Horizon North Logistics Inc. Announces Record Results For the Quarter Ended December 31, 2011
TSX Symbol: HNL
CALGARY, Feb. 22, 2012 /CNW/ - Horizon North Logistics Inc. ("Horizon" or the "Corporation") reported its financial and operating results for the three months ended December 31, 2011 and 2010.
Fourth Quarter Highlights
- Consolidated revenues and EBITDAS increased significantly as compared to the same period of 2010. Revenue increased by 30% and EBITDAS increased by 56% over the comparative period;
- EBITDAS, as a percentage of revenue, grew to 26%, an increase of 4% over the comparative period resulting in another record performance for Horizon. The increase came from the Camps & Catering segment;
- Camps & Catering segment revenue increased by 33% as compared to the same period of 2010, a result of higher volumes in the camp rental and catering and the service operations. These higher levels of activity drove EBITDAS to increase by 59% as compared to the same period of 2010; and
- Matting segment revenue increased by 50% as compared to the same period of 2010. The increase was from both mat rentals and mat sales. These activity levels resulted in increased EBITDAS of 69% as compared to the same period of 2010.
Fourth Quarter Financial Summary
| Three months ended December 31 | |||||
| (000's except per share amounts) | 2011 | 2010 | % Change | ||
| Revenue | $ 110,929 | $ 85,020 | 30% | ||
| EBITDAS(1) | 29,369 | 18,881 | 56% | ||
| EBITDAS as a % of revenue | 26% | 22% | |||
| Operating earnings before impairment loss | 19,936 | 12,123 | 64% | ||
| Impairment loss | 8,071 | - | - | ||
| Operating earnings | 11,865 | 12,123 | (2%) | ||
| Total profit before impairment loss | $ 16,680 | $ 8,151 | 105% | ||
| Total profit after impairment loss | 8,609 | 8,151 | 6% | ||
| Total comprehensive income | 8,537 | 8,151 | 5% | ||
| Earnings per share before impairment loss | - basic | $ 0.16 | $ 0.08 | 63% | |
|
|
- diluted | 0.15 | 0.08 | 63% | |
| Earnings per share after impairment loss | - basic | 0.08 | 0.08 | (26%) | |
|
|
- diluted | 0.08 | 0.08 | 63% | |
| Total assets | $ 357,137 | $ 277,837 | 29% | ||
| Long-term loans and borrowings | 55,234 | 30,363 | 82% | ||
| Funds from operations(1) | 17,202 | 13,903 | 24% | ||
| Capital spending | 21,926 | 1,261 | 1,639% | ||
| Debt to total capitalization ratio(1) | 0.21 | 0.19 | |||
(1) See financial measures definitions on the last page of the press release for details.
Overview
Fourth quarter revenue and EBITDAS was a record for Horizon. There was significant growth in the camp and catering operations, exiting the year with 6,200 rentable beds, an increase of 1,900 rentable beds during the year with the majority of those deployed in the Fort McMurray oil sands region of Alberta. Horizon's manufacturing facilities were highly utilized during the quarter, with continued execution of several large, oil sands based projects. Demand continues to be strong, especially from oil sands operators looking for beds to support their capital expansion plans, leading to consistency and repeatability with respect to camp manufacturing projects.
Horizon's matting division had its most successful quarter to date, with record mat sales figures and strong and continuing demand for rental matting as well as the ancillary services that support both sales and rental operations.
This operational success translated into record financial results for Horizon, with quarter over quarter growth in all significant financial measures. In addition, increased scale and improving operational efficiencies have translated to improved profitability.
Impairment
During the quarter ended December 31, 2011, the Corporation undertook its impairment review process. As part of this review, impairment indicators were noted relating to certain assets in the Corporation's Camps & Catering segment, and for certain equity accounted for investments. The majority of these assets were acquired upon the formation of Horizon in 2006 and are related to operations in the north.
Three camp facilities located in the MacKenzie Delta region of the Northwest Territories and the equity investments had indicators of impairment as a result of generally slow business activity in Canada's Northern regions driven mainly by sustained low natural gas prices. An impairment of $6.0 million was recognized for the camp facilities and an impairment of $1.7 million recognized for the equity investments.
