One time charge in Q4 results in net income loss, expected to be confined to 2017
WINNIPEG – April 30, 2018 – Empire Industries Ltd. (TSX-V: EIL) (“Empire”, “EIL” or the “Company”) today reported its audited consolidated financial results for the year ended December 31, 2017. The audited consolidated financial statements and MD&A have been filed on SEDAR and can be viewed at www.sedar.com or at www.empind.com.
Summary of 2017 consolidated annual results
- Revenues increased to $123.6 million, up 4.7% from $118.0 million in 2016.
- Net loss of $11.6 million versus prior year profit of $4.0 million. Virtually all of this loss was caused by three, “first-generation” design/build ride contracts. A provision of $14.0 million was accrued in Q4 2017 because management increased its estimated cost to complete on these three challenging contracts. This increased provision caused the operating profit of $8.4 million at Q3 2017 swing to an operating loss of $1.8 million for the year ended 2017.
- Per Share Net Loss was $0.17 in 2017, down from Net Income of $0.02 in 2016.
- Excluding these three first-generation projects but including the remaining 14 active projects, Normalized Revenue in 2017 was $115.1 million and Normalized EBITDA in 2017 was $10.8 million (9.4% EBITDA Margin).
- Cash from operating activities was positive $3.3 million versus negative $6.3 million the prior year
- Contract Backlog at the end of 2017 was $230 million down $5 million from $235 million at the end of the Company’s third quarter 2017.
- Bank Indebtedness at year end decreased $4.7 million to $2.2 million from $6.9 million the prior year. The Company’s financial performance tripped banking covenants with its senior lender; however, the Company received a waiver from its senior lender subsequent to year end.
- Shareholders’ Equity as of December 31, 2017 was $20.8 million compared to $20.1 million the prior year end. The 2017 Net loss was largely offset by equity raises completed in 2017
- The $31 million coventure financing announced on August 28, 2017 is proceeding according to plan. The Company raised $8.5 million of equity in 2017 for the co-venture initiative and our co-venture strategic partner remains committed to funding $16.5 million of equity. The Company remains committed to funding the remaining $6 million as planned.
- Total Assets at year-end were $86.4 million versus $78.7 million the prior year.
“In 2017, Empire Industries aggressively positioned itself to capture a greater share of the rapidly growing global attractions market,” states Guy Nelson, Empire’s Executive Chairman and CEO. “However, I am disappointed to announce that the Company decided to take a $14.0 million provision in the final quarter of the fiscal year to allow for higher estimated costs to complete its three, first-generation projects actively in factory and site acceptance stages of execution.”
“The simultaneous designing and building of three first-generation ride systems was the principal reason for the $11.6 million loss in 2017 because it stretched our human resources and resulted in schedule delays which all led to material cost over-runs. We have vigorously scrutinized what led to the cost overruns, learned and improved our processes, and strengthened our leadership team. Moving forward, we have restricted first-generation ride development to funded programs with customer sponsorship which is a better way to mitigate the risk of continuing to develop industry leading iconic rides,” explains Mr. Nelson. “A detailed operations plan addressing the challenges has been prepared by Hao Wang, the new President and COO, of Dynamic Attractions, and is being implemented. We are confident that the issues that led to the $14.0 million provision have been contained to 2017’s fourth quarter.”
Notwithstanding the disappointment arising from these three first-generation contracts, it was a landmark year for sales. This has continued into 2018, as the Company announced today that it has just signed a strategic alliance agreement with a major theme park developer in Asia, locking up Dynamic’s commitment to supply three of our proprietary ride systems for a total of USD $93 million within 24 months of executing each of the theme park-level supply contracts. The first two such theme park-level agreements are in the process of being finalized and the third such agreement is expected before year end. When the supply agreements are executed, the contracts will be added to backlog.
“The sale of our iconic media-based attraction rides, together with our reduced indirect and overhead expenditures, will improve our EBITDA margins to acceptable levels.” states Nelson. “Our strengthened operational leadership under our newly-appointed President and COO is aligning our vision, reorganizing our delivery, improving our manufacturing and procurement processes and reducing our overhead. These combined actions are to return us to profitability in 2018 and beyond, which is the primary focus of our strategy going forward.”
