ACT Energy Technologies Ltd. press release
Cathedral Energy Services Ltd. Reports Results for 2011 Q4 and the Year Ended December 31, 2011 and a 25% Increase in its Quarterly Dividend
TSX - Toronto Stock Exchange · Canada
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, March 6, 2012 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral") (TSX: CET) is pleased to report its results for 2011 Q4 and the year-end December 31, 2011 and 2012 Q1 dividend. Dollars are in '000's except for day rates and per share amounts
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | Three months ended December 31 | | Year ended December 31 | | | | | | | | | | | 2011 | | 2010 | | | 2011 | | 2010 | | | Revenues | $ | 70,359 | $ | 46,365 | | $ | 220,363 | $ | 153,085 | | | Adjusted gross margin % (1) | | 35% | | 38% | | | 33% | | 35% | | | EBITDAS from continuing operations (1) | $ | 20,969 | $ | 13,407 | | $ | 55,637 | $ | 40,184 | | | | Diluted per share | $ | 0.56 | $ | 0.36 | | $ | 1.46 | $ | 1.08 | | EBITDAS (1) | $ | 20,969 | $ | 13,392 | | $ | 56,085 | $ | 38,398 | | | | Diluted per share | $ | 0.56 | $ | 0.36 | | $ | 1.47 | $ | 1.03 | | Funds from continuing operations (1) | $ | 17,814 | $ | 12,730 | | $ | 50,011 | $ | 35,921 | | | | Diluted per share | $ | 0.47 | $ | 0.34 | | $ | 1.31 | $ | 0.97 | | Earnings from continuing operations before | | | | | | | | | | | | income taxes | $ | 16,656 | $ | 9,536 | | $ | 37,102 | $ | 25,486 | | | Net earnings | $ | 12,551 | $ | 6,771 | | $ | 27,634 | $ | 16,327 | | | | Basic per share | $ | 0.34 | $ | 0.19 | | $ | 0.75 | $ | 0.45 | | | Diluted per share | $ | 0.33 | $ | 0.18 | | $ | 0.73 | $ | 0.44 | | Dividends declared per share | $ | 0.06 | $ | 0.06 | | $ | 0.24 | $ | 0.24 | | | Property and equipment additions (2) | $ | 7,072 | $ | 10,226 | | $ | 44,413 | $ | 35,155 | | | Weighted average shares outstanding | | | | | | | | | | | | | Basic (000s) | | 37,220 | | 36,580 | | | 37,062 | | 36,453 | | | Diluted (000s) | | 37,631 | | 37,703 | | | 38,047 | | 37,170 | | | | | | | | | | | | | | | | | | | | | December 31 2011 | | December 31 2010 | | | Working capital | | | | | | $ | 40,052 | $ | 19,516 | | | Total assets | | | | | | $ | 231,923 | $ | 180,801 | | | Loans and borrowings excluding current portion | | | | | | $ | 50,694 | $ | 35,435 | | | Total shareholders' equity | | | | | | $ | 136,107 | $ | 112,191 | | | (1) Refer to "NON-IFRSMEASUREMENTS" | | | | | | | | | | | | (2) Property and equipment additions exclude non-cash additions. | | | | | | | | | | |
Effective January 1, 2011, Cathedral Energy Services Ltd. ("the Company" / "Cathedral") began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS") which is now the basis for Canadian Generally Accepted Accounting Principles ("GAAP"). Prior year comparatives have been restated from amounts issued under the previous Canadian Generally Accepted Accounting Principles ("previous CGAAP") to reflect results as if the Company had always prepared its financial statements using IFRS including the reclassification of costs previously classified as general and administrative expenses under previous CGAAP to cost of sales under IFRS.
