Divestco Inc. (TSX VENURE:DVT) ("Divestco" or the "Company") announces its
operating results for the three months ended March 31, 2011.
Accounting Policy Changes
On January 1, 2011, Divestco adopted International Financial Reporting Standards
("IFRS") for purposes of financial reporting, using a transition date of January
1, 2010. Accordingly, the Company's interim condensed consolidated financial
statements for the three months ended March 31, 2011 and the comparative
information for the three months ended March 31, 2010, have been prepared in
accordance with International Financial Reporting Standard 1, "First-time
Adoption of International Financial Reporting Standards", and with International
Accounting Standard 34, "Interim Financial Reporting", as issued by the
International Accounting Standards Board ("IASB"). Previously, the Company
prepared its interim and annual consolidated financial statements in accordance
with Canadian generally accepted accounting principles ("previous GAAP"). The
adoption of IFRS has not had an impact on the Company's operations and strategic
decisions.
Q1 2011 Results
Divestco realized a net loss for the first quarter of 2011 of $4.3 million
($0.07 per share - basic and diluted) compared to net loss of $4.2 million
($0.10 cents per share - basic and diluted) for the same period in 2010. The net
loss in Q1 2011 was primarily due to a decrease in revenue from the sale of the
Company's seismic assets in Q3 2010, double rent commitments and expenses
related to the Company's office space. This was offset by a decrease in
depreciation and amortization by $5.8 million (63%) mainly due to the sale of
the Company's seismic data assets in Q3 2010.
During Q1 2011, Divestco generated revenue of $8.8 million, a decrease of $3.3
million (27%) from $12.1 million for the same period in 2010. EBITDA was a
negative $857,000, a $4.5 million (124%) decrease from a positive $3.6 million
for the same period in 2010. The Company had negative funds from operations of
$0.9 million ($0.02 per share - basic and diluted) for the first quarter of
2011, compared to a positive $1.5 million ($0.04 per share - basic and diluted)
for the same period in 2010.
In Q1 2011, the Company finalized an agreement whereby the lease of two floors
of space in its current office premises where assumed by another company. The
economic benefit of this transaction will start be realized in Q4 2011 and will
amount to an annual savings of $2 million. The Company is also actively looking
to sublease additional office space to further reduce its G&A expenses. As a
result of Divestco's intent to sublease addition space at 100% recovery,
excluding the amount spent on leaseholds (net of tenant inducements), management
recorded a net impairment of $0.8 million on the portion of the leasehold
improvements related to this space in Q1 2011.
In Q4 2010, Divestco commenced rebuilding its seismic data library by completing
a 71 square kilometer 3D seismic survey in Q1 2011. The Company also signed an
agreement in Q4 2010 whereby in exchange for a license to Divestco owned data,
it obtained the trading rights to an existing 3D survey covering an adjacent
area of 66 square kilometers in Q1 2011. The Company also commenced a fully
funded 3D survey in central Alberta of approximately 200 square kilometers.
Mr. Stephen Popadynetz, CEO, President and CFO: "We are continuing to
restructure our Company and as we do so, we have had to incur several one-time
expenses. In the first quarter of 2011, Divestco had $1.2 million alone in
double rent and about $150,000 in one-time severance costs. Removing these from
our funds from operations calculations demonstrates that Divestco has indeed
turned the corner and is becoming cash flow positive. Our results should
continue to get better as more of these one-time expenses are completed. We feel
we are well on track to returning to profitability and positive earnings and we
look forward to delivering better results as the year progresses."
Non-GAAP Measures
The Company's interim condensed consolidated financial statements have been
prepared in accordance with IFRS. Certain measures in this document do not have
any standardized meaning as prescribed by IFRS and are considered non-GAAP
measures.
Divestco uses EBITDA and operating income as key measures to evaluate the
performance of segments, divisions and the Company, with the closest GAAP
measure being net income. EBITDA and operating income are measures commonly
reported and widely used by investors as indicators of the Company's operating
performance and ability to incur and service debt, and as a valuation metric.
The Company believes EBITDA and operating income assist investors in comparing
the Company's performance on a consistent basis without regard to financing
decisions, and depreciation and amortization, which are non-cash in nature and
can vary significantly depending upon accounting methods or non-operating
factors such as historical cost.
EBITDA and operating income are not calculations based on IFRS and should not be
considered alternatives to net income in measuring the Company's performance;
nor should they be used as exclusive measures of cash flow, because they do not
consider the impact of working capital growth, capital expenditures, debt
principal reductions and other sources and uses of cash, which are disclosed in
the Consolidated Statements of Cash Flows. Investors should carefully consider
the specific items included in Divestco's computation of EBITDA and operating
income. While EBITDA and operating income have been disclosed herein to permit a
more complete comparative analysis of the Company's operating performance and
debt servicing ability relative to other companies, investors should be
cautioned that EBITDA and operating income as reported by Divestco may not be
comparable in all instances to EBITDA and operating income as reported by other
companies.
