First Quarter Conference Call Transcript

Transcription

FINAL TTRANSC
CRIPT ShaawCor Ltd. First Q
Quarter Ressults Event Date/
E
/Time: Maay 13, 20133 — 10:00 a.m. E.T. Length
h: 37 minuutes "T
Though CNW Group has used commercially
y reasonable efforts to produce this transcrip
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se out of or result from
m any use made of this
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or contained therein."
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ontient aucune erreur. CNW Telbec ne peut être tenue responsab
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écoulant directement, indirectement, accidentellement ou corrélattivement à l’utilisation de ce texte ou toute eerreur qu’il contiendraitt. »
1
FINAL TRAN
NSCRIPT
May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
CORPORAT
TE PARTICIP
PANTS Gary Love fficer ShawCor Ltd. — Chief FFinancial Off
Bill Buckley ShawCor Ltd. — Presid
dent and Chieef Executive Officer CONFEREN
NCE CALL PA
ARTICIPANTSS Dan MacDonald RBC Capita
al Markets —
— Analyst dwell Scott Tread
TD Securitiies — Analysst Sarah Hughes Cormark Seecurities — A
Analyst Dana Benn
ner AltaCorp C
Capital Inc. —
— Analyst "Though CNW Gro
oup has used commerrcially reasonable efforrts to produce this tran
nscript, it does not reppresent or warrant thatt this transcript
is error-free. CNW Group will not be resp
ponsible for any directt, indirect, incidental, special,
s
consequentiall, loss of profits or othe
er damages or
ay arise out of or resultt from any use made of
o this transcript or any
y error contained thereein."
liabilities which ma
T
ait fait tous les efforts possibles pour produire cet audioscrript, la société ne peutt affirmer ou garantir q
qu’il ne
contient aucune errreur. CNW Telbec ne peut être tenue respo
onsable de pertes ou profits,
p
responsabilitéss ou dommages causé
és par ou
découlant directem
ment, indirectement, ac
ccidentellement ou corrélativement à l’utilisa
ation de ce texte ou tooute erreur qu’il contie ndrait. »
2
FINAL TRAN
NSCRIPT
May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
PRESENTA
ATION Operator Good mornin
G
ng. My name
e is Kirk (ph
hon), and I w
will be your conference Operator to
oday. At this time, I'd like to we
elcome everyyone to the ShawCor Ltdd. First Quarrter Results C
Conference Call. All lines have
A
e been place
ed on mute to prevent any backgro
ound noise. After the sp
peakers' remarks, th
here will be a question‐‐and‐answerr session. If yyou'd like to
o ask questio
on during th
his time, simply pre
ess *, then the numbe
er 1 on you
ur telephonee keypad. Iff you'd like to withdraaw your question, p
press the # kkey. Thank yo
ou. Mr. Gary Lov
M
e, Chief Finaancial Officer, you may bbegin your conference. Gary Love — Chief Financial Office
er, ShawCor Ltd. Thank you, a
T
nd good mo
orning. Beforre we begin this morning's conferen
nce call, I wo
ould like to take a moment to
o remind alll listeners that today's conferencee call includ
des forward‐‐looking statementss that involvve estimatess, judgmentss, risks, and uncertaintiees that may cause actual results to differ materially from those pro
ojected. The complet
T
e text of ShawCor's statement on fforward‐loo
oking information is inclluded in Section 4 of the first quarter 20
013 earningss press rele ase. It is avvailable on SEDAR and on the Company'ss Website att shawcor.co
om. Bill? B
Bill Buckley — Preside
ent and Chieff Executive O
Officer, Shaw
wCor Ltd. "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
3
FINAL TRAN
NSCRIPT
May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
Thank you, G
T
Gary, and thank you, lad
dies and genntlemen, forr participatin
ng in this morning's conference
e call. Last Friday w
we released o
our first quaarter 2013 fiinancial resu
ults, and thee results agaain were excellent, ssetting some new perfo
ormance reccords, and coontinuing th
he strong peerformance that we have reporrted for the past three q
quarters. Specifically in the quartter, we generated recoord revenuee of 455 million, a 46 percent improveme
ent over th
he first quarrter of 2012
2, and also an improvvement of 3
3 percent o
over our previous re
ecord from tthe fourth qu
uarter of 2012. We also repo
W
orted record
d EBITDA of 104 millionn, and exclud
ding one‐tim
me costs asssociated with the Pllan of Arranggement tran
nsaction, EBITDA was 116.9 million, 177 percentt improvemeent over the first quarter of 20
012. Finally, quarterly net n income was 70.6 m
million or $1
1.01 per shaare on a er than the yyear‐ago leveel. diluted bassis, almost 3 times highe
ShawCor's re
ecord performance was led by stronng revenue aand excellen
nt project exxecution n America b
business unitts, as well ass strong largge diameter activity in ShawCor's Asia Paciific and Latin
