Shawcor Ltd. Announces First Quarter 2020 Results

• First quarter 2020 revenue was $319 million, 9% lower than the $350 million reported in the first quarter of 2019.
  
• Adjusted EBITDA¹ in the first quarter of 2020 was $6 million, 78% lower than the $28 million reported in the first quarter of 2019.
• Net loss² in the first quarter of 2020 was $234.9 million (or loss per share of $3.35 diluted) compared with a net loss of $9.1 million (or $0.13 loss per share diluted) in the first quarter of 2019. Excluding the impact of impairment charges and the adjustment for Argentina hyperinflationary accounting, adjusted net loss¹ in the first quarter of 2020 was $32.9 million (or adjusted loss per share¹ of $0.47) compared with adjusted net income¹ of $3.2 million (or $0.05 adjusted earnings per share¹) in the first quarter of 2019. 
• The Company’s order backlog was $575 million at March 31, 2020, higher compared to the backlog of $513 million at December 31, 2019.

TORONTO, May 13, 2020 (GLOBE NEWSWIRE) -- Shawcor Ltd. (TSX:SCL) Mr. Steve Orr, Chief Executive Officer of Shawcor Ltd. remarked, “First quarter revenue and profits were negatively impacted by the recent reduced demand for the Company’s products and services as a result of lower capital spending by Exploration and Production operators and significant disruptions across the supply chain as a result of the global COVID-19 pandemic. Although every business experienced head winds, our North America Upstream and Automotive reliant businesses experienced the greatest declines. The Company’s backlog, which is supported by projects which are already sanctioned and underway, is proving to be resilient.”

Mr. Orr added “Shawcor is going through a period of unprecedented uncertainty as a result of external conditions and our focus remains on ensuring employee health, management of the Company through the very difficult operating environment and continuing to service our valued customers. We expect the period of reduced demand and disruption will be a magnitude larger in the very near term and will likely last for several quarters. Actions we are taking to reduce cost and conserve cash together with the flawless delivery of work we have booked will ensure Shawcor will remain an industry leader.”   

^{1 EBITDA, Adjusted EBITDA, adjusted net income or loss and adjusted earnings or loss per share are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 7.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures.}

^{2 Net Loss attributable to shareholders of the Company.}

Selected Financial Highlights

(in thousands of Canadian dollars, except per share amounts and percentages)	Three Months Ended March 31
	2020				2019
	$		%		$		%
Revenue	319,027				349,578
Gross profit	85,305		26.7	%	98,204		28.1	%
Operating (Loss) Income(a)	(221,818	)	(69.5	%)	7,634		2.2	%
Net Loss(b)	(234,903	)			(9,074	)
Loss per share:
Basic & Diluted	(3.35	)			(0.13	)
Adjusted EBITDA(c)	6,204		1.9	%	28,244		8.1	%
Adjusted Operating (Loss) Income(c)	(17,852	)	(5.6	%)	9,112		2.6	%
Adjusted Net (Loss) Income (b)(c)	(32,856	)			3,177
Adjusted EPS(c)
Basic & Diluted	(0.47	)			0.05
(a) Operating income includes impairment charges of $203.1 million. This includes $143.6 million and $46 million on intangible assets and goodwill for Pipeline Performance Group (formerly Bredero Shaw) and Shawcor Inspection Services, respectively, and $13.4 million on assets at two U.S. land pipe coating facilities and certain assets related to large diameter products in its Composite Systems business. (b) Attributable to shareholders of the Company. (c) Adjusted EBITDA, Adjusted Operating Income, Adjusted Net Income or Loss and Adjusted EPS are non-GAAP measures. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 7.0 – Reconciliation of Non GAAP Measures for further details and a reconciliation of these Non-GAAP measures.

1.0        KEY DEVELOPMENTS

Shawcor Provides Business and Financial Update

On March 16, 2020 and April 21, 2020, the Company issued news releases (available at www.sedar.com) withdrawing previously provided forward-looking information and providing updates on its mobilization of resources to protect its employees and customers during the COVID-19 pandemic and the measures it had and would be undertaking to address the uncertainty and expected market downturn caused by the COVID-19 pandemic and recent changes in oil and gas supply and demand. These measures include targeting in excess of $60 million in annualized selling, general and administrative (“SG&A”) and other cost savings and generating in excess of $40 million in cash from working capital reductions and asset sales. 

The Company has completed the following actions to reduce costs, preserve cash and meet its stated targets.     

• Board compensation will be reduced by 30%, CEO cash compensation will be reduced by 20% and Senior Executive cash compensation will be reduced by 10%. 
   
• Salaried workforce headcount was reduced by approximately 7.5%, which is expected to result in annualized savings of over $15 million at a severance cost of approximately $6.0 million.
   
• Aggressive cost controls were implemented and are expected to generate over $10 million in annualized savings. 
   
• Received a further $8.9 million in funds from the sale of a minority position in an associate late in the quarter.
   
• Planned capital spending has been reduced to the $40-$50 million range for 2020 to include only essential maintenance capital and select growth spending to deliver on firm orders, particularly in our Composite Systems Tank business (formerly ZCL Composites).

In addition, the Company is working on the following initiatives to streamline operations, deliver further cost savings and preserve cash.

• The controlled shutdown of several facilities, including the targeted closure of 4 pipe coating plants prior to the end of 2020.   
   
• Restructuring the organization to reduce salaried workforce by an additional 5% while maintaining core capabilities.
   
• Reductions in working capital and asset sales to generate additional cash proceeds. 
   
• Recalibrating expenses relating to 2020 short and longer-term employee incentive programs. 

The Company expects the total value of our completed and planned initiatives will meet its stated targets and result in a quarterly normalized SG&A run-rate of $70 million. 

1.1    First Quarter Highlights and Outlook
             
Adjusted EBITDA¹ of $6.2 million in the first quarter was lower than expected due to the negative economic impact caused by the COVID-19 pandemic and the rapid decline in oil prices resulting from global demand decreasing by 30% and the market moving to an oversupply situation where worldwide storage neared full capacity. The Company’s operations were impacted by significant supply chain disruptions and demand volatility worldwide as a result of these events and the measures taken to combat COVID-19 including mobility restrictions, border closures, shutdown of non-essential business and new health and monitoring guidelines.

