ShawCor Ltd. Announces Fourth Quarter and Annual 2011 Results

Published In: Business, Financial, Ontario 
Thursday, March 1, 2012 5:15 PM
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ShawCor Ltd. Announces Fourth Quarter and Annual 2011 Results

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ShawCor Ltd. Announces Fourth Quarter and Annual 2011 Results
PR Newswire
TORONTO, March 1, 2012




(TSX: SCL.A, SCL.B)


TORONTO, March 1, 2012 /PRNewswire/ -



Fourth quarter revenue of $341.8 million increased by 17% from the
$292.1 million reported in the fourth quarter of 2010 and was 26%, or
$70.3 million higher, than in the third quarter of 2011.


EBITDA in the fourth quarter was $49.1 million, or 28.3% lower than the
$68.5 million reported in the fourth quarter of 2010, but improved by
$36.5 million over the third quarter of 2011.


The decline in fourth quarter EBITDA compared with the prior year was
due to a lower gross profit margin as a result of a less favorable
project mix combined with an increase in selling, general and
administration costs.


Net income in the fourth quarter was $23.0 million (or a $0.32 per share
diluted) compared with net income of $39.2 million (or $0.55 per share
diluted) in the fourth quarter of the prior year.


During the fourth quarter, new contract awards led to an increase in the
Company's order backlog to $548 million, a new record high level.



"Fourth quarter financial results, while improved compared to the third
quarter, continued to reflect the lower year over year margins that
have been experienced in the Pipeline segment" said Bill Buckley,
President and CEO of ShawCor Ltd.


Mr. Buckley added "The major contracts that the Company has recently
announced have resulted in ShawCor reporting a record backlog at the
end of 2011. These new contracts will begin to positively impact
financial performance in the second half of 2012 and through 2013."


Effective January 1, 2011, ShawCor Ltd. (the "Company") began reporting
its financial results in accordance with International Financial
Reporting Standards ("IFRS"). Prior year comparative amounts have been
changed to reflect results as if the Company had always prepared its
financial results using IFRS. Additional disclosure regarding the
transition to IFRS is contained in section 4 - Transition to International Financial Reporting Standards (IFRS) of this news release.


Selected Financial Highlights




 


 


 


 


 




 


 


Three Months ended
December 31,


 


Twelve Months ended
December 31,




(in thousands of Canadian dollars, except per share
amounts and percentages)


 


2011


 


2010


 


2011


 


2010




Revenue


$


341,780


$


      292,086


$


   1,157,265


$


1,034,163




Gross profit


 


131,331


 


      115,793


 


      422,535


 


             410,522




Gross profit %


 


38.4%


 


        39.6%


 


        36.5%


 


                39.7%




EBITDA(a)


 


49,151


 


       68,518


 


      138,837


 


             186,035




Income from operations


 


31,748


 


       39,622


 


        84,443


 


             119,831




Net income for the period(b)


 


23,042


 


       39,176


 


        56,086


 


               95,072




Earnings per share:


 


 


 


 


 


 


 


 




 


Basic


 


0.32


 


0.56


 


0.79


 


1.35




 


Fully diluted


 


0.32


 


            0.55


 


0.78


 


1.33









(a)     


EBITDA is a non-GAAP measure calculated by adding back to net income the
sum of net interest expense, taxes, depreciation/amortization of
property, plant and equipment and intangible assets, impairment of
intangible assets and goodwill, investment losses and accounting gain
on acquisition.  EBITDA does not have a standardized meaning prescribed
by GAAP and is not necessarily comparable to similar measures provided
by other companies.  EBITDA is used by many analysts in the oil and gas
industry as one of several important analytical tools.  The above is
the calculation of EBITDA for the periods presented.




(b)     


Attributable to the shareholders of the Company.







1.0 OUTLOOK


In late 2008 and throughout 2009, the global economic recession caused
lower energy demand and reduced capital availability for infrastructure
investment which resulted in pipeline project delays and cancellations
and fewer well completions. Commencing in 2010 and continuing in 2011,
energy demand rebounded strongly and many of the major pipeline
projects that had been delayed or deferred during the economic
recession were reactivated with front end engineering, project bidding,
and by the end of 2011, the commencement of contract awards. The
strengthening of pipeline infrastructure market demand was first
indicated early in 2011 when the value of projects for which ShawCor
had provided firm bids exceeded $1.5 billion for the first time. During
the fourth quarter of 2011 and early 2012, the improving outlook for
pipeline infrastructure was further evidenced when ShawCor received
contracts or letters of intent for projects with a cumulative value
exceeding $800 million. As a result of the award of new contracts,
ShawCor's order backlog reached a new record level of $548 million at
December 31, 2011 and this backlog is expected to lead to revenue
growth, particularly in the Company's Pipeline Segment operations in
Asia Pacific and Latin America as noted below.


The outlook for market activity in the Company's Pipeline segment by
region and in the Petrochemical and Industrial segment is outlined
below:


Pipeline Segment - North America
The Company produced strong growth in revenue in North America during
2011 and current overall levels of activity are expected to remain
strong in 2012 and 2013. The improvement in revenue in 2011 was largely
driven by the increased level of well drilling and completions
throughout North America that has bolstered demand for the Company's
small diameter pipe coating, composite pipe, joint protection products
and drill pipe services. With total well completion volumes expected to
stabilize at current levels, growth will be driven by market share
gains. This is most evident with the Company's spoolable composite pipe
business unit that has steadily gained market share in the USA
following the installation of service centers in locations well
positioned to supply pipe demand from emerging shale resources. The
Company believes that the potential exists for further gains in market
share and revenue growth in the North American composite pipe market.
Another market targeted for share gain is drill tubular services in the
USA. The first USA drill tubular service center was successfully
launched in 2011 in Pennsylvania to supply the Marcellus and Utica
shale plays and further centers will be opened in the USA in 2012 to
support customers in other active shale regions.