ng flow assurance activity at our r facilities in
n both Beaaumont, Texxas and in Canada, and stron
Orkanger, Norway. in all of ou
The strength
T
ur regions was the key ffactor in thee continuingg trend in op
perating income maargin, with o
our Pipeline segment reccording an uunprecedentted operatin
ng income m
margin of 26.2 percent in the firsst quarter, a gain of 12.6
6 percentagee points from
m the first quarter of 20
012. This "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
4
FINAL TRAN
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
is a direct result of inccreased utilization, and of the capaabilities of o
our operatio
ons teams fo
ollowing the ShawCor manufactturing system
m. Also notewo
A
rthy in the q
quarter wass the increasse in our baacklog to a n
new record level of 875 million
n as of Marcch 31, 2013. The growtth in the qu arter was p
primarily duee to our Soccotherm business unit, and in particular to tthe Socothe
erm operatioons in the Gu
ulf of Mexico
o, where in A
April we announced
d that we had h acquired the 49 percent p
ownnership interest held b
by our former joint venture paartner. Given G
the ou
utlook for de
eepwater prroject activi ty in the Gu
ulf of Mexicco, the fact that we now have 100 percentt of Socothe
erm's Channelview Texa s operation positions uss well for grrowth in this market in the future. Now I'll comm
N
ment furthe
er on our outtlook later inn the call, but first Garyy Love, our C
CFO, will provide you with the o
other details on the first quarter finaancial resultss. Gary? Gary Love Yeah. Thanks
Y
s, Bill. We are reporting record revennue in the fiirst quarter 2
2013 of 455 million, up 46 perccent over the
e first quarte
er of 2012, aand also up 3 percent frrom the imm
mediately prreceding quarter. Ye
ear over ye
ear, the mosst significant sources oof revenue ggrowth weree Asia Paciffic, with revenue in
ncreasing $1
118 million or 249 perccent, and Laatin Americaa with revenue increassing $45 million or 3
304 percentt. On a conso
olidated bassis, reportedd gross marggins in the first quarter aare 44.3 percent, up
p 6.5 percen
ntage points from the prrior year. "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
5
FINAL TRAN
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
The Pipeline T
segment grross margin was 45.6 peercent versu
us 39 percen
nt a year ago
o, while the Petrochemical seggment gross margin wass down slighhtly at 29.8 p
percent. Now compared
d to the fourth quaarter of 2012
2, the Pipelin
ne segment gross margiin increased
d by 4.4 perccentage poin
nts, as a result of an
n increasing percentage of the Comp
pany's revennue derived from Asia Pacific. The year‐ove
T
er‐year incre
ease in grosss profit of $885 million w
was partially offset by th
he $19.5 million incrrease in SG&
&A expense, which we aare reportingg at $91.5 m
million this qu
uarter versu
us a year ago at $72 million. The major fa
T
ctor in the SSG&A increaase were thee one‐time eexpenses rellating to thee Plan of Arrangeme
ent transactiion, and these included transaction costs of $7.6 million, an
nd related exxpenses associated with amend
ded executivve retiremen
nt arrangem
ments of $5 m
million. Also contributing to the SG&A incre
ease were an increase in bonus and
d long‐term compensatiion accruals of $6.2 milllion and increased ssalaries of $1.6 million. Now N
based on o the strong revenue and gross profit in th
he fourth qu
uarter, the Pipeline segment EBITDA marggin reached a new record level of 229.6 percentt, while the Petrochemical and Industrial segment EB
BITDA margin came in at 14.5 perrcent, in linee with the prior year. Overall, consolidate
ed EBITDA b
before the o
one‐time transaction cosst is a record level of $1
116.9 million for an EBITDA maargin of 25.7 percent. "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
6
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
Depreciation
D
and amortization in the
e fourth quaarter is $16.3 million versus $11.7 m
million a year ago. This increaase is a ressult of acce
elerated de preciation iin Asia Paccific, and increased amortizatio
on relating tto the Socoth
herm acquissition. Below operat
B
ting income we have re
eported duri ng the first quarter a lo
oss from inveestment in joint ven
ntures of $671,000. Thiss line item in
ncludes the eequity accou
unted results of ShawCo
or's joint venture in Russia, plus the Socothe
erm joint ventures in Br azil, Venezuela, and thee USA. Effective January 1st of tthis year, we are requirred to accou
unt for joint ventures ussing the equity metthod rather than our previous metthod of propportional co
onsolidation. As a resultt of this change in aaccounting p
policy, we w
will be reportting restatedd 2012 financial statemeents through
hout this year. During D
the first f
quarterr 2013, the Company hhas recordeed an effecttive tax rate of 20 percent, which w
