EBITDA IMPROVES FOR THIRD CONSECUTIVE REPORTING QUARTER YEAR-OVER-YEAR

CALGARY, Nov. 9 /CNW/ -

SELECTED FINANCIAL AND OPERATING INFORMATION (unaudited)

	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Quarter Over-Quarter % Change	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009	Year Over Year % Change
Revenue	$20,349	$20,544	(0.9%)	$59,606	$62,511	(4.6%)
Operating and materials	17,130	17,456	(1.9%)	51,681	56,011	(7.7%)
Operating margin	3,219	3,088	4.2%	7,925	6,500	21.9%
Operating margin %	15.8%	15.0%		13.3%	10.4%
Selling, general & administrative	$2,027	$2,072	(2.2%)	$5,891	$ 6,151	(4.2%)
Net loss	(397)	(722)	45.0%	(1,840)	(4,456)	58.7%
- per share basic & diluted	(0.01)	(0.02)		(0.05)	(0.12)
EBITDA ^(1)	$1,192	$1,016	17.3%	$2,034	$349	482.8%
EBITDA %	5.9%	4.9%		3.4%	0.6%
Total assets				$48,627	$59,706
Total long-term liabilities				6,943	5,380

(1) See "Non-GAAP Measures" section for further details.

HSE Integrated Ltd. ("HSE" or the "Corporation") announces its financial results for the three and nine month periods ended September 30, 2010. While revenue has declined slightly compared to the 2009 fiscal year, continued gains in operating margins have allowed HSE to report reduced losses and a strengthening balance sheet.

Revenue for the three months ended September 30, 2010 was $20.3 million, down 0.9% from $20.5 million for the third quarter in the prior year. Operating margin was $3.2 million (15.8% of revenue), up from $3.1 million (15.0% of revenue) last year. EBITDA for the period was $1.2 million (5.9% of revenue), up from $1.0 million (4.9% of revenue) a year ago. SG&A declined 2.2% to $2.0 million from $2.1 million a year ago. The Corporation reported a loss of $0.4 million ($0.01 per share), down from a loss of $0.7 million ($0.02 per share) for the third quarter of the 2009 fiscal year.

For the nine-month period ended September 30, 2010 the Corporation reported revenue of $59.6 million, 4.6% lower than the $62.5 million generated in the first three quarters of the 2009 fiscal year. However, operating margin increased 21.9% to $7.9 million (13.3% revenue) from $6.5 million (10.4% of revenue) last year. EBITDA rose by 482.8% to $2.0 million (3.4% of revenue) from $0.3 million (0.6% of revenue) in the first nine months of 2009. SG&A was reduced 4.2% to $5.9 million in 2010 compared to $6.2 million last year. The year-to-date loss declined from $4.5 million ($0.12 per share) in 2009 to $1.8 million ($0.05 per share) in 2010.

SG&A expenses for the nine-month period include $0.6 million related to the Corporation's transition to the International Financial Reporting Standards ("IFRS") with which HSE must comply beginning in the 2011 fiscal year. Contained in 2009 SG&A expenses is $0.5 million related to cost reduction initiatives undertaken by the Corporation in response to the global recession and commodity price collapse.

The higher operating margin was achieved because of rigorous cost controls and an increase in the amount of higher margin Oilfield activity in the business mix on a year-over-year basis. Oilfield health and safety services have a higher margin than Industrial because of a higher proportion of rental equipment as a percentage of revenue.

For the third quarter ended September 30, 2010, Oilfield health and safety services revenue increased 45.3% from $6.2 million in 2009 to $9.0 million in 2010. Oilfield was 44.1% of HSE's business in Q3 compared to only 30.0% last year. This was caused by an increase in drilling and well servicing activity created by stable oil prices and a resolution in May of issues related to Alberta's New Royalty Framework dating back to 2007. A sharp upturn in activity began in July and continued throughout the quarter, weather permitting.