The priorities at the end of the first quarter shifted to employee health, maintaining critical operations and services for customers and strengthening the Company’s financial position through aggressive cost reduction and cash generation efforts. Subsequent to the quarter, the Company reduced CEO, executive and Board compensation, salaried workforce levels and its operating and capital budgets. In addition, it announced the suspension of its dividend to shareholders commencing in the second quarter of 2020.

The Pipeline and Pipe services segment revenues were negatively impacted in the quarter by the rapid decline in oil prices which resulted in significant capital spending cuts by North American exploration and production operators whose planned expenditures are expected to decline by 50% year-over-year. As market conditions in the United States deteriorated as the quarter progressed, demand for small diameter pipe coating and girth well inspection services declined as customers moved to utilize existing inventories and halted new drilling and completion activity.  The schedules for U.S. transmission projects shifted during the quarter resulting in lower demand for large diameter girth weld inspection services. Conditions in Western Canada continued to be depressed with lower demand for small diameter pipe coating and OCTG tubulars management services. During the quarter, the Company executed the work to resolve the fourth quarter 2019 service quality event and as expected it negatively impacted revenues in our Channelview, Texas facility. In addition, work continued to be executed on several international and offshore projects and the Company also worked closely with asset owners on project requirements and phasing. 

^{1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 7.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures.}

The Composites Systems segment experienced lower revenues for its composite pipe products due to the impact of the decline in North American drilling and completion activity across its customer base. Large and mid-size operators reduced drilling rigs rapidly over the quarter and used existing pipe inventories to meet demand which resulted in lower demand for our composite pipe products in Canada and the U.S. During the quarter, the Company secured orders for its newly added larger diameter spoolable product which partially mitigated some of the weakness experienced in the rest of the portfolio. The composite tank business continued to experience strong demand and backlog for fuel, water/wastewater and oil and gas applications, although the business’ ability to execute work in the quarter was impacted by the limitation of its manufacturing output as a result of COVID-19 protocols and supply chain disruptions.

The Automotive and Industrial segment experienced lower revenues and operated at a reduced capacity due to lower demand resulting from production shutdowns and government lockdown restrictions. At the end of the quarter, the majority of automotive OEM assembly plants temporarily halted production and suspended operations as a result of COVID-19 which resulted in lower demand for the Company’s automotive heat-shrink products and appliances.  In addition, industrial customers were impacted by supply chain disruptions which resulted in lower demand in some of the segment’s other non-oil and gas markets. The specialty wire and cable business experienced slightly lower revenue on lower general demand in the quarter, however backlog increased from electrical utilities and communication providers in eastern North America.

Order Backlog

The Company’s order backlog consists of firm customer orders only and represents the revenue the Company expects to realize on booked orders over the succeeding twelve months. The Company reports the twelve-month billable backlog as a leading indicator of changes in consolidated revenue. The order backlog of $575 million as at March 31, 2020, represents an increase over the $513 million order backlog as at December 31, 2019 and includes several project awards in the first quarter including the Woodside Sangomar offshore project in Sengal. This reflects revenue generated in the quarter from backlog orders which was more than offset by new orders on the base business and other project wins moving from bid to backlog. 

In addition to the backlog, the Company closely monitors its bidding activity, which represents bids provided to customers with firm pricing and terms and conditions against a defined scope.  The value of outstanding firm bids is over $798 million as of March 31, 2020, down from last quarter largely due to certain offshore and international pipeline projects moving from bid back to budgetary as a result of project delays. Included in the firm bid, but not in the backlog, are unsanctioned conditional awards between engineering and procurement companies (“EPC”) and Shawcor for a scope of work that is estimated at over $190 million in revenue beyond the end of the second quarter of 2020.  The Company is also working with customers on several other projects and the budgetary estimates at the end of the second quarter remains at almost $1.58 billion. Although the timing of these projects is uncertain, the Company’s bid and budgetary figures represent a diverse portfolio of opportunities to sustain and build the backlog.

Outlook

Shawcor’s financial performance is correlated with the level of industry activity and the level of investment in energy and infrastructure for resource development, storage and transportation around the globe and the resultant demand for the Company’s products and services. 

As a result of the current economic environment, the Company anticipates a decrease in consolidated revenue and EBITDA in the second quarter as compared to the first quarter. Financial results for the balance of the year will be difficult to predict as it is highly dependent on the nature and duration of the COVID-19 pandemic and its impact on economic output and energy demand. The Company’s performance will likely be determined by the strength of its base oil and gas business, particularly in the U.S., the stability of its composite tank business, the ability to continue to execute work and projects secured in the backlog and the return of a stable demand profile in automotive and industrial markets which are serviced by the Company. 

The Company’s base oil and gas business in North America is heavily tied to the spending programs of exploration and production operators. In the U.S. land, operators have reduced capital spending budgets by up to 50% and initiated production shut-ins as a result of the sudden decline in economic activity and oil and gas prices. In Western Canada, limited off-take capacity in the region caused by the lack of new pipeline infrastructure has resulted in continued depressed spending. This market is not expected to improve in the medium term until new pipeline off-take capacity is moved on-line, and oil and gas prices strengthen.

As a result of the current market dynamics in North America and international operations, the Company has taken steps to align its operational footprint, cost structure and human resources with market demand, closed and/or consolidated select U.S. girth weld inspection branch offices and initiated the controlled closure of certain pipe coating locations. The second quarter is expected to see the largest impact of the recent significant decline in operating budgets, while the Company expects demand to stabilize at a lower base in the second half of the year.

The Company’s priorities in the second quarter will continue to be on employee health, the safe delivery of its products and services to its customers and strengthening its financial position through cost reductions, cash preservation and restructuring activities. The Company expects to take certain restructuring and/or severance charges in the second quarter as a result of its cost reduction measures which will generate savings to be realized over the balance of the year.

Despite the turbulent environment, the Company has work secured in its backlog which includes international and offshore projects and non-oil and gas products such as composite underground storage tanks. It has a diversified customer base in terms of market focus, geographic reach and a combination of late and early cycle businesses. As a result, the Company expects stronger results in the second half of the year than the first half. The Company has well developed health and safety management systems in place to ensure its staff and facilities can continue to operate during the COVID-19 pandemic. 

As the economy and energy demand recover, the Company continues to expect the global oil & gas capex cycle will resume and that large projects will be sanctioned. These investments are required to replace, maintain and rehabilitate infrastructure that is at or beyond its useful design life, replace production due to reservoir depletion, requirements for advanced technologies and non-corrosive materials, or to address geopolitical challenges which are affecting several important producing regions. Additionally, higher investments in gas, specifically for LNG and domestic energy, are being supported by the increased demand for gas and greener alternatives.

