Contrans Announces Record Quarterly Results

(TSX:CSS)

WOODSTOCK, ON, Oct. 30, 2013 /CNW/ -

Financial Highlights

⁽¹⁾ Referred to as "direct operating expenses" hereafter. See "Use of Non-GAAP Financial Measure" below.

"I am extremely pleased to announce that Contrans has again achieved record operating results," stated Contrans Group Inc.'s Chief Executive Officer and Chairman of the Board, Stan Dunford. "In the third quarter, the Company recorded its highest revenue and its highest pre-tax profit ever for any three-month period in its history. Contrans' growth has been achieved through the completion of several acquisitions this year and through continued robust organic growth. With business activity continuing to be brisk so far in October, I anticipate Contrans' 2013 twelve-month operating results will surpass the Company records established last year."

"This year's organic growth has featured three significant contract awards to date," continued Mr. Dunford. "At the beginning of the quarter, we started transporting waste from Calgary, Alberta to Coronation, Alberta. Earlier in the year, we started work on our residential waste collection contract in Edmonton, Alberta. In addition, Contrans was awarded a contract to haul metallurgical coke from Hamilton, Ontario to Nanticoke, Ontario that commenced at the end of September. Collectively, these three contracts are expected to generate close to $20 million of revenue annually."

"Contrans has expanded its share of the waste transportation and waste collection markets in 2013 through the contract wins noted above and through the acquisition of Deuce Disposal Ltd. on May 31, 2013," added Mr. Dunford. "The waste market has appealed to us ever since the Company's entry into this market in 2004. It is steady business, is relatively unaffected by economic cycles and has high barriers to entry. Further expansion into this industry will remain a strategic focus of Contrans."

"Contrans has also grown in other niche markets," Mr. Dunford pointed out. "The Company secured new business in the copper recycling industry thanks to some ingenuity on the part of our operations management. We have also levered our expertise in providing transportation and logistical support to personal care products manufacturers in order to obtain a foothold in the pharmaceutical industry. The pharmaceutical industry has very stringent standards regulating its transportation requirements for carriers. Very few carriers have been able to meet these standards. We are encouraged by our success to date and our growth prospects in each of these niche markets."

"Contrans' operating strategy focuses on markets that require specialized skills or equipment outside of the mainstream transportation markets," concluded Mr. Dunford. "This operating strategy permits the Company to operate in markets that are less susceptible to economic volatility and where shippers are typically more service-sensitive than they are price-sensitive. Management's continued successful execution of this strategy is enhancing the sustainability of Contrans' business model and long-term value for Company shareholders."

Results from Operations
Revenue
Contrans has acquired several businesses ("acquisitions") since September 30, 2012. Collectively, these acquisitions contributed approximately $4.5 million of revenue from transportation services ("revenue") in the third quarter of 2013 ("2013 Q3") and $15.6 million of revenue in the first nine months of 2013 ("2013 YTD"). Contrans has also continued to grow organically in 2013, primarily from awards of new work from existing customers. On July 1, 2013 Contrans commenced transporting waste from Calgary, Alberta to Coronation, Alberta. This new contract contributed $2.1 million of revenue in 2013 Q3. In February 2013, Contrans commenced collecting residential waste in Edmonton, Alberta. This contract generated $1.2 million of revenue in 2013 Q3 ($3.1 million 2013 YTD). In addition, Contrans was awarded a contract to transport metallurgical coke from Hamilton, Ontario to Nanticoke, Ontario at the end of 2013 Q3. This contract is expected to generate approximately $6 million of revenue annually.

These 2013 YTD revenue increases have been partially offset by some adverse business conditions. Housing starts in Canada are approximately 15% lower in 2013 YTD compared to the same period in 2012 ("2012 YTD"). This has adversely affected shipments from Contrans' wallboard customers. Unusually wet spring weather conditions throughout Canada negatively impacted shipments of Contrans' other customers in the construction industry. Revenue was also negatively impacted by a general construction strike in Quebec and by flooding in Alberta. A labour dispute at a customer in the steel industry and the maintenance shutdown of a smelter at a customer in the resource sector also resulted in reduced revenues. The labour dispute has since been resolved and Contrans expects that normal volumes of steel shipments will be restored by the end of the year. Maintenance work on the smelter was completed but low commodity prices have resulted in lower shipping volumes in 2013 YTD than in 2012 YTD.

