Enerflex Systems Income Fund
TSX : EFX.UN

Enerflex Systems Income Fund

February 10, 2005 23:59 ET

Enerflex Announces 57% Increase in Net Earnings for 2004

CALGARY--(CCNMatthews - Feb. 10) - Enerflex Systems Ltd. (EFX:TSX), a leading
Canadian supplier of products and services to the global oil and gas
production industry, today announced its financial and operating results for
the three and twelve months ended December 31, 2004.

Enerflex is pleased to report that net income for the year ended December 31,
2004 increased by 57% to $32.1 million ($1.43 per diluted share) compared with
$20.4 million ($0.91 per diluted share) in 2003. During the period gross
margin improved to $125.2 million, or 22.5% of revenue as compared to $104.0
million, or 20.2% of revenue, in the same period of 2003. Earnings before
interest, income taxes, depreciation and amortization ('EBITDA') for the year
ended December 31, 2004 was $68.2 million, an increase of 33.2% over the year
ended December 31, 2003. As a percent of revenue EBITDA was 12.2% during the
period as compared to 9.9% for the twelve months ended December 31, 2003. This
was achieved on a relatively modest 8% increase in revenue to $557.1 million
from $515.5 million in 2003.

John Aldred, Chairman, President and Chief Executive Officer said, "We ended
the year with our highest revenue ever, and although the industry fundamentals
were in our favor, management and employees worked diligently all year to
improve internal processes thereby increasing efficiencies and profitability.
We are pleased with both our operating performance and financial results for
2004, but more importantly, we firmly believe we are now positioned to grow
our business and further improve our results."

During the fourth quarter of 2004, the Company benefited from both strong
market conditions and improvements in its internal business processes. This
enabled Enerflex to generate net income for the three months ended December
31, 2004 of $11.4 million ($0.51 per common share) from revenue of $167.7
million. This represents an increase in net income of $4.2 million ($0.18 per
common share) or 58%, resulting from a revenue increase of $23.5 million or
16%, all as compared to the three month period ended December 31, 2003. The
revenue improvements in the fourth quarter of 2004 were notable in a number of
divisions. Revenue improved in Production and Processing due to the progress
made on its contracts in Pakistan; Leasing, as a result of a larger rental
fleet and improved utilization; Mechanical Service, where the division
experienced increased activity in the quarter; and, Compression, due to
increases in customer demand, all as compared to the same quarter in 2003.
These increases were offset by reduced revenue in Syntech and Power which
resulted from lower project activity.

Gross margin for the three months ended December 31, 2004 was $37.4 million or
22.3% of revenue as compared to $27.8 million or 19.3% of revenue for the
three months ended December 31, 2003, an increase of $9.6 million. The
improved gross margin was a result of increased business activity, improved
project management, greater emphasis on cost controls and the pursuit of
higher margin contracts in the Company's electrical, instrumentation and
controls ("EI&C" or "Syntech") business. The improvement in gross margin was
achieved despite increased input costs for utilities, steel and purchased
components.

Selling, general and administrative ("SG&A") expenses were $20.5 million or
12.2% of revenue during the three months ended December 31, 2004, compared
with $18.2 million or 12.6% of revenue in the same period of 2003. Included in
the SG&A for the fourth quarter of 2004 is $0.3 million of stock-based
compensation expense. In addition, the Company incurred $0.5 million
associated with its ongoing program for adopting compliance measures for
Multilateral Instrument ("MI") 52-109. Bonus and profit-sharing accruals have
also increased in 2004 over the same period of 2003 by $1.2 million, as a
result of the Company's improved profitability.

Income before interest and income taxes totalled $19.0 million for the fourth
quarter of 2004 as compared to $11.7 million for the same period in 2003, an
increase of $7.3 million or 62%.

For the year ended December 31, 2004

During 2004, the Company recorded stronger earnings in each quarter, as
compared to the same quarter in 2003, as a result of increased natural gas
infrastructure and maintenance spending by oil and natural gas producers in a
period of high commodity prices, and cost and process efficiencies generated
by the Company.

