We are grateful for the high quality product you delivered throughout all phases of the project. The design, engineering and fabrication were proven to be impeccable. Your quality continued into the field with supervision that is second to none."
Principal Mechanical Engineer, Walt Disney Imagineering
Public Disclosure Documents
Latest Annual Reports:
- 2013-05-16 | May 2013 Corporate Presentation
- 2013-05-15 | 2012 Annual Report
- 2012-09-04 | CEO Q&A - Aug 30/12
Latest Quarterly Reports:
- 2012-11-29 | 3rd Quarter Report - Sept 30, 2012
- 2012-08-29 | 2nd Quarter Report - June 30, 2012
- 2012-05-30 | 1st Quarter Report - March 31, 2012
Latest Information Circulars:
- 2012-05-08 | 2012 Management Information Circular
- 2011-06-10 | 2011 Management Information Circular
- 2010-05-31 | 2010 Management Information Circular
2011 Report to Shareholders
In 2010, the Company and its Board of Directors concluded that strategic transformational change was required. The first decision the Company made was to concentrate on leveraging its globally competitive engineering and design strengths. Secondly, the Company decided to reduce its investment in the domestic steel fabrication and erection business, which was under severe competitive pricing pressure due to the recession and to replace it with a lower cost foreign steel fabrication capability in China by entering into a joint venture with a Chinese steel fabricator.
To this end, the Company began a planned exit of low margin, geographically challenged, money-losing steel fabrication divisions that tied up working capital and required significant bank operating lines of credit. By the end of fiscal 2011, the Company had exited or entered into agreements to exit four steel-related business units that helped to reduce its Funded Debt by about $38 million from $48 million on December 31, 2008 to $10 million by December 31, 2011.
Some of the specific initiatives completed by the Company to give effect to the strategic transformational change during 2011 were:
- On April 4, 2011, the Company settled $0.8 million of the subordinated notes as consideration for $0.7 million of certain items of property, plant and equipment resulting in a $0.1 million gain. On December 31, 2011, the Company completed the sale of its Winnipeg and Welland structural steel fabrication divisions for $3.8 million plus working capital with the proceeds used to reduce Funded Debt. This was followed by the Company divesting its KWH and Somerset Business Units on March 1, 2012 for $1.4 million of subordinated notes Payable, resulting in a $1.3 million gain. After the divestitures, Empire has retained a structural steel fabrication and erection operation in Alberta, a complex structural and mechanical fabrication operation in BC and a pressure vessel and stainless steel fabrication operation in Manitoba;
- In August of 2011, a steel fabrication company was incorporated in Guangdong Province, China that the Company has a 45% equity interest in. Empire’s 45% of the common equity of the joint venture was effectively financed by limited recourse loans provided by our Chinese partner. Empire provides the Chinese joint venture with knowledge transfer advice in the form of quality control, manufacturing systems and processes and employee training and certification. These higher quality standards are necessary for the Chinese joint venture to become qualified to export fabricated steel to the rapidly growing industrial construction markets of Western Canada as well as satisfy demand for more complex fabrication projects in China itself.
- In August of 2011, Dynamic Attractions was incorporated and two industry leaders were hired to head this new business division for Empire. The Company committed significant resources throughout 2011 to develop its own line of proprietary media based entertainment products and began to market its advanced engineering capability to the media based attraction market, The Company is aiming to become a global leader in the media based attractions industry.
- In October of 2011, Empire’s 49% owned aboriginal partnership in the oil sands region of Alberta acquired Bartan Machine & Welding, making this 49% owned joint venture the largest machine shop in Ft. McMurray and providing the required fabrication space to support the field erection services provided by our unique, aboriginal partnership;
- During 2011, the Company undertook private placements raising $6.2 million in common equity and subordinated debt. These funds were used to provide the capital resources required to fund operating losses while it exited unprofitable steel fabrication plants in Western Canada and invested in the development of the media based attractions business.
2011 Summary of Financial Results
Sales in 2011 from continuing operations were $55.4 million compared with $50.0 million in 2010;
The Company had a net loss of $7.3 million ($0.05 basic and diluted loss per share) for the twelve months ended December 31, 2011 that breaks downs as follows:
- A loss from continuing operations of $6.2 million or $0.04 loss per share;
- A loss from discontinued operations of $1.1 million or $0.01 loss per share.
2011 can best be summarized as a year in which the Company invested heavily in building its product line of proprietary products and finishing off its low margin book of steel fabrication business and completing its exit from non-core steel fabrication facilities. The operating loss from operations was impacted by finishing off these lower margin jobs and the under absorption of fixed costs.
The investment in strengthening and broadening our specialized engineered product line in 2011 is starting to pay off in contract awards as evidenced by our backlog at December 31, 2011 of $43 million and $92 million as of March 31, 2012.
The 2011 loss of $7.3 million compares to a net loss of $9.3 million ($0.10 basic and diluted loss per share) for the twelve months ended December 31, 2010 that breaks down as follows:
- A loss from continuing operations of $2.0 million or $0.02 loss per share;
- A loss from discontinued operations of $7.3 million or $0.08 loss per share.