EBITDA is calculated as follows:
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Three Months Ended March 31
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(Thousands) 2011 2010
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Net Loss $ (4,332) $ (4,211)
Income Tax Expense (Reduction) 49 (1,909)
Other Income (loss) - 80
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Operating Loss $ (4,283) $ (6,200)
Interest 16 569
Depreciation and Amortization 3,410 9,236
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EBITDA (857) 3,605
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Divestco reports funds from operations because it is a key measure used by
management to evaluate its performance and to assess the ability of the Company
to finance operating activities and capital expenditures. Funds from operations
excludes certain working capital changes and other sources and uses of cash,
which are disclosed in the Consolidated Statements of Cash Flows.
Funds from operations is not a calculation based on IFRS and should not be
considered an alternative to the Consolidated Statements of Cash Flows. Funds
from operations is a measure that can be used to gauge Divestco's capacity to
generate discretionary cash flow. Investors should be cautioned that funds from
operations as reported by Divestco may not be comparable in all instances to
funds from operations as reported by other companies. While the closest GAAP
measure is cash flows from operating activities, funds from operations is
considered relevant because it provides an indication of how much cash generated
by operations is available before proceeds from divested assets and changes in
certain working capital items.
Funds from operations is calculated as follows:
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Three Months Ended March 31
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(Thousands) 2011 2010
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Cash Flows from Operating Activities $ (444) $ 3,048
Changes in Non-Cash W orking Capital Balances (489) (1,491)
Decrease in Long-Term Prepaid Expense - (79)
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Funds from Operations $ (933) $ 1,478
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Financial Highlights
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(Thousands, except per share amounts) Three Months Ended March 31
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2011 2010 $ Change % Change
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Revenue $ 8,815 $ 12,078 $ (3,263) -27%
Operating Expenses 9,672 8,473 1,199 14%
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EBITDA (857) 3,605 (4,462) -124%
Interest 16 569 (553) -97%
Depreciation and Amortization 3,410 9,236 (5,826) -63%
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Operating Loss (4,283) (6,200) 1,917 -31%
Other Income - 80 (80) -100%
Income Tax Expense (Reduction) 49 (1,909) 1,958 -103%
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Net Loss $ (4,332) $ (4,211) $ (121) 3%
Per Share - Basic (0.07) (0.10) 0.03 -30%
Per Share - Diluted (0.07) (0.10) 0.03 -30%
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Funds from Operations $ (933) $ 1,478 $ - -163%
Per Share - Basic (0.02) 0.04 (0.06) -150%
Per Share - Diluted (0.02) 0.04 (0.06) -150%
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Shares Outstanding 59,393 41,958 N/A 42%
Weighted Average Shares
Outstanding
Basic 59,344 41,958 N/A 41%
Diluted 59,344 41,958 N/A 41%
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Segment Review Summary
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For the three months ended March 31, 2011 (Thousands)
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Corporate &
Software Services Data Other Total
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Revenue $ 2,177 $ 5,126 $ 1,512 $ - $ 8,815
EBITDA 770 1,401 567 (3,595) (857)
Interest (Net of
Interest Revenue) - (1) (3) 20 16
Depreciation and
Amortization 1,131 291 938 1,050 3,410
Operating Income
(Loss) (361) 1,111 (368) (4,665) (4,283)
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For the three months ended March 31, 2010 (Thousands)
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Corporate &
Software Services Data Other Total
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Revenue $ 2,420 $ 5,492 $ 4,166 $ - $ 12,078
EBITDA 927 1,371 3,038 (1,731) 3,605
Interest (Net of
Interest Revenue) - - - 569 569
Depreciation and
Amortization 735 529 7,679 293 9,236
Operating Income
(Loss) 192 842 (4,641) (2,593) (6,200)
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Divestco Inc.
