IBI announces bold steps in recovery program
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SOURCE IBI Group Inc.
TORONTO, March 21, 2013 /CNW/ - IBI Group Inc. (the "Company") (TSX: IBG) today announced its financial results for the three months and year ended December 31, 2012.
Recovery Program
The recession that occurred in the fourth quarter of 2009 and its impact on the economies of the United States and Europe, impacted IBI Group initially in the housing sector, in which IBI had relatively high exposure. IBI projects in social and transportation infrastructure have also been affected. Europe continues to contract, recovery in the United States is encouraging but tentative, and a slowdown is being indicated in the Canadian economy. IBI Group, however, continues to move forward in an aggressive manner with its recovery program initiated in the second half of 2012.
The IBI Group recovery program comprises the following:
| 1. |
Reduction of the dividend by 50% to $0.55 per share and a corresponding
reduction in the distributions on Class B units of IBI Group held by
the Management Partnership. This was announced on December 12, 2012.
Resetting of the dividend will result in reducing the cash paid out by
$13 million annually. Cash retained will be primarily used to pay down
debt and to enhance the profitability and the balance sheet of the
Company. |
| 2. |
Aligning staff levels with levels of committed work. This is an ongoing
process. Compensation has been reduced in operating units that
underperform and staff has been decreased by approximately 160 members
in 2012 before taking into account the addition of staff through the
two acquisitions in 2012. |
| 3. |
The introduction of the Dividend Reinvestment Program ("DRIP"). |
| 4. | An assessment that aged accounts receivable and unbilled work in process were no longer probable of recovery on a number of projects. Management determined that uncertain economic conditions, changes to local, State and Federal governing parties and policies, interruptions of projects, and other factors contributed to changes in the estimated value of these assets as at December 31, 2012. IBI Group performs assessments of the recoverability of these assets on a quarterly basis and changes estimates regularly as part of that process. |
| IBI decided that with the continued economic challenges, it was appropriate to make a change in estimate. As a result, the carrying value of aged work in process and accounts receivable was impacted, resulting in adjustment items totalling $16 million. This has been provided for in the fourth quarter of 2012. While write-offs of project-related assets occur on a regular basis in the normal course of operations, Management notes that a change of this magnitude has not previously been made and at this time does not anticipate the need for changes of this amount in the future. Based on this change, IBI Group is adopting an aggressive and conservative approach. The result clears the doubtful accounts receivable and unbilled work in process that commenced at the start of the recession and has continued with subsequent impacts to date. | |
|
The banking syndicate of IBI Group lenders granted their approval to add
back to EBITDA1 the adjustment items. As a result of the approval IBI Group's loan
remains in good standing and compliant with all covenants. |
|
| 5. |
IBI reduced goodwill related to firms it has acquired, particularly in
the United States. Their operations were impacted by the slowdown in
the US economy and this recognition of the impairment of goodwill
reflects the value of these firms as at December 31, 2012. These firms
continue to operate as an integral part of IBI Group and encouraging
signs in the US economy could lead to enhancement of value as the
profitability and productivity of these firms increases. |
| 6. |
IBI has established two new executive leadership positions in the
Company and appointed Scott Stewart and David Thom as Co-Presidents and
Co-Chief Operating Officers. Both have been with IBI Group since the
1970's. Scott Stewart's emphasis is Transportation and Intelligent
Systems and David Thom's emphasis is Urban Land and Facilities. IBI
Group fully expects their work will continue to follow the IBI Group
model of integration of the four areas of practice of IBI Group. These
two executives strengthen and broaden the corporate executive
leadership group of the Company led by the CEO with support and
participation of the CFO. |
| 7. | IBI Group is continuing its broad based growth strategy. The bold steps that IBI has taken provide for the strengthening of IBI to continue to grow the professional practice and business of the firm with increased profitability. |
Canada
IBI is experiencing continued growth in Canadian operations, notwithstanding indications of slowdown in certain aspects of the Canadian economy. This growth, through mandates from loyal repeat clients, as well as relationships established with new clients, includes:
Canadian operations continue to be the largest and most profitable within IBI. Canadian prospects for 2013 continue to be very strong.