is we
ell below th
he Canadian
n statutory rate of 277 percent, as a result of the contributio
on of operatting income
e from low tax t rate juri sdictions in Trinidad, A
Asia Pacific, and the Middle Easst. Now turning N
to the key ccash flows during the firrst quarter, II would high
hlight that caash flow provided b
by continuing operations before chaanges in woorking capitaal and deferred revenuee, which reached $8
87 million, more m
than double d
the $32.6 millioon a year aggo, and also
o increased by 10.5 percent fro
om the fourtth quarter. "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
7
FINAL TRAN
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
The net chan
T
nge in working capital and deferredd revenue w
was a net cassh outflow o
of $57.5 million, as a result prim
marily of red
duced deferred revenuee of $101 miillion and increased inveentories of $28 million, partially offset by lower receivables of $$30 million aand increaseed payabless of $24 million. Deferred rev
D
ower in line w
with increassed productiion on the Icchthys and TTrinidad enue was lo
projects fo
or which the Company haad received substantial upfront payyments in 20
012. Cash C
flow ussed in investing activitie
es in the firrst quarter, excluding rreductions in
n short‐
term invesstments, was $20 millio
on. This inclu
uded capitall expenditurres of $16.1
1 million. The major capital exp
penditures in the first quarter inclluded expennditures on the new m
multilayer insulation plant unde
er construction at our facility in Ind
donesia; thee purchase o
of long lead time items for the planned Flexpipe expaansion in the
e US and for the new FFlexflow pro
oduct line; exxpendituress for the on of the ne
ew DSG EMA
AR facility in Germany; aand the development of the new G
Guardian constructio
facility in the Eagle Forrd basin in Texas. Cash flow use
C
ed in financiing activitiess was $147.55 million, and this includ
ded the canccellation of the Classs B shares at a cost of o $503.1 miillion and reegular quartterly dividen
nds of $6.9 million. These usess of cash we
ere partially funded by the issue off $350 millio
on in senior notes, the issue of shares from the exercise of optiions of $6.7
7 million, annd the redu
uction of caash and sho
ort‐term investments totalling $
$131 million. "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
8
FINAL TRAN
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
Now N
even with w the Classs B share purchase p
exxpenditure iin the quartter, the Com
mpany's financial position remaains very strrong, with q
quarter‐end cash, plus short‐term in
nvestments totaling over $231 million. And with tha
A
t in mind, I'll turn it backk to Bill for hhis concludin
ng remarks. Bill Buckley Thank you, G
T
Gary. During the past tw
wo quarters, ShawCor haas reported over 900 m
million of revenue. During this t
D
ime frame o
our order baacklog has ccontinued to
o grow, reacching 875 m
million at the end off the first qu
uarter, and tthe backlog has improvved by 30 peercent from the year‐aggo level. Now part o
of the contin
nued improvvement in b
backlog has bbeen the mo
ovement in booked ord
ders into our 12‐mo
onth forward
d backlog time horizon. As a resullt, the orderr book beyo
ond 12 mon
nths has decreased by approxim
mately $100 million. Thiss is to be ex pected as w
we execute th
he large Asiaa Pacific projects, and in particu
ular the $400
0 million Inp
pex Ichthys ggas export pipeline projeect. However, H
th
he other ele
ement in our o increaseed backlog is the conttribution from the acquisition
n of Socothe
erm, and th
his is an are
ea where wee expect to see growth
h continuingg in the future. For an indicaation of ourr outlook beyond 20133, our activee bid list reemains very strong. Currently tthe total value of active bids that w
we have outsstanding excceeds $800 m
million. This value is reduced frrom the year‐end levelss, due to the
e deferral off the Browsee project, w
which obviou
usly was "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
9
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
partially offfset by new
w project bid
ds issued in the quarter . These new
w bids are fo
or all global regions, and are forr work that w
will be execu
uted for the most part inn 2014. The T Browse project will proceed in the future,, although itt will likely be reconfiggured to reduce cap
pital cost. Th
he need for n
natural gas b
by the growi ng economiies in the Asia Pacific reggion will continue, and a will acccelerate as the t global ecconomy impproves. The growth in gglobal LNG m
markets will continu
ue. There T
has be
een a strucctural changge in the nuumber and value of prrojects that we are bidding, winning, w
and
d executingg. The key global drivvers of thiss increased activity arre LNG, deepwaterr, and shale developme
