GOLD DUST
The “Air Pollution Management” Newsletter
June 2019
No. 494
OVERVIEW
Factors Shaping the Air Pollution Control Market
The Market is Internationalizing Faster
Regional Markets and Opportunities in Each
Industry are Changing
The Chinese Government is a Positive Force with
New Rules
PLAYER ANALYSIS
Boqi Has Made the Transition to BOO
Concession Operation Business
Capturing the Market Opportunities brought by
the Government’s “Ultra-low Emission” Policy
Expanding the Business Scope of the Group with
Core Competitive Strengths
Continuing to Invest in Research and Development
and Strengthening the Conversion of Policy
Research Results and Technological Achievements
JET has Influential Executives who are Promoting
Coal to Ammonium Sulfate Technology
IAC Out Performs the Field
Donaldson Announces Fiscal 2021 Financial
Targets
Babcock and Wilcox Announces New Financing
Agreement
BIOREM Reports Eight Percent Increase in Revenue
CECO Reports Improved First Quarter
OVERVIEW
Factors Shaping the Air Pollution Control Market
There are significant changes underway in the
air pollution control
industry. They are triggered by the
following:
The Market is Internationalizing Faster
Air pollution control system and product
suppliers have to deal with the reality that
Asia is where the game will be won or lost. 1n
1946 the U.S. generated most of the coal-fired
power. It produced most of the steel, chemicals,
and pharmaceuticals. Today China produces more
than half the world’s coal fired power, cement
and steel. Asian countries are rapidly building
generic drug plants. Taiwan, South Korea, China
and Japan dominate semiconductor wafer
fabrication.
European suppliers of some components in air
pollution control systems have long coped with
the reality of small domestic markets. Metso,
GE, Andritz and others have become
true international suppliers with
substantial Asian market share. U.S. companies
have not fared so well. GE, Babcock & Wilcox,
and a number of the U.S based APC companies
have failed to become Asian leaders.
There are exceptions. Thermo Fisher has set up
its world air pollution research center in
China. Let’s consider the intellectual property
implications. The company is affirming that they
have loyal employees who will guard intellectual
property regardless of where they are located.
In fact, international business is based on
trust.
In the coal-fired power air pollution control
business MHPS based in Japan and Doosan based in
South Korea have built relationships with
partners around the world and have succeeded
whereas Combustion Engineering, Foster Wheeler
and Babcock & Wilcox who once dominated coal
fired power are now part of other companies or
have a reduced role. The Chinese APC system
suppliers are playing a large role not only
within China but in the rest of Asia.
The U.S. has one big advantage. It is producing
low-cost oil and gas thanks to hydraulic
fracturing. However, U.S. air pollution
suppliers will look over their shoulder
to see Sinopec in pursuit. Sinopec is supplying
complete fracking truck systems in the U.S.
using Chinese made pumps and valves. Sinopec has
just purchased some stock of Boqi which is one
of the three largest air pollution companies in
China.
Regional Markets and Opportunities In Each
Industry are Changing
Hydraulic fracturing decisions are being made by
companies such as ExxonMobil and Chevron.
These
two oil and gas companies are altering
their investment plants to focus on oil from
shale. They believe that the U.S. will be
producing 25 million bbl/day of oil in eight
years. This contrasts to IEA and OPEC who are
forecasting U.S.
Production of only 14 bbl/day in 2027.
The Chain Effect of Expanded Oil and Gas
Production on the Air Pollution Control Industry
If ExxonMobil and Chevron are right and the U.S
is producing liquids at costs below $30/bbl in
quantities approaching 25 million bbl/day the
downstream impact on the slurry pump market will
be significant. Companies such as Shell are
investing huge sums of money to build feedstock
processing plants taking advantage of the ethane
in the gas being extracted in the Marcellus
region. Others are investing in LNG liquefaction
facilities. The refining industry is expanding
and so is the petrochemical industry who
will be making more intermediates resulting in
more end products such as polyethylene. These
lower cost end products will boost construction
of
plants which use them in their process equipment
.
These same plants will benefit from lower energy
costs.