Further detail on the outlook for the Pipeline and Pipe Services, Composite Systems and Automotive and Industrial segments are set out below.

Pipeline and Pipe Services Segment

Market demand in the Company’s North American Pipeline & Pipe services segment businesses is closely tied to drilling and completion activity, the construction of new and the repair/replacement of old transmission pipelines and requirements for pipeline integrity and regulatory compliance. These activities drive the demand for small and large diameter pipe coatings and joint protection, girth weld inspection services on existing pipelines and new projects and engineering design and consulting services.

Activity in U.S. land is expected to be lower in the near term as operators have moved to aggressively cut costs, reduce capital spending budgets by up to 50% and initiate production shut-ins in certain areas as a result of the decline in economic activity and changes in oil and gas supply and demand. Projects to increase take-away capacity constraints in the Permian and other U.S. shale regions may be delayed in the near-term as operators respond to the rapid decline in commodity prices and continue their focus on capital discipline. As a result of the decreased demand and market dynamics, the Company will adjust its pipe coating profile to match market activity levels and exit certain locations and/or product lines which are not strategic over the longer term. The continued depression experienced in Western Canada in the first quarter is expected to continue as off-take capacity remains limited, there is no certainty of new pipeline infrastructure being built and lower commodity prices continue.

The Company expects to continue to execute work secured in it backlog including new projects awarded in the first quarter and continues to ramp-up certain international and offshore pipe coating facilities. This includes facilities in Channelview (Texas), Scotland, Norway, Indonesia and UAE. 

The Company is continuing to review projects with EPC’s and International and National oil and gas customers and does expect certain projects which are yet to be sanctioned to be delayed as a result of cost controls and reduced capital spending. The Company expects that projects with the greatest likelihood of moving ahead will be those tied to securing long-term domestic energy supply and those that risk the loss of drilling-rights due to non-development.

Composite Systems Segment

Market demand for the Company’s Composite Systems’ segment businesses are driven by North American drilling and completion activity, demand for international oil and gas gathering line applications, advanced materials in OCTG and underground storage and treatment tanks in fuel, water and wastewater and oil and gas. The segment benefits from a lower cost of ownership of composite systems versus steel and other materials, the development of larger diameter pipe applications and its international market qualifications. 

The composite pipe business will experience an impact from the decline in drilling and completion activity across the customer base as operators reduce drill rigs and activity levels. The Company expects demand for its core products to be lower for the balance of the year and will adjust its cost structure and spending accordingly. The lower demand will be partially offset by the market introduction of larger diameters, anticipated gain in market share and development work on international projects.

Demand for composite storage tanks is delinked from the dynamics of oil and gas markets and is expected to remain strong throughout 2020 and as the Company executes on a historically high backlog and benefits from North American infrastructure spending. Fuel market demand is expected to remain strong as commercial and convenience store retailers realize the benefits of higher fuel margins. The demand for water storage and treatment tanks is expected to be supported by expected higher infrastructure spending and commercial and municipal water projects.  The Company expects to deliver on its composite tank order backlog over the balance of the year with a focus on safe operations and supply chain management.

Automotive and Industrial Segment

Demand for the Company’s Automotive and Industrial segment businesses generally follows GDP activity; however, the segment continues to be well positioned to capture the growing trend of electronic content in automobiles with specified sealing, insulating and customized application equipment systems for Tier 1 assembly customers and the expected increased spending on nuclear facility refurbishment.

Automotive demand is expected to be lower in the second quarter of 2020 as many automotive OEM assembly plants temporarily halted production and suspended operations. Demand is expected to strengthen in the latter part of the quarter as OEMs restart operations. The Company’s operations in China continue to ramp-up as OEMs in the region return to full production, however volumes are expected to remain at pre-COVID-19 levels. The impact of extended automotive shutdowns depends on the geographic extent of those OEM’s affected and their capacity ramp-up throughout the course of the year.

As a result of the expected increase in infrastructure spending, the Company has experienced an increase in new order bookings for its specialty wire and cable products and a growing backlog primarily from electrical utilities and communications providers in eastern North America.

2.0        CONSOLIDATED INFORMATION AND RESULTS FROM OPERATIONS

2.1    Revenue

The following table sets forth revenue by reportable operating segment for the following periods:

	Three Months Ended
(in thousands of Canadian dollars)		March 31, 2020			March 31, 2019(b)
Pipeline and Pipe Services	$	180,487		$	218,081
Composite Systems	$	89,405		$	77,014
Automotive and Industrial	$	49,853		$	54,923
Elimination(a)	$	(718	)	$	(440	)
Consolidated revenue	$	319,027		$	349,578
(a) Represents the elimination of the inter-segment sales between the Pipeline and Pipe Services segment, the Composite Systems segment and the Automotive and Industrial segment. (b) Restated to conform with current period presentation of segments.

First Quarter 2020 versus First Quarter 2019

Consolidated revenue decreased by $30.6 million, or 9%, from $349.6 million during the first quarter of 2019, to $319.0 million during the first quarter of 2020, reflecting revenue decreases of $37.6 million in the Pipeline and Pipe Services segment and $5.1 million in the Automotive and Industrial segment, partially offset by an increase of $12.4 million in the Composite Systems segment.

In the Pipeline and Pipe Services segment, revenue in the first quarter of 2020 was $180.5 million, or 17% lower than in the first quarter of 2019, primarily due to lower revenues in North America and Latin America, partially offset by higher revenue levels in the Europe, Middle East, Africa and Russia (“EMAR”) and Asia Pacific regions. See Section 3.1 – Pipeline and Pipe Services Segment for additional disclosure on the segment.

In the Composite Systems segment, revenue was $12.4 million higher during the first quarter of 2020, compared to $77.0 million in the first quarter of 2019, primarily due to the current quarter including the ZCL acquisition. See Section 3.2 – Composite Systems Segment for additional disclosure on the segment.

In the Automotive and Industrial segment, revenue was $5.1 million lower during the first quarter of 2020, compared to $54.9 million in the first quarter of 2019, due to decreased activity levels in all regions. See Section 3.3 – Automotive and Industrial Segment for additional disclosure on the segment.