In pipe coating, growth in 2012 from projects involving offshore
applications is expected to largely offset modest weakening in large
diameter project volumes. In the fourth quarter of 2011, the Company
commenced production on the $40 million Jack St. Malo project at the
Brigden™ facility in Beaumont, Texas. The Company has also submitted
bids for additional deep water flow assurance projects in the Gulf of
Mexico that, if won, will be executed in 2012 and 2013. In addition,
the Company will mobilize a mobile concrete weight coating plant to the
Beaumont site to execute a project for a customer in South America.


Pipeline Segment - Latin America
The Company experienced weak market conditions in both Mexico and Brazil
throughout 2011 with revenue well below historical levels. For 2012,
the Company has secured several large projects that will deliver
significant revenue growth. Offshore Mexico activity is expected to
pick up based on the Company's level of bidding activity. In Brazil,
the $20 million P55 Risers pipe coating project has finally commenced
production after customer delays during 2011. Elsewhere in the Latin
America region, the Company has secured a project with Technip for
concrete weight coating on a large diameter offshore gas transmission
line. This work will be executed in Trinidad and is expected to
contribute in excess of $60 million in revenue.


Beyond 2012, the Company expects the Latin America region to be a
continuing source of revenue growth as Brazil undertakes the
development of pipeline infrastructure necessary to bring to production
the vast deep water oil resources discovered in the pre-salt Santos
basin. The Company also expects that Mexico and other markets in South
America will offer growth potential for composite pipe products that
are now experiencing growing market acceptance in North America.


Pipeline Segment - EMAR
During 2011, revenue increased over the prior year in the Europe, Middle
East, Africa, Russia ("EMAR") region as a result of the execution of
the U.S. $93 million Total Laggan - Tormore project at ShawCor's Leith,
Scotland facility. The Company does not expect to be able to fully
replace the 2011 Leith volume of activity in 2012. The outlook is thus
for a modest slowdown in region revenue with lower volumes from Leith
partially offset by a pick up in facility utilization at the Company's
pipe coating plants in Orkanger, Norway and in the UAE. Beyond 2012,
the potential for growth exists through expansion opportunities that
are under evaluation for several geographic markets in the region where
the Company does not currently have pipe coating facilities.


Pipeline Segment - Asia Pacific
The Company's Asia Pacific region, having experienced a significant
reduction in revenue in 2011 versus the prior year, is now in a
position, with booked production orders, to generate very strong
revenue growth. During 2011 and in the first quarter of 2012, ShawCor
has booked production orders or holds letters of intent for projects
that will be executed at the Company's facilities in Malaysia and
Indonesia with a value that exceeds $700 million. These projects
include the PTTEP Zawtika Development Project, the Pearl Energy Ruby
pipeline, the trunk line and flow assurance pipe coating contracts for
the Chevron Wheatstone LNG project and the Ichthys gas export pipeline
coating contract. These orders are expected to deliver strong revenue
growth for the Company's Asia Pacific region in 2012 and 2013.


In the first quarter of 2012, Asia Pacific revenue will be largely
unchanged from the fourth quarter of 2011 while operating margins will
be impacted by the costs associated with loading in pipe and ramping up
the facilities for the launch of the Wheatstone and Ichthys projects.
However a steady growth in revenue and improvement in margins is
expected once production begins in the second quarter. By the fourth
quarter, the Company's facilities in Malaysia and Indonesia are
expected to be operating at record volume levels with resulting strong
operating margins. This level of activity, based on the booked orders,
will be sustained throughout 2013 and well into 2014.


Petrochemical and Industrial Segment
The improved revenue and operating income generated by the Petrochemical
and Industrial segment businesses in 2011 was the result of the
recovery from the abrupt decline in activity associated with the global
economic recession in late 2008 and in 2009. With continued stability
in the global economy, operating performance is expected to continue to
improve in 2012 based on a stronger backlog for wire and cable project
activity particularly for the oil sands market and the continued ramp
up of production and sales in the segment's DSG Canusa China facility.
The major risk to this outlook relates to the potential for economic
deceleration in Europe and the impact this would have on the Company's
automotive and industrial product shipments.


Order Backlog
The Company's order backlog consists of firm customer orders only and
represents the revenue the Company expects to realize on booked orders
over the succeeding twelve months. The Company reports the twelve month
billable backlog because it provides a leading indicator of significant
changes in consolidated revenue. The majority of the Company's revenue
is typically derived from small orders and projects less than $5
million in value. These orders/projects do not typically enter the
backlog as they are booked and executed with minimal lead times. In
contrast, projects with values exceeding $5 million often have extended
lead times before production commences and thus the growth or decline
in such project activity will cause the backlog to change over time and
signal changes in future revenue. In the third quarter of 2008, the
Company's backlog peaked at $529 million and revenue in 2008 reached a
record level of $1.38 billion. Subsequent to 2008, the order backlog
declined and reached a low level for 2011 of $333 million at the end of
first quarter. Since this time, the resurgence of pipeline
infrastructure demand and new contract orders has resulted in an
increase in the backlog to a new record level of $548 million at Dec.
31, 2011. With the award in the first quarter 2012 of the Ichthys GEP
project, with a value exceeding $400 million, further growth in the
backlog through 2012 is expected.