FORWARD LOOKING STATEMENTS
This news release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "achieve", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "outlook", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this news release contains forward-looking statements relating to, among other things: access to capital; projected capital expenditures and commitments and the financing thereof; areas of further growth; financial results; activity levels; proprietary mud motor build out; types and timing of introduction of technological advancements; new equipment delivery dates and areas of deployment; U.S. expansion; additions to U.S. sales staff; Venezuelan operations; and expected dividends. The Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to the Company, including information obtained from third party industry analysts and other third party sources. In some instances, material assumptions and material factors are presented elsewhere in this news release in connection with the forward-looking statements. You are cautioned that the following list of material factors and assumptions is not exhaustive. Specific material factors and assumptions include, but are not limited to:
the performance of the Company's businesses, including current business and economic trends; oil and natural gas commodity prices and production levels; capital expenditure programs and other expenditures by the Company and its customers; the ability of the Company to retain and hire qualified personnel; the ability of the Company to obtain parts, consumables, equipment, technology, and supplies in a timely manner to carry out its activities; the ability of the Company to maintain good working relationships with key suppliers; the ability of the Company to market its services successfully to existing and new customers; the ability of the Company to obtain timely financing on acceptable terms; currency exchange and interest rates; risks associated with foreign operations including Venezuela; the ability of the Company to realize the benefit of its conversion from an income trust to a corporation; risks associated with finalizing ancillary joint venture agreements that are required prior to the commencement of operations of the Venezuela joint venture; risks associated with Venezuela joint venture company being awarded work by the Venezuela state run oil and natural gas corporation; changes under governmental regulatory regimes and tax, environmental and other laws in Canada, United States ("U.S.") and Venezuela; and a stable competitive environment.
Forward-looking statements are not a guarantee of future performance and involve a number of risks and uncertainties some of which are described herein. Such forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause the Company's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in this news release and in the Company's Annual Information Form under the heading "Risk Factors". Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.
All forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Company's current Annual Information Form which will be filed with Canadian provincial securities commissions and available on www.sedar.com.
NON-IFRS MEASUREMENTS
Cathedral uses certain performance measures throughout this document that are not defined under IFRS. Management believes that these measures provide supplemental financial information that is useful in the evaluation of Cathedral's operations and are commonly used by other oil and gas service companies. Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with IFRS as an indicator of Cathedral's performance. Cathedral's method of calculating these measures may differ from that of other organizations, and accordingly, may not be comparable.
The specific measures being referred to include the following:
i) "Adjusted gross margin" - calculated as gross margin plus non-cash items (depreciation and share-based compensation); is considered a primary indicator of operating performance (see tabular calculation below);
ii) "Adjusted gross margin %" - calculated as adjusted gross margin divided by revenues; is considered a primary indicator of operating performance (see tabular calculation below);
iii) "EBITDAS" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation; is considered an indicator of the Company's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation below);
iv) "EBITDAS from continuing operations" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation excluding the portion due from discontinued operations in each component of the calculation; is considered an indicator of the Company's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation below);
v) "EBITDAS from discontinued operations" - defined as earnings before finance costs, unrealized foreign exchange on intercompany balances, unrealized foreign exchange due to hyper-inflation accounting, taxes, depreciation and share-based compensation from discontinued operations of the Company's former wireline division in each component of the calculation;
vi) "Maintenance capital expenditures" - refers to capital expenditures required to maintain existing levels of service but excludes replacement cost of lost-in-hole equipment to the extent the replacement equipment is financed from the proceeds on disposal of the equipment lost-in-hole; and
vii) "Funds from continuing operations" - calculated as cash provided by operating activities before changes in non-cash working capital, cash flow from discontinued operations and income taxes paid less current tax expense; is considered an indicator of the Company's ability to generate funds flow from operations on an after tax basis but excluding changes in non-cash working capital which is financed using the Company's operating loan (see tabular calculation below).
