|
|
(2,138)
|
|
Adjusted
EBITDA(1)
|
103,875
|
|
79,868
|
|
|
322,167
|
|
315,354
|
|
Adjusted EBITDA is
comprised of:
|
|
|
|
|
|
Manufacturing
|
$
|
85,715
|
|
$
|
72,817
|
|
|
$
|
256,097
|
|
$
|
275,970
|
|
Aftermarket
|
18,413
|
|
17,339
|
|
|
74,572
|
|
73,655
|
|
Corporate
|
(254)
|
|
(10,288)
|
|
|
(8,503)
|
|
(34,271)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See footnotes below.
Summary of Free Cash Flow
Management uses Free Cash Flow as a non-IFRS measure to evaluate
the Company's operating performance and liquidity and to assess the
Company's ability to pay dividends on the Shares, service debt, and
meet other payment obligations. The Company generates its Free Cash
Flow from operations and management expects this will continue to
be the case for the foreseeable future. Net cash flows generated
from operating activities are significantly impacted by changes in
non-cash working capital. The Company uses its unsecured revolving
credit facility to finance working capital and therefore has
excluded the impact of working capital in calculating Free Cash
Flow. As well, net cash generated by operating activities and net
earnings are significantly affected by the volatility of current
income taxes, which in turn produces temporary fluctuations in the
determination of Free Cash Flow.
The following is a reconciliation of net cash generated by
operating activities (an IFRS measure) to Free Cash Flow (a
non-IFRS measure) based on the Company's historical Financial
Statements. See Non-IFRS measures for the definition of Free Cash
Flow.
|
|
|
|
|
|
|
|
|
|
|
(Unaudited, U.S.
dollars in thousands, except per Share figures)
|
|
|
|
|
|
|
|
|
|
|
|
2019
Q4
|
|
2018
Q4
|
|
|
Fiscal
2019
|
|
Fiscal
2018
|
|
|
Net cash generated
from operating activities
|
$
|
163,761
|
|
$
|
67,340
|
|
|
$
|
98,608
|
|
$
|
175,144
|
|
|
Changes in non-cash
working capital items(3)
|
(85,382)
|
|
1,992
|
|
|
91,324
|
|
34,344
|
|
|
Interest
paid(3)
|
15,447
|
|
6,338
|
|
|
47,676
|
|
23,073
|
|
|
Interest
expense(3)
|
(15,631)
|
|
(6,273)
|
|
|
(50,546)
|
|
(23,546)
|
|
|
Income taxes
paid(3)
|
7,228
|
|
12,154
|
|
|
40,167
|
|
73,082
|
|
|
Current income tax
expense(3)
|
(30,842)
|
|
(9,495)
|
|
|
(61,339)
|
|
(56,263)
|
|
|
Principal portion of
finance lease payments
|
(1,400)
|
|
(1,547)
|
|
|
(12,456)
|
|
(5,125)
|
|
|
Cash capital
expenditures
|
(6,968)
|
|
(20,144)
|
|
|
(37,575)
|
|
(70,991)
|
|
|
Proceeds from
disposition of property, plant and equipment
|
—
|
|
10
|
|
|
174
|
|
235
|
|
|
Costs associated with
assessing strategic and corporate
initiatives(7)
|
(616)
|
|
—
|
|
|
13,069
|
|
137
|
|
|
Fair value adjustment
to acquired subsidiary company's inventory and
deferred revenue
(9)
|
2,156
|
|
—
|
|
|
31,004
|
|
266
|
|
|
Defined benefit
funding(4)
|
1,969
|
|
608
|
|
|
8,140
|
|
22,241
|
|
|
Defined benefit
expense(4)
|
(1,322)
|
|
(1,755)
|
|
|
(5,849)
|
|
(12,333)
|
|
|
Past service
costs(11) and other pension costs
|
70
|
|
—
|
|
|
(1,601)
|
|
6,482
|
|
|
Proportion of the
total return swap(10)
|
(203)
|
|
(4,382)
|
|
|
(626)
|
|
(5,138)
|
|
|
Recovery on currency
transactions(13)
|
—
|
|
—
|
|
|
(4,287)
|
|
—
|
|
|
Prior year sales tax
provision (14)
|
300
|
|
—
|
|
|
4,094
|
|
—
|
|
|
Non-recurring
restructuring costs(8)
