Newalta Corporation
TSX : NAL

Newalta Corporation

August 06, 2014 18:45 ET

Newalta Reports Strong Second Quarter 2014 Results

CALGARY, ALBERTA--(Marketwired - Aug. 6, 2014) - Newalta Corporation ("Newalta") (TSX:NAL) today reported results for the three and six months ended June 30, 2014.

FINANCIAL HIGHLIGHTS(1) (2)

Three months ended
June 30,
Six months ended
June 30,
($000s except per share data) 2014 2013 % Increase 2014 2013 % Increase
(unaudited) (Decrease ) (Decrease )
Revenue 213,114 196,138 9 440,894 367,485 9
Gross profit 53,683 45,377 18 95,335 83,212 15
- % of revenue 25 % 23 % 9 24 % 23 % 4
Net earnings(2) (8,183 ) 4,944 n/m (1,680 ) 19,103 (109 )
- per share ($) - basic (0.15 ) 0.09 n/m (0.03 ) 0.35 (109 )
- per share ($) - diluted (0.14 ) 0.09 n/m (0.03 ) 0.35 (109 )
Adjusted net earnings(3) 11,842 11,894 - 22,210 17,646 26
- per share ($) - basic(3) 0.21 0.22 (5 ) 0.40 0.32 25
Adjusted EBITDA(3) 46,042 38,350 20 78,093 66,070 18
- per share ($)(3) 0.83 0.70 19 1.40 1.21 16
Cash from (used in) operating activities 25,221 29,560 (15 ) 36,858 10,558 n/m
- per share ($) 0.45 0.54 (17 ) 0.66 0.19 n/m
Funds from operations(3) 26,698 27,644 (3 ) 50,801 51,343 (1 )
- per share ($)(3) 0.48 0.50 (4 ) 0.91 0.94 (3 )
Maintenance capital expenditures(3) 9,986 5,178 93 13,797 8,849 56
Growth capital expenditures(3) 22,831 29,793 (23 ) 46,115 46,663 (1 )
Dividends declared 6,979 6,051 15 13,107 11,525 14
- per share ($)(3) 0.125 0.11 14 0.235 0.21 12
Dividends paid 4,980 3,708 34 9,439 8,019 18
Book value per share, June 30, 11.91 12.12 (2 ) 11.91 12.12 (2 )
Weighted average shares outstanding 55,780 54,928 2 56,650 54,721 4
Shares outstanding, June 30,(4) 55,828 55,006 1 55,828 55,006 1
(1) Newalta's unaudited Condensed Consolidated Financial Statements are attached. References to Generally Accepted Accounting Principles ("GAAP") are synonymous with IFRS and references to unaudited Condensed Consolidated Financial Statements are synonymous with Financial Statements.
(2) n/m indicates the percentage change is not meaningful.
(3) These financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP financial measures are identified and defined later in this document.
(4) Newalta has 55,900,974 shares outstanding as at August 6, 2014.

Management Commentary

"In the second quarter, Adjusted EBITDA was up 20 percent compared to last year, primarily driven by contributions from our growth investments," said Al Cadotte, President and CEO of Newalta.

"We continue to expect 20 percent growth in Adjusted EBITDA for the year, driven by our growth capital investments and market activity. We are making solid progress on the strategic review of our Industrial Division. At the same time, we are evaluating our organization capacity and investment opportunities to accelerate our growth plans in both the Oilfield and New Markets Divisions.

"We remain well positioned to deliver attractive returns for our shareholders for many years ahead."

Consolidated Overview

Second quarter revenue was up 9% to $213.1 million. Adjusted EBITDA increased 20% to $46 million compared to the prior year. Adjusted EBITDA as a percentage of revenue was 22%, up from 20% in 2013. Returns from growth capital investments in New Markets and Oilfield, coupled with the savings realized from the Rationalization Plan in Industrial and favourable commodity prices drove growth.