So prospects are bright for the broader
market
(U.S. annual revenue impact of cheaper U.S. oil
and gas 2025 $Millions)
The Profit Opportunities are in High Performance
rather than General Performance Products
For high performance products, International
suppliers will justify greater R&D based on the
expanded sales potential. This will lead to
better products and higher margins. Local
suppliers of general performance products will
reduce the international opportunities in this
segment. The higher performance product can be a
solution rather than a superior individual
product. A smart pump which reduces energy cost
not by lower inherent efficiency but through
data analytics which optimize its operation will
be a higher performance product.
The Purchases will be based on Lowest Total Cost
of Ownership
Higher performance products are purchased based
on life cycle costs. Purchasers are increasingly
relying on data analytics and remote monitoring
to enable them to accurately determine the TCO.
As an example, let’s assume that
JET is successful in securing BO0
contracts from Illinois power plants. The price
will be based on quantity of sulfur captured.
If a scrubber nozzle costs twice as much
but lasts longer JET will be a receptive
purchaser.
The total cost of ownership will be the
primary consideration of any company with a BOO
contract based on results.
The Chinese Government Is a Positive Force with
New Rules
China is now a manufacturer of high-performance
products. Longking is the world’s largest
supplier of dry FGD systems. It is also a
leading supplier of hybrid fabric
filter/precipitators. China is now operating far
more ultra-super critical coal fired boilers
than the rest of the world combined. The air
pollution systems are subject to the tightest
standards worldwide.
In possibly the most important initiative China
is encouraging ultra-low emissions by supporting
third party operation of air pollution control
systems. This is allowing system suppliers such
as Boqi to transform their business model from
build to build, maintain and even own. Contracts
are let based on meeting emission limits for a
fixed fee. This creates a big opportunity for
international suppliers with better pumps,
valves, nozzles, filter bags, or fans to
participate in the Chinese market. The BOO
operators become major CFT product purchasers.
The Large International Purchasers will shape
the Market rather than Governments
End users such as BASF and Arcelor Mittal are
making air pollution control decisions
for plants scattered throughout the
world. Hamon received a large order from Arcelor
Mittal in Belgium for fabric filters to be
installed in multiple steel plants located in
Europe and South America. More than half the air
pollution control related
purchases will be made by just 7000
companies. Suez and Veolia are major worldwide
APC product
purchasers because of their third part
operation initiatives. NAES operates a number of
coal-fired as well as gas turbine power plants
for U.S. utilities. It is a subsidiary of ITOCHU
of Japan. So, it is a significant air pollution
control decision maker for the world power
industry.
Now a whole new wave of Chinese companies
will also be in this category. This includes not
only purchases within China but all along the
new Silk Road with the Chinese Belt and Road
Initiative (BRI).
Individual Companies need to develop Organic and
Acquisition Growth Strategies taking into
account these Factors
Success is not going to be predicted from the
extension of past financial results. Companies
such as B&W, Eastman Kodak, IBM, U.S. Steel and
many others have learned this the hard way. When
one air pollution control
company is considering acquisitions a
major question should be “how will this impact
market share in Asia.” An air pollution
company will not be able to dominate
regions representing 40 percent of the world
while allowing competitors to dominate the other
60 percent.
Chinese companies have to be viewed in the
longer-term perspective. Developing countries
can be risky places to do business because of
lack of intellectual property protection and
other initiatives to insure a level playing
field.
However, when a country develops and has
intellectual property it wants protected as it
pursues world markets, its attitude toward IP
protection changes.
Recent studies show that for foreign
companies doing business in China protection of
IP has fallen from one of the top concerns to #5
on the list. There
are new IP protection laws. 100 percent
of the suits filed by foreign companies under
this new law have been settled in favor of the
plaintiff.
Subsidizing of domestic suppliers
has risen to the top. But this is also a
temporary situation and will shrink in
importance as Chinese technology improves and
world-wide supply accelerates. The fact that
China is dedicated to enforcing air pollution
emission limits equal to or better than any
other country is important. Companies with
innovative products and lowest total cost of
ownership will have the opportunity to pursue
the Chinese market and international
markets where China is also playing.
Decisions on growth, through organic means or
through acquisition, need to consider that the
future world market will be integrated on a
world-wide basis. The opportunity for a specific
technology will be larger due to the world wide
potential.
The purchasers will be looking for lower
cost solutions and not lower cost products.
These solutions are likely to involve
multiple products supplied by a number of
companies. One route to providing solutions is
to acquire companies with complimentary
products.
Another option is to collaborate with other
companies who have complimentary products and or
complimentary geographic or industry strengths.