Consolidated revenue for the year ended December 31, 2004 totalled $557.1
million, an increase of $41.6 million, or 8%, as compared to 2003 consolidated
revenue of $515.5 million. The revenue growth in 2004 was generated in the
Company's Fabrication segment, which increased revenue by $43.1 million, or
18%, and the Leasing segment, which increased revenue by $6.2 million, or 28%.
This was offset by reduced Service segment revenue of $7.8 million, or 3%.
Fabrication revenue improved as a result of an increase in compressor package
sales arising from an improved market share and higher customer demand,
including demand from coal-bed methane ("CBM") production companies.
Fabrication revenue also increased as a result of higher international project
revenue in the Production and Processing division. Leasing revenues increased
as a result of Enerflex's investment in additional rental compression
horsepower and improved equipment utilization. Revenue from the Company's
Service segment decreased by $16.7 million as a result of increased
competition and the decision to pursue specific contracts with higher margin
potential in the Syntech division, offset by increased revenue in the
Mechanical Service division as a result of growth in international business
units, modest increases in the price of the division's products and services
and increased customer demand.

Gross margin has improved to $125.2 million or 22.5% of revenue in 2004 as
compared to $104.0 million or 20.2% of revenue in 2003. Fluctuations in the
Company's overall gross margin occur as a consequence of: changes in the mix
of revenue generated in each segment; facility and personnel utilization;
pricing; and operating efficiency. During 2004, as compared to 2003, gross
margin improved as a result of modest increases in the price of all products
and services offered by Enerflex, improved utilization of the Company's
Fabrication facilities and Leasing equipment, higher international revenues in
Production and Processing and cost efficiencies gained in the Syntech and
Compression divisions. Gross margin was reduced by obsolescence provisions of
$1.4 million in the Power division and an increase in the proportionate amount
of revenue generated in the Fabrication segment from 46.0% of consolidated
revenue in 2003 to 50.3% in 2004. This occurs as revenue from the Fabrication
segment tends to have lower margins than either Service or Leasing segment
revenues. Gross margin improvement continues to be a main focus of
management's attention as exhibited by the improvement in the gross margin
percentage over recent years. In 2004, Enerflex produced a gross margin of
22.5% as compared to 20.2% in 2003, 21.4% in 2002 and 19.5% in 2001.

Selling, general and administrative expenses were $77.4 million in 2004,
compared with $72.5 million in 2003 and $53.3 million in 2002. In both 2004
and 2003, the Company incurred significant severance and other costs with
respect to the previously mentioned restructuring program. SG&A as a
percentage of revenue was 13.9% in 2004, 14.1% in 2003 and 16.3% in 2002. The
increase in SG&A expenses in 2004 of $4.9 million, or 6.7%, over 2003 was a
result of increases in bonus and profit sharing accruals of $2.3 million, in
SG&A expenditures related to international expansion of $1.1 million, in stock
based compensation of $1.0 million, MI 52-109 compliance costs of
$0.9 million, in variable selling expenses of $0.6 million, and increased
activity levels. These were offset by a $1.2 million provision for a loss on a
legacy international contract in 2003 that did not recur in 2004 and a
reduction of $0.6 million in restructuring and employee departure costs.

Segmented results

Enerflex has three business segments: Service, Fabrication and Leasing, which
operate as follows:

Service

The Service business segment provides a complete line of mechanical, and
electrical, instrumentation and controls services to the oil and gas industry
through an extensive branch network in Canada, as well as operations in the
United States, Germany, the Netherlands, Australia and Indonesia. Service is
the Company's largest business segment. It employs 51% of staff, holds 35% of
the total assets, and generates 44.6% of the Company's revenue. Key
performance metrics include labour utilization, revenue, gross margin percent
and income before interest and income taxes.

Enerflex, through various business units, is an authorized distributor for
Waukesha engines and parts in Canada, Australia, Indonesia, Papua New Guinea,
the Netherlands, Germany, Poland and Spain. Mechanical Service revenues tend
to be fairly stable as ongoing equipment maintenance is generally required to
preserve the customer's natural gas production. EI&C services are provided
through Syntech where revenues are more cyclical as they are generated from
both maintenance spending and from infrastructure investment.