|
364
|
|
—
|
|
|
364
|
|
—
|
|
|
Gain on release of
provision related to purchase accounting(12)
|
—
|
|
(2,138)
|
|
|
—
|
|
(2,138)
|
|
|
Foreign exchange gain
(loss) on cash held in foreign currency(5)
|
102
|
|
(289)
|
|
|
83
|
|
194
|
|
|
Free Cash Flow
(US$)(1)
|
$
|
49,033
|
|
$
|
42,419
|
|
|
$
|
160,424
|
|
$
|
159,664
|
|
|
U.S. exchange
rate(2)
|
1.3076
|
|
1.3638
|
|
|
1.3180
|
|
1.3183
|
|
|
Free Cash Flow
(C$)(1)
|
64,116
|
|
57,851
|
|
|
211,439
|
|
210,485
|
|
|
Free Cash Flow per
Share (C$)(6)
|
1.0269
|
|
0.9302
|
|
|
3.4200
|
|
3.3733
|
|
|
Declared dividends on
Shares (C$)
|
26,561
|
|
22,890
|
|
|
105,462
|
|
90,343
|
|
|
Declared dividends
per Share (C$)(6)
|
$
|
0.4253
|
|
$
|
0.3680
|
|
|
$
|
1.7062
|
|
$
|
1.4479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See footnotes below.
Reconciliation of Net Earnings to Adjusted Net
Earnings
Adjusted Net Earnings and Adjusted Earnings per Share are not
recognized measures under IFRS and do not have a standardized
meaning prescribed by IFRS. Accordingly, Adjusted Net Earnings and
Adjusted Earnings per Share may not be comparable to similar
measures presented by other issuers. Readers of this press release
are cautioned that Adjusted Net Earnings and Adjusted Earnings per
Share should not be construed as an alternative to net earnings, or
net earnings per Share, determined in accordance with IFRS as
indicators of the Company's performance. See Non-IFRS Measures for
the definition of Adjusted Net Earnings and Adjusted Earnings per
Share. The following tables reconcile net earnings to
Adjusted Net Earnings based on the historical Financial Statements
of the Company for the periods indicated.
(Unaudited, U.S.
dollars in thousands other than
earnings per Share and Adjusted Earnings per Share)
|
2019
Q4
|
|
2018
Q4
|
|
|
Fiscal
2019
|
|
Fiscal
2018
|
Net
earnings
|
$
|
34,127
|
|
42,815
|
|
|
$
|
57,698
|
|
$
|
159,942
|
Net earnings,
excluding IFRS 16
|
$
|
35,767
|
|
42,815
|
|
|
62,009
|
|
159,942
|
|
|
|
|
|
|
Adjustments, net of
tax (1) (10)
|
|
|
|
|
|
Fair value
adjustments of total return swap(7)
|
145
|
|
4,274
|
|
|
549
|
|
4,971
|
Unrealized foreign
exchange (gain) loss
|
(981)
|
|
995
|
|
|
35
|
|
1,049
|
Unrealized (gain)
loss on interest rate swap
|
(3,115)
|
|
1,682
|
|
|
12,721
|
|
630
|
Portion of the total
return swap realized(8)
|
(109)
|
|
(3,325)
|
|
|
(362)
|
|
(3,900)
|
Costs associated with
assessing strategic and corporate
initiatives(4)
|
(616)
|
|
—
|
|
|
13,069
|
|
104
|
Fair value adjustment
to acquired subsidiary company's inventory and
deferred revenue(6)
|
707
|
|
—
|
|
|
17,943
|
|
202
|
Equity settled
stock-based compensation
|
231
|
|
26
|
|
|
906
|
|
1,070
|
Gain on disposition
of property, plant and equipment
|
32
|
|
(6)
|
|
|
(27)
|
|
203
|
Past service
costs(9) and other pension costs
|
71
|
|
—
|
|
|
(927)
|
|
4,922
|
Gain on release of
provision related to purchase accounting (11)
|
—
|
|
(1,623)
|
|
|
—
|
|
(1,623)
|
Recovery on currency
transactions(12)
|
80
|
|
—
|
|
|
(2,481)
|
|
—
|
Prior year sales tax
provision (13)
|
102
|
|
—
|
|
|
2,369
|
|
—
|
Non-recurring
restructuring costs (5)
|
211
|
|
—
|
|
|
211
|
|
—
|
Adjusted Net
Earnings
|
30,885
|
|
44,838
|
|
|
101,704
|
|
167,570
|
Adjusted Net