These companies can share insights on technology
and specific prospects and build bottoms up
relationships with the decision making at the
local
or product level.
PLAYER ANALYSIS
Boqi Has Made The Transition to BOO
China Boqi Environmental (Holding) Co., Ltd. for
the year ended December 31, 2018. reported
revenue of RMB 1,744,998,000 compared to RMB
1,329,078,000 a year ago. Profit for the year
was RMB 392,819,000 or RMB 0.44 per basic share
or RMB 0.27 per diluted share compared to loss
of RMB 37,029,000 or RMB 0.08 per basic and
diluted share a year ago.
Market-oriented operation and maintenance of
desulfurization/denitrification projects is one
of the major trends in recent years.
Professional third-party treatment companies,
observes Boqi, possess richer experience in
operation, maintenance and more abundant
technical expertise compared with power plants.
The penetration rate of third-party treatment is
expected to keep rising. Boqi quotes other
sources which predict that by 2021, the
penetration rate of cumulative installed
capacity in operation of desulfurization and
denitrification under the operation and
maintenance model in China would reach 16.5
percent. Meanwhile, boosted by favorable
government policies, the market has witnessed
increasing recognition and effective promotion
of the concession operation model in the
industry of environmental protection for
coal-fired power plants. The desulfurization and
denitrification concession operations are
expected to grow steadily with a penetration
rate to reach 15.7 percent and 15.5 percent,
respectively, by 2021.
The Group enters into project contracts with
coal-fired power plants and other customers for
the provision of services mainly based on three
business models: the EPC, the O&M business and
concession operations (which includes BOT and
TOT). The Group uses different business models
for different projects in its desulfurization,
denitrification and other flue gas treatment
businesses in an effort to comply with general
market practices or to meet customer’s
expectation or to take advantage of certain
favorable government policies
As of December 31, 2017, the cumulative
installed capacity contracted for newly built
EPC projects (including desulfurization,
denitrification and dust removal projects) of
the Group reached 2,000 MW and the cumulative
installed capacity contracted for upgrade EPC
projects of the Group reached 3,235 MW. The
total contract value of newly contracted EPC
projects, including newly built and upgrade
project, amounted to RMB712 million for the 2017
Financial Year. Among which, Boqi has made a
breakthrough in EPC projects in non-electricity
fields and have entered into contract for their
first ultra-low emission project in the
petrochemical industry, namely the Shanghai
Petrochemical Boiler Ultra-low Emission Upgrade
Project and the Group’s first flue gas
desulfurization project in the electrolytic
aluminum industry, namely the flue gas
desulfurization system engineering of Aluminum
Company I (鋁業一公司)and
Aluminum Company VI (鋁業六公司) of
Zouping Hongmao New Materials Technology Co.,
Ltd. (鄒平縣宏茂新材料科技有限公 司)
of Shandong Province.
As at December 31, 2017, the Group had 14 EPC
projects under construction. The following table
sets forth the status of the EPC projects under
construction as of December 31, 2017:
Notes:
(1) Represents the percentage of completion
as measured by the preparation that construction
costs incurred for work performed to date
relative to the estimated total construction
costs.
(2) The construction of the project is
temporarily on hold, subject to further
adjustments of construction plans, pursuant to
the instruction by the relevant government
authorities.
The O&M services mainly include operation
service and regular maintenance service for
desulfurization and denitrification facilities
owned by the customers. The Group acts as a
contractor providing desulfurization,
denitrification and dust removal operation
services and the work scope involves the full
operation, repair, upgrade and maintenance of
flue gas treatment system/facilities owned by
power plants. Under the O&M projects, the
customers are either charged a service fee for
the O&M services calculated based on the total
amount of on-grid electricity generated during
the service period, or a price pre-determined at
the commencement of the project based on the
scope of work performed. Revenues from the O&M
business can generate recurring revenue stream
and stable cash flow for the Group.
During the 2017 Financial Year, the Group acted
as a contractor under the O&M projects providing
desulfurization, denitrification and dust
removal operating services, and the scope of
business included full-process operation,
upgrading and maintenance of flue gas treatment
system/facilities of coal-fired power plants.
Regular maintenance services included provision
of technical support, regular maintenance,
facilities testing, maintenance services and
spare parts services for flue gas facilities.
