Toromont Announces 2014 Results and 13% Increase in Quarterly Dividend
(firmenpresse) - TORONTO, ONTARIO -- (Marketwired) -- 02/05/15 -- Toromont Industries Ltd. (TSX: TIH) today reported financial results for the three and twelve-month periods ended December 31, 2014.
Toromont reported strong increases in revenues and earnings across both operating groups in the fourth quarter of 2014, rounding out excellent consolidated financial results for the year. Market activity and execution in the Equipment Group were solid across most segments. While CIMCO reported weaker results on reduced activity levels in Canada, record product support revenues reflect continued growth.
"Overall, we are pleased with our performance for the year. Conditions were mixed in the markets we serve, however, we continued to achieve organic growth, which along with a disciplined management culture served to mitigate the impact of current economic challenges," said Scott J. Medhurst, President and Chief Executive Officer of Toromont Industries Ltd. "Our Equipment Group demonstrated continued strength in product support, rental and equipment sales, especially in construction markets. CIMCO experienced weaker market conditions in central Canada, however, continued growth in product support is encouraging. The 8% increase in consolidated net earnings over strong results in 2013 is a testament to our employees'' focus on delivering quality products and services."
Considering the Company''s solid financial position, cash flows and balances, and positive long- term outlook, the Board of Directors today increased the quarterly dividend to 17 cents per share, representing a 13% increase. The next dividend is payable April 1, 2015 to shareholders of record at the close of business on March 13, 2015. The Company has paid dividends every year since going public in 1968 and this represents the 26th consecutive year of increases.
Highlights:
"Although our markets remain highly competitive, we expect the construction sector to be active with large infrastructure projects. Mining segments remain challenged by tight economic conditions, however, we believe there are significant opportunities in our territory over the longer-term. We were encouraged by CIMCO''s continued product support growth and look to expand penetration in U.S. markets while improving operational practices and increasing efficiencies," continued Mr. Medhurst. "Continuing to deliver solid shareholder returns, while building strong customer relationships and investing in our people remain top priorities going forward."
Quarterly Conference Call and Webcast
Interested parties are invited to join the quarterly conference call with investment analysts, in listen-only mode, on Friday, February 6, 2015 at 8:00 a.m. (ET). The call may be accessed by telephone at 1-800-355-4959 (toll free) or 416-340-2218 (Toronto area). A replay of the conference call will be available until Friday, February 20, 2015 by calling 1-800-408-3053 or 905-694-9451 and quoting passcode 8756099.
Both the live webcast and the replay of the quarterly conference call can be accessed at .
Advisory
Information in this press release that is not a historical fact is "forward-looking information". Words such as "plans", "intends", "outlook", "expects", "anticipates", "estimates", "believes", "likely", "should", "could", "will", "may" and similar expressions are intended to identify statements containing forward-looking information. Forward-looking information in this press release is based on current objectives, strategies, expectations and assumptions which management considers appropriate and reasonable at the time including, but not limited to, general economic and industry growth rates, commodity prices, currency exchange and interest rates, competitive intensity and shareholder and regulatory approvals.
By its nature, forward-looking information is subject to risks and uncertainties which may be beyond the ability of Toromont to control or predict. The actual results, performance or achievements of Toromont could differ materially from those expressed or implied by forward- looking information. Factors that could cause actual results, performance, achievements or events to differ from current expectations include, among others, risks and uncertainties related to: business cycles, including general economic conditions in the countries in which Toromont operates; commodity price changes, including changes in the price of precious and base metals; changes in foreign exchange rates, including the Cdn$/US$ exchange rate; the termination of distribution or original equipment manufacturer agreements; equipment product acceptance and availability of supply; increased competition; credit of third parties; additional costs associated with warranties and maintenance contracts; changes in interest rates; the availability of financing; and, environmental regulation.
Any of the above mentioned risks and uncertainties could cause or contribute to actual results that are materially different from those expressed or implied in the forward-looking information and statements included in this press release. For a further description of certain risks and uncertainties and other factors that could cause or contribute to actual results that are materially different, see the risks and uncertainties set out in the "Risks and Risk Management" and "Outlook" sections of Toromont''s most recent annual or interim Management Discussion and Analysis, as filed with Canadian securities regulators at and may also be found at . Other factors, risks and uncertainties not presently known to Toromont or that Toromont currently believes are not material could also cause actual results or events to differ materially from those expressed or implied by statements containing forward-looking information.
Readers are cautioned not to place undue reliance on statements containing forward-looking information that are included in this press release, which are made as of the date of this press release, and not to use such information for anything other than their intended purpose. Toromont disclaims any obligation or intention to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities legislation.
About Toromont
Toromont Industries Ltd. operates through two business segments: The Equipment Group and CIMCO. The Equipment Group includes one of the larger Caterpillar dealerships by revenue and geographic territory, industry-leading rental operations and a growing agricultural dealership in Manitoba. CIMCO is a market leader in the design, engineering, fabrication and installation of industrial and recreational refrigeration systems. Both segments offer comprehensive product support capabilities. This press release and more information about Toromont Industries can be found at .
Management''s Discussion and Analysis
This Management''s Discussion and Analysis ("MD&A") comments on the operations, performance and financial condition of Toromont Industries Ltd. ("Toromont" or the "Company") as at and for the three and twelve months ended December 31, 2014, compared to the preceding year. This MD&A should be read in conjunction with the attached unaudited consolidated financial statements and related notes for the twelve months ended December 31, 2014, the annual MD&A contained in the 2013 Annual Report and the audited annual consolidated financial statements for the year ended December 31, 2013.
The consolidated financial statements reported herein have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. The information in this MD&A is current to February 5, 2015.
Additional information is contained in the Company''s filings with Canadian securities regulators, including the Company''s 2013 Annual Report and 2014 Annual Information Form. These filings are available on SEDAR at and on the Company''s website at .
CORPORATE PROFILE AND BUSINESS SEGMENTATION
As at December 31, 2014, Toromont employed over 3,350 people in more than 100 locations across Canada and the United States. Toromont is listed on the Toronto Stock Exchange under the symbol TIH.
Toromont has two reportable operating segments: the Equipment Group and CIMCO.