2.2    Loss/Income from Operations ("Operating Loss/ Income")

The following table sets forth operating income and Adjusted EBITDA for the following periods:

	Three Months Ended
(in thousands of Canadian dollars, except percentages)		March 31, 2020			March 31, 2019
Operating (loss)/income(a)	$	(221,818	)	$	7,634
Operating margin(b)		(69.5%	)		2.2%
Adjusted EBITDA(b)	$	6,204		$	28,244
Adjusted EBITDA margin(b)		1.9%			8.1%
(a) Operating loss in the current period includes $203.1 million of impairment charges. (b) Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 7.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures.

Due to the current uncertain business climate brought about by the global COVID-19 pandemic and the turmoil in the energy markets, the Company exercised significant judgements and estimates and conducted a review of its impairment testing on property, plant and equipment, intangible assets and goodwill.  As a result of this review, the Company identified and recorded impairment charges of $203.1 million in the first quarter of 2020 due to the current market conditions for certain assets and the Company’s assessment of the related future demand and market recovery. The impairment charges included $143.6 million and $46 million on intangible assets and goodwill for Pipeline Performance Group (formerly Bredero Shaw) and Shawcor Inspection Services, respectively, and $13.4 million on assets at two U.S. land pipe coating facilities and certain assets related to large diameter products in its Composite Systems facility in Alberta.

Operating Income in the first quarter of 2020 includes the acquisition of the ZCL business in April 2019, which had a net positive impact on the first quarter of 2020 results, reflecting a full quarter of income from the composite tank business.

First Quarter 2020 versus First Quarter 2019

The first quarter of 2020 had an Operating Loss of $221.8 million, a significant decrease compared to the $7.6 million Operating Income in the first quarter of 2019. Operating Loss in the current quarter includes the negative impact of the $203.1 million impairment charge, a $12.9 million decrease in gross profit and increases of $3.0 million in amortization of property, plant, equipment and intangible assets primarily related to the acquisition of ZCL, $1.5 million in amortization of lease right-of-use (“ROU”) assets, $3.2 million in net foreign exchange losses and $6.2 million in SG&A expenses.  

The $12.9 million decrease in gross profit resulted from the $30.6 million decrease in revenue, as explained above, and a 1.4 percentage point decrease in the gross margin from the first quarter of 2019. The decrease in the gross margin percentage was primarily due to product and project mix, the decrease in revenue and the impact of lower utilization of facilities on the absorption of manufacturing overheads.

SG&A expenses increased by $6.2 million compared to the first quarter of 2019, primarily due to increases of $2.7 million in professional fees and insurance costs, $4.0 million in decommissioning, equipment and product development costs, and higher ongoing SG&A expenses for the acquired ZCL business. This was partially offset by a $7.3 million decrease in incentive-based compensation.

Adjusted EBITDA was $6.2 million in the first quarter of 2020 compared to $28.2 million in the first quarter of 2019. See Section 7.0 Reconciliation of Non-GAAP Measures for additional disclosures regarding Adjusted EBITDA.

2.3    Income from Investments in Associates

The following table sets forth the income from investments in associates for the following periods:

	Three Months Ended
(in thousands of Canadian dollars)	March 31, 2020			March 31, 2019
Income (loss) from investments in associates	$	164		$	(743	)

The Company has equity-accounted investments in Zedi Inc. ("Zedi") and Power-Feed-Thru Systems and Connectors, LLC ("PFT"). During the first quarter of 2020, the Company received $8.9 million of proceeds pertaining to the partial redemption of the investment in Zedi.

3.0        SEGMENT INFORMATION
             
3.1    Pipeline and Pipe Services Segment

The following table sets forth, by geographic location, the revenue, Operating Income and Adjusted EBITDA for the Pipeline and Pipe Services segment for the following periods:

	Three Months Ended
(in thousands of Canadian dollars, except percentages)		March 31, 2020			March 31, 2019(a)
North America	$	87,088		$	122,613
Latin America		20,062			28,453
EMAR		57,564			56,441
Asia Pacific		15,773			10,574
Total revenue	$	180,487		$	218,081
Operating Loss(b)	$	(215,673	)	$	(12,667	)
Operating margin(c)		(119.5%	)		(5.8%	)
Adjusted EBITDA(c)	$	(7,945	)	$	2,522
Adjusted EBITDA margin(c)		(4.4%	)		1.2%
(a) Restated to conform with current period presentation of segments. (b) Operating loss in the current period includes $193.3 million of impairment charges. (c) Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 7.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures.

First Quarter 2020 versus First Quarter 2019

Revenue in the first quarter of 2020 was $180.5 million, a decrease of $37.6 million, or 17%, from $218.1 million in the comparable period of 2019. This was primarily due to lower revenues in North America and Latin America, partially offset by higher revenue in EMAR and Asia Pacific:                                                    

• North America revenue decreased by $35.5 million, or 29%, primarily as a result of lower activity levels for small and large diameter pipe coating and girth weld inspection services in the region, partially offset by higher revenue from engineering services. The current quarter was also negatively impacted by the delay of revenue caused by the execution of work to address the fourth quarter 2019 service quality event at the Channelview, Texas facility.
   
• Revenue in Latin America decreased by $8.4 million, or 30%, primarily due to lower activity levels in Brazil and Argentina, partially offset by the continued execution of the Liza II project in the Veracruz, Mexico facility.
   
• In EMAR, revenue increased by $1.1 million, or 2%, primarily due to higher activity levels at the Orkanger, Norway and Ras Al Khaimah, UAE (“RAK”) facilities and higher revenue from field joint coating projects in the region. This was partially offset by lower revenue levels at the Leith, Scotland and Italian facilities.
   
• Revenue in Asia Pacific increased by $5.2 million, or 49%, mainly due to higher pipe coating project activity at the Kabil, Indonesia facility, partially offset by lower revenue from the Kuantan, Malaysia facility.

In the first quarter of 2020, Operating Loss was $215.7 million compared to $12.7 million in the first quarter of 2019, an increase of $203.0 million. Operating Loss in the current quarter includes the negative impact of the $193.3 million impairment charge recorded. The decline also reflects a $7.8 million decrease in gross profit and an increase in SG&A expenses, as explained in Section 2.2 above. The decrease in the gross profit was primarily due to the lower revenue, as explained above, partially offset by a 0.7 percentage point increase in gross margin. The increase in the gross margin percentage was primarily due to product and project mix, partially offset by lower utilization in North America and Latin America facilities and the related impact on the absorption of manufacturing overheads.

