Contrans Announces Third Quarter Results

(TSX:CSS)

WOODSTOCK, ON, Oct. 27, 2014 /CNW/ -

Financial Highlights

"Demand for truckload transportation services was strong in the third quarter", stated Contrans Group Inc.'s Chairman and Chief Executive Officer, Stan Dunford.  "This resulted in an increase in revenue over the third quarter of 2013 and contributed to improved asset utilization. These factors enabled Contrans to produce another solid financial performance this quarter."

"Contrans' shareholders received a formal takeover bid from TransForce in August", continued Mr. Dunford.  "Contrans' Board of Directors believes that this offer is a fair one for reasons clearly disclosed in the circular that was distributed to Contrans' shareholders. I encourage shareholders who have not already tendered their shares to carefully consider the Board's rationale for supporting the TransForce bid before this offer expires on October 31."

"Contrans has a long track record of steady and profitable growth", added Mr. Dunford.  "It is a great company and has been an excellent investment for long-term shareholders. Contrans' success over the years is attributable to the fine group of people that comprise the strongest management team in the industry. It has been an honour and a privilege to have witnessed their personal growth and their many achievements."

RESULTS FROM CONTINUING OPERATIONS
Revenue
Contrans was awarded contracts to transport waste in Alberta and to transport metallurgical coke in Ontario in the second half of 2013. These contracts contributed $2.8 million of additional service revenue ("revenue") in the third quarter of 2014 ("2014 Q3") and $11.7 million of additional revenue in the first nine months of 2014 ("2014 YTD"). Contrans' Ontario waste transportation operation also received two additional awards of new work. Work on the first award commenced early in 2014 and contributed $1.5 million of additional revenue in 2014 Q3 ($3.5 million 2014 YTD).  Work on the second award began in September 2014 and contributed $0.4 million of additional revenue.  In addition, Contrans acquired a company in December 2013 that contributed $2.1 million of additional revenue in 2014 Q3 ($7.0 million 2014 YTD).

Revenue from the Company's customers in the construction industry also contributed to the increase in revenue in 2014 compared to 2013. In 2013, an unusually wet spring and a construction strike in Quebec adversely affected shipments of construction materials. Revenue from customers in this industry was $2.8 million greater in 2014 Q3 compared to 2013 Q3 ($10.7 million greater 2014 YTD).  Revenue in 2014 YTD was, however, negatively impacted by unusually harsh winter conditions in the first quarter. The effects of these conditions were mitigated by increased shipments of road salt and by disruptions to rail as well as to Great Lakes shipping that resulted in a shift to truck transportation last winter.

Direct operating expenses
Fuel costs were positively impacted by a decrease in fuel prices in 2014 Q2 and Q3. Lower fuel prices also reversed the effects of the lag between the Company's fuel surcharge programs and fuel prices. This lag had adversely affected direct operating expenses in 2014 Q1 when prices increased.  Accident claim costs were $0.4 million lower in 2014 Q3 compared to 2013 Q3 ($1.0 million higher 2014 YTD). Direct operating expenses in 2014 YTD were adversely affected by prolonged and unusually cold temperatures during the first quarter that resulted in increased maintenance costs and fuel consumption. The poor weather also resulted in lost working days which negatively impacted equipment utilization.

General and administration expenses ("G&A")
A major customer in the steel industry entered creditor protection under the Companies' Creditors Arrangement Act ("CCAA") in 2014 Q3.  After considering the Company's prospects for recovering outstanding trade receivables from this customer, management decided that it would be appropriate to recognize the entire $2.7 million owing to Contrans as a bad debt. Legal and other professional fees in connection with the TransForce Inc. ("TransForce") takeover bid (see Proposed Transaction below) amounted to $1.0 million in 2014 Q3 ($1.5 million 2014 YTD). G&A was also impacted by costs of the management incentive program that were $0.2 million higher in 2014 Q3 compared to 2013 Q3 ($0.5 million higher 2014 YTD).  In addition, Contrans carried out environmental assessments on its real estate in 2014 Q3 at a cost of $0.4 million. The results from these tests were more favourable than anticipated and, accordingly, the $1.0 million provision that was established in 2014 Q2 was reduced by $0.3 million in 2014 Q3.  G&A expenses were positively affected in 2014 Q2 due to a $0.5 million recovery of a note receivable against which a 100% provision had been taken in 2009.  This note was part of the consideration received for the disposal of the Company's plant services operation in 2008.