(Thousands) (Unaudited) Year ended December 31 2004 2003
-------------------------------------------------------------------------
Segment revenue $ 264,740 $ 269,036
Intersegment revenue (16,105) (12,618)
-------------------------------------------------------------------------
Revenue $ 248,635 $ 256,418
-------------------------------------------------------------------------
Gross margin $ 67,050 $ 63,027
-------------------------------------------------------------------------
EBITDA $ 21,720 $ 19,166
-------------------------------------------------------------------------
Income before interest and income taxes $ 18,346 $ 15,882
-------------------------------------------------------------------------


Service revenue was $248.6 million in 2004 and comprised 44.6% of consolidated
revenue. This compares to $256.4 million and 49.7% of consolidated revenue in
2003. Mechanical Service generated 56.7% of the division's revenue in 2004 and
51.5% in 2003. Syntech contributed 43.3% of the division's revenue in 2004 and
48.5% in 2003. The decrease of 3%, or $7.8 million, was a result of
decreased revenue in Syntech of $16.7 million, offset by increased
international revenue and higher demand for products and services in
Mechanical Service. During 2004, Enerflex deliberately pursued higher margin
work in Syntech's operations, which, along with the arrival of additional
competition, had the effect of reducing revenue. Gross margin for the segment
totalled $67.1 million, or 27.0%, as compared to 24.6% in 2003. The increase
in gross margin percent was caused by higher demand for the Company's
mechanical services, improved pricing and the pursuit of contracts with
enhanced margin potential in Syntech. Income before interest and income taxes
increased from 2003 by $2.5 million, or 16%, to $18.3 million as a result of
these factors.

Mechanical Service

Mechanical Service revenue for 2004 was $141.1 million, or 7% higher than 2003
revenue of $132.1 million. In Canada, which accounted for 68% of the
division's revenue, sales increased by 8% from 2003 as a result of steady
utilization rates, increased customer demand and modest price increases for
products and services. Contributing to this increase was the decision in 2003
of many customers to increase the number of hours their equipment operated
before performing maintenance, in order to take advantage of higher commodity
prices present at that time. In 2004, maintenance that was deferred in 2003
was required to be completed. International revenue also increased by 4% over
2003. The increase in international revenue resulted from higher utilization,
new maintenance contracts in Europe and Australia and the commencement of
service operations in the United States to support Enerflex's leasing and
compression sales contracts in that country.

Gross margins for Mechanical Service increased by 11% over 2003 due to
increased customer demand and improved pricing for the division's products and
services. Mechanical Service is focused on increasing income before interest
and income taxes as a percentage of revenue through enhanced customer
relationships and vigilant cost control. During 2004, income before interest
and income taxes increased by 31% over 2003. A challenge to achieving improved
profitability in 2005 will be the timely availability of certain Original
Equipment Manufacturer ("OEM") components and repair parts, which will be in
steady demand as activity levels and demand for natural gas in North America,
remain high.

Electrical, Instrumentation and Control

The Syntech division continued to improve its gross margin in 2004 despite
lower revenues. During the year, Syntech generated revenue of $107.6
million, a decrease of $16.7 million, or 13% as compared to the $124.3
million in 2003.The EI&C business in Canada is highly competitive.
Consequently, this division realizes lower margins, compared with Mechanical
Service and as such, it requires a focused and disciplined approach to the
bidding and execution of the services provided. In 2004, the division
intentionally reduced the scope of the contracts it would pursue and focused
its efforts on obtaining projects with higher margin potential and reducing
the cost of maintaining the branch infrastructure requirements throughout
Alberta, Saskatchewan and northeast British Columbia. These efforts were
successful since, despite the lower revenue, the division's gross margin was
essentially unchanged from 2003. The division's earnings before interest and
income taxes were 24% lower in 2004 than 2003 due to increased SG&A, largely
resulting from employee departure costs incurred during the year. Excluding
non-recurring items, the division's earnings before interest and income taxes
declined by 9%.

In 2005, this division will continue to seek ways to improve its efficiency
and increase its net income before interest and income taxes through cost
reduction, process improvement and revenue enhancement initiatives, without
reducing its margin potential.

Fabrication

The Fabrication business segment engineers, fabricates and assembles standard
and custom-designed compression packages, production and processing equipment
and facilities, and power generation systems. The key performance metrics for
this business segment are market share, plant utilization, overhead
application rates and gross margin as a percentage of revenue. Fabrication is
the Company's second largest business segment. It employs 47% of staff, holds
42% of the total assets, and generates 50.3% of the Company's revenue.