Certain intangible assets representing design and engineering costs related to the Corporation's blast resistant structures business were tested for impairment. Indicators of impairment were noted as a result of changes in the Corporation's view with respect to future growth prospects of this business, and a lack of sustainability of cash flows from existing assets. As a result an impairment loss of $0.4 million was recognized in the quarter.
Outlook
Horizon continues to see significant opportunities for growth and expansion over the next few years. Horizon's activities and revenue streams are highly leveraged to energy and resource development activities, with 60% of 2011 revenues generated from customers involved in oil sands projects in Alberta.
Oil sands development activities are expected to remain strong over the next few years, which in turn which will serve as the main driver for Horizon's expansion plans with the majority of our capital spending allocated to support oil sands development projects. Oil sands development also faces challenges over the next few years, being able to attract the required human resources for projects, and further in the future, having sufficient out loading capacity may impact the rate of development. Industry recognizes these issues and is currently working to address them.
Capital spending for 2012 is anticipated to be $100 million, with the primary focus on adding 1,500 beds to the camp and catering operation throughout the year primarily in the oil sands region of Alberta. Sustained and increasing activity levels should allow Horizon to fund the capital program primarily through operating cash flows while maintaining a strong and conservative statement of financial position.
Dividend Payment
Horizon announced today that its Board of Directors has declared a dividend for the first quarter of 2012 at $0.05 per share. The dividend is payable to shareholders of record at the close of business on March 31, 2012 to be paid on April 13, 2012. The dividends are eligible dividends for Canadian tax purposes.
Fourth Quarter Financial Results
| Three months ended December 31, 2011 | |||||||
| (000's) |
Camps & Catering |
Matting |
Marine Services |
Corporate |
Inter-segment Eliminations |
Total |
|
| Revenue | $ 93,936 | $ 20,797 | $ 740 | $ - | $ (4,544) | $ 110,929 | |
| Expenses | |||||||
| Direct costs | 66,284 | 15,970 | 464 | 1 | (4,595) | 78,124 | |
| Selling & administrative | 960 | 146 | - | 2,330 | - | 3,436 | |
| EBITDAS | 26,692 | 4,681 | 276 | (2,331) | 51 | 29,369 | |
| Share based payments | 78 | 16 | 1 | 51 | - | 146 | |
| Depreciation & amortization | 5,889 | 1,863 | 110 | 85 | (24) | 7,923 | |
| Impairment loss | 8,071 | - | - | - | - | 8,071 | |
| Loss on disposal of property, plant and equipment | 1,364 | - | - | - | - | 1,364 | |
| Operating earnings (loss) | $ 11,290 | $ 2,802 | $ 165 | $ (2,467) | $ 75 | $ 11,865 | |
| Finance costs | 637 | ||||||
| Gain on equity investments | (12) | ||||||
| Income tax expense | 2,631 | ||||||
| Other comprehensive loss | 72 | ||||||
| Total comprehensive income | $ 8,537 | ||||||
| Earnings per share before impairment loss | - basic | $ 0.16 | |||||
|
|
- diluted | $ 0.15 | |||||
| Earnings per share after impairment loss | - basic | $ 0.08 | |||||
|
|
- diluted | $ 0.08 | |||||
| Three months ended December 31, 2010 | ||||||
| (000's) |
Camps & Catering |
Matting |
Marine Services |
Corporate |
Inter-segment Eliminations |
Total |
| Revenue | $ 70,697 | $ 13,891 | $ 1,135 | $ - | $ (703) | $ 85,020 |
| Expenses | ||||||
| Direct costs | 53,270 | 9,962 | 689 | 3 | (702) | 63,222 |
| Selling & administrative | 680 | 130 | - | 2,107 | - | 2,917 |
| EBITDAS | 16,747 | 3,799 | 446 | (2,110) | (1) | 18,881 |
| Share based payments | 138 | 23 | 3 | 97 | - | 261 |
| Depreciation & amortization | 4,721 | 1,431 | 298 | 32 | (21) | 6,461 |
| Loss on disposal of property, plant and equipment | 33 | 3 | - | - | - | 36 |
| Operating earnings (loss) | $ 11,855 | $ 2,342 | $ 145 | $ (2,239) | $ 20 | $ 12,123 |
| Finance costs | 617 | |||||
| Loss on equity investments | 8 | |||||
| Income tax expense | 3,347 | |||||
| Total comprehensive income | $ 8,151 | |||||
| Earnings per share - basic & diluted | $ 0.08 | |||||
All 2010 figures have been restated in accordance with International Financial Reporting Standards.