For the nine-month period, Oilfield health and safety services comprised 40.9% of total revenue compared to 33.2% in 2009. Oilfield revenue rose to $24.4 million to September 30, 2010, up 17.5% from $20.7 million for the same period in the prior fiscal year.

Industrial health and safety services revenue declined 20.8% in Q3 to $11.4 million from $14.4 million in 2009 comprising 55.9% of business compared to 70.0% for last year. For the nine months ended September 30, there was a 15.6% revenue decline to $35.2 million from $41.8 million. As a percentage of total revenue, Industrial declined to 59.1% from 66.8%.

The overall revenue decline was caused primarily by intense pricing competition in the plant shutdown and turnaround market in western Canada that takes place primarily in the second and third quarters of the year. One new market development that HSE encountered in 2010 is facility operators manning the safety element of their shutdown and turnaround operations themselves as a cost-cutting measure. This results in total market shrinkage, not a loss of market share by HSE.

HSE's balance sheet remains strong. Working capital, excluding current portion of long-term debt at September 30, 2010 was $13.9 million compared to $14.1 million at June 30, 2010. Total long-term debt obligations were $5.6 million, down from $5.9 million at June 30, 2010. At the end of the reporting period the Corporation had cash and cash equivalents of $0.4 million and had no draw on its operating line of credit.

Subsequent Event

On November 9, 2010, subject to finalization of the trust indenture, the Corporation's Board of Directors approved the issue of up to $2.0 million in subordinated secured convertible debentures.  The debentures will have a coupon rate of 10%, a term of 3 years and are convertible into common shares of the Corporation at a conversion rate tied to the market price of the Corporation's shares.

Outlook

The overall outlook for HSE for the remainder of the 2010 fiscal year and into 2011 is generally positive, particularly when compared to the situation a year ago.  On the negative side, the global economy remains burdened by significant challenges including: a dependence upon government stimulus and rising public debt for economic growth; flat or falling housing prices; high levels of unemployment and personal debt; and restricted access to credit for all but the most credit-worthy borrowers. HSE's cost of capital on the equity side remains high with the Corporation's share value on the TSX trading at a fraction of book value and former levels. This depressed share price restrains the Corporation's expansion opportunities. Encouraging developments include stable or rising commodity prices (for virtually all commodities with the exception of natural gas) low interest rates, improving public capital markets, a resolution of Alberta's New Royalty Framework issue, and a gradual increase in non-consumer industrial activity. HSE's client base is heavily biased towards commodities and resources and essential industries such as food, heavy manufacturing (automobiles and trucks), and power generation. The Corporation has minimal exposure to luxury goods, residential housing, and other industries that rely heavily on the after-tax disposable income of the consumer. 

The quarter ended September 30, 2010 is the third consecutive reporting quarter in which the Corporation has reported improved EBITDA on a year-over-year basis. HSE believes this trend will continue for the remainder of 2010 and the 2011 fiscal year.

Industrial

In Q3 2010, Industrial health and safety revenues declined compared to the same period in 2009. This was not because of a reduction in demand for the services provided by HSE but, primarily, to intense pricing pressure from clients looking to increase their internal profit margins or reduce expenses by spending less on health and safety. In fact, because of increased regulatory requirements and expectations by shareholders and the public that companies do whatever is necessary to protect workers, assets and the community, total expenditures on the services HSE provides have grown in the past three decades. What HSE encountered in this reporting period was intense pricing pressure for safety services in the established western Canadian hydrocarbon processing industry. In other markets, major shutdown and turnaround projects do not happen every year. Thus far, the 2010 fiscal year has been one of lower activity in this area by HSE clients than in previous years.

Management believes the factors that caused Industrial health and safety revenues to decline in Q3 2010 are an anomaly that will ultimately be rectified by an improvement in the economy, client appreciation of quality services, and the more aggressive marketing campaign to new clients and industries that has been a key element of the 2010 strategic plan.  The oilsands and non-conventional bitumen thermal recovery market of northeast Alberta remains a stable market with a combination of growth opportunities and competitive challenges. New projects are going forward and will continue to do so for the foreseeable future. However, the growth and stability of this resource development project is attracting greater competition.

