ENTREC Corporation
TSX : ENT

ENTREC Corporation

January 16, 2015 07:00 ET

ENTREC Corporation Announces 2015 Business Plan and Capital Expenditure Program

ACHESON, ALBERTA--(Marketwired - Jan. 16, 2015) - ENTREC Corporation ("ENTREC" or the "Company") (TSX:ENT), an employee-owned integrated crane solutions provider, today announced its 2015 business plan and a net capital expenditure program of $21 million.

With the recent decline in crude oil prices, there is now significant uncertainty as to how these prices will impact future activity levels in the oil and gas industry and in particular, the Alberta oil sands region. ENTREC's 2015 business plan and capital expenditure program reflect this new reality. After fulfilling previous commitments and taking delivery of certain equipment in the first quarter of 2015, the Company will be curtailing future capital expenditures until the industry outlook improves. In addition, ENTREC will also be focused on controlling costs, minimizing discretionary expenditures, and rationalizing operations where practical.

Despite the current commodity environment, ENTREC's business remains well capitalized with a strong working capital position and significant flexibility under its senior debt facilities, which will allow the Company to manage through the current downturn and be well-positioned to capture future growth opportunities once industry fundamentals improve.

2015 Outlook

"Moving into 2015, our outlook is mixed," said John M. Stevens, ENTREC's President and CEO. "On the positive side, we expect that utilization levels for our crawler and rough terrain cranes will increase throughout 2015 as certain of our oil sands construction projects continue to ramp up. In addition, our growing crane fleet has helped us establish a stronger presence in the market for maintenance, repair and operation ("MRO") work in the Alberta oil sands region - which is typically less susceptible to changes in near-term commodity prices, and should continue to provide a steady demand for our services this year and beyond."

Offsetting these improvements is heightened uncertainty related to ENTREC's operations supporting oil and natural gas exploration and production. Although demand has remained strong to date, the Company is anticipating a slowdown in activity in 2015 due to the recent drop in crude prices. This will have a negative impact on ENTREC's operations in 2015.

Entering 2015, ENTREC expects activity levels to remain high in north-west British Columbia as it continues to support the smelter revitalization project in Kitimat. The project is expected to remain active until mid-2015. The Company is also well positioned there to support the region's growing industrial activity, including the future construction of LNG facilities. Demand for ENTREC's services in north-east British Columbia could also be impacted by the commodity price environment overall and final investment decisions on the construction of proposed LNG facilities in north-west British Columbia. Positive final investment decisions should accelerate the demand for ENTREC's services, while negative or delayed decisions could adversely impact natural gas-related activity in the province.

As ENTREC moves into 2015, it expects utilization levels for its platform trailers will remain similar to the levels achieved in 2014, but below the levels achieved in 2012 and 2013. Increased industry capacity from new and existing competitors will likely continue to provide challenges in this market.

ENTREC expects 2015 will be a challenging year for the oil and gas industry. At this time, ENTREC notes that it is very difficult to accurately predict the potential impact that the recent crude price collapse will have on the crane and specialized transportation industry as 2015 proceeds. ENTREC's preliminary guidance for 2015 is cautioned by this significant risk and uncertainty factor.

Subject to the above-noted, based on preliminary expectations and customer conversations, ENTREC estimates revenue for the year ending December 31, 2015 to range from $200 million to $240 million. This compares to estimated revenue of approximately $230 million for the year ended December 31, 2014. ENTREC also estimates its overall adjusted EBITDA margin for fiscal 2015 will decline slightly from the approximately 20% adjusted EBITDA margin the Company expects to achieve in 2014. The lower anticipated adjusted EBITDA margin in 2015 results from, in part, the expectation for lower pricing and equipment utilization in 2015 due to the current weak commodity price environment and higher competition. The lower margin also reflects the use of additional rental cranes to support the expected ramp up of certain oil sands construction projects in 2015.