Camps & Catering
Camps & Catering revenue is comprised of camp rental and catering revenue, camp and space unit sales, space rental revenue and service revenue from transportation and installation.
| Three months ended December 31 | |||
| (000's except bed rental days and catering only days) | 2011 | 2010 | % change |
| Camp rental and catering revenue | $ 48,315 | $ 33,115 | 46% |
| Camp and space unit sales revenue | 24,830 | 23,265 | 7% |
| Space rental revenues | 1,374 | 956 | 44% |
| Service revenue | 19,417 | 13,361 | 45% |
| Total revenue | $ 93,936 | $ 70,697 | 33% |
| EBITDAS | $ 26,692 | $ 16,747 | 59% |
| Operating earnings | $ 11,290 | $ 11,855 | (5%) |
| Bed rental days(1) | 220,678 | 145,119 | 52% |
| Catering only days(2) | 78,958 | 59,233 | 33% |
(1) One bed rental day equals the rental of one bed and the provision of related catering and housekeeping services for one day.
(2) One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.
The three months ended December 31, 2011 had continued strong performance as compared to the same period of 2010. Revenue and EBITDAS growth in the comparative periods were a result of the ongoing robust investment in oil sands expansion and development projects and strong market conditions. Horizon's revenues are closely tied to oil sands activity levels and this is reflected in both bed rental volumes and in the service volumes. The majority of Horizon's capital investment in 2010 and 2011 was directed towards meeting the oil sands demand by increasing the rentable beds to 4,850 at December 31, 2011 compared to 3,060 in the same period of 2010. For the three months ended December 31, 2011, 63% of the Camps & Catering segment's revenues were derived from oil sands related activity as compared to 61% in the same period of 2010.
Revenues from the Camps & Catering segment were $93.9 million for the three months ended December 31, 2011 compared to $70.7 million for the three months ended December 31, 2010, an increase of $23.2 million or 33%. EBITDAS from operations for the three months ended December 31, 2011 were $26.7 million or 28% of revenue compared to $16.7 million or 24% of revenue for the three months ended December 31, 2010, an increase of $10.0 million or 59%.
Camp rental and catering revenue
Revenues from camp rental and catering operations were $48.3 million for the three months ended December 31, 2011 compared to $33.1 million for the three months ended December 31, 2010, an increase of $15.2 million or 46%. Revenues are derived from the following main business areas: large camp operations, drill camp operations, catering only operations, and ancillary equipment rentals. The table below outlines the key performance metrics used by management to measure performance in the large camp and drill camp operations.
| Three months ended December 31 | ||||||||
| (000's for revenue only) | 2011 | 2010 | ||||||
| Large camp |
Drill camp |
Total | Large camp |
Drill camp |
Total | |||
| Revenue | $36,209 | $3,389 | $39,598 | $22,737 | $1,277 | $24,014 | ||
| Bed rental days | 200,421 | 20,257 | 220,678 | 136,883 | 8,236 | 145,119 | ||
| Revenue per bed rental day | $181 | $167 | $179 | $166 | $155 | $165 | ||
| Number of rentable beds at period end | 4,850 | 950 | 5,800 | 3,060 | 1000 | 4,060 | ||
| Average rentable beds available(1) | 4,506 | 950 | 5,456 | 2,741 | 1,000 | 3,741 | ||
| Utilization(2) | 48% | 23% | 44% | 54% | 9% | 42% | ||
(1) Average rentable beds available beds is equal to total average beds in the fleet over the period less beds required for staff.
(2) Utilization equals the total number of bed rental days divided by average rentable beds available s times days in the quarter.
Revenues from large camp operations for the three months ended December 31, 2011 increased by $13.5 million or 59% as compared to the same period in 2010. The growth of revenues from large camps over the comparative period are a result of the continued strong industry conditions and high activity levels in the oil sands and oil and gas sectors which drove both high volumes and stronger revenue per bed rental day. The higher demand from oil sands operators is reflected in 200,421 bed rental days for the quarter ended December 31, 2011 as compared to 136,883 in the same period in 2010, an increase of 63,358 or 46%. In the fourth quarter of 2011 approximately 730 new beds were deployed over various projects which ramped up operations throughout the quarter. Timing of the bed deployment in the fourth quarter of 2011 meant the utilization temporarily dipped to 48% as compared to 54% in the same period of 2010. Utilization in the first quarter of 2012 is expected to improve as the camps achieve steady state operations. Rentable beds at the end of the three months ended December 31, 2011 were 4,850 as compared to 3,060 for the same period in 2010, reflecting the ongoing investment in the rental fleet. The higher demand and current strong market conditions helped revenue per bed rental day increased by $15.