Adjusted EBITDA in the first quarter of 2020 was negative $8.0 million compared to positive $2.5 million in the first quarter of 2019. See Section 7.0 Reconciliation of Non-GAAP Measures for additional disclosures regarding Adjusted EBITDA.

3.2        Composite Systems Segment

The following table sets forth, by geographic location, the revenue, Operating Income and Adjusted EBITDA for the Composite Systems segment for the following periods:

	Three Months Ended
(in thousands of Canadian dollars, except percentages)		March 31, 2020			March 31, 2019(a)
North America	$	87,945		$	75,176
Latin America		1,063			1,350
EMAR		397			–
Asia Pacific		–			488
Total revenue	$	89,405		$	77,014
Operating (Loss) Income(b)	$	(7,970	)	$	17,220
Operating margin(c)		(8.9 %	)		22.4%
Adjusted EBITDA(c)	$	10,412		$	21,211
Adjusted EBITDA Margin(c)		11.6%			27.5%
(a) Restated to conform with current period presentation of segments. (b) Operating loss in the current period includes $9.8 million of impairment charges. (c) Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 7.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures.

First Quarter 2020 versus First Quarter 2019

Revenue in the first quarter of 2020 increased by $12.4 million, or 16%, compared to the first quarter of 2019, primarily due to the positive impact in the current quarter of the April 2019 ZCL acquisition. This was partially offset by decreased activity levels in North America for composite pipe, primarily due to the capital discipline focus of exploration and production operators and low oil and gas prices. In addition, tubular management service activity was lower in Canada.

Operating Loss in the first quarter of 2020 was $8.0 million compared to an Operating Income of $17.2 million in the first quarter of 2019. The Operating Loss in the current quarter includes the negative impact of the $9.8 million impairment charge recorded and also reflects a $3.7 million decrease in gross profit. The decrease in gross profit was primarily due to a 9.5 percentage point decrease in gross margin, partially offset by the increase in revenue, as explained above. The decrease in the gross margin was primarily due to product mix and lower utilization in the composite pipe facilities and the related impact on the absorption of manufacturing overheads. This was further impacted by an increase of $2.2 million in amortization of intangible assets, ongoing SG&A expenses and amortization of plant, property, equipment and ROU assets primarily related to the ZCL acquisition.

Adjusted EBITDA in the first quarter of 2020 was $10.4 million compared to $21.2 million in the first quarter of 2019. See Section 7.0 Reconciliation of Non-GAAP Measures for additional disclosures regarding Adjusted EBITDA.

3.3    Automotive and Industrial Segment

The following table sets forth, by geographic location, the revenue, Operating Income and operating margin for the Automotive and Industrial segment for the following periods:

	Three Months Ended
(in thousands of Canadian dollars, except percentages)		March 31, 2020			March 31, 2019
North America	$	29,933		$	31,655
EMAR		18,144			20,896
Asia Pacific		1,776			2,372
Total revenue	$	49,853		$	54,923
Operating Income	$	7,598		$	9,349
Operating margin(a)		15.2%			17.0%
Adjusted EBITDA(a)	$	8,719		$	10,425
Adjusted EBITDA Margin(a)		17.5%			19.0%
(a) Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 7.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures.

First Quarter 2020 versus First Quarter 2019

Revenue in the first quarter of 2020 decreased by $5.1 million, or 9%, compared to the first quarter of 2019, due to decreased shipments for wire and cable products in North America and lower revenue for heat shrink tubing products, particularly in the automotive sector. The decline was also impacted by the majority of automotive OEM assembly plants temporarily halting production and suspending operations as a result of COVID-19.  

Operating Income in the first quarter of 2020 was $7.6 million compared to $9.4 million in the first quarter of 2019, a decrease of $1.8 million, or 19%. The decrease in operating income was primarily due to a decrease in gross profit of $1.4 million resulting from the decrease in revenue, as explained above, partially offset by a 0.2 percentage point increase in gross margin. The increase in gross margin was primarily due to favourable product mix.

Adjusted EBITDA in the first quarter of 2020 was $8.7 million compared to $10.4 million in the first quarter of 2019. See Section 7.0 Reconciliation of Non-GAAP Measures for additional disclosures regarding Adjusted EBITDA.

3.4    Financial and Corporate

Financial and corporate costs include corporate expenses not allocated to the operating segments and other non-operating items, including foreign exchange gains and losses on foreign currency denominated cash and working capital balances. The corporate division of the Company only earns revenue that is considered incidental to the activities of the Company. As a result, it does not meet the definition of a reportable operating segment as defined under IFRS.

The following table sets forth the Company’s unallocated financial and corporate expenses for the following periods:

	Three Months Ended
(in thousands of Canadian dollars)		March 31, 2020			March 31, 2019
Financial and corporate expenses	$	(5,773	)	$	(6,268	)

First Quarter 2020 versus First Quarter 2019

Financial and corporate costs in the first quarter of 2020 were $5.8 million compared to $6.3 million in the first quarter of 2019. The decrease was primarily due to a $6.6 million decrease in incentive-based compensation costs, partially offset by increases of $3.2 million in foreign exchange losses, $1.3 million in professional consulting and legal fees, and $1.6 million in management information systems, equipment, building and other costs.

4.0        LIQUIDITY AND CAPITALIZATION

As at March 31, 2020, the Company had cash and cash equivalents totalling $86.3 million (December 31, 2019 – $98.2 million) and had unutilized lines of credit available to use of $341.7 million (December 31, 2019 – $275.6 million).

The effects of the COVID-19 pandemic and the rapid decline in oil prices has adversely impacted demand for the Company’s products and services and its operating results, financial position and access to sources of liquidity. With the uncertainty about the extent and depth of the market contraction and its impact on financial results, the Company has turned its focus on the reduction of costs and cash conservation to protect its balance sheet.  Subsequent to the quarter, the Company reduced CEO, executive and Board compensation, salaried workforce levels and its operating and capital budgets.  These actions taken are expected to generate $25 million in annualized costs savings and will preserve over $40 million in cash.  In addition, it announced the suspension of its dividend to shareholders commencing in the second quarter of 2020, which will conserve $42 million of cash on annualized basis. The Company is also targeting to execute additional actions in the upcoming quarters to deliver further cost savings and preservation of cash to meet its target of $60 million of annualized SG&A cost savings and $40 million of cash generation by the end of the year. This would include the controlled shutdowns of several underutilized or unprofitable facilities, additional reduction in salaried workforce, lower investment in working capital and other cost control measures. Based on these actions completed and planned, its diversified business and current backlog, the Company expects to generate sufficient cash flows to fund its operations, working capital requirements and capital program. 