Year-to-date, Adjusted EBITDA was $78.1 million, up 18% over the prior year. Year-to-date results reflect the same factors as the quarter and were tempered by the impact of extreme weather on first quarter results. Revenue from contracts generated 16% of consolidated revenue on a trailing-twelve month (TTM) basis compared to 11% in TTM Q2 2013. The net loss in earnings for the quarter and for the year of $8.2 million and $1.7 million, respectively, was driven by higher stock-based compensation expense, restructuring related costs and higher finance charges associated with the early redemption of the Series 1 Senior Unsecured Debentures.

Q2 2014 Adjusted SG&A improved to 10.0% of revenue from 10.8% in 2013, primarily due to overhead reductions in the quarter as part of the rationalization plan initiated in the first quarter focused primarily on our Industrial Division (Rationalization Plan).

Capital expenditures for the three and six months ended June 30, 2014 were $32.8 million and $59.9 million, respectively, focused primarily on growth projects in New Markets and Oilfield. We remain on track to execute our capital expenditures program of approximately $145 million in growth capital and $35 million in maintenance capital this year.

Operational Overview

New Markets revenue and gross profit in the quarter increased 27% and 19%, respectively, to $71.1 million and $22.3 million compared to prior year. Improved performance was primarily driven by strong returns from our growth capital investments, particularly our mature fine tailings (MFT) contracts and U.S. satellites. Year-to-date, revenue and gross profit increased by 31% and 18%, respectively, to $127.2 million and $36.9 million compared to prior year, driven by Heavy Oil and U.S satellites.

Oilfield revenue and gross profit in the quarter increased 15% and 18%, respectively, to $45.3 million and $16.9 million compared to prior year. Performance was driven by returns from our growth capital investments, increased drilling activity, and improved commodity prices. Year-to-date, revenue and gross profit increased by 13% and 10%, respectively, to $99.6 million and $37.5 million compared to prior year. Results were impacted by the same factors as the quarter and were tempered by the impact of extreme weather on operating costs in the first quarter of 2014.

Industrial revenue decreased by 4% to $96.7 million while gross profit increased by 18% to $14.5 million. Year-to-date, revenue decreased 5% to $174.1 million while gross profit increased by 16% to $20.9 million, compared to prior year. Savings realized from the Rationalization Plan and gains from favorable commodity prices were partially offset by lower waste receipts at the Stoney Creek Landfill (SCL).

Recent Developments

During the first quarter, we initiated the Rationalization Plan associated with the comprehensive review announced in December 2013 focused on our Industrial Division. To date, we have closed four facilities, reduced overhead in associated support functions and have redirected lines of business.

In Q2, we engaged RBC Capital Markets to conduct a review of a full range of potential alternatives for our Industrial Division, including a potential sale, IPO or spin-off of the division, in whole or in parts (Strategic Review). We are committed to optimizing value from this division. While this review is underway, we are developing our 2015 to 2018 business plan excluding the Industrial Division. We are allocating resources towards our highest growth areas in both the Oilfield and New Markets Divisions, to accelerate and expand our organic growth.

To date, we realized approximately $4.0 million in savings associated with the Rationalization Plan and remain on track to realize approximately $10 million in annualized cash savings. Including costs associated with the Strategic Review, we incurred approximately $5.5 million in one-time restructuring costs and anticipate incurring an additional $1.0 million before year end. We will assess and update savings and cost estimates throughout the year.

In addition to the Rationalization Plan discussed above, we are assessing our cost structure across all divisions, including SG&A. We have identified areas to better align resources with our business needs and have intiated steps to realize additional cost savings.

Other Highlights

Newalta's Board of Directors declared a second quarter dividend of $0.125 per share ($0.50 per share annualized), paid July 15, 2014, to shareholders on record as at June 30, 2014. This higher dividend rate established earlier this year reflects our positive outlook for the business.