Earnings, excluding IFRS 16
|
$
|
32,525
|
|
$
|
44,838
|
|
|
$
|
106,015
|
|
$
|
167,570
|
|
|
|
|
|
|
Earnings per Share
(basic)
|
$
|
0.55
|
|
$
|
0.69
|
|
|
$
|
0.93
|
|
$
|
2.56
|
Earnings per Share
(fully diluted)
|
$
|
0.55
|
|
$
|
0.68
|
|
|
$
|
0.93
|
|
$
|
2.55
|
|
|
|
|
|
|
Adjusted Earnings per
Share (basic)
|
$
|
0.49
|
|
$
|
0.72
|
|
|
$
|
1.65
|
|
$
|
2.69
|
Adjusted Earnings per
Share (fully diluted)
|
$
|
0.49
|
|
$
|
0.72
|
|
|
$
|
1.64
|
|
$
|
2.67
|
|
|
|
|
|
|
Earnings per Share
and Adjusted Earnings per Share, excluding IFRS 16
|
|
|
|
|
|
Earnings per Share
(basic)
|
$
|
0.57
|
|
$
|
0.69
|
|
|
$
|
1.00
|
|
$
|
2.56
|
Earnings per Share
(fully diluted)
|
$
|
0.57
|
|
$
|
0.68
|
|
|
$
|
1.00
|
|
$
|
2.55
|
|
|
|
|
|
|
Adjusted Earnings per
Share (basic)
|
$
|
0.52
|
|
$
|
0.72
|
|
|
$
|
1.71
|
|
$
|
2.69
|
Adjusted Earnings per
Share (fully diluted)
|
$
|
0.52
|
|
$
|
0.72
|
|
|
$
|
1.71
|
|
$
|
2.67
|
(1)
|
Free Cash Flow is not
a recognized measure under IFRS and does not have a standardized
meaning prescribed by IFRS. Therefore, Free Cash Flow may not be
comparable to similar measures presented by other issuers. See
Appendix B for "Definitions of Adjusted EBITDA, ROIC, Free Cash
Flow, Adjusted Net Earnings and Adjusted Earnings per
Share".
|
(2)
|
U.S. exchange rate
(C$ per US$) is the weighted average exchange rate applicable to
dividends declared for the period.
|
(3)
|
Changes in non-cash
working capital are excluded from the calculation of Free Cash Flow
as these temporary fluctuations are managed through the Credit
Facility which is available to fund general corporate requirements,
including working capital requirements, subject to borrowing
capacity restrictions. Changes in non-cash working capital are
presented on the consolidated statements of cash flows net of
interest and incomes taxes paid.
|
(4)
|
The cash effect of
the difference between the defined benefit expense and funding is
included in the determination of cash from operating activities.
This cash effect is excluded in the determination of Free Cash Flow
as management believes that the defined benefit expense amount
provides a more appropriate measure, as the defined benefit funding
can be impacted by special payments to reduce the unfunded pension
liability.
|
(5)
|
Foreign exchange loss
on cash held in foreign currency is excluded in the determination
of cash from operating activities under IFRS; however, because it
is a cash item, management believes it should be included in the
calculation of Free Cash Flow.
|
(6)
|
Per Share
calculations for Free Cash Flow (C$) are determined by dividing
Free Cash Flow by the total number of all issued and outstanding
Shares using the weighted average over the period. The weighted
average number of Shares outstanding for 2019 Q4 was 62,434,520 and
62,192409 for 2018 Q4. The weighted average number of Shares
outstanding for Fiscal 2019 and Fiscal 2018 are 61,809,479 and
62,396,962 respectively. Per Share calculations for declared
dividends (C$) are determined by dividing the amount of declared
dividends by the number of outstanding Shares at the respective
period end date.
|
(7)
|
Normalized to exclude
non-recurring expenses related to the costs of assessing strategic
and corporate initiatives.