For the first time a major U.S. safety services provider has opened operations in Canada. This shows two trends that have never existed before; the growth of other health and safety consolidators like HSE (this one is based in Houston), and the recognition by larger international health and safety services providers of the potential of the Canadian market. While in the short term this appears to be a negative trend, in the long term the existence of more than one large, integrated, multi-service health and safety provider like HSE in the market will likely increase the market for outsource opportunities because the client will have a replacement option if service quality is not delivered by the current provider.

HSE opened a regional medical facility northeast of Fort McMurray adjacent to a large industrial housing complex in August of 2009.  This was a new business model offering pro-active health services (preventative and diagnostic services as opposed to services to treat existing injuries or ailments) and return-to-work services such as physiotherapy. This project has gone cashflow-positive and the opportunity to gain two further major supporting clients was established in the third quarter. This business model has the potential for expansion into other geographic areas.

Oilfield

Demand for services in this business area has generally been in decline since its peak in 2006. While the total number of wells drilled in the Western Canadian Sedimentary Basin ("WCSB") stayed reasonably stable in 2007 and 2008, high demand created the entry of new competitors and increased capacity. HSE's revenues from this sector peaked in 2006 and declined each year until the second quarter of the current fiscal year.  While this downturn across the WCSB was inevitable due to collapsed commodity prices and capital markets, demand in Alberta - HSE's largest market - was further impaired by royalty increases introduced by the Alberta government in the fall of 2007 (which have been reversed in May of 2010).

However, commencing in the second quarter of 2010 there has been the first measurable change in direction. According to the Canadian Association of Oilwell Drilling Contractors, for the period April 1 to June 30, 2010, there were 2,323 wells drilled in the WCSB, a 54.0% increase from 1,504 for the same period in 2009. For the period July 1 to August 31, 2010 (the latest period for which figures are available), total wells drilled was 1,292, a 21.0% increase over 1,068 in the prior year.

The trend towards higher levels of drilling activity is reinforced by well licensing activity. According to CIBC World Markets in a report dated October 26, 2010, total well licenses issued on a year-to-date basis was 41.0% higher than 2009 levels, 11,088 compared to 7,846 last year. There were 429 active drilling rigs in the WCSB on this day, substantially higher than the 255 rigs drilling on the same date in 2009.

Of particular interest to HSE shareholders is the switch to oil drilling as the preferred target and the related impact on the Corporation's opportunity to participate in this activity. As has been the trend since prices collapsed in 2008, there has been a switch to oil or natural gas liquids as the preferred target because of higher value. According to CAODC figures for July and August in Q3, 66.9% of the wells drilled targeted oil producing formations in 2010 compared to 43.2% in 2009. The total numbers of oilwells drilled was 864, almost double the 461 in the same period of 2009. Many of these wells are horizontals requiring multi-stage fracturing. Geologically they respond best to being stimulated with hydrocarbons or acid as opposed to water. This is causing increased demand for the Corporation's fire and shower units, a trend expected to continue for the foreseeable future.

On November 1 the Petroleum Services Association of Canada ("PSAC") released its forecast for the remainder of 2010 and the 2011 fiscal year. PSAC expects a total of 11,350 wells to be drilled this year. Of those put on production, 62% will be oilwells. This compares to 50% in 2009, 38% in  2008, 35% in 2007 and only 28% in 2006. Because of low gas prices the impact that shale gas is having on the entire North American natural gas industry, this trend towards oilwell drilling is likely to continue.

Land sales - the purchase of future drilling rights - are a strong positive indicator of sustained Oilfield health and safety activity. To September 30, 2010, Alberta alone had collected $1.9 billion from the sales of drilling rights, the highest in history for this period and exceeding the last record set in 2005. This is the first step in the full cycle hydrocarbon development process and historically has been a precursor of growing and sustained exploration and development spending.