On April 1, 2014, we issued $150 million Series 3 Senior Unsecured Debentures with a seven-year term, bearing interest at the rate of 5.875% per annum. Proceeds from the offering were used to redeem our $125 million 7.675% Series 1 Senior Unsecured Debentures and to repay a portion of outstanding debt on our credit facility.

During the quarter we also secured a contract with Shell Canada Limited (Shell) for construction services to build a new MFT plant at Shell's Jackpine Mine. We began work on this contract in the second quarter and expect work to continue into the first quarter of 2015. This contract is in addition to the contract awarded in 2013.

In July we were awarded a contract with Syncrude Canada Ltd (Syncrude) for commissioning its full-scale centrifugation facility that will process MFT at Syncrude's Mildred Lake operations near Fort McMurray, Alberta. This contract builds on our relationship with Syncrude over the past four years.

Outlook

We expect to deliver Adjusted EBITDA growth of 20% over 2013. Growth capital investments combined with improved commodity prices, the rationalization initiatives focused primarily on the Industrial Division and reductions in SG&A, will drive strong returns and improved results over prior year.

  • In New Markets, we expect growth to be driven by our onsite contracts as well as continued progress in the U.S. expansion. We continue to work on securing new contracts, including MFT processing in the oil sands, and on the development of our Fort McMurray facility. In 2014, we plan to establish three additional satellites in the U.S.
  • In Oilfield, we expect growth to be driven by our satellite program and steady drilling activity. Operations at our satellites commissioned in the second quarter will ramp up in the second half of 2014. In 2014, we plan to establish two additional satellites.
  • In Industrial, we expect improved returns from steady activity levels and initiatives implemented under the Rationalization Plan. Full year activity levels at Ville Ste-Catherine (VSC) and SCL are expected to be in line with 2013.

We continue to focus on growing our portfolio of longer term contracts, strengthening our foundation of stable cash flow, and maximizing returns from our existing assets.

Quarterly Conference Call

Management will hold a conference call on Thursday, August 7, 2014 at 11:00 a.m. (ET) to discuss Newalta's performance for the quarter ended June 30, 2014. To participate in the teleconference, please call 416-340-8010 or 866-226-1792. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Thursday, August 14, 2014 by dialing 800-408-3053 and entering passcode 3240258 followed by the pound sign.

About Newalta

Newalta is North America's leading provider of innovative, engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from industrial residues. We serve customers onsite directly at their operations and through a network of 85 locations in Canada and the U.S. Our proven processes, portfolio of more than 250 operating permits and excellent record of safety make us the first choice provider of sustainability enhancing services to oil, natural gas, petrochemical, refining, lead, manufacturing and mining markets. With a skilled team of more than 2,100 people, two decade track record of profitable expansion and commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement. Newalta trades on the TSX as NAL. For more information, visit www.newalta.com.

The press release contains certain statements that constitute forward-looking information. Please refer to the section below "Forward-Looking Information", for further discussion of assumptions and risks relating to this forward looking information. The unaudited interim Condensed Consolidated Financial Statements and MD&A, which contain additional notes and disclosures, are available on our website at www.newalta.com under Investor Relations/Financial Reports.