ent. Global LNG L
demandd is to increease by 200
0 metric ton
nnes per annum by 2025, and to
o put this in perspective
e, this is the eequivalent o
of 23 Wheatstone projeccts. The T deepwatter market is also grow
wing rapidly,, with projected capitall expenditurres over the next fivve years of $
$223 billion. In addition, the North A
American shale play is driving growtth in our Flexpipe bu
usiness, our pipe coatingg operationss, and our G uardian opeerations. ShawCor hass never been
n in a stronger competitive positio
on to serve tthese projeccts with ecord; our laarge‐scale sttrategic locaations; our p
proprietary coating and
d testing our executtion track re
technologyy; our abilitty to provid
de a comple
ete single innterface and
d an end‐to
o‐end solution; our mobile plaant technolo
ogy to provide logistics advantages on remotee projects; and with ourr recent integration
n of Socotherm and the growth pote
ential that it provides ass we supportt it. "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
10
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
I'd like to take a minute
e to highlight the cont inuing grow
wth of Flexp
pipe, our com
mposite spoolable pipe busine
ess. Flexpipe
e has recove
ered from t he slowdow
wn in the No
orth Americcan well completion
n activity thaat occurred in the secon
nd half of 20012, and is now trackin
ng towards w
what we expect will be a record
d year in term
ms of revenu
ue and operaating income. Flexpipe is already ShawCor's second
d largest bussiness, but eeven so, it is only scratch
hing the surface of the $2.6 billion annuaal market op
pportunity ffor Flexpipee's compositte pipe prod
ducts in North Ame
erica, Latin A
America, and
d Australia. A
As the instal lation cost b
benefits of ccomposite piipe over convention
nal steel are experienced by our E&P customerss, we expectt to see conttinued reven
nue and profit grow
wth from thiss exciting ne
ew growth platform. Finally, I'd likke to comme
ent on the C
Company's sttrategy, now
w that the Plan of Arran
ngement share reorganization ttransaction h
has been co
ompleted. W
With the app
proval of this arrangemeent, the Company'ss dual share
e structure has h been eliminated. H
However, ou
ur underlying business sstrategy remains un
nchanged. W
We will continue to focuss on growingg our busineess in the glo
obal pipelinee space, both organ
nically and th
hrough acqu
uisition. We W have the
e balance sh
heet and the
e managemeent to execute on an eeffective acq
quisition program, aas we have d
done in the past, highligghted by thee successful acquisitionss of Socotheerm and Flexpipe, aas well as oth
her contribu
uting tuck‐un
nder acquisittions. And w
we will keep you updateed as we execute on
n this key initiative. And with tha
A
t, I'll turn it back to the Operator for questions. "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
11
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
Q&A Operator At this time, A
I'd like to re
emind everyo
one in orderr to ask a qu
uestion pleasse press *, tthen the number 1 o
on your telephone keypad. Your first que
Y
estion comes from the liine of Dan M
MacDonald. YYour line is o
open. Dan MacDonald — RBC Capital Maarkets Hi. H Good mo
orning, guys. Just wondering in lighht of the really strong margin proggression here if you
u could kind of walk us through wh
hat your ma rgin outlookk looks like maybe for tthe next couple of q
quarters or tthrough '13 aat this point? And what the sustainaability of thaat might be?? Gary Love Yeah. Dan, I Y
think one th
hing to recognize of couurse is that m
margins do move aroun
nd. They move, obvviously, with
h project acctivity. We have, h
as inddicated in o
our backlog,, certainly aa strong outlook forr the next fo
our quarters,, and we exp
pect marginss to stay stro
ong. I can't guarantee we'll see another 29.6 percennt EBITDA m
margin in thee Pipeline seegment, but I thinkk we will see margins continuing c
at a levels thaat are at or near the Company's historical highs. Dan MacDonald "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
12
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
Thanks. And T
then just on
n the remain
ning 49 perceent interest in the Texass Socotherm
m JV, can you give uss a sense of what that m
might add to
o the backlogg here now tthat you havve the wholee thing? Will that be... Gary Love No. That's ac
N
tually—yeah
h. Just to be clear, that is reflected in our backlo
og. Dan MacDonald Okay. That w
O
was in your Q
Q1 ending baacklog? Gary Love Yeah. Y
So we—
—I suppose we've sort of backdateed the effecct of that accquisition to
o March 31st for pu
urposes of th
he backlog. A
And I think that's approppriate becau
use the backlog, what wee report as the backklog is an ind
dicator of future activityy. That's the purpose of reporting th
he backlog.