Revenues from drill camp operations for the three months ended December 31, 2011 increased by $2.1 million or 165% as compared to the same period of 2010. These revenues are driven mainly from the level of drilling activity in Western Canada which has increased significantly in the three months ended December 31, 2011 as compared to the same period of 2010. The Canadian Association of Oilwell Drilling Contractors (CAODC) reported average rig utilization in Western Canada for the three months ended December 31, 2011 at 60% as compared to 50% in the same period of 2010. The 10% increase is reflected in higher volumes and stronger utilization for the three months ended December 31, 2011 as compared to the same period of 2010. In addition to the higher volumes, revenue per bed rental day increased by $12 per day. The increase in rate is due to strong current market conditions and additional equipment and services requested by the customer once the camp is operational.
The tables below outline the key performance metrics used by management to measure performance in the catering only and equipment rental operations.
| Three months ended December 31 | ||
| (000's for revenue only) | 2011 | 2010 |
| Catering only revenue | $ 7,400 | $ 7,289 |
| Catering only days(1) | 78,958 | 59,233 |
| Revenue per catering only day | $94 | $123 |
(1) One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.
| Three months ended December 31 | ||
| (000's) | 2011 | 2010 |
| Equipment rental | $ 1,317 | $ 1,812 |
Revenues from the provision of catering and housekeeping only services, with no associated bed rentals, remained relatively consistent in the comparative years. The revenue per catering day is a combination of the catering rate and add on services and in the fourth quarter of 2010 the rate included a significant amount of add on services, such as on site equipment maintenance personnel and material handling and shipping, which did not occur in 2011.
Camp and space unit sales revenue
Camp and space unit sales revenues for the three months ended December 31, 2011 were $24.8 million as compared to $23.3 million for the same period in 2010, an increase of $1.5 million or 7%. Production remained relatively consistent relating to the same large camp construction project in both quarters. The allocation of production capacity between external sales and internal fleet requirements were 60% external and 40% internal in the fourth quarter of 2011. The allocation of production capacity is reviewed by management on an ongoing basis.
Space rental revenues
Space rental revenues for the three months ended December 31, 2011 were $1.4 million as compared to $1.0 million for the same period in 2010, an increase of $0.4 million or 44%. The increase came from slightly higher volumes with fleet utilization for the three months ended December 31, 2011 at 87% compared to 81% for the same period in 2010.
Service revenue
Revenues from camp mobilization, demobilization, transportation and installation for the three months ended December 31, 2011 were $19.4 million as compared to $13.4 million in the same period of 2010, an increase of $6.0 million or 45%. Of these revenues 67% are driven from the camp and space sales with the remaining 33% from the camp rental and catering operations. The increase in revenues are driven by higher activity levels in both the sales and rental business. The higher revenue for the three months ended December 31, 2011 is mainly attributable to an increased level of installation activity for a large manufacturing project in the Fort McMurray, Alberta area. During the same period of 2010, the installation work on this project had only just been initiated. The three months ended December 31, 2011 had several additional camp installation projects as compared to the same period of 2010.
Direct costs
Direct costs for the three months ended December 31, 2011 were $66.3 million or 71% of revenue as compared to $53.3 million or 75% of revenue for the same period of 2010. Direct costs are closely related to business volumes. The increase in overall direct costs are primarily a result of the higher activity levels in the comparative periods. Direct material costs remained relatively stable with direct labour costs increasing in the three months ended December 31, 2011 as compared to the same period of 2010. As a percentage of revenue, direct costs declined by 4% compared to the same period of 2010. The 4% decrease was mainly attributable stronger pricing, a result of strong market conditions in the oil sands and the oil and gas sectors.