Direct operating expenses
Contrans' direct operating expenses consist primarily of variable expenses that have increased in 2013 commensurate with increased revenue. In addition, acquisitions added approximately $3.4 million to direct operating expenses in 2013 Q3 (2013 YTD - $12.0 million). Depreciation of tractors and trailers was $0.4 million higher in 2013 Q3 than in 2012 Q3 ($1.5 million higher YTD). Accident claim costs were $0.8 million higher in 2013 Q3 compared to 2012 Q3 ($0.3 million less YTD). Lower equipment utilization and increased empty miles in the first half of 2013 increased operating expenses measured as a percentage of revenue.

General and administration expenses
Acquisitions added approximately $0.3 million of general and administration expenses in 2013 Q3 (2013 YTD - $1.1 million).  Share-based, cash-settled compensation expense increased by $0.4 million in 2013 YTD compared to 2012 YTD. This increase in compensation expense resulted from the fact that Contrans' share price rose from $10.00 at December 31, 2012 to $12.04 at September 30, 2013. Professional fees were lower in 2013 YTD compared to 2012 YTD primarily as a result of $0.6 million of non-recurring costs incurred in 2012 that related to a proposed elimination of Contrans' dual class share structure.

Net financing costs
Debt net of cash ("Net debt") has increased in 2013 compared to 2012. This has caused net finance costs to increase by $0.1 million in 2013 Q3 compared to 2012 Q3 (2013 YTD - $0.2 million increase). Net debt has increased primarily as a result of the acquisition of Deuce Disposal Ltd. on May 31, 2013.

Income tax expense
In 2012 Q2, the Ontario government reversed its decision to lower the provincial corporate tax rate to 10%. The impact of this change was a charge to earnings in 2012 Q2 and increased the effective tax rate for 2012 YTD accordingly.

Cash Flow
Contrans has incurred capital expenditures of $14.8 million in 2013 Q3 (2013 - $41.0 million YTD) including purchases that were funded through finance leases. The Company purchased $5.7 million worth of transportation equipment in 2013 Q3 ($14.5 million 2013 YTD) to support growth initiatives. The Company has also incurred $2.7 million of costs in 2013 Q3 ($5.1 million 2013 YTD) in the construction of its new terminal facility in Edmonton, Alberta. Management estimates that costs to complete this facility will amount to $1.7 million with completion expected in 2013 Q4. Contrans also purchased a warehouse facility near Montreal, Quebec in 2013 Q1 for $4.4 million. This purchase was partially financed with a $3.0 million mortgage. The warehouse has enabled the Company to expand its service to the resource sector.

Use of Non-GAAP Financial Measure
Management has included a non-GAAP financial measure, "Direct operating expenses - net of fuel surcharges", to supplement its interim financial statements. This non-GAAP financial measure does not have any standardized meaning prescribed under IFRS and therefore it may not be comparable to similar measures employed by other issuers. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Management believes that it is important to isolate the effects of fuel surcharges, a volatile source of revenue and operating expenses, when analyzing operating results. Accordingly, the percentages in the Financial Highlights table were calculated using revenue from transportation services alone as the base. In addition, operating expenses are stated after netting fuel surcharges against fuel expenses in the Financial Highlights table. Management believes that this facilitates a better comparison of operating expenses and profit margins between periods.

Forward-looking Statements
Management's discussion and analysis contains certain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements relate to future events or future performance and include, but are not limited to, changes in government regulations regarding weights and dimensions of highway equipment, the age and condition of the transportation fleet and the growth of Contrans' business. Often, but not always, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. Such statements reflect the current views and estimates of management with respect to future events, as of the date such statements are made, and they involve known and unknown risks and uncertainties which may cause actual events or results to differ materially from those expressed or implied by forward-looking statements. In evaluating these statements, readers should specifically consider factors such as the risks outlined under "Risk Factors" in Contrans' Annual Information Form, which is available at www.sedar.com. Although Contrans has attempted to identify important factors that could cause actual events, actions or results to differ materially from those described in the forward-looking statements, there may be other factors that cause such events, actions or results to differ. Contrans is under no obligation (and expressly disclaims any such obligation) to update forward-looking statements if circumstances or management's views or estimates change. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. 

SOURCE: Contrans Group Inc.