Macro Enterprises Inc. Announces 2020 Fourth Quarter and Year End Results
Fort St. John, British Columbia--(Newsfile Corp. - April 8, 2021) - Macro Enterprises Inc. (TSXV: MCR) (the "Company" or "Macro") is pleased to announce its 2020 fourth quarter and year end results.
|Summary of financial results|
|(thousands of dollars except per share amounts)|
|Three months ended |
|Net income (loss)||(19,583)||2,400||(12,322)||25,209|
|Net income (loss) per share||($0.63)||$0.06||($0.39)||$0.82|
|Weighted average common shares outstanding (thousands)||31,272||30,733|
Note 1 - References to EBITDA are to net income from continuing operations before interest, taxes, amortization and impairment charge. EBITDA is not an earnings measure recognized by International Financial Reporting Standards ("IFRS") and does not have a standardized meaning prescribed by IFRS. Management believes that EBITDA is an appropriate measure in evaluating the Company's performance. Readers are cautioned that EBITDA should not be construed as an alternative to net income (as determined under IFRS) as an indicator of financial performance or to cash flow from operating activities (as determined under IFRS) as a measure of liquidity and cash flow. The Company's method of calculating EBITDA may differ from the methods used by other issuers and, accordingly, the Company's EBITDA may not be comparable to similar measures used by other issuers.
- The Company wrote down $12.4 million on the disposition of its interest in the Coastal GasLink Project and provided a $5.0 million credit on previously provided services. In return the Company secured payment for $40 million of past due invoices, received an indemnity against future claims, and cancelled its $40 million Letter of Credit previously outstanding on the Project.
- The Company elected to recognize a $2.1 million loss provision in its fourth quarter operations on an onerous contract set to complete in FY'21.
- Despite the significant provisions recorded the Company is still reporting shareholders' equity of $103.8 million or $3.29 per share based on the issued and outstanding common shares as at December 31, 2020.
- Total working capital as at December 31, 2020 was $40.3 million of which the Company's net cash was $30.0 million and is continuing to grow.
- Subsequent to year end the Company received a conditional Letter of Award subject to final approvals on the TC Energy's Nova Gas Transmission Limited System ("NGTL System"). Contract value and final details will be announced if and when final contract executed.
- Subsequent to year end the Company entered into an interim construction contract with Trans Mountain Pipeline L.P for work on Section 5B that had previously been contracted to Macro Spiecapag Trans Mountain Joint Venture. The value of the interim contract is in excess of $50 million and was scheduled to be completed in April. The scope of work is now expected extend through to August 2021. Changes to the scope of work will be announced once finalized.
- Assuming that the COVID-19 pandemic does not affect production and business can continue as usual, the Company estimates that revenue will exceed $250 million in fiscal 2021. This estimate assumes the Company is successful in executing a contract on the TC Energy NGTL System and the scope of work on the Trans Mountain Expansion Project extends through to August 2021. The estimate does not assume core maintenance and integrity business beyond March 31st.
- The Company continues to materially exceed industry standard safety averages. As at December 31, 2020 Macro Enterprises has now exceeded 32 quarters without a single lost time injury.
- The Company is planning the release of its Q1'21 financial results on May 27, 2021 and will host a virtual Annual General Meeting on May 28, 2021.
Fourth quarter results
Three months ended December 31, 2020 vs. three months ended December 31, 2019
Consolidated revenue was $83.9 million compared to $80.8 million in the fourth quarter last year representing an increase of $3.1 million or 4%. Approximately 78% or $65.1 million of the revenue earned related to pipeline and facilities construction with the balance or $18.8 million relating to maintenance and integrity services being performed under existing master service agreements. The proportionate share of revenue recognized from the joint operations on the Coastal GasLink Pipeline Project and the Trans Mountain Expansion Project during the period was $52.6 million. Prior year revenue relating to pipeline and facilities construction projects was approximately 83% or $67.3 million while the balance related to maintenance and integrity work. During fourth quarter fiscal 2019 the Company recognized $48.8 million of proportionate shared revenues relating to its joint operations.
Operating expenses were $76.1 million or 91% of revenue compared to $70.9 million or 88% of revenue in the fourth quarter last year. Margins were negatively impacted in the fourth quarter as a result of material performance deficiencies experienced on a large lump sum fixed price facilities construction contract and yet were further compounded by the termination notice received on the Trans Mountain Expansion Project. Margins are expected to recover going forward.. During the quarter, the Company applied for the Canadian Emergency Wage Subsidy ('CEWS') and was able to claim $0.2 million in government assistance which was applied as a reduction in salaries and wage expenses recorded in its operating expenses.