With a record backlog in hand and further backlog increases expected,
the Company has a high degree of confidence in its outlook for growth
in revenue in 2012 and 2013. Revenue growth will also lead to gains in
facility utilization, the operational driver for operating margin
improvement. With a focus on the successful execution of the projects
that have been secured, ShawCor is well positioned to generate strong
cash flows over the next two years. Increasing cash flows from
operations plus the Company's current healthy financial position create
the resources to allow ShawCor to pursue its strategy of growth through
geographic expansion, new product and service introductions in existing
and complementary markets and through the acquisition of companies that
broaden the Company's market position within the global pipeline and
energy services industry.


2.0 CONSOLIDATED INFORMATION AND RESULTS FROM OPERATIONS


2.1 Revenue


The following table sets forth revenue by reportable operating segment
for the following periods:




 


 


 


 


 




(in thousands of Canadian dollars)


 


Three Months ended


 


Twelve Months ended




 


 


December 31,
2011


 


September 30
2011


 


December 31, 2010


 


December 31,
2011


 


December 31,
2010




Pipeline and Pipe Services


$


305,808


 


240,360


 


267,780


 


1,021,099


 


920,157




Petrochemical and Industrial


 


36,537


 


32,468


 


25,878


 


138,080


 


115,783




Elimination


 


(565)


 


(1,350)


 


(1,572)


 


(1,914)


 


(1,777)




 


$


341,780


 


271,478


 


292,086


 


1,157,265


 


1,034,163







Fourth Quarter 2011 versus Fourth Quarter 2010


Consolidated revenue increased by $49.7 million, or 17%, from $292.1
million during the fourth quarter of 2010 to $341.8 million during the
fourth quarter of 2011, driven by an increase of $38.0 million in the
Pipeline and Pipe Services segment and $10.7 million in the
Petrochemical and Industrial segment.


Revenue for the Pipeline and Pipe Services segment was higher in the
fourth quarter of 2011 than in the fourth quarter of 2010, mainly
because of increased activity in North America and EMAR, and was
partially offset by lower revenue in Latin America.  See section 3.1 - Pipeline and Pipe Services segment for additional disclosure with respect to the change in revenue in the
Pipeline and Pipe Services segment.


Revenue for the Petrochemical and Industrial segment was higher in the
fourth quarter of 2011 than in the fourth quarter of 2010, mainly
because of an increase of 26% in North American revenues. See section
3.2 - Petrochemical and Industrial segment for additional disclosure with respect to the change in revenue in the
Petrochemical and Industrial segment.


Fourth Quarter 2011 versus Third Quarter 2011


Consolidated revenue increased by $70.3 million, or 26%, from $271.5
million during the third quarter of 2011 to $341.8 million during the
fourth quarter of 2011, mainly due to an increase of $65.5 million in
the Pipeline and Pipe Services segment.


Revenue for the Pipeline and Pipe Services segment was $65.5 million
higher during the fourth quarter of 2011 compared with the third
quarter of 2011, as a result of higher revenue in all regions - EMAR,
North America, Asia Pacific and Latin America.  See section 3.1 - Pipeline and Pipe Services segment for additional disclosure with respect to the change in revenue in the
Pipeline and Pipe Services segment.


Revenue for the Petrochemical and Industrial segment increased $4.1
million during the fourth quarter of 2011 compared to the third quarter
of 2011, due to higher activity levels in North America and Asia
Pacific, partially offset by lower revenue in EMAR. See section 3.2 - Petrochemical and Industrial segment for additional disclosure with respect to the change in revenue in the
Petrochemical and Industrial segment.


Twelve months ended December 31, 2011 versus Twelve Months ended
December 31, 2010


Consolidated revenue increased by $123.1 million, or 12%, from $1,034.2
million for the twelve month period ended December 31, 2010, to
$1,157.3 million for the twelve month period ended December 31, 2011,
due to growth of 11% in the Pipeline and Pipe Services segment and
growth of 19.3% in the Petrochemical and Industrial segment.


Revenue for the Pipeline and Pipe Services segment was $100.9 million
higher during the twelve month period ended December 30, 2011 compared
with the same period in 2010 due to higher revenue in North America and
EMAR of $135.3 million and $57.1 million, respectively, and was
partially offset by lower revenue in Asia Pacific ($73.5 million) and
Latin America ($17.9 million).  See section 3.1 - Pipeline and Pipe
Services segment for additional information with respect to the change
in revenue in the Pipeline and Pipe Services segment.


Revenue for the Petrochemical and Industrial segment reported strong
growth in all regions. See section 3.2 - Petrochemical and Industrial segment for additional disclosure with respect to the change in revenue in the
Petrochemical and Industrial segment.


2.2 Income from operations


The following table sets forth income from operations (″Operating
Income″) and operating margin for the following periods:




 


 


 


 


 




(in thousands of Canadian dollars)


 


Three Months ended


 


Twelve Months ended




 


 


December
31, 2011


 


September
30, 2011


 


December
31, 2010


 


December
31, 2011


 


December 31,
2010




Operating Income (loss)


$


31,748


 


(60)


 


39,622


 


84,443


 


119,831




Operating margin(a)


 


9.3%


 


0.0%


 


13.6%


 


7.3%


 


11.6%




(a) Operating margin is defined as operating income (loss) divided by
revenue.