The Equipment Group is comprised of Toromont CAT, one of the world''s larger Caterpillar dealerships, Battlefield - The CAT Rental Store, an industry-leading rental operation, and Ag West, an agricultural equipment and solutions dealer representing AGCO, CLAAS and other manufacturers'' products. Performance in the Equipment Group is driven by activity in several industries: road building and other infrastructure-related activities; mining; residential and commercial construction; power generation; aggregates; waste management; steel; forestry; and agriculture. Significant activities include the sale, rental and service of mobile equipment for Caterpillar and other manufacturers; sale, rental and service of engines used in a variety of applications including industrial, commercial, marine, on-highway trucks and power generation; and sale of complementary and related products, parts and service. Territories include Ontario, Manitoba, Newfoundland and most of Labrador and Nunavut.
CIMCO is a market leader in the design, engineering, fabrication, installation and after-sale support of refrigeration systems in industrial and recreational markets. Results of CIMCO are influenced by conditions in the primary market segments served: beverage and food processing; cold storage; food distribution; mining; and recreational ice surfaces. CIMCO offers systems designed to optimize energy usage through proprietary products such as ECO CHILL®. CIMCO has manufacturing facilities in Canada and the United States and sells its solutions globally.
CORPORATE DEVELOPMENTS
During the year, the Company completed two acquisitions of agricultural equipment dealers. In September 2014, Ag West Equipment Ltd. was acquired for $6.7 million, including assumed debt. In December 2014, substantially all of the assets of Canpro Gator Centre were acquired for $6.4 million. Both based in Manitoba, these companies specialize in the sale and service of agricultural equipment as authorized dealers of AGCO and other products. These acquisitions provide broader market coverage, an expanded product portfolio and services, as well as additional cross-selling opportunities. Together with our existing agricultural equipment business in Manitoba, the combined company will continue as Ag West Equipment Ltd., headquartered in Elie, Manitoba with four store locations.
For further information on the accounting for the acquisition, refer to note 25 of the Notes to the Unaudited Consolidated Financial Statements.
PRIMARY OBJECTIVE AND MAJOR STRATEGIES
The primary objective of the Company is to build shareholder value through sustainable and profitable growth, supported by a strong financial foundation. To guide its activities in pursuit of this objective, Toromont works toward specific, long-term financial goals (see section heading "Key Performance Measures" in this MD&A) and each of its operating groups consistently employs the following broad strategies:
Expand Markets
Toromont serves diverse markets that offer significant long-term potential for profitable expansion. Each operating group strives to achieve or maintain leading positions in markets served. Incremental revenues are derived from improved coverage, market share gains and geographic expansion. Expansion of the installed base of equipment provides the foundation for product support growth and leverages the fixed costs associated with the Company''s infrastructure.
Strengthen Product Support
Toromont''s parts and service business is a significant contributor to overall profitability and serves to stabilize results through economic downturns. Product support activities also represent opportunities to develop closer relationships with customers and differentiate the Company''s product and service offering. The ability to consistently meet or exceed customers'' expectations for service efficiency and quality is critical, as after-market support is an integral part of the customer''s decision-making process when purchasing equipment.
Broaden Product Offerings
Toromont delivers specialized capital equipment to a diverse range of customers and industries. Collectively, hundreds of thousands of different parts are offered through the Company''s distribution channels. The Company expands its customer base through selectively extending product lines and capabilities. In support of this strategy, Toromont represents product lines that are considered leading and generally best-in-class from suppliers and business partners who continually expand and develop their offerings. Strong relationships with suppliers and business partners are critical in achieving growth objectives.
Invest in Resources
The combined knowledge and experience of Toromont''s people is a key competitive advantage. Growth is dependent on attracting, retaining and developing employees with values that are consistent with Toromont''s. A highly principled culture, share ownership and profitability based incentive programs result in a close alignment of employee and shareholder interests. By investing in employee training and development, the capabilities and productivity of employees continually improve to better serve shareholders, customers and business partners.
Toromont''s information technology represents another competitive differentiator in the marketplace. The Company''s selective investments in technology, inclusive of e-commerce initiatives, strengthen customer service capabilities, generate new opportunities for growth, drive efficiency and increase returns to shareholders.
Maintain a Strong Financial Position
A strong, well-capitalized balance sheet creates stability and financial flexibility, and has contributed to the Company''s long-term track record of profitable growth. It is also fundamental to the Company''s future success.
Revenues increased 4% on growth from the Equipment Group, more than offsetting lower revenues at CIMCO.
Gross profit margin was 24.8% in 2014 compared to 24.6% in 2013 with increases in both operating groups. Improved sales mix, with a higher proportion of product support in both groups, accounted for a 70 basis point improvement in gross profit margin. Equipment margins were lower on competitive market conditions.
Selling and administrative expenses increased 5% from 2013, in part reflecting the 4% increase in revenues. Compensation was $7.0 million (5%) higher than 2013 on annual salary increases, additional personnel and increased incentive compensation on the higher income. The recently acquired Ag West business accounted for $0.9 million of the increase, in addition to an adverse foreign exchange impact on translation of US operations ($0.5 million) and lower insurance gains on the Mobile facility ($0.5 million). Certain other expense categories such as occupancy, legal, training, advertising and promotions, information technology, warranty and travel costs were higher, reflecting increased business levels. Bad debt expense decreased $2.0 million on specific exposures identified in 2013 and mark-to-market expense on deferred share units decreased $1.0 million.
Operating income increased on higher revenues and gross margins, partially offset by higher selling and administrative expenses.
Interest expense decreased on lower average debt balances.
Interest income increased reflecting higher levels of interest on conversion of rental equipment and increased investment income on higher average cash balances.
The effective income tax rate for 2014 was lower compared to 2013 due to final adjustments following routine reviews by tax authorities.
Net earnings in 2014 were $133.2 million and basic earnings per share ("EPS") were $1.73 per share, as compared to net earnings of $123.0 million and basic EPS of $1.61 per share in 2013. These represented 8% and 7% increases, respectively, over 2013.
Comprehensive income in 2014 was $129.0 million (2013 - $131.2 million), comprised of net earnings of $133.2 million (2013 - $123.0 million) and other comprehensive loss of $4.2 million (2013 - $8.2 million income). Other comprehensive income included actuarial losses on employee pension plans of $5.1 million (2013 - $7.3 million gain), net of tax.
