CALGARY, ALBERTA — (Marketwire) — 02/13/13 — Newalta Corporation (“Newalta”) (TSX: NAL) today reported results for the fourth quarter and year ended December 31, 2012.
FINANCIAL HIGHLIGHTS(1)
(1) Management–s Discussion and Analysis and Newalta–s Consolidated Financial Statements and notes are attached. References to Generally Accepted Accounting Principles (“GAAP”) are synonymous with IFRS and references to Consolidated Financial Statements and notes are synonymous with Financial Statements.
(2) These financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP financial measures are identified and defined throughout the attached Management–s Discussion and Analysis.
(3) Newalta has 54,410,235 shares outstanding as at February 13, 2013.
Management Commentary
“Steep declines in the prices for our recovered products and reduced drilling activity in western Canada dampened otherwise solid performance in the quarter and for the year,” said Al Cadotte, President and CEO of Newalta. “Most of the challenges we faced are dissipating and commodity prices are stabilizing. Returns from our 2012 capital and strengthening market demand are expected to drive improved results in the quarters ahead.”
Fourth quarter results were below management–s expectations as outlined in our Q3 2012 outlook, primarily due to the following key factors:
Commodity Pricing August 2012 to January 2013:
Active Rigs – Western Canada(1):
(1) Source – Canadian Association of Oilwell Drilling Contractors (“CAODC”)
“Potential in our key growth areas remains unchanged and our business fundamentals remain strong,” said Mr. Cadotte. “We made significant progress with our long-range growth plan in 2012, preparing us to capitalize on the many opportunities present in all areas of the business in 2013.
We met a number of objectives in 2012, specifically, we:
“Our markets continue to improve but progress remains choppy. We have the financial capacity, including proceeds from the recent equity financing, to weather short-term fluctuations in commodity prices and market demand as we experienced in the fourth quarter. We will continue to execute our long-term plan to deliver strong, profitable growth and outstanding returns to investors for many years ahead.”
Results of Q4 2012 Compared to Q4 2011
Results of 2012 Compared to 2011
Other Highlights:
Quarterly Conference Call
Management will hold a conference call on Thursday, February 14, 2013 at 11:00 a.m. (ET) to discuss Newalta–s performance for the fourth quarter and year ended December 31, 2012. To participate in the teleconference, please call 1- 800-766-6630. To access the simultaneous webcast, please visit . For those unable to listen to the live call, a taped broadcast will be available at and, until midnight on Thursday, February, 21, 2013 by dialing 1- 800-408-3053 and using the pass code 3871450 followed by the pound sign.
About Newalta
Newalta is North America–s leading provider of innovative, engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from industrial residues. We serve customers onsite directly at their operations and through a network of 85 facilities in Canada and the U.S. Our proven processes, portfolio of more than 250 operating permits and excellent record of safety make us the first choice provider of sustainability enhancing services to oil, natural gas, petrochemical, refining, lead, manufacturing and mining markets. With a skilled team of more than 2,000 people, two decade track record of profitable expansion and unwavering commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement. Newalta trades on the TSX as NAL. For more information, visit .
NEWALTA CORPORATION
MANAGEMENT–S DISCUSSION AND ANALYSIS
Three months and years ended December 31, 2012 and 2011
Certain statements contained in this document constitute “forward-looking statements”. When used in this document, the words “may”, “would”, “could”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect”, and similar expressions, as they relate to Newalta Corporation and the subsidiaries of Newalta Corporation, or their management, are intended to identify forward-looking statements. In particular, forward-looking statements included or incorporated by reference in this document include statements with respect to:
Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation:
By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements and readers are cautioned that the foregoing list of factors is not exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and are expressly qualified by this cautionary statement. Unless otherwise required by law, we do not intend, or assume any obligation, to update these forward-looking statements.
RECONCILIATION OF NON-GAAP MEASURES
This Management–s Discussion and Analysis (“MD&A”) contains references to certain financial measures, including some that do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS” or “GAAP”) and may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below:
“EBITDA”, “EBITDA per share”, “Adjusted EBITDA”, and “Adjusted EBITDA per share” are measures of our operating profitability. EBITDA provides an indication of the results generated by our principal business activities prior to how these activities are financed, assets are amortized or how the results are taxed in various jurisdictions. In addition, Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation. Stock-based compensation, a component of employee remuneration, can vary significantly with changes in the price of our common shares. As such, Adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time. EBITDA and Adjusted EBITDA are derived from the consolidated statements of operations, comprehensive income and retained earnings. EBITDA per share and Adjusted EBITDA per share are derived by dividing EBITDA and Adjusted EBITDA by the basic weighted average number of shares.
They are calculated as follows:
“Adjusted net earnings” and “Adjusted net earnings per share” are measures of our profitability. Adjusted net earnings provides an indication of the results generated by our principal business activities prior to recognizing stock-based compensation expense and the gain or loss on embedded derivatives. Stock-based compensation expense, a component of employee remuneration, can vary significantly with changes in the price of our common shares. The gain on the embedded derivative is a result of the change in the trading price of the debentures and the volatility of the applicable bond market. As such, Adjusted net earnings provides improved continuity with respect to the comparison of our results over a period of time. Adjusted net earnings per share is derived by dividing Adjusted net earnings by the basic weighted average number of shares.
“Book value per share” is used to assist management and investors in evaluating the book value compared to the market value.
“Funds from operations” is used to assist management and investors in analyzing cash flow and leverage. Funds from operations as presented is not intended to represent operating funds from operations or operating profits for the period, nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. Funds from operations is derived from the consolidated statements of cash flows and is calculated as follows:
“Return on capital” is used to assist management and investors in measuring the returns realized from capital employed.
Trailing Twelve-Month Return on Capital:
References to EBITDA, EBITDA per share, Adjusted EBITDA, Adjusted EBITDA per share, Adjusted net earnings, Adjusted net earnings per share, Funds from operations, Funds from operations per share and Return on capital throughout this document have the meanings set out above. Adjusted SG&A has the meaning described in the section titled “Corporate and Other”.