General and administrative expenses were $1.1 million, down $1.1 million from the $2.2 million recorded prior year. The Company's general and administrative expenditures includes professional fees, corporate wages, burdens and other overheads, including rents, insurance, travel and administrative supplies that are not charged directly to projects. The costs incurred during the period relating to the disposition of the Company's interest in the Coastal GasLink Project were not included in the general and administrative expenses.
Depreciation of property, plant and equipment was $5.5 million and in-line with prior years results. Depreciation is calculated at various declining balance methods across the Company's multiple categories of property, plant and equipment and is used in guiding the annual capital expenditure estimates. Residual values, methods of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate.
During the fourth quarter the Company recognized approximately $2.9 million in losses on the disposition of equipment under the conversion of equipment that had previously been recorded as a Right to Use Asset under IFRS 16 to owned equipment. These non-cash losses are reflected in the other income and expenses as reported during the period.
During the fourth quarter the Company completed the sale of its interest in the Coastal GasLink Pipeline Project (the "Project"). The essential elements of the transaction were as follows: (i) the Company gave up its equity ownership for nominal consideration, (ii) the Company received settlement on its $40 million of past outstanding invoices, (iii) the Company received an indemnity from a previously provided parental guarantee, and (iv) the Company received back a $40 million Letter of Credit for cancellation that had been provided previously under the terms of its joint arrangement. The transaction resulted in the $12.4 million write down on disposition of the Company's proportionate share of the assets and liabilities during the period.
In addition and as part of the settlement of invoices past due, the Company agreed to provide a credit of $5.0 million in the fourth quarter on services previously rendered, including past equipment rentals, trucking and other services. Going forward, the Company agreed to continue to provide its support on the CGL Project by providing equipment, trucking and other support services at arm's length commercial terms.
During the fourth quarter the Company recorded a $2.1 million loss provision on an onerous contract. During the year the Company entered into a fixed price lump sum facilities construction contract that was on-going as at December 31, 2020 and was anticipated to result in a loss to operations upon completion in fiscal 2021. As a result, the Company recognized the full value of the remaining applicable expected losses on the onerous contract to its current year end operating results. Any claims or change order amounts the Company is able to subsequently negotiate will be applied against the loss provision accordingly.
During the fourth quarter the Company recognized a non-cash loss of $0.5 million on the mark-to-market fair value re-measurement of its preferred shares at period end. The loss adjustment is indicative of a 15% increase to the Company's share price over the prior reported period.
During the fourth quarter the Company recognized non-cash stock-based compensation charges of $93,000. The non-cash stock-based compensation charge relates to options granted in August 2019.
Finance costs of $0.9 million were higher than prior year due to the adjustments the Company recognized under IFRS 16 right of use asset lease obligations and the associated implicit interest charges, the amortization of deferred finance costs recorded on its credit facilities and the issuance of its letters of credit relating to contract financial assurances. In addition to the non-cash deferred transaction costs, interest charges, standby and admin fees associated with the Company's credit facility, other finance costs included $41,000 of effective interest rate payments made on its preferred shares.
Income tax recovery in the quarter of $2.8 million was at an effective rate which approaches the enacted tax rates of 27% after reversing non-cash charges and timing differences, namely recorded loss provisions including disposition, service and onerous contract amounts, plus the collections of prior year holdbacks against current year and mark-to-market adjustments.
Net loss was ($19.6) million (($0.63) per share) compared to a net income of $2.4 million ($0.06 per share) recognized during the three months ended December 31, 2019. Unadjusted EBITDA was negative ($15.9) million compared to $8.7 million recognized during the three months ended December 31, 2019. Despite comparable activity levels and the positive impact of the CEWS program, the Company's financial results were materially and significantly impacted by operational challenges on a large fixed price lump sum facilities construction contract, the termination notice received the Trans Mountain Expansion Project contract, multiple loss provisions recorded during the period along with other non-cash negative adjustments when compared to prior year.
Disposition of subsidiary and joint arrangement
On December 15, 2020, the Company completed the sale of Macro Pipeline Construction Inc. ("MPCI"), a wholly owned subsidiary, to Spiecapag Canada Corp. ("Spiecapag"). MPCI and Spiecapag are joint venturers in the Macro Spiecapag Coastal GasLink Joint Venture ("MSJV") which is building part of the Coastal GasLink Pipeline Project. (the "CGL Project").
The essential elements of the transaction were as follows: (i) the Company gave up its owner equity in MSJV for nominal consideration, (ii) the Company received settlement on its past outstanding invoices for $40 million, including $20 million paid in cash on December 15, 2020 and a subsequent $20 million to be paid on June 30, 2021, such payment secured by a $20 million Letter of Credit issued by a Tier 1 Canadian chartered bank, (iii) the Company received an indemnity from the parent Company of Spiecapag in connection with a parental guarantee that had been provided by the Company to the owners of the CGL Project and (iv) the Company received back a $40 million Letter of Credit for cancellation that had been previously provided to Spiecapag under the terms of the joint venture arrangement.