The Group renewed 89 percent of the O&M
contracts that expired in the 2017 Financial
Year. As of 31 December 2017, the Group had 14
O&M projects under operation with an aggregate
installed capacity of 19,680 MW. The following
table sets forth the installed capacity and
status of the O&M projects of the Group under
operation as of December 31, 2017:
(1) The
Group may further renew the service contract
with customers upon expiration of the service
contract based on its regulation with respective
customers.
Under the concession operation business model,
the Group is responsible for the financing,
investment, construction and upgrade of a
project according to the concession contract
with the customer. In general, the concession
projects are funded by the Group’s own capital
or borrowings from local banks. After the
completion of constructions, the Group also owns
the project assets and operates the project for
a period pre-defined in the concession
agreement, which is typically 15 to 20 years,
and the Group is entitled to collect revenues
generated from the project during the term of
the contract. Revenues generated by the
concession operation business during the
operation phase of the relevant projects are
calculated based on the on-grid power generation
of the customer using the unit price specified
in the concession contract during the operation
phase, which is generally settled with the
customers on a monthly basis. The Group also
generates revenues from the sales of by-products
during the operation of the environmental
protection facilities. The fees the Group
receives for the provision of concession
services under the concession contracts
typically include a service fee based on a
guaranteed minimum flue gas treatment volume and
such fees are contingent subject to adjustment
of certain variable cost the Group incurred.
Such tariff subsidy for the power consumption
pre-determined at the time the concession
agreement has been entered into with the client.
In 2017, the Group continued to carry out its
concession operation business, including
desulfurization, denitrification and Green
Island (which is an integrated flue gas
treatment system synergic treatment of flue gas
pollutants produced by the boilers of coal-fired
power plants, including denitrification,
desulfurization, dust removal, induced-drafted
fan system, reheating system.). As at December
31, 2017, the Group cumulatively undertook six
concession operation projects with one under
construction and five in operation. Among which,
the acquisition of Xinjiang Shenhuo BOT Project
has further optimized the business structure of
the Group and enhanced the profitability of the
company, which demonstrated the significance of
the Group’s development in regional markets such
as Xinjiang.
(1) For Xinjiang Shenhuo BOT Project, the Group
acquired certain flue gas desulfurization,
denitrification and dust removal facilities,
which in turn upgrade at the Group’s own
expenses. The Group expects to recover its
investments in the acquisition and upgrading of
the relevant facilities through the service fees
it charges during the subsequent concession
operation period.
Capturing the Market
Opportunities Brought by the Government’s
“Ultra-low Emission” Policy
The Group seeks to capture the market
opportunities arising from China’s national
“ultra-low emission” policy. Leveraging the
extensive customer base and abundant business
experience of the Group, the Group seeks to
further cover the whole industrial chain of flue
gas treatment. The Group would closely focus on
the development of the third-party treatment
market, endeavor to tap into the market
potential of the desulfurization and
denitrification concession operation and O&M
business and improve the proportion of
third-party treatment business within our major
businesses, so as to achieve the sustainable
development of their business. The PRC
government has promulgated a series of
environmental treatment polities, which brought
significant impetus to the development of the
relevant industries. In light of the favorable
national policies, looking forward, the Group
would put more focus on the expansion of flue
gas third party treatment markets, while it
would strengthen the market overall planning,
modify marketing strategies, increase their
resource allocations, building up their
professional image and brand, attach great
importance to the maintenance of major
customers, continuously offer training to
marketing personnel in respect of technology
knowledge, market analysis and sales techniques
and improve the quality of tenders won.