Fourth Quarter 2011 versus Fourth Quarter 2010


Operating Income decreased by $7.9 million, from $39.6 million during
the fourth quarter of 2010 to $31.7 million during the fourth quarter
of 2011. Higher gross profit of $15.5 million and lower impairment of
property, plant, equipment, goodwill and intangible assets of $10.8
million were offset by an increase in selling, general and
administration expenses ("SG&A") of $31.5 million.


Higher revenue, as explained above, generated increased gross profit
which was somewhat mitigated by a reduction in the gross profit margin
of 1.2 percentage points. The gross profit margin was adversely
affected by the shift in project mix with the fourth quarter 2010
experiencing a higher proportion of the Company's revenue derived from
projects in Asia Pacific.


SG&A expenses increased by $31.5 million compared with the fourth
quarter of 2010 with three factors accounting for the increase. First,
SG&A expenses were higher year over year as a result of increased
salaries and other personnel related costs of $8.1 million as a result
of the acquisition of CSI and other growth related additions. Second,
the fourth quarter 2011 includes one-time increases in pension
expenses, decommissioning liabilities and inventory obsolescence of
$7.7 million. Finally, in the fourth quarter of 2010 SG&A expenses were
reduced by income under a management services contract, now
discontinued, of $2.5 million and reversals of provisions for pension
expense, decommissioning liabilities, and management incentive
compensation totaling $13.6 million.


Fourth Quarter 2011 versus Third Quarter 2011


Operating Income increased by $31.8 million, from an operating loss of
$0.1 million during the third quarter of 2011 to $31.7 million during
the fourth quarter of 2011, with an increase in gross profit of $39.8
million and an improvement in foreign exchange losses of $6.0 million
partially offset by an increase in SG&A expenses of $7.9 million and a
$5.2 million impairment loss on property, plant and equipment.


The increase in gross profit resulted from higher revenue of $70.3
million coupled with a gross profit margin improvement of 4.7
percentage points. The gross profit margin was positively impacted by
improved overhead absorption in Kuantan, Malaysia and in the Latin
American operations. Further, in the third quarter of 2011, yard
maintenance costs at Leith, Scotland and Camrose, Alberta and
mobilization costs for the Jack St. Malo project at the new Brigden
facility in Texas were significantly higher compared to the fourth
quarter of 2011.


The increase in SG&A expenses of $7.9 million was due to higher salary
and other personnel related expenses of $4.5 million, one-time
increases in pension expenses, decommissioning liabilities and
inventory obsolescence of $7.7 million and increased provisions for
management incentive compensation based on performance for the full
year of $4.8 million. Partially offsetting these increases in SG&A
expenses was the reduction in expense versus the third quarter when the
Company recorded a charge of $9.6 million to increase the allowance for
doubtful accounts due to a contract dispute with a customer.


Twelve Months ended December 31, 2011 versus Twelve Months ended
December 31, 2010


Operating Income decreased by $35.4 million, or 30%, from $119.8 million
during the twelve months ended December 31, 2010 to $84.4 million
during the twelve months ended December 31, 2011, with an increase in
gross profit of $12.0 million and lower impairment charges on property,
plant, equipment, goodwill and intangible assets of $10.8 million
offset by increased foreign exchange losses of $7.0 million, an
increase in research and development expenses of $2.1 million and an
increase in SG&A expenses of $50.2 million.


Higher revenue, as explained above, generated increased gross profit
which was somewhat mitigated by a reduction in the gross profit margin
of 3.2 percentage points. The main factors in the gross profit margin
reduction were the lower overhead absorption in Latin America and Asia
Pacific due to low volumes and the inefficient utilization of the
Leith, Scotland facility that experienced significant downtime in the
second and third quarters as a result of interruption in the Total
Laggan project production schedule.


SG&A expenses increased by $50.2 million compared with 2010 with three
factors accounting for most of the increase. First, SG&A expenses are
higher year over year as a result of increased salaries and other
personnel related costs of $17.4 million and increased facility and
occupancy costs of $6.2 million as a result of the acquisition of CSI
and other growth related additions. Second, 2011 SG&A expenses include
one-time increases in pension expenses, decommissioning liabilities,
inventory obsolescence of $14.2 million and the increase in the
allowance for doubtful accounts related to a contract dispute with a
customer of $9.6 million. Finally, the 2010 SG&A had been reduced by
income under a management services contract, now discontinued, of $2.5
million.


2.3 Finance costs


The following table sets forth the components of finance costs - net for
the following periods:




 


 


 


 


 




(in thousands of Canadian dollars)


 


Three Months ended


 


Twelve Months ended




 


 


December
31, 2011


 


September
30, 2011


 


December
31, 2010


 


December
31, 2011


 


December
31, 2010




Interest income on short-term deposits


$


(293)


 


(229)


 


(506)


 


(1,024)


 


(1,455)




Interest expense, other


 


1,447


 


1,384


 


630


 


4,864


 


1,933




Interest expense on long-term debt


 


-


 


(15)


 


432


 


667


 


2,327




Finance costs - net


$


1,154


 


1,140


 


556


 


4,507


 


2,805







Fourth Quarter 2011 versus Fourth Quarter 2010


The finance costs - net balance increased from $0.6 million during the
fourth quarter of 2010 to $1.2 million during the fourth quarter of
2011 as a result of higher accretion expense on certain non-current
liabilities and lower interest income, partially offset by lower
interest expense from the repayment of long-term debt.


Fourth Quarter 2011 versus Third Quarter 2011


The finance costs - net balance in the fourth quarter of 2011 was
largely unchanged from $1.1 million during the third quarter of 2011 as
higher accretion expense on certain non-current liabilities was offset
by higher interest income.