Matting
Matting revenue is comprised of mat rental revenue, mat sales revenue, installation, transportation, service, and other revenue as follows:
| Three months ended December 31 | |||
| (000's except mat rental days and numbers of mats) | 2011 | 2010 | % change |
| Access mat rental revenue(1) | $ 1,842 | $ 1,248 | 48% |
| Other mat and rental equipment revenue(2) | 465 | 282 | 65% |
| Total mat and equipment rental revenue | $ 2,307 | $ 1,530 | 51% |
| Mat sales revenue | 10,694 | 7,241 | 48% |
| Installation, transportation, service, and other revenue | 7,796 | 5,120 | 52% |
| Total revenue | $ 20,797 | $ 13,891 | 50% |
| EBITDAS | $ 4,681 | $ 3,799 | 23% |
| Operating earnings | $ 2,802 | $ 2,342 | 20% |
| Access mat rental days(3) | 619,727 | 520,090 | 19% |
| Average access mats in rental fleet | 9,860 | 11,735 | (19%) |
| Access mats in rental fleet at quarter end | 9,789 | 8,902 | 10% |
| Mat sold: | |||
| New mats | 13,557 | 6,874 | 97% |
| Used Mats | 437 | 5,256 | (92%) |
| Total mats sold | 13,994 | 12,130 | 15% |
(1) Access mat rental revenue includes revenues generated from the rental of traditional oak and oak edged mats.
(2) Other mat rental equipment revenue includes the rental of quad mats, rig mats other ancillary equipment such as well site accommodation units, garbage receptacles and light towers.
(3) One mat rental day equals the rental of one access mat for one day.
Revenues from the Matting segment for the three months ended December 31, 2011 were $20.8 million as compared to $13.9 million for the same period of 2010, an increase of $6.9 million or 50%. EBITDAS for the three months ended December 31, 2011 were $4.7 million or 23% of revenue as compared to $3.8 million or 27% of revenue for the same period of 2010, an increase of $0.9 million or 23%.
Mat and equipment rental revenue
Total mat and equipment rental revenues for the three months ended December 31, 2011 was $2.3 million as compared to $1.5 million for the same period of 2010, an increase of $0.8 million or 51%. The growth in rental revenue was mainly driven by the increase in mat rental days and higher revenues per mat rental day. In the three months ended December 31, 2011 continued warm weather in the Fort McMurray, Alberta area caused operators to rent additional mats in order to continue operating in the soft ground conditions. As a result, mat rental days increased by 99,637 or 19% in the three months ended December 31, 2011 as compared to the same period in 2010. Stronger market conditions also helped boost access mat rental rates with revenue per rental day of $2.97 in the three months ended December 31, 2011 as compared to $2.40 in the same period 2010. The average rental mat fleet decreased by 1,875 mats for the three months ended December 31, 2011 as compared to the same period of 2010. Mat production, sales and the rental fleet size are continually reviewed by management to ensure an appropriate balance is maintained in order to meet market conditions and management has taken a measured approach to replenishing the rental fleet in 2011.
In addition to the stronger rates, the introduction of other rental equipment such as light towers and well site offices helped to boost other mat and equipment rental revenue.
Mat sales revenue
Revenues from mat sales for the three months ended December 31, 2011 were higher by $3.5 million or 48% as compared the same period of 2010. The majority of the increase came from new mat sales where customers purchased them for large longer duration multi well drilling projects. Revenue per mat sold during the fourth quarter of 2011 was $764, up from $597 in the same period of 2010. The higher revenue per mat is reflective of the mix of new and used mats sold, as new mats have a higher selling price than used mats.
Installation, transportation, service, and other revenue
Installation, transportation, service, and other revenues are driven primarily from the level of activity in the mat rental and mat sale businesses and are charged for separately from rentals and sales. Revenues for the three months ended December 31, 2011 were higher by $2.7 million or 52% as compared to the same period in 2010. The increase is reflective of the higher volume of rentals and mat sales.
Direct costs
Direct costs for the three months ended December 31, 2011 were $16.0 million or 77% of revenue as compared to $10.0 million or 72% of revenue for the same period of 2010. Direct costs are driven by the level of business activity, with the significant increase in revenue, as compared to the same period of 2010, direct costs have increased accordingly. Direct costs as a percentage of revenue increased by 5% for the three months ended December 31, 2011 as compared the same period of 2010. This increase of direct cost, as a percentage of revenue, is mainly driven from the mix of the revenue as compared to the same period of 2010. A significantly higher proportion of revenue was generated from mat sales which have higher costs than rentals.