BUSINESS SEGMENT ANNUAL OPERATING RESULTS
The accounting policies of the segments are the same as those of the consolidated entity. Management evaluates overall business segment performance based on revenue growth and operating income relative to revenues. Corporate expenses are allocated based on each segment''s revenue. Interest expense and interest and investment income are not allocated.
Momentum from 2013 continued into 2014 as evidenced by the 6% revenue growth year-over- year. Rentals and product support revenues surpassed records set in 2013, reflecting strong market activity coupled with solid operational execution. While new equipment sales were lower, used equipment sales were higher, for an overall increase of 1% in total equipment sales.
New equipment sales were 4% lower than 2013. Mining equipment sales were down $58 million or 37% year-over-year. In 2013, substantial equipment deliveries were made in support of the initial stage of the Baffinland Iron Ore project, thereby making for a tough year-over-year comparator. Excluding mining, new equipment sales increased 8% over 2013. Given that new equipment is generally priced off of the US dollar, the 7.2% strengthening in the average US$/CDN$ rate would have been expected to deliver somewhat of a lift to new equipment sales, mitigated by hedged orders and deliveries from inventory. Construction markets were strong in 2014, increasing 8%, in part due to the equipment deliveries to support the Keeyask hydroelectric project in Manitoba. Power systems revenues were 10% lower than 2013 with decreases across all market segments served.
Used equipment sales include used equipment purchased for resale, equipment received on trade-in, rent with purchase option ("RPO") returns and sales of Company owned rental fleet. Used equipment sales increased 20% with contributions from all market segments. Construction (up 19%) and mining (up 8%) accounted for approximately 65% of the increase. Used equipment sales vary on factors such as product availability (both new and used), customer demands and the general pricing environment.
Rental revenues were higher across all categories on improved utilization and an expanded fleet as the Company invested $52 million, net of disposals, in 2014. Light equipment rentals increased 10%, heavy equipment 19% and power systems rentals 65% over last year. Revenue from equipment on RPO increased 12% on the higher RPO fleet ($43.5 million at December 31, 2014 compared to $34.7 million at December 31, 2013). Rental rates were fairly consistent in both years.
Power generation revenues from Toromont-owned and managed plants decreased marginally over last year on lower electricity sales from the Waterloo Landfill site partially offset by higher thermal revenue from the Sudbury Downtown plant.
Product support revenues were up 13%, benefiting from the larger installed base of equipment in our territory together with good equipment utilization levels. Parts revenues increased 15% over 2013 with substantial parts deliveries to mining and construction markets. Service revenues were up 6%, principally from strong mining (up 24%) and construction activity (up 3%).
Operating income increased 9% versus a year ago reflecting the higher revenues year-over- year.
Gross margin improved 10 basis points. A favorable sales mix of product support revenues to total (product support revenues represented 32% of total revenues versus 30.2% in 2013) accounted for 60 basis points. Equipment margins were lower (down 40 basis points) as the heightened competitive conditions continued to pressure margins.
Bad debt expenses decreased by $1.5 million mainly due to specific exposures identified in 2013 not repeated. Other selling and administrative expenses increased 6%, in part reflecting the 6% increase in revenues but decreased 10 basis points as a percentage of revenues. Operating income as a percentage of revenues was 11.9% in 2014 versus 11.6% in 2013.
Capital expenditures in the Equipment Group were $15.6 million (17%) higher year-over-year, on increased spending on land and building and rental assets. Replacement and expansion of the rental fleet accounted for $81.4 million of total investment in 2014. Expenditures of $10.6 million related to new and expanded facilities to meet current and future growth requirements. Other capital expenditures included $7.6 million for service and delivery vehicles and $2.5 million for upgrades and enhancements to the current information technology infrastructure.
Bookings in 2014 totalled $754 million, up 6% from 2013, including activity for Keeyask booked and delivered in the year.
Backlogs increased 5% from 2013 on improved equipment availability and completed deliveries. At December 31, 2014, the majority of the backlog related to construction (44%), power systems (30%) and mining (17%). Substantially all backlog is expected to be delivered in 2015. Shortened delivery windows due to process improvements and increased capacity at Caterpillar, together with available equipment for construction orders, have also contributed to reduced backlogs.
CIMCO reported lower revenues and operating income for the year after record results in 2013. Package sales declined on softer market conditions in Canada while product support revenues continued to demonstrate solid growth in both Canada and the US.
Package revenues decreased 20% compared to 2013. Canadian package revenues were 25% lower compared to 2013 with decreases in both recreational (down 26%) and industrial activity (down 24%). Approximately 41% of the total decrease in Canadian revenues is explained by the significant Maple Leaf project which was completed in the first quarter of 2014. US package revenues increased 6% compared to 2013 with higher recreational activity (up 38%), partially offset by lower industrial activity (down 24%). Product support revenues were once again strong in both Canada (up 8%) and the US (up 21%).
Operating income decreased 25% compared to 2013, largely reflecting the lower revenues and higher selling and administrative expenses partially offset by improved gross margins.
Gross margins increased 90 basis points mainly on an improved sales mix of product support revenues to total. Product support margins were 30 basis points higher while package margins were down 60 basis points. Lower package margins reflect project execution, the tight pricing environment and an unfavorable foreign exchange impact.
Selling and administrative expenses increased 5%, mainly due to higher compensation expense, legal fees associated with defending various patents and an unfavorable foreign exchange impact on translation of US operations, partially offset by lower bad debt expenses.
Capital expenditures decreased 64% to $1.5 million as significant expenditures were incurred in 2013 related to rebuilding the Mobile facility. Expenditures in 2014 mainly included additional service vehicles ($0.7 million) and information technology infrastructure enhancements and upgrades ($0.4 million).
Bookings increased 6% and represented the second highest level over the last five years. Industrial bookings were strong in both Canada (up 31%) and the US (up 52%), while weaker recreational activity was reported in Canada (down 24%) and the US (down 41%). Canadian recreational activity reflected a slow-down in Ontario and Quebec.