Twelve Months ended December 31, 2011 versus Twelve Months ended
December 31, 2010


The finance costs - net balance increased by $1.7 million, from $2.8
million during the twelve months ended December 31, 2010 to $4.5
million during the twelve months ended December 31, 2011, mainly due to
higher accretion expense on certain non-current liabilities and lower
interest income on short term deposits, partially offset by a decrease
in the interest expense on long-term debt of $1.7 million.


2.4 Income taxes


Fourth Quarter 2011 versus Fourth Quarter 2010


The Company recorded an income tax expense of $5.0 million (17% of
income before income taxes) in the fourth quarter of 2011, compared to
income tax expense of $11.1 million (22% of income before income taxes)
in the fourth quarter of 2010. The effective tax rate in the fourth
quarter of 2011 was lower than in the same period in 2010 primarily due
to the fact that the Company earned more of its income in jurisdictions
where the effective tax rate is 25% or lower and a reduction to the
prior year provision as a result of the settlement of certain items in
dispute with tax authorities that were settled in the company's favor.


Fourth Quarter 2011 versus Third Quarter 2011


The Company recorded an income tax expense of $5.0 million (17% of
income before income taxes) in the fourth quarter of 2011, compared to
an income tax recovery of $1.1 million (27% of loss before income
taxes) in the third quarter of 2011. The company reported an income tax
recovery in the third quarter of 2011 as a result of sustaining a loss
from operations.  The effective tax rate in the fourth quarter of 2011
was lower than the statutory Canadian tax rate because of the reasons
discussed above.


Twelve Months ended December 31, 2011 versus Twelve Months ended
December 31, 2010.


The Company recorded an income tax expense of $13.1 million (19% of
income before income taxes) for the year ended December 31, 2011,
compared to income tax expense of $33.2 million (26% of income before
income taxes) for the year ended December 31, 2010. The effective
income tax rate was lower in 2011 than in 2010 primarily due to the
Company earning more of its income in jurisdictions where the tax rate
is 25% or lower, the recognition of previously unrecognized deferred
tax assets in the second quarter of 2011 as a result of reorganizing
the corporate structure in certain foreign jurisdictions, and the
reduction to the prior year provision as a result of the settlement of
certain items in dispute with tax authorities that were settled in the
company's favor.


2.5 Foreign Exchange Impact


The following table sets forth the significant currencies in which the
Company operates and the average year-to-date foreign exchange rates
for these currencies versus Canadian dollars, for the following
periods:




 


 


 


 




 


Three Months Ended December 31,


 


Year Ended December 31,




 


 


2011


 


2010


 


2011


 


2010




U.S. Dollar


 


1.0255


 


1.0157


 


0.9931


 


1.0351




Euro


 


1.3727


 


1.3797


 


1.3750


 


1.3785




British Pound


 


1.6035


 


1.5935


 


1.5854


 


1.5987







The following table sets forth the impact on revenue, income from
operations and net income, compared with the prior year period, as a
result of foreign exchange fluctuations on the translation of foreign
currency operations:




 


 


 


 


 


 


 


 


 




(in thousands of Canadian dollars)


 


 


 


 


Three months ended
December 31, 2011


 


 


Year ended
December 31, 2011




Revenue


 


 


 


$


1,367


 


 


(22,378)




Income from operations


 


 


 


 


832


 


 


(4,560)




Net income


 


 


 


 


646


 


 


(3,430)







In addition to the translation impact noted above, the Company recorded
a foreign exchange loss of $0.5 million in the fourth quarter of 2011
compared to a gain of $1.8 million for the comparable period in the
prior year, as a result of the impact of changes in foreign exchange
rates on monetary assets and liabilities and short term foreign
currency intercompany loans within the group, net of hedging
activities.


For the twelve months ended December 31, 2011, the Company recorded a
foreign exchange loss of $1.3 million compared to a gain of $5.6
million in 2010, as a result of the impact of changes in foreign
exchange rates on monetary assets and liabilities and short term
foreign currency intercompany loans within the group, net of hedging
activities.


3.0 SEGMENT INFORMATION


3.1 Pipeline and Pipe Services segment


The following table sets forth, by geographic location, the revenue,
operating income and operating margin for the Pipeline and Pipe
Services segment for the following periods:




 


 


 


 


 




(in thousands of Canadian dollars)


 


Three Months ended


 


Twelve Months ended




 


 


December 31, 
2011


 


September 30,
2011


 


December 31,  
2010


 


December 31,
2011


 


December 31,
2010




North America


$


161,437


$


145,792


$


116,969


$


547,881


$


412,622




Latin America


 


18,448


 


9,635


 


17,647


 


38,499


 


56,400




EMAR


 


80,935


 


49,438


 


65,058


 


241,885


 


184,768




Asia Pacific


 


44,988


 


35,495


 


68,106


 


192,834


 


266,367




Total Revenue


$


305,808


$


240,360


$


267,780


$


1,021,099


$


920,157




 


 


 


 


 


 


 


 


 


 


 




Operating Income


$


34,703


$


9,183


$


39,919


$


96,982


$


131,637




Operating Margin


 


11.3%


 


3.8%


 


14.9%


 


9.5%


 


14.3%







Fourth Quarter 2011 versus Fourth Quarter 2010


Revenue in the fourth quarter of 2011 was $305.8 million, an increase of
$38.0 million, or 14%, over the fourth quarter of 2010. The major
factors were the significant improvements in North America and EMAR,
flat performance in Latin America, partially offset by reductions in
large project activity in Asia Pacific:



In North America, revenue increased by $44.5 million, or 38%, as a
result of continued growth in flexible composite pipe sales in both
Canada and the USA, increased activity in small diameter pipe coating
volumes and the addition of revenue from the CSI acquisition. These
increases were partially offset by lower pipe weld inspection volumes
due to the completion of some large USA onshore projects in 2010
compared to 2011.


