Shawcor Provides Business and Financial Update
TORONTO, April 21, 2020 (GLOBE NEWSWIRE) — Shawcor Ltd. (TSX: SCL) provided an update today on its mobilization of resources to protect its employees and customers from the public health threat caused by the COVID-19 pandemic, maintain critical operations and services and advance the measures announced on March 16, 2020 to further strengthen its financial position.
With employee health and safety as our top priority, the vast majority of our businesses have continued operations with COVID-19 amended work standards and policies, despite experiencing significant supply chain disruptions and unstable customer demand. In addition, the recent changes in oil and gas supply and demand have resulted in reduced capital spending by operators, decreased demand for our products and services and increased uncertainty in project sanctioning.Q1 2020 UpdateShawcor’s Q1 2020 results are scheduled to be released on May 13, 2020. The following provides a preliminary update on certain items and is not intended to be a full summary as Q1 results are not yet final, and actual Q1 2020 results may differ, in some cases materially, from those included below.Q1 revenue was approximately $320 million and Adjusted EBITDA(1) is estimated to be in the range of $5.0-7.0 million.
Cash and short-term investments at the end of Q1 were approximately $86 million after payment of the first-quarter dividend of approximately $10.5 million. Long-term debt was approximately $435 million and we were in compliance with our debt covenants as of March 31, 2020.
Order backlog at the end of the quarter was approximately $575 million as compared to $513 million at the end of 2019.
Given the material decline in industry activity, an impairment charge during Q1 2020 is likely. The magnitude of the charge is expected to be in range of $200 to $250 million. The final amount will not be known until the relevant valuation is completed as part of the closing of the Q1 financial results.1Adjusted EBITDA is a non-GAAP measure. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization and Argentina hyperinflationary adjustments. Adjusted EBITDA does not have a standardized meaning under GAAP and is not necessarily comparable to similar measures provided by other companies.Strengthening our Financial Position
On March 16, 2020 we announced that we would be undertaking measures to address the uncertainty and expected market downturn caused by the COVID-19 pandemic and recent changes in oil and gas supply and demand. These measures include targeting in excess of $60 million in annualized SG&A and other cost savings and generating in excess of $40 million in cash from working capital reductions and asset sales. As of today, the following actions have been taken to reduce costs, preserve cash and meet our stated targets. Board compensation will be reduced by 30%, CEO cash compensation will be reduced by 20% and Senior Executive cash compensation will be reduced by 10%.
Salaried workforce headcount was reduced by approximately 7.5%, which is expected to result in annualized savings of over $15 million at a severance cost of approximately $6.0 million.
Aggressive cost controls were implemented and are expected to generate over $10 million in annualized savings.
Received a further $8.9 million in funds from the sale of a minority position in an associate late in the quarter.
Our capital spending has been reduced to the $40-$50 million range for 2020 to include only essential maintenance capital and select growth spending to deliver on firm orders, particularly in our Composite Systems Tank business (formerly ZCL Composites).The actions taken over the last month are expected to generate over $25 million in annualized cost savings and will preserve over $40 million in cash, not including the recently announced dividend suspension. In addition, we are working on the following initiatives to streamline operations, deliver further cost savings and preserve cash.The controlled shutdown of several facilities, including the targeted closure of 4 pipe coating plants prior to the end of 2020.
Restructuring the organization to reduce salaried workforce by an additional 5% while maintaining core capabilities.
Reductions in working capital and asset sales to generate additional cash proceeds.
Recalibrating expenses relating to 2020 short and longer-term employee incentive programs. The total value of our completed and planned initiatives is expected to meet our stated targets and result in a quarterly normalized SG&A run-rate of $70 million. In SummaryWe continue to take a disciplined approach to the dual challenge of the COVID-19 pandemic and recent changes in oil and gas markets, with the goal of minimizing risk and impact on the Company while we continue to support and safely deliver products and services to our customers. Further information, including an updated business outlook, will be provided with the release of our Q1 financial statements and reporting package, however, given the uncertainty and fast developing nature of the current crisis, any forward-looking financial and other information provided in previous communications is withdrawn. Shawcor has emerged from challenging periods and economic downturns in the past and we expect that the dedicated leaders and staff working at our facilities, in the field and in remote operations will see us through today’s challenges.
Shawcor Ltd. is a global company serving various sectors of the Infrastructure, Energy and Transportation markets through three reporting segments: Pipeline and Pipe Services, Composite Systems and Automotive and Industrial. The Company operates through a global network of fixed and mobile manufacturing and service facilities and is valued for its integrity, technology and proven capability to execute the most complex projects in its industry.This news release contains forward-looking information within the meaning of applicable securities laws. Words such as “may”, “will”, “should”, “anticipate”, “plan”, “expect”, “believe”, “predict”, “estimate” or similar terminology are used to identify forward-looking information. Specifically, this news release contains forward-looking information in respect of our first quarter financial results, the completion of various cost savings and cash preservation initiatives, including the timing and impact thereof and the level of our capital expenditures in the light of the Company’s experience and its perception of trends, current conditions and expected developments, as well as other factors that are believed by the Company to be reasonable and relevant in the circumstances. Forward-looking information involves known and unknown risks, uncertainties and other factors, including the impact and duration of the COVID-19 pandemic and changes in supply and demand of oil and gas, which may cause actual results, performance or achievements to be materially different from those predicted, expressed or implied by the forward-looking information and readers are cautioned not to unduly rely on forward looking information. The forward-looking information is provided as of the date of this news release and the Company does not assume any obligation to update or revise the forward-looking information to reflect new events or circumstances, except as required by law.For further informationShawcor Ltd.
Senior Vice President, Corporate and Investor Relations
Website: www.shawcor.comSource: Shawcor Ltd.