Expanding the Business
Scope of the Group with Core Competitive
Strengths
The Group will continue to expand its business
scope with competitive strengths. Looking to the
future, the Group plans to extend its flue gas
treatment industrial chain to other aspects of
heavy metal treatment, VOC treatment and CO2
capturing and collection in order to provide
customers with integrated energy-saving and
environmental protection solutions. Meanwhile,
after Listing, leveraging strong capital
strength, the Group entered the fields of
municipal and industrial sewage treatment
business and detoxification treatment of solid
waste through various approaches, such as
technology cooperation, investment, mergers and
acquisitions, so as to build an integrated
environmental industry group. In addition,
supported with the resources of the shareholders
in the industry, the Group would collaborate
with research institutes on joint technology
licensing so as to expand their “ultra-low
emission” upgrade business in the fields of
petroleum and petrochemicals, metallurgical,
steel and coal chemicals. Leveraging the
Implementation of the “One Belt One Road”
National Strategy to Explore the Overseas
Markets By leveraging the “One Belt One Road”
strategy and the national “Green Finance”
policy, the Group will explore overseas markets
in countries alongside the “One Belt One Road”,
such as Turkey, Serbia, India, Russia,
Indonesia, Vietnam and Pakistan. The Group would
continue to reinforce cooperation with overseas
energy engineering companies and large-scale
technology companies. The Group plans to explore
overseas market based on current EPC and O&M
model. In January 2018, the Group completed the
structural adjustment of overseas business
expansion. By establishing an international
business department, the Group would strengthen
our overseas team building in terms of
marketing, designing, purchasing and project
executions, and accelerate its overseas talent
base through talent introduction and internal
cultivation, so as to satisfy their needs for
overseas market development and enlarge their
space for development in overseas market.
Continuing to Invest in Research
and Development and Strengthening the Conversion
of Policy Research Results and Technological
Achievements
The Group will continue to invest in technology
research and development and technology
innovation by promoting the infrastructure of
technology research and improving postdoctoral
research station and technology center, to
strengthen the cultivation and utilization of
skilled talents, so as to make full use of the
skills of the talents. By conducting multilevel,
multi-channel cooperation and communication with
external institutions in technology, the Group
will closely monitor the latest development of
the industry, establish the platform to acquire
and monitor technology in different phases and
different depth. The Group seeks to establish a
pool of various technologies to provide
technical support for development. By further
improving the postdoctoral research station, the
experimental research base and technology the
Group has established, the Group will strengthen
the infrastructure of technology research,
improve its innovation capabilities and fully
utilize the Group’s strengths in technology as a
high-tech enterprise. The Group will actively
participate in the establishment of the national
and industrial standards to strengthen its
leading position in technology.
JET has Influential Executives who are Promoting
Coal to Ammonium Sulfate Technology
Jiangnan Environment Technology Inc. (JET) has
sold a number of systems in China to use high
sulfur coals and make ammonium sulfate. Last
week we devoted considerable space to the
conclusions of an Illinois task force which
recommended pursuit of this technology. We did
not report the impressive group of individuals
supporting the initiative.
JET has a U.S. office in Ridgefield Park, NJ.
This year, the company hired several prominent
American executives and diplomats, including
Neil Bush, the fourth child of George H.W. Bush
and brother to former President George W. Bush.
Bush's hiring was announced the same day as JET
executives met with Dept. of Energy officials.
Other members of JET's U.S. team include David
Phillips, a former KeySpan Corp. CEO and
chairman of the Bilateral U.S.-Arab Chamber of
Commerce, and Richard Westerdale II, a former
State Dept. adviser.
While at the State Dept., Westerdale spoke at a
JET technology symposium at the St. Regis hotel
in Washington, providing an overview of the
Trump administration's energy policy. Less than
a month later, he would leave the government to
take a job with the company.
Other presenters at the conference included
JET's founder and chairman and the chief
operating officer of its U.S. subsidiary, a
former Indianapolis Power & Light Co. executive.
Dynegy Inc. sent a team to China in mid-2017 to
evaluate whether JET's technology made sense for
the company's Zimmer power station in Ohio,
according to the former managing director of the
plant, who presented at the fall technology
symposium.
Plus, JET did its own case study using the
Kincaid coal-fired power plant in Illinois,
concluding that the plant could save $44 million
annually with its SO2-removal
technology and a switch to Illinois coal.
McIlvaine has been reporting on ammonia
scrubbing since 1974. It did one brief study,
which showed that higher chlorine Illinois coals
could be burned without corrosion. This could
make cheaper high chlorine coals the most
attractive fuel. Peabody Coal has expressed
concern that mining low chlorine coals is more
expensive than importing PRB.
McIlvaine has also recommended that the system
include rare earths recovery. The cost to
produce 30 percent hydrochloric acid, rare
earths feedstock, ammonium sulfate, and high
quality flyash is little more than a typical
limestone scrubbing system. This insight is
unique and the result of direct accidental
experience at Philadelphia Electric Eddystone
and Cromby.