"Over the longer-term, our overall competitive position and outlook continues to be very positive," said Mr. Stevens. "Despite short-term uncertainties and challenges, we are well-positioned geographically, with the right equipment fleet, and a complete range of crane and specialized transportation services in the markets that we believe will drive significant growth in our business. While we expect 2015 to be a challenging year from an operating perspective, we are aggressively managing our costs through this period and remain well-positioned to capture future growth opportunities once industry fundamentals improve. We will accomplish this by continuing to focus on our core values and delivering safe, exceptional, innovative solutions to our customers through a team of highly engaged employees."

2015 Capital Expenditure Program

ENTREC's 2015 capital expenditure program consists of the following components:

$ thousands
Growth capital expenditures - LR 1750 crawler crane 7,000
Growth capital expenditures - All-terrain mobile cranes 4,000
Maintenance capital expenditures, net of disposal proceeds 10,000
Total 21,000

ENTREC's 2015 growth capital expenditures will include the notable addition of an LR 1750 crawler crane. With a 750-ton lifting capacity, this crane will become the largest in the Company's fleet and is expected to be fully-utilized on an awarded oil sands and power construction project for the majority of 2015 and 2016. Growth capital expenditures will also include the addition of all-terrain mobile cranes, which are highly flexible units and utilized in serving all industries, including MRO work in the Alberta oil sands, industrial construction, and conventional and unconventional oil and natural gas. The Company's 2015 maintenance capital expenditures will be focused on ensuring ENTREC's crane, tractor and truck fleets remain modern and efficient.

The Company intends to fund its 2015 capital expenditure program from its asset-based credit facility (the "ABL Facility"), finance leases and cash from operating activities. ENTREC's $240 million ABL Facility is covenant-light and requires no principal repayments until its maturity in March 2019, providing the Company with significant financial flexibility to weather the current industry downturn. Borrowings on the ABL Facility at December 31, 2014 were $146 million.

With the reduced capital expenditure program, the Company will be utilizing its free cash flow to pay down debt in 2015, further maximizing the Company's flexibility in managing through this industry cycle. The Company is targeting to reduce its long-term debt by $15 million in 2015. Consistent with this strategy, the Company does not plan to purchase any additional common shares under its normal course issuer bid in the foreseeable future.

Goodwill Impairment Charge

ENTREC is currently in the process of conducting its Q4 2014 goodwill and intangible asset impairment review. Given the negative outlook for the oil and gas industry in the short-term, as well as ENTREC's current stock trading price which is now at levels significantly below book value, the Company anticipates that it will incur a significant goodwill and intangible asset impairment charge. This impairment charge is non-cash and will have no impact on ENTREC's future cash flows or debt covenant calculations.

About ENTREC

ENTREC is an employee-owned integrated crane solutions provider to the oil and natural gas, construction, petrochemical, mining and power generation industries. ENTREC is listed on the Toronto Stock Exchange under the symbol ENT.

Non-IFRS Financial Measures

Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, amortization, loss (gain) on disposal of property, plant and equipment, change in fair value of embedded derivative, share-based compensation, and non-recurring business acquisition and integration costs. In addition to net income, adjusted EBITDA is a useful measure as it provides an indication of the financial results generated by ENTREC's principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions and before certain non-cash expenses. Adjusted EBITDA also illustrates what ENTREC's EBITDA is, excluding the effect of non-recurring business acquisition and integration costs. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by revenue.

Forward-looking Statements

This press release contains forward-looking statements which reflect ENTREC's current beliefs and are based on information currently available to ENTREC. These statements require ENTREC to make assumptions it believes are reasonable and are subject to inherent risks and uncertainties. Actual results and developments may differ materially from the results and developments discussed in the forward-looking statements as certain of these risks and uncertainties are beyond ENTREC's control.

