Strongco Announces Fourth Quarter and Full Year 2012 Results

Tue Mar 19, 2013 9:00pm EDT

* Reuters is not responsible for the content in this press release.


Strongco Corporation

March 19, 2013 - 09:00:21 PM

Strongco Announces Fourth Quarter and Full Year 2012 Results

MISSISSAUGA, ONTARIO--(Marketwire - March 19, 2013) - Strongco Corporation
(TSX:SQP) today reported financial results for the fourth quarter and year
ended December 31, 2012.


--  Total revenues increased by 10% to $464.2 million 
--  Gross margin increased by 7% to $86.5 million 
--  Operating earnings increased by 9% to $18.5 million 
--  EBITDA increased to $49.1 million from $43.1 million 
--  Net income totalled $7.6 million compared to $9.9 million 
--  Earnings per share of $0.58 compared to $0.76 per share 

(i) Comparisons are between full year 2012 and full year 2011

"In 2012, Strongco increased revenues, gross margin and EBITDA. At the same
time, we expanded our market presence with the opening of four new branches in
regional markets across Canada. We are already seeing the benefit of the
investment in these new branches as our clients have responded positively to
our greater commitment to better service," said Robert Dryburgh, President and
Chief Executive Officer of Strongco. "However, we have accumulated a higher
level of inventory to mitigate our concerns arising from the poor delivery of
equipment we experienced in 2011. As a result, related equipment notes were
higher than planned as was the corresponding interest that offset the gains we
made in operating profits, reducing net income year over year." 

Financial Highlights(i)                                                     
($ millions except per share amounts)                                       
Period ended December 31                   3 months           12 months     
                                          2012      2011      2012      2011
Revenues                             $   115.9 $   113.2 $   464.2 $   423.2
Gross margin                              20.7      20.8      86.5      80.6
EBITDA                                    13.1      12.5      49.1      43.1
Net income                                 0.6       2.1       7.6       9.9
Basic and diluted earnings per share $    0.05 $    0.15 $    0.58 $    0.76
(i) All financial information conforms to International Financial Reporting 

Fourth Quarter 2012 Review 

Total revenues in the three months ended December 31, 2012 were $115.9
million, up 2% from the fourth quarter of 2011. Equipment sales increased by
1% from last year to $75.0 million; rental revenues were $10.4 million, up 17%
from $8.9 million; and product support revenues totalled $30.5 million
compared to $29.8 million from the same period in the prior year. 

Gross margin decreased by $0.1 million to $20.7 million during the fourth
quarter of 2012. As a percentage of revenue, the overall gross margin was
17.9%, down from 18.4% last year due primarily to a lower margin on equipment

Administrative, distribution and selling expenses during the fourth quarter
totalled $17.7 million compared to $17.0 million in 2011. Expenses were higher
in the fourth quarter of 2012 due in part to the incremental operating
expenses of new branches and as a result of additional employees hired at
Canadian operations to support revenue growth. 

EBITDA for the fourth quarter decreased slightly to $13.1 million from $12.5
million a year earlier.

Strongco is now fully taxable whereas the company was able to utilize loss
carry forwards to offset tax expenses in 2011. Consequently, Strongco's net
income in the fourth quarter of 2012 was $0.6 million ($0.05 per share),
compared to $2.1 million ($0.15 per share) in the fourth quarter of 2011. 

Fiscal 2012 Financial Review

Revenues for 2012 totalled $464.2 million, including $56.1 million from
Chadwick-BaRoss. This compared to $423.2 million in total revenue for Strongco
in 2011.

Strongco's equipment sales increased by 11% in 2012 to $305.5 million,
following a 50% increase in 2011. Rental revenue in 2012 was $32.3 million,
which was up 9% from 2011; product support revenues were higher in 2012 in all
regions of Canada, as well as at Chadwick-BaRoss in the United States.

As a result of higher overall revenues in 2011 and 2012, gross margins
increased by 7% in 2012 to $86.5 million. As a percentage of revenues, total
gross margin in 2012 was 18.6% compared to 19.0% last year. The slight
decrease was primarily the result of a higher proportion of equipment sales in
2012 and 2011, which offer lower margin percentages than product support
activity and rentals.

Administrative, distribution and selling expenses in 2012 increased by 8% to
$69.8 million. As a percentage of revenue, administrative, distribution and
selling expenses were 15.0% in 2012, down slightly from 15.3% in 2011. 

The Company's EBITDA in 2012 increased to $49.1 million compared to $43.1
million in 2011.

