Primary Energy Reports Second Quarter 2013 Results

OAK BROOK, IL, Aug. 13, 2013 /PRNewswire/ - Primary Energy Recycling Corporation (TSX: PRI), a clean energy company that generates revenue from capturing and recycling recoverable heat and byproduct fuels from industrial processes, today announced its unaudited financial and operational results for the three and six months ended June 30, 2013.

Second Quarter Review

• Customer blast furnace availability was down in the second quarter of 2013 which impacted operations of North Lake and Harbor Coal;
  
  
• The Ironside facility experienced a forced turbine outage in May and is expected to return to service in September 2013.  Lost variable revenue in the third quarter is expected to be recovered through business interruption insurance;
  
  
• The Cokenergy facility completed the major overhaul of its steam turbine and condenser on time and on budget;
  
  
• The Portside facility had a solid quarter with revenue contribution from the condensing economizer and boiler turndown projects;
  
  
• Contract renegotiation discussions continued with the site host for Cokenergy. Management anticipates an agreement on terms before the current contract expires in October 2013;
  
  
• The Company declared and paid a dividend of $0.05 per Common Share; and
  
  
• Subsequent to quarter end, on August 1, 2013, the Company declared a $0.05 per Common Share dividend for payment on August 30, 2013 to shareholders of record on August 15, 2013.

"Furnace-related challenges created downward pressure on North Lake and Harbor Coal production in the second quarter," said John Prunkl, President and Chief Executive Officer of Primary Energy. "Towards the end of the reporting period, we did see improvement in blast furnace production levels back to the low end of the typical operating range, but we will not be surprised if challenges continue to occur until the furnace is overhauled in 2014."

Second Quarter 2013 Financial Results

The Company's revenue of $13.6 million for the second quarter of 2013 increased $1.0 million, or 8.0%, compared with revenue of $12.6 million for the second quarter of 2012.  Revenue at the Portside facility increased by $0.6 million during the second quarter of 2013 primarily due to fuel cost savings of $0.4 million generated from the condensing economizer and boiler turndown capability and $0.2 million related to increased host operating levels.  Revenue at the North Lake facility increased by $0.8 million primarily due to being fully operational during the second quarter of 2013 compared to only two months of operation in the second quarter of 2012.  Revenue at the Ironside facility was impacted by a $0.3 million decrease due to an unplanned outage starting in May of 2013 and a decrease of $0.1 million due to reduced host operating levels.

The Company's revenue of $28.3 million for the first six months of 2013 increased $1.5 million, or 5.5%, compared with revenue of $26.8 million for the first six months of 2012.  Revenue at the Portside facility increased by $1.4 million during 2013 primarily due to fuel cost savings of $1.2 million generated from the condensing economizer and boiler turndown capability and $0.2 million related to increased host operating levels.  Revenue at the North Lake facility increased by $0.5 million primarily due to being fully operational for the six months in 2013 compared to only five months of operation in 2012.  Revenue at the Ironside facility was impacted by a $0.3 million decrease due to an unplanned outage starting in May of 2013 and a decrease of $0.1 million due to reduced host operating levels.

Operations and maintenance expense for the second quarter of 2013 was $4.5 million compared to $4.2 million for the second quarter of 2012, an increase of $0.3 million or 6.9%.  Operations and maintenance expense for the first six months of 2013 was $9.5 million compared to $8.4 million for the first six months of 2012, an increase of $1.1 million or 13.7%.  The Company incurred periodic costs for the first six months of 2013 comprised of $2.9 million for boiler retubing work, $0.7 million for an emergency boiler repair and $0.1 million for ductwork repairs compared to periodic costs for the first six months of 2012 totaling $2.1 million for boiler retubing work and $0.4 million for ductwork repairs.

General and administrative expense for the second quarter of 2013 was $2.0 million compared to $2.1 million for the second quarter of 2012, a decrease of $0.1 million or 3.6%. General and administrative expense for the first six months of 2013 was $3.9 million compared to $4.6 million for the first six months of 2012, a decrease of $0.7 million or 15.2%. The Company did not incur management fees for the first six months of 2013 resulting in a net cost savings totaling $1.1 million when compared to the same period in 2012 offset by increased expenses of $0.4 million comprised of plant and liability insurance, accrued property taxes, IT expenses and other general expenses.

Employee benefits expense for the second quarter of 2013 was $1.5 million compared to $0.8 million for the second quarter of 2012, an increase of $0.7 million.  Employee benefits expense for the first six months of 2013 was $3.1 million compared to $1.5 million for the first six months of 2012, an increase of $1.6 million.  The increases noted are primarily due to additional compensation costs associated with transferred employees hired by the Company upon termination of the Management Agreement as well as cost recovery fees provided to the Company under the Management Agreement in the first six months of 2012 that did not recur in the first six months of 2013.  Prior to June 1, 2012, the transferred employees were employees of the Company's former manager who previously provided operational and administrative services to the Company under the Management Agreement.  For the period prior to June 1, 2012, management fees incurred by the Company totaled $1.1 million and were recorded as general and administrative expenses.