The final signal of recovery is forward-looking client demand. Historically, in the fall of the year customers convey to their vendors their plans for the upcoming winter drilling season to confirm capacity and availability. The last time HSE's clients did this was the fall of 2007. In 2008 the global financial chaos was well underway in the fall, and in 2009 the signals of recovery and stability were still not yet firmly established. What is encouraging in the fall of 2010 is that clients are back to their normal activities of ensuring their suppliers like HSE have the equipment and manpower capacity to ensure their winter drilling programs are undertaken in an efficient manner. The indicated demand from HSE's client base for the remainder of 2010 and the first quarter of 2011 is positive.

Based on the foregoing, the Corporation expects Oilfield activity to continue to ramp up for the remainder of 2010 and continue into 2011. This is supported by the drilling forecasts at the PSAC 2011 forecast event held on November 1 in Calgary. For 2011 PSAC forecasts 12,250 wells drilled, an 8% increases from their 11,350 estimate for 2010; RBC Capital Markets predicted 12,000 wells for 2011, a 9% increase; and the Canadian Association of Petroleum Producers ("CAPP") forecast 11,150 wells, up from CAPP's internal estimate of 10,900 in 2010.

United States

HSE now reports segmented financial information for its U.S. operations which comprise - CRS Technologies Inc. ("CRU") which operates from Taylor, Michigan (a suburb of Detroit), and Boots & Coots HSE Services LLC ("BCHSE") which operates from a head office in Houston, Texas.

On a year-over-year basis, HSE's U.S. operations are significantly improved and continue to grow.  Revenue for the third quarter increased to $0.9 million from $0.5 million in 2009.  EBITDA increased to $0.3 million in the quarter from negative $0.2 million in 2009.  The Corporation anticipates this trend will continue for the remainder of 2010.

In the Industrial markets served from Michigan, marketing efforts with new clients in new areas are providing encouraging results. The BP Macondo blowout in the Gulf of Mexico earlier this year has renewed interest in the need for regulations and procedures that ensure drilling, completion and production operations are performed safely, both offshore and on land. There is growing concern about the safety of shale gas drilling both in the area of protection of the local communities on surface and the potential for subsurface contamination of groundwater through the hydraulic fracturing process. All of these developments tend to work in HSE's favor as an expert supplier of health and safety services.

On April 12, 2010 Boots & Coots, Inc. announced that it had entered into an agreement under which all of its shares would be acquired by Halliburton. This transaction was completed on September 17, 2010. This is resulting in some administrative changes as Boots & Coots moves over to the Halliburton systems. However, the partnership with Boots & Coots continues and the total impact of this transaction on HSE and BCHSE is not known at the time of this writing. What is occurring within BCHSE is increased marketing efforts of the combined safety solution, particularly in the Marcellus Shale region of Pennsylvania, to respond to safety concerns expressed by the public and governments.

David Yager, Chairman, President and CEO, had the following comments on the Corporation's financial performance.

"The third quarter ended September 30 was the third consecutive quarter of year-over-year financial performance improvement compared to 2009. While challenges remain in some markets as evidenced by the revenue decline in Industrial health and safety services, the 45.3% increase in Oilfield business in Q3 is the first major improvement in this important component of HSE's revenue mix since 2006.

We don't regard the downturn in Industrial revenue as permanent because of the opportunity to grow this business in other markets and industries and our belief that clients aren't likely to take this service in-house on a permanent basis as they have done recently. Competitors providing services at or below true cost won't survive. HSE continues to pursue new clients in new markets.

Until recently, the multi-year decline in Oilfield health and safety revenues was beginning to look permanent because of continuing depressed natural gas prices and greatly reduced drilling. However, HSE is participating in the upsurge of oil drilling in western Canada resulting in increased utilization of our higher margin fire and shower services fleet. Based on customer demand, all indications are that this trend will continue into 2011. The Corporation believes it is still on a trajectory to recover to pre-recession revenue, margin and profit levels".