The following discussion and analysis should be read in conjunction with (i) the audited consolidated financial statements of Newalta, and the notes thereto (“Financial Statements”), for the years ended December 31, 2012 and 2011, (ii) the consolidated financial statements of Newalta and notes thereto and MD&A of Newalta for the years ended December 31, 2011 and 2010, (iii) the most recently filed Annual Information Form of Newalta and (iv) the unaudited condensed consolidated interim financial statements of Newalta and the notes thereto and MD&A for the quarters ended March, 31, 2012, June 30, 2012, and September 30, 2012. This information is available at SEDAR (). Information for the year ended December 31, 2012 along with comparative information for 2011, is provided.
This MD&A is dated February 13, 2013, and takes into consideration information available up to that date. Throughout this document, unless otherwise stated, all currency is stated in Canadian dollars, and MT is defined as “tonnes” or “metric tons”.
SELECTED ANNUAL FINANCIAL INFORMATION(1)
(1) Management–s Discussion and Analysis and Newalta–s Consolidated Financial Statements and notes are attached. References to Generally Accepted Accounting Principles (“GAAP”) are synonymous with IFRS and references to Consolidated Financial Statements and notes are synonymous with Financial Statements.
(2) These financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP financial measures are identified and defined throughout the attached Management–s Discussion and Analysis.
(3) Includes Series 1 and Series 2 Senior Unsecured Debentures (“Senior Unsecured Debentures”)
(4) Newalta has 54,410,235 shares outstanding as at February 13, 2013.
NEWALTA – WHO WE ARE
Newalta is North America–s leading provider of innovative, engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from industrial residues. We serve customers onsite directly at their operations and through a network of 85 facilities in Canada and the U.S. Our proven processes, portfolio of more than 250 operating permits and excellent record of safety make us the first choice provider of sustainability enhancing services to oil, natural gas, petrochemical, refining, lead, manufacturing and mining markets. With a skilled team of more than 2,000 people, two decade track record of profitable expansion and commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement.
Vision:
To be the North American leader in providing cost-effective engineered environmental solutions for our customers.
2012 Review:
Effective January 1, 2013, we reorganized our reporting structure into three divisions – New Markets, Oilfield and Industrial. We expect the reorganized structure will facilitate a seamless service package to customers and optimize our resource allocations.
We will continue to focus on our core values and business fundamentals to improve returns on existing business lines. We will use our organic growth investments to re-establish Return on capital to historic levels of 18% and deliver the best cost-effective environmental solutions for our customers. We have an inventory of low-risk, high-return projects to expand services, extend our market coverage and to add long-term operating contracts. Our average payback assumption on growth capital investments is approximately four years.
Strategy:
The following table outlines our strategic focus through 2016 and the action plan in 2013 and 2014 to achieve our strategic objectives.
RISKS TO OUR STRATEGY
While we remain optimistic about our long-term outlook, we are subject to a number of risks and uncertainties in carrying out our activities. See page 32 for further discussion on our Risk Management program. A complete list of our risk factors is disclosed in our most recently filed Annual Information Form.
CORPORATE OVERVIEW
Fourth quarter revenue was up 8% year-over-year to $198.4 million while Adjusted EBITDA was $33.3 million, 9% lower compared to Q4 2011. Increased demand for our onsite contracts and projects was more than offset by the impact of lower value received for our recovered products and reduced oilfield activity. The impact of the lower value received for recovered crude oil, base oil and lead was $5.3 million. In addition, drilling activity was down 28% year-over-year. Excluding the lower value received for our products, Adjusted EBITDA would have been $38.6 million in Q4 2012. Reduced operational results and higher stock-based compensation, offset in part by lower finance charges, caused net earnings to decline 32% to $4.1 million in Q4 2012. Our Total Debt to Adjusted EBITDA ratio increased from 2.35 in Q4 2011 to 2.41 in Q4 2012.
In 2012, revenue increased 6% to $726.2 million (2011 – $682.8 million) and Adjusted EBITDA declined to $142.1 million (2011 – $146.5 million). Stronger demand for our contract and project services was offset by the lower value received for our products of $13.4 million, reduced oilfield activity and higher Adjusted SG&A expenses. In addition, drilling activity in 2012 decreased 15% from 2011. Excluding the lower value received for our products, Adjusted EBITDA would have been $155.5 million in 2012. Net earnings for the year increased 28% to $42.8 million. Lower finance charges, lower deferred income tax expense and gain on embedded derivatives contributed to the increase in net earnings.
Revenue and gross profit from Facilities in the quarter were $122.9 million and $21.7 million, down 1% and 17%, respectively, from Q4 2011. Compared to Q4 2011, active rigs decreased 28% and meters drilled were down 19%. Declines in the prices of crude oil, base oil and lead resulted in reduced prices received for our products of $4.3 million. Western Facilities efficiency improvements for the quarter were offset by the impact of lower oilfield activity. Eastern Facilities were positively impacted by an increase in volumes at Stoney Creek Landfill (“SCL”) as compared to Q4 prior year. VSC volumes were 11% lower than Q4 2011. Compared to 2011, revenue and gross profit for the year declined 4% and 6%, respectively. The impact of lower value received for our products was $11.8 million.
Onsite revenue and gross profit in the quarter were $75.5 million and $17.3 million, up 26% and 5%, respectively, from Q4 2011. Strong demand for our contract and project services was impacted by lower value received for our products and reduced drilling activity. Declines in the price of crude oil resulted in reduced prices received for our products of $1.0 million. For the year, revenue and gross profit increased 28% and 19%, respectively, from the prior year. The increase was driven by our contract to process MFT and strong demand for our project services. This increase was partially offset by the impact of lower drilling activity and a decline in value received for our products. The impact of lower value received for our products was $1.6 million.
Return on capital decreased to 13.3% in Q4 2012 from 15.2% in Q4 2011. During the quarter, we closed an equity financing issuing 5.5 million shares for gross proceeds of $77.0 million (net $74.4 million).