IAC Out Performs the Field
In the last few years IAC has outperformed the
industry in terms of revenue increases. Its
revenues have grown by more than 200 percent. A
large portion of the increase has been the
delivery of a number of complete frac sand
manufacturing plants. These plants incorporate
dryers and fabric filters. Orders for complete
plants are often larger than $20 million.
Because IAC is the leading provider of frac sand
plants in the Texas region it is able to
leverage this position to effectively pursue the
aftermarket. It is also offering consulting
services. One service involves a program to deal
with the new silica dust limitations.
Donaldson Announces Fiscal 2021 Financial
Targets
An in-depth review of Donaldson’s strategic
priorities, including business segment
performance, leadership through innovation,
operational excellence and its capital
allocation framework was provided. Additionally,
the company is introducing long-range financial
targets, including a framework for profitable
growth through fiscal 2021.
“We continue to make excellent progress on our
strategic priorities related to expanding our
industry-leading technologies and solutions,
extending our market access and executing
strategic acquisitions,” said Tod Carpenter,
Chairman, President and Chief Executive Officer.
“We expect that benefits from strong execution
of these priorities, supported by our
technological innovations, deep customer
relationships and global presence, will allow us
to continue delivering profitable growth well
into the future.”
Donaldson expects to achieve the following
financial targets by the end of fiscal 2021:
·
The company also expects to maintain its
disciplined approach to capital deployment,
including investments in strategic growth
priorities and returning cash to shareholders
through dividends and share repurchase.
Babcock and Wilcox Announces New Financing
Agreement
Babcock & Wilcox Enterprises, Inc. announced
today it has taken strategic action to
significantly strengthen its financial position
and chart a path to profitability in 2019. The
company has amended its credit agreement with
its current lenders, whereby B. Riley FBR, Inc.
has joined the facility and has arranged an
additional $150 million in secured financing via
a last out term loan and has agreed to provide
an uncommitted incremental credit facility of up
to another $15 million. This follows an
additional $10.0 million in commitments from
affiliates of B. Riley FBR under a last out term
loan announced on March 19, 2019.
Proceeds from the new financing have allowed B&W
to settle and significantly limit future
liabilities on its two remaining Vølund European
loss projects and terminate its obligations on
an additional European waste-to-energy EPC
contract which has not yet reached the project
phase. The new financing also provides the
additional liquidity the company needs to
release the value of its core business and
strong market position to pivot towards
profitability and positive cash flows.
“With this financing, combined with the
reduction of liabilities and risks from the
Vølund loss contracts being vastly reduced
through these settlements and recent plant
turnovers, we believe the company is on a path
to profitability in 2019,” said Kenneth Young,
Chief Executive Officer, B&W. “We now can focus
on unlocking the real value and strong position
of our power business, along with value from the
core technologies of Vølund and SPIG and
improving the profitability of our company.”
BIOREM Reports Eight Percent Increase in Revenue
BIOREM Inc. announced its results for the three
and twelve-month periods ended December 31,
2018.
For the twelve months ended December 31, 2018
revenue totaled $24.3 million compared to $22.6
million for the same twelve months in 2017. Net
earnings for the year were $4.7 million compared
to net earnings of $1.5 million in 2017.
Earnings in 2018 were positively impacted by a
$3.0 million recognition of previously
unrecognized deferred tax assets. Earnings per
share for the year were $0.12 basic and $0.12
fully diluted against $0.04 basic and $0.04
fully diluted per share reported in 2017.
Revenues of $24.3 million for the year
represented an 8 percent increase over revenues
reported the previous year. Gross profit was
$6,378,000 for the year, a 2 percent increase
from gross profit of $6,270,000 million recorded
for the year-ended December 31, 2017.
Total operating expenses for the year were
$4,662,000 compared to $4,742,000 for the year
ended December 31, 2017.
On December 31, 2018 the company had cash on
hand of $4.0 million and working capital of $9.7
million.
The company has no long-term debt.
Total order bookings for the year were $25.5
million and the company's order backlog stood at
$21.8 million on December 31, 2018.
CECO Reports Improved First Quarter
CECO Environmental revenue in the 1st
quarter of 2019 was $86.0 million, up 16.0
percent from $74.1 million in the prior-year
period. Excluding revenue of $6.5 million
attributable to the businesses divested in 2018,
organic revenues increased 27.2 percent.