|
(8)
|
Normalized to exclude
non-recurring restructuring costs.
|
(9)
|
The revaluation of
ARBOC's inventory included an adjustment of $0.5 million of which
$0.3 million negatively impacted 2018 YTD net earnings. The
revaluation of ADL's inventory included an adjustment of $2.2
million in 2019 Q4 and $31.0 million in Fiscal 2019. These
revaluation adjustments relate to purchase accounting as a result
of the related acquisitions.
|
(10)
|
A portion of the fair
value adjustment of the total return swap is added to Free Cash
Flow to match the equivalent portion of the related deferred
compensation expense recognized.
|
(11)
|
A new collective
bargaining agreement at the Company's Winnipeg facility commenced
on April 1, 2018 which included retroactive changes to New Flyer's
Canadian defined benefit pension plan. The effect of the pension
plan amendments was to increase the accrued benefit liability and
the expected annual pension plan expense in Fiscal 2018 by $6.5
million to reflect pension benefits provided to employees for past
service. In 2018 Q2, the Company completed an actuarial valuation
related to the past service costs which resulted in an adjustment
of $0.7 million.
|
(12)
|
During the fourth
quarter of 2018, purchase accounting provisions recorded during the
acquisition of MCI were deemed to be no longer needed and were
released resulting in an increase to net earnings. The
amounts released have been deducted in the calculation of Free Cash
Flow.
|
(13)
|
Recovery of prior
period banking fees related to foreign exchange
transactions.
|
(14)
|
Provision for sales
taxes as result of an ongoing state tax review.
|
Appendix
Non-IFRS Measures
References to "Adjusted EBITDA" are to earnings before interest,
income taxes, depreciation and amortization after adjusting for the
effects of certain non-recurring and/or non-operations related
items that do not reflect the current ongoing cash operations of
the Company including: gains or losses on disposal of property,
plant and equipment, unrealized foreign exchange losses or gains on
non-current monetary items, fair value adjustment for total return
swap, non-recurring transitional costs or recoveries relating to
business acquisitions, equity settled stock-based compensation,
gain on bargain purchase of subsidiary company, fair value
adjustment to acquired subsidiary company's inventory and deferred
revenue, past service costs, costs associated with assessing
strategic and corporate initiatives and proportion of the total
return swap realized. "Free Cash Flow" means net cash generated by
operating activities adjusted for changes in non-cash working
capital items, interest paid, interest expense, income taxes paid,
current income tax expense, effect of foreign currency rate on
cash, defined benefit funding, non-recurring transitional costs
relating to business acquisitions, past service costs, costs
associated with assessing strategic and corporate initiatives,
defined benefit expense, cash capital expenditures, proportion of
the total return swap realized, proceeds on disposition of
property, plant and equipment, gain received on total return swap
settlement, fair value adjustment to acquired subsidiary company's
inventory and deferred revenue and principal payments on capital
leases. References to "ROIC" are to net operating profit after
taxes (calculated as Adjusted EBITDA less depreciation of plant and
equipment and income taxes at the expected effective tax rate)
divided by average invested capital for the last twelve-month
period (calculated as to shareholders' equity plus long-term debt,
obligations under finance leases, other long-term liabilities,
convertible debentures and derivative financial instrument
liabilities less cash). References to "Adjusted Net Earnings"
are to net earnings after adjusting for the after tax effects of
certain non-recurring and/or non-operational related items that do
not reflect the current ongoing cash operations of the Company
including: fair value adjustments of total return swap, unrealized
foreign exchange loss or gain, unrealized gain or loss on the
interest rate swap, portion of the total return swap realized,
costs associated with assessing strategic and corporate
initiatives, non-recurring costs or recoveries relating to business
acquisition, fair value adjustment to acquired subsidiary company's
inventory and deferred revenue, equity settled stock-based
compensation, gain or loss on disposal of property, plant and
equipment, gain on bargain purchase option, past service costs,
recovery on currency transactions, prior year sales tax provision,
gain on release of provision related to purchase accounting.
References to "Adjusted Net Earnings per Share" are to Adjusted Net
Earnings divided by the average number of Shares outstanding.