Condensed Consolidated Statements of Financial Position
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As at Mar 31, 2011 Dec 31, 2010 Jan 1, 2010
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(Thousands - Unaudited)
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Assets
Current Assets
Cash and cash equivalents $ 1,599 $ 3,696 $ 768
Funds held in trust 16 15 17
Accounts receivable 11,667 11,759 19,267
Prepaid expenses, supplies and
deposits 316 237 708
Income taxes receivable 156 287 391
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13,754 15,994 21,151
Long-term prepaid expense - - 846
Investment in affiliated company 133 100 88
Participation surveys in progress 77 1,253 2,186
Property and equipment 4,589 3,026 2,747
Intangible assets 15,507 14,611 148,905
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$ 34,060 $ 34,984 $ 175,923
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Liabilities and Shareholders'
Equity
Current Liabilities
Bank indebtedness $ 3,000 $ 2,050 $ -
Accounts payable and accrued
liabilities 7,531 8,248 21,184
Current portion of deferred
revenue 3,773 2,710 3,880
Sublease loss 1,814 1,729 -
Current portion of long-term
debt obligations 353 368 6,217
Current portion of tenant
inducements 134 - -
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16,605 15,105 31,281
Long-term debt obligations 321 188 20,685
Sublease loss 1,556 1,621 -
Tenant Inducements 1,741 - -
Convertible Debentures - - 3,602
Deferred income taxes - - 12,808
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20,223 16,914 68,376
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Shareholders' Equity
Equity instruments 75,352 75,253 70,518
Contributed surplus 5,590 5,590 5,562
Equity portion of convertible
debentures - - 56
Retained earnings (67,105) (62,773) 31,411
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13,837 18,070 107,547
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$ 34,060 $ 34,984 $ 175,923
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Divestco Inc.
Condensed Consolidated Statements of Loss and Comprehensive Loss
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For the three months ended March 31 2011 2010
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(Thousands, Except Per Share Amounts - Unaudited)
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Revenue $ 8,815 $ 12,078
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Operating expenses
Salaries and benefits 5,159 5,105
General and administrative 4,513 3,322
Stock compensation expense - 46
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9,672 8,473
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Interest expense 16 569
Depreciation and amortization 3,410 9,236
Other income - 80
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Loss before income taxes (4,283) (6,120)
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Income taxes
Current (recovery) 49 (31)
Deferred (reduction) - (1,878)
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49 (1,909)
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Net loss and comprehensive loss for the period $ (4,332) $ (4,211)
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Net loss per share
Basic and Diluted $ (0.07) $ (0.10)
Weighted average number of shares
Basic and Diluted 59,344 41,958
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Divestco Inc.
Condensed Consolidated Statements of Changes in Equity
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Equity
(Thousands - Unaudited) Share Capital Warrants Instruments
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Balance at January 1, 2010 $ 70,518 $ - $ 70,518
Total Comprehensive Loss for the
period
Transactions with owners, recorded
in equity contributions by and
distributions to owners:
Share-based payment transactions -
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Balance at March 31, 2010 $ 70,518 $ - $ 70,518
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Balance at January 1, 2011 $ 73,445 $ 1,808 $ 75,253
Total Comprehensive Loss for the
period
Transactions with owners, recorded
in equity contributions by and
distributions
to owners:
Issue on private placement 48 52 100
Share issue costs (1) (1)
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Balance at March 31, 2011 $ 73,492 $ 1,860 $ 75,352
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Equity portion Retained
(Thousands - Contributed of convertible Earnings
Unaudited) Surplus debentures (Deficit) Total Equity
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Balance at January
1, 2010 $ 5,562 $ 56 $ 31,411 $ 107,547
Total Comprehensive
Loss for the period (4,211) (4,211)
Transactions with
owners, recorded in
equity contributions
by and distributions
to owners:
Share-based
payment
transactions 46 46
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Balance at March
31, 2010 $ 5,608 $ 56 $ 27,200 $ 103,382
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Balance at January
1, 2011 $ 5,590 $ - $ (62,773) $ 18,070
Total Comprehensive
Loss for the period (4,332) (4,332)
Transactions with
owners, recorded in
equity contributions
by and distributions
to owners:
Issue on private
placement 100
Share issue costs (1)
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Balance at March
31, 2011 $ 5,590 $ - $ (67,105) $ 13,837
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Divestco Inc.
