Administrative, distribution and selling expenses during the fourth quarter totalled $17.7 million compared to $17.0 million in 2011. Expenses were higher in the fourth quarter of 2012 due in part to the incremental operating expenses of new branches and as a result of additional employees hired at Canadian operations to support revenue growth.
EBITDA for the fourth quarter decreased slightly to $13.1 million from $12.5 million a year earlier.
Strongco is now fully taxable whereas the company was able to utilize loss carry forwards to offset tax expenses in 2011. Consequently, Strongco's net income in the fourth quarter of 2012 was $0.6 million ($0.05 per share), compared to $2.1 million ($0.15 per share) in the fourth quarter of 2011.
Fiscal 2012 Financial Review
Revenues for 2012 totalled $464.2 million, including $56.1 million from Chadwick-BaRoss. This compared to $423.2 million in total revenue for Strongco in 2011.
Strongco's equipment sales increased by 11% in 2012 to $305.5 million, following a 50% increase in 2011. Rental revenue in 2012 was $32.3 million, which was up 9% from 2011; product support revenues were higher in 2012 in all regions of Canada, as well as at Chadwick-BaRoss in the United States.
As a result of higher overall revenues in 2011 and 2012, gross margins increased by 7% in 2012 to $86.5 million. As a percentage of revenues, total gross margin in 2012 was 18.6% compared to 19.0% last year. The slight decrease was primarily the result of a higher proportion of equipment sales in 2012 and 2011, which offer lower margin percentages than product support activity and rentals.
Administrative, distribution and selling expenses in 2012 increased by 8% to $69.8 million. As a percentage of revenue, administrative, distribution and selling expenses were 15.0% in 2012, down slightly from 15.3% in 2011.
The Company's EBITDA in 2012 increased to $49.1 million compared to $43.1 million in 2011.
Strongco ended the year with a net income of $7.6 million or $0.58 per share, compared to $9.9 million or $0.76 per share in 2011.
"Management remains cautiously optimistic that while demand for heavy equipment may soften in the near term in certain regions, Strongco's recent investments, new branches and planned investment in additional new facilities, will lead to an increase in revenues in 2013 and further growth in the future," said Mr. Dryburgh.
Most economists are forecasting continued modest economic growth in Canada overall in 2013, although the pace of growth is expected to be lower than in 2012. As a result, construction markets across the country are generally expected to remain active, which should result in continued demand for heavy equipment. However, the demand will vary from region to region. While the long-term outlook for Alberta is positive, the high cost of refining oil from bitumen (the oil sand raw material) and the high cost of transportation have created an air of caution regarding the pace of activity in the oil sands. As a result, there is concern that the demand for heavy equipment in the region could soften with most of the reduction affecting large equipment used directly in the oil sands. We expect that less expensive equipment used for infrastructure development in the region would be less impacted and that the increased presence in the market with new branches will mitigate any market softness.
Demand for heavy equipment in Quebec has declined recently, prompted by the Charbonneau Commission's investigation of corruption in the construction industry and the announcement of a suspension of infrastructure spending by the newly elected provincial government in Quebec. However, both of these government actions are viewed as temporary as there is growing pressure to resume spending to repair and replace the seriously deteriorating infrastructure in the province. In addition, mining and infrastructure activity in Northern Quebec continues despite the uncertainty surrounding development activity following last year's provincial election.
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