Q3 2019 Earnings Call
Thank you for standing by this is the conference operator, welcome to be <unk> Co. Ltd third quarter 2019 results conference call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question Q you May Press Star one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star zero.
I would now like to turn the conference over to Mr miles to getting director Investor Relations. Please go ahead Mr. dougan.
Thank you savvy send good morning, everyone. We're pleased you could join US for third quarter 20, <unk> Conference call with me today, our executive Vice President and Chief Financial Officer dentists to Champagne.
Senior Vice President controller, Dark truck, and Vice President Finance Treasury and risk color Jackson.
That's will begin today with some opening comments when our financial results and recent company developments.
During his prepared remarks, we'll take questions from the Investor community.
Please note that a replay of the conference call a transcript will be available on our website at <unk> Co. dot com and can be found in the investor section.
Under the heading events <unk> presentations.
I'd like to remind you all that our remarks today will include forward looking statements that are subject to important risks and uncertainties for more information on these risks and uncertainties. Please see the reports popped back or with Canadian Securities regulators.
And finally I'd also like to point out that's during his presentation may refer to certain non-GAAP measures such as adjusted earnings adjusted earnings per share.
I was generated by operations.
Capital investment these measures do not have any standardized meaning under I have for us and as a result, there may not be comparable to similar measures presented in other entities.
And now I'll turn the call over to Dennis for his opening remarks.
Thanks, My house and good morning, everyone.
Thank you very much for joining us today on our third quarter 2019 conference call.
I'd call announced adjusted earnings in the third quarter of 2019 $74 million compared to $87 million <unk> third quarter of 2018.
Lower third quarter earnings recorded in Canadian utilities, and Dot Com investments were partially offset by higher earnings and structures and logistics and not too many parts.
Structures, and logistics achieved $10 million and higher earnings or third quarter 2019, compared to last year's third quarter.
Higher adjusted earnings were mainly due to the continued work on the LNG, Canada Cedar Valley large project.
Higher space rental activity in Canada, and higher workforce housing trade cell activity in the United States in Australia.
In Canada manufacturing and site construction work for the LNG project LNG, Canada project is well in hand, and our Cat Calgary manufacturing facility is operating at near full capacity project is going well and is progressing on schedule.
In the United States, we completed a 7 million dollar contract to supply modular product for our Marriott Hotel, situated near San Francisco, California third quarter.
Second 7 million dollar contract to supply modular product for Marriott Hotel in Oakland, California, It's expected to be complete and early 2020 .
In Australia manufacturing commenced on a 400 room to story accommodation diligent craft that western Australia.
The total contract value is $22 million, but the final handover expected in April 2020.
Our modular structures team also completed the final hand over 600 person cap in Western Australia This quarter.
The total contract value is $27 million with ongoing rental earnings from the initial datav occupation in August of 2019 through to early 2021.
Now to make parts also contributed $2 million and higher earnings in the third quarter and was awarded a 25 year copper concentrate loaded contract at one of its Chilean parts [laughter] contract extends the concession agreement that support for another 15 years 2041.
[laughter].
These higher third quarter, 2019 earnings and structures and logistics and they'll to my ports, where more than offset by lower earnings and Canadian utilities lower earnings are mainly due to favorable earnings realized in the third quarter 2018 associated with the balancing pools termination of the Battle River unit five.
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Echo corporate another also recorded $12 million an hour third quarter 2019 earnings mainly due to lower income from our core investments as I call investments completed two commercial real estate transactions in the third quarter of 2018.
Our objective is to unlock the hidden value of these investments over time, and we will continue to explore how to maximize value for our shareowners from this business.
This quarter Canadian utilities finalize the sale of its entire 2100 megawatt Canadian fossil fuel based electricity generation portfolio in a series of transactions and received $821 million an aggregate proceeds on the sale.
This resulted in not called recognizing.
And gain on sale $73 million, which is after tax non controlling interest which is excluded from adjusted earnings.
Financial strength was confirmed in the third quarter as Dominion Bond rating service, that's affirmed their a range corporate credit rating that stable outlook for Atco Canadian utilities and see link.
And S&P global ratings affirmed their a minus credit rating and stable outlook for our companies as well.
Overall, it was an active quarter at AK coal throughout North America, Latin America and Australia.
We made progress on a diverse range of modular projects structures.
Extended the contract length on one of the concessions that now to make ports and we completed the sale of Canadian utilities Canadian fossil fuel based electricity generation portfolio.
That concludes my prepared remarks, I'll now turn the call docket word of mouth.
Thank you Dennis and we'll turn the call over to our conference coordinator for questions.
Thank you Sir we will now begin the question answer session and the interests of time, we ask you to limit yourself to two questions. If you have additional questions. You are welcome to rejoin the queue to join the question Q You May Press Star one on your telephone keypad, you'll hear a tone acknowledging your request if you're using a speaker phone.
Please pick up your handset before pricing any chief to withdraw from the question could you. Please press star to webcast participants are welcome to click on the submit question tab near the top of the webcast frame and type their question.
<unk> co Investor Relations team will follow up with you by email after the call. Once again anyone on the conference call who wishes to ask a question May Press Star one at this time, we will pause for a moment as collars join the queue.
Our first question comes from Maurice Troy with RBC capital markets. Please go ahead.
Thank you and good morning, My first question its on stretches and logistics the margins on I guess this quarter seem to be higher than some of the previous periods I wondered if you could just discuss what is the.