Condensed Consolidated Statements of Cash Flows
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For the three months ended March 31 2011 2010
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(Thousands)
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Cash flows from (used in) operating activities
Net loss for the period $ (4,332) $ (4,211)
Items not affecting cash:
Equity investment gain (4) (4)
Depreciation and amortization of data libraries,
property and equipment and
intangible assets 2,316 8,662
Impairment of goodwill and intangible assets - 574
Amortization of deferred development costs 1,073 61
Amortization of deferred finance costs - 12
Amortization of deferred finance costs and
accretion of liability portion of
convertible debentures - 7
Accretion of sublease loss 21 -
Amortization of tenant inducements (7)
Future income taxes (reduction) - (1,878)
Data exchanges - (1,700)
Gain on sale of property and equipment - (90)
Stock compensation expense - 45
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(933) 1,478
Changes in non-cash working capital balances 489 1,491
Decrease in long-term prepaid expense - 79
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(444) 3,048
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Cash flows from (used in) financing activities
Bank indebtedness 950 -
Issue of common shares, net of related expenses 99 -
Repayment of long-term debt obligations (117) (1,568)
Proceeds received from long-term debt obligations
(net of committed revolver repayments) - 711
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932 (857)
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Cash flows from (used in) investing activities
Purchase of data libraries (2,325) (2,624)
Decrease in participation surveys in progress 1,176 2,033
Purchase of property and equipment (3,624) (388)
Additions to intangible assets (128) -
Additions to tenant inducements 3,035 -
Acquisition (29) -
Deferred development costs (689) (533)
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(2,584) (1,419)
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Foreign exchange gain (loss) on cash held in a
foreign currency (1) 3
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Increase (decrease) in cash and cash equivalents (2,097) 775
Cash and cash equivalents, beginning of period 3,696 768
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Cash and cash equivalents, end of period $ 1,599 $ 1,543
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Divestco is an exploration services company that provides a comprehensive and
integrated portfolio of data, software, and services to the oil and gas
industry. Through continued commitment to align and bundle products and services
to generate value for customers, Divestco is creating an unparalleled set of
integrated solutions and unique benefits for the marketplace. Divestco's breadth
of data, software and services offers customers the ability to access and
analyze the information required to make business decisions and to optimize
their success in the upstream oil and gas industry. Divestco is headquartered in
Calgary, Alberta, Canada and trades on the TSX Venture Exchange under the symbol
"DVT".
This press release contains forward-looking information related to the Company's
capital expenditures, projected growth, view and outlook towards future oil and
gas prices and market conditions, and demand for its products and services.
Statements that contain words such as "could', "should", "can", "anticipate",
"expect", "believe", "will", "may" and similar expressions and statements
relating to matters that are not historical facts constitute "forward-looking
information" within the meaning applicable by Canadian securities legislation.
Although management of the Company believes that the expectations reflected in
such forward-looking information are reasonable, there can be no assurance that
such expectations will prove to have been correct because, should one or more of
the risks materialize, or should the assumptions underlying forward-looking
statements or forward-looking information prove incorrect, actual results may
vary materially from those described in this press release as intended, planned,
anticipated, believed, estimated or expected. Except where required by law, the
Company does not assume any obligation to update these forward-looking
statements or forward-looking information if conditions or opinions should
change. Readers should not place undue reliance on forward-looking statements or
forward-looking information. All of the forward-looking statements and
forward-looking information of the Company contained in this press release are
expressly qualified, in their entirety, by this cautionary statement.
In particular, this press release contains forward-looking statements pertaining
to the following: the Company's ability to reduce debt, improve liquidity,
correct its working capital deficiency and maintain profitability in the current
economy; availability of external and internal funding for future operations;
relative future competitive position of the Company; nature and timing of
growth; future sales of the Company's seismic data library; oil and natural gas
production levels; planned capital expenditure programs; supply and demand for
oil and natural gas; future demand for products/services; commodity prices;
fluctuations in interest rates; impact of Canadian federal and provincial
governmental regulation on the Company; expected levels of operating costs,
general administrative costs, costs of services and other costs and expenses;
future ability to execute dispositions of assets or businesses; expectations
regarding the Company's ability to raise capital and to add to seismic data
through new seismic shoots and acquisition of existing seismic data; treatment
under tax laws.
These forward-looking statements are based upon assumptions including: that
future prices for crude oil and natural gas, future interest rates and future
availability of debt and equity financing will be at levels and costs that allow
the Company to manage, operate and finance its business and develop its software
products and various oil and gas datasets including its seismic data library,
and meet its future obligations; that the regulatory framework in respect of
royalties, taxes and environmental matters applicable to the Company and its
customers will not become so onerous on both the Company and its customers as to
preclude the Company and its customers from viably managing, operating and
financing its business and the development of its software and data; and that
the Company will continue to be able to identify, attract and employ qualified
staff and obtain the outside expertise as well as specialized and other
equipment it requires to manage, operate and finance its business and develop
its properties.
These forward-looking statements are subject to numerous risks and
uncertainties, certain of which are beyond the Company's control, including:
general economic, market and business condition; volatility in market prices for
crude oil and natural gas; ability of Divestco's clients to explore for, develop
and produce oil and gas; availability of financing and capital; fluctuations in
interest rates; demand for the Company's product and services; weather and
climate conditions; competitive actions by other companies; availability of
skilled labour; failure to obtain regulatory approvals in a timely manner;
adverse conditions in the debt and equity markets; and government actions
including changes in environment and other regulations.
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