Consolidated revenue from continuing operations reflected increased revenue in the pipeline and pipe services segment of the company primarily as a result of the impact of the weaker Canadian dollar on the translation of the company’s US dollar denominated revenue partially offset by lower revenue from the company’s petrochemical and industrial segment.
During the first quarter of 2009, the Canadian dollar was 22.9% weaker versus the US dollar, on average, than in the first quarter of last year. The weakening of Canadian dollar on the translation of foreign currency operating results had a net favorable impact on revenue, income from continuing operations and of about CAD9.9 million and CAD8.3 million, respectively.
Operating margins in the quarter improved 2.5 percentage points from the first quarter of last year as a result of strong performance in the pipeline and pipe services segment where higher sales combined with lower fixed costs.
The company’s backlog at March 31 2009 of CAD402.4 million, declined 11.7% from the level at the beginning of the quarter as strong revenue exceeded new order bookings. While the backlog may decline further in subsequent quarters, bidding activity remains high and the company continues to pursue several large offshore pipe coating projects. These projects, if awarded to the company, could generate significant revenue growth in 2010 and beyond. Overall, consolidated revenue in 2009 is expected to be slightly below the record levels achieved in 2008; however, the company expects that operating margins in 2009 will meet or exceed those achieved in 2008 as a result of several initiatives including programs to reduce costs and improve efficiencies.
Current Quarter versus Q1 2008:
Consolidated revenue from continuing operations for the first quarter of 2009 increased due to the impact of the weaker Canadian dollar which was partially offset by market declines in the petrochemical and industrial segment. During the first quarter of 2009, the Canadian dollar was, on average, 22.9% weaker compared with the US dollar, than in the first quarter of last year, which on translating foreign currency operating results, favorably impacted revenue, income from continuing operations and net income by about CAD26.9 million, CAD9.9 million and CAD8.3 million, respectively.
Operating income from continuing operations totaled CAD50.4 million (16.4% of revenue from continuing operations) in the first quarter, representing a 23.3% increase over CAD40.9 million (13.9% of revenue from continuing operations) achieved in the first quarter of last year, with the improvement reflecting the increased revenue in the period together with improved operating margins in the pipeline and pipe services segment.
Current Quarter versus Fourth quarter (Q4) 2008
Consolidated revenue from continuing operations in the first quarter of 2009 was 70.9% of the record level achieved in the prior quarter, and resulted from reduced pipeline project activity in the pipeline and pipe services segment from the record level achieved in the prior quarter as well as a continued deterioration in the industrial markets served by the petrochemical and industrial segment.
Operating income from continuing operations in the first quarter was 66.7% of the level achieved last quarter and reflected the impact of the lower revenue together with a significant decrease in operating margins in the Petrochemical and Industrial segment as a result of low factory utilization.
Net income in the quarter decreased CAD25.1 million or CAD0.34 per share diluted, from the record CAD56.6 million (CAD0.79 per share, diluted) in the fourth quarter of 2008, in line with the lower operating income from continuing operations generated during the quarter.
Current Quarter versus Q1 2008:
In the pipeline and pipe services segment, revenue in the first quarter of 2009 totaled CAD280.0 million and was 9.4% higher than in the first quarter of last year, driven by strong results at Canusa-CPS and Guardian and the inclusion of CAD16.8 million in revenue from Flexpipe Systems which was acquired on June 27, 2008. At Bredero ShawCor, revenue in the first quarter of the year was unchanged from the first quarter of 2008 with the favorable impact of the weaker Canadian dollar on the translation of the division’s mainly US dollar-based revenue as well as growth in the division’s Asia Pacific region offsetting a weakening of activity in the division’s other regions.
In the Asia Pacific region, revenue in the first quarter increased by 60.7% over the first quarter of the prior year as a result of the Pluto and Kumang Cluster pipe coating projects executed at the region’s plant in Kuantan, Malaysia. In the America’s region, revenue in the first quarter declined by 20.0% from the first quarter of last year. Key factors impacting revenue included small diameter pipe coating activity in Western Canada and the US which declined by 41% and 19% respectively, and lower volumes of Canadian and US transmission pipeline projects, partially offset by growth in Mexico.
In the Europe, Africa and Russia region, and in the Middle East region, revenue in the quarter was 16.6% and 17.1% lower, respectively, than in the first quarter of 2008, reflecting reduced pipe coating project activity in those regions.
In the segment’s other business units, revenue in the first quarter at Canusa-CPS increased 24.8% from the first quarter of 2008, on very strong project activity in markets outside of North America, while at Guardian, revenue increased 37.1% over levels in the first quarter of last year as a result of increased market share for Guardian’s drill pipe inspection and refurbishment services in Western Canada.
Revenue at ShawCor pipeline services in the first quarter was 22.9% lower than in the same quarter of last year due to lower offshore pipeline weld inspection activity partially offset by stronger US onshore activity.
Operating income from continuing operations in the quarter for the segment totaled CAD56.6 million (20.2% of revenue from continuing operations) and increased 49.8% from the first quarter of 2008. The improvement resulted from higher revenue combined with operating margins that increased 5.4 percentage points over the 14.8% achieved in the first quarter of last year, a result of the favorable movement in the foreign currency to Canadian dollar translation rate, improved manufacturing efficiencies associated with higher factory utilization, and a CAD7 million reduction in fixed costs at Bredero ShawCor’s Europe, Africa and Russia region.
Current Quarter versus Q4 2008
Revenue in the first quarter of the year in the pipeline and pipe services segment was 30.3% lower than the record levels achieved in the prior quarter as a 35.7% increase at Canusa-CPS and a 1.2% increase at guardian were offset by quarter-over-quarter decreases at the other divisions in the segment. Revenue in the quarter at Bredero ShawCor decreased 35.6% from the fourth quarter of last year as a result of lower small diameter pipe coating volumes in North America and the impact of the winding down of several large diameter pipe coating projects in the Middle East and Europe, Africa and Russia regions.
Revenue in the quarter at ShawCor pipeline services decreased 45.3% from the prior quarter reflecting lower levels of offshore pipe girth weld inspection activity while at Flexpipe Systems, revenue in the quarter decreased 47.3% from the prior quarter, the result of lower demand for the division’s small diameter composite pipe systems due to lower drilling activity in Western Canada and the US and the build up of excessive inventories of small diameter steel line pipe throughout North America.