United States
The economic challenges in the United States have caused IBI to trim professional resources and to reduce the value of goodwill of acquired firms on a current basis in the United States. However, positive indications of anticipated growth are emerging. IBI has been given mandates to design major new plants in the automotive sector. New opportunities are emerging in residential developments in certain urban markets for which IBI has been selected as designer. Limitations on public funding for social infrastructure are encouraging government and private providers to enter into joint capital investment in social infrastructure, in healthcare and in education. IBI is working in close cooperation with major international construction contractors and financial institutions with whom IBI has performed lead design services for design-build and public private partnership/P3/PFI projects in Canada and in the United Kingdom and elsewhere. All of these are encouraging trends for a resurgence of activity in the Unites States.
IBI will grow by using its existing established broad platform of offices throughout the US market, strengthened by:
____________________________
(1) See "Definition of Non-IFRS Measures"
International
IBI is broadening the scope of its practice in international markets. Its current focus includes:
Guidance for 2013
Our outlook for 2013 is a cautious one and we will be vigilant in managing our business:
Backlog
As of today 77% of this fee volume is committed for the year 2013. Prospects that IBI deems probable with appropriate discounts, more than match the remaining 25% to be committed. Backlog is the strongest committed position as of this date that IBI has achieved since 2009. The total committed for the twelve months forward is the equivalent of approximately ten months of work at the current pace. IBI's committed backlog is approximately 17% of fee volume for projects outside of North America, 23% for the United States and 60% in Canada which is generally consistent with the distribution of revenue earned in the year.
Operating Highlights
While the impact of the Recovery Program has had a significant effect on current period results, Management believes that these aggressive steps will provide for enhanced performance going forward and are not indicative of the ongoing performance of the Company. Accordingly, we have presented adjusted figures as part of this Press Release.
IBI reported:
Results for the year ended 2012 were affected by the following adjustments items of note below:
Excluding the adjustment items IBI reported:
The highlights excluding the adjustment items are:
____________________________
(1) See "Definition of Non-IFRS Measures"
Major Projects
IBI Group continued in the fourth quarter of 2012 to expand its capability.
The scope of these efforts is validation of IBI Group's integrated operating model of providing comprehensive professional services to clients in Canada, the US and international markets.
Strategic Program of Growth
On August 3, 2012, IBI closed the acquisition of the practice of Taylor Young Limited Architects and Master Planners ("Taylor Young") within the IBI Group of Firms. Taylor Young is a full services architectural practice including professional skills in urban planning and design and landscape architecture, based in Manchester, UK with offices in Liverpool and London. The firm has a strong reputation in the design of facilities in healthcare, education, housing, as well as urban planning/design and landscape design for a broad range of clients. The firm is highly experienced in sustainability of design integrated with such facilities. This acquisition will further enhance IBI's professional strength in the UK market as well as contribute to the growing strength of the global practice of the firm in health and education. Professional experience in urban planning and urban design, as well as in landscape architecture and in the architecture of housing in the UK, will broaden the current areas of practice of the IBI capabilities in the UK. Taylor Young has a very broad range of clients in the public sector with over 70% of the business gained on a repeat basis with long established client relationships. The firm has approximately 100 staff members and is well managed with profitable operations and a strong backlog of committed work.
In the recent years IBI has achieved major strategic growth in the UK. IBI initiated operations in the UK in the early 1990's and established through organic growth, a presence in intelligent systems applied to transportation and communications. This practice was involved recently in traffic control planning and management for the London Olympics. More recently, IBI acquired the firm of Nightingale, architects with an international reputation as a centre of excellence in the planning and design of hospitals and other health care facilities, and now more recently in the third quarter of 2012, the acquisition of Taylor Young.
On November 1, 2012 IBI closed the acquisition of the practice of M•E Companies, Inc., a professional management and engineering firm in Ohio, USA. M•E Companies, established in 1973, is a full-service civil engineering firm with expertise in comprehensive management, engineering design, surveying, and construction services. The firm applies these professional skills to transportation infrastructure, water and wastewater systems, and land development.
M•E Companies is based in Columbus, Ohio, with offices in the Canton and Cincinnati areas. The firm has a strong reputation and standing with the Ohio Department of Transportation in the engineering design of transportation facilities, as well as safety programs; a broad practice in water and wastewater systems for municipalities and counties; and land development activity for many public and private clients.
The US continues to be the largest economy in the world and as such IBI will continue to focus on building our US business. IBI Group will continue to pursue existing areas of practise as well as an enhanced focus going forward on the architecture of health care facilities. In the context of the continuing under-performing economic environment in the US, there are outstanding opportunities for acquisition/strategic alliances with outstanding professional firms. The resources from these firms can also participate with IBI Group on work in Canada as well as other international markets as the economy of the US recovers.
