Tree Island Steel Ltd.
TSX : TSL
TSX : TSL.DB

Tree Island Steel Ltd.

August 08, 2013 16:00 ET

Tree Island Steel Announces Second Quarter 2013 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug. 8, 2013) -

Q2 2013 Financial Highlights:

  • Revenue of $40.6 million as compared to $39.6 million in Q2 2012
  • Gross Profit of $5.4 million or 13.3% of revenues as compared to $4.2 million or 10.7% of revenues in Q2 2012
  • EBITDA(2)at $2.9 million as compared to $2.0 million in Q2 2012

Tree Island Steel Ltd. ("Tree Island" or the "Company") (TSX:TSL)(TSX:TSL.DB) announced today its financial results for the three and six month periods ended June 30, 2013(1).

For the three-month period ended June 30, 2013, revenues increased to $40.6 million versus $39.6 million during the second quarter in 2012. Volumes also increased by 12% in the second quarter to 29,160 tons, primarily due to increasing demand for construction products in the Company's US markets. Gross profit continued to strengthen in the quarter, amounting to $5.4 million, representing a 27% improvement when compared to $4.2 million in the corresponding period in 2012. As a result, gross margin increased to 13.3% from 10.7%, and gross profit per ton also improved to $185 per ton, from $163 per ton in the same period in 2012. The improvements in revenues and gross profit together are the result of ongoing focus on profitable growth, cost management and operational efficiencies. These strategies resulted in EBITDA increasing 44% to $2.9 million, or $98 per ton compared, to $2.0 million and $76 per ton during the corresponding period in 2012.

For the six-month period ended June 30, 2013, revenues amounted to $78.7 million on 56,761 tons compared to $83.6 million on 56,583 tons during the same period in 2012. The lower revenues in 2013 primarily reflect price adjustments that were in line with corresponding raw material cost reductions, coupled with product mix changes and competitive factors in certain business lines, particularly, nail imports and galvanized wire sales in Canada. Gross profit increased to $9.6 million at a margin of 12.2% compared to $8.2 million or 9.8%, while gross profit per ton also increased to $170 per ton versus $145 per ton in the corresponding period in 2012. EBITDA during the first six months of 2013 increased by 26% to $4.7 million versus $3.7 million during the same period last year.

"I am pleased to see our focus on profitable growth demonstrate meaningful improvement in gross profit and EBITDA on a year-over-year basis," said Dale R. MacLean, President and CEO of Tree Island Steel. "The resurgence of the construction industry in the US, albeit still lower than historical levels, is demonstrating a positive trend along with stability in our other key end markets. Looking ahead, we remain cautiously optimistic as we navigate through the ongoing volatility in raw material and selling prices, which we have grown accustomed to, while focusing on strategies to selectively grow revenues by leveraging our brands, providing best in class product and service quality, and optimizing operational efficiencies in an effort to target and achieve improved returns for the Company and our shareholders."

Amar S. Doman, Chairman of Tree Island Steel noted, "Tree Island's second quarter results continue to demonstrate promise with improvement at the gross profit and EBITDA lines. The Company is in a good position to take advantage of increasing demand in the future."

Summary of Results Three Months Ended June 30 Six Months Ended June 30
2013 2012 2013 2012
($000's except for tonnage and per unit amounts, unaudtied)
Sales Volumes - Tons 29,160 25,965 56,761 56,583
Sales $ 40,594 $ 39,622 $ 78,687 $ 83,619
Cost of sales (34,474 ) (34,630 ) (67,611 ) (73,867 )
Depreciation (724 ) (753 ) (1,444 ) (1,521 )
Gross profit 5,396 4,239 9,632 8,231
Selling, general and administrative expenses (3,261 ) (3,007 ) (6,408 ) (6,039 )
Operating income 2,135 1,232 3,224 2,192
Foreign exchange gain (loss) 106 (397 ) 132 (88 )
Gain on sale of property, plant and equipment (0 ) 1 (0 ) 427
Changes in financial liabilities recognized at fair value - - 20 -
Gain on renegotiated debt - 17,805 - 17,805
Financing Expenses (1,485 ) (2,292 ) (2,924 ) (4,553 )
Income before income taxes 756 16,349 452 15,783
Income tax expense (566 ) (1,224 ) (399 ) (1,076 )
Net Income 190 15,125 53 14,707
Operating income 2,135 1,232 3,224 2,192
Add back depreciation 724 753 1,444 1,521
EBITDA(a) 2,859 1,985 4,668 3,713
Foreign exchange gain (loss) 106 (397 ) 132 (88 )
EBITDA including foreign exchange 2,965 1,588 4,800 3,625
Net Income 190 15,125 53 14,707
Add back significant non-cash items
Non-cash financing expenses 711 1,275 1,364 2,679
Non-cash (gain) loss on renegotiated debt - (17,805 ) - (17,805 )
Changes in financial liabilities recognized at fair value - - (20 ) -
Deferred income tax expense 549 1,339 370 1,182
Adjusted net income (loss)(a) 1,449 (66 ) 1,768 763
Per share / unit
Net income per share / unit - basic 0.01 0.69 0.00 0.66
Net income per share / unit - diluted 0.01 0.27 0.00 0.28
Per ton
Gross profit per ton 185 163 170 145
EBITDA per ton 98 76 82 66
As at June 30, As at December 31,
Financial position 2013 2012
Total assets $ 90,447 $ 81,102
Total non-current financial liabilities $ 30,060 $ 29,790
(a) See definition of EBITDA and Adjusted Net Income in footnote 2 to the press release