For the quarter ending March 31, 2020, the Company was in full compliance with all financial covenants pertaining to its bank credit facility. However, due to the current adverse conditions caused by the COVID-19 global pandemic and the volatility in the oil and gas industry, there is uncertainty about the Company’s ability to remain in compliance with its financial covenants for the remainder of 2020.  Based on this, the Company is currently in discussions with its banking syndicate to seek relief from certain of its credit facility covenants. Although no definitive agreement is in place as of this date, the Company does expect that the discussions with the lenders will be successful and that suitable terms for the covenant relief will be obtained.

5.0       FORWARD-LOOKING INFORMATION

This document includes certain statements that reflect management’s expectations and objectives for the Company’s future performance, opportunities and growth, which statements constitute "forward-looking information" and "forward-looking statements" (collectively "forward-looking information") under applicable securities laws. Such statements, other than statements of historical fact, are predictive in nature or depend on future events or conditions. Forward-looking information involves estimates, assumptions, judgements and uncertainties. These statements may be identified by the use of forward-looking terminology such as "may", "will", "should", "anticipate", "expect", "believe", "predict", "estimate", "continue", "intend", "plan" and variations of these words or other similar expressions. Specifically, this document includes forward-looking information in the Outlook Section and elsewhere in respect of, among other things, the impact and duration of the global COVID-19 pandemic and the related impacts on the Company’s operations and the global supply and demand of oil and gas, the completion of restructuring initiatives and the levels of cost savings and cash generation to be achieved thereby, the future outlook for capital expenditures in the offshore oil and gas sector and US land drilling and completion activity, the demand for its products in retail fuel, automotive and industrial markets, the level of financial performance in 2020, the effect of the Company’s diversified portfolio of products on revenue and operating income, the demand for the Company’s products in the Pipeline and Pipe Services, Composite Systems and the Automotive and Industrial segments of the Company’s business, the expected development of the Company’s order backlog and the impact thereof on the Company’s revenue and operating income, including the award of contracts on outstanding bids, the impact of global economic activity on the demand for the Company's products, the impact of continuing demand for oil and gas, the impact of global oil and gas commodity prices, the impact of changing energy demand, supply and prices and the impact and likelihood of changes in competitive conditions in the markets in which the Company participates, the execution of definitive contracts for and the timing to complete certain pipe coating projects, the likelihood that projects will be sanctioned in the future, and the impact thereof on the Company’s business, the ability of the Company to fund its operating and capital requirements, the ability to successfully obtain covenant relief under its credit facility from its lenders and the timing thereof, the adequacy of the Company’s existing accruals in respect of environmental compliance, litigation, tax and other claims and the level of payments generally under the Company’s performance, bid and surety bonds.

Forward-looking information involves known and unknown risks and uncertainties that could cause actual results to differ materially from those predicted by the forward-looking information. We caution readers not to place undue reliance on forward-looking information as a number of factors could cause actual events, results and prospects to differ materially from those expressed in or implied by the forward-looking information. Significant risks facing the Company include, but are not limited to: the impact of the COVID-19 pandemic on the Company, its employees, customers, suppliers, energy and commodity markets and on the global economy, the impact on the Company of changes in the strategy by U.S. oil and gas operators to heighten focus on capital discipline and shareholder returns, the impact on the Company of reduced demand for its products and services, including the suspension or cancellation of existing contracts, as a result of lower investment in global oil and gas extraction, infrastructure and transportation activity following the previous declines in the global price of oil and gas, long term changes in global or regional economic activity and changes in energy supply and demand, which with other factors, impact on the level of global pipeline infrastructure construction; exposure to product and other liability claims; shortages of or significant increases in the prices of raw materials used by the Company; compliance with environmental, trade and other laws; political, economic and other risks arising from the Company’s international operations; the impact of climate change on the demand for the Company’s products and fluctuations in foreign exchange rates, as well as other risks and uncertainties described herein under "Risks and Uncertainties" and in the Company’s annual MD&A and in the Company’s Annual Information Form under "Risk Factors".

These statements of forward-looking information are based on assumptions, estimates and analysis made by management in light of its experience and perception of trends, current conditions and expected developments as well as other factors believed to be reasonable and relevant in the circumstances. These assumptions include those in respect of global oil and gas prices, the delay in the near term of certain projects and the likelihood of projects tied to securing long-term domestic energy supply or drilling rights being sanctioned, the recommencement of increased capital expenditures in the global offshore oil and gas segment, the commencement of recovery of the global economy, limited growth in Western Canada and continued volatility in U.S. land markets, softening demand in the automotive market, solid demand in the retail fuel market and stable demand in the industrial markets, the Company’s ability to execute projects under contract, the continued supply of and stable pricing for commodities used by the Company, the availability of personnel resources sufficient for the Company to operate its businesses, the maintenance of operations in major oil and gas producing regions, the adequacy of the Company’s existing accruals in respect of environmental compliance and in respect of litigation and tax matters and other claims generally, and the level of payments under the Company's performance, bid and surety bonds and the ability of the Company to satisfy all covenants under the Credit Facility and having sufficient liquidity to fund its obligations and planned initiatives. The Company believes that the expectations reflected in the forward-looking information are based on reasonable assumptions in light of currently available information. However, should one or more risks materialize, or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking information included in this document and the Company can give no assurance that such expectations will be achieved.

When considering the forward-looking information in making decisions with respect to the Company, readers should carefully consider the foregoing factors and other uncertainties and potential events. The Company does not assume the obligation to revise or update forward-looking information after the date of this document or to revise it to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.

To the extent any forward-looking information in this document constitutes future oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future oriented financial information and financial outlooks, as with forward-looking information generally, are based on the assumptions and subject to the risks noted above.

6.0       CONFERENCE CALL AND ADDITIONAL INFORMATION

Shawcor will be hosting a Shareholder and Analyst Conference Call and Webcast on Thursday, May 14th, 2020 at 9:00 AM ET, which will discuss the Company’s First Quarter 2020 Financial Results. To participate via telephone, please dial 1-877-776-4039 or 1-315-625-6955. Conference Call ID: 8389624; alternatively, please go to the following website address to participate via webcast:  https://edge.media-server.com/mmc/p/f4ksbnwy

The Company’s first quarter MD&A and financial statements are available on Shawcor’s website at www.shawcor.com.

