Tervita Corporation Responds to COVID-19 Pandemic and Global Oil Price Decline by Reducing Capital Spending and Fixed Costs, and Suspending Share Repurchase Plan
CALGARY, March 31, 2020 – Tervita Corporation (“Tervita” or “the Company”) (TSX: TEV) today announced a series of actions to protect the wellbeing of employees and the public during the COVID-19 pandemic and to strengthen its business in response to challenging global market conditions. These actions include implementation of its business continuity plan, reductions to its 2020 capital budget and fixed costs, and the suspension of share repurchases under its Normal Course Issuer Bid (“NCIB”).
“I would like to thank our employees for their hard work and dedication to safety and providing excellent customer service under these unusual conditions and challenging times. At Tervita, the health and safety of our employees and the communities where we work is of utmost importance and we have implemented proactive measures to ensure their safety is not compromised,” said John Cooper, President and Chief Executive Officer. “We are also taking numerous steps to prevent COVID-19 from having an impact on our operations and allow us to confidently continue to meet the needs of our customers.
“Tervita is well-positioned to navigate this challenging environment. Our Energy Services business is heavily weighted toward the traditionally more stable production volumes and our Industrial Services business provides diversification from the energy market. Along with our diversified business lines, we have worked diligently over the last three years to remove costs from the business, optimize our locations and achieve business efficiencies. During these unprecedented times we will continue to put our people, stakeholders and the environment first while continuing to provide exceptional service to our customers.”
Safety Remains Our Top Priority
Tervita has implemented its business continuity plan in response to the COVID-19 pandemic to keep employees safe and healthy, assist its customers and ensure safe operations. A dedicated COVID-19 team has been formed to manage the continuity plan and implement proactive measures including strongly encouraging office staff to work from home, protective measures at our field locations, prohibiting all non-essential travel, and mandating social distancing and increased hygiene procedures for operational activities where interaction cannot be avoided. The Company is closely monitoring the status of COVID-19 and using information available from the Public Health Agency of Canada and the U.S. Centers for Disease Control and Prevention.
Tervita’s operations have not been materially affected by the virus at this time. To effectively manage its business through this pandemic and challenging market, the Company will continue to review its business continuity plan and monitor operational activities to ensure a proactive and appropriate response. For further information on Tervita’s response to COVID-19, please visit https://tervita.com/our-commitment/safety-culture/covid-19/.
Capital and Operational Discipline
Capital Budget Reduction to $60 million for 2020
Recent developments in the energy and world markets and the impact to customer demand from COVID-19 has caused a steep decline in commodity prices. In response to this situation producers have significantly reduced their capital programs which will have an impact on activity in Western Canada, as well as an impact on production volumes as producers shut in wells. Tervita will continue to work with customers to meet their needs in a time of tight capital discipline and further assist them in maximizing the value they receive from our services. Following the recently announced reduction in customer spending, Tervita is reducing its 2020 capital budget to $60 million, a reduction of 29% from its previously announced budget of $85 million and 56% from its 2019 capital expenditures.
The reduced capital plan is split evenly between growth and expansion projects and maintenance capital. The revised growth and expansion program is largely directed to the completion of expected high return carry-over projects initiated in 2019 and a modest amount toward targeted high return growth projects within the Industrial Services business. The Company expects the budget will be primarily spent in the first half of 2020. The reductions to capital spending will not compromise the Company’s commitment to safety or environmental regulations. Tervita continues to have a pipeline of opportunities available, and in the current market environment has decided to pause new growth projects. The Company will continue to monitor activity levels as the year progresses and revise its plan accordingly.
Fixed Cost Reductions Annualized at $30 to $34 million
Tervita is taking measures to proactively manage fixed costs in response to the market decline and support free cash flow generation through the following actions:
- Board of Directors cash retainer reduction of 15% and election to receive total retainer in non-cash deferred share units;
- President and Chief Executive Officer salary reduction of 15%;
- Executive leadership team salaries reduction of 10%;
- Organizational restructuring of the Industrial Services segment and Tervita’s business services resulting in a 20% reduction to the size of the executive leadership team;
- Employee headcount reductions;
- Elimination of non-essential discretionary spending; and
- Location optimization throughout our network.
These actions are expected to reduce fixed costs by $22 to $26 million in 2020 ($30 to $34 million annualized) and are already being executed.
In addition, Tervita has suspended all share repurchases under its NCIB.
Balance Sheet Strength
Maintaining Tervita’s balance sheet to maximize financial flexibility is a key financial priority. The progress the Company has made over the last three years to reduce costs, create business efficiencies and generate free cash flow, combined with the proactive cost measures announced today, positions it well to navigate the current environment. Tervita has ample room within its credit facility and expects to end the first quarter of 2020 with approximately $195 million of available capacity under the credit facility.
The Company expects that given the proactive steps taken it will generate free cash flow and remain within its bank covenants.
Tervita will remain actively engaged in managing the business through these unprecedented times and will exercise cost discipline to further protect the interests of its stakeholders while continuing to maximize value for its customers.
Tervita is a leading waste management and environmental solutions provider offering waste processing, treating, recycling, and disposal services to customers in the energy, mining, and industrial sectors. We serve our customers onsite and through a network of facilities in Canada and the United States.
For over 40 years, Tervita has been focused on delivering safe and efficient solutions through all phases of a project while minimizing impact, maximizing returns™. Our dedicated and experienced employees are trusted sustainability partners to our clients. Safety is our top priority: it influences our actions and shapes our culture. Tervita trades on the TSX as TEV. For more information, visit www.tervita.com.