Revenue in Latin America increased $0.8 million as a result of the
commencement of production of the P-55 Risers project in Brazil and
increased pipe coating activity in Mexico.


EMAR revenue increased by $15.9 million, or 24%, due to higher revenue
in the Leith, Scotland facility from the Total Laggan 30" pipe coating
project as well as increased project activity in Orkanger, Norway.


In Asia Pacific, revenue decreased $23.1 million, or 34% from the fourth
quarter of 2010, mainly due to a reduction in major project activity
compared with the prior year, when the PNG LNG onshore and offshore
pipeline projects and the EPIC QSN project in Australia had been in
full production.



Operating Income in the fourth quarter of 2011 was $34.7 million
compared to $39.9 million in the fourth quarter of 2010, a decrease of
$5.2 million, or 14%.  The decrease was due to a 1.3 percentage point
decrease in gross profit margin as a result of the shift in project mix
with the fourth quarter 2010 experiencing a higher proportion of the
Company's revenue derived from projects in Asia Pacific and an increase
in SG&A expenses as explained in section 2.2.


Fourth Quarter 2011 versus Third Quarter 2011


Revenue was $305.8 million in the fourth quarter of 2011, an increase of
$65.5 million, or 27%, from $240.4 million in the third quarter of
2011. All four regions showed significant revenue growth, particularly
EMAR and North America:



Revenue in North America increased by $15.6 million, or 11%, due to the
start of production of the Jack St. Malo project, several large
diameter pipe coating projects executed in Canada, increased sales of
flexible composite pipe and fittings, higher revenues for joint
protection sleeves and sealants, continued growth in tubular management
services in Western Canada and higher pipe inspection services for the
USA onshore market.


In Latin America, revenue was higher by $8.8 million or 91% due to the
commencement of production on the P-55 Risers project and increased
activity in Mexico compared to the third quarter of 2011.


EMAR revenue increased by $31.5 million, or 64%, primarily due to the
Statoil Gundrun project and Total Laggan projects at the Leith,
Scotland facility combined with increased project activity at Orkanger,
Norway.


Revenue in Asia Pacific increased by $9.5 million, or 27%, in the fourth
quarter of 2011, due to the completion of the PNG LNG Offshore project
and the SKO Pipeline replacement project at the Kuantan, Malaysia
facility, which was partially offset by lower activity at the Kabil,
Indonesia facility.



Operating Income in the fourth quarter of 2011 was $34.7 million
compared to $9.2 million in the third quarter of 2011, an increase of
$25.5 million, or 278%, as a result of higher revenue, as noted above,
and a 4.4 percentage point increase in gross profit margins. Gross
profit margins were positively impacted by improved overhead absorption
in Kuantan, Malaysia and the Latin American facilities due to the
increased revenue. This was partially offset by higher SG&A expenses,
as explained in section 2.2, and an impairment charge for property,
plant and equipment of $5.2 million.


Twelve Months ended December 31, 2011 versus Twelve Months ended
December 31, 2010


Revenue in the Pipeline and Pipe Services segment for the year ended
December 31, 2011 was $1,021.1 million, an increase of $100.9 million,
or 11%, from the prior year. The increase resulted from stronger demand
for small diameter pipe from increased well completions in North
America and higher project activity in EMAR, partially offset by lower
project activity in Asia Pacific and Latin America and the translation
impact of a weaker US dollar and Euro against the Company's Canadian
dollar reporting currency:



The increase in revenue in North America of $135.3 million was primarily
due to growth in small diameter project activity in both the US and
Canada, a 102% increase in spoolable composite pipe revenues,
particularly driven by growth in market share in the US, increased
tubular management services driven by increased drilling activity in
Canada and Mexico and revenue from the acquisition of CSI Services.


A decrease in revenue in Latin America of $17.9 million was due to year
over year reductions in pipe coating project activity of 25% in Mexico
and 41% in Brazil.


The increase in EMAR revenue of $57.1 million was mainly due to higher
pipe coating volumes at the Company's flow assurance insulation coating
facility in Orkanger, Norway and a significant increase in activity at
Leith, Scotland to complete the Laggan, Breagh and Gundrun projects,
partially offset by lower volumes in Saudi Arabia and the UAE.


In Asia Pacific, revenue decreased by $73.5 million as a result of a
reduction in large project activity in 2011 as compared to 2010. In
Kembla Grange, Australia, project activity was very low following the
first quarter 2011 completion of the EPIC QSN project. At Kabil,
Indonesia and Kuantan, Malaysia, activity levels were lower by 15 % and
20 %, respectively, as a number of large projects were executed in
2010.



Operating Income in the Pipeline and Pipe Services segment for the
twelve months ended December 31, 2011 was $97.0 million, a decrease of
$34.7 million or 26% compared to the comparable period of 2010. Gross
profit increased by $6.9 million, however the gross profit margin
declined by 3.4 percentage points due to the shift in project mix with
2010 experiencing a higher proportion of the Company's revenue derived
from projects in Asia Pacific. Also contributing to lower gross margins
was the lower overhead absorption in Latin America and Asia Pacific due
to the reduced volumes and the inefficient utilization of the Leith,
Scotland facility that experienced significant downtime in the second
and third quarters as a result of interruption in the Total Laggan
project production schedule. The final factor affecting operating
income was the increase in SG&A expenses as explained in section 2.2.