Additional information relating to the Company, including its Annual Information Form, is available on SEDAR at www.sedar.com.

For further information, please contact:

Paul Pierroz
Senior Vice President, Corporate & Investor Relations
Telephone: [phone]
E-mail: [e-mail]

Source: Shawcor Ltd.

Shawcor Ltd.

Interim Consolidated Balance Sheets (Unaudited)

		March 31,			December 31,
(in thousands of Canadian dollars)		2020			2019
ASSETS
Current Assets
Cash and cash equivalents	$	86,343		$	98,218
Loans receivable		357			712
Accounts receivable		258,087			246,745
Contract assets		49,548			41,616
Income taxes receivable		18,329			33,493
Inventory		176,224			160,792
Prepaid expenses		17,597			17,560
Derivative financial instruments		614			177
Total current assets		607,099			599,313
Non-current Assets
Property, plant and equipment		419,163			420,027
Right-of-use assets		84,798			84,269
Intangible assets		233,662			271,514
Investments in associates		7,116			15,400
Deferred income tax assets		34,555			37,462
Other assets		5,345			5,396
Goodwill		251,281			377,704
Total non-current assets		1,035,920			1,211,772
TOTAL ASSETS	$	1,643,019		$	1,811,085
LIABILITIES AND EQUITY
Current Liabilities
Bank indebtedness	$	595		$	–
Accounts payable and accrued liabilities		190,452			177,452
Provisions		22,994			25,694
Income taxes payable		16,281			18,918
Derivative financial instruments		93			330
Contract liabilities		48,431			43,693
Lease liabilities		21,880			21,461
Other liabilities		4,448			9,518
Total current liabilities		305,174			297,066
Non-current Liabilities
Long-term debt		434,794			435,462
Lease liabilities		66,726			67,768
Provisions		22,189			20,477
Employee future benefits		17,217			15,390
Deferred income tax liabilities		17,710			19,306
Other liabilities		4,923			5,669
Total non-current liabilities		563,559			564,072
Total liabilities		868,733			861,138
Equity
Share capital		718,668			710,563
Contributed surplus		25,346			32,615
Retained earnings		(52,422	)		193,027
Non-controlling interests		4,787			4,647
Accumulated other comprehensive income		77,907			9,095
Total equity		774,286			949,947
TOTAL LIABILITIES AND EQUITY	$	1,643,019		$	1,811,085

Shawcor Ltd.
Interim Consolidated Statements of (Loss) Income (Unaudited)

		Three Month Ended March 31,
(in thousands of Canadian dollars, except per share amounts)		2020			2019
Revenue
Sale of products	$	147,118		$	138,245
Rendering of services		171,909			211,333
		319,027			349,578
Cost of Goods Sold and Services Rendered		233,722			251,374
Gross Profit		85,305			98,204
Selling, general and administrative expenses		74,095			67,877
Research and development expenses		3,407			3,310
Foreign exchange loss (gains)		1,961			(1,225	)
Amortization of property, plant and equipment		13,496			11,933
Amortization of intangible assets		5,543			4,624
Amortization of right-of-use assets		5,537			4,051
Impairment		203,084			–
(Loss) Income from Operations		(221,818	)		7,634
Income (loss) from investments in associates		164			(743	)
Finance costs, net		(6,209	)		(3,457	)
Cost associated with repayment of long-term debt and credit facilities		–			(12,308	)
Net monetary loss		(485	)		(651	)
Loss before Income Taxes		(228,348	)		(9,525	)
Income tax expense (recovery)		6,731			(604	)
Net Loss	$	(235,079	)	$	(8,921	)
Net Loss Attributable to:
Shareholders of the Company	$	(234,903	)	$	(9,074	)
Non-controlling interests		(176	)		153
Net Loss	$	(235,079	)	$	(8,921	)
Loss per Share
Basic	$	(3.35	)	$	(0.13	)
Diluted	$	(3.35	)	$	(0.13	)
Weighted Average Number of Shares Outstanding (000s)
Basic		70,208			70,120
Diluted		70,208			70,120

Shawcor Ltd.
Interim Consolidated Statements of Cash Flows (Unaudited)

(in thousands of Canadian dollars)		Three Months Ended March 31,
		2020			2019
Operating Activities
Net loss	$	(235,079	)	$	(8,921	)
Add (deduct) items not affecting cash
Amortization of property, plant and equipment		13,496			11,933
Amortization of intangible assets		5,543			4,624
Amortization of right-of-use assets		5,537			4,051
Amortization of long-term prepaid expenses		53			105
Impairment		203,084			–
Interest expense on right-of-use asset leases		992			730
Decommissioning liabilities expenses (recovery)		97			(1,581	)
Other provision expenses (recovery)		1,183			(680	)
Share-based compensation and incentive-based compensation		(1,771	)		5,501
Deferred income taxes		4,027			(2,762	)
Gain on disposal of property, plant and equipment		(109	)		(280	)
Unrealized (gain) loss on derivative financial instruments		(674	)		1,100
(Income) loss from investments in associates		(164	)		743
Cost associated with repayment of long-term debt and credit facilities		224			5,353
Settlement of decommissioning liabilities		(301	)		(148	)
Settlement of other provisions		(4,746	)		(1,356	)
Net change in employee future benefits		105			189
Change in non-cash working capital and foreign exchange		8,612			(656	)
Cash Provided by Operating Activities	$	109		$	17,945
Investing Activities
Decrease in loans receivable		423			637
Increase in short-term investments		–			(3,102	)
Purchase of property, plant and equipment		(9,875	)		(15,436	)
Proceeds on disposal of property, plant and equipment		187			393
Proceeds from redemption of investments in associates		8,878			–
Decrease in other assets		130			103
Cash Used in Investing Activities	$	(257	)	$	(17,405	)
Financing Activities
Increase in bank indebtedness		595			–
Repayment of long-term debt		(892	)		(99,307	)
Repayment of lease liabilities		(6,013	)		(8,246	)
Issuance of shares		–			356
Dividends paid to shareholders		(10,546	)		(10,520	)
Cash Used in Financing Activities	$	(16,856	)	$	(117,717	)
Effect of Foreign Exchange on Cash and Cash Equivalents and Net Monetary Loss		5,129			(2,189	)
Net Decrease in Cash and Cash Equivalents		(11,875	)		(119,366	)
Cash and Cash Equivalents - Beginning of Period		98,218			217,264
Cash and Cash Equivalents - End of Period	$	86,343		$	97,898

7.0          RECONCILIATION OF NON-GAAP MEASURES

The Company reports on certain non-GAAP measures that are used to evaluate its performance and segments, as well as to determine compliance with debt covenants and to manage its capital structure. These non-GAAP measures do not have standardized meanings under IFRS and are not necessarily comparable to similar measures provided by other companies. The Company discloses these measures because it believes that they provide further information and assist readers in understanding the results of the Company’s operations and financial position. These measures should not be considered in isolation or used in substitution for other measures of performance prepared in accordance with GAAP. The following is a reconciliation of the non-GAAP measures reported by the Company.  
             