Impact what Dusty origins of that what are the contracts type contracts that you record revenues this quarter.
Or is that indication of the whole contract periods moving forward and alongside that she could just provides you activity levels.
Over the next few periods.
Good morning Maurice.
In our in the M. DNA, we show the the average rental rates like you know from our space rentals business and our workforce housing business and there you can see the the rental rates from our space rentals up 14% year over year, and our workforce housing up 20% year over year one of the.
That oh the.
Space rental increase due to increased activity Central Canada, and British Columbia in terms of workforce housing.
We have higher rental rates coming out of Australia with some of the large mining projects and.
Recently installed workforce housing in British Columbia, So we are.
Definitely seen the uptick on the on the revenue side, we're having I'll say good cost containment. So that will result in increased margins through the business.
As you are.
We have trend back.
A few years when when the business made $6 million and the full year. Then we were able to double that and again have a height healthy increase a year over year from those levels. If you just take a look at that but the base run of the business you know we've.
He said weve.
Increase that base business through increased diversification in our in our markets and with our customers like trying to diversify away from the commodity based oil and gas resource sector.
So you're seeing the benefits of that strategy a result in.
Kind of that increased based business.
I'm not going to give you our our forecasts over the next number of quarters, but we are we're proceeding nicely with that.
But.
Emphasis on our strategy a diversification bulk then markets and and products. So we're continuing on that trend, we would no year over year, our base business in the in the third quarter is is very healthy.
We hope to continue that in the future.
And any.
Insight on your order book or potential contracts to come.
[noise], we've got a.
We've got a very healthy lead list, it's a little bit lower at the same time last year only because LNG, Canada was on our lead list and are able to put the puck and then that on that project.
But oh I'll go back to the leaves us being well diversified by region. If you take a look at Mexico, Australia, a United States.
British Columbia, Alberta, so are well diversified by geography and by contract type natural resources are are still say the the majority, but we do have kind of government contract leads housing and other such.
Huh.
New customers from from our historic past.
Great and just moving on to nail to me ports I gather that no to me imports continue to have a high level of cash and underlying business. Following your investment.
But as close with you already invested and the business for just over a year now as it always been your investment thesis that.
Continuing to be at the state affectivity or did you wish to that goes more investments from MST.
Well that that cash is still sitting on melting amaze balance sheet that Kelly, even with the the extension of our copper concentrate.
Contract and new capital loading.
Facilities required that will be self funded by that part and will not draw on that circa $200 million sitting on no today's balance sheet. So we are we do want that cashed to be put to work.
We expect that cash to be put to work through Greenfield brownfield M&A.
Activities.
It hasn't hasn't happened, yet Oh, yeah, I know they still they have a lot of irons in the fire and we're looking to.
To deploy that capital and and grow that business.
I guess, if he said this time next year.
Would you be disappointed if all 200 million, it's not already invested.
Yeah.
All 200 million and I'd I would expect some to be deployed.
Right now that.
The results were seeing from they'll tend they are achieving our our base case that we based our purchase all so we're still happy with the the investment.
Going back to what I'd said earlier, yet at least we still expect to deploy that cash.
There are actively seeking projects.
Take a look at what's happening with a world trade and the geopolitical environment.
Understandable, there's a little bit more uncertainty right now so there maybe a little bit a cautious optimism as we proceed to to expand our parts business.
Great. Thank you very much.
Thanks Mary.
Once again to ask a question please press star one.
Our next question comes from Mark Jarvi with C.I.B.C. capital markets. Please go ahead.
Thanks.
Just maybe continuing along some questions on LTV.
Do you anticipate the civil unrest in Chile to have any impact on on the near term results.
Good morning, Mark Thanks for the question no. We do not expect a any major impacts from those civil unrest I mean, that's a that's a very sad unfortunate situation.
We are adults, who may have kind of prided ourselves on our labor relations. You know there were general strikes called we were able to stay open that a vast majority of our ports.
Our workers were safe.
We didn't lose any cargo incoming cargo or outgoing cargo as a result of the a of the unrest there were curfews. So we did scale back on some some overnight ships, but because we were we were open and other ports weren't we were actually able to to pick.
A small incremental number of ships for a front loading which.
Which will help to business, but no no material impact in the in the short term.
Okay. That's good to hear and then.
You did put a anti be in place or this year and obviously, you've got a long track record of growing the dividend any updated views on capital allocation. If you know you struggle to find new investments.
Hi, guys think about maybe just again excess capital towards you know the buyback or or dividend increases over the next couple of years.
Yeah.
We are we havent executed on a on a and C I'd be in a in any any material shape whatsoever.
Our dividend or views are unchanged when you look to grow them and the.
Based on the existing payout.
Long term growth of the business. So we'll be taking a look at that when we set our 2020 a dividend recommendation to the board.
In terms of Atco, we you know we.
I want to limit to leverage on at close balance sheet, we still have some credit facilities and debt outstanding from the no two may purchase.
We're continuing to look for acquisitions.
But as we are fully digest the now to May purchase will be a will be heading out looking for more Oh, we are looking for more but executing on future growth projects down the road.
Okay, Thanks, whether there.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Mr miles Dougan for any closing remark.
Thank you said vsan. Thank you all for participating this morning, we appreciate your interest in macro and we look forward to speaking with you again soon bye for now.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
No.
HM.