(Thousands) (Unaudited) Year ended December 31 2004 2003
-------------------------------------------------------------------------
Segment revenue $ 319,503 $ 259,715
Intersegment revenue (39,460) (22,801)
-------------------------------------------------------------------------
Revenue $ 280,043 $ 236,914
-------------------------------------------------------------------------
Gross margin $ 40,040 $ 27,326
-------------------------------------------------------------------------
EBITDA $ 22,102 $ 13,200
-------------------------------------------------------------------------
Income before interest and income taxes $ 17,469 $ 7,758
-------------------------------------------------------------------------


The Fabrication business tends to have more volatility in revenue, gross
margin and income before interest and income taxes than Enerflex's other
business segments. Revenues are derived primarily from the investments made in
natural gas infrastructure by producers. Capital spending by our customers was
high in 2001, dropped sharply in 2002 and early 2003, and increased in late
2003 and 2004. It is presently estimated by industry commentators that this
increased investment rate will continue in 2005, along with increased
investments in CBM production.

Fabrication revenue totalled $280.0 million in 2004 and comprised 50.3% of
consolidated revenue. This compares to $236.9 million and 46.0% of
consolidated revenue in 2003. Compression generated 65.1% of the division's
revenue in 2004 and 68.0% in 2003. Production and Processing contributed 32.3%
of the division's revenue in 2004 and 27.8% in 2003. Power contributed 2.6% of
the division's revenue in 2004 and 4.2% in 2003. The increase of
$43.1 million, or 18%, in segment revenue for the year was a result of
international growth in the Production and Processing division, increased
demand and market share for the Company's compression products and modest
increases in the pricing of the segment's products. Gross margin for the
segment totalled 14.3%, or $40.0 million, as compared to 11.5% in 2003. The
increase in gross margin percent was a result of the same factors that
improved the segments' revenue, and improvements achieved in the costs
incurred and processes followed in the Compression division, offset by a $1.4
million obsolescence provision in the Power division. Income before interest
and income taxes increased by $9.7 million, or 125%, to $17.5 million as a
result of the above-mentioned factors. Income before interest and income taxes
in 2003 was also reduced by approximately $2 million of bad debt and warranty
provisions for two projects completed in prior years. This did not recur in
2004.

Compression

The Compression division contributed revenue of $182.4 million, an increase of
13% and comprised 65.1% of the segment's revenue compared to 68.0% in 2003 on
revenue of $161.0 million. Improved market share, increased customer demand
for compression equipment and pricing improvements accounted for the increased
revenue. While definitive market share data is difficult to obtain, Enerflex
estimates that its Canadian large horsepower compressor package market share
increased in both 2003 and 2004. Over this period, Enerflex believes that it
fully recovered the decline in market share that occurred in 2002, even though
competition in this business segment remains strong. The Company attributes
its increased market share to: the introduction of new products, such as its
Generation III compressor package, a 1,250 horsepower screw compression
package and the reintroduction of its Back-to-Basics ("BTB") product
line; improved product quality; and, a return to its customer-focused business
approach.

During 2004, gross margin increased by 61% as a result of the increased
revenue, improved plant utilization, lower overhead application rates and a
focused effort to improve product quality through enhancements in the
processes and practices at the division's main facility in Calgary. At
present, Enerflex owns approximately 370,000 square feet of compression shop
floor space in North America and during 2004 management estimates that the
average utilization rate, based on the theoretical plant capacity in labour
hours, was 58% as compared to 41% in 2003. With the increase in customer
demand and utilization of the facilities, overhead rates per hour were reduced
by 22%, as compared to 2003. The Compression division's income before interest
and income taxes increased by 137% as a result of the factors mentioned above,
and certain contract losses incurred in 2003.

In 2005, the division will continue to introduce new products in both its
reciprocating and screw compressor product lines and will introduce new
services through its Compression Services business unit to further optimize
its customers' compression assets and natural gas production. A challenge to
achieving improved profitability in 2005 will be the timely availability of
certain OEM components and repair parts, which will be in steady demand as
activity levels and demand for natural gas in North America remain high.

Production and Processing

The Production and Processing division contributed revenue of $90.5
million, an increase of 37% and comprised 32.3% of the segment's revenue
compared to 27.8% in 2003 on revenue of $65.9 million. While definitive market
share data is difficult to obtain, Enerflex estimates that it has maintained
its Canadian market share and increased its international market share,
particularly in Pakistan, through its Presson-Descon International (Private)
Limited ("PDIL") joint venture. In each market segment competition remains
strong. The Company attributes its increased international market share to the
extensive experience of both the Presson and Mactronic business units in these
markets and to Enerflex's willingness to work cooperatively with international
partners.