On a combined basis, general and administrative expense and employee benefits expense for the second quarter of 2013 was $3.5 million compared to $2.9 million for the second quarter of 2012, an increase of $0.6 million.  The increase in expenses is comprised of $0.3 million of accrued property taxes, $0.2 million of stock based compensation , $0.1 million of plant compensation expense and plant and liability insurance of $0.1 million.  The increase in expenses was offset by reduced professional fees of $0.1 million.  On a combined basis, general and administrative expense and employee benefits expense for the first six months of 2013 was $7.0 million compared to $6.1 million for the first six months of 2012, an increase of $0.9 million.  The increase in expenses is comprised of $0.3 million of stock based compensation, plant and liability insurance of $0.2 million, $0.2 million of plant compensation expense, $0.1 of IT expenses and $0.1 million of accrued property taxes offset by a reduction in professional fees of $0.2 million.

Equity in earnings of the Harbor Coal joint venture for the second quarter of 2013 was $(0.05) million compared to $0.5 million for the second quarter of 2012, a decrease of $0.6 million.

Equity in earnings of the Harbor Coal joint venture for the first six months of 2013 was $0.4 million compared to $1.2 million for the first six months of 2012, a decrease of $0.8 million.  The decrease noted in the current quarter is the result of reduced revenue due to reduced blast furnace operation.   Year to date revenue was down on a comparative basis due to increased natural gas injection due to its low cost and reduced coal through-put as well as reduced blast furnace operation that began in the second quarter.

Operating loss for the second quarter of 2013 was $0.01 million compared to $5.4 million for the second quarter of 2012, a decrease of $5.4 million.  The decrease was the result of the net effect of the items discussed above.

Operating income for the first six months of 2013 was $1.2 million compared to an operating loss of $3.1 million for the first six months of 2012, an increase of $4.3 million. The increase was the result of the net effect of the items discussed above.

Net loss and comprehensive loss for the second quarter of 2013 was $0.9 million compared to $5.4 million for the second quarter of 2012, a decrease of $4.5 million. The decrease was the result of the net effect of the items discussed above.

Net loss and comprehensive loss for the first six months of 2013 was $1.0 million compared to $4.9 million for the first six months of 2012, a decrease of $3.9 million. The decrease was the result of the net effect of the items discussed above.

Conference Call and Webcast
Management will host a conference call to discuss the second quarter results on Wednesday, August 14, 2013 at 10 am ET. Following management's presentation, there will be a question and answer session.  To participate in the conference call, please dial (888) 231-8191 or (647) 427-7450.

A digital conference call replay will be available until midnight on August 28, 2013 (ET) by calling (855) 859-2056 or (416) 849-0833. Please enter the password 20414104 when instructed. A webcast replay will be available for 365 days by accessing a link through the Events section at www.primaryenergyrecycling.com.

Forward-Looking Statements
When used in this news release, the words "intend", "likely", "anticipate", "expect", "project", "believe", "estimate", "forecast", "outlook" and similar expressions, are intended to identify forward-looking statements, including statements regarding maintenance and capital expenditures and the acquisition of the minority interest in PERH and the termination of Primary Energy's management agreement. Such statements are subject to certain risks, uncertainties and assumptions pertaining, but not limited, to recovery in the steel industry, continued strong performance from the mills we serve consistent with historical patterns, timely renewal of contracts at the Company's facilities, no protracted outages (planned or unplanned) for any of our facilities, operating and maintenance costs and general and administrative costs being similar to recent years except as described in this press release, regulatory parameters, weather and economic conditions and other factors discussed in the Company's public filings available on SEDAR at www.sedar.com. Additional risks and uncertainties not currently known or that are currently deemed to be immaterial may also materially and adversely affect the Company's business operations and outlook. Any of the matters highlighted in the Company's risk factor disclosure could have a material adverse effect on the Company's results of operations, business prospects and outlook, financial condition or cash flow, in which case, the market price or value of the Company's Common Shares could be adversely affected. These forward-looking statements are made as of the date of this press release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

About Primary Energy Recycling Corporation
Primary Energy Recycling Corporation, headquartered in Oak Brook, Illinois, owns and operates four recycled energy projects and a 50% interest in a pulverized coal facility (collectively, the "Projects"). The Projects have a combined electrical generating capacity of 298 megawatts and a combined steam generating capacity of 1.8M lbs/hour. Primary Energy Recycling Corporation creates value for its customers by capturing and recycling waste energy from industrial and electric generation processes and converting it into reliable and economical electricity and thermal energy for resale back to its customers. For more information, please see www.primaryenergy.com

Non-IFRS Measures

The Company reports its financial results in accordance with IFRS. The Company's management also evaluates and makes operating decisions using various other measures.  Three such measures are EBITDA, Adjusted EBITDA and Free Cash Flow, which are non-IFRS financial measures. We believe these measures provide useful supplemental information regarding the performance of Company's business.

1)  Represents nonrecurring major maintenance expenditures for such items as boiler retubing work and other related maintenance expenditures and ductwork repairs.

SOURCE Primary Energy Recycling Corporation