Revenue ($ millions) and Adjusted EBITDA ($ millions):
Capital expenditures for the three months and year ended December 31, 2012, were $57.4 million and $172.3 million, respectively, ahead of our projected spend of $155.0 million. The increased capital expenditure predominantly relates to equipment for the MFT contract, technical development, U.S. onsite projects and efficiency improvements in Western Facilities. Growth capital expenditures for the quarter and year primarily related to facility and service expansion at our Western Facilities and equipment for contract work in our Heavy Oil business unit.
OUTLOOK
To the end of January, the prices we receive for our recovered conventional and heavy oil have increased 19% and 22%, respectively, compared to December 2012. Drilling activity has improved 35% over Q4 2012. Base oil pricing has declined 9% from December 2012.
Returns from our 2012 capital and strengthening market demand are expected to drive improved results in the quarters ahead. In the first half of 2013, we anticipate ongoing strength across our three divisions while continued short-term fluctuations impact the prices received for our recovered products. Compared to Q1 2012, conventional and heavy oil prices for January are down 9% and 24%, respectively. Drilling activity in Q1 2013 is expected to be approximately 10% below Q1 2012. Base oil for January is 24% lower than Q1 2012. We anticipate normal operations at VSC and SCL in the quarter.
In 2013, we will operate under the following three new divisions:
We have good visibility on our pipeline of organic growth capital projects, extending well into 2014. Our 2013 capital budget remains at $190 million, with growth capital and maintenance expenditures of $155 million and $35 million, respectively. We expect to spend approximately 40% of the capital budget in the first half of 2013. We may revise the capital budget, from time-to-time, in response to changes in market conditions that materially impact our financial performance and/or investment opportunities. The capital program will predominately be funded by cash flow from operations and the proceeds from the equity offering completed in the fourth quarter of 2012.
We continue to execute our business plan, reflecting a 15% and 20% revenue and Adjusted EBITDA compound annual growth rate (“CAGR”), respectively, over the plan period to 2016. Our strong balance sheet will allow us to weather short-term fluctuations that may arise from time to time as we experienced in Q4 2012. We will work towards a debt leverage ratio of 2.0, and will remain well within debt covenant thresholds through 2013.
With our continued focus on business fundamentals to improve returns on existing assets, growth from our contract and project work, contributions from the 2012 capital program and continued market demand for our services, we are well positioned for growth in 2013 and beyond.
RESULTS OF OPERATIONS – FACILITIES DIVISION
Overview
Facilities includes an integrated network of 55 facilities located to service key market areas across Canada employing over 900 people. This division features Canada–s largest lead-acid battery recycling facility located at Ville Ste-Catherine, Quebec, an engineered non-hazardous solid waste landfill located at Stoney Creek, Ontario, and over 25 oilfield facilities throughout western Canada. Facilities is organized into the Western Facilities, Eastern Facilities and VSC business units.
The business units contributed the following to division revenue:
Facilities Revenue ($ millions) and Facilities Gross Profit ($ millions):
The following table compares Facilities– results for the periods indicated:
(1) Includes amortization of $9,006 and $32,019 for Q4 2012 and 2012 year-to-date, respectively, and $9,221 and $36,346 for Q4 2011 and 2011 year-to-date, respectively.
(2) “Assets employed” is provided to assist management and investors in determining the effectiveness of the use of the assets at a divisional level. Assets employed is the sum of capital assets, intangible assets and goodwill allocated to each division.
Q4 2012 revenue and gross profit were $122.9 million and $21.7 million, down 1% and 17%, respectively, from prior year. Western Facilities efficiency gains were offset by the impact of reduced oilfield activity. At our Eastern Facilities, performance was positively impacted by an increase in volumes at SCL compared to prior year. A decline in the value of our crude oil, base oil and lead products reduced our gross profit $4.3 million in Q4 2012. Excluding the lower value received for our products, gross profit in Q4 2012 would have been $26.0 million, 20% of revenue.
In 2012, revenue and gross profit are $446.2 million and $100.0 million, down 4% and 6%, respectively. Western Facilities performance was positively impacted by efficiency gains and offset by reduced oilfield activity. Eastern Facilities were down due to lower volumes at SCL compared to 2011. Performance was also negatively affected by the lower value received for our products, reducing gross profit by $11.8 million. Excluding the lower value received for our products, gross profit would have increased 5% to $111.8 million in 2012, 24% of revenue and above the prior year.
Western Facilities
Western Facilities are located in British Columbia, Alberta and Saskatchewan and generate revenue from:
Western Facilities draws its revenue primarily from industrial waste generators and the oil and gas industry. Waste generated by the oil and gas industry is affected by volatility in the prices of crude oil and natural gas and drilling activity. Drilling activity will impact the volume of waste received with the makeup of that waste being affected by specific drilling techniques employed. Changes in the waste mix will impact the amount of crude oil recovered to our account. Historically, for oilfield facilities, approximately 75% of our waste volume relates to ongoing production resulting in a fairly stable revenue base. Volatility in the price of crude oil impacts crude oil revenue. Fluctuations in the Canadian/U.S. dollar exchange rate impact U.S. dollar sales, which account for approximately 10% of Western Facilities revenue. Changes in environmental regulations in western Canada also impact our business. Management is not aware of any new legislation proposed that is expected to have a material impact on our business and, regardless, we tend to have a positive bias to change in environmental regulations.
Western Facilities revenue was down 9% compared to Q4 2011. Active rigs decreased 28% and meters drilled were down 19% compared to Q4 2011 resulting in a 21% decline in waste processing volumes year-over-year. Crude oil volumes recovered increased 17% in the quarter as a result of processing higher oil content waste. The value of the crude oil we recovered was impacted by a 14% decline in Edmonton Par compared to Q4 2011. Oil recycling performance was impacted by the reduced value of our base oil products as Motiva decreased 22%.
In 2012, revenue was up 4% compared to 2011, primarily due to improved performance at the majority of our facilities. Growth at our oilfield facilities was driven by a shift to higher oil content waste derived from production related activities and increased recovered crude oil from the optimization of a facility commissioned in 2011. Growth in oil recycling was driven by market diversification initiatives which resulted in a shift to higher margin product lines. This was tempered by the impact of the lower value received for our products and the decrease in drilling activity.
(1) Represents the total crude oil recovered and sold for our account.
(2) Edmonton par is an industry benchmark for conventional crude oil.