During 2004, gross margin also increased by 48% as a result of an increase in
international projects, improved plant utilization and lower overhead
application rates. At present, Enerflex owns approximately 100,000 square feet
of production and processing shop floor space in Alberta, and during 2004
management estimates that the average utilization rate, based on labour hours,
was 89.1% as compared to 87.6% in 2003. With the increase in international
projects and utilization of the facilities, overhead application rates were
reduced by 4%, as compared to 2003. The division's income before interest and
income taxes increased by 151% as a result of the above mentioned factors.

In 2005, the division will introduce new products to capitalize on the growth
in northern Alberta's oil sands projects and will continue to pursue
international projects through PDIL and independently through the
collaboration of various Enerflex business units.

Power

The Power division contributed revenue of $7.2 million, a decrease of 28% and
contributed 2.6% of the segment's revenue as compared to 4.2% in 2003 on
revenue of $10.0 million. The division's loss before interest and income taxes
increased by $1.2 million, to a loss of $1.3 million as a result of
$1.4 million in one-time obsolescence provisions.

Leasing

Our Leasing business segment provides a variety of rental and leasing
alternatives for natural gas compression, power generation and processing
equipment. At the end of 2004 the Enerflex lease fleet was comprised of
approximately 360 compression units and 97,000 horsepower, as compared with
300 units and 77,000 horsepower in 2003. This resulted in an average fleet of
325 units and 89,000 horsepower. The key performance metrics in this business
are fleet size, utilization rates and rental rates. The Leasing segment,
employs 1% of staff, holds 21% of the total assets and generates 5.1% of the
Company's revenue.

The Company's lease fleet is located principally in western Canada. Expansion
in international markets commenced during 2004, and is being executed on a
selective basis to minimize the risk from these new markets. As of December
31, 2004 Enerflex's compression rental fleet included 16 units located in the
United States and five units located in other international markets.



(Thousands) (Unaudited) Year ended December 31 2004 2003
-------------------------------------------------------------------------
Segment revenue $ 28,500 $ 22,281
Intersegment revenue (101) (85)
-------------------------------------------------------------------------
Revenue $ 28,399 $ 22,196
-------------------------------------------------------------------------
Gross margin $ 18,120 $ 13,606
-------------------------------------------------------------------------
EBITDA $ 24,331 $ 18,818
-------------------------------------------------------------------------
Income before interest and income taxes $ 17,236 $ 12,864
-------------------------------------------------------------------------
Capital expenditures, net of proceeds on
disposal $ 21,646 $ 9,888
-------------------------------------------------------------------------


Revenue in 2004 increased by 28% to $28.4 million compared with $22.2 million
in the prior year. Though the division owns and rents compression, power and
processing equipment, the main driver for its revenue growth is compression
equipment. In 2004, the division's revenue was generated 93.5% by compression
and 6.5% by power and production process equipment. Overall, the division
experienced compression rental utilization rates, based on capital deployed,
of 84.7% compared to 83.4% in 2003. The increase in utilization rates was
attributed to the increased drilling activity and subsequent production
requirements for new wells in the division's core market of Canada, the
increase in the number of CBM wells, and a desire by natural gas producers to
maintain production during periods when their equipment required maintenance.
In addition to increases in the number of leased units and the utilization
thereof, revenue was also increased by modest increases in rental rates and
the addition of higher horsepower compression units.

During 2004, Leasing sold 45 compression units and 91 power and process
equipment units from its fleet, for gross proceeds of $17.4 million and a gain
on sale of $2.9 million. This compares to 55 compression units and 72 power
and process equipment units, for gross proceeds of $13.8 million and a gain on
sale of $2.3 million in 2003. The sale of units generally occurs when
customers exercise their contractual option to purchase equipment. To satisfy
growing demand for leased compression Enerflex added 115 compression units and
55 power and processing units to its fleet in 2004 for an investment of
$39.0 million. This turnover of assets renews the fleet, resulting in an
average fleet age of less than five years.

Leasing expects continued growth in demand for its products in Canada, and has
targeted specific geographic regions for expansion in the United States and
abroad. Leasing does not generally increase the capital invested in its fleet
unless it has lease contracts. Growth in the lease fleet is expected to be the
largest investment opportunity for the Company in 2005.

The leasing business is a significant contributor to earnings, despite its low
proportion of overall Company revenue. In addition, Enerflex Leasing makes the
Company's other business segments stronger. Leasing is a significant customer
of the compression fabrication business unit, as almost all of its equipment
is purchased from Fabrication. Service also benefits because the majority of
Leasing customers use Pamco and Jiro Service to perform routine maintenance
over the term of the lease.