Operating Income was $4.9 million for the 1st
quarter of 2019, compared with $12.2 million in
the prior-year period. Non-GAAP operating income
was $7.2 million for the 1st quarter
of 2019 (8.4 percent margin), compared with $4.0
million in the prior-year period (5.4 percent
margin).
Net income was $1.9 million for the 1st
quarter of 2019, compared with $5.8 million in
the prior-year period. Net income on a non-GAAP
basis was $4.1 million for the 1st
quarter of 2019, compared with $1.7 million in
the prior-year period.
Total backlog at March 31, 2019 was $193.8
million as compared with $182.1 million as of
both December 31, 2018 and March 31, 2018,
respectively. In the 1st
quarter of 2018, $8.8 million of backlog was
attributable to the divested businesses.
Adjusted for divestitures, backlog increased
$20.5 million from 1st quarter 2018
to first quarter 2019.
Bookings were $97.3 million for the f1st
quarter of 2019, compared with $95.0 million in
the prior-year period and $74.5 million in the 4th
quarter of 2018. Excluding bookings of $4.7
million attributable to the businesses divested
in 2018, 2019 organic bookings increased $7.0
million, or 7.7 percent.
Revenue in the 4th quarter of 2018
was $93.9 million, up 27.8 percent from $73.5
million in the prior-year period, and up 6.3
percent from $88.3 million in the 3rd
quarter of 2018. Revenue in the 4th quarter
of 2017 included $8.5 million attributable to
divested businesses, Keystone, Strobic and
Zhongli.
Operating Income was $5.7 million for the 4th quarter
of 2018 (6.1 percent margin), compared with an
$(8.2) million loss in the prior-year period.
Non-GAAP operating income was $8.4 million for
the fourth quarter of 2018 (9.0 percent
margin), compared with $3.5 million in the
prior-year period (4.8 percent margin).
Net income was $0.9 million for the 4th quarter
of 2018, compared with a $(11.6) million net
loss in the prior-year period. Net income on a
non-GAAP basis was $3.0 million for the 4th quarter
of 2018, compared with a $(1.7) million net loss
in the prior-year period.
Revenue was $337.3 million for the twelve months
in 2018, down 2.2 percent from $345.1 million in
the prior-year period. Revenue in 2017 included
$34.6 million attributable to our divested
businesses, Keystone, Strobic, and Zhongli
compared with $9.3 million for the year of 2018.
Operating income was $10.0 million in 2018
(3.0 percent margin), compared with $8.0
million in the prior-year period (2.3 percent
margin). Operating income on a non-GAAP basis
was $24.1 million in 2018 (7.1 percent margin),
compared with $28.3 million in the prior-year
period (8.2 percent margin).
Net loss was $(7.1) million for 2018, compared
with a net loss of $(3.0) million in the
prior-year period. Net income on a non-GAAP
basis was $10.2 million for the year of 2018,
compared with $9.5 million in the prior-year
period.
CECO's Chief Executive Officer Dennis Sadlowski
commented, "I am very pleased with our financial
results for the 4th quarter and want
to thank the entire CECO team for delivering big
improvements in our performance. We achieved
44 percent year-over-year organic revenue
growth, over 100 percent growth in EBITDA, and
incredible free cash flow generation of $17
million. We view cash earnings as integral to
generating top-tier returns for our shareholders
and believe this to be a fundamental strength of
CECO's asset light business model.
Mr. Sadlowski added, "In 2018, we executed on
our operating strategy, delivered growth with a
20 percent year-over-year increase in bookings
and are well underway to transforming how we do
business with a more customer focused and
solutions-based mindset. Our 4th quarter
bookings were below our expectations as capital
markets volatility and U.S. political tensions
created delays in customer decisions. We expect
this to be more of a timing issue as our overall
sales pipeline remains very strong and robust.
We are headed into a new year with an impressive
backlog of $182 million, which is up $32 million
organically from the prior year. Our end markets
are large and generally healthy going into 2019
which provide us confidence in our aggressive
financial targets for 2021."
CECO sold its Zhongli business which serves the
China coal-fired power generation market to
Jiangsu Zhongli Environmental Technology
company. This reflects an apparent strategy to
focus on the domestic opportunity in oil and gas
rather than the coal fired boiler business which
is mostly international. The CECO 2019
projection in power generation is for no revenue
growth whereas mid-stream oil and gas and
industrial solutions predictions are for
positive growth.
|