In 2017, Empire launched its Co-Venture initiative, that is focused on taking its world class Flying Theater to selected major tourist destinations and to co-own and operate the Company’s Flying Theater with the local owner and operator. Efforts to secure locations in North America and China are underway. The $31 million coventure financing announced on August 28, 2017 is proceeding according to plan. The Company raised $8.5 million of equity in 2017 for the co-venture initiative and our co-venture strategic partner remains committed to funding $16.5 million of equity. The Company remains committed to funding the remaining $6.0 million as planned. “Co-Ventures may be our most exciting initiative ever,” states Mr. Nelson. “It leverages Empire’s strengths as a supplier of iconic attractions, expands the Company’s reach in a new part of the market, and prepares us for a stream of recurring revenue and profits.” The Company expects to announce its first Co-Venture site in 2018 with an opening in 2019.”
Summary of 2017 Consolidated Financial Results
|For the quarter and year ended December 31|
|($ millions)||Q4 2016|
|Adjusted EBITDA ($)1||(1.8)||5.6||(10.2)||1.2|
|Adjusted EBIT ($)1||(9.3)||0.5||(12.1)||(0.6)|
|Net income from all operations||(11.6)||4.0||(14.0)||(2.6)|
Financial Position (at December 31)
Per Share Information (Basic & Diluted)
|Income per share – continuing operations||(0.17)||0.02||(0.20)||(0.04)|
|Income per share – discontinued operations||–||0.04||–||–|
|Income per share – all operations||(0.17)||0.06||(0.20)||(0.04)|
1 Adjusted earnings (loss) before interest, tax, depreciation and amortization (Adjusted EBITDA) is not defined by IFRS. The definition of Adjusted EBITDA does not take into account the Company’s share of profit of an associate investment, gains and losses on the disposal of assets, fair value changes in foreign currency forward contracts and non-cash components of stock based compensation. Adjusted EBIT is the result of the Company’s Adjusted EBITDA less depreciation and amortization expenses. While not IFRS measures, Adjusted EBITDA and Adjusted EBIT are used by management, creditors, analysts, investors and other financial stakeholders to assess the Company’s performance and management from a financial and operational perspective.
Conference Call Information
Empire’s management team will be holding an investor/analyst conference call to discuss the 2017 results and the outlook for the company. The call-in details are as follows:
Time/Date: Tuesday, May 1, 2018 at 11:00AM Eastern Time
Dial-in Number: 1-800-319-4610 (Canada/USA toll-free)
Callers should dial in 5 – 10 minutes prior to the scheduled start time and ask to join the Empire Industries 2017 Results Conference Call.
About Empire Industries Ltd.
Empire focuses on designing, supplying, and installing iconic media-based attractions and ride systems for the global theme park industry. Empire also uses these same turn-key integration services for special projects such as large optical telescopes and enclosures. Empire also has commenced an initiative to leverage its world class flying theater and attraction development capability on a co-venture ownership basis. Empire’s common shares are listed on the TSX Venture Exchange under the symbol EIL. Empire’s common shares are listed on the TSX Venture Exchange under the symbol EIL.
For more information about the Company, visit www.empind.com or contact:
Chief Executive Officer
Phone: (416) 366-7977
Vice President – Corporate Affairs and Administration
Phone: (204) 589-9301
This news release contains forward-looking statements, within the meaning of applicable securities legislation, concerning Empire’s business and affairs. In certain cases, forward-looking statements can be identified by the use of words such as ‘‘plans’’, ‘‘expects’’ or ‘‘does not expect’’, ‘‘budget’’, ‘‘scheduled’’, ‘‘estimates’’, “forecasts’’, ‘‘intends’’, ‘‘anticipates’’, “believes” or variations of such words and phrases or state that certain actions, events or results ‘‘may’’, ‘‘could’’, ‘‘would’’, ‘‘might’’ or ‘‘will be taken’’, ‘‘occur’’ or ‘‘be achieved’’. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although Empire believes these statements to be reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. Such statements include statements with respect to the expected execution of the theme park agreements and the shipping dates of the three rides. Actual results could differ materially from those anticipated in these forward-looking statements as a result of prevailing economic conditions, and other factors, many of which are beyond the control of Empire. The forward-looking statements contained in this news release represent Empire’s expectations as of the date hereof, and are subject to change after such date. Empire disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable securities regulations.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.