The basic model of IBI is to initiate its presence through organic growth in geographic regions in which IBI believes it can effectively provide its professional services in the four broad areas of practice. Following that initial organic growth creating an initial core group, IBI then accelerates the growth through strategic acquisitions as has now been largely accomplished in Canada and the UK.
IBI will similarly consider acquisitions/alliances in other international markets including China, India, Eastern Europe, Brazil and Mexico. Similarly to Canada and the UK, the long-term growth in these emerging markets for IBI will be based on continuing organic growth on top of the expanded base achieved through strategic growth. In longer term, that will place IBI in a sustainable model of generating additional net fee revenues, income and cash earned through continuing organic growth on a global platform and mitigate the requirement for significant amounts of additional capital for financing strategic growth. In the fourth quarter of 2012 IBI Group succeeded in securing significant new projects in international markets.
Selected Consolidated Financial Information and Reconciliation of Non-IFRS Measures
|
in thousands of dollars except for per Share and per Unit amounts and ratios |
Adjusted Three months ended December 31, 2012 |
Three months ended December 31, 2011 |
Adjusted Year ended December 31, 2012 |
Year ended December 31, 2011 |
||||
| Adjusted Revenue | $ | 88,064 | $ | 87,956 | $ | 350,327 | $ | 332,307 |
| Expenses | 77,576 | 75,740 | 307,006 | 283,792 | ||||
|
Earnings before income taxes, interest and amortization (EBITDA1) |
10,488 | 12,216 | 43,321 | 48,515 | ||||
| Interest | 3,328 | 3,867 | 13,578 | 15,250 | ||||
|
Change in fair value of financial instruments and other finance costs1 |
(236) | 313 | (119) | 792 | ||||
| Income taxes - current | 3,872 | 426 | 6,521 | 5,129 | ||||
| Income taxes - deferred | (3,257) | (423) | (4,318) | 1,310 | ||||
|
Amortization of property and equipment and intangible assets |
5,896 | 3,467 | 13,479 | 11,463 | ||||
| Foreign exchange loss | 221 | (15) | 725 | 346 | ||||
| Acquisition-related costs1 | 406 | 416 | 1,081 | 1,570 | ||||
| Adjusted Earnings before non-controlling interest | $ | 258 | $ | 4,165 | $ | 12,374 | $ | 12,655 |
| Non-controlling interest | 60 | 1,161 | 3,103 | 3,531 | ||||
|
Adjusted Earnings attributable to owners of the company |
$ | 198 | $ | 3,004 | $ | 9,271 | $ | 9,124 |
| One time non-cash tax on conversion to a corporation | - | - | - | 3,131 | ||||
|
Proportion of earnings attributable to Class B Partnership Units |
- | - | - | (874) | ||||
| Adjusted Net Earnings1 | $ | 198 | $ | 3,004 | $ | 9,271 | $ | 11,381 |
| Basic and diluted adjusted net earnings per share2 | $ | 0.0118 | $ | 0.2311 | $ | 0.5962 | $ | 0.8774 |
| Distributable Cash1 | ||||||||
| Cash flow from (used in) operating activities | $ | 1,456 | $ | 7,431 | $ | (3,484) | $ | (4,835) |
| Less: Capital expenditures | (721) | (1,065) | (2,876) | (3,037) | ||||
| Standardized Distributable Cash1 | $ | 735 | $ | 6,366 | $ | (6,360) | $ | (7,872) |
| Add (deduct): | ||||||||
| Change in non-cash operating working | (107) | (691) | 20,981 | 28,674 | ||||
| Acquisition-related costs1 | 406 | 416 | 1,081 | 1,570 | ||||
| Current income tax expense | 3,872 | 427 | 6,521 | 5,129 | ||||
| Exchange (gain) loss | 221 | (15) | 725 | 346 | ||||
| Distributable cash1 | $ | 5,127 | $ | 6,503 | $ | 22,948 | $ | 27,847 |
|
Adjusted weighted average basic and diluted distributable cash per Share2 |
$ | 0.2346 | $ | 0.3608 | $ | 1.1269 | $ | 1.5473 |
|
Aggregate of dividends and Class B partnership distributions |
$ | 4,435 | $ | 5,822 | $ | 22,547 | $ | 22,362 |
|
Dividends and Class B partnership distributions issued under DRIP |
$ | (132) | $ | - | $ | (2,142) | - | |
|
Net dividends and Class B partnership distributions |
$ | 4,303 | $ | 5,822 | $ | 20,405 | $ | 22,362 |
|
Aggregate of dividends and Class B partnership distributions per Share |
$ | 4,303 | $ | 0.3230 | $ | 0.9960 | $ | 1.2426 |
| Payout ratio1 | 83.9% | 89.5% | 88.9% | 80.3% |
| (1) | See "Definition of Non-IFRS Measures". |
| (2) | Distributable cash per Share amounts are calculated by including both the common shares of the Company and the Class B partnership units in the denominator which is a non-IFRS measure. |
Definition of Non-IFRS Measures
