Tervita Corporation (“Tervita” or “the Company”) (TSX: TEV) announced a series of actions to protect the wellbeing of employees and the public during the COVID-19 pandemic and to strengthen its business in response to challenging global market conditions. These actions include implementation of its business continuity plan, reductions to its 2020 capital budget and fixed costs, and the suspension of share repurchases under its Normal Course Issuer Bid (“NCIB”).
“I would like to thank our employees for their hard work and dedication to safety and providing excellent customer service under these unusual conditions and challenging times. At Tervita, the health and safety of our employees and the communities where we work is of utmost importance and we have implemented proactive measures to ensure their safety is not compromised,” said John Cooper, President and Chief Executive Officer. “We are also taking numerous steps to prevent COVID-19 from having an impact on our operations and allow us to confidently continue to meet the needs of our customers.
“Tervita is well-positioned to navigate this challenging environment. Our Energy Services business is heavily weighted toward the traditionally more stable production volumes and our Industrial Services business provides diversification from the energy market. Along with our diversified business lines, we have worked diligently over the last three years to remove costs from the business, optimize our locations and achieve business efficiencies. During these unprecedented times we will continue to put our people, stakeholders and the environment first while continuing to provide exceptional service to our customers.”
Safety Remains Our Top Priority
Tervita has implemented its business continuity plan in response to the COVID-19 pandemic to keep employees safe and healthy, assist its customers and ensure safe operations. A dedicated COVID-19 team has been formed to manage the continuity plan and implement proactive measures including strongly encouraging office staff to work from home, protective measures at our field locations, prohibiting all non-essential travel, and mandating social distancing and increased hygiene procedures for operational activities where interaction cannot be avoided. The Company is closely monitoring the status of COVID-19 and using information available from the Public Health Agency of Canada and the U.S. Centers for Disease Control and Prevention.
Tervita’s operations have not been materially affected by the virus at this time. To effectively manage its business through this pandemic and challenging market, the Company will continue to review its business continuity plan and monitor operational activities to ensure a proactive and appropriate response. For further information on Tervita’s response to COVID-19, please visit https://tervita.com/our-commitment/safety-culture/covid-19/.
Capital and Operational Discipline
Capital Budget Reduction to $60 million for 2020
Recent developments in the energy and world markets and the impact to customer demand from COVID-19 has caused a steep decline in commodity prices. In response to this situation producers have significantly reduced their capital programs which will have an impact on activity in Western Canada, as well as an impact on production volumes as producers shut in wells. Tervita will continue to work with customers to meet their needs in a time of tight capital discipline and further assist them in maximizing the value they receive from our services. Following the recently announced reduction in customer spending, Tervita is reducing its 2020 capital budget to $60 million, a reduction of 29% from its previously announced budget of $85 million and 56% from its 2019 capital expenditures.
The reduced capital plan is split evenly between growth and expansion projects and maintenance capital. The revised growth and expansion program is largely directed to the completion of expected high return carry-over projects initiated in 2019 and a modest amount toward targeted high return growth projects within the Industrial Services business. The Company expects the budget will be primarily spent in the first half of 2020. The reductions to capital spending will not compromise the Company’s commitment to safety or environmental regulations. Tervita continues to have a pipeline of opportunities available, and in the current market environment has decided to pause new growth projects. The Company will continue to monitor activity levels as the year progresses and revise its plan accordingly.
Fixed Cost Reductions Annualized at $30 to $34 million
Tervita is taking measures to proactively manage fixed costs in response to the market decline and support free cash flow generation through the following actions:
· Board of Directors cash retainer reduction of 15% and election to receive total retainer in non-cash deferred share units;
· President and Chief Executive Officer salary reduction of 15%;
· Executive leadership team salaries reduction of 10%;
· Organizational restructuring of the Industrial Services segment and Tervita’s business services resulting in a 20% reduction to the size of the executive leadership team;
· Employee headcount reductions;
· Elimination of non-essential discretionary spending; and
· Location optimization throughout our network.
These actions are expected to reduce fixed costs by $22 to $26 million in 2020 ($30 to $34 million annualized) and are already being executed.
In addition, Tervita has suspended all share repurchases under its NCIB.
Balance Sheet Strength
Maintaining Tervita’s balance sheet to maximize financial flexibility is a key financial priority. The progress the Company has made over the last three years to reduce costs, create business efficiencies and generate free cash flow, combined with the proactive cost measures announced recently, positions it well to navigate the current environment. Tervita has ample room within its credit facility and expects to end the first quarter of 2020 with approximately $195 million of available capacity under the credit facility.
The Company expects that given the proactive steps taken it will generate free cash flow and remain within its bank covenants.
Tervita will remain actively engaged in managing the business through these unprecedented times and will exercise cost discipline to further protect the interests of its stakeholders while continuing to maximize value for its customers.
Tervita is a leading waste management and environmental solutions provider offering waste processing, treating, recycling, and disposal services to customers in the energy, mining, and industrial sectors. We serve our customers onsite and through a network of facilities in Canada and the United States.