About Tree Island Steel

Tree Island Steel, headquartered in Richmond, British Columbia, since 1964, through its four operating facilities in Canada and the United States, produces wire products for a diverse range of industrial, residential construction, commercial construction, agricultural, and specialty applications. Its products include galvanized wire, bright wire; a broad array of fasteners, including packaged, collated and bulk nails; stucco reinforcing products; concrete reinforcing mesh; fencing and other fabricated wire products. The Company markets these products under the Tree Island, Halsteel, K-Lath, Industrial Alloys, TI Wire, and Tough Strand and Select Brand names. The Company also owns and operates a China-based company that assists the international sourcing of products to Tree Island and its customers.

Forward-Looking Statements

This press release includes forward-looking information with respect to Tree Island including its business, operations and strategies, as well as financial performance and conditions. The use of forward-looking words such as, "may," "will," "expect" or similar variations generally identify such statements. Any statements that are contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Although management believes that expectations reflected in forward-looking statements are reasonable, such statements involve risks and uncertainties including risks and uncertainties discussed under the heading "Risk Factors" in Tree Island's most recent annual information form and management discussion and analysis.

The forward looking statements contained herein reflect management's current beliefs and are based upon certain assumptions that management believes to be reasonable based on the information currently available to management. By their very nature, forward looking statements involve inherent risks and uncertainties, both general and specific, and a number of factors could cause actual events or results to differ materially from the results discussed in the forward looking statements. In evaluating these statements, prospective investors should specifically consider various factors including the risks outlined in the Fund's most recent annual information form and management discussion and analysis which may cause actual results to differ materially from any forward looking statement. Such risks and uncertainties include, but are not limited to: general economic, market and business conditions, the cyclical nature of our business and demand for our products, financial condition of our customers, competition, volume and price pressure from import competition, deterioration in the Company's liquidity, disruption in the supply of raw materials, volatility in the costs of raw materials, significant exposure to the Western United States due to lack of geographic diversity, dependence on the construction industry, transportation costs, foreign exchange fluctuations, leverage and restrictive covenants, labour relations, trade actions, dependence on key personnel and skilled workers, reliance on key customers, intellectual property risks, energy costs, un- insured loss, credit risk, operating risk, management of growth, changes in tax, environmental and other legislation, and other risks and uncertainties set forth in our publicly filed materials.

This press release has been reviewed by the Company's Board of Directors and its Audit Committee, and contains information that is current as of the date of this press release, unless otherwise noted. Events occurring after that date could render the information contained herein inaccurate or misleading in a material respect. Readers are cautioned not to place undue reliance on this forward- looking information and management of the Company undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise except as required by applicable securities laws.