Net financing costs
Net financing costs decreased by $0.6 million in 2014 Q3 compared to 2013 Q3 ($1.0 million decrease 2014 YTD). This decrease in net financing costs resulted primarily from the Company's repayment of $31.9 million of long-term debt in December 2013 and from the receipt of proceeds from the sale of the Company's waste collection segment on May 1, 2014.

Cash Flow
Contrans incurred capital expenditures of $11.9 million in 2014 Q3 ($39.4 million 2014 YTD).  These amounts include capital expenditures that were funded through finance leases. Of these amounts, $3.8 million was incurred to support growth initiatives in 2014 Q3 ($19.3 million 2014 YTD).

Contrans has received regulatory approval to proceed with a normal course issuer bid ("NCIB") to purchase up to 1.7 million of its outstanding Class A shares for cancellation between March 17, 2014 and March 16, 2015.  There have been no purchases made under this NCIB to date. There were no purchases under Contrans' previous NCIB, which lapsed on March 14, 2014.

Dividends
Contrans' Board of Directors ("Board") has declared the following dividends in 2014:

The payment of dividends is subject to the discretion of Contrans' Board. Prior to declaring a dividend, the Board considers many factors, including Contrans' overall financial condition, its expected future financial performance, its anticipated capital requirements as well as its debt repayment obligations and the covenants that are contained in Contrans' loan agreements.

Proposed Transaction
On October 7, 2014, TransForce extended its offer to acquire 100% of Contrans' outstanding shares until October 31, 2014. The offer consists of cash consideration of $14.60 per share plus payment of a special dividend of $0.40 per share.  The offer is subject to a number of conditions, including approval from the federal Competition Bureau.  The offer also contains a provision that reduces the cash consideration being offered by the amount of any dividends declared or paid after August 15, 2014.

Use of Non-GAAP Financial Measures
Management has included a non-GAAP financial measure, "Direct operating expenses - net of fuel surcharges", in this press release. Management believes that it is important to isolate the effects of fuel surcharges, a volatile source of revenue and direct operating expenses, when analyzing operating results. Management regards revenue from services as the most relevant indicator of business level activity. Accordingly, the percentages in the Financial Highlights and Results from Operations tables were calculated using revenue from services alone as the base. In addition, direct operating expenses are stated after netting fuel surcharges against fuel expenses in the Financial Highlights and Results from Operations tables. Management believes that this facilitates a better comparison of operating costs between periods.

This non-GAAP financial measure does not have a standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures employed by other issuers. The data is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Forward-looking Statements
Management's Discussion and Analysis contains certain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements relate to future events or future performance and include, but are not limited to, changes in government regulations regarding weights and dimensions of highway equipment, the age and condition of the transportation fleet and the growth of Contrans' business. Often, but not always, forward-looking statements can be identified by terminology such as ''may'', ''will'', ''should'', ''expect'', ''plan'', ''anticipate'', ''believe'', ''estimate'', ''predict'', ''potential'', ''continue'' or the negative of these terms or other comparable terminology. Such statements reflect the current views and estimates of management with respect to future events, as of the date such statements are made, and they involve known and unknown risks and uncertainties which may cause actual events or results to differ materially from those expressed or implied by forward-looking statements. In evaluating these statements, readers should specifically consider factors such as the risks outlined under ''Risk Factors" in Contrans' Annual Information Form, which is available at www.sedar.com. Although Contrans has attempted to identify important factors that could cause actual events, actions or results to differ materially from those described in the forward-looking statements, there may be other factors that cause such events, actions or results to differ. Contrans is under no obligation (and expressly disclaims any such obligation) to update forward-looking statements if circumstances or management's views or estimates change. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. 

SOURCE: Contrans Group Inc.