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IBI Announces Third Quarter Results
By: PR Newswire
Nov. 9, 2012 07:09 PM
TORONTO, Nov. 9, 2012 /CNW/ - IBI Group Inc. (the "Company") (TSX: IBG) today announced its financial results for the three and nine months ended September 30, 2012.
Revenue for the third quarter 2012 was approximately $3.0 million less than expectations. This was caused principally by the slowdown of the educational markets in the USA, particularly California, New York and the Pacific North West; the slowdown in the social infrastructure market in the UK; the suspension of a major toll project in Greece; and the decline in the level of activity in China. Additionally, the third quarter of 2012 had one working day less than the average quarter, representing approximately $1.4 million in revenue. Further compounding the lower revenue was greater vacation days typical of the third quarter compared to other quarters in the year.
The highlights of the third quarter ended September 30, 2012 are:
(1) See "Definition of Non-IFRS Measures"
Intensive efforts were made in the third quarter of 2012 to enhance ongoing performance which is expected to be achieved in the fourth quarter of 2012. These efforts include:
As a result of the above efforts, EBITDA1 for the fourth quarter is expected to result in the Company's highest to date.
Efforts also focused on enhancing free cash flow1. Cash collected from operations exceeded cash used in operations including dividend payments. This was achieved by:
(2) The Company corrected an amount for its 2011 quarterly reporting related to non-cash imputed interest. See Note 13 of the unaudited interim condensed financial statements for the three and nine months ended September 30, 2012.
IBI reports the working capital tied up (accounts receivable, work in process and deferred revenue) in terms of gross billings per day. The current level of the working capital tied up measured in gross billings is 147 days at the end of the third quarter 2012. This was a decrease of the equivalent of 9 days from the peak of 156 days at the end of the second quarter 2010. The 147 days at the end of the third quarter of 2012 is equal to the second quarter of 2012. Productive efforts in collection resulted in a decrease in accounts receivable of the equivalent of five working days compared to the second quarter of 2012. Work in process increased by four days, which largely arises from an increase in numerous new projects with large subconsultant work such as the Tel Aviv Red Line Transit project. Deferred revenue decreased by the equivalent of one day. As was achieved in the third quarter of 2012, Management continues its commitment to strive to reduce the total working capital tied up and enhance free cash flow1.
The policy of IBI Group is to maintain the current level of the dividend based on the current level of revenue and earnings, as IBI Group did through the first, second and third quarter of 2012. IBI Group will continue to strive to reduce accounts receivable as was achieved in the third quarter of 2012 and to grow the firm so as to increase revenue and earnings leading to the gradual reduction of the payout ratio1.
On April 20, 2012 the Company issued 2,700,000 common shares on a bought deal basis at a price of $15.00 per Share to a syndicate of underwriters for gross proceeds of $40.5 million.
The Company used the net proceeds from the Offering for debt reduction and intends to use the proceeds for potential future acquisitions and general corporate purposes.
Concurrent with the Offering, the Company completed, on a non-brokered private placement basis, the issuance of 667,000 Shares at $15.00 per Share to the Management Partnership in full satisfaction of $10.0 million of indebtedness owed by the Company to the Management Partnership.
IBI Group continued in the third quarter of 2012 to expand its capability. Notable areas of expansion of capability include:
(1) See "Definition of Non-IFRS Measures"
The scope of these efforts is validation of IBI Group's integrated operating model of providing comprehensive professional services to clients in Canada, the US and in international markets.
Strategic Program of Growth
On August 3, 2012, IBI closed the acquisition of the practice of Taylor Young Limited Architects and Master Planners ("Taylor Young") within the IBI Group of Firms. Taylor Young is a full services architectural practice including professional skills in urban planning and design and landscape architecture, based in Manchester, UK with offices in Liverpool and London. The firm has a strong reputation in the design of facilities in healthcare, education, housing, as well as urban planning/design and landscape design for a broad range of clients. The firm is highly experienced in sustainability of design integrated with such facilities. This acquisition will further enhance IBI's professional strength in the UK market, particularly in the Midlands and the North, as well as contribute to the growing strength of the global practice of the firm in health and education. Professional experience in urban planning and urban design, as well as landscape architecture and the architecture of housing in the UK will broaden the current areas of practice of the IBI capabilities in the UK. Taylor Young has a very broad range of clients in the public sector with over 70% of the business gained on a repeat basis with long established client relationships. The firm has approximately 100 staff members and is well managed with profitable operations and a strong backlog of committed work.
In the recent years IBI has achieved major strategic growth in the UK. IBI initiated operations in the UK in the early 1990's and established through organic growth1, a presence in intelligent systems applied to transportation and communications. This practice was involved recently in traffic control planning and management for the London Olympics. More recently, IBI acquired the firm of Nightingale, architects with an international reputation as a centre of excellence in the planning and design of hospitals and other health care facilities, and now more recently in the third quarter of 2012, the acquisition of Taylor Young.
