Contrans Group Inc. Announces Second Quarter Results

WOODSTOCK, ON, July 31, 2013 /CNW/ - TSX:CSS

"Contrans' 2013 financial results are keeping pace with the Company's record-setting 2012 financial performance", stated Stan Dunford, Chairman and Chief Executive Officer of Contrans Group Inc. "This is particularly satisfying considering the circumstances under which this has been accomplished. A prolonged winter followed by an unusually wet spring, featuring flooding in Calgary, delayed the start up of the construction season. In addition to these disruptive weather conditions, the general construction strike in Quebec practically halted all shipments of construction materials in that province. In Ontario, US Steel, a major customer, has had a labour dispute greatly reducing their inbound and outbound shipments. The maintenance of a smelter at Vale, another major customer, has resulted in the temporary suspension of their freight shipments. Furthermore, the general economy has also been unexpectedly sluggish."

"In spite of these conditions, Contrans has continued to grow in 2013", continued Mr. Dunford. "Of particular note has been the commencement of a residential waste collection contract in Edmonton, Alberta. We expect that this contract will contribute approximately $4 million of revenue annually. Contrans has also been awarded a contract, to haul waste from Calgary, Alberta to Coronation, Alberta. This work commenced in late June and management expects it to generate approximately $7 million of revenue annually. In addition to these contract wins, Contrans acquired Deuce Disposal Ltd., a waste collection and recycling business located in Slave Lake, Alberta, on May 31, 2013.  This operation is expected to generate $9 million of revenue annually. Generally, the waste business is less vulnerable to economic cyclicality than most transportation businesses and, accordingly, it is a great fit with the Contrans business model."

"Every year, management seeks to enhance the long-term value of Contrans' shares for its shareholders", added Mr. Dunford. "In 2013, we have grown the Company in a manner that we expect will add to the sustainability of the Company's earnings. In addition, Contrans' shareholders have been rewarded with a 25% dividend increase this year. The Company's balance sheet remains strong leaving Contrans well-positioned to withstand adverse economic conditions and to continue to grow. While we are proud of what we have accomplished to date in 2013, we are eager to accomplish more."

RESULTS FROM OPERATIONS

Revenue
Contrans has acquired several businesses ("acquisitions") since June 30, 2012. Collectively, these businesses have contributed approximately $5.3 million of additional revenue from transportation services ("revenue") in 2013 Q2 compared to 2012 Q2 and $11.1 million of additional revenue in the first half of 2013 ("YTD") compared to 2012 YTD. Contrans has also continued to grow internally in 2013. Of particular note, Contrans commenced work on a residential waste collection contract in Edmonton, Alberta in February 2013. This contract generated $1.2 million of revenue in 2013 Q2 ($1.9 million 2013 YTD). However, certain areas of the Company's business have experienced reduced shipping volumes in 2013 compared to 2012. The customary seasonal surge in construction-related shipments was delayed this year by unusually wet spring weather. This was exacerbated by a general construction strike in Quebec in June. A lockout at a steel customer and the maintenance shutdown of a smelter of a customer in the minerals industry have also resulted in reduced revenue in 2013 compared to 2012.

Direct operating expenses
Acquisitions added approximately $4.8 million in 2013 Q2 to direct operating expenses (2013 - $8.6 million YTD) compared to 2012. Depreciation of tractors and trailers was $0.5 million higher in 2013 Q2 than in 2012 Q2 (2013 - $1.1 million higher YTD). Reduced operating activity in certain of the Company's businesses resulted in lower equipment utilization and increased empty miles which drove operating expenses up as a percentage of revenue. These effects were mitigated by accident claim costs that were $0.9 million less in 2013 Q2 than in 2012 Q2 (2013 - $1.1 million less YTD).

General and administration expenses
Acquisitions added approximately $0.4 million of general and administration expenses in 2013 Q2 compared to 2012 Q2 (2013 - $ 0.8 million increase YTD).    Contrans' share price has increased in 2013 resulting in a $0.6 million increase in share-based, cash-settled compensation expense. Professional fees were $0.2 million lower in 2013 Q2 (2013 -$0.4 million lower YTD) compared to the same periods in 2012 primarily as a result of costs incurred in 2012 relating to the proposed elimination of the dual class share structure.

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. In addition, provisions for stock option costs and other non-deductible expenses were lower in 2013.

Net financing costs
Net debt has increased in 2013 compared to 2012 but this has had a negligible impact on net financing costs.  The increase in net debt levels has come mainly from the use of cash to purchase acquisitions. The impact of this change was minor since the current rates of interest on cash and short-term investments have been negligible.

CASH FLOW
Contrans invested $13.4 million in property and equipment in 2013 Q2 (2013 - $26.2 million YTD), including $6.7 million ($9.5 million YTD) of capital expenditures funded through finance leases. Contrans has invested $4.5 million in 2013 YTD on new trucks resulting from the contract award from the City of Edmonton, Alberta for residential waste collection.  Contrans has invested $4.4 million in the purchase of a warehouse facility near Montreal, Quebec in 2013 Q1. This facility has enabled the Company to expand its service to the resource sector in that region. The purchase of this warehouse facility was partially financed with a $3.0 million mortgage.  Contrans spent $16.0 million on acquisitions in 2013 Q2 principally on a waste collection company based in Slave Lake, Alberta.

On March 13, 2013, Contrans received regulatory approval to proceed with a normal course issuer bid ("NCIB") to purchase up to 1.6 million of its outstanding Class A shares for cancellation between March 15, 2013 and March 14, 2014.  There have been no purchases made under this NCIB to date.

Contrans' Board of Directors has declared the following dividends in 2013:

The payment of dividends is subject to the discretion of Contrans' Board. Prior to declaring a dividend, the Board considers many factors, including Contrans' overall financial condition, its expected future financial performance, its anticipated capital requirements as well as its debt repayment obligations and the covenants that are contained in Contrans' loan agreements.

Construction commenced in late 2012 on a new terminal in Edmonton, Alberta to replace leased premises for the Company's Edmonton waste collection business.  The total cost of the building work is expected to be $6.8 million.  Costs to complete the plans are expected to be $4.4 million.

USE OF NON-GAAP FINANCIAL MEASURES
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 a standardized meaning prescribed under IFRS and therefore it may not be comparable to a similar measure employed by other issuers.  The data is intended to provide additional information and should not be considered in isolation or as a substitute for a measure 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 direct operating expenses, when analyzing operating results. Management regards revenue from transportation services as the relevant indicator of business level activity. Accordingly, the percentages in the Financial Highlights table were calculated using revenue from transportation services alone as the base. In addition, direct 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 costs 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.