3.2 Petrochemical and Industrial segment


The following table sets forth, by geographic location, the revenue,
Operating Income and operating margin for the Petrochemical and
Industrial segment for the following periods:




 


 


 


 


 




(in thousands of Canadian dollars)


 


Three Months ended


 


Twelve Months ended




 


 


December 31,
2011


 


September 30,
2011


 


December 31,
2010


 


December 31,
2011


 


December 31,
2010




North America


$


23,467


$


18,823


$


13,279


$


80,762


$


64,053




EMAR


 


12,380


 


13,020


 


12,040


 


54,237


 


50,002




Asia Pacific


 


690


 


625


 


559


 


3,081


 


1,728




Total Revenue


$


36,537


$


32,468


$


25,878


$


138,080


$


115,783




 


 


 


 


 


 


 


 


 


 


 




Operating Income


$


6,702


$


3,544


$


3,573


$


18,242


$


13,580




Operating Margin


 


18.3%


 


10.9%


 


13.8%


 


13.2%


 


11.7%







Fourth Quarter 2011 versus Fourth Quarter 2010


Revenue increased in the fourth quarter by $10.7 million, or 41%, to
$36.5 million compared to the fourth quarter of 2010 due to increased
revenue in the wire and cable business in the nuclear and oil sands
markets combined with increased heat shrinkable product shipments in
the North America, EMAR and Asia Pacific regions.


Operating Income of $6.7 million in the fourth quarter of 2011 increased
$3.1 million or 88%, compared to $3.6 million in the fourth quarter of
2010. The increase was primarily due to the higher revenue as explained
above and an increase in operating margin by 4.5 percentage points due
to improved overhead absorption from better facility utilization.


Fourth Quarter 2011 versus Third Quarter 2011


In the fourth quarter of 2011, revenue totaled $36.5 million compared to
$32.5 million in the third quarter of 2011, an increase of $4.1
million, or 13%. The increase was driven by higher revenue in the wire
and cable business, partially offset by softer demand in the EMAR
automotive market.


Operating Income in the fourth quarter of 2011 was $6.7 million compared
to $3.5 million in the third quarter of 2011. The operating margin was
higher by 7.4 percentage points due to higher gross profit margin and
improved overhead absorption due to better facility utilization.


Twelve Months ended December 31, 2011 versus Twelve Months ended
December 31, 2010


Revenue in the Petrochemical and Industrial segment increased by $22.3
million, or 19%, from $115.8 million in 2010 to $138.1 million in 2011.
The revenue increase resulted from higher shipments of wire and cable
products in the oil sands, transit and nuclear markets in North America
combined with increased heat shrink sleeve shipments resulting from a
strengthening in industrial and automotive markets in North America,
EMAR and Asia Pacific. This was partially offset by the translation
impact of a weaker US dollar and the Euro versus the Canadian dollar.


Operating income in the Petrochemical and Industrial segment for the
twelve months ended December 31, 2011 was $18.2 million, an increase of
$4.7 million, or 34%, over 2010. The operating margin was higher by 1.5
points due to higher gross profit margin and improved overhead
absorption due to increased revenue and better facility utilization,
partly offset by higher selling, general and administration expenses of
$2.6 million.


3.3 Financial and Corporate


Financial and corporate costs include corporate expenses not allocated
to the operating segments and other non-operating items, including
foreign exchange gains and losses on foreign currency denominated cash
and working capital balances. The corporate division of the Company
only earns revenue that is considered incidental to the activities of
the Company.  As a result, it does not meet the definition of a
reportable operating segment as defined under IFRS.


The following table sets forth the Company's unallocated financial and
corporate expenses, before foreign exchange gains and losses, for the
following periods:




 


 


 


 


 




(in thousands of Canadian dollars)


 


Three Months ended


 


Twelve Months ended




 


 


December
31, 2011


 


September
30, 2011


 


December
31, 2010


 


December
31, 2011


 


December 31,
2010




Loss from operations


$


(9,114)


 


(6,277)


 


(5,667)


 


(29,443)


 


(31,033)







Fourth Quarter 2011 versus Fourth Quarter 2010


Financial and corporate costs increased by $3.5 million from $5.7
million during the fourth quarter of 2010 to $9.1 million during the
fourth quarter of 2011, mainly due to a reversal of management
incentive compensation expenses in 2010 compared to 2011.


Fourth Quarter 2011 versus third Quarter 2011


Financial and corporate costs increased by $2.8 million from the third
quarter of 2011, primarily due to a reversal of management incentive
compensation in the third quarter as compared to the fourth quarter of
2011.


Twelve Months ended December 31, 2011 versus Twelve Months ended
December 31, 2010


Financial and corporate costs decreased by $1.6 million for the twelve
months ended December 31, 2011 as compared to the corresponding period
of 2010, primarily due to lower professional fee expenses of $1.9
million.


4.0 TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)


ShawCor is reporting its financial results in accordance with IFRS from
January 1, 2011, the changeover date set by the Canadian Accounting
Standards Board (AcSB). IFRS compliant comparative financial
information for one year from the changeover date is required.