EBITDA and Adjusted EBITDA

EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation and amortization.  Adjusted EBITDA is also a non-GAAP measure defined as EBITDA adjusted for items which do not impact day to day operations. Adjusted EBITDA is calculated by adding back to EBITDA the sum of impairments, costs associated with repayment of long-term debt and credit facilities, gain on sale of land, gain on sale of investment in associates,  acquisition costs, restructuring costs and hyperinflationary adjustments. The Company believes that EBITDA and Adjusted EBITDA are useful supplemental measures that provide a meaningful indication of the Company’s results from principal business activities prior to the consideration of how these activities are financed or the tax impacts in various jurisdictions and for comparing its operating performance with the performance of other companies that have different financing, capital or tax structures. The Company presents Adjusted EBITDA as a measure of EBITDA that excludes the impact of transactions that are outside the Company’s normal course of business or day to day operations. Adjusted EBITDA is used by many analysts in the oil and gas industry as one of several important analytical tools to evaluate financial performance and is a key metric in business valuations. It is also considered important by lenders to the Company and is included in the financial covenants of the Company’s Credit Facility.

		Three Months Ended   March 31,
(in thousands of Canadian dollars)		2020			2019
Net Loss	$	(235,079	)	$	(8,921	)
Add:
Income tax expense (recovery)		6,731			(604	)
Finance costs, net		6,209			3,457
Amortization of property, plant, equipment, intangible and ROU assets		24,576			20,608
Cost associated with repayment of long-term debt and credit facilities		–			12,308
EBITDA	$	(197,563	)	$	26,848
ZCL acquisition costs and other related items		–			551
Hyperinflation adjustment for Argentina		477			845
Impairment		203,084			–
Restructuring Cost		206			–
ADJUSTED EBITDA	$	6,204		$	28,244

Pipeline and Pipe Services Segment

		Three Months Ended   March 31,
(in thousands of Canadian dollars)		2020			2019
Operating Loss	$	(215,673	)	$	(12,667	)
Add:
Amortization of property, plant, equipment, intangible and ROU assets		14,247			15,084
EBITDA	$	(201,426	)	$	2,417
Hyperinflation adjustment for Argentina		37			105
Impairment		193,256			–
Restructuring Cost		188			–
ADJUSTED EBITDA	$	(7,945	)	$	2,522

Composite Systems Segment

		Three Months Ended   March 31,
(in thousands of Canadian dollars)		2020			2019
Operating (Loss) Income	$	(7,970	)	$	17,220
Add:
Amortization of property, plant, equipment, intangible and ROU assets		8,538			3,991
EBITDA	$	568		$	21,211
Impairment		9,828			–
Restructuring Cost		16			–
ADJUSTED EBITDA	$	10,412		$	21,211

Automotive and Industrial Segment

		Three Months Ended   March 31,
(in thousands of Canadian dollars)		2020			2019
Operating Income	$	7,598		$	9,349
Add:
Amortization of property, plant, equipment, intangible and ROU assets		1,119			1,076
EBITDA	$	8,717		$	10,425
Restructuring Cost		2			–
ADJUSTED EBITDA	$	8,719		$	10,425

Adjusted Net Income and Adjusted EPS

Adjusted net income is a non-GAAP measure defined as net income before acquisition-related and integration items, including transaction costs and financing fees; cost reduction and integration related initiatives such as separation benefits, retention payments, other exit costs, impact of inventory revaluation adjustment and certain costs associated with integrating an acquired company’s operations; gains or losses from early termination of debt and hedging activities; gains and losses on the disposal of land; gain on redemption of investment in associate; asset impairment charges; restructuring cost; hyperinflation adjustment for Argentina and the tax effect of the pre-tax adjustments above at applicable tax rates and certain other tax items. We define adjusted EPS as adjusted net income attributable to shareholders divided by the weighted average number of shares and the weighted average number of diluted shares.

		Three Months Ended   March 31,
(in thousands of Canadian dollars, except per share amounts)		2020			2019
Net Loss	$	(235,079	)	$	(8,921	)
Add:
ZCL acquisition costs and other related items		–			551
Hyperinflation adjustment for Argentina		1,158			1,599
Cost associated with repayment of long-term debt and credit facilities		–			12,308
Restructuring cost		206			–
Impairment		203,084			–
Tax effect of the above adjustments		(2,401	)		(2,207	)
Adjusted Net (Loss) Income	$	(33,032	)	$	3,330
Adjusted Net (Loss) Income Attributable to Shareholders	$	(32,856	)	$	3,177
Adjusted EPS
Basic	$	(0.47	)	$	0.05
Diluted	$	(0.47	)	$	0.05

Operating Margin/Adjusted Operating Margin

Operating margin/adjusted operating margin are defined as operating (loss) income divided by revenue and are non-GAAP measures. The Company believes that operating margin and adjusted operating margin are useful supplemental measures that provide meaningful assessment of the business performance of the Company and its Operating Segments. The Company uses these measures as key indicators of financial performance, operating efficiency and cost control based on volume of business generated.

Adjusted Operating Income

Adjusted Operating Income is a non-GAAP measure calculated by adding back to Operating income the sum of gain from sale of land, ZCL acquisition costs and other related items, restructuring cost, impairment and hyperinflationary adjustments. Adjusted Operating Income does not have a standardized meaning prescribed by GAAP and is not necessarily comparable to similar measures provided by other companies.

The following table sets forth the Company’s Adjusted Operating Income:

		Three Months Ended   March 31,
(in thousands of Canadian dollars)		2020			2019
(Loss) Income from operation	$	(221,818	)	$	7,634
Add:
ZCL acquisition costs and other related items		–			551
Hyperinflation adjustment for Argentina		676			927
Restructuring cost		206			–
Impairment		203,084			–
Adjusted Operating (Loss) Income	$	(17,852	)	$	9,112