Marine Services
Marine Services revenue is comprised of barge camp revenue and rental and other revenue as follows:
| Three months ended December 31 | |||
| (000's) | 2011 | 2010 | % change |
| Barge camp revenue | $ 730 | $ 839 | (13%) |
| Rental and other revenue | 10 | 296 | (97%) |
| Total revenue | $ 740 | $ 1,135 | (35%) |
| EBITDAS | $ 276 | $ 446 | (38%) |
| Operating earnings | $ 165 | $ 145 | 14% |
Revenues from the Marine Services segment for the three months ended December 31, 2011 were $0.7 million as compared to $1.1 million in the same period of 2010, a decrease of $0.4 million or 35%. The decrease was primarily due to lower levels of activity in the three months ended December 31, 2011 as compared to the same period of 2010
EBITDAS for the three months ended December 31, 2011 was $0.3 million or 37% of revenue as compared to $0.4 million or 39% of revenue for the same period of 2010. The decrease in EBITDAS was due to the overall lower activity.
Corporate
Corporate costs are the costs of the head office which include the President and Chief Executive Officer, Chief Financial Officer, Vice President of Health, Safety, and Environment, Vice President of Aboriginal Relations, Corporate Secretary, corporate accounting staff, and associated costs of supporting a public company. Corporate costs for the three months ended December 31, 2011 were $2.3 million as compared to $2.1 million in the same period in 2010. This increase of $0.2 million reflects the increased cost to support the higher level of business activity. Corporate costs, as a percentage of total revenue, remained consistent for the comparative periods at 2.0%.
Other Items
Impairment
During the quarter ended December 31, 2011, the Corporation undertook its impairment review process. As part of this review, impairment indicators were noted relating to certain assets in the Corporation's Camps & Catering segment, and for certain equity accounted for investments. The majority of these assets were acquired upon the formation of Horizon in 2006 and are related to operations in the north.
Three camp facilities located in the MacKenzie Delta region of the Northwest Territories and the equity investments had indicators of impairment as a result of generally slow business activity in Canada's Northern regions driven mainly by sustained low natural gas prices. An impairment of $6.0 million was recognized for the camp facilities and an impairment of $1.7 million recognized for the equity investments.
Certain intangible assets representing design and engineering costs related to the Corporation's blast resistant structures business were tested for impairment. Indicators of impairment were noted as a result of changes in the Corporation's view with respect to future growth prospects of this business, and a lack of sustainability of cash flows from existing assets. As a result an impairment loss of $0.4 million was recognized in the quarter.
Depreciation and amortization
Depreciation and amortization costs for the year ended December 31, 2011 were $29.7 million as compared to $25.2 million in the same period of 2010. The increase was mainly from depreciation which increased from $16.6 million to $21.4 million or 29% as a result of net additions of $91.4 million in depreciable assets during the year. Amortization of intangibles remained relatively unchanged year over year at $8.3 million in 2011 compared to $8.5 million in 2010.
Financing costs
Financing costs on loans and borrowings for the year ended December 31, 2011 were $2.5 million as compared to $1.9 million in the same period of 2010. The increase of $0.6 million was a result of a higher weighted average debt held and an increase in accretion of notes payable. For the year ended December 31, 2011 the weighted average debt was $39.3 million compared to $32.8 million in the same period of 2010.
Income taxes
Income tax expense was $15.4 million, an effective tax rate of 26%, for the year ended December 31, 2011 as compared to a tax expense of $7.3 million, an effective rate of 31% for the same period of 2010. The effective tax rate decreased due to a 1.5% decrease in federal tax rates from 2010 to 2011 as well as the change in estimated timing of realization of temporary differences.
Selling and administrative
Selling and administrative expense was $14.5 million for the year ended December 31, 2011 as compared to $11.3 million in the same period of 2010. The increase is reflective of the higher levels of business activity in 2011 as compared to 2010. However, as a percentage of revenue selling and administrative expense declined to 3.6% of revenue in 2011 as compared to 4.7% in 2010.
Share repurchase
The Corporation was granted approval from the Toronto Stock Exchange for a Normal Course Issuer Bid to repurchase up to a maximum of 6,985,634 common shares of the Corporation over the period from September 14, 2010 to September 13, 2011. No shares were repurchased during the time period provided under the program.