Recovered Crude – Western Facilities (in –000 bbl):
Eastern Facilities
Eastern Facilities is comprised of facilities in Ontario, Quebec and Atlantic Canada, and includes an engineered non-hazardous solid waste landfill located in Stoney Creek, Ontario. Eastern revenue is primarily derived from:
Eastern Facilities draws its revenue from the following industries in eastern Canada and the bordering U.S. states: automotive; construction; forestry; manufacturing; mining; oil and gas; petrochemical; pulp and paper; refining; steel; and transportation service. The broad customer and industry base helps to diversify risk; however, the state of the economy as a whole will affect these industries. In addition, Eastern Facilities is sensitive to changing environmental regulations regarding waste treatment and disposal. Management is not aware of any new environmental regulatory reviews underway that are expected to have a material effect on Newalta and, regardless, we tend to have a positive bias to change in environmental regulations.
In Q4 2012, volumes at SCL were up 11% from Q4 2011. Excluding SCL, Eastern Facilities revenue was relatively flat year-over-year.
Compared to 2011, Eastern Facilities revenue decreased 4% for the year. Excluding SCL, Eastern processing facilities improved 6% over prior year as a result of improved demand for our services. Volumes received at SCL in 2012 were at the maximum permitted capacity. In 2011, we received a one-time contingency to continue to receive materials beyond the annual permitted volume from the Ontario Ministry of the Environment.
SCL – Volume Collected (in –000 MT):
Ville Ste-Catherine
VSC is our lead-acid battery recycling facility. This facility generates revenue from a combination of direct lead sales and tolling fees received for processing batteries. Fluctuations in the price of lead affect our direct sales revenue and waste battery procurement costs. Tolling fees are generally fixed, reducing our exposure to fluctuations in lead prices. The cost to acquire waste batteries is generally related to the trading price of lead at the time of purchase. As a result of the shipping, processing and refining of lead, there is a lag between the purchase and final sale of lead. Slow and modest changes in the value of lead result in a relatively stable differential between the price received for recycled lead and the cost to acquire lead acid waste batteries. However, sharp short-term swings in the London Metal Exchange (“LME”) price can distort this relationship, resulting in a temporary disconnect in values.
Our objective is to ensure optimal performance at VSC, which historically has meant balancing direct sales and tolling volumes equally. In 2012, our split was approximately 50/50. Production volumes will be managed to optimize performance under prevailing market conditions. In addition, fluctuation in the U.S./Canadian dollar exchange rate impacts revenue and procurement. Substantially all of VSC–s revenue and the majority of our battery procurement costs are denominated in U.S. dollars, with the balance of our operating costs denominated in Canadian dollars.
Q4 2012 revenue was up 14% compared to prior year. The increase was mainly attributable to a shift in our tolling/direct mix towards direct sales in addition to a 4% increase in LME pricing. The lagged LME price increased to U.S. $2,167/MT (Q4 2011 – U.S. $2,076). VSC volumes were 17,600 MT (Q4 2011 – 19,800 MT), in line with our quarterly average. The increase in price was more than offset by increased procurement costs.
Compared to 2011, VSC revenue decreased 16%, primarily due to the decline in lead price. Lagged LME price decreased 16% to U.S. $2,041/MT (2011 – U.S. $2,435/MT). Sales volume in 2012 decreased 10% to 64,700 MT (2011 – 71,700 MT). The direct and tolling split was consistent with 2011.
RESULTS OF OPERATIONS – ONSITE DIVISION
Overview
Onsite includes a network of more than 25 facilities with over 700 employees across Canada and the U.S. Onsite services involves the mobilization of equipment and our people to manage industrial by-products at our customer sites. Onsite includes: the processing of oilfield-generated wastes and the sale of recovered crude oil for our account; industrial cleaning; site remediation; dredging and dewatering and drill site processing, including solids control and drill cuttings management. Onsite includes the Western Onsite, Eastern Onsite and Heavy Oil business units.
Our Onsite services, excluding drill site, generally follow a similar sales cycle. We establish our market position through the execution of short-term projects which ideally may lead to longer term contracts, providing a more stable cash flow. The cycle to establish longer term contracts can be between 18 months to three years. Characteristics of projects and contracts are:
In addition, Onsite performance is affected by the customer–s requirement for Newalta to maintain a strong safety record. To address this requirement, our Environmental, Health and Safety (“EH&S”) team works with our people and our customers to develop an EH&S culture and prevention strategy owned by operators to ensure we maintain our strong record.
The business units contributed the following to division revenue:
Onsite Revenue ($ millions) and Onsite Gross Profit ($ millions):
The following table compares Onsite–s results for the periods indicated:
(1) Includes amortization of $5,265 and $17,005 for Q4 2012 and 2012 year-to-date, respectively, and $4,356 and $15,230 for Q4 2011 and 2011 year-to-date, respectively.
(2) “Assets employed” is provided to assist management and investors in determining the effectiveness of the use of the assets at a divisional level. Assets employed is the sum of capital assets, intangible assets and goodwill allocated to each division.
Q4 revenue increased 26% and gross profit was 5% higher compared to Q4 2011. Strong demand for our contracts and project services was impacted by the decline in the value of our recovered products and reduced waste volumes in Heavy Oil facilities. Declines in the price of crude oil resulted in reduced prices received for our products of $1.0 million. Lower drilling activity in the WCSB resulted in lower utilization rates for drill site. Performance was positively impacted by waste volumes processed under our MFT contract in the quarter.
For the year, revenue and gross profit increased 28% and 19%, respectively, compared to prior year. Increased contract and project activity offset the impact of lower drilling activity and lower value received for our products.
Western Onsite
Revenue is primarily generated from:
Western Onsite performance is primarily affected by fluctuations in drilling activity in western Canada and the U.S. We can also be impacted by the competitive environment. To address these risks, we have developed a strong customer partnership approach and service differentiation to secure Newalta brand loyalty. Other onsite services for this business unit are in the early stages of development. We are currently engaged primarily in short-term or event-based projects, which will vary from quarter-to-quarter. Western Onsite is also affected by market conditions in various other industries, including pulp and paper, refining, mining and municipal dewatering.