SELECTED FINANCIAL INFORMATION

Three months ended
June 30,
Six months ended
June 30
,
($000s, except where otherwise noted) 2014 2013 % Increase 2014 2013 % Increase
(unaudited) (Decrease ) (Decrease )
New Markets(1)
Revenue 71,099 56,120 27 127,208 96,978 31
Gross Profit 22,308 18,751 19 36,935 31,242 18
- % of revenue 31 % 33 % (6 ) 29 % 32 % (9 )
Revenue by Business Unit
Heavy Oil 71 % 74 % (4 ) 71 % 68 % 4
U.S. 29 % 26 % 12 29 % 32 % (9 )
Divisional EBITDA(2) 27,924 22,953 22 46,271 37,911 22
Assets Employed(3) 305,152 239,279 28
Oilfield(1)
Revenue 45,269 39,501 15 99,597 88,133 13
Gross Profit 16,925 14,346 18 37,537 34,048 10
- % of revenue 37 % 36 % 2 38 % 39 % (3 )
Divisional EBITDA(2) 20,140 17,324 16 44,199 40,003 10
Assets Employed(3) 391,538 360,055 9
Industrial
Revenue 96,746 100,517 (4 ) 174,089 182,374 (5 )
Gross Profit 14,450 12,280 18 20,863 17,920 16
- % of revenue 15 % 12 % 23 12 % 10 % 20
Revenue by Business Unit
Western Industrial 23 % 23 % - 24 % 23 % 4
Eastern Industrial 77 % 77 % - 76 % 77 % (1 )
VSC as a percent of Industrial Division 37 % 33 % 12 36 % 36 % -
Divisional EBITDA(2) 19,291 19,185 1 29,742 30,377 (2 )
Assets Employed(3) 399,952 426,990 (6 )
Capital Expenditures
Maintenance capital expenditures
New Markets 3,154 640 n/m 4,209 892 n/m
Oilfield 1,936 2,254 (14 ) 3,179 4,106 (23 )
Industrial 3,435 1,426 141 4,283 2,265 89
Growth capital expenditures
New Markets 10,772 15,998 (33 ) 22,762 21,321 7
Oilfield 6,439 5,779 11 12,961 11,021 18
Industrial 2,137 3,268 (35 ) 4,016 6,105 (34 )
(1) For comparative purposes, Cost of sales for the three and six months ended June 30, 2013 has been restated for a reclassification of $563 and $1,090, respectively, from Oilfield to New Markets reflecting a change in reporting structure.
(2) Divisional EBITDA does not have any standardized meaning prescribed by GAAP.
(3) Assets employed is provided to assist management and investors in determining the effectiveness of the use of the assets at a divisional level. Assets employed is the sum of capital assets, intangible assets and goodwill allocated to each division. Assets employed as defined does not include capital assets held by corporate. Corporate assets include information technology, leasehold improvements, and technical development.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - Expressed in thousands of Canadian Dollars)
June 30, 2014 December 31, 2013
Assets
Current assets
Cash 4,676 -
Accounts and other receivables 155,586 148,998
Inventories 53,971 57,037
Prepaid expenses and other assets 14,812 14,441
Assets held for sale 10,129 2,450
239,174 222,926
Non-current assets
Property, plant and equipment 1,040,601 1,011,921
Permits and other intangible assets 49,711 52,595
Other long-term assets 16,954 24,632
Goodwill 96,067 96,167
TOTAL ASSETS 1,442,507 1,408,241
Liabilities
Current liabilities
Bank indebtedness - 1,321
Accounts payable and accrued liabilities 177,420 217,283
Dividends payable 6,979 6,087
184,399 224,691
Non-current liabilities
Senior secured debt 170,149 117,136
Senior unsecured debentures 270,600 246,970
Other liabilities 2,073 2,537
Deferred tax liability 83,856 80,646
Decommissioning liability 66,733 61,099
TOTAL LIABILITIES 777,810 733,079
Shareholders' Equity
Shareholders' capital 419,096 409,894
Contributed surplus 10,351 15,251
Retained earnings 231,047 245,834
Accumulated other comprehensive income 4,203 4,183
TOTAL SHAREHOLDERS' EQUITY 664,697 675,162
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,442,507 1,408,241
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - Expressed in thousands of Canadian Dollars except per share data)
For the three months
ended June 30,
For the six months
ended June 30,
2014 2013 2014 2013
Revenue 213,114 196,138 400,894 367,485
Cost of sales 159,431 150,761 305,559 284,273
Gross profit 53,683 45,377 95,335 83,212
Selling, general and administrative 28,574 24,739 58,792 47,905
Restructuring related costs 1,666 - 6,048 -
Earnings before finance charges and income taxes 23,443 20,638 30,495 35,307
Finance charges 13,830 7,010 20,479 13,603
Embedded derivative loss (gain) 14,883 6,931 8,327 (137 )
Net financing charges expense 28,713 13,941 28,806 13,466
(Loss) earnings before income taxes (5,270 ) 6,697 1,689 21,841