Financial Condition and Liquidity

Enerflex generated cash flow from operations of $50.9 million in 2004,
compared with $34.1 million in 2003. Cash generated funded a reduction in
long-term debt of $3.6 million, $21.6 million of net additions to rental
assets, $8.8 million of net additions to property, plant and equipment and
dividends to shareholders of $8.9 million. In 2003 operating cash flow was
impacted by a $0.8 million increase in non-cash working capital. In 2004,
non-cash working capital from operations increased by $4.6 million as a result
of a $10.2 million increase in accounts and taxes receivable, offset by a
$8.0 million decrease in inventory, and a $6.8 million increase in total
accounts payable. The increase in accounts receivable reflects the increase in
revenue in 2004.

In 2004, the Company declared quarterly dividends equal to $0.10 per common
share for a total of $0.40 per common share on an annualized basis. It is the
Company's intention to continue the payment of dividends to its shareholders
during 2005.

Fabrication Segment Bookings

During 2004, Enerflex increased its order bookings in the Fabrication segment
by 31% versus bookings recorded in 2003. The Fabrication segment's order
backlog at December 31, 2004 was 56% above the segment's order backlog at
December 31, 2003.

Notice of Dividend

Enerflex System Ltd. has declared a dividend of $0.10 per common share payable
on April 7, 2005 to the shareholders of record on March 24, 2005.

Conference Call and Webcast Notice

Enerflex Systems Ltd. (TSX:EFX) will host a conference call for analysts and
investors on Friday, February 11, 2005 at 9:00 a.m. MDT (11:00 a.m. EDT) to
discuss the Company's 2004 fourth quarter and year end results, which will be
released on Thursday, February 10, 2005. The call will be hosted by John
Aldred, Enerflex's Chairman and Chief Executive Officer.

If you wish to participate in this conference call, please call,
1.800.814.4862 or 1.416.640.4127. Please call at least ten minutes ahead of
time.

Participants who wish to listen to a recording of the conference call may do
so by calling 1.877.289.8525 or 1.416.640.1917 (passcode: 21111030 followed by
the number sign) approximately one hour after the completion of the call. The
recording will be available until the end of day Friday, February 18, 2005.

A live audio webcast of the conference call will be available on our internet
site at www.enerflex.com in the Investor Relations section under Webcasts &
Presentations on February 11, 2005 at 9:00 a.m. MDT (11:00 a.m. EDT).
Approximately one hour after the call, a recording of the event will be
available on our internet site.



CONSOLIDATED BALANCE SHEETS


December 31, December 31,
(Unaudited) (Thousands) 2004 2003
-------------------------------------------------------------------------

Assets
Current assets
Cash $ 12,840 $ 6,741
Accounts receivable 132,562 120,432
Inventory 63,176 71,162
Income taxes receivable 412 -
Future income taxes 3,402 4,065
-------------------------------------------------------------------------
Total current assets 212,392 202,400

Rental equipment 88,772 71,810
Property, plant and equipment 65,814 65,032
Future income taxes 4,425 2,748
Intangible assets 3,210 3,231
Goodwill 112,252 112,453
-------------------------------------------------------------------------
$ 486,865 $ 457,674
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Liabilities and Shareholders' Equity

Current liabilities
Operating bank loans $ 28,853 $ 27,627
Accounts payable and accrued liabilities 72,699 67,940
Dividends payable 2,234 2,223
Income taxes payable 6,729 4,683
Current portion of long-term debt 16,009 17,097
-------------------------------------------------------------------------
Total current liabilities 126,524 119,570

Long-term debt 48,027 51,289
Future income taxes 14,445 12,272
-------------------------------------------------------------------------
188,996 183,131
Shareholders' equity
Share capital 178,540 176,928
Cumulative translation adjustment (414) 1,501
Contributed surplus 1,203 -
Retained earnings 118,540 96,114
-------------------------------------------------------------------------
297,869 274,543
-------------------------------------------------------------------------
$ 486,865 $ 457,674
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying note to the Consolidated Financial Statements