Q4 2012 Western Onsite revenue increased 8% compared to Q4 2011. The growth was driven by U.S. onsite projects including our multi-year arrangement in the U.S. to process slop oil emulsions, and increased market demand for our industrial onsite services in western Canada. Drill site utilization rates declined in the quarter over prior year. Canadian utilization was negatively impacted by a 28% decline in active rigs in western Canada. U.S. utilization improved 9% from Q4 2011 due to the deployment of new and existing equipment to more active areas.
For the year ended December 31, 2012, Western Onsite revenue increased 17% compared to 2011 with contributions from onsite projects in the U.S. and industrial onsite services in western Canada. In the third quarter, we entered into a new multi-year arrangement in the U.S. to process slop oil emulsions on a customer–s site in the Bakken. The utilization rate for drill site equipment was down 9% compared to 2011.
Eastern Onsite
Eastern Onsite revenue is derived from:
Eastern Onsite services a broad range of industries in eastern Canada; however, these industries are sensitive to the state of the economy in these regions.
Revenue grew 38% and 35% for the three month period and year ended December 31, 2012, respectively, as a result of increased customer adoption of our onsite service model. We are engaged primarily in short-term or project based work, which may vary from quarter-to-quarter. Similar to our model in other regions, the strategy is to secure projects that can be converted into contracts. We currently have one Eastern Onsite operating contract.
Heavy Oil
Our heavy oil services business began 17 years ago with facilities at Hughenden and Elk Point, Alberta. This business has expanded from processing heavy oil in our facility network to operating equipment on customers– sites. Leveraging our facilities as staging areas, we deliver a broad range of specialized services at numerous customer sites. Heavy Oil revenue is generated by facilities services which includes the processing and disposal of oilfield-generated wastes, including water disposal and landfilling as well as the sale of recovered crude oil for our account. The balance of Heavy Oil revenue is generated from specialized onsite services for heavy oil producers under projects and contracts.
Heavy Oil facility revenue has an established customer base; however, performance is affected by the amount of waste generated by producers and the sale of crude oil recovered to our account. These streams vary due to volatility in the price of heavy oil and drilling activity. To address this volatility, over the past four years we have worked with customers to develop specialized onsite services where revenue is based on processed volumes, eliminating our exposure to crude oil prices for these services. In addition, these services create cost savings and provide more environmentally beneficial solutions for our customers. Growth in the business unit will come from our ability to attract and retain customers as new heavy oil operations come on stream.
Q4 2012 Heavy Oil revenue increased 43% compared to Q4 2011. Processing under our MFT contract drove the increase that was tempered by lower waste volumes received at our facilities and the impact of lower pricing received for our recovered crude oil product. Recovered crude oil volumes increased 12% over prior year due to processing higher oil content waste. Waste volumes decreased 26% due to lower oilfield activity. Price per barrel received declined 23% compared to prior year.
For the year, revenue increased 37% compared to 2011, driven by our MFT contract, increased demand for our services and increased recovered crude oil volumes. Recovered crude oil volumes increased 13% over 2011 due to processing higher oil content waste.
To date, we have nine Heavy Oil contracts, seven of which were operating in Q4 2012. Contracts now generate 9% of total revenue compared to 3% in 2011.
(1) Represents the total crude oil recovered and sold for our account.
(2) Bow River Hardisty is an industry benchmark for heavy crude oil.
Recovered Crude – Heavy Oil (in 000 bbl):
CORPORATE AND OTHER
IFRS requires that amortization of corporate assets be included in SG&A expenses. The above table removes stock-based compensation and amortization from SG&A to provide improved transparency with respect to the comparison of our results.
For Q4 2012, Adjusted SG&A was flat to prior year. For the year, Adjusted SG&A increased due to investments in people and people development to support our growth in 2013. Adjusted SG&A remains in line with our expectation of 10% of annual revenue. Stock-based compensation expense increased for both the quarter and year. It fluctuates based on the effects of vesting, volatility in our share price and dividend rate changes. Approximately 55% of stock-based compensation expense is estimated to be settled with equity, with the balance to be settled in cash.
Research and development expenses are related to our Technical Development group. They search globally and evaluate new technologies for commercial application at our Facilities and on our customer sites. There is a steady stream of new technologies moving through our Technical Development pipeline; from identification and evaluation to the development phase. Our objective is to deliver two new commercial processes every year.
(1) Includes convertible debentures and senior unsecured debentures in 2011.
(2) Excludes capitalized interest of $1,595 and $4,664 in Q4 2012 and 2012 year-to-date, respectively, and $858 and $2,744 in Q4 2011 and 2011 year-to-date, respectively.
(3) Relates to decommissioning liability.
(4) Relates to the early redemption feature for the Series 1 and 2 senior unsecured debentures.
The decrease in finance charges before the gain on the embedded derivatives and the unwinding of the discount for the quarter and year-to-date is attributable to unamortized issue costs expensed upon early redemption of the Convertible Debentures in Q4 2011. The non-cash gain on the embedded derivatives is associated with the early redemption feature for the Series 1 and Series 2 Senior Unsecured Debentures (collectively the “Senior Unsecured Debentures”) recognized during the quarter. The gain is an estimate of the fair value of the embedded derivatives and is primarily impacted by the risk-free rate, market volatility, and our credit spread. See Note 17 to the Financial Statements for further information.
Finance charges associated with the Senior Unsecured Debentures include annual coupon rates of 7.625% and 7.75%, respectively, as well as the accretion of issue costs and gains or losses on the embedded derivatives for both series. In 2011, we had Convertible Debentures with an annual coupon rate of 7.0%, which were refinanced in Q4 2011 with the Series 2 Senior Unsecured Debentures. See “Liquidity and Capital Resources” in this MD&A for discussion of our long-term borrowings.
Deferred taxes decreased 73% and 21% to $0.7 million and $11.2 million, respectively, in the quarter and for the year. The lower effective tax rate in 2012 resulted due to statutory and other rate decreases and changes in non-deductible items including stock-based compensation expense and gain on embedded derivatives. Our statutory tax rate in Canada is 25.72% for 2012 and was 27.35% in 2011. Loss carry forwards were approximately $142 million at December 31, 2012. We do not anticipate paying significant income tax until 2016.