Income tax expense 2,913 1,753 3,369 2,738
Net (loss) earnings (8,183 ) 4,944 (1,680 ) 19,103
Net (loss) earnings per share (0.15 ) 0.09 (0.03 ) 0.35
Diluted (loss) earnings per share (0.14 ) 0.09 (0.03 ) 0.35
Supplementary information:
Amortization included within cost of sales 13,672 14,085 24,877 25,081
Amortization included within selling, general and administrative 3,785 3,608 7,158 7,002
Total amortization 17,457 17,693 32,035 32,083
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited - Expressed in thousands of Canadian Dollars)
For the three months
ended June 30,
For the six months ended June 30,
2014 2013 2014 2013
Net (loss) earnings (8,183 ) 4,944 (1,680 ) 19,103
Other comprehensive (loss) income:
Exchange difference on translating foreign operations (4,113 ) 4,505 47 6,866
Unrealized (loss) on available for sale investment (54 ) - (27 ) (32 )
Other comprehensive (loss) income (4,167 ) 4,505 20 6,834
Total comprehensive (loss) income (12,350 ) 9,449 (1,660 ) 25,937
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited - Expressed in thousands of Canadian Dollars)
Shareholders'
capital
Contributed surplus Retained earnings Accumulated other comprehensive income Total
Balance, December 31, 2012 394,048 2,881 247,565 (3,054 ) 641,440
Changes in equity for the six months ended June 30, 2013
Exercise of options 7,832 - - - 7,832
Reduction of 2012 share issuance costs 124 - - - 124
Shares issued under dividend reinvestment plan 2,881 - - - 2,881
Dividends declared - - (11,525 ) - (11,525 )
Other comprehensive income - - - 6,834 6,834
Net earnings for the period - - 19,103 - 19,103
Balance, June 30, 2013 404,885 2,881 255,143 3,780 666,689
Changes in equity for the six months ended December 31, 2013
Expense related to vesting of options - 235 - - 235
Reclassification of equity settled options - 12,598 - - 12,598
Exercise of options 2,802 (463 ) - - 2,339
Issuance of shares 2,207 - - - 2,207
Dividends declared - - (12,146 ) - (12,146 )
Other comprehensive income - - - 403 403
Net earnings for the period - - 2,837 - 2,837
Balance, December 31, 2013 409,894 15,251 245,834 4,183 675,162
Changes in equity for the six months ended June 30, 2014
Expense related to vesting of options - 1,294 - - 1,294
Exercise of options 6,426 (6,194 ) - - 232
Issuance of shares 2,776 - - - 2,776
Dividends declared - - (13,107 ) - (13,107 )
Other comprehensive income - - - 20 20
Net loss for the period - - (1,680 ) - (1,680 )
Balance, June 30, 2014 419,096 10,351 231,047 4,203 664,697
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Expressed in thousands of Canadian Dollars)
For the three months
ended June 30,
For the six months
ended June 30,
2014 2013 2014 2013
Cash provided by (used for):
Operating Activities
Net (loss) earnings (8,183 ) 4,944 (1,680 ) 19,103
Adjustments for:
Amortization 17,457 17,693 32,035 32,083
Income tax expense 2,913 1,753 3,369 2,738
Income tax recovered (paid) 25 364 (7 ) 157
Non-cash stock-based compensation expense (recovery) 1,630 (332 ) 4,845 (4,645 )
Net financing charges 28,713 13,941 28,806 13,466
Finance charges paid (15,989 ) (10,942 ) (16,847 ) (11,948 )
Other 132 223 280 389
Funds from Operations 26,698 27,644 50,801 51,343
(Increase) decrease in non-cash working capital (491 ) 2,788 (11,244 ) (38,885 )
Decommissioning costs incurred (986 ) (872 ) (2,699 ) (1,900 )
Cash from Operating Activities 25,221 29,560 36,858 10,558
Investing Activities
Additions to property, plant and equipment (36,652 ) (29,626 ) (97,439 ) (69,408 )
Other 945 463 548 (3,182 )
Cash used in Investing Activities (35,707 ) (29,163 ) (96,891 ) (72,590 )
Financing Activities
Issuance of shares 232 714 232 2,361
Issuance of Series 3 Senior Unsecured Debentures 147,069 - 147,069 -
Redemption of Series 1 Senior Unsecured Debentures (125,000 ) - (125,000 ) -
(Decrease) increase in senior secured debt (1,746 ) 3,499 53,013 53,000
(Decrease) increase in bank indebtedness (739 ) (1,630 ) (1,321 ) 13,137
Dividends paid (4,980 ) (3,708 ) (9,439 ) (8,019 )
Cash from (used in) Financing Activities 14,836 (1,125 ) 64,554 60,479
Effect of foreign exchange on cash 326 728 155 1,144
Change in cash 4,676 - 4,676 (409 )
Cash, beginning of period - - - 409
Cash, end of period 4,676 - 4,676 -