Management believes Adjusted EBITDA, Free Cash Flow, ROIC,
Adjusted Net Earnings and Adjusted Earnings per Share are useful
measures in evaluating the performance of the Company. However,
Adjusted EBITDA, Free Cash Flow, ROIC, Adjusted Net Earnings and
Adjusted Earnings per Share are not recognized earnings measures
under IFRS and do not have standardized meanings prescribed by
IFRS. Readers of this press release are cautioned that ROIC,
Adjusted Net Earnings and Adjusted EBITDA should not be construed
as an alternative to net earnings or loss or cash flows from
operating activities determined in accordance with IFRS as an
indicator of NFI's performance, and Free Cash Flow should not be
construed as an alternative to cash flows from operating, investing
and financing activities determined in accordance with IFRS as a
measure of liquidity and cash flows. A reconciliation of net
earnings and cash flows to Adjusted EBITDA, based on the Financial
Statements, has been provided in the MD&A under the headings
"Reconciliation of Net Earnings to Adjusted EBITDA" and
"Reconciliation of Cash Flow to Adjusted EBITDA", respectively. A
reconciliation of Free Cash Flow to cash flows from operations is
provided under the heading "Summary of Free Cash Flow". A
reconciliation of net earnings to Adjusted Net Earnings is provided
under the heading "Reconciliation of Net Earnings to Adjusted Net
Earnings".
NFI's method of calculating Adjusted EBITDA, ROIC, Free Cash
Flow, Adjusted Net Earnings and Adjusted Earnings per Share may
differ materially from the methods used by other issuers and,
accordingly, may not be comparable to similarly titled measures
used by other issuers. Dividends paid from Free Cash Flow are not
assured, and the actual amount of dividends received by holders of
Shares will depend on, among other things, the Company's financial
performance, debt covenants and obligations, working capital
requirements and future capital requirements, all of which are
susceptible to a number of risks, as described in NFI's public
filings available on SEDAR at www.sedar.com.
Forward-Looking Statements
Certain statements in this press release are "forward looking
statements", which reflect the expectations of management regarding
the Company's future growth, results of operations, performance and
business prospects and opportunities. The words "believes",
"anticipates", "plans", "expects", "intends", "projects",
"forecasts", "estimates" and similar expressions are intended to
identify forward looking statements. These forward-looking
statements reflect management's current expectations regarding
future events and operating performance and speak only as of the
date of this press release. Forward-looking statements involve
significant risks and uncertainties, should not be read as
guarantees of future performance or results, and will not
necessarily be accurate indications of whether or not or the times
at or by which such performance or results will be achieved. A
number of factors could cause actual results to differ materially
from the results discussed in the forward-looking statements. Such
differences may be caused by factors which include, but are not
limited to, funding may not continue to be available to the
Company's customers at current levels or at all; the Company's
business is affected by economic factors and adverse developments
in economic conditions which could have an adverse effect on the
demand for the Company's products and the results of its operations
(including the effect of demand for the Company's products and
services as a result of the impact of the COVID-19 virus on
customers); currency fluctuations could adversely affect the
Company's financial results or competitive position; interest rates
could change substantially, materially impacting the Company's
revenue and profitability; an active, liquid trading market for the
Shares may cease to exist, which may limit the ability of
shareholders to trade Shares; the market price for the Shares may
be volatile; if securities or industry analysts do not publish
research or reports about the Company or if their reports are
inaccurate or unfavorable to the Company or its business, or if
they adversely change their recommendations regarding the Shares or
if the Company's results of operations do not meet their
expectations, the Share price and trading volume could
decline. In addition, other risk factors may include entrance
of new competitors; failure of the ratification of the United States-Mexico-Canada Agreement
(USMCA) could be materially adverse to NFI; current requirements
under "Buy America" regulations may change and/or become more
onerous or suppliers' "Buy America" content may change; changes
resulting from a hard exit of United
Kingdom (UK) from the European Union (commonly referred to
as "Brexit") and/or changes to the US Federal Funding mechanism
(FAST Act) or Trade Policies may result in supply chain disruption
and a potential downturn in the UK and US economies that may
suppress demand; failure of the Company to comply with the
disadvantaged business enterprise ("DBE") program requirements or
the failure to have its DBE goals approved by the FTA; absence of
fixed term customer contracts; exercise of options and customer
suspension or termination for convenience; United States content bidding preference rules
may create a competitive disadvantage; local content bidding
preferences in the United States
