NEWS RELEASE
FOR IMMEDIATE RELEASE
CE Franklin Ltd. announces 2011 Third Quarter Results
Calgary, Alberta, October 27, 2011 – CE FRANKLIN LTD. (TSX.CFT, NASDAQ.CFK)reported net earnings of $4.8 million or $0.27 per share for the third quarter ended September 30, 2011 a significant increase from net earnings of $2.2 million or $0.12 per share generated in the third quarter ended September 30, 2010.
Financial Highlights
| | | | | | | | | | | |
(millions of Cdn. $ except per share data) | |
| | Three Months Ended | | Nine Months Ended | |
| | | September 30 | | September 30 | |
| | 2011 | | 2010 | | 2011 | | 2010 | |
| | | Unaudited | | Unaudited | |
| | | | | | | | | | | |
Revenues | | 140.5 | | | 132.2 | | 392.0 | | 353.9 | |
Gross Profit | | 23.9 | | | 19.2 | | 65.4 | | 54.5 | |
Gross Profit - % of sales | | 17.0 | % | | 14.5 | % | 16.7 | % | 15.4 | % |
EBITDA (1) | | 7.7 | | | 3.8 | | 16.0 | | 8.7 | |
EBITDA (1) - % of sales | | 5.5 | % | | 2.9 | % | 4.1 | % | 2.5 | % |
Net earnings | | 4.8 | | | 2.2 | | 9.8 | | 4.3 | |
Per share | | | | | | | | | | |
| Basic | | 0.27 | | | 0.12 | | 0.56 | | 0.24 | |
| Diluted | | 0.26 | | | 0.12 | | 0.54 | | 0.24 | |
Net working capital (2) | | 134.6 | | | 129.0 | | | | | |
Long term debt / Bank operating loan (2) | $ | 5.8 | | $ | 14.4 | | | | | |
“Improved product margins, supported by disciplined revenue growth lead to increased profitability. Activity levels are expected to remain at or above prior year levels as the industry works through this period of economic volatility” said Michael West, President and CEO.
The September 30, 2011 condensed interim consolidated financial statements are prepared under International Financial Reporting Standards (“IFRS”). Consequently the comparative figures for 2010 and the Company’s statement of financial position as at January 1, 2010 have been restated from accounting principles generally accepted in Canada (“Canadian GAAP”) to comply with IFRS. The reconciliations from the previously published Canadian GAAP financial statements are summarized in Note 3 to the condensed interim consolidated financial statements, and there were no material differences.
Net earnings for the third quarter of 2011, were $4.8 million, an increase of $2.6 million from the third quarter of 2010. Revenues were $140.5 million, an increase of $8.3 million (6%) from the third quarter of 2010. Industry activity continued to improve and is focused on oil, oil sands and liquid rich natural gas plays. Well completions increased 34% compared to the third quarter of 2010. Capital project business revenue grew $6.2 million year over year due to improved industry activity levels. Gross profits increased by $4.7 million (24%) due to the increase in revenues and improved gross profit margins year over year. Average gross profit margins were consistent with the second quarter of 2011 but improved over the third quarter 2010 average gross profit margin, as increased purchasing levels contributed to higher volume rebate income. Selling, general and administrative expenses increased by $2.3 million (15%) from prior year to $17.8 million for the quarter as compensation and operating costs have increased in response to higher revenue levels. During the quarter, the Company moved its head office location within downtown Calgary and as a consequence recorded a one time lease charge of $0.7 million in relation to its old head office lease obligations net of expected sublease revenue. The Company also recorded an unrealized foreign exchange gain of $1.0 million in the quarter on foreign exchange contracts used to manage currency exposure on US denominated product purchases. The weighted average number of shares outstanding during the third quarter was consistent with the prior year period as the rise in share price during the last year has limited the activity occurring under the normal course issuer bid program. Net earnings per share (basic) was $0.27 in the third quarter of 2011, compared to net earnings of $0.12 per share in the third quarter of 2010.
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Net earnings for the nine months ended September 30, 2011 at $9.8 million was more than double the net income for the same prior year period. Revenues were $392.0 million, an increase of $38.1 million (11%) over the comparable 2010 period due to improvements in capital project and maintenance repair and operating revenues. Well completions have increased 32% year over year as industry activity continues to build. Gross profit was up $10.9 million (20%) due to the increase in revenues combined with an increase in vendor rebate income due to increased purchasing levels. Selling, general and administrative expenses increased by $5.4 million (12%) to $51.2 million for the nine months ended for the same reasons they were higher in the third quarter. Income taxes increased by $1.9 million for the nine months ended September 30, 2011 compared to the prior year period due to higher pre-tax earnings. The weighted average number of shares outstanding (basic) during the third quarter was consistent with the prior year period as the rise in share price during the last year has limited the activity occurring under the normal course issuer bid program. Net earnings per share (basic) was $0.56 for the nine months ended September 30, 2011, compared to $0.24 earned in same prior year period.