FORWARD-LOOKING INFORMATION

Certain statements contained in this document constitute "forward-looking information" as defined under applicable securities laws. When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "potential", "strategy", "target", and similar expressions, as they relate to Newalta Corporation and the subsidiaries of Newalta Corporation, or their management, are intended to identify forward-looking information. In particular, forward-looking information included or incorporated by reference in this document include statements with respect to:

  • future operating and financial results;
  • business prospects and strategy including related timelines;
  • capital expenditure programs and other expenditures;
  • realization of anticipated benefits of growth capital investments, acquisitions and our technical development initiatives;
  • realization of anticipated benefits from our Rationalization Plan and in particular the anticipated value and sustainability of the cash savings from such initiatives;
  • anticipated industry activity levels;
  • expected demand for our services;
  • the amount of dividends declared or payable in the future;
  • our projected cost structure; and
  • expectations and implications of changes in legislation.

Our strategic objectives for the Business Plan period 2014 to 2017, including anticipated growth capital investments and our action plan for 2014 and 2015, are set out under "Strategy" on page 33 in our Annual Report for the year ended December 31, 2013.

Such information reflects our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation:

  • general market conditions of the industries we service;
  • strength of the oil and gas industry, including drilling activity;
  • fluctuations in commodity prices for oil and the price we received for our recovered oil;
  • fluctuations in commodity prices for lead including the price differential we pay for lead feedstock and the price we receive for our lead products;
  • fluctuations in base oil prices including the price differential we pay for used oil and the price we receive for our finished lube oil products;
  • fluctuations in interest rates and exchange rates;
  • supply of waste lead acid batteries as feedstock to support direct lead sales;
  • demand for our finished lead products by the battery manufacturing industry;
  • our ability to secure future capital to support and develop our business, including the issuance of additional common shares;
  • the highly regulated nature of the environmental services and waste management business in which we operate;
  • dependence on our senior management team and other operations management personnel with waste industry experience;
  • the competitive environment of our industry in Canada and the U.S.;
  • success of our growth, acquisition and technical development strategies including integration of businesses and processes into our operations and potential liabilities from acquisitions;
  • potential operational and safety risks and hazards, obtaining insurance for such risks and hazards on reasonable financial terms, and potential failure of meeting customer safety standards;
  • the seasonal nature of our operations;
  • costs associated with operating our landfills and reliance on third party waste volumes;
  • risk of pending and future legal proceedings;
  • risk to our reputation;
  • our ability to attract, retain, and integrate skilled employees and maintain positive labour union relationships;
  • open access for new industry entrants and the general unprotected nature of technology used in the waste industry;
  • possible volatility of the price of, and the market for, our common shares, and potential dilution for shareholders in the event of a sale of additional shares;
  • financial covenants in our debt agreements that may restrict our ability to engage in transactions or to obtain additional financing; and
  • such other risks or factors described from time to time in reports we file with securities regulatory authorities.