Backlogs increased by a healthy 3% and were also at the second highest level over the last five years. Industrial backlogs increased 22% over 2013 with increases in both Canada (up 7%) and the US (up 175%). Recreational backlogs on the other hand were 27% lower with decreases in both Canada (down 14%) and the US (down 41%). Substantially all backlog is expected to revenue in 2015.
CONSOLIDATED FINANCIAL CONDITION
The Company has maintained a strong financial position for many years. At December 31, 2014, the ratio of total debt, net of cash, to total capitalization was 6%.
Working Capital
The Company''s investment in non-cash working capital was $208.8 million at December 31, 2014. The major components, along with the changes from December 31, 2013, are identified in the following table.
Accounts receivable were relatively flat despite the 14% increase in revenues in the fourth quarter due to improved collection efforts. CIMCO accounts receivable increased $3.7 million or 9% on the increase in revenues in the fourth quarter of 2014. Equipment Group accounts receivable decreased $1.1 million or 1% despite higher invoicing with some significant cash collections. Days sales outstanding (DSO) was 42 at December 31, 2014 compared to 48 at the same time last year with improvements in both operating groups.
Inventories at December 31, 2014 increased 11% to $367.2 million compared to December 31, 2013. Equipment Group inventories were $37.6 million (12%) higher than this time last year reflecting higher used equipment inventory levels (up $15.9 million) and inventory at Ag West ($9.6 million) and Canpro ($5.8 million). Parts inventories increased $2.3 million, also largely due to inventory levels acquired from Ag West and Canpro. CIMCO inventories were lower by $2.6 million or 17% versus a year ago mainly on lower work-in-process ($1.9 million) and replacement parts ($0.5 million).
Accounts payable and accrued liabilities at December 31, 2014 decreased $11.3 million or 5% from this time last year. The decrease was primarily due to the timing of payments related to inventory purchases and other supplies.
Income taxes payable represents amounts owing for current corporate income taxes less instalments made to date.
Higher dividends payable year over year reflect the higher dividend rate. In 2014, the quarterly dividend rate was increased from $0.13 per share to $0.15 per share, a 15% increase.
Deferred revenues represent billings to customers in excess of revenue recognized. In the Equipment Group, deferred revenues arise on sales of equipment with residual value guarantees, extended warranty contracts and other long-term customer support agreements as well as on progress billings on long-term construction contracts. Equipment Group deferred revenues were 24% lower than this time last year. In CIMCO, deferred revenues arise on progress billings in advance of revenue recognition. CIMCO deferred revenues were 44% lower than this time last year.
The current portion of long-term debt reflects scheduled principal repayments due in 2015. Senior debentures of $125 million are due on October 13, 2015 as scheduled. The Company is currently assessing its longer-term financing needs and overall market conditions.
Goodwill and Intangibles
The Company performs impairment tests on its goodwill and intangibles with indefinite lives on an annual basis or as warranted by events or circumstances. The assessment entails estimating the fair value of operations to which the goodwill and intangibles relate, using the present value of expected discounted future cash flows. This assessment affirmed goodwill and intangibles values as at December 31, 2014.
Employee Share Ownership
The Company employs a variety of stock-based compensation plans to align employees'' interests with corporate objectives.
The Company maintains an Executive Stock Option Plan for its senior employees. Effective 2013, non-employee directors no longer receive grants under this plan. Stock options vest 20% per year on each anniversary date of the grant and are exercisable at the designated common share price, which is fixed at prevailing market prices of the common shares at the date the option is granted. Effective 2013, stock options granted have a ten year term while those granted prior to 2013 have a seven year term. At December 31, 2014, 2.7 million options to purchase common shares were outstanding, of which 1.1 million were exercisable.
The Company offers an Employee Share Ownership Plan whereby employees can purchase shares by way of payroll deductions. Under the terms of this plan, eligible employees may purchase common shares of the Company in the open market at the then current market price. The Company pays a portion of the purchase price, matching contributions at a rate of $1 for every $3 dollars contributed, to a maximum of $1,000 per annum per employee. Company contributions vest to the employee immediately. Company contributions amounting to $1.0 million in 2014 (2013 - $0.9 million) were charged to selling and administrative expense when paid. Approximately 50% (2013 - 48%) of employees participate in this plan.
The Company also offers a deferred share unit (DSU) plan for certain executives and non- employee directors, whereby they may elect, on an annual basis, to receive all or a portion of their performance incentive bonus or fees, respectively, in DSUs. Non-employee directors also receive DSUs as part of their compensation, aligning at-risk and cash compensation components. A DSU is a notional unit that reflects the market value of a single Toromont common share and generally vests immediately. DSUs will be redeemed on cessation of employment or directorship. DSUs have dividend equivalent rights, which are expensed as earned. The Company records the cost of the DSU Plan as compensation expense in selling and administrative expenses.
As at December 31, 2014, 334,709 DSUs were outstanding with a total value of $9.5 million (2013 - 288,920 units at a value of $7.7 million). The liability for DSUs is included in accounts payable, accrued liabilities and provisions on the consolidated statement of financial position.
Employee Future Benefits
Defined Contribution Plans
The Company sponsors pension arrangements for substantially all of its employees, primarily through defined contribution plans in Canada and a 401(k) matched savings plan in the United States. Certain unionized employees do not participate in Company-sponsored plans, and contributions are made to these retirement programs in accordance with the respective collective bargaining agreements. In the case of defined contribution plans, regular contributions are made to the individual employee accounts, which are administered by a plan trustee in accordance with the plan documents.
Defined Benefit Plans
The Company sponsors three defined benefit plans (Powell Plan, Executive Plan and Toromont Plan) for approximately 109 qualifying employees. These defined benefit plans are administered by a separate Fund that is legally separated from the Company and are described fully in note 19 to the consolidated financial statements.
The funded status of these plans changed by $7.7 million (an increase in the accrued pension liability) as at December 31, 2014. The change largely reflects a net actuarial loss of $9.6 million (2013 - net actuarial gain of $3.5 million), on the change in the discount rate (3.8% in 2014 vs. 4.6% in 2013).
The Executive Plan is a supplemental plan, whose members are largely retirees with only one active member remaining, and is solely the obligation of the Company. The Company is not obligated to fund the plan but is obligated to pay benefits under the terms of the plan as they come due. The Company has posted letters of credit to secure the obligations under this plan, which were $18.3 million as at December 31, 2014. As there are only nominal plan assets, the impact of volatility in financial markets on pension expense and contributions for this plan are insignificant.