Examples of such forward-looking statements in this press release relate to, but are not limited to: plans to execute a 2015 capital expenditure program of $21 million, net of disposal proceeds; belief utilization levels for ENTREC's crawler cranes and rough terrain cranes will increase throughout 2015 as oil sands construction project work continues to ramp up; expectation of steady demand for ENTREC's MRO services in 2015; anticipation of a slowdown in activity levels in ENTREC's operations supporting oil exploration and production; expectation the aluminum smelter revitalization project will remain active until mid-2015; belief that demand for ENTREC's services could be impacted by final investment decisions on the construction of proposed LNG facilities in northwest B.C.; expectation that utilization levels and margins on platform trailers will remain similar to the levels achieved in 2014, but below the levels achieved in 2012 and 2013; estimate that revenue for the year ending December 31, 2015 could range between $200 million and $240 million and that revenue will approximate $230 million for the year ended December 31, 2014; estimate that overall adjusted EBITDA margin for fiscal 2015 will decline slightly from the levels achieved in 2014; estimate that adjusted EBITDA margin for 2014 will approximate 20%; expectation a new LR 1750 crawler crane will be acquired and utilized on an awarded oil sands and power construction project for the majority of 2015 and 2016; plan to fund ENTREC's 2015 capital expenditure program from its asset-based-lending facility, finance leases and cash from operating activities; target that ENTREC will reduce its long-term debt by $15 million in 2015; and expectation that ENTREC will incur a significant impairment charge on its goodwill and intangible assets in the fourth quarter of 2014.

ENTREC's forward-looking statements involve a number of significant assumptions. Key assumptions utilized in developing forward-looking statements related to ENTREC's growth and revenue expectations include achieving its internal revenue, net income and cash flow forecasts for 2015. Key assumptions involved in preparing ENTREC's internal forecasts include, but are not limited to, its expectations and estimates that: demand for crane services on certain awarded oil sands construction projects increases in 2015; there are reduced activity levels in 2015 due to lower crude prices; certain of the planned development of LNG facilities proceed and certain customers choose to use ENTREC's services; ENTREC will be able to retain key personnel and attract additional high-quality personnel to support its planned revenue; there are no significant unplanned increases in ENTREC's cost structure, including those costs related to fuel and wages; market interest rates remain similar to current rates; there is no prolonged period of inclement weather that impedes or delays the need for crane and specialized transportation services; the competitive landscape in western Canada for crane and specialized transportation services does not materially change in 2015; and there is no material adverse change in overall economic conditions.

Achieving these forecasts largely depends on a number of factors beyond ENTREC's control including several of the risks discussed further under "Business Risks" in ENTREC's Management Discussion & Analysis for the three and nine months ended September 30, 2014 and year ended December 31, 2013. The business risks that are most likely to affect ENTREC's ability to achieve its internal revenue, net income and cash flow forecasts for 2015 are the volatility of the oil and gas industry, its exposure to the Alberta oil sands, workforce availability, weather and seasonality, and competition. These risk factors are interdependent and the impact of any one risk or uncertainty on a particular forward-looking statement is not determinable.

ENTREC's plans to acquire and utilize a new crawler crane on an awarded oil sands and power construction project in 2015 and 2016 is dependent on the particular construction project proceeding as scheduled. ENTREC's 2014 revenue and adjusted EBITDA results remain subject to final year-end billing and accounting adjustments, and as a result, may be different from current expectations. The final determination of any goodwill and intangible asset impairment charge in Q4 2014 also remains subject to the finalization of specific valuation procedures on these assets, and as a result, the actual impairment charge that will be recognized is not yet determinable.

Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, ENTREC. These forward-looking statements are made as of the date of this press release. Except as required by applicable securities legislation, ENTREC assumes no obligation to update publicly or revise any forward-looking statements to reflect subsequent information, events, or circumstances.

Contact Information

  • ENTREC Corporation
    John M. Stevens
    President & Chief Executive Officer
    (780) 960-5625

    ENTREC Corporation
    Jason Vandenberg
    Chief Financial Officer
    (780) 960-5630
    www.entrec.com