For over 40 years, Tervita has been focused on delivering safe and efficient solutions through all phases of a project while minimizing impact, maximizing returns™. Our dedicated and experienced employees are trusted sustainability partners to our clients. Safety is our top priority: it influences our actions and shapes our culture. Tervita trades on the TSX as TEV. For more information, visit www.tervita.com.
Forward-Looking Information: This news release contains certain statements that may be “forward-looking statements” or “forward-looking information” within the meaning of applicable securities laws. Forward looking statements are statements that are not historical facts and are often, but not always, identified using words or phrases such as “expects”, “plans”, “anticipates”, “believes”, “intends”, “estimates”, “estimated”, “projects”, “potential” and similar expressions, or stating that certain actions, events or conditions “will”, “would”, “may”, “might”, “could” or “should” occur or be achieved or other similar terminology. In particular, but without limiting the foregoing, this news release contains forward-looking statements or information pertaining to Tervita’s ongoing review of its business continuity plan and monitoring of operational activities, Tervita’s expectations regarding the impact of COVID-19 on activity in Western Canada and on production volumes, Tervita’s intended allocation of its reduced capital budget of $60 million, to be split evenly as between growth and expansion projects and maintenance capital, Tervita’s expectations regarding the capital budget being primarily spent in the first half of 2020, Tervita’s expectations that the reductions to capital spending will not compromise its commitment to safety or environmental regulations, Tervita’s expectations that the savings from corporate fixed cost reductions will be $22 to $26 million in 2020 ($30 to $34 million on an annualized basis), Tervita’s ability to navigate the current environment well, Tervita’s expectations it will generate free cash flow and remain within its bank covenants, Tervita’s ability to exercise cost discipline and continue to maximize value for its customers in the current environment.
Although Tervita believes the expectations expressed in such forward-looking statements and information are based on reasonable assumptions, such statements are not guarantees of future performance and actual results may differ materially from those in forward looking statements.
Forward-looking statements relating to our business contain uncertainties and assumptions, including the following: current economic and operating conditions, including fluctuations in commodity prices, interest rates, and environmental and regulatory matters, including those related to the impact of the COVID-19 outbreak and determinations by OPEC and other countries as to production levels; changes in capital spending plans and planned exploration and development activities of Tervita’s customers, the ability of Tervita to carry on operations in light of the COVID-19 outbreak, the ability of Tervita to obtain equipment, services, supplies and personnel to carry out its business activities; the ability of Tervita to successfully market its business in the areas in which it operates; that Tervita’s current business environment will remain substantially unchanged; Tervita’s ability to secure financing on acceptable terms, if needed; demand for services in Tervita’s businesses can be adversely impacted by general economic conditions and Tervita is dependent on exploration, drilling and production activity levels in the markets where Tervita offers its services; risks related to limited pipeline capacity; the ability of management to execute its business plan; the risks of the environmental solutions industry, such as operational risks and market demand; risks inherent in Tervita’s marketing operations, including credit risk; the uncertainty of estimates and projections relating to revenues, costs, expenses and capital expenditures; fluctuations in fuel, raw material costs, oil and natural gas prices, foreign currency exchange rates and interest rates; health, safety and environmental risks; uncertainties as to the availability and cost of financing; general economic conditions in Canada, the United States, and globally; industry conditions; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; governmental regulation of the environmental solutions industry, including environmental regulation; unanticipated operating events; failure to obtain third-party consents and approvals, when required; risks associated with existing and potential future lawsuits and regulatory actions against Tervita; the highly competitive nature of Tervita’s markets, and competition that could adversely impact Tervita’s financial position, results of operations, cash flows or its ability to make required payments on debt outstanding; global financial conditions are subject to increased volatility; legislative and regulatory initiatives related to hydraulic fracturing that could result in increased costs and additional operating restrictions or delays as well as adversely affect Tervita’s support services. For a more detailed discussion of risks relating to Tervita, see our most recent AIF dated March 8, 2020. These factors should not be construed as exhaustive. The forward-looking statements included in this news release are made only as of the date hereof and Tervita does not undertake to publicly update these forward-looking statements for new information, future events, or otherwise, except as required by applicable laws. Any forward-looking statements contained herein are expressly qualified by this cautionary statement.
The estimates regarding Tervita’s future financial performance, including the reduced capital budget of $60 million, are based on assumptions about future events, including economic conditions and proposed course of action, based on management’s assessment of the relevant information currently available. The estimates are based on the same assumptions and risk factors set forth above and are based on Tervita’s historical results of operations. The financial outlook or potential financial outlook set forth in this news release was approved by management as of the date of this news release to provide investors with an estimation of the outlook for Tervita for 2020 and onwards, where applicable, and readers are cautioned that any such financial outlook contained herein should not be used for purposes other than those for which it is disclosed herein. The prospective financial information set forth in this news release has been prepared by management. Tervita’s management believes that the prospective financial information has been prepared on a reasonable basis, reflecting management’s best estimates and judgements, and represents, to the best of management’s knowledge and opinion, Tervita’s expected course of action in developing and executing its business strategy and growth opportunities relating to its business operations. However, actual results may vary from the prospective financial information set forth in this news release. See above for a discussion of the risks that could cause actual results to vary. The prospective financial information set forth in this news release should not be relied on as necessarily indicative of future results.