(1) Please refer to our Q2 2013 MD&A for further information.
(2) References made above to "EBITDA" are to operating profit plus depreciation and references to "Adjusted Net Income" are to net income per IFRS adjusted for certain non-cash items including non-cash financing expenses, changes in fair value of convertible instruments, and deferred income tax. EBITDA is a measure used by many investors to compare issuers on the basis of ability to generate cash flows from operations. Adjusted Net Income is a measure for investors to understand the impact of significant non-cash items that affect our results from operations. Neither EBITDA nor Adjusted Net Income are earnings measures recognized by IFRS and do not have a standardized meaning prescribed by IFRS. We believe that EBITDA and Adjusted Net Income are important supplemental measure in evaluating the Fund's performance. You are cautioned that EBITDA and Adjusted Net Income should not be construed as alternatives to net income or loss, determined in accordance with IFRS, or as indicators of performance. Our method of calculating EBITDA and Adjusted Net Income may differ from methods used by other issuers and, accordingly, our EBITDA or Adjusted Net Income may not be comparable to similar measures presented by other issuers.
Tree Island Steel Ltd.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in thousands of Canadian dollars, unaudited)
June 30 December 31
2013 2012
Assets
Current
Cash 2,470 2,371
Accounts receivable 20,803 11,984
Inventories 35,161 32,732
Prepaid expenses 1,045 2,200
59,479 49,287
Property, plant and equipment 30,773 31,592
Other non-current assets 195 223
90,447 81,102
Liabilities
Current
Senior Revolving Facility 16,606 10,785
Accounts payable and accrued liabilities 11,231 9,649
Income taxes payable 1,356 1,346
Other current liabilities 92 83
Fair value of convertible instruments 276 312
Current portion of long-term debt 1,829 1,748
31,390 23,923
Convertible Debentures 15,894 15,634
Senior Term Loan 4,042 4,292
Long-term debt 9,924 9,639
Finance Lease 57 87
Other non-current liabilities 437 449
Deferred income taxes 2,343 1,973
64,087 55,997
Shareholders' Equity 26,360 25,105
90,447 81,102
Tree Island Steel Ltd.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of Canadian dollars, except share / units and per-share / unit amounts, unaudited)
Three Months Ended June 30 Six Months Ended June 30
2013 2012 2013 2012
Sales $ 40,594 $ 39,622 $ 78,687 $ 83,619
Cost of goods sold 34,474 34,630 67,611 73,867
Depreciation 724 753 1,444 1,521
Gross profit 5,396 4,239 9,632 8,231
Selling, general and administrative expenses 3,261 3,007 6,408 6,039
Operating income 2,135 1,232 3,224 2,192
Foreign exchange gain (loss) 106 (397 ) 132 (88 )
Gain on sale of property, plant and equipment - 1 - 427
Changes in financial liabilities recognized at fair value - - 20 -
Gain on renegotiated debt - 17,805 - 17,805
Financing expenses (1,485 ) (2,292 ) (2,924 ) (4,553 )
Income before income taxes 756 16,349 452 15,783
Income tax expense (566 ) (1,224 ) (399 ) (1,076 )
Net income for the period $ 190 $ 15,125 $ 53 $ 14,707
Net income per share / unit
Basic $ 0.01 $ 0.69 $ 0.00 $ 0.66
Diluted $ 0.01 $ 0.27 $ 0.00 $ 0.28
Weighted-average number of shares / units
Basic 23,852,148 21,935,051 23,495,536 22,144,756
Diluted 24,210,904 60,937,580 24,390,748 61,147,285
Tree Island Steel Ltd.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of Canadian dollars, unaudited)
Three Months Ended June 30 Six Months Ended June 30
2013 2012 2013 2012
Cash flows from operating activities
Net income for the period $ 190 $ 15,125 $ 53 $ 14,707
Adjustments for:
Depreciation 724 753 1,444 1,521
Changes in financial liabilities recognized at fair value - - (20 ) -
Gain on sale of property, plant and equipment - (1 ) - (427 )
Amortization and write-off of deferred financing 15 - 31 -
Gain on renegotiated debt - (17,805 ) - (17,805 )
Net finance costs 1,470 2,292 2,893 4,553
Deferred income tax expense 549 1,339 370 1,182
Fair value change on Phantom Units - 5 - 11
Exchange revaluation on foreign denominated debt 379 441 605 (124 )
Working capital Adjustments:
Accounts Receivable 1,101 4,196 (8,425 ) (3,712 )
Inventories (17 ) (2,513 ) (1,665 ) (4,158 )
Accounts payable and accrued liabilities (2,320 ) (148 ) 1,275 768
Prepaid expenses 71 - 1,170 -
Income and other taxes 17 (115 ) 29 (106 )
Other (630 ) (200 ) (892 ) 1,258
Net cash provided by (used in) operating activities 1,549 3,369 (3,132 ) (2,332 )
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment - 2 - 472
Purchase of property, plant and equipment (59 ) (80 ) (274 ) (209 )
Net cash (used in) provided by investing activities (59 ) (78 ) (274 ) 263
Cash flows from financing activities
Repayment of Senior Term Loan (125 ) 5,000 (250 ) 5,000
Repayment of long-term debt (359 ) (5,619 ) (745 ) (6,217 )
Conversion of Warrants - - 171 -
Interest paid (759 ) (765 ) (1,537 ) (1,536 )
Normal course issuer bid - (57 ) - (262 )
(Repayment) advance on Senior Revolving Facility (375 ) (933 ) 5,821 5,431
Net cash (used in) provided by financing activities (1,618 ) (2,374 ) 3,460 2,416
Effect of exchange rate changes on cash 28 16 44 2
(Decrease) increase in cash (100 ) 933 98 349
Cash, beginning of period 2,569 3,268 2,371 3,852
Cash, end of period $ 2,469 $ 4,201 $ 2,469 $ 4,201

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