CHANGES IN CONSOLIDATED FINANCIAL POSITION
(1) Includes Prepaid expenses and other, and Other long-term assets
LIQUIDITY AND CAPITAL RESOURCES
The term liquidity refers to the speed with which a company–s assets can be converted into cash, or its ability to do so, as well as cash on hand. Liquidity risk refers to the risk that we will encounter difficulty in meeting obligations associated with financial obligations that are settled by cash or another financial asset. Our liquidity risk may arise due to general day-to-day cash requirements and in the management of our assets, liabilities and capital resources. Liquidity risk is managed against our financial leverage to meet obligations and commitments in a balanced manner. For further information on our liquidity risk management, refer to Note 17 to the Financial Statements for the three months and year ended December 31, 2012.
Our debt capital structure is as follows:
We continue to focus on managing our working capital accounts while supporting our growth. Working capital at December 31, 2012, was $10.7 million (December 31, 2011 – $13.7 million). At current activity levels, working capital is expected to be sufficient to meet our ongoing commitments and operational requirements of the business. We continue to manage working capital well within our prescribed targets, commensurate with activity levels. For further information on credit risk management, please refer to Note 17 to the Financial Statements for the three months and year ended December 31, 2012.
DEBT RATINGS
DBRS Limited (“DBRS”) and Moody–s Investor Service, Inc. (“Moody–s”) provide a corporate and Senior Unsecured Debentures credit rating. On October 17, 2012, DBRS upgraded our issuer rating to BB from BB (low) and revised the trend to Stable from Positive. The rating change was attributable to our execution of the business plan, and a growing onsite contract business that is more stable with multi-year terms, strengthening our financial profile. DBRS has also upgraded the Senior Unsecured Debentures to BB from BB (low) with the trend being Stable. Moody–s rating remains unchanged from November, 2010.
SOURCES OF CASH
Our liquidity needs can be sourced in several ways including: Funds from operations, borrowings against or increases in our Credit Facility, new debt instruments, the issuance of securities from treasury, return of letters of credit or replacement of letters of credit with other types of financial security and proceeds from the sale of assets.
Credit Facility
At December 31, 2012, $132.8 million was available and undrawn to fund growth capital expenditures and for general corporate purposes, as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60 million. The aggregate dollar amount of outstanding letters of credit is not categorized in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility and are included in the definition of Total Debt for covenant purposes. Under the Credit Facility, surety bonds (including performance and bid bonds) to a maximum of $125 million are excluded from the definition of Total Debt. As at December 31, 2012, surety bonds issued and outstanding totalled $43.8 million.
During the third quarter, the Credit Facility was amended and restated. The Credit Facility now matures July 12, 2015. Management may, at its option, request an extension of the Credit Facility on an annual basis. If no request to extend the Credit Facility is made by management, the entire amount of the outstanding indebtedness would be due in full on July 12, 2015. Under the amended facility, the principal borrowing amount is $225 million and the maximum Total Debt to Consolidated EBITDA ratio is 4:1. The facility requires us to be in compliance with certain covenants. Our covenant ratios under the Credit Facility remained well within their thresholds.
Financial performance relative to the financial ratio covenants(1) under the Credit Facility is reflected in the table below.
(1) We are restricted from declaring dividends if we are in breach of any covenants under our Credit Facility.
(2) Senior Secured Debt means the Total Debt less the Senior Unsecured Debentures.
(3) EBITDA is a non-IFRS measure, the closest measure of which is net earnings. For the purpose of calculating the covenant, EBITDA is defined as the trailing twelve-months consolidated net income for Newalta before the deduction of interest, taxes, depreciation and amortization, and non-cash items (such as non-cash stock-based compensation and gains or losses on asset dispositions). Additionally, EBITDA is normalized for any acquisitions or dispositions as if they had occurred at the beginning of the period.
(4) Total Debt comprises outstanding indebtedness under the Credit Facility, including bank overdraft balance and the Senior Unsecured Debentures.
Our Total Debt was $342.2 million as at December 31, 2012, which reflected a $2.3 million decrease over December 31, 2011. Proceeds of the equity financing were offset by increased capital spending and lower EBITDA causing the Total Debt to EBITDA ratio to increase from 2.38 in Q4 2011 to 2.47 in Q4 2012. Our target for Total Debt to EBITDA ratio remains at or below 2.0. Our covenant ratios under the Credit Facility remained well within their thresholds. We will manage within our covenants throughout 2013.
Senior Unsecured Debentures
(1) If a change of control occurs, Newalta will be required to offer to purchase all or a portion of each debenture holder–s Senior Unsecured Debentures, at a purchase price in cash equal to 101% of the principal amount of the Senior Unsecured Debentures offered for repurchase plus accrued interest to the date of purchase
(2) Up to 35% of the aggregate principal amount with the net cash proceeds of one or more public equity offerings
(3) Plus interest to the date of redemption
The Senior Unsecured Debentures are unsecured senior obligations and rank equally with all other existing and future unsecured senior debt and senior to any subordinated debt that may be issued by Newalta or any of its subsidiaries. The Senior Unsecured Debentures are effectively subordinated to all secured debt to the extent of collateral on such debt.
The trust indenture under which the Senior Unsecured Debentures have been issued contains certain annual restrictions and covenants that, subject to certain exceptions, limit our ability to incur additional indebtedness, pay dividends, make certain loans or investments and sell or otherwise dispose of certain assets subject to certain conditions, among other limitations.
Covenants under our trust indenture include:
(1) We are restricted from declaring dividends, purchasing and redeeming shares or making certain investments if the total of such amounts exceeds the period end surplus for such restricted payments.
We will manage within our covenants throughout 2013.
Equity Issuance
During the fourth quarter, we closed an equity financing with the issuance of 5.5 million shares at a price of $14.00 per share for gross proceeds of $77.0 million (net proceeds of $74.4 million). The funds were used to expand our organic growth plan and contribute to the funding of customer-driven capital projects. Proceeds of the offering were used to reduce indebtedness and for general corporate purposes until fully invested.