CONSOLIDATED STATEMENTS OF INCOME


Three months ended Year ended
(Unaudited) December 31 December 31
(Thousands, except ------------------------- -------------------------
share amounts) 2004 2003 2004 2003
-------------------------------------------------------------------------
Revenue $ 167,677 $ 144,185 $ 557,077 $ 515,528
Cost of goods sold 130,286 116,363 431,867 411,569
-------------------------------------------------------------------------
Gross margin 37,391 27,822 125,210 103,959
Selling, general and
administrative
expenses 20,510 18,198 77,372 72,499
Foreign currency
gains (1,211) (1,791) (2,229) (1,985)
Gain on sale of assets (934) (321) (2,984) (3,059)
-------------------------------------------------------------------------
Income before interest
and income taxes 19,026 11,736 53,051 36,504
Interest 1,123 1,128 3,828 5,280
-------------------------------------------------------------------------
Income before
income taxes 17,903 10,608 49,223 31,224
Income taxes 6,497 3,391 17,164 10,841
-------------------------------------------------------------------------
Net income $ 11,406 $ 7,217 $ 32,059 $ 20,383
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Net income per common
share
- basic $ 0.51 $ 0.33 $ 1.44 $ 0.92
- diluted $ 0.51 $ 0.32 $ 1.43 $ 0.91
Weighted average
number of common
shares 22,334,426 22,227,188 22,304,429 22,212,700
-------------------------------------------------------------------------
-------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS



Three months ended Year ended
December 31 December 31
(Unaudited) ------------------------- -------------------------
(Thousands) 2004 2003 2004 2003
-------------------------------------------------------------------------
Retained earnings,
beginning of period $ 109,367 $ 91,120 $ 96,114 $ 84,618
Adjustment to
retained earnings - - (705) -
Net income 11,406 7,217 32,059 20,383
Dividends (2,233) (2,223) (8,928) (8,887)
-------------------------------------------------------------------------
Retained earnings,
end of period $ 118,540 $ 96,114 $ 118,540 $ 96,114
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying note to the Consolidated Financial Statements



CONSOLIDATED STATEMENTS OF CASH FLOWS


Three months ended Year ended
December 31 December 31
(Unaudited) ---------------------------------------------------
(Thousands) 2004 2003 2004 2003
-------------------------------------------------------------------------
Operating Activities
Net income $ 11,406 $ 7,217 $ 32,059 $ 20,383
Depreciation and
amortization 3,687 3,627 15,102 14,680
Future income taxes (323) (1,452) 1,354 2,877
Gain on sale
of assets (934) (321) (2,984) (3,059)
Stock option expense 163 - 703 -
-------------------------------------------------------------------------
13,999 9,071 46,234 34,881
Changes in non-cash
working capital
and other 609 (2,333) 4,620 (823)
-------------------------------------------------------------------------
14,608 6,738 50,854 34,058
-------------------------------------------------------------------------

Investing Activities
Purchase of:
Rental equipment (12,149) (7,949) (38,965) (23,682)
Property, plant
and equipment (1,919) (3,210) (9,957) (6,310)
Proceeds on
disposal of:
Rental equipment 5,168 2,096 17,378 19,943
Property, plant
and equipment 180 909 1,115 3,538
-------------------------------------------------------------------------
(8,720) (8,154) (30,429) (6,511)
Changes in non-cash
working capital
and other (2,083) 863 (3,698) 952
-------------------------------------------------------------------------
(10,803) (7,291) (34,127) (5,559)
-------------------------------------------------------------------------

Financing Activities
Increase (decrease)
in operating
bank loans 4,922 2,693 1,226 (17,627)
Repayment of
long-term debt - (378) (3,630) (1,647)
Stock options
exercised 109 - 1,407 339
Dividends (2,222) (2,223) (8,917) (8,887)
-------------------------------------------------------------------------
2,809 92 (9,914) (27,822)
Changes in non-cash
working capital
and other (604) 859 (714) 1,037
-------------------------------------------------------------------------
2,205 951 (10,628) (26,785)
-------------------------------------------------------------------------
Increase in cash 6,010 398 6,099 1,714
Cash, beginning
of period 6,830 6,343 6,741 5,027
-------------------------------------------------------------------------
Cash, end of period $ 12,840 $ 6,741 $ 12,840 $ 6,741
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying note to the Consolidated Financial Statements



Note 1. Segmented Information

The Company has three reportable segments: Service, Fabrication and
Leasing. The Service reportable segment is the aggregation of the
Mechanical Service and Syntech divisions. The Fabrication reportable
segment is the aggregation of the Production & Processing, Compression
and Power divisions.