And A so with the Socothe
erm Gulf of Mexico opeeration now
w on 100 percent conso
olidation basis, we d
did want to rreflect that in the backlo
og to providee that indicaation. Dan MacDonald Great. I'll leav
G
ve it at that.. Thanks, Gary. Gary Love Yeah. Thanks
Y
s. Operator Your next qu
Y
es from the line of Scott Treadwell. YYour line is o
open. estion come
"Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
13
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
Scott Tread
dwell — TD Securities Hi. Good mor
H
rning, guys. Just wanted
d to get a sennse maybe o
on the bid bo
ook, can you
u give us any sense of sort of the t makeup of it? Is it sort of dom
minated by ssmaller projjects? Or is there a geographicc focus in the
e bid book that's substantially differrent from th
he revenue m
make‐up tod
day? Gary Love Yeah. A coup
Y
ple of comm
ments. The bidding activity is strongg in all of ou
ur regions. N
Now is it true that iff you were to look back a year ago, the bidding activity wou
uld have beeen heavily w
weighted towards Assia Pacific. Today I'd call it much mo
ore balancedd. We have sign
W
nificant proje
ects that are
e underbid inn EMAR, also in the Americas, and A
Asia Pac continues to be a sourrce of strongg bidding acctivity. So loooking forwaard it's probaably more b
balanced than it wass a year ago.. Scott Tread
dwell Okay. Great. O
And second
dly, I guess, would be juust to look at the income statementt on the G&A line, tthe first thre
ee quarters o
of last year kkind of in th at sort of low
0 million per quarter w to mid 70
range. Und
derstanding that there'ss some one‐ttime costs hhere in Q1 and potentially some mo
ore here in Q2, whaat do you think the unde
erlying G&A rrate is for thhe Company once we geet through w
whatever noise is in ffront of us? Gary Love "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
14
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
Well, W
first of all, the exp
penditures related to thhe Plan of A
Arrangementt transaction
n, those are now do
one for all in
ntents and purposes. So the 12.6 mi llion, call it 113 million, o
of what we'ree calling one‐time ccharges in th
he first quarrter would n
not be refleccted in our subsequentt quarter. So
o I think you can baack that out o
of the 91 miillion SG&A, and that shoould be refleective of a ru
un rate. Scott Tread
dwell Okay. Perfect
O
t. And I caugght a snippe
et of Flexflow
w, and I kno
ow you had ssort of talked about that in the past. Is thatt to say now
w that that's aa commerciaalized techn
nology? Or iss it still sort o
of in the short strokkes of gettingg there? Gary Love Still under de
evelopment. Bill, do you want to… Bill Buckley Yeah. It's und
Y
der development and going throug h its testingg regime. An
nd we would
d expect that we'll be comme
ercializing it in early 20
014. It migght be goingg to some specific spo
onsored quarter of this year. customers in the last q
dwell Scott Tread
Okay. Perfect
O
t. That's all I've got, guyss. Thanks veery much forr the colour. Gary Love Yeah. Thanks
Y
s. Operator "Though CNW Gro
s
er damages or
T
qu’il ne
p
és par ou
découlant directem
15
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May 13, 20
013 — 10:00 a.m. E.T.
ShawCor Ltd
d. First Quarte
er Results
Your next qu
Y
estion come
es from the line of Sarahh Hughes. Yo
our line is op
pen. Sarah Hughes — Corm
mark Securities Hi, guys. H
Gary Love Morning. M
Sarah Hughes I guess, Garyy, to start offf. So the pip
peline margi n's very stro
ong this quaarter. And I tthink if I rememberr correctly w
when you we
ere talking laast quarter yyou said maaybe a perceent or 2 up, but not too much, and I thinkk it's up 5 percent versu
us last quarrter. So this quarter wh
hat surprised
d you in terms of th
he margins? Was there aany one areaa? Or… Gary Love Yeah. Well, fi
Y
irst of all, if w
we look at EBITDA marggin… Sarah Hughes Yeah. Y
Gary Love In
n the Pipeline segmentt, in the fou
urth quarterr we were aat 27 percen
nt and this quarter we're at 29.6 percent,, so up abou
ut 2, 2.5 perrcentage pooints, which is a little higher than w
what we had expectted. Really the performaance in Asia Pacific has bbeen extraordinary. And
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d. First Quarte
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in our two
o facilities in
n Asia Pacific, both the
e Malaysia ffacility and the Indonessia facility, iis we're seeing thro
oughputs thaat are beyon
nd what we had expecteed. And that's positive fo
or margins.