This transaction resulted in the write down of the Company's proportionate share of the assets and liabilities of MSJV that were included in the consolidated balance sheet of the Company on December 15, 2020 as follows:
|Income tax receivable||460|
|Property, plant and equipment||2,224|
|Trade payables and accrued liabilities||(51,648)|
|Deferred income tax liabilities||(3,696)|
|Net assets disposed||$ 11,611|
|Cost to dispose||754|
|Write down on disposition||($ 12,365)|
In addition and as part of the settlement of invoices past due, Company agreed to provide Spiecapag a credit of $4,987,000 on services previously rendered MSJV, including past equipment rentals, trucking and other services. Going forward, the Company agreed to continue to provide its support on the CGL Project by providing its equipment, trucking and other support services at arm's length commercial terms.
Presently, the Company's ability to provide reliable outlook guidance for the 2021 fiscal year and beyond is materially impaired due to the prevailing uncertainty about the short and long term economic and geo-political effects of the current COVID-19. Despite the pandemic, the Company has continued to work when it can and ensure it will take all necessary steps to maintain and preserve its balance sheet during this potentially prolonged period of uncertainty however as COVID cases increase, the ability to work may be affected.
When the pandemic is brought under control to the extent that the businesses on which the Company's operations are dependent are relieved of the current pandemic emergency measures such that they are able to continue customary operations, and if the projects under either contract or under negotiation based upon conditional letters of awards to proceed, then the Company would expect revenues to exceed $250 million in fiscal 2021.
Macro's core business is providing pipeline and facilities construction and maintenance services to major companies in the oil and gas industry in northeastern B.C. and northwestern Alberta. The Company's corporate office is in Fort St. John, British Columbia. Its shares are listed on the TSX Venture Exchange under the symbol MCR. Information on the Company's principal operations can be found at www.macroindustries.ca
Forward Looking Statements
Certain statements in the Company's Press Release for its 2020 fiscal year end, other than statements of historical fact, may include statements of forward-looking information. The Company cautions that such forward-looking statements are based on the beliefs, estimates and opinions of the Company's management on the date the statements are made, and they involve a number of risks and uncertainties. Although the Company believes that such statements are reasonable, it can give no assurance that such expectations will prove to be correct; and, consequently, all such statements are expressly qualified by this cautionary statement.
Forward-looking information includes, without limitation, statements regarding the adverse impacts on the Company's business due to the current COVID-19 pandemic and collapse of oil and gas prices, statements regarding expected revenues, anticipated project margins, expected general and administrative expenses, anticipated amounts of property and equipment purchases, the sufficiency of working capital, expectations regarding debt and equity financing and anticipated industry trends.
The associated risks and uncertainties include, but are not restricted to, economic and geopolitical disruptions caused by epidemics and other public health crises (such as the current COVID-19 pandemic), geopolitical instability causing significant volatility in oil and gas prices, government regulation of energy and resource companies and related infrastructure, construction disruptions caused by adverse weather, inability to maintain and increase market share due to competitive pressures, terrorist activity, the price and availability of alternative fuels leading to a reduction in demand for oil and gas, the demand for relative to the availability of pipeline capacity, adverse impacts on the supply and prices of oil and gas product due to potential instability or armed conflict in oil producing regions and the overall economic environment.
More specifically with respect to epidemics and other public health crises, such as the current COVID-19 pandemic, the risks and uncertainties faced by the Company include risks to supply chains, key project partners, and employee health and safety. The Company's business could also experience a slowdown or temporary suspension in operations in geographic locations impacted by an outbreak of a contagious disease such as COVID-19. Any prolonged restrictive measures put in place by governmental authorities in order to contain such an outbreak (e.g. international travel restrictions) or other adverse public health development, in Canada, or in any other jurisdictions upon which the Company is reliant for supplies of construction materials, equipment or professional services, may have a material and adverse effect on the Company's financial and/or operating performance. Any delay in the completion of the Company's construction projects may require the Company to incur non-compensable costs such as standby time and for overtime work necessary to meet contracted project timelines.
All of the above-described risks and uncertainties may cause actual results and future events to differ materially from the information contained herein. Consequently, there can be no assurances that the Company's forward-looking statements will prove to be accurate. Except as required by the laws and stock exchange policies to which the Company is subject, the Company assumes no obligation to update its forward-looking statements should circumstances or management's estimates or opinions change. Readers are urged to refer to the Company's reports, publicly available through the Canadian Securities Administrators' System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com for additional information regarding the risks and uncertainties associated with the Company's business.
For further information please contact:
President and C.E.O.
Phone: (250) 785-0033
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