SHAWCOR LTD. ANNOUNCES THIRD QUARTER 2018 RESULTS.
ENPNewswire-November 7, 2018--SHAWCOR LTD. ANNOUNCES THIRD QUARTER 2018 RESULTS
(C)2018 ENPublishing - http://www.enpublishing.co.uk
Release date- 06112018 - TORONTO - Mr. Steve Orr, Chief Executive Officer of Shawcor Ltd. (TSX: SCL) remarked 'Third quarter revenue and Adjusted EBITDA2 were in line with what we delivered in the first and second quarter of 2018 despite unexpected negative supply chain and regulatory environment influences.
The solid EBITDA2 performance was supported by our expanded portfolio that continued to offset the negative impact of lower activity and the investments being made in our late cycle international pipe coating reliant businesses.'
Mr. Orr added 'With a demonstrated base business, the award of Liza II and line of sight of multiple international and offshore projects we are now confident that 2018 will be a pivotal year for the company. Growth in future earnings will be enabled by both a diversified base business and an increase in backlog. Supported by the company's diversified market, position in the offshore capex cycle, long-term industry fundamentals and multiple attractive investment opportunities, Shawcor is executing actions that will drive future profitable growth.'
Restated due to the impact of the adoption of IAS 29 Financial Reporting in Hyperinflationary Economies for Argentina effective July 1, 2018 but implemented retrospectively to January 1, 2018.
EBITDA and Adjusted EBITDA are Non-GAAP measures and do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies.
Adjusted EBITDA is a non-GAAP measure calculated by adding back to net income the sum of net finance costs, income taxes, amortization of property, plant, equipment and intangible assets, gains from sale of land and hyperinflationary adjustments. Adjusted EBITDA does not have a standardized meaning prescribed by GAAP and is not necessarily comparable to similar measures provided by other companies.
Attributable to shareholders of the Company.
Restated due to the adoption of IFRS 15 that became effective as at January 1, 2018 but was implemented retrospectively to January 1, 2017.
(d) Includes the impact of the restatement of the first and second quarters of 2018, due to the adoption of IAS 29, Financial Reporting in Hyperinflationary Economies for Argentina effective July 1, 2018 but implemented retrospectively to January 1, 2018.
KEY DEVELOPMENTS
Flexpipe Capacity Expansion in the Middle East
On May 2, 2018, the Company announced that its Flexpipe Systems division had entered into a majority ownership joint venture with a local pipe installation company with the intent to set up a manufacturing facility in the Middle East. The total value of the joint venture's investment is expected to exceed USD$20 million and the facility is expected to primarily serve the Middle Eastern, North African and Asia-Pacific markets. This facility is expected to increase Flexpipe's global production capacity of existing spoolable composite product by 30%, with flexibility to extend to a larger diameter range. First shipments from this new facility are expected by the end of 2019.
Offshore Guyana Deepwater Projects
On October 4, 2018, the Company announced that its pipe coating division had been assigned work from Saipem valued at approximately C$110 million to provide thermal insulation and anticorrosion coating services for the Liza I and II deepwater development projects located offshore Guyana.
Coating work under the Liza I project commenced in March 2018 at Shawcor's Channelview, Texas facility and additional work will be completed at Shawcor's Veracruz, Mexico facility. Work on Liza I is expected to be completed during the first quarter of 2019. Coating work under the larger Liza II project, which is conditional on a Final Investment Decision, or 'FID', by the pipeline operator, is expected to be executed at the Veracruz and Channelview facilities.