The Company expects pension expense and cash pension contributions for 2015 to be similar to 2014 levels.
A key assumption in pension accounting is the discount rate. This rate is set with regard to the yield on high-quality corporate bonds of similar average duration to the cash flow liabilities of the Plans. Yields are volatile and can deviate significantly from period to period.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its results of operations or financial condition.
Legal and Other Contingencies
Due to the size, complexity and nature of the Company''s operations, various legal matters are pending. Exposure to these claims is mitigated through levels of insurance coverage considered appropriate by management and by active management of these matters. In the opinion of management, none of these matters will have a material effect on the Company''s consolidated financial position or results of operations.
Normal Course Issuer Bid
Toromont believes that, from time to time, the purchase of its common shares at prevailing market prices may be a worthwhile investment and in the best interests of both Toromont and its shareholders. As such, the normal course issuer bid with the TSX was renewed in 2014. This issuer bid allows the Company to purchase up to approximately 5.7 million of its common shares, representing 10% of common shares in the public float, in the year ending August 30, 2015. The actual number of shares purchased and the timing of any such purchases will be determined by Toromont. All shares purchased under the bid will be cancelled.
No shares were purchased in the years ended December 31, 2014 and 2013.
Outstanding Share Data
As at the date of this MD&A, the Company had 77,381,896 common shares and 2,593,375 share options outstanding.
Dividends
Toromont pays a quarterly dividend on its outstanding common shares and has historically targeted a dividend rate that approximates 30 - 40% of trailing earnings from continuing operations.
During 2014, the Company declared dividends of $0.60 per common share, $0.15 per quarter (2013 - $0.52 per common share or $0.13 per quarter).
Considering the Company''s solid financial position, cash flows and balances, and positive long- term outlook, the Board of Directors announced it is increasing the quarterly dividend to 17 cents per share effective with the dividend payable on April 1, 2015. This represents a 13% increase in Toromont''s regular quarterly cash dividend. The Company has paid dividends every year since going public in 1968 and this represents the 26th consecutive year of increases.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
Toromont''s liquidity requirements can be met through a variety of sources, including cash generated from operations, long- and short-term borrowings and the issuance of common shares. Borrowings are obtained through a variety of senior debentures, notes payable and committed long-term credit facilities.
The Company maintains a $200 million committed credit facility. The facility matures in September 2017. Debt incurred under the facility is unsecured and ranks on par with debt outstanding under Toromont''s existing debentures. Interest is based on a floating rate, primarily bankers'' acceptances and prime, plus applicable margins and fees based on the terms of the credit facility.
As at December 31, 2014, no amounts were drawn on the facility (2013 - $nil). Letters of credit utilized $22.6 million (2013 - $26.6 million) of the facility.
Cash at December 31, 2014 was $86.0 million, compared to $70.8 million at December 31, 2013.
The Company expects that continued cash flows from operations in 2015 and currently available credit facilities will be more than sufficient to fund requirements for the senior debenture maturity in 2015 as well as investments in working capital and capital assets.
Principal Components of Cash Flow
Cash from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows, are summarized in the following table:
Cash Flows from Operating Activities
Operating activities provided $143.5 million in 2014 compared to $200.5 million in 2013. Net earnings adjusted for items not requiring cash were 4% higher than last year on higher revenues. Non-cash working capital and other used $42.6 million compared to $21.7 million provided in 2013.
The components and changes in working capital are discussed in more detail in this MD&A under the heading "Consolidated Financial Condition".
Cash Flows from Investing Activities
Investing activities used $85.8 million in 2014 compared to $72.0 million in 2013.
Net rental fleet additions (purchases less proceeds of disposition) totalled $52.1 million in 2014 compared to $47.0 million in 2013. Investments in the rental fleet continued in light of stronger demand on improved market conditions, the existing fleet age profile and the continued expansion of our heavy rental operations.
Investments in property, plant and equipment in 2014 totalled $26.5 million compared to $25.7 million in 2013. Additions in 2014 and 2013 were largely made within the Equipment Group and included $10.8 million for land and buildings as well as for new and expanded branches (2013 - $5.8 million), $8.3 million for service vehicles (2013 - $8.6 million), $3.8 million for machinery and equipment (2013 - $4.2 million) and $3.0 million for IT equipment (2013 - $1.9 million).
Additionally, during the year ended December 31, 2014, $8.6 million was used for business acquisitions. Refer to note 25 to the Notes to the Unaudited Consolidated Financial Statements for further information.
Cash Flows from Financing Activities
Financing activities used $42.7 million in 2014 compared to $60.3 million in 2013.
Significant sources and uses of cash in 2014 included:
Significant sources and uses of cash in 2013 included:
OUTLOOK
Competitive pressure in the Equipment market continues. The weaker Canadian dollar will further challenge end markets as resultant price adjustments impact overall purchasing power. We will continue to closely monitor market conditions and assess opportunities as they arise. Longer term, large infrastructure investment is expected to continue and we remain committed to working with our customers to meet and exceed their requirements without compromising service delivery. The acquisition of Ag West and Canpro expands the Company''s coverage of the important agricultural equipment market.
Market conditions in mining remain tight, however, mine production continues and opportunities for sales in support of new mine development, mine expansion and equipment replacement continue to exist. The Company remains engaged on a variety of mining projects at various stages of development within its territory. With the substantially increased base of installed equipment, product support activity should continue to grow so long as mines remain active.
The parts and service business has experienced significant growth, driven by the larger installed base of equipment in the field, and provides a measure of stability. Service shops remain busy and the Company continues to hire new technicians to address the increased demand. Broader product lines and investment in the rental business will also contribute to future growth.
Activity at CIMCO reflects general economic activity, governmental investment levels and focus, as well as specific customer decisions and construction schedules. Canadian markets have generally been at good levels, although somewhat lower than last year. US markets have also shown improvement as the economy strengthens. The product support business remains a focus for development and continued growth in this area is encouraging. CIMCO has a wide product offering using natural refrigerants including innovative CO2 solutions, which are expected to contribute to growth in the future replacement of CFC, HCFC and HFC refrigerants in both recreational and industrial applications.
