Primary Energy Reports Second Quarter Results

OAK BROOK, IL, Aug. 3, 2011 /PRNewswire/ - Primary Energy Recycling Corporation (the "Company" or "Primary Energy") (TSX: PRI), a clean energy company that generates revenue from capturing and recycling recoverable heat and byproduct fuels from industrial processes, today announced its financial and operational results for the second quarter ended June 30, 2011.

Financial Highlights              

Second Quarter Highlights

• Contract renegotiation discussions with the site hosts for the Company's Portside Energy project are moving to an advanced stage, while negotiations for Cokenergy are expected to begin shortly;
• Announced a long-term energy services agreement with the host for Primary Energy's North Lake Energy facility. North Lake is required to increase its plant capacity by 20% to 90 megawatts in a two-phase project estimated to cost $11 to $12 million. The upgrades are designed so the facility can accept steam from host's new $63.2 million blast furnace gas-fired boiler, which is currently under construction. The new agreement is for the economic or functional life of the plant which is expected to be at least 30 years;
• Began market research to identify the potential for recycled energy and high efficiency CHP growth opportunities;
• Completed the consolidation of its issued and outstanding common shares. The consolidation was implemented on the basis of one post-consolidation common share for three existing common shares. Primary Energy common shares began trading on a consolidated basis on the Toronto Stock Exchange at the opening of trading on May 19, 2011. The consolidation has reduced the number of common shares outstanding from 134,118,561 to 44,706,187.  The percentage ownership by the minority shareholder of Primary Energy Recycling Corporation remains unchanged at 14.3%;
• Paid down 8.9% of the Company's secured term loan to a balance of $58.4 million;
• Reported a five-year high in both Total Gross Electric Production and Harbor Coal utilization rates.

"With the North Lake contract renewed, the Portside contract negotiations at an advanced stage and the start of the Cokenergy contract negotiations expected shortly, the future for the Company appears positive," said John Prunkl, President and Chief Executive Officer of Primary Energy Recycling. "Our energy recycling and combined heat and power projects are operating at high levels, and the prospect for renewing the remaining contracts is high. As our debt declines, and as project renewal discussions move forward, we are better positioned every month to further capitalize on the energy recycling and high efficiency CHP opportunities in North America."

Operational Highlights

Second Quarter Financial Results
The Company's revenue of $13.3 million in the second quarter of 2011 increased $0.1 million, or 0.6%, compared with revenue of $13.2 million for the second quarter of 2010.  The increase is related to the variable portion of Energy Service revenue.  Market conditions in the steel industry improved in the second quarter of 2011 compared to the same period in 2010 and resulted in increased steel production at the Company's site hosts, but North Lake experienced reduced operations due to maintenance of host's equipment which negatively impacted revenue by $0.3 million. The Ironside facility operated during the second quarter of 2011 but was out of service during the same period in 2010 which positively impacted revenue by $0.4 million. 

The Company's revenue of $26.1 million in the first six months of 2011 decreased $0.4 million, or 1.5%, compared with revenue of $26.5 million for the first six months of 2010.  The decrease is related to the variable portion of Energy Service revenue.  North Lake experienced reduced operations due to the planned upgrade and overhaul and maintenance of host's equipment which negatively impacted revenue by $1.1 million.  The Ironside facility operated during the first six months of 2011 but was out of service during the same period in 2010 which positively impacted revenue by $0.6 million.

Equity in earnings of joint venture for the second quarter of 2011 was $1.1 million compared to $1.0 million for the second quarter of 2010, an increase of $0.1 million.  The net increase is the result of reduced operating expenses of $0.2 million offset by reduced revenue of $0.1 in the period from the Company's investment in PCI Associates. Equity in earnings of joint venture for the first six months of 2011 was $2.1 million compared to $1.8 million for the first six months of 2010, an increase of $0.3 million.  The net increase is the result of reduced operating expenses of $0.4 million offset by reduced revenue of $0.1 million in the current year from the Company's investment in PCI Associates.

Operations and maintenance expense for the second quarter of 2011 was $4.1 million compared to $3.3 million for the second quarter of 2010, an increase of $0.8 million or 25.1%.  Operations and maintenance expense for the first six months of 2011 was $6.8 million compared to $5.4 million for the first six months of 2010, an increase of $1.4 million or 28.2%.  The increases for both the quarterly and six month periods were primarily due to additional expenses associated with boiler repairs, cooling tower system work, environmental control system repairs and general maintenance and labor.

Interest expense for the second quarter of 2011 was $1.7 million compared to $2.6 million for the second quarter of 2010, a decrease of $0.9 million.  Interest expense for the first six months of 2011 was $3.5 million compared to $5.4 million for the first six months of 2010, a decrease of $1.9 million.  The decreases for both the quarterly and six month periods were primarily due to the reduced level of debt outstanding under the Company's Credit Facility partially offset by increased amortization of deferred finance fees.

Operating income for the second quarter of 2011 was $1.3 million compared to $0.7 million for the second quarter of 2010, an increase of $0.6 million. Operating income for the first six months of 2011 was $1.9 million compared to $2.3 million for the first six months of 2010, a decrease of $0.4 million.  The decreases were driven by the net effect of the items discussed above.

Net loss and comprehensive loss for the second quarter of 2011 was $0.8 million compared to $2.8 million for the second quarter of 2010, an improvement of $2.0 million. Net loss and comprehensive loss for the first six months of 2011 was $3.1 million compared to $4.5 million for the first six months of 2010, an improvement of $1.4 million.