The following tables provide reconciliations from IFRS measurements to non-IFRS measurements referred to in this news release:
| Adjusted gross margin | | | | | | | | | | | | | | | | Three months ended | | Year ended | | | | | | | | | | | | | December 31 | | December 31 | | | | | | | | | | | | | 2011 | | 2010 | | 2011 | | 2010 | | | | | | | | Gross margin | | $ | 20,812 | | $ | 13,972 | | $ | 56,409 | | $ | 42,002 | | | Add non-cash items included in cost of sales: | | | | | | | | | | | | | | | | Depreciation | | | 3,712 | | | 3,310 | | | 14,884 | | | 11,215 | | | Share-based compensation | | | 136 | | | 118 | | | 381 | | | 350 | | Adjusted gross margin | | $ | 24,660 | | $ | 17,400 | | $ | 71,674 | | $ | 53,567 | |
| EBITDAS | | | | | | | | | | | | | | | | | Three months ended | | Year ended | | | | | | | | | | | | | December 31 | | December 31 | | | | | | | | | | | | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | Earnings from continuing operations before income taxes | | $ | 16,656 | | $ | 9,536 | | $ | 37,102 | | $ | 25,486 | | | Add (deduct): | | | | | | | | | | | | | | | | Depreciation included in cost of sales | | | 3,712 | | | 3,310 | | | 14,884 | | | 11,215 | | | Depreciation included in selling, general and administrative expenses | | | 56 | | | 66 | | | 174 | | | 314 | | | Share-based compensation included in cost of sales | | | 136 | | | 118 | | | 381 | | | 350 | | | Share-based compensation included in selling, general | | | | | | | | | | | | | | | and administrative expenses | | | 335 | | | 404 | | | 1,440 | | | 2,305 | | | Unrealized foreign exchange gain on intercompany balances | | | (515) | | | (499) | | | (221) | | | (730) | | | Unrealized foreign exchange gain due to hyper-inflation accounting | | | - | | | - | | | - | | | (510) | | | Finance costs | | | 589 | | | 472 | | | 1,877 | | | 1,754 | | EBITDAS from continuing operations | | | 20,969 | | | 13,407 | | | 55,637 | | | 40,184 | | | EBITDAS from discontinued operations | | | - | | | (15) | | | 448 | | | (1,786) | | | EBITDAS | | $ | 20,969 | | $ | 13,392 | | $ | 56,085 | | $ | 38,398 | |
| Funds from continuing operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2011 | | | | | | 2010 | | | Cash flow from operating activities | | | | | | | | $ | | | 28,139 | | | $ | | | 29,323 | | | Add (deduct): | | | | | | | | | | | | | | | | | | | | | Cash flow from discontinued operations | | | | | | | | | | | - | | | | | | 1,733 | | | Changes in non-cash operating working capital | | | | | | | | | | | 21,857 | | | | | | 6,731 | | | Income taxes paid | | | | | | | | | | | 1,377 | | | | | | (364) | | | Current tax expense | | | | | | | | | | | (1,362) | | | | | | (1,502) | | Funds from continuing operations | | | | | | | | $ | | | 50,011 | | | $ | | | 35,921 | |
RESULTS OF OPERATIONS - 2011 COMPARED TO 2010
Overview
The Company completed 2011 with record revenues of $220,363 compared to 2010 revenues of $153,085 an increase of 44% from 2010. The 2011 revenues were comprised of 74% (2010 - 77%) from the directional drilling division and 26% (2010 - 23%) from the production testing division.
2011 EBITDAS reached record levels of $56,085 ($1.47 per share diluted) which represents a $17,687 or 46% increase from $38,398 ($1.03 per share diluted) in 2010. In 2011 the Company's net earnings were $27,634 ($0.73 per share diluted) as compared to $16,327 ($0.44 per share diluted) in 2010. The increase in revenues and EBITDAS to record levels was a result of a combination of increased activity associated with the use of horizontal, multi-stage fracturing technology to complete conventional and unconventional resource plays in both Canada and the U.S., pricing increases and additional capacity due to equipment purchases.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2011 | | | | Year ended December 31, 2010 | | | | | | | | | | | | | | | | | | | | | | | | | Directional | | | | Production | | | | | | | | Directional | | | | Production | | | | | | Revenues | | | | | | | drilling | | | | testing | | | | Total | | | | drilling | | | | testing | | | | Total | | Canada | | | | | | $ | 111,684 | | | $ | 31,515 | | | $ | 143,199 | | | $ | 76,588 | | | $ | 18,570 | | | $ | 95,158 | | United States | | | | | | | 52,442 | | | | 24,722 | | | | 77,164 | | | | 41,939 | | | | 15,988 | | | | 57,927 | | Total | | | | | | $ | 164,126 | | | $ | 56,237 | | | $ | 220,363 | | | $ | 118,527 | | | $ | 34,558 | | | $ | 153,085 |
Revenues and gross margin2011 revenues were $220,363 which represented an increase of $67,278 or 44% from 2010 revenues of $153,085. The increase was primarily attributed to the focus on horizontal, multi-stage fracturing technology to complete conventional and unconventional resource plays in both Canada and the U.S. which allowed for continued strength in activity levels for both of the Company's divisions. Demand for Cathedral's services has also been driven by both oil and liquids-rich natural gas plays.