And we're—w
A
we may not be running as hard in s ubsequent q
quarters as w
we were in the first quarter, bu
ut certainly tthe backlog’s going to su
upport a hig h level of acctivity. So wee may come down a little bit in margins as w
we go forwaard. As I said I th
A
ink on a pre
evious questtion, I can’t guarantee w
we're going to hit 29.6 percent again, but we're going to stay at high levells for the nnext few quarters, certaainly based on our backlog. Sarah Hughes And the high
A
er than expected throughput, is thaat the big co
ontracts com
ming faster in terms of you prod
ducing them
m faster than
n expected? Or did you gget more sm
maller contracts to fill in?? Gary Love No. It would N
be higher prroduction levvels, particuularly on Wheatstone an
nd Ichthys. Sarah Hughes Okay. And th
O
e main expo
ort line for W
Wheatstone, is that closee to being do
one? Gary Love Yeah. Y
That would w
be pre
etty much done d
now. I don't thinkk it's been loaded out, but the main coating activity o
on that gas ttrunk line is complete. B
Both plants aare now focused on thee Ichthys e starting up
p the Wheattstone flow l ine activity now and intto the third q
quarter, gas export line. We are
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d. First Quarte
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and then w
we'll be startting the Ichthys URF, wh
hich is the floow lines, riser flow liness, in the seco
ond half of the yearr. Sarah Hughes And would yo
A
ou be able tto—because
e Socotherm
m when you purchased tthe other remaining percent on
n the Gulf off Mexico side, would yo
ou be able too give us a b
bit of an upd
date in term
ms of the revenue po
otential we ccould see fro
om Socotherm? Or kindd of their baccklog versus where it waas a few quarters aggo, just to giive us kind o
of a better clarity in term
ms of the gro
owth in that division? Gary Love Yeah. The So
Y
ocotherm baacklog todayy is approxim
mately 120 m
million of ou
ur total 875 million, and so thaat's what they will execcute over th
he next 12 m
months. And
d that backllog is based
d on the facilities th
hat we are co
onsolidatingg on a go‐forrward basis, which woulld be the Soccotherm faccilities in Europe, in Argentina, aand now of ccourse in the
e USA. We W are not consolidating on a go
o‐forward bbasis Socoth
herm's operrations in B
Brazil or Venezuela. Those will be equity aaccounted under the neew IFRS acco
ounting rulees for joint vventures ning of this yyear. that came into effect aat the beginn
es that are ggenerating the backlog tthat I spoke of. And So we have tthe consolidated facilitie
then in ad
ddition, Socotherm and
d ShawCor will w recogni ze operatin
ng income ffrom joint vventures which will be shown in
n our income
e statementt on that sepparate line ittem for inco
ome under—
—income from joint ventures. "Though CNW Gro
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d. First Quarte
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Sarah Hughes Okay. That's O
it for me. Th
hank you verry much. Operator Again, A
I'd like to remind
d everyone in order to ask a quesstion, pleasee press *, then the number 1 o
on your telephone keypad. And your nex
A
xt question ccomes from the line of D
Dana Bennerr. Your line iss open. Dana Benn
ner — AltaCo
orp Capital Inc. Morning, guy
M
ys. Bull Buckle
ey Morning, Dan
M
na. Dana Benn
ner I wanted to sstart with Assia Pac, a favvourite topicc of everyon
ne right now
w. And thinkiing back to Q4, 150
0 million of rrevenue wass an outstanding numbeer; could nott possibly beeat that; cam
me in at 165 million
n this quarte
er. I understaand that job mix is chan ging, et ceteera, there att Kabil and K
Kuantan, but havingg said that, yyou also mentioned that you're addding capacitty in Kabil. I think that'ss for the Apache pro
oject. And so having said all, that w
what are the chances thaat we could see an even
n higher revenue nu
umber in anyy of the nextt say three q
quarters outt of that region? Gary Love "Though CNW Gro
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d. First Quarte
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I think realisttically that's unlikely. What we had in the first q
quarter was a really big overlap of Wheatstone and Ichthys, and W
Wheatstone is now—thhe gas exporrt line is now
w complete. And in terms of laarge diamete
er concrete weight coating, both plaants are foccused on thee Ichthys pro
oject. So we'll see th
hings moderrate in the second quartter because we don't haave that oveerlap that wee had in the first qu
uarter. As A we get into the third