For the year ended December 31, 2010, ShawCor has restated its operating
results as if it had always prepared financial results in accordance
with IFRS. As a result of the componentization of capital assets,
revision in the estimated useful life of capital assets and applying
different rates to the different components under IFRS starting January
1, 2010, the depreciation expense for the fourth quarter of 2010 has
decreased by $1.7 million over the amount previously reported. In
addition, due to changes in the accounting for temporal entities,
decommissioning liabilities, employee defined benefit pension expenses
and impairment testing of property, plant and equipment under IFRS in
the fourth quarter of 2010, ShawCor recorded a net decrease of $4.3
million in selling, general and administration expenses, an increase of
$0.1 million in interest expense and an impairment loss on property,
plant and equipment of $14.9 million. Together, these adjustments
decreased fourth quarter 2010 net income by $6.8 million after
recording a decrease in the deferred tax expense of $2.1 million.


As a result of the componentization of capital assets, a revision in the
estimated useful life of capital assets and applying different rates to
the different components under IFRS starting January 1, 2010, the
depreciation expense for the twelve months ended December 31, 2010 has
decreased by $5.3 million over the amount previously reported. In
addition, due to changes in the accounting for temporal entities,
decommissioning liabilities, employee defined benefit pension expenses
and impairment testing of property, plant and equipment under IFRS in
2010, ShawCor recorded a net decrease of $2.6 million in selling,
general and administration expenses, an increase of $0.3 million in
interest expense, a decrease of $0.1 million in foreign exchange gains
and an impairment loss on property, plant and equipment of $14.9
million. Together these adjustments decreased net income, for the
twelve months ended December 31, 2010 by $5.5 million, after recording
a decrease in the deferred tax expense of $1.9 million.


5.0 FORWARD-LOOKING INFORMATION


This document includes certain statements that reflect management's
expectations and objectives for the Company's future performance,
opportunities and growth, which statements constitute forward-looking
information under applicable securities laws.  Such statements, other
than statements of historical fact, are predictive in nature or depend
on future events or conditions. Forward-looking information involves
estimates, assumptions, judgments and uncertainties.  These statements
may be identified by the use of forward-looking terminology such as
″may″, ″will″, ″should″, ″anticipate″, ″expect″, ″believe″, ″predict″,
″estimate″, ″continue″, ″intend″, ″plan″ and variations of these words
or other similar expressions.  Specifically, this document includes
forward-looking information in respect of, among other things, the
impact of existing order backlogs in the Company's revenues, the impact
of global economic activity on the demand for the Company's products as
well as the prices of commodities used by the Company, the impact of
changing energy demand, supply and prices, the impact and likelihood of
changes in competitive conditions in the markets in which the Company
participates, the impact of changing laws for environmental compliance
on the Company's capital and operating costs, and the adequacy of the
Company's existing accruals in respect thereof, the Company's
relationships with its employees, the continued establishment of
international operations, the effect of continued development in
emerging economies, as well as the Company's plans as they relate to
research and development activities and the maintenance of its current
dividend policies, the outlook for revenue and operating income and the
expected development in the Company's order backlog.


Forward-looking information involves known and unknown risks and
uncertainties that could cause actual results to differ materially from
those predicted by the forward-looking information.  We caution readers
not to place undue reliance on forward looking information as a number
of factors could cause actual events, results and prospects to differ
materially from those expressed in or implied by the forward looking
information.  Significant risks facing the Company include, but are not
limited to: changes in global economic activity and changes in energy
supply and demand which impact on the level of drilling activity and
pipeline construction; exposure to product and other liability claims;
shortages of or significant increases in the prices of raw materials
used by the Company; compliance with environmental, trade and other
laws; political, economic and other risks arising from the Company's
international operations; fluctuations in foreign exchange rates, as
well as other risks and uncertainties.


These statements of forward-looking information are based on
assumptions, estimates and analysis made by management in light of its
experience and perception of trends, current conditions and expected
developments as well as other factors believed to be reasonable and
relevant in the circumstances.  These assumptions include assumptions
in respect of the potential for improvement in demand for the Company's
products and services as a result of continued global economic
recovery, the potential for increased investment in global energy
infrastructure as a result of stabilization of capital markets, the
Company's ability to execute projects under contract, the continued
supply of and stable pricing for commodities used by the Company and
the availability of personnel resources sufficient for the Company to
operate its businesses. The Company believes that the expectations
reflected in the forward-looking information are based on reasonable
assumptions in light of currently available information.  However,
should one or more risks materialize or should any assumptions prove
incorrect, then actual results could vary materially from those
expressed or implied in the forward-looking information included in
this document and the Company can give no assurance that such
expectations will be achieved.


When considering the forward looking information in making decisions
with respect to the Company, readers should carefully consider the
foregoing factors and other uncertainties and potential events. 
ShawCor Ltd. does not assume the obligation to revise or update forward
looking information after the date of this document or to revise it to
reflect the occurrence of future unanticipated events, except as may be
required under applicable securities laws.


Other information relating to the Company, including its Annual
Information Form, is available on SEDAR at www.sedar.com.


ShawCor will be hosting a Shareholder and Analyst Conference Call and
Webcast on Friday, March 2, 2012, at 10:00 AM EST, which will discuss
the company's fourth quarter financial results.


Please visit our website at www.shawcor.com for further details.





ShawCor Ltd.
Consolidated Balance Sheet
(Unaudited)


(in thousands of Canadian dollars)








 


 


December 31, 2011


 


December 31, 2010




Assets


 


 


 


 




 


 


 


 


 




Current assets


 


 


 
Thursday, March 1, 2012 5:15 PM

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