(Unaudited) (Thousands) Service Fabrication
Three months ended -------------------------------------------
December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
Segment revenue $ 70,128 $ 69,582 $106,614 $ 81,086
Intersegment revenue (4,364) (4,243) (12,365) (8,401)
-------------------------------------------
Revenue 65,764 65,339 94,249 72,685
-------------------------------------------------------------------------
Depreciation and amortization 873 832 1,110 1,206
-------------------------------------------------------------------------
Income before interest
and taxes 4,931 5,164 9,142 3,107
-------------------------------------------------------------------------
Capital expenditures $ 985 $ 1,732 $ 753 $ 567
Corporate
-------------------------------------------------------------------------
-------------------------------------------------------------------------


(Unaudited) (Thousands) Leasing Consolidated
Three months ended -------------------------------------------
December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
Segment revenue $ 7,679 $ 6,178 $184,421 $156,846
Intersegment revenue (15) (17) $(16,744) $(12,661)
-------------------------------------------
Revenue 7,664 6,161 $167,677 $144,185
-------------------------------------------------------------------------
Depreciation and amortization 1,704 1,589 $ 3,687 $ 3,627
-------------------------------------------------------------------------
Income before interest
and taxes 4,953 3,465 $ 19,026 $ 11,736
-------------------------------------------------------------------------
Capital expenditures $ 12,194 $ 8,307 $ 13,932 $ 10,606
Corporate 136 553
--------------------
$ 14,068 $ 11,159
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Service Fabrication
(Unaudited) (Thousands) -------------------------------------------
Year ended December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
Segment revenue $264,740 $269,036 $319,503 $259,715
Intersegment revenue (16,105) (12,618) (39,460) (22,801)
-------------------------------------------
Revenue 248,635 256,418 280,043 236,914
-------------------------------------------------------------------------
Depreciation and amortization 3,374 3,284 4,633 5,442
-------------------------------------------------------------------------
Income before interest
and taxes 18,346 15,882 17,469 7,758
-------------------------------------------------------------------------
Segment assets 117,363 111,779 150,120 150,163
Corporate
Goodwill 52,814 52,972 52,082 52,125
-------------------------------------------
Total segment assets 170,177 164,751 202,202 202,288
-------------------------------------------------------------------------
Capital expenditures $ 4,992 $ 3,559 $ 3,886 $ 2,063
Corporate
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Leasing Consolidated
(Unaudited) (Thousands) -------------------------------------------
Year ended December 31 2004 2003 2004 2003
-------------------------------------------------------------------------
Segment revenue $ 28,500 $ 22,281 $612,743 $551,032
Intersegment revenue (101) (85) $(55,666) $(35,504)
-------------------------------------------
Revenue 28,399 22,196 $557,077 $515,528
-------------------------------------------------------------------------
Depreciation and amortization 7,095 5,954 $ 15,102 $ 14,680
-------------------------------------------------------------------------
Income before interest
and taxes 17,236 12,864 $ 53,051 $ 36,504
-------------------------------------------------------------------------
Segment assets 93,659 74,536 $361,142 $336,478
Corporate $ 13,471 $ 8,743
Goodwill 7,356 7,356 $112,252 $112,453
-------------------------------------------
Total segment assets 101,015 81,892 $486,865 $457,674
-------------------------------------------------------------------------
Capital expenditures $ 39,026 $ 23,644 $ 47,904 $ 29,266
Corporate 1,018 726
---------------------
$ 48,922 $ 29,992
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Revenue from foreign countries was:

Three months ended Year ended
December 31 December 31
-------------------------------------------
(Unaudited) (Thousands) 2004 2003 2004 2003
-------------------------------------------------------------------------
Australia $ 11,154 $ 11,018 $ 27,810 $ 33,832
Indonesia 431 244 1,834 8,821
Netherlands 3,749 5,981 18,495 17,496
Pakistan 13,968 458 37,806 2,617
United States 2,942 4,233 21,500 14,503
Other 16,801 12,975 40,305 51,337
-------------------------------------------------------------------------
$ 49,045 $ 34,909 $147,750 $128,606
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Revenue is attributed to countries by the destination of the sale.

Contact Information

  • P. John Aldred
    Chairman, President and Chief Executive Officer
    4700 47 Street SE, Calgary, Alberta
    (403) 236-6806
    (403) 236-6816 (FAX)
    E-mail: john.aldred@enerflex.com

    or

    Leonard Cornez, Vice-President and Chief Financial Officer
    4700 47 Street SE, Calgary, Alberta
    (403) 236-6857
    (403) 236-6816 (FAX)
    E-mail: len.cornez@enerflex.com
    Website: www.enerflex.com