Capital reduction
At the May 5, 2011 Annual and Special Meeting of Shareholders, a reduction of capital was approved by way of a special resolution which eliminated the deficit of $78.0 million as at January 1, 2011 against share capital. Elimination of the deficit simplifies the Corporation's statement of financial position and provides a more representative view of the actual accumulated operating results, as the majority of the deficit had been attributable to the write-down of goodwill in the year ended December 31, 2008.
Consolidated statement of financial position
| (000's) |
December 31, 2011 |
December 31, 2010 |
January 1, 2010 |
| Assets | |||
| Current assets: | |||
| Cash and cash equivalents | $ - | $ - | $ 3,724 |
| Trade and other receivables | 83,484 | 52,003 | 26,614 |
| Inventories | 15,334 | 13,726 | 9,298 |
| Prepayments | 3,981 | 8,953 | 1,830 |
| Income taxes receivable | - | - | 990 |
| 102,799 | 74,682 | 42,456 | |
| Non-current assets: | |||
| Property, plant and equipment | 228,793 | 162,484 | 146,048 |
| Intangible assets | 18,232 | 26,892 | 35,320 |
| Goodwill | 2,136 | 2,136 | 2,136 |
| Investments in equity accounted investees | 529 | 2,251 | 2,463 |
| Deferred tax assets | 1,837 | 6,458 | 8,434 |
| Other assets | 2,811 | 2,934 | 3,061 |
| 254,338 | 203,155 | 197,462 | |
| $ 357,137 | $ 277,837 | $ 239,918 | |
| Liabilities and Shareholders' Equity | |||
| Current liabilities: | |||
| Bank indebtedness | $ - | $ 834 | $ - |
| Trade and other payables | 41,833 | 25,377 | 12,391 |
| Deferred revenue | 13,601 | 7,206 | 2,068 |
| Income taxes payable | 4,380 | 1,344 | - |
| Current portion of loans and borrowings | 1,281 | 11,773 | 8,839 |
| 61,095 | 46,534 | 23,298 | |
| Non-current liabilities: | |||
| Asset retirement provisions | 1,283 | 1,223 | 1,169 |
| Loans and borrowings | 55,234 | 30,363 | 35,863 |
| Deferred tax liabilities | 23,456 | 20,918 | 18,326 |
| 141,068 | 99,038 | 78,656 | |
| Shareholders' equity: | |||
| Share capital | 173,438 | 245,353 | 245,353 |
| Contributed surplus | 10,421 | 11,446 | 10,339 |
| Accumulated other comprehensive income | 158 | - | - |
| Retained earnings (Deficit) | 32,052 | (78,000) | (94,430) |
| 216,069 | 178,799 | 161,262 | |
| $ 357,137 | $ 277,837 | $ 239,918 |
Consolidated statement of comprehensive income
Twelve months ended December 31, 2011 and 2010
| (000's except per share amounts) |
December 31, 2011 |
December 31, 2010 |
| Revenue | $ 402,993 | $ 239,258 |
| Operating expenses: | ||
| Direct costs | 285,837 | 175,522 |
| Depreciation | 21,420 | 16,645 |
| Amortization of intangible assets | 163 | 479 |
| Share based compensation | 377 | 689 |
| Impairment loss | 8,071 | - |
| Loss on disposal of property, plant and equipment | 1,521 | 343 |
| Direct operating expenses | 317,389 | 193,678 |
| Gross profit | 85,604 | 45,580 |
| Selling & administrative expenses: | ||
| Selling & administrative expenses | 14,520 | 11,253 |
| Amortization of intangible assets | 8,140 | 8,054 |
| Share based compensation | 221 | 418 |
| Selling & administrative expenses | 22,881 | 19,725 |
| Operating earnings | 62,723 | 25,855 |
| Finance costs | 2,467 | 1,910 |
| Share of loss of equity accounted investees | 27 | 212 |
| Profit before tax | 60,229 | 23,733 |
| Current tax expense | 8,248 | 2,735 |
| Deferred tax expense | 7,159 | 4,568 |
| Income tax expense | 15,407 | 7,303 |
| Total profit | 44,822 | 16,430 |
| Other comprehensive income: | ||
| Translation of foreign operations gain | (158) | - |
| Other comprehensive income, net of income tax | (158) | - |
| Total comprehensive income | $ 44,980 | $ 16,430 |
| Earnings per share: | ||
| Basic | $ 0.42 | $ 0.16 |
| Diluted | $ 0.41 | $ 0.16 |
Consolidated statement of changes in equity
| (000's) | Share Capital |
Contributed Surplus |
Accumulated Other Comprehensive Income |
Retained Earnings (Deficit) |
Total |
| Balance at January 1, 2010 | $ 245,353 | $ 10,339 | $ - | $ (94,430) | $ 161,262 |