During the second quarter, we engaged a financial advisor to conduct a Strategic Review for our Industrial Division which is ongoing. As such, forward-looking information in this document is made subject to any changes that may be implemented as a result of this Strategic Review.

By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur. Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking information and readers are cautioned that the foregoing list of factors is not exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Furthermore, the forward-looking information contained in this document is made as of the date of this document and, in each case, is expressly qualified by this cautionary statement. Unless otherwise required by law, we do not intend, or assume any obligation, to update any such forward-looking information.

The information contained on our website does not form part of this press release.

RECONCILIATION OF NON-GAAP MEASURES

This Press Release contains references to certain financial measures, including some that do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS" or "GAAP") and may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below:

"EBITDA", "EBITDA per share", "Adjusted EBITDA", and "Adjusted EBITDA per share" are measures of our operating profitability. EBITDA provides an indication of the results generated by our principal business activities prior to how these activities are financed, assets are amortized or impaired, or how the results are taxed in various jurisdictions. In addition, Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation and restructuring related costs. Adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time. Stock-based compensation, a component of employee remuneration, can vary significantly with changes in the price of our common shares while restructuring costs are outside of our normal course of business. Restructuring related costs are charges primarily attributable to the Rationalization Plan and Strategic Review. EBITDA and Adjusted EBITDA are derived from the consolidated statements of operations and comprehensive income. EBITDA per share and Adjusted EBITDA per share are derived by dividing EBITDA and Adjusted EBITDA by the basic weighted average number of shares.

They are calculated as follows:

Three months ended
June 30,
Six months ended
June 30,
($000s) 2014 2013 2014 2013
Net (loss) earnings (8,183 ) 4,944 1,680 19,103
Add back:
Income taxes 2,913 1,753 3,369 2,738
Net finance expense 28,713 13,941 28,806 13,466
Amortization(1) 17,457 17,693 32,035 32,083
EBITDA 40,900 38,331 62,530 67,390
Add back (deduct):
Stock-based compensation expense (recovery) 3,476 19 9,515 (1,320 )
Restructuring related costs 1,666 - 6,048 -
Adjusted EBITDA 46,042 38,350 78,093 66,070
Weighted average number of shares 55,780 54,928 55,650 54,721
EBITDA per share 0.73 0.70 1.12 1.23
Adjusted EBITDA per share 0.83 0.70 1.40 1.21
(1) Includes impairment charges, non-cash gains or losses on asset disposal and other non-cash charges.

"Divisional EBITDA" provides an indication of the results generated by the division's principal business activities prior to how the assets are amortized, and before allocation of Selling, general and administrative costs ("SG&A"). Divisional EBITDA is the sum of gross profit and amortization for the respective division. Divisional EBITDA is derived from Gross Profit as follows:

Three months ended
June 30,
Six months ended
June 30,
($000s) 2014 2013 2014 2013
Gross Profit 53,683 45,377 95,335 83,212
Add back:
Amortization included in cost of sales 13,672 14,085 34,877 25,081
Divisional EBITDA 67,355 59,462 120,212 108,293
New Markets(1) 27,924 22,953 46,271 37,911
Oilfield(1) 20,140 17,324 44,199 40,005
Industrial 19,291 19,185 29,742 30,377
Deduct:
SG&A(2) 24,789 21,131 51,634 40,903
Restructuring related costs 1,666 - 6,048 -
EBITDA 40,900 38,331 62,530 67,390
(1) New Markets and Oilfield Divisional EBITDA for the three and six months ended June 30, 2013 has been restated to reflect a change in reporting structure. New Markets was reduced and Oilfield was increased by $563 and $1,090, in the respective periods.
(2) SG&A excludes amortization of $3,785 and $7,158 for Q2 2014 and 2014 year-to-date, respectively, and $3,608 and $7,002 for Q2 2013 and 2013 year-to-date, respectively.