Business Outlook
Oil and gas industry activity in 2011 is expected to remain at or above 2010 levels for the remainder of the year. Natural gas prices remain depressed as North American production capacity and inventory levels continue to dominate demand. Natural gas capital expenditure activity is focused on the emerging shale gas plays in northeastern British Columbia and liquid rich gas plays in northwestern Alberta where the Company has a strong market position. Conventional and heavy oil economics are attractive at current price levels leading to continuing activity in eastern Alberta and southeast Saskatchewan. Oil sands project announcements continue at current oil price levels. Approximately 50% to 60% of the Company’s total revenues are driven by our customers’ capital expenditure requirements. CE Franklin’s revenues are expected to increase modestly in 2012 as the oil and gas industry activity levels remain relatively consistent with 2011 levels.
Gross profit margins are expected to remain under pressure as customers that produce natural gas focus on reducing their costs to maintain acceptable project economics and due to continued aggressive oilfield supply industry competition as industry activity levels remain below the last five year average. The Company will continue to manage its cost structure to protect profitability while maintaining service capacity and advancing strategic initiatives.
Over the medium to longer term, the Company’s strong financial and competitive positions should enable profitable growth of its distribution network through the expansion of its product lines, supplier relationships and capability to service additional oil and gas and other industrial end use markets.
(1)
EBITDA represents net earnings before interest, taxes, depreciation and amortization. EBITDA is supplemental non-GAAP financial measure used by management, as well as industry analysts, to evaluate operations. Management believes that EBITDA, as presented, represents a useful means of assessing the performance of the Company’s ongoing operating activities, as it reflects the Company’s earnings trends without showing the impact of certain charges. The Company is also presenting EBITDA and EBITDA as a percentage of revenues because it is used by management as supplemental measures of profitability. The use of EBITDA by the Company has certain material limitations because it excludes the recurring expenditures of interest, income tax, and depreciation expenses. Interest expense is a necessary component of the Company’s expenses because the Company borrows money to finance its working capital and capital expenditures. Income tax expense is a necessary component of the Company’s expenses because the Company is required to pay cash income taxes. Depreciation expense is a necessary component of the Company’s expenses because the Company uses property and equipment to generate revenues. Management compensates for these limitations to the use of EBITDA by using EBITDA as only a supplementary measure of profitability. EBITDA is not used by management as an alternative to net earnings, as an indicator of the Company’s operating performance, as an alternative to any other measure of performance in conformity with generally accepted accounting principles or as an alternative to cash flow from operating activities as a measure of liquidity. A reconciliation of EBITDA to Net earnings is provided within the Company’s Management Discussion and Analysis. Not all companies calculate EBITDA in the same manner and EBITDA does not have a standardized meaning prescribed by GAAP. Accordingly, EBITDA, as the term is used herein, is unlikely to be comparable to EBITDA as reported by other entities.
(2)
Net working capital is defined as current assets less cash and cash equivalents, accounts payable and accrued liabilities, current taxes payable and other current liabilities. Net working capital and long term debt / bank operating loan amounts are as at quarter end.
Additional Information
Additional information relating to CE Franklin, including its third quarter 2011 Management Discussion and Analysis and interim consolidated financial statements and its Form 20-F / Annual Information Form, is available under the Company’s profile on the SEDAR website atwww.sedar.com and atwww.cefranklin.com.
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Conference Call and Webcast Information
A conference call to review the 2011 third quarter results, which is open to the public, will be held on Friday, October 28, 2011 at 11:00 a.m. Eastern Time (9:00a.m. Mountain Time).
Participants may join the call by dialing 1-647-427-7450 in Toronto or dialing 1-888-231-8191 at the scheduled time of 11:00 a.m. Eastern Time. For those unable to listen to the live conference call, a replay will be available at approximately 2:00 p.m. Eastern Time on the same day by calling1-416-849-0833 in Toronto or dialing1-855-859-2056 and entering the Passcode of15091601and may be accessed until midnight November 4, 2011.
The call will also be webcast live at:http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3683680 and will be available on the Company’s website athttp://www.cefranklin.com.
Michael West, President and Chief Executive Officer will lead the discussion and will be accompanied by Derrren Newell, Vice President and Chief Financial Officer. The discussion will be followed by a question and answer period.
About CE Franklin
For more than half a century, CE Franklin has been a leading supplier of products and services to the energy industry. CE Franklin distributes pipe, valves, flanges, fittings, production equipment, tubular products and other general oilfield supplies to oil and gas producers in Canada as well as to the oil sands, refining, heavy oil, petrochemical, forestry and mining industries. These products are distributed through its 43 branches, which are situated in towns and cities serving particular oil and gas fields of the western Canadian sedimentary basin.
Forward-looking Statements: The information in this news release may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and other applicable securities legislation. All statements, other than statements of historical facts, that address activities, events, outcomes and other matters that CE Franklin plans, expects, intends, assumes, believes, budgets, predicts, forecasts, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements and refer to the Form 20-F or our annual information form for further detail.
For Further Information Contact:
Investor Relations
800-345-2858
403-531-5604
investor@cefranklin.com
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