The US continues to be the largest economy in the world and as such IBI will continue to focus on building our US business. IBI Group will continue to pursue existing areas of practise as well as an enhanced focus going forward on the architecture of health care facilities. In the context of the continuing under-performing economic environment in the US, there are outstanding opportunities for acquisition/strategic alliances with outstanding professional firms. The resources from these firms can also participate with IBI Group on work in Canada as well as other international markets as the economy of the US recovers.
The basic model of IBI is to initiate its presence through organic growth1 in geographic regions in which IBI believes it can effectively provide its professional services in the four broad areas of practice. Following that initial organic growth1 creating an initial core group, IBI then accelerates the growth through strategic acquisitions as has now been largely accomplished in Canada and the UK.
IBI will similarly consider acquisitions/alliances in other international markets including China, India, Eastern Europe, Brazil and Mexico. Similarly to Canada and the UK, the long-term growth in these emerging markets for IBI will be based on continuing organic growth1 on top of the expanded base achieved through strategic growth1. In longer term, that will place IBI in a sustainable model of generating additional net fee revenues, income and cash earned through continuing organic growth1 on a global platform and mitigate the requirement for significant amounts of additional capital for financing strategic growth1. In the third quarter of 2012 IBI Group succeeded in securing significant new projects in international markets.
(1) See "Definition of Non-IFRS Measures"
IBI Group is in various stages of negotiation with a number of firms who could add further strength to the IBI Group program in the US. Accordingly, the outlook for IBI Group for the fourth quarter of 2012 is encouraging.
Selected Consolidated Financial Information and Reconciliation of Non-IFRS Measures
Definition of Non-IFRS Measures
References in this MD&A to EBITDA are to earnings before interest, income taxes, depreciation and amortization, acquisition-related costs, foreign exchange gains and losses, fund distributions treated as an expense, fair value adjustment on financial liabilities and restructuring and special charges. Management of the Company believes that in addition to net earnings, EBITDA is a useful supplemental measure as it provides readers with an indication of cash available for dividend prior to debt service, capital expenditures and income taxes. Readers should be cautioned, however, that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of the Company's performance or to cash flows from operating activities as a measure of liquidity and cash flows. EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS, and the Company's method of calculating EBITDA may differ from the methods used by other similar entities. Accordingly, EBITDA may not be comparable to similar measures used by such entities. Reconciliations of net earnings to EBITDA have been provided under the headings "Selected Consolidated Financial Information" and "Summary of Quarterly Results".
The Company defines distributable cash as cash flow from operating activities before change in non-cash operating working capital, interest paid, income tax expense, acquisition-related costs, foreign exchange losses and after capital expenditures, foreign exchange gains, interest recovered, and income tax recovery, where applicable. Reconciliations of distributable cash to cash flow from operating activities have been provided under the headings "Distributable Cash" and "Summary of Quarterly Results". The Company's method of calculating distributable cash may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to distributable cash as reported by such entities. Management of the Company believes that distributable cash is a useful supplemental measure that may assist readers in assessing the return on an investment in Common Shares.
Payout ratio is defined by the Company as dividends declared plus Class B partnership distributions less shares issued under the DRIP in the period divided by distributable cash.
Free cash flow is defined by the Company as net cash provided by (used in) operating activities less purchases of property, plant and equipment in the period.
Strategic growth is defined by the Company as the additional revenue generated by new acquisitions in the period as compared to the prior period revenue.
Organic growth is defined by the Company as the additional revenue generated in the period, excluding any revenue generated by new acquisitions in the period, as compared to the prior period revenue.
Other operating costs (other than interest) is defined by the Company as the sum of rent, other operating expenses and impairment of financial assets.
Other finance costs is defined by the Company for the purposes of the MD&A as other finance costs as recorded in the consolidated financial statements of the Company less deferred transaction costs and change in the fair value of interest rate swap.
Acquisition-related costs are defined by the Company as legal, accounting and other fees incurred in the period relating to acquisitions.
Adjusted net earnings is equal to the earnings for the period plus a one time non-cash adjustment on conversion to a corporation for 2011.
Basic and diluted adjusted net earnings per share is equal to the adjusted net earnings for the period divided by the weighted average number of Class A shares outstanding during the period.
Standardized distributable cash is defined by the Company as net cash provided by (used in) operating activities less capital expenditures.
Investor Conference Call
The Company will hold a conference call on November 12, 2012 at 8:30 a.m. Eastern Standard Time (EST). To participate in the conference call, please dial in before 8:30 a.m. EST to 1-800-381-7839 for local and toll-free North American access, or 1-212-231-2900 for international access.
An audio replay of the call will be available for 14 days, by dialling 416-626-4100 for local and international access, or 1-800-558-5253 for toll-free North American access, passcode 21605867 followed by the number sign on your telephone keypad.
SOURCE IBI Group Inc.
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