Wajax reports improved 2016 Q4 results but decline in Industrial Components segment
Toronto – Wajax Corporation, a leading Canadian distributor engaged in the sale, rental and after-sale parts and service support of equipment, power systems and industrial components, has announced improved 2016 fourth quarter results compared to the previous year.
Fourth Quarter Highlights
- – Consolidated fourth quarter revenue of $313.7 million decreased $10.7 million, or 3%, compared to last year. The Equipment segment’s fourth quarter revenue declined 5% on lower western Canada construction, material handling and forestry volumes. The Power Systems and Industrial Components segments each recorded 2% revenue declines on lower power generation and mining sector volumes respectively.
- – Net earnings for the quarter of $8.9 million, or $0.45 per share, increased compared to a net loss in 2015 of $33.3 million, or $1.66 per share, which included a $41.2 million ($37.3 million after-tax) impairment of goodwill and intangible assets related to the Power Systems and Industrial Components segments. Excluding the asset impairment expense, adjusted net earnings in the fourth quarter of 2015 were $4.0 million, or $0.20 per share.The increase in quarterly adjusted net earnings of $4.9 million, or $0.25 per share, was primarily attributable to an increase in gross profit margins, $2.6 million ($0.10 per share) of insurance recoveries and a reduction in selling and administrative expenses, which included a $1.0 million ($0.04 per share) environmental remediation provision. The insurance recoveries mainly relate to a claim associated with the May 2016 Fort McMurray wildfires.Despite the lower volume, segment earnings before impairment of goodwill and intangible assets increased significantly in the Equipment and Power Systems segments largely as a result of improved gross margins, insurance recoveries and lower selling and administrative costs. The decline in segment earnings before impairment of goodwill and intangible assets in the Industrial Components segment was mainly due to lower volumes and gross margins and the $1.0 million environmental remediation provision.
- – Consolidated backlog at December 31, 2016 of $116.7 million decreased $25.4 million compared to September 30, 2016 due to decreases in the Equipment and Power Systems segments primarily as a result of the delivery of a large mining shovel in the quarter and lower power generation orders.
- – Funded net debt at December 31, 2016 of $126.0 million decreased $21.9 million compared to September 30, 2016, mainly attributable to a $14.2 million reduction in non-cash operating working capital.(1)
Wajax declared a first quarter 2017 dividend of $0.25 per share payable on April 4, 2017 to shareholders of record on March 15, 2017.
Today the Corporation announced that Paul Gagné, a director since 1996 and Chairman of the Board since 2006, will retire from the Board of Directors at the close of the Corporation’s 2017 annual meeting of shareholders. Rob Dexter has been nominated by his fellow directors to assume the duties of Chairman following the 2017 annual meeting. Rob has been a director since 1988 and has most recently served as Chair of the Human Resources and Compensation Committee of the board. Commenting on Mr. Gagne’s retirement from the board, Mark Foote, CEO stated: “Paul has been an exceptional director and, as Chairman, has demonstrated great passion for the company, its strategic direction and how best to enhance shareholder value. The board, management team and I in particular will miss his influence, contributions and wisdom. We look forward to welcoming Rob as Chairman and we are fortunate that we will continue to benefit from his vast experience and insight as we move forward.”
In January 2017, the role of Stuart Auld, Senior Vice President, Information Systems was expanded to include leading the Corporation’s Human Resources team upon the departure of Kathleen Hassay, Senior Vice President, Human Resources, who left the organization in early 2017. Mr. Auld joined Wajax in 2014 and since that time has been instrumental in coordinating a number of change activities at Wajax.
Further to its press release issued December 22, 2016, Wajax also confirmed the appointment of Darren Yaworsky as Senior Vice President, Finance and Chief Financial Officer, to be effective March 8, 2017. Mr. Yaworsky succeeds John Hamilton, who has served as Senior Vice President, Finance and Chief Financial Officer since 1999. Mr. Hamilton’s planned retirement from Wajax was announced in August 2016.
Commenting on the fourth quarter of 2016 and the Corporation’s outlook for 2017, Mark Foote, President and CEO, stated:
“Despite the continuing challenging market conditions, Wajax delivered improved results in the fourth quarter. On an adjusted net earnings basis and excluding the impact of insurance recoveries and the environmental provision, fourth quarter results increased over the previous year as higher gross margins and lower selling and administrative costs more than made up for the reduction in revenue. We are pleased with the improvement in our Power Systems segment, where our cost reduction and margin improvement initiatives significantly benefitted fourth quarter results.
The reorganization announced in March 2016 is now complete and we will begin reporting externally under our new functional structure in 2017. Through much hard work by the entire Wajax team, our reorganization efforts are expected to improve the execution of our strategy and, additionally, we have realized approximately $8.6 million of savings in 2016 and expect to being realizing approximately $17 million of annualized cost savings in 2017.
Our higher quarterly earnings combined with $14.2 million of cash generated from reduced operating working capital resulted in a $21.9 million reduction in funded net debt in the quarter. As a result, our year end leverage ratio was 2.1X, just slightly above our target range of 1.5X – 2.0X.
Looking forward to 2017, although there have been some announced increases in planned investments by Canadian oil and gas companies, we expect that most major resource and industrial markets will remain under continuing spending and resultant competitive pressure. Our focus in 2017 will be to generate revenue sufficient to offset the four large shovel deliveries made in 2016 (which are not expected to be repeated), effectively manage our margins and ensure we deliver the operational improvements and full annualized savings expected from our reorganization. Assuming the achievement of these objectives, we anticipate net earnings in 2017 will increase compared to 2016 adjusted net earnings.”(1)
Wajax distributes through a network of 109 branch locations across Canada. The Corporation is a multi-line distributor and represents a number of leading worldwide manufacturers across its core businesses. Its customer base is diversified, spanning natural resources, construction, transportation, manufacturing, industrial processing and utilities.
For more information, visit www.wajax.com.