d quarter we
e'll be pickinng up moree of the flow
w assurance work. I think it wo
ould be probably excessively optimisstic to think that we're ggoing to go b
beyond the 165. It's possible, but I wouldn''t consider th
hat the base
e case scena rio. he 150 that we said waas a good ru
un rate in th
he fourth qu
uarter. I I think what we said—th
e balance of the year. would still argue that'ss a good run rate for the
Dana Benn
ner Okay. O
Gary Love But again, it B
will execute the work as efficiently as they will move around, and our plants w
can. And so s if we're getting the throughputts and the ppipe is availlable, we w
will run the projects because th
hat's the most efficient w
way to do it and that's tthe way to ggenerate thee maximum margins and returns. "Though CNW Gro
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d. First Quarte
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So if the opp
portunity's th
here operatiionally to geenerate morre revenue aa quarter, off course we will. Bu
ut I think we
e should reco
ognize that tthe first quaarter was somewhat exttraordinary iin terms of that ove
erlap and the
e impact thaat that had.
Dana Benn
ner Right. R
I guesss just stickin
ng within th
he region, m
my recollectio
on is that th
hat the IDD project may be the
e next substtantial one tthat's in the bid list righht now. Any update upo
on how that may be unfolding? Bill Buckley No, N Dana. We're W
still wo
orking on th
hat. That prooject, assum
ming that wee're successsful, will impact ourr business in
n 2014 and 2015. It will likely start at the end of 2014, so that starts to fill in behind Wh
heatstone an
nd Ichthys. And A there arre some oth
her large prrojects pendding as well that we're working on
n in the region, like
e the Shell M
Malikai in the PCSB gas balancing p roject in Maalaysia, and a series of projects that are in the deep w
water section
ns of Indone
esia that we 're pursuingg. And thosee will drop in
n in mid 14 and fill in 2015 as well. to late 201
Nothing new
N
w on IDD; lots of work on
n our bid teaams pursuin
ng; that conttract hopefu
ully we'll have some
ething for you by next qu
uarter. Dana Benn
ner "Though CNW Gro
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Great. G
Movin
ng back to Socotherm, to what exxtend do yo
ou feel therre is margin
n upside corporatelyy say with
hin the ne
ext two years from SSocotherm fully rebuilding its b
backlog; understand
ding it's ope
erating as a separate en
ntity, but ass they refill tthat backlogg and move to best practices, to t what exttent could we w see that margin grow
wth get up to say Shaw
wCor normaalized or historical levels say prior p
to thiss big ramp‐‐up, and thhen ultimateely filter th
hrough to SShawCor corporate?? Gary Love Well, I would
W
d say that tod
day, Socothe
erm's operattions are no
ot generatingg EBITDA maargins at the level th
hat we ultim
mately expectt they can ge
et to. So all oother thingss being equaal, there is a positive impact on our consolid
dated resultss as we see m
margin imprrovement in Socotherm''s operationss. will be bettter utilizatio
The T key to im
mproving So
ocotherm's operations w
on. Certainlyy that in respect to the Gulf of Mexico ope
eration is, I think, quite llikely in light of the baccklog that they have we'll start tto see that in the second
d half of thiss year. The two big p
T
projects thatt that facilityy will executte are the Liaanzi project and the Exxxon Julia project, an
nd those are
e both going to start up u in the seecond half. A
And so utilizzation will iimprove clearly. ea of impro
The other ar
T
ovement opp
portunity is the possibillity of a resttart of Soco
otherm's facility in Sicily. And there are several s
Wesst Africa prrojects that Socotherm are targeting and b
on that t
would enable a re
estart of thaat plant. And I think th
hat improvement in currently bidding "Though CNW Gro
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d. First Quarte
er Results
utilization, should we be successfu
ul in securingg that work,, would havee certainly aa meaningful impact on Socothe
erm, and thaat would flow
w through to
o ShawCor aas well. Dana Benn
ner All right. Just
A
one final qu
uestion; I do
on't know anny other wayy to ask it, so
o just bear w
with me. So if we think out the next three yyears, I'll list off four thinngs that you
u've spoken about as being high potential. A
And maybe you would ccare to comment on whhich one you
u think ultim
mately may o
offer the greatest up
pside. So am
mong Flexpip
pe acquisitio