| Total profit | - | - | - | 16,430 | 16,430 |
| Share based compensation | - | 1,107 | - | - | 1,107 |
| Balance at December 31, 2010 | 245,353 | 11,446 | - | (78,000) | 178,799 |
| Reduction of capital | (78,000) | - | - | 78,000 | - |
| Total profit | - | - | - | 44,822 | 44,822 |
| Share based compensation | - | 598 | - | - | 598 |
| Share options exercised | 6,085 | (1,623) | - | - | 4,462 |
| Translation of foreign operations | - | - | 158 | - | 158 |
| Dividends paid ($0.04 per share) | (8,500) | (8,500) | |||
| Dividends declared ($0.04 per share) | - | - | - | (4,270) | (4,270) |
| Balance at December 31, 2011 | $ 173,438 | $ 10,421 | $ 158 | $ 32,052 | $ 216,069 |
Consolidated statement of cash flows
Twelve months ended December 31, 2011 and 2010
| December 31, | December 31, | |
| (000's) | 2011 | 2010 |
| Cash provided by (used in): | ||
| Operating activities: | ||
| Profit for the period | $ 44,822 | $ 16,430 |
| Adjustments for: | ||
| Depreciation | 21,420 | 16,645 |
| Amortization of intangible assets | 8,303 | 8,533 |
| Impairment loss | 8,071 | - |
| Share based compensation | 598 | 1,107 |
| Amortization of other assets | 123 | 127 |
| Loss on equity investments | 27 | 212 |
| Gain on sale of property, plant and equipment | (1,267) | (2,635) |
| Unrealized foreign exchange | 27 | - |
| Finance costs | 2,467 | 1,910 |
| Income tax expense | 15,407 | 7,303 |
| 99,998 | 49,632 | |
| Income taxes paid | (5,211) | (401) |
| Interest paid | (1,708) | (1,539) |
| Changes in non-cash working capital items | (9,583) | (18,819) |
| 83,496 | 28,873 | |
| Investing activities: | ||
| Purchase of property, plant and equipment | (101,034) | (41,561) |
| Purchase of intangibles | - | (105) |
| Proceeds on sale of property, plant and equipment | 8,683 | 11,115 |
| (92,351) | (30,551) | |
| Financing activities: | ||
| Proceeds from bank indebtedness | - | 834 |
| Shares issued on exercise of options | 4,462 | - |
| Proceeds from (repayment of) loans and borrowings | 12,893 | (2,880) |
| Payment of dividends | (8,500) | - |
| 8,855 | (2,046) | |
| Decrease in cash position | - | (3,724) |
| Cash, beginning of period | - | 3,724 |
| Cash, end of period | $ - | $ - |
Financial Measures Definitions
EBITDAS
EBITDAS (Earnings before interest, taxes, depreciation, amortization, impairment, gain/loss on equity investments, gain/loss on disposal of property, plant and equipment, and share based compensation) is not a recognized measure under IFRS. Management believes that in addition to total profit and total comprehensive income, EBITDAS is a useful supplemental measure as it provides an indication of the Corporation's ability to generate cash flow in order to fund working capital, service debt, pay current income taxes and fund capital programs, and it is regularly provided to and reviewed by the Chief Operating Decision Maker and operating earnings provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how those activities are financed or taxed. Horizon's method of calculating EBITDAS may differ from other entities and accordingly, may not be comparable to measures used by other entities. EBITDAS should not be construed as alternatives to total profit and comprehensive income determined in accordance with IFRS as an indicator of the Corporation's performance.
Funds from operations
Funds from operations is not a recognized measure under IFRS. Management believes that in addition to cash flow from operations, funds from operations is a useful supplemental measure as it provides an indication of the cash flow generated by the Corporation's principal business activities prior to consideration of changes in working capital. Investors should be cautioned, however, that funds from operations should not be construed as an alternative to cash flow from operations determined in accordance with IFRS as an indicator of the Corporation's performance. Horizon's method of calculating funds from operations may differ from other entities and accordingly, funds from