may create a competitive disadvantage; requirements under Canadian
content policies may change and/or become more onerous; operational
risk, dependence on limited sources or unique sources of supply
(including the risk of supply disruption due to suppliers affected
by the COVID-19 virus); dependence on supply of engines that comply
with emission regulations; a disruption, termination or alteration
of the supply of vehicle chassis or other critical components from
third-party suppliers could materially adversely affect the sales
of certain of the Company's products; the Company's profitability
can be adversely affected by increases in raw material and
component costs as well as the imposition of tariffs and surtaxes
on material imports; the Company may incur material losses and
costs as a result of product warranty costs, recalls and
remediation of buses; production delays may result in liquidated
damages under the Company's contracts with its customers;
catastrophic events may lead to production curtailments or
shutdowns; the Company may not be able to successfully renegotiate
collective bargaining agreements when they expire and may be
adversely affected by labour disruptions and shortages of labour;
the Company's operations are subject to risks and hazards that may
result in monetary losses and liabilities not covered by insurance
or which exceed its insurance coverage; the Company may be
adversely affected by rising insurance costs; the Company may not
be able to maintain performance bonds or letters of credit required
by its contracts or obtain performance bonds and letters of credit
required for new contracts; the Company is subject to litigation in
the ordinary course of business and may incur material losses and
costs as a result of product liability claims; the Company may have
difficulty selling pre-owned coaches and realizing expected resale
values; the Company may incur costs in connection with provincial,
state or federal regulations relating to axle weight restrictions
and vehicle lengths; the Company may be subject to claims and
liabilities under environmental, health and safety laws; dependence
on management information systems and cyber security risks; the
Company's ability to execute its strategy and conduct operations is
dependent upon its ability to attract, train and retain qualified
personnel, including its ability to retain and attract executives,
senior management and key employees; the Company may be exposed to
liabilities under applicable anti-corruption laws and any
determination that it violated these laws could have a material
adverse effect on its business; the Company's risk management
policies and procedures may not be fully effective in achieving
their intended purposes; internal controls over financial
reporting, disclosure controls and procedures; ability to
successfully execute strategic plans and maintain profitability;
development of competitive or disruptive products, services or
technology; development and testing of new products; acquisition
risk; third-party distribution/dealer agreements; availability to
the Company of future financing; the Company may not be able to
generate the necessary amount of cash to service its existing debt,
which may require the Company to refinance its debt; the Company's
substantial consolidated indebtedness could negatively impact the
business; the restrictive covenants in the Company's credit
facilities could impact the Company's business and affect its
ability to pursue its business strategies; payment of dividends is
not guaranteed; a significant amount of the Company's cash is
distributed, which may restrict potential growth; NFI is dependent
on its subsidiaries for all cash available for distributions;
future sales or the possibility of future sales of a substantial
number of Shares may impact the price of the Shares and could
result in dilution; if the Company is required to write down
goodwill or other intangible assets, its financial condition and
operating results would be negatively affected; income tax risk,
investment eligibility and Canadian Federal Income Tax risks; the
effect of comprehensive U.S. tax reform legislation on the NF
Holdings and its U.S. subsidiaries (the "NF Group"), whether
adverse or favorable, is uncertain; certain U.S. tax rules may
limit the ability of NF Group to deduct interest expense for U.S.
federal income tax purposes and may increase the NF Group's tax
liability; certain financing transactions could be characterized as
"hybrid transactions" for U.S. tax purposes, which could increase
the NF Group's tax liability. NFI cautions that this list of
factors is not exhaustive. These factors and other risks and
uncertainties are discussed in NFI's press releases, Annual
Information Form and materials filed with the Canadian securities
regulatory authorities which are available on SEDAR at
www.sedar.com.
Although the forward‑looking statements contained in this press
release are based upon what management believes to be reasonable
assumptions, investors cannot be assured that actual results will
be consistent with these forward‑looking statements, and the
differences may be material. These forward‑looking statements are
made as of the date of this press release and NFI assumes no
obligation to update or revise them to reflect new events or
circumstances, except as required by applicable securities
laws.
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SOURCE NFI Group Inc.