"Adjusted net earnings" and "Adjusted net earnings per share" are measures of our profitability. Adjusted net earnings provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation recovery or expense, the gain or loss on embedded derivatives and restructuring related charges. Stock-based compensation expense, a component of employee remuneration, can vary significantly with changes in the price of our common shares. The gain on the embedded derivative is a result of the change in the trading price of the debentures and the volatility of the applicable bond market. Restructuring related costs are related to initiatives outside of our normal course of business. As such, Adjusted net earnings provides improved continuity with respect to the comparison of our results over a period of time. Adjusted net earnings per share is derived by dividing Adjusted net earnings by the basic weighted average number of shares.

Three months ended
June 30,
Six months ended
June 30,
($000s) 2014 2013 2014 2013
Net (loss) earnings (8,183 ) 4,944 (1,680 ) 19,103
Add back (deduct):
Stock-based compensation expense (recovery) 3,476 19 9,515 (1,320 )
Embedded derivative (gain) 14,883 6,931 8,327 (137 )
Restructuring related costs 1,666 - 6,048 -
Adjusted net earnings 11,842 11,894 22,210 17,646
Weighted average number of shares 55,780 54,928 55,650 54,721
Adjusted net earnings per share 0.21 0.22 0.40 0.32

"Book value per share" is used to assist management and investors in evaluating the book value compared to the market value.

Three months ended
June 30,
($000s) 2014 2013
Total Equity 664,697 666,689
Shares outstanding, June 30, 55,828 55,006
Book value per share 11.91 12.12

"Cash Basis Return on Capital" (ROC - Cash) is used to assist management and investors in measuring the returns realized at the consolidated level from capital employed. ROC - Cash is derived from Adjusted EBITDA less cash stock-based compensation, cash taxes and maintenance capital divided by Net Assets. Net Assets is an average of the beginning and ending balances of our total assets less current liabilities for the period.

"Divisional Return on Capital" is used to assist management and investors in measuring the returns realized at the Divisional level from capital employed. It is derived from Divisional EBITDA divided by the average of the beginning and ending balances of assets employed for the period.

"Funds from operations" is used to assist management and investors in analyzing cash flow and leverage. Funds from operations as presented is not intended to represent operating funds from operations or operating profits for the period, nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. Funds from operations is derived from the consolidated statements of cash flows and is calculated as follows:

Three months ended
June 30,
Six months ended
June 30,
($000s) 2014 2013 2014 2013
Cash from Operating Activities 25,221 29,560 36,858 10,558
Add back:
Increase (decrease) in non-cash working capital 491 (2,788 ) 11,244 38,885
Decommissioning obligations incurred 986 872 2,699 1,900
Funds from operations 26,698 27,644 50,801 51,343
Weighted average number of shares 55,780 54,928 55,650 54,721
Funds from operations per share 0.48 0.50 0.91 0.94

References to EBITDA, EBITDA per share, Adjusted EBITDA, Adjusted EBITDA per share, Divisional EBITDA, Adjusted net earnings, Adjusted net earnings per share, ROC - Cash, Divisional Return on Capital, Funds from operations, and Funds from operations per share throughout this document have the meanings set out above. Adjusted SG&A is defined as SG&A adjusted for stock-based compensation and amortization.

Contact Information

  • Newalta Corporation
    Anne M. Plasterer
    Executive Director, Investor Relations
    (403) 806-7019

    Newalta Corporation
    Stephanie MacVicar
    Director, Investor Relations
    (403) 806-7391