ons, Brazil, aand Brigden,, all clearly o
offer upside to you. Which of them t
do you
u think ultim
mately could
d power ShaawCor to th
he greatest level if you execute well? Gary Love Bill, go ahead
B
d. That's an interesting q
question. Doo we have to
o rank them
m in order of priority one througgh four? Dana Benn
ner I'll let you answer it as yo
ou wish. Bill Buckley Okay. O
Okay, Dana. Whe
en we see the t projections for Flexxpipe, of co
ourse they'rre quite strong, and
d that's who
o we're going to execu
ute on an orrganic expan
nsion. And w
we've talked
d about expanding with a plan
nt in the US and also exxpanding thee product raange with FllexFlow, which gets national into a straaight length product in larger diameters, whichh will allow us to accesss the intern
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d. First Quarte
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markets firrst from a ship‐in basis and then with w local m anufacturingg. So executting on thatt will be very imporrtant, and w
we think thatt this will be a very subsstantial busin
ness as we b
build it out o
over the next, as yo
ou say, three‐plus years. In
n addition, yyou have to remember tthat Flexpipee came to uss as a small start‐up technology company sserving a verry local markket, and we w
were able too take it and
d scale it up aand bring it into the US market and then no
ow into Latin
n America an
nd Australia and do thatt successfully with a veryy strong manageme
ent team. I tthink that's an example
e of what is going to ressult from ou
ur active acq
quisition program. And A as we've
e mentioned
d in the passt, we've brrought in so
ome senior m
managemen
nt talent into our accquisition de
epartment. W
We are lookking for techhnology busiinesses that are scalablee where we can levver our interrnational plaatform of op
perations an d sales orgaanization. An
nd I think th
here will be other businesses th
hat we add th
hat will grow
w on the sam
me trajectoryy path that FFlexpipe hass grown. And I think A
you'll find th
y
hem to be somewhat syynergistic, aat least in th
he target areeas that we're looking. So they're not dispaarate opporttunities, butt I think theyy will have syynergies, one to the he areas that we're focusing on. other, in th
Moving to Br
M
razil. Brazil II think has b
been a little bit of a dissappointmen
nt for us. I think it's been a little bit of a d
disappointme
ent for the Brazilian goovernment aand for Petro
obras, as they have had to reviise their straategic plans aand have changed out t heir senior eexecutive. "Though CNW Gro
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d. First Quarte
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The Brazilian
T
opportunityy is real, willl happen. W
We intend to
o participatee in that. Wee intend to participaate in it with
h our fixed p
plants that w
we have in B
Brazil. There is also an opportunity, though, to bring a Brigden plan
nt to the coast in Brazil, and that iss one of several Brigden
n opportunitties that we're looking at at the
e moment. And A I think you y will see
e us executin
ng on Brigd en. I think three years from now I would expect the
ere'll be at least three
e to four Brrigden faciliities, Brigdeen plants op
perating in various locations aaround the w
world. As I say, we're looking at fivee or six oppo
ortunities now. I think tthree or p the poten
four of tho
ose will be rrealized with
hin the nextt three yearrs. Adding up
ntial of thosee, those will be abo
out equal to one Flexpipe
e today. So tthat gives yoou sort of a ssense for rellative size. I think the fo
our points yo
ou mentione
ed are all goood individuaal growth in
nitiatives for us, and we're going to execute
e on all of them. Dana Benn
ner Well, W
that's great. It se
eemed to me m a couplee calls ago you said yo
ou wouldn'tt pick a favourite cchild, so you still haven'tt. I'm good. TThank you.
Gary Love Thanks, Dana
T
a. Operator We have no f
W
further quesstions at thiss time. I'll tu rn the call back over to tthe presenteers. Bill Buckley "Though CNW Gro
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d. First Quarte
er Results
Okay. O
Well, thank you, Operator, and a I'd like to thank evveryone forr your particcipation today and interest, and
d Gary and I look forwarrd to talking with you aggain next quaarter. Thankk you. Operator This conclude
T
es today's co
onference caall. You may now disconnect. *****
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26

First Quarter Conference Call Transcript

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