The Company’s cash flow used in operations was $7.1 million during 2011 versus $6.0 million used in 2010. The cash flow loss in 2011 was largely financed by using the $6.2 million of equity and subordinate debt raised by the Company in 2011. In addition, the Company raised $6.1 million of cash from selling redundant assets and discontinuing non-core operations. This cash was used primarily to reduce Funded Debt.
Since the start of the recession at the end of 2008, the Company has aggressively sold redundant assets, sold or discontinued non-core businesses, reduced fixed operating costs, raised equity and effectively managed its working capital. The cumulative effect of all these actions has been that the Company’s Net Funded Debt decreased to $9.6 million at December 31, 2011 compared to $16.7 million at December 31, 2010 compared to $48.2 million at December 31, 2008.
The Company also actively invested in three strategic initiatives to accelerate the success of its transformational strategy;
- Hired two experienced executives in the attractions business and funded the start-up costs of the new, wholly owned business unit called Dynamic Attractions. The mandate of this new subsidiary is to sell the Company’s proprietary media-based turn-key attractions to the global amusement park market.
- The Company’s aboriginal partnership in the oil sands region of Alberta, more than doubled its capacity by acquiring Bartan Machine & Welding in the fall of 2011.
- The Company invested $0.7 million to acquire a 45% equity interest in a Chinese steel fabrication joint venture. This investment was financed by a $0.7 million limited recourse loan from our Chinese majority partner.
Business Unit Initiatives
Our engineered product businesses focus on manufacturing high value added, proprietary products such as amusement ride systems, media-based attractions, hydrovac trucks, custom design/build equipment, observatory telescopes and bulk material handling equipment. Many of the company’s products are globally competitive and exported around the world.
Dynamic Structures continues to use its specialized engineering skills and manufacturing competencies to create innovative world-class design/build products across a broad range of end use applications. Early in 2011, the company was awarded a $9 million contract from one of the leading entertainment companies and in the first quarter of 2012, an additional $47 million in contract awards were added.
The incorporation of Dynamic Attractions in August of 2011 and the hiring of two industry veterans to market the company’s proprietary media based attractions, provide the company with an exciting platform of growth with initial market penetration coming from the emerging markets in Asia, South Asia and the Middle East, markets where entertainment infrastructure is in its infancy and domestic demand growing rapidly because of the increased affluence of the middle class. This new subsidiary has an impressive pipeline of outstanding proposals that we expect to turn into a robust backlog in 2012 and after.
We have consciously narrowed the focus of our steel fabrication and installation businesses to concentrate on steel fabrication for industrial and infrastructure applications in Western Canada, primarily the oil sands and mining.
The Company has also significantly lowered its fixed operating costs and lowered its capital employed in the highly competitive steel fabrication market. The company has retained a structural steel fabrication plant in Edmonton, a plate and pipe steel fabrication plant in Vancouver and a pressure vessel, tank and pipe shop in Winnipeg and has replaced capacity in Western Canada with comparable lower cost capacity in China. Importing fabricating steel from China will take some time to accomplish but the quality standards and processes and training have already commenced.
The Company is also pleased to see steady progress from its First Nation partnership in Ft. McMurray where we have become the largest machine shop in this burgeoning market and have now set our sights on becoming one of the largest steel fabricators and erectors in this rapidly growing market.
The Company is excited about the prospects for its Chinese joint venture. In August 2011, Dongguan Qiguang Dynamic Steel Structures Ltd. (“QDSL”) was incorporated with 55% being owned by the Qiguang Group and 45% by Empire. QDSL will enable Empire to actively participate in the robust Chinese steel fabrication market, which is the largest in the world, by using its existing leased 12,000 square meter steel fabrication facility in Guangdong Province and to put in place the quality certifications needed to export low cost, fabricated steel to Empire’s operations in Western Canada for deployment in the industrial construction projects in Western Canada.
The Company’s backlog has grown steadily throughout 2011 and into 2012. The backlog at December 31, 2010 was $19.5 million and this increased significantly to $43 million at December 31, 2011 and $92 million as of March 31, 2012.
The Company is well positioned to exploit global opportunities for its engineered products, such as its record backlog of orders for its hydrovac truck division and its proprietary media based attraction products. We also believe that the long term outlook for business capital expenditures in Western Canada is very positive and that our more focused and cost competitive steel fabrication capability will enable us to participate in this strengthening market.
The past three years have been challenging for the Company. The repositioning of the Company into higher margin engineered steel products and a low cost, high value added provider of fabricated steel will enable the Company to generate sustainable future profitability as it exploits its new, leaner, more cost competitive structure. Profits generated will be sheltered from tax through the availability of $21 million of loss carry forwards.
Management and the Board of Directors are confident that the restructuring and strategic repositioning initiatives that have been put in place have transformed the Company and will return it to profitability and growth in 2012 and will result in a return of shareholder value.
We would like to thank those shareholders that remained with us over this difficult period for their patience. We would like to welcome the new shareholders that have decided to join us. We would also like to thank our employees, management and directors who have also guided us through this transformational period and invested heavily in the program. It has been difficult and challenging for everyone, but we are confident the future is unfolding as planned.
“Ian Macdonald” “Guy Nelson”
Chairman of the Board Chief Executive Officer