USES OF CASH
Our primary uses of funds include maintenance and growth capital expenditures as well as acquisitions, payment of dividends, operating and SG&A expenses and the repayment of debt.
Capital Expenditures
“Growth capital expenditures” or “growth and acquisition capital expenditures” are capital expenditures that are intended to improve our efficiency and productivity, allow us to access new markets and diversify our business. Growth capital, or growth and acquisition capital, are reported separately from maintenance capital because these types of expenditures are discretionary. “Maintenance capital expenditures” are capital expenditures to replace and maintain depreciable assets at current service levels. Maintenance capital expenditures are reported separately from growth activity because these types of expenditures are not discretionary and are required to maintain current operating levels.
Capital expenditures for the periods indicated are as follows:
(1) The numbers in this table differ from Consolidated Financial Statements of Cash Flows because the numbers above do not reflect the net change in working capital related to capital asset accruals.
Total capital expenditures were $57.4 million for the three months ended December 31, 2012. Growth capital expenditures for the quarter relate primarily to facility and service expansion at our Western Facilities and equipment for contract work in our Heavy Oil business unit. Maintenance capital expenditures relate primarily to process equipment improvements at our facilities. Capital expenditures were funded from funds from operations and our Credit Facility.
Total capital spending for 2012 was $172.3 million compared to $117.7 million in 2011. The increase over prior year was driven by additional equipment purchases primarily for our project and contract related work, facility and service expansion at our Western Facilities.
Our 2013 capital budget is $190 million, comprised of growth capital of $155 million and maintenance capital of $35 million. We expect to spend approximately 40% of the capital budget in the first half of 2013. We may revise the capital budget, from time-to-time, in response to changes in market conditions that materially impact our financial performance and/or investment opportunities. The capital program will be funded by cash flow from operations and the proceeds from the equity financing completed in the fourth quarter of 2012.
Our $155 million in growth capital investment for 2013 will be allocated among the following areas:
Dividends and Share Capital
In determining the dividend to be paid to our shareholders, the Board of Directors considers a number of factors, including: the forecasts for operating and financial results; maintenance and growth capital requirements; as well as market activity and conditions. After a review of all factors, the Board declared $5.4 million in dividends or $0.10 per share, paid January 15, 2013, to shareholders of record as at December 31, 2012.
During the quarter we implemented a Dividend Reinvestment Plan (“DRIP”). The DRIP provides eligible Newalta shareholders with the opportunity to reinvest their quarterly cash dividend to acquire additional shares at a purchase price equal to 95% of the average market price (defined as the volume weighted average trading price of the shares for the five trading days immediately preceding the dividend payment date). The dividend paid to shareholders of record on December 31, 2012 was the first dividend eligible to be reinvested under the DRIP. The full text of the DRIP and an Enrollment Form are available from Valiant Trust at or on Newalta–s website at .
As at February 13, 2013, Newalta had 54,410,235 shares outstanding, and outstanding options to purchase up to 4,308,459 shares.
Contractual Obligations
Our contractual obligations, as at December 31, 2012 were:
(1) Operating leases relate to our vehicle fleet with terms ranging between 1 and 5 years.
(2) Senior long-term debt is gross of transaction costs. Interest payments are not included.
(3) Other obligations is comprised primarily of accounts payable and accrued liability balances.
SUMMARY OF QUARTERLY RESULTS
Quarterly performance is affected by, among other things, weather conditions, timing of onsite projects, the value of our products, foreign exchange rates, market demand and the timing of our growth capital investments as well as acquisitions and the contributions from those investments. Growth capital investments completed in the first half of the year will tend to strengthen the second half financial performance. Revenue from certain business units is impacted by seasonality. However, due to the diversity of our business, the impact is limited on a consolidated basis. For example, waste volumes received at our oilfield facilities decline in the second quarter due to road bans which restrict drilling activity. This decline is offset by increased activity in our Eastern Onsite business unit due to the aqueous nature of work performed, as well as potentially by fluctuations in the value of our products or event-based waste receipts at SCL. As experienced over the last eight quarters, fluctuations in the value of our products can impact results.
All four quarters in 2011 reflect continued strong demand for our products and services. Revenue, Adjusted EBITDA, earnings before taxes and net earnings have steadily improved quarter-over-quarter in line with market conditions from 2010. Net earnings in Q2 relative to Q1 2011 were positively impacted by lower stock-based compensation expense and lower related deferred tax expense. Relative to Q3 2011, Q4 net earnings and Earnings before taxes were lower due to lower Adjusted EBITDA as well as higher financing fees as a result of the early redemption of the Convertible Debentures. Adjusted EBITDA was lower in Q4 relative to Q3 2011 due largely to lower contributions from Facilities resulting from lower event-based business at SCL and weaker performance at VSC, as well as higher Adjusted SG&A due to the timing of expenses.
Quarterly revenue in 2012 grew, reflecting strong demand for our services. Compared to Q4 2011, Q1 2012 revenue was down and Adjusted EBITDA was flat. Lower contributions from Onsite due to reduced activity at our Heavy Oil facilities were offset by lower Adjusted SG&A costs. Net income was down 20% over Q4 2011 due to seasonally lower contributions from Onsite and higher stock-based compensation expense which were offset by lower finance charges. Compared to Q1, Q2 2012 revenue was up slightly and net earnings increased significantly due to lower stock-based compensation expense and net finance charges. Adjusted EBITDA in Q2 2012 was down from Q1 due to the lower value received for our products in the quarter and higher SG&A expenses. Revenue and adjusted EBITDA in Q3 2012 increased compared to the prior quarter as a result of growth in Onsite. Net earnings decreased in Q3 2012 due to higher stock-based compensation expense. Fourth quarter revenue increased relative to Q3 2012 due to increased demand for our onsite contracts and projects. Net earnings and adjusted EBITDA in Q4 decreased from Q3 2012 due to the impact of lower value received for our products, reduced oilfield activity and higher stock-based compensation expense.