Non-GAAP Measures

This report makes reference to EBITDA, a measure that is not recognized under generally accepted accounting principles. Management believes that, in addition to net earnings, EBITDA is a useful supplementary measure. EBITDA provides investors with an indication of earnings before provisions for interest, taxes, amortization, foreign exchange gains or losses, gains or losses on the disposal of property and equipment and the non-cash effect of stock-based compensation expense. Investors should be cautioned that EBITDA should not be construed as an alternative to net earnings determined by GAAP as an indication of the Corporation's performance. HSE's method of calculating EBITDA may differ from that of other companies and, accordingly, may not be comparable to measures used by other companies.

Forward-Looking Information

This news release contains forward-looking information and statements (collectively "forward-looking statements") within the meaning of applicable securities laws. These forward-looking statements concern, among other things, the Corporation's prospects, expected revenues, expenses, profits, financial position, strategic direction and growth initiatives, all of which involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this news release, such forward-looking statements contain such words as expect, anticipate, estimate, believe, may, will, would, could, might, intend, plan, continue, ongoing, project, objective, should and other similar terms and phrases. This forward-looking information reflects the Corporation's current expectations regarding future events and operating performance based on assumptions and analyses made by the Corporation based on its experience and an assessment of current conditions, known trends, expected future developments and other factors which management believe to be appropriate under the circumstances.

The forward-looking statements contained in this news release reflect several material factors, expectations and assumptions including, without limitation: economic conditions within Canada and the United States, both in general and within specific industries; demand for the Corporation's services by customers in various industries and geographic locations; pricing levels for the Corporation's services; commodity prices; foreign currency exchange rates; interest rates; access to financing; the Corporation's future operating results and financial condition; and competition within particular markets or for particular services.

Forward-looking statements involve significant risks and uncertainties and should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements including, but not limited to, the factors discussed above and other risk factors discussed herein and listed from time to time in the Corporation's reports and public disclosure documents including its annual report, annual information form and other filings with securities commissions in Canada as reported under the Corporation's profile at www.sedar.com.

The Corporation cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking statements contained in this news release speak only as of the date of this news release, and the Corporation assumes no obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.

Q3 Conference Call

On November 10, 2010, David Yager, CEO and Lori McLeod-Hill, CFO will be hosting a conference call.  Details follow:

Conference Call Time and Date:  Wednesday, November 10, 2010 11:00 AM ET (9:00 AM MT)

Dial-in Number:  1-647-427-7450 (Toronto area) or 1-888-231-8191

Conference Replay to December 8, 2010: 1-416-849-0833 or 1-800-642-1687 (Passcode: 22624637)

Webcast: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3297580

Financial Results

The following selected financial information summarizes HSE's results for the three and nine months ended September 30, 2010.  HSE's quarterly report is available at www.hseintegrated.com or www.sedar.com.

Consolidated Balance Sheets

(stated in thousands of dollars) (unaudited)
			September 30, 2010			December 31, 2009
ASSETS
Current
	Cash and cash equivalents	$	416		$	460
	Accounts receivable		16,597			16,156
	Inventory		222			199
	Prepaid expenses and other assets		2,042			1,654
	Income taxes recoverable		699			398
			19,976			18,867
Property and equipment			25,787			28,595
Intangible assets			2,864			3,260
		$	48,627		$	50,722
LIABILITIES
Current
	Accounts payable and accrued liabilities	$	5,840		$	4,667
	Income taxes payable		187			72
	Current portion of obligation under capital leases		143			233
	Current portion of long-term debt		2,114			5,222
	Current portion of deferred gain		137			137
			8,421			10,331
Deferred gain			216			319
Obligations under capital leases			23			122
Long-term debt			3,291			818
Future income taxes			3,434			4,170
			15,385			15,760
SHAREHOLDERS' EQUITY
	Share capital		60,040			60,040
	Contributed surplus		4,901			4,755
	Deficit		(31,610)			(29,770)
	Accumulated other comprehensive income (loss)		(89)			(63)
			33,242			34,962
		$	48,627		$	50,722