References in this MD&A to EBITDA are to earnings before interest, income taxes, depreciation and amortization, acquisition-related costs, foreign exchange gains and losses, fund distributions treated as an expense, fair value adjustment on financial liabilities and restructuring and special charges. Management of the Company believes that in addition to net earnings, EBITDA is a useful supplemental measure as it provides readers with an indication of cash available for dividend prior to debt service, capital expenditures and income taxes. Readers should be cautioned, however, that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of the Company's performance or to cash flows from operating activities as a measure of liquidity and cash flows. EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS, and the Company's method of calculating EBITDA may differ from the methods used by other similar entities. Accordingly, EBITDA may not be comparable to similar measures used by such entities. Reconciliations of net earnings to EBITDA have been provided under the headings "Selected Consolidated Financial Information and Reconciliation of Non-IFRS Measures".
References to adjusted EBITDA are to EBITDA excluding any adjustment items.
The Company defines distributable cash as cash flow from operating activities before change in non-cash operating working capital, interest paid, income tax expense, acquisition-related costs, foreign exchange losses and after capital expenditures, foreign exchange gains, interest recovered, and income tax recovery, where applicable. Reconciliations of distributable cash to cash flow from operating activities have been provided under the headings "Distributable Cash" and "Summary of Quarterly Results". The Company's method of calculating distributable cash may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to distributable cash as reported by such entities. Management of the Company believes that distributable cash is a useful supplemental measure that may assist readers in assessing the return on an investment in Common Shares.
Adjusted distributable cash is defined by the Company as distributable cash excluding any adjustment items.
Payout ratio is defined by the Company as dividends declared plus Class B partnership distributions less shares issued under the DRIP in the period divided by distributable cash.
Free cash flow is defined by the Company as net cash provided by (used in) operating activities less purchases of property, plant and equipment in the period.
Other operating costs (other than interest) is defined by the Company as the sum of rent, other operating expenses and impairment of financial assets.
Other finance costs is defined by the Company for the purposes of the News Release as other finance costs as recorded in the consolidated financial statements of the Company less deferred transaction costs and change in the fair value of interest rate swap.
Acquisition-related costs are defined by the Company as legal, accounting and other fees incurred in the period relating to acquisitions.
Adjusted revenue is equal to revenue plus the impact of any adjustments to unbilled work in process.
Adjusted net earnings are equal to the earnings for the period plus the after tax impact of any adjustment items and non-cash adjustment on conversion to a corporation for 2011.
Adjusted basic and diluted adjusted net earnings per share is equal to the adjusted net earnings for the period divided by the weighted average number of Class A shares outstanding during the period.
Standardized distributable cash is defined by the Company as net cash from (used in) operating activities less capital expenditures.
Caution Regarding Forward-Looking Information
Statements contained in this news release which are not historical facts are forward-looking statements that involve risk, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. This forward looking information includes, or may be based upon, estimates, forecasts, guidance, and statements as to management's expectations. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, such statements are not guarantees of future performance and actual results or developments may differ materially from those in forward-looking statements. A number of factors could cause actual results to differ materially from those in forward-looking statements, including general economic, market or business conditions and the factors discussed in the Company's Annual Information Form filed with the Canadian securities regulatory authorities. Undue reliance should not be placed on these statements, which only apply as of the date of this news release. The Company undertakes no obligation to update or revise any forward- looking statement, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.
Investor Conference Call
The Company will hold a conference call on March 22, 2013 at 8:30 a.m. Eastern Standard Time (EST). To participate in the conference call, please dial in before 8:30 a.m. EST to 1-800-771-7838 for local and toll-free North American access, or 1-212-231-2939 for international access.
An audio replay of the call will be available for 14 days, by dialling 416-626-4100 for local and international access, or 1-800-558-5253 for toll-free North American access, passcode 21650639 followed by the number sign on your telephone keypad.
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