RECENT DEVELOPMENTS
On January 1, 2013, we reorganized our reporting structure into three divisions – New Markets, Oilfield and Industrial. The changes to our operating structure are based on:
The reorganization of the three new divisions will be as follows:
New Markets
Oilfield
Industrial
The tables below restate the historical segmented information from the Facilities and Onsite divisions to the New Markets, Oilfield and Industrial divisions.
New Markets – Information by Quarter
New Markets – Year to Date Information
Oilfield – Information by Quarter
Oilfield – Year to Date Information
Industrial – Information by Quarter
Industrial – Year to Date Information
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any material off-balance sheet arrangements.
SENSITIVITIES
Our stock-based compensation expense is sensitive to changes in our share price. At December 31, 2012, a $1 change in our share price between $12 per share and $18 per share has a $3.0 – $4.0 million direct impact on annual stock-based compensation reflected in SG&A. We anticipate that approximately 55% of stock-based compensation will be settled in cash in future periods.
Our revenue is sensitive to changes in commodity prices for crude oil, base oils and lead. These factors have both a direct and indirect impact on our business. The direct impact of these commodity prices is reflected in the revenue received from the sale of products such as crude oil, base oils and lead. Historically approximately 25% of our revenue is sensitive to direct impact of commodity prices. The indirect impact is the effect that the variations of these factors, including natural gas, has on activity levels of our customers and, therefore, demand for our services. Management actively manages the indirect impact by strategically geographically balancing mobile assets to meet demand and shifts in activity levels where necessary. The indirect impacts of these fluctuations previously discussed are not quantifiable.
The following table provides management–s estimates of fluctuations in key inputs and prices and the direct impact on revenue from product sales and SG&A:
(1) Based on 2012 performance and volumes
(2) Excludes impact of LME on feedstock which offsets the impact of LME on revenue.
(3) In 2011, we changed our base oil benchmark from the Gulf Coast to Motiva to reflect the improved quality of our recycled oil.
(4) Based on 2012 volumes of 18 million litres
RISK MANAGEMENT
To effectively manage the risk associated with our business and strategic objectives, we continue to implement an enterprise risk management (ERM) system. This process provides the framework to understand and prioritize risks faced by our organization. We use a matrix to identify and analyze the potential impact, probability and risk mitigation strategy for each key risk. Risk categories identified include:
CRITICAL ACCOUNTING ESTIMATES
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Such estimates relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts as transactions are settled in the future. Amounts recorded for amortization, accretion, future decommissioning obligations, embedded derivatives, deferred income taxes, valuation of warrants and impairment calculations are based on estimates. By their nature, these estimates are subject to measurement uncertainty, and the impact of the difference between the actual and the estimated costs on the financial statements of future periods could be material.
Recoverability of Asset Carrying Values
Newalta assesses its property, plant and equipment, intangibles and goodwill for impairment at the cash generating unit (“CGU”) level by comparing the carrying amount to the recoverable amount of the underlying assets. Judgment is required in the aggregation of assets into CGU–s. The determination of the recoverable amount involves estimating the CGU–s fair value less costs to sell or its value-in-use, which is based on its discounted future cash flows using an applicable discount rate. Future cash flows are calculated based on management–s best estimate of future inflation and are discounted based on management–s current assessment of market conditions.
Our determination, as at December 31, 2012, was that there was no impairment.
Decommissioning Liability
Newalta recognizes a provision for future remediation and post abandonment activities in the consolidated financial statements as the net present value of the estimated future expenditures required to settle the estimated future obligation at the balance sheet date. The recorded liability increases over time to its future amount through unwinding of the discount. The measurement of the decommissioning liability involves the use of estimates and assumptions including the discount rate, the expected timing of future expenditures and the amount of future abandonment costs. Decommissioning estimates are reviewed annually and estimated by management, in consultation with Newalta–s engineers and environmental, health and safety staff, on the basis of current regulations, costs, technology and industry standards.
Revisions to the estimated amount or timing of the obligations are reflected prospectively as increases or decreases to the recorded liability and the related asset. Actual decommissioning expenditures, up to the recorded liability at the time, are drawn against the liability as the costs are incurred. Amounts capitalized to the related assets are amortized to income in line with the depreciation of the underlying asset.
Fair Value Calculation on Share-Based Payments and Stock Appreciation Rights
We have two share-based compensation plans: the 2006 Option Plan and the 2008 Option Plan (collectively the “Option Plans”). Under the Option Plans, we may grant to directors, officers, employees and consultants of Newalta or any of its affiliates, options to acquire up to 10% of the issued and outstanding shares.
The fair value of share-based payments is calculated using a Black-Scholes option pricing model, depending on the characteristics of the share-based payment. There are a number of estimates used in the calculation such as the future forfeiture rate, expected option life and the future price volatility of the underlying security which can vary from actual future events. The factors applied in the calculation are management–s best estimates based on historical information and future forecasts.
We may also grant stock appreciation rights (“SARs”) to directors, officers, employees and consultants of Newalta Corporation or any of its affiliates. SARs entitle the holder thereof to receive cash from Newalta in an amount equal to the positive difference between the grant price and the trading price of our common shares on the exercise date. The grant price is calculated based on the five-day volume weighted average trading price of our common shares on the TSX.
The fair value at the date of grant is calculated using the Black-Scholes option pricing model method with the share-based compensation expense recognized over the vesting period of the options. There are a number of estimates used in the calculation such as the future forfeiture rate, expected option life and the future price volatility of the underlying security which can vary from actual future events. The factors applied in the calculation are management–s best estimates based on historical information and future forecasts.
Taxation
The calculation of deferred income taxes is based on a number of assumptions including estimating the future periods in which temporary differences, tax losses and other tax credits will reverse. Tax interpretations, regulations and legislation in the various jurisdictions in which we operate are subject to change.
Derivative Instruments
The estimated fair value of derivative instruments resulting in financial assets and liabilities, by their very nature, are subject to measurement uncertainty.
Leases
Newalta makes judgments in determining whether certain leases, in particular those with long contractual terms where the lessee is the sole user and Newalta is the lessor, are operating or finance leases.
Revenue
Newalta may enter into arrangements with customers which contain multiple elements in which revenue is recognized for each unit of accounting when earned ba