Consolidated Statements of Loss

(stated in thousands of dollars) (unaudited)			Three months ended September 30			Nine months ended September 30
			2010	2009		2010	2009
REVENUE		$	20,349	20,544	$	59,606	62,511
COSTS
	Operating and materials		17,130	17,456		51,681	56,011
	Selling, general and administrative		2,027	2,072		5,891	6,151
	Amortization of property and equipment		1,227	1,519		3,929	4,684
	Amortization of intangible assets		132	131		396	397
	Stock-based compensation		26	101		154	250
	Interest on long-term debt		64	121		249	355
	Other interest and bank charges		10	19		84	54
	Foreign exchange (gain) loss		2	(3)		(4)	8
	(Gain) loss on disposal of property and equipment		213	35		(392)	254
			20,831	21,451		61,988	68,164
LOSS BEFORE INCOME TAX			(482)	(907)		(2,382)	(5,653)
Income taxes
	Current expense		502	-		187	-
	Future reduction		(587)	(185)		(729)	(1,197)
			(85)	(185)		(542)	(1,197)
NET LOSS		$	(397)	(722)	$	(1,840)	(4,456)
Loss per share
	Basic and diluted	$	(0.01)	(0.02)	$	(0.05)	(0.12)
Weighted average shares outstanding
	Basic and diluted		37,576	37,576		37,576	37,576

Consolidated Statements of Cash Flows

(stated in thousands of dollars) (unaudited)						Three months ended September 30			Nine months ended September 30
						2010	2009		2010	2009
Cash provided by Operations
			Net loss		$	(397)	(722)	$	(1,840)	(4,456)
			Charges to income not involving cash:
				Amortization		1,359	1,650		4,325	5,081
				Stock-based compensation		26	101		154	250
				Future income tax reduction		(587)	(185)		(729)	(1,197)
				(Gain) loss on disposal of property and equipment		213	35		(392)	254
				Change in non-cash working capital		(313)	(1,215)		127	5,662
Cash provided by (used in) operations						301	(336)		1,645	5,594
Financing
			Repayment of obligations under capital leases			(46)	(206)		(189)	(875)
			Non-revolving term loan facility			-	-		5,000	-
			Repayment of long-term debt			(326)	2		(5,659)	(102)
			Amortization of deferred financing fees			5	-		24	-
Cash used in financing activities						(367)	(204)		(824)	(977)
Investing
			Purchase of property and equipment			(422)	(483)		(1,459)	(1,384)
			Proceeds from disposal of property and equipment			24	88		598	609
Cash used in investing activities						(398)	(395)		(861)	(775)
Cash flow from operating, financing and investing activities						(464)	(935)		(40)	3,842
Effect of exchange rate on foreign currency held						(3)	(6)		(4)	26
Net change in cash and cash equivalents						(467)	(941)		(44)	3,868
Cash and cash equivalents, beginning of period						883	5,923		460	1,114
Cash and cash equivalents, end of period					$	416	4,982	$	416	4,982

About HSE

HSE is an integrated, national supplier of industrial Health, Safety and Environmental services. From its head office in Calgary, Alberta, it serves its clients from field service locations in Alberta, British Columbia, Saskatchewan, Ontario, Nova Scotia, New Brunswick, Newfoundland-Labrador and Michigan. HSE also operates in Texas through a jointly owned company called Boots & Coots HSE Services LLC. HSE trades on the TSX under the symbol "HSL".

For further information:

HSE Integrated Ltd.
David Yager, Chairman, President & CEO 
Telephone: [phone]
E-Mail: [email protected]

Lori McLeod-Hill, Chief Financial Officer
Telephone: [phone]
E-Mail: [email protected]