Strongco ended the year with a net income of $7.6 million or $0.58 per share,
compared to $9.9 million or $0.76 per share in 2011.


"Management remains cautiously optimistic that while demand for heavy
equipment may soften in the near term in certain regions, Strongco's recent
investments, new branches and planned investment in additional new facilities,
will lead to an increase in revenues in 2013 and further growth in the
future," said Mr. Dryburgh.

Most economists are forecasting continued modest economic growth in Canada
overall in 2013, although the pace of growth is expected to be lower than in
2012. As a result, construction markets across the country are generally
expected to remain active, which should result in continued demand for heavy
equipment. However, the demand will vary from region to region. While the
long-term outlook for Alberta is positive, the high cost of refining oil from
bitumen (the oil sand raw material) and the high cost of transportation have
created an air of caution regarding the pace of activity in the oil sands. As
a result, there is concern that the demand for heavy equipment in the region
could soften with most of the reduction affecting large equipment used
directly in the oil sands. We expect that less expensive equipment used for
infrastructure development in the region would be less impacted and that the
increased presence in the market with new branches will mitigate any market

Demand for heavy equipment in Quebec has declined recently, prompted by the
Charbonneau Commission's investigation of corruption in the construction
industry and the announcement of a suspension of infrastructure spending by
the newly elected provincial government in Quebec. However, both of these
government actions are viewed as temporary as there is growing pressure to
resume spending to repair and replace the seriously deteriorating
infrastructure in the province. In addition, mining and infrastructure
activity in Northern Quebec continues despite the uncertainty surrounding
development activity following last year's provincial election.

In Ontario, while construction markets have shown recovery from the recession,
there remains an overall lack of optimism and uncertainty over the economy
which has caused many customers to curtail spending on heavy equipment and
take a wait-and-see approach toward the marketplace in general. Increased
activity and planned development in the mining sector in northern Ontario and
continued spending on infrastructure across the province are expected to lead
to ongoing demand for heavy equipment. 

With the recent evidence of recovery in residential housing markets and the
increased level of new job creation, economists are also projecting modest
economic growth in 2013 in the United States with a bias towards second half
growth. This is a positive indicator for ongoing recovery in construction
markets and demand for heavy equipment.

Strongco's sales backlogs grew during the first quarter of 2012 and remained
robust through the balance of the year. In addition, the level of rental
contracts with purchase options ("RPOs") activity increased throughout 2012
and at year end, there was $48.0 million of equipment inventory on RPO
contracts. The strong backlog and level of RPO's are a positive indication of
the continued demand for heavy equipment.

Conference Call Details

Strongco will hold a conference call on Wednesday, March 20, 2013 at 10:00 am
ET to discuss fourth quarter and year end results. Analysts and investors can
participate by dialing 416-644-3414 or toll free 1-800-814-4859. An archived
audio recording will be available until midnight on April 3, 2013. To access
it, dial 416-640-1917 and enter passcode 4589630#.

About Strongco Corporation

Strongco Corporation is a major multiline mobile equipment dealer with
operations across Canada and in the United States. Strongco sells, rents and
services equipment used in sectors such as construction, infrastructure,
mining, oil and gas, utilities, municipalities, waste management and forestry.
The Company has approximately 690 employees serving customers from 26 branches
in Canada and five in the United States, operating under Chadwick-BaRoss.
Strongco represents leading equipment manufacturers with globally recognized
brands, including Volvo Construction Equipment, Case Construction, The
Manitowoc Company, National, Grove, Terex Cedarapids, Terex Finlay, Ponsse,
Fassi, Allied Construction, Taylor, ESCO, Dressta, Sennebogen, Jekko,
Takeuchi, Link-Belt and Kawasaki. Strongco is listed on the Toronto Stock
Exchange under the symbol SQP.

Forward-Looking Statements

This news release contains "forward-looking" statements within the meaning of
applicable securities legislation which involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of Strongco or industry results, to be materially
different from any future results, events, expectations, performance or
achievements expressed or implied by such forward-looking statements. All such
forward-looking statements are made pursuant to the "safe harbour" provisions
of applicable Canadian securities legislation. Forward-looking statements
typically contain words or phrases such as "may", "outlook", "objective",
"intend", "estimate", "anticipate", "should", "could", "would", "will",
"expect", "believe", "plan" and other similar terminology suggesting future
outcomes or events. This news release contains forward-looking statements
relating to the expected trading of common shares of Strongco on the TSX, and
such statements are based upon the expectations of management.

Strongco Corporation
J. David Wood
Vice-President and Chief Financial Officer