The directional drilling division revenues have increased from $118,527 in 2010 to $164,126 in 2011. This increase was the result of: i) a 27% increase in activity days from 11,968 in 2010 to 15,208 in 2011; and ii) an 9% increase in the average day rate from $9,900 in 2010 to $10,792 in 2011. Canadian day rates have increased 12% and this increase was attributable to a rate increases related to increases in the Company's operating costs, primarily labour. U.S. day rates have increased 4% when converted to Canadian dollars. The U.S. day rates have increased 8% in U.S. dollars, mainly due to the change in types of drilling work performed in 2011. The day rates disclosed in this news release reflect revenue as classified under IFRS. Canadian activity days increased from 7,568 to 9,894 and U.S. activity days increased from 4,400 to 5,314.
The Company's production testing division contributed $56,237 in revenues during 2011 which was a 63% increase over 2010 revenues of $34,558. This increase was attributable to the overall increase in testing units from 35 at the start of 2010 to 62 at the end of 2011, plus an increase in oilfield service activities on a year-over-year basis.
The gross margin for 2011 was 26% compared to 27% in 2010. Under IFRS, cost of sales includes the non-cash expenses for a portion of depreciation and share-based compensation and these non-cash expenses total $15,265 for 2011 and $11,565 for 2010. Adjusted gross margin for 2011 was $71,674 (33%) compared to $53,567 (35%) for 2010.
There was a decline in adjusted gross margin of 2%. There was no single significant increase in operating expenses in the year, but there were several items that had slight increases including higher repair costs, increases in health care benefits, costs for accommodation of field staff and field consumables for the U.S. production testing division.
Depreciation allocated to cost of sales increased from $11,215 in 2010 to $14,884 in 2011 due to capital additions in 2011. Depreciation included in cost of sales as a percentage of revenue was 7% for both 2011 and 2010.
For 2011 the Company had share-based compensation included in cost of sales of $381 compared to $350 recognized in 2010. The fair value of the options is being amortized against income over the three-year vesting periods.
Selling, general and administrative expensesSG&A expenses were $21,338 in 2011; an increase of $2,090 compared with $19,248 in 2010. As a percentage of revenue, these costs were 10% in 2011 and 13% in 2010. Under IFRS, SG&A includes the non-cash expenses for a portion of depreciation and share-based compensation. These non-cash expenses totaled $1,614 in 2011 and $2,619 in 2010. SG&A net of these non-cash items were $19,724 for 2011 and $16,629 for 2010, an increase of $3,095. Staffing costs increased $2,907; this increase was primarily related to staff additions for research and development department, staff positions added to accommodate growth, wage increases for existing staff as well as changes in variable compensation. The staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff. There was an increase in consulting services of $304 primarily related exploring various business opportunities. The remaining decrease of $116 relates to several items, none of which were significant individually.
Depreciation allocated to SG&A decreased from $314 in 2010 to $174 in 2011 due to aging assets and less depreciation under the declining balance method of depreciation.
For 2011 the Company had share-based compensation included in SG&A of $1,440 compared to $2,305 recognized in 2010. The fair value of the options is being amortized against income over the three-year vesting periods.
Gain on disposal of property and equipmentDuring 2011 the Company had a gain on disposal of property and equipment of $4,264 which compares to $2,761 in 2010. The Company's gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets. The timing of lost-in-hole recoveries is not in the control of the Company and therefore can fluctuate significantly from year-to-year.