OUTLOOK
Shawcor's financial performance is closely correlated with oil and gas infrastructure spending and the resultant demand for the Company's products and services. The Company believes that the continued momentum in oil and gas markets will allow us to deliver positive performance on our base business in 2018, particularly in North America. The Adjusted EBITDA1 results for the third quarter of 2018 were in line with our expectations. The Company's diversified portfolio delivered this solid performance despite headwinds in the quarter from a temporary construction stoppage of a US transmission line by a government agency, unexpected challenges in the supply chain of drawn copper rod for our wire and cable business and the continued low pipe coating activity in the international and offshore markets. Due to its expanded base business, the Company continues to expect the full year Adjusted EBITDA1 results will be at a similar level as the annualized results in the fourth quarter of 2016. This expectation reflects an anticipated step down in the fourth quarter results due to the typical seasonal slowdown experienced in several of our businesses, and the negative impact arising from pipe coating activity reaching its expected low point and higher costs to maintain idle assets, reactivate plants and pursue large projects.
Several years of absent investment or short cycle investment prioritization in the industry is coming to an end as key reservoirs are no longer able to sustain peak production levels, high decline rate shale production contributions increase and geopolitical challenges are affecting several important producing regions. This, coupled with steady demand growth for oil & gas, presents a strong case that large projects will need to be sanctioned over the next several years to bring on replacement and growth production. Similar to others in the industry, the Company is seeing strength in North America land markets and an increased level of activity in the international and offshore markets, as evidenced in its current bids outstanding. The Company remains well positioned to capitalize on this continuing positive trend in project activity through its global footprint, technology portfolio and execution history.
The Company continued its strategic efforts to position itself as the partner of choice in the pursuit of several large projects, which are characterized as greater than $100 million in revenue. During the third quarter, the Company announced an award of approximately $110 million of work related to the Liza I and II deep water development projects located offshore Guyana. The Company commenced work on Liza I in the first quarter of 2018 and the Liza II work is conditional on a Final Investment Decision ('FID') by the pipeline operator. A second $100 million plus project that the Company is pursuing and expected to be sanctioned in 2018 has now been delayed and likely will not be sanctioned until 2019. Although the exact timing of when large projects are sanctioned is difficult to predict, the Company believes that there is still a strong likelihood that some of these projects will be sanctioned in 2019 and beyond because they are not directly linked to oil and gas commodity prices as they involve energy security or reservoir access considerations. Based on this, the Company believes that its diversified base business and higher activity in pipe coating in 2019 will deliver improved results. However, higher growth in earnings will require a backlog build in 2019 to achieve stronger results in 2020.
The Company continues to have increased confidence on future growth based on its expanding base business, growing prospects in international and offshore markets and strong balance sheet. Based on this confidence, Shawcor continues to execute on its long term growth strategy which involves both organic and inorganic initiatives. Organic investments include expanding our composite product offerings to capture the continuing trend in the conversion from steel pipeline infrastructure, deployment of next generation inspection technology in our integrity management service portfolio and capacity expansion in our growing automotive heat shrink business. The Company remains active in evaluating inorganic opportunities that have stable earnings profiles and/or can expand our existing competencies in material science, digital enablement and sensors technology.
Further detail on the outlook for the Pipeline and Pipe Services segment by region and in the Petrochemical and Industrial segment is set out below.
EBITDA and Adjusted EBITDA are Non-GAAP measures and do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies.
Pipeline and Pipe Services Segment - North America
Market demand in Shawcor's North American Pipeline segment businesses is closely tied to well completions and the build out of new and the repair/replacement of old transmission pipeline infrastructure. These activities drive the demand for pipe coating and joint protection, composite pipe for gathering line applications, OCTG pipe inspection and refurbishment and gathering and transmission line girth weld inspection and associated services. It is expected that North American well completion related activity will continue in line with rig counts and wells completed, particularly in the United States; however, activity will moderate over the next several quarters as take-away capacity constraints in the Permian are addressed through the commissioning of several new transmission pipeline projects. The Company's efforts to diversify its portfolio and expand its addressable market through multiple brands are expected to offset these headwinds as growth is expected in transmission line related activities. In addition, the Company continues to experience strong demand for its pipe coating capabilities from increased activity in the Gulf of Mexico.
Pipeline and Pipe...
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