The diversity of the business, expanding product offering and capabilities, financial strength and disciplined operating culture positions the Company well for what is generally expected to be another year of modest economic growth in Canada.
CONTRACTUAL OBLIGATIONS
Contractual obligations are set out in the following table. Management believes that these obligations will be met comfortably through cash generated from operations and existing long- term financing facilities.
KEY PERFORMANCE MEASURES
Management reviews and monitors its activities and the performance indicators it believes are critical to measuring success. Some of the key financial performance measures are summarized in the following table. Others include, but are not limited to, measures such as market share, fleet utilization, customer and employee satisfaction and employee health and safety.
Measuring Toromont''s results against these strategies over the past five years illustrates that the Company has and continues to make significant progress.
Since 2010, revenues increased at an average annual rate of 9.7%. Product support revenue growth has averaged 9.6% annually. Revenue growth in continuing operations has been a result of:
Over the same five-year period, revenue growth has been constrained at times by a number of factors including:
Changes in the Canadian/U.S. exchange rate also impacts reported revenues as the exchange rate impacts the purchase price of equipment that in turn is reflected in selling prices. Since 2010 there has been fluctuations in the average yearly exchange rate of Canadian dollar against the US dollar -2010 - $0.97, 2011 - $1.01, 2012 - on par, 2013 - $0.97 and 2014 - $0.91.
Toromont has generated a significant competitive advantage over the past years by investing in its resources, in part to increase productivity levels, and we will continue this into the future as it is a crucial element to our continued success in the marketplace.
Toromont continues to maintain a strong balance sheet. Leverage, as represented by the ratio of total debt, net of cash, to total capitalization (net debt plus shareholders'' equity), was 6%, well within targeted levels.
Toromont has a history of progressive earnings per share growth as evidenced by the results of the past five years, including 2014. In 2010, earnings per share growth were dampened by the issuance of shares in the year for the acquisition of Enerflex Systems Income Fund ("ESIF"). In 2011, on a continuing operations basis, earnings per share increased 32.5%, in line with earnings growth and a further 17.1% increase on a continuing operations basis in 2012. In 2013 and 2014, despite a challenged economy, EPS increased 2.9% and 7.6%, respectively.
Toromont has paid dividends consistently since 1968, and has increased the dividend in each of the last 26 years, including 2015. In 2014, the regular quarterly dividend rate was increased 15% from $0.13 to $0.15 per share, evidencing our commitment to building exceptional shareholder value.
Revenues were 14% higher in the fourth quarter of 2014 compared to the same period last year with strong increases in both the Equipment Group (up 15%) and CIMCO (up 9%).
Gross profit increased 21% in the quarter versus last year on the higher revenues and improved margins in both operating groups. Gross profit as a percentage of revenues increased 150 basis points compared to 2013 buoyed by a 120 basis points increase in the Equipment Group and a 30 basis points increase in CIMCO. Higher margins in the Equipment Group were mainly due to improved rental margins and a favorable sales mix of product support revenues to total. CIMCO margins were higher on improved product support and package margins as well as a favorable sales mix of product support revenues to total.
Selling and administrative expenses increased 13%, in part reflecting the 14% increase in revenues. Higher compensation costs accounted for the majority of this increase (up $5.3 million or 14%) largely due to annual increases, higher staffing levels, increased commissions and increased incentive compensation on the higher income. Selling and administrative expenses decreased 20 basis points period-over-period to 13.6% as a percentage of revenues.
Interest expense was $2.0 million in the fourth quarter of 2014, down $0.2 million from the similar period last year on lower debt balances.
Interest income was $1.7 million in the fourth quarter of 2014, up $0.8 million from last year on higher interest on conversions of rental equipment with purchase options.
The effective income tax rate for 2014 was 26.2% compared to 26.1% in the same period last year and largely reflects the mix of income by tax jurisdiction.
Net earnings in the quarter were $45.7 million and basic EPS were $0.59 per share, as compared to net earnings of $34.4 million and basic EPS of $0.45 per share in 2013. These represented 33% and 31% increases, respectively, over 2013.
BUSINESS SEGMENT FOURTH QUARTER OPERATING RESULTS
New equipment sales increased 1% compared to 2013, mainly on increases in construction markets (up 27%), partially offset by mining (down 57%) and agriculture (down 35%). Excluding mining, new equipment sales increased 19% over 2013.
Used equipment sales increased significantly in the quarter and represent a new fourth quarter record. Driving the increase were excellent mining, construction and forestry sales.
Rental revenues were higher across all categories on improved utilization and a larger fleet. Light equipment rentals increased 16% over 2013, heavy equipment 18%, power rentals 59% and equipment on RPO 5%. Rental rates were fairly consistent in both years with continuing competitive market conditions.
Product support revenues were up 22% over 2013 with increases in both parts (up 25%) and service (up 14%). Activity was strong across most markets.
Operating income increased 29% on the higher revenue and gross margins. Operating income as a percentage of revenues was 14.2% compared to 12.7% in the fourth quarter of 2013.
Gross profit margins increased 140 basis points in the quarter largely due to a favorable sales mix (up 50 points) with a higher proportion of product support revenues to total and improved rental margins (up 70 points).
Selling and administrative expenses were 14% higher than the comparable quarter last year mainly due to higher compensation and profit sharing, warranty expenses and occupancy costs. As a percentage of revenues, selling and administrative expenses decreased 10 basis points to 13.1%, compared to 13.2% in 2013.
Bookings in the fourth quarter of 2014 were $200.8 million, up 16% from the similar period last year.
Results in the fourth quarter were strong after a weaker start to the year. The momentum is encouraging. Revenues increased 9% with strong package sales and continued product support growth while operating income set a new fourth quarter record.
Canadian package revenues in the fourth quarter of 2013 were buoyed by the MLF project, which was completed in the first quarter of 2014. Excluding this order in both years, Canadian revenues were up 28% with strong increases in industrial (up 54%) partially offset by a decline in recreational activity (down 16%). US package revenues were largely unchanged from last year as increased industrial activity (up 22%) was largely offset by lower recreational activity (down 18%).
Product support revenues set a new record for the fourth quarter with increased activity in both Canada and the US.
Operating income increased 46% on higher revenues and improved gross profit margins. Operating income as a percentage of revenues was 7.6% compared to 5.7% in 2013.
Gross margins increased 230 basis points on improved product support (up 120 basis points) and packages margins (up 80 basis points) as well as a favorable sales mix (up 30 basis points) with a higher proportion of product support revenues to total.
Selling and administrative expenses increased 12%, mainly due to higher compensation expense, legal fees associated with defending various patents, bad debt expenses and an unfavorable foreign exchange impact. As a percentage of revenues, selling and administrative expenses increased 50 basis points to 17.0% compared to 16.5% in 2013.
Bookings in the quarter totalled $30.0 million, up 45% from the comparable period last year. Canadian bookings were up 87% with strong industrial activity (up 122%) and a modest recreational growth (up 2%). US bookings were down 32% as higher industrial activity (up 67%) were more than offset by lower recreational activity (down 110%).
QUARTERLY RESULTS
The following table summarizes unaudited quarterly consolidated financial data for the eight most recently completed quarters. This quarterly information is unaudited but has been prepared on the same basis as the 2014 annual unaudited consolidated financial statements.
Interim period revenues and earnings historically reflect significant variability from quarter to quarter.
The Equipment Group has historically had a distinct seasonal trend in activity levels. Lower revenues are recorded during the first quarter due to winter shutdowns in the construction industry. The fourth quarter had typically been the strongest due in part to the timing of customers'' capital investment decisions, delivery of equipment from suppliers for customer- specific orders and conversions of equipment on rent with a purchase option. This pattern has been interrupted by the timing of significant sales to mining and other customers, which can be variable due to the timing of mine site development and access, and construction project schedules. We expect this historical seasonal trend to continue for non-mining related business.
CIMCO has also had a distinct seasonal trend in results historically, due to timing of construction activity. CIMCO had traditionally posted a loss in the first quarter on lower construction activity. Revenues increase in subsequent quarters as activity levels increase. This trend can and has been interrupted somewhat by significant governmental funding initiatives and significant industrial projects.
As a result of the historical seasonal sales trends, inventories increase through the year in order to meet the expected demand for delivery in the fourth quarter of the fiscal year, while accounts receivable are highest at year end.
Revenues grew 4% in 2014, despite competitive market conditions and an uncertain economic environment, mainly through strong performance in the Equipment Group and continued product support growth at CIMCO. In 2013, revenues grew 6% through excellent delivery and execution across all lines of business.
Net earnings improved 8% in 2014 and 3% in 2013 on the higher revenues, generally improving margins and a relatively flat selling and administrative expenses ratio.
Earnings per share have generally followed earnings.
Dividends have generally increased in proportion to trailing earnings growth. The quarterly dividend rate was increased in 2012 by 9% to $0.12 per share, in 2013 by 8% to $0.13 per share and in 2014 by 15% to $0.15 per share. The Company has announced dividend increases in each of the past 25 years.
Total assets increased in 2014 by 7% mainly due to the continued investment in the rental fleet on strong demand and improved market conditions and assets acquired on business acquisitions.
Long-term debt decreased in 2014 mainly due to principal repayments made on the senior debenture due in March 2019, net of the amortization of debt issuance costs. Total debt, net of cash, to total capitalization was 6% at December 31, 2014, well within targeted levels.
RISKS AND RISK MANAGEMENT
In the normal course of business, Toromont is exposed to risks that may potentially impact its financial results in any or all of its business segments. The Company and each operating segment employ risk management strategies with a view to mitigating these risks on a cost- effective basis.
Business Cycle
Expenditures on capital goods have historically been cyclical, reflecting a variety of factors including interest rates, foreign exchange rates, consumer and business confidence, commodity prices, corporate profits, credit conditions and the availability of capital to finance purchases. Toromont''s customers are typically affected, to varying degrees, by these factors and trends in the general business cycle within their respective markets. As a result, Toromont''s financial performance is affected by the impact of such business cycles on the Company''s customer base.
Commodities prices, and, in particular, changes in the view on long-term trends, affect demand for the Company''s products and services in the Equipment Group. Commodity price movements in base and precious metals sectors in particular can have an impact on customers'' demands for equipment and customer service. With lower commodity prices, demand is reduced as development of new projects is often stopped and existing projects can be curtailed, both leading to less demand for heavy equipment.
The business of the Company is diversified across a wide range of industry market segments, serving to temper the effects of business cycles on consolidated results. Continued diversification strategies such as expanding the Company''s customer base, broadening product offerings and geographic diversification are designed to moderate business cycle impacts. The Company has focused on the sale of specialized equipment and ongoing support through parts distribution and skilled service. Product support growth has been, and will continue to be, fundamental to the mitigation of downturns in the business cycle. The product support business contributes significantly higher profit margins and is typically subject to less volatility than equipment supply activities.
Product and Supply
The Equipment Group purchases most of its equipment inventories and parts from Caterpillar under a dealership agreement that dates back to 1993. As is customary in distribution arrangements of this type, the agreement with Caterpillar can be terminated by either party upon 90 days'' notice. In the event Caterpillar terminates, it must repurchase substantially all inventories of new equipment and parts at cost. Toromont has maintained an excellent relationship with Caterpillar for 22 years and management expects this will continue going forward.
Toromont is dependent on the continued market acceptance of Caterpillar''s products. It is believed that Caterpillar has a solid reputation as a high-quality manufacturer, with excellent brand recognition and customer support as well as leading market shares in many of the markets it serves. However, there can be no assurance that Caterpillar will be able to maintain its reputation and market position in the future. Any resulting decrease in the demand for Caterpillar products could have a material adverse impact on the Company''s business, results of operations and future prospects.
Toromont is also dependent on Caterpillar for timely supply of equipment and parts. From time to time during periods of intense demand, Caterpillar may find it necessary to allocate its supply of particular products among its dealers. Such allocations of supply have not, in the past, proven to be a significant impediment in the conduct of business. However, there can be no assurance that Caterpillar will continue to supply its products in the quantities and timeframes required by customers.
Competition
The Company competes with a large number of international, national, regional and local suppliers in each of its markets. Although price competition can be strong, there are a number of factors that have enhanced the Company''s ability to compete throughout its market areas including: the range and quality of products and services; ability to meet sophisticated customer requirements; distribution capabilities including number and proximity of locations; financing offered by Caterpillar Finance; e-commerce solutions; reputation and financial strength.
Increased competitive pressures or the inability of the Company to maintain the factors that have enhanced its competitive position to date could adversely affect the Company''s business, results of operations or financial condition.
The Company relies on the skills and availability of trained and experienced tradesmen and technicians in order to provide efficient and appropriate services to customers. Hiring and retaining such individuals is critical to the success of these businesses. Demographic trends are reducing the number of individuals entering the trades, making access to skilled individuals more difficult. The Company has several remote locations which make attracting and retaining skilled individuals more difficult.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash equivalents, accounts receivable and derivative financial instruments. The carrying amount of assets included on the balance sheet represents the maximum credit exposure.
When the Company has cash on hand it may be invested in short-term instruments, such as money market deposits. The Company manages its credit exposure associated with cash equivalents by ensuring there is no significant concentration of credit risk with a single counterparty, and by dealing only with highly rated financial institutions as counterparties.
The Company has accounts receivable from a large diversified customer base, and is not dependent on any single customer or industry. The Company has accounts receivable from customers engaged in various industries including construction, mining, food and beverage, and governmental agencies. Management does not believe that any single industry represents significant credit risk. These customers are based predominately in Canada.
The credit risk associated with derivative financial instruments arises from the possibility that the counterparties may default on their obligations. In order to minimize this risk, the Company enters into derivative transactions only with highly rated financial institutions.
Warranties and Maintenance Contracts
Warranties are provided for most of the equipment sold, typically for a one-year period following sale. The warranty claim risk is generally shared jointly with the equipment manufacturer. Accordingly, liability is generally limited to the service component of the warranty claim, while the manufacturer is responsible for providing the required parts.
The Company also enters into long-term maintenance and repair contracts, whereby it is obligated to maintain equipment for its customers. The length of these contracts varies generally from two to five years. The contracts are typically fixed price on either machine hours or cost per hour, with provisions for inflationary and exchange adjustments. Due to the long-term nature of these contracts, there is a risk that maintenance costs may exceed the estimate, thereby resulting in a loss on the contract. These contracts are closely monitored for early warning signs of cost overruns. In addition, the manufacturer may, in certain circumstances, share in the cost overruns if profitability falls below a certain threshold.
Foreign Exchange
The Company transacts business in multiple currencies, the most significant of which are the Canadian dollar and the U.S. dollar. As a result, the Company has foreign currency exposure with respect to items denominated in foreign currencies.
The rate of exchange between the Canadian and U.S. dollar has an impact on revenue trends. The Canadian dollar averaged US$0.91 in 2014 compared to US$0.97 in 2013, a 6% decrease. As substantially all of the equipment and parts sold in the Equipment Group are sourced in U.S. dollars, and Canadian dollar sales prices generally reflect changes in the rate of exchange, a stronger Canadian dollar can adversely affect revenues. The impact is not readily estimable as it is largely dependent on when customers order the equipment versus when it was sold. Bookings in a given period would more closely follow period-over-period changes in exchange rates. Sales of parts come from inventories maintained to service customer requirements. As a result, constant parts replenishment means that there is a lagging impact of changes in exchange rates. In CIMCO, sales are largely affected by the same factors. In addition, revenues from CIMCO''s US subsidiary reflect changes in exchange rates on the translation of results, although this is not significant.
In addition, pricing to customers is customarily adjusted to reflect changes in the Canadian dollar landed cost of imported goods. Foreign exchange contracts reduce volatility by fixing landed costs related to specific customer orders and establishing a level of price stability for high-volume goods such as spare parts.
The Company does not enter into foreign exchange forward contracts for speculative purposes. The gains and losses on the foreign exchange forward contracts designated as cash flow hedges are intended to offset the translation losses and gains on the hedged foreign currency transactions when they occur.
As a result, the foreign exchange impact on earnings with respect to transactional activity is not significant.
Interest Rate
The Company minimizes its interest rate risk by managing its portfolio of floating and fixed rate debt, as well as managing the term to maturity.
At December 31, 2014, 100% of the Company''s debt portfolio was comprised of fixed rate debt (2013 - 100%), maturing between 2015 and 2019. Fixed rate debt exposes the Company to future interest rate movements upon refinancing the debt at maturity.
Floating rate debt exposes the Company to fluctuations in short-term interest rates by causing related interest payments and finance expense to vary.
Further, the fair value of the Company''s fixed rate debt obligations may be negatively affected by declines in interest rates, thereby exposing the Company to potential losses on early settlements or refinancing. The Company does not intend to settle or refinance any existing debt before maturity.
Financing Arrangements
The Company requires capital to finance its growth and to refinance its outstanding debt obligations as they come due for repayment. If the cash generated from the Company''s business, together with the credit available under existing bank facilities, is not sufficient to fund future capital requirements, the Company will require additional debt or equity financing in the capital markets. The Company''s ability to access capital markets, on terms that are acceptable, will be dependent upon prevailing market conditions, as well as the Company''s future financial condition. Further, the Company''s ability to increase its debt financing may be limited by its financial covenants or its credit rating objectives. The Company maintains a conservative leverage structure and although it does not anticipate difficulties,
Themen in dieser Pressemitteilung:
Unternehmensinformation / Kurzprofil:
Datum: 05.02.2015 - 16:14 Uhr
Sprache: Deutsch
News-ID 1335346
Anzahl Zeichen: 0
contact information:
Contact person:
Town:
TORONTO, ONTARIO
Phone:
Kategorie:
Machinery & Tools
Anmerkungen:
Diese Pressemitteilung wurde bisher 341 mal aufgerufen.
Die Pressemitteilung mit dem Titel:
"Toromont Announces 2014 Results and 13% Increase in Quarterly Dividend
"
steht unter der journalistisch-redaktionellen Verantwortung von
Toromont Industries Ltd. (Nachricht senden)
Beachten Sie bitte die weiteren Informationen zum Haftungsauschluß (gemäß TMG - TeleMedianGesetz) und dem Datenschutz (gemäß der DSGVO).