The Company's full financial statements and Management's Discussion and Analysis for the quarter ended June 30, 2011 are available at www.sedar.com or the Company's website at www.primaryenergyrecycling.com.

International Financial Reporting Standards ("IFRS) Impact
The three months ended June 30, 2011 was the Company's second reporting period under IFRS.  As anticipated and disclosed in the fourth quarter of 2010, the adoption of IFRS had an impact on the presentation of the Company's 2011 second quarter financial results. From an income standpoint, depreciation is impacted as a result of the componentization of the major aspects of property plant and equipment along with the capitalization of overhaul activity that previously had been expensed as part of operations and maintenance expenses.

Additionally, the reporting of the financial activity of the Company's investment in the PCI partnership is impacted due to the use of the equity method versus the proportionate consolidation method.

Additional IFRS information can be found in Primary Energy's full financial statements and Management's Discussion and Analysis for the quarter ended June 30, 2011.

Conference Call and Webcast
Management will host a conference call to discuss the second quarter results on Thursday, August 4, 2011 at 10 am ET.  Following management's presentation, there will be a question and answer session. To participate in the conference call, please dial (888) 231-8191 or (647) 427-7450.

A digital conference call replay will be available until midnight on August 11, 2011 (ET) by calling (800) 642-1687 or (416) 849-0833. Please enter the passcode 83046587 when instructed. A webcast replay will be available for 90 days by accessing a link through the Investor Information section at www.primaryenergyrecycling.com.

Forward-Looking Statements
When used in this news release, the words "anticipate", "expect", "project", "believe", "estimate", "forecast", "outlook" and similar expressions, are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions pertaining, but not limited, to recovery in the steel industry, continued strong performance from the mills we serve consistent with historic patterns, timely renewal of contracts at the Company's facilities, no protracted outages (planned or unplanned) for any of our facilities (except as described in this press release), operating and maintenance costs and general and administrative costs being similar to recent years except as described in this press release, regulatory parameters, weather and economic conditions and other factors discussed in the Company's public filings available on SEDAR at www.sedar.com. Additional risks and uncertainties not currently known or that are currently deemed to be immaterial may also materially and adversely affect the Company's business operations and outlook. Any of the matters highlighted in the Company's risk factor disclosure could have a material adverse effect on the Company's results of operations, business prospects and outlook, financial condition or cash flow, in which case, the market price or value of the Company's Common Shares could be adversely affected. These forward-looking statements are made as of the date of this press release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

About Primary Energy Recycling Corporation
Primary Energy Recycling Corporation owns a majority interest in Primary Energy Recycling Holdings LLC ("PERH"). PERH, headquartered in Oak Brook, Illinois, indirectly owns and operates four recycled energy projects and a 50 per cent interest in a pulverized coal facility (collectively, the "Projects"). The Projects have a combined electrical generating capacity of 283 megawatts and a combined steam generating capacity of 1.8M lbs/hour. PERH creates value for its customers by recycling recoverable heat and byproduct fuels from industrial and electric generation processes and converting it into reliable and economical electricity and thermal energy for resale back to its customers. For more information, please see www.primaryenergyrecycling.com.

¹As used herein, EBITDA means earnings before interest, taxes, depreciation and amortization and certain other adjustments as noted in the table below.  EBITDA is reconciled to net loss and comprehensive loss in the table below.  EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other companies.

²As used herein, Free Cash Flow means net cash provided by operating activities as adjusted for capital expenditures.  These amounts are derived from those reflected in the consolidated statements of cash flows in the Company's publicly filed unaudited interim consolidated financial statements.  Free Cash Flow is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, Free Cash Flow may not be comparable to similar measures presented by other companies.

³ Total Gross Electric Production means the aggregate amount of electricity produced by all of the Company's facilities during the period. The amount is gross generation and is not reduced by internal electric usage of the facilities' auxiliary equipment. The unit of measure is megawatt hours (MWh).  Due to the fixed and variable nature of customer contracts, MWh production cannot be directly tied to financial performance.

⁴ Total Thermal Energy Delivered means the aggregate amount of heat energy contained in the steam and heated water delivered to customers by all of the Company's facilities during the period. The unit of measure is million of British Thermal Units (MMBTU). Due to the fixed and variable nature of customer contracts, MMBTU production cannot be directly tied to financial performance.

⁵ Harbor Coal Utilization is a factor that incorporates the production level of a blast furnace and the amount of coal utilization per unit of blast furnace production as compared to a reference blast furnace production level and coal utilization rate per unit of blast furnace production. The measurement unit is a ratio expressed as a percentage.

Management believes that EBITDA, Free Cash Flow, Total Gross Electric Production, Total Thermal Energy Delivered and Harbor Coal Utilization provide useful supplemental information regarding the performance of the Company, facilitate comparisons of historic periods and are indicative of the Company's operating results.  Note however, that these items are performance measures only, and do not provide any measure of the Company's cash flow or liquidity, and are not a substitute for IFRS financial measures.

Non-IFRS Measures
The Company reports its financial results in accordance with IFRS. The Company's management also evaluates and makes operating decisions using various other measures.  Two such measures are EBITDA and Free Cash Flow, which are non-IFRS financial measures. We believe these measures provide useful supplemental information regarding the performance of Company's business.

 

 

 

 

 

 

 

 

SOURCE Primary Energy Recycling Corporation