Marsulex Inc. (Marsulex), a Canada based provider of industrial services, primarily environmental compliance solutions, has reported revenues of CAD322.6 million for the year-end 2008, up 12.2%, compared with the revenues of CAD287.5 million in the previous year-end. It has also reported net earnings of CAD20.7 million, or CAD0.62 per diluted share, for the year-end 2008, compared with the net earnings of CAD19.7 million, or CAD0.60 per diluted share, in the previous year-end.
Highlights:
Fourth Quarter Summary:
Revenue increased by 3% reflecting higher revenues from hazardous waste processing and sulphur products sales, as well as the favourable impact of the lower Canadian dollar on US dollar denominated sales;
Gross profit increased 13% on higher sulphur product sales in the West, improved margins on the processing of hazardous waste, and the positive impact of foreign exchange;
Pre-tax earnings were CAD2.5 million compared with a loss of CAD0.6 million in 2007. Lower interest costs contributed to the improvement;
The company secured a number of additional projects including a new Petcoke services contract with Marathon at their Detroit refinery and several new remediation projects for hazardous waste processing;
Recently, a MET licensee was awarded the first ammonium sulfate FGD (AS-FGD) contract in China. This is the first application of the Marsulex AS-FGD technology outside of North America.
Strong 2008 Financial Performance:
Revenue and gross profit increased 12% and 7% respectively on higher sales of sulphur related products and the processing of higher margin hazardous waste;
EBITDA increased 10% to CAD69 million on higher contributions from each of the operating segments;
Interest savings were realized on decreases in debt levels and lower rates;
Net earnings increased to CAD20.7 million (2007 results included a tax recovery on loss carry-forwards of CAD4.9 million and changes in tax rates);
Cash from operations doubled from CAD40.5 million in 2007 to CAD80.5 million in 2008. Marsulex ended the year with about CAD36 million in cash and CAD90 million in undrawn lines of credits.
Commenting on the results, Marsulex President and Chief Executive Officer, Mr. Laurie Tugman, said, “Marsulex had another successful year in 2008 despite deteriorating conditions in the global economy. Strong performances by our operating groups are a testimonial to the sustainability of our business and delivery of value added services.”
Mr. Tugman also noted that “with the strong financial achievements in 2008, we rewarded our shareholders through payment of CAD21.2 million in dividends. We also instituted a share buy-back program and in early 2009 repurchased over 600,000 shares of the company’s stock.”
Financial Performance for Fourth Quarter:
Revenue and gross profit increased by 2.9% and 12.9%, respectively, as a result of increased revenues from the processing of hazardous waste, from the sale of sulphur products in Western Markets, as well as the positive impact on foreign exchange. These increases were offset by the non-renewal of Petcoke contracts in Industrial Services and decreased project activity in MET as a result of project timing. Revenues and gross profit increased CAD6.9 million and CAD2.2 million, respectively, on the stronger US dollar.
SGA and other costs were CAD12.3 million, CAD1.4 million higher than for the same period in 2007. The costs in 2008 included foreign exchange translation losses of CAD5.0 million (against gains of CAD0.5 million in 2007), increased personnel related costs, and a CAD0.7 million increase in the allowance for bad debts. This was offset by lower long-term incentive plan and legal costs.
Earnings before income taxes were CAD2.5 million compared to losses of CAD0.6 million for the same period in 2007. The increased gross profit in 2008, lower net interest costs, and lower impairment charges contributed to the gain. During the quarter, the company took a CAD1.8 million asset impairment charge against its remaining investment in its Venezuelan joint venture (CAD3.2 million charges for the same period in 2007).
Net earnings were CAD3.2 million (CAD0.10 per share) compared to CAD7.4 million (CAD0.23 per share) for the same period in 2007. The 2008 balance reflects a CAD1.8 million future income tax recovery, whereas the 2007 balance reflects the pre-tax loss of CAD0.6 million offset by an CAD8.0 million tax recovery from tax loss benefits (upon amalgamation of Marsulex with Harrowston Holdings Limited) and the reduction in Canadian Federal tax rates.
Cash generated from operating activities doubled to about CAD18 million in the quarter reflecting the business performance. During the quarter, the company also received CAD14.5 million net reimbursement of costs relating to the Montreal facility design studies.
Operating Group Results:
The Industrial Services Group produced increases in revenue and gross profit for both the quarter and the year. The Group’s results benefited from strengthening of international prices for sulphur in the first half of 2008. The increased gross profit for the quarter was primarily a result of the positive impact on foreign exchange (revenue by CAD5.1 million and gross profit by CAD1.8 million) as the value of the Canadian dollar declined to CAD0.82 and the processing of higher margin hazardous waste. These gains were partially offset by the non-renewal of Petcoke contracts and the return of international sulphur prices to historic levels in the fourth quarter. For the year, the Group’s results reflected the benefit from the strengthening of the international price of sulphur (in the first half of 2008) and the improved margins on the processing of hazardous waste. This was offset by the processing of lower Petcoke volumes due to the termination of contracts with Venezuelan controlled refineries and the negative impact of foreign exchange (CAD2.6 million on revenue and CAD0.4 million on gross profit). Gross profit as a percent of revenue for 2008 reflects the lower margin sales of sulphur and higher input costs, primarily fuel, offset by improved margins on the processing of hazardous waste.
The higher fourth quarter revenue and gross profit for the Western Markets Group continued to reflect positive contribution as a result of the increased prices from the cost pass through of sulphur and other raw materials. The decline in gross profit as a percent of revenue for the year reflects the impact of increased costs, primarily sulphur, fuel, and other input costs. Both revenue and cost of raw materials are expected to decline in 2009 with the decline in commodity prices for, sulphur, fuel, and other costs.
The fourth quarter results for MET reflect the timing of project activity as the start-up of the Group’s two new projects was offset by the decreased activity for the LCRA project which is substantially complete. The Group also benefited from the fourth quarter decline in the value of the Canadian dollar (increases in revenue and gross profit by CAD1.8 million and CAD0.4 million respectively). The Group’s revenue and gross profit for 2008 reflect the timing of project activity and the negative impact of foreign exchange (CAD1.6 million and CAD0.3 million on revenue and gross profit respectively). The gross profit as a percent of revenue for the year reflects the mix of project revenues and licensing and royalty activity.
The decrease in Corporate Support costs reflects lower legal and consulting costs offset by increased personnel related costs and the increase in allowance for bad debts. The decreased costs relating to the long-term incentive plans reflect the decrease in the year-end closing price for the company’s Common Stock: an approximate 45% decrease for the year and an approximate 29% decrease for the fourth quarter. The decline in the value of the Canadian dollar, most of which occurred in the fourth quarter, resulted in the foreign exchange losses on monetary items for the quarter (CAD10.0 million) and the year (CAD11.5 million). These losses were offset by the realization, in the fourth quarter, of foreign exchange gains of CAD5.0 million on the reduction of net investment in self-sustaining operations. The realization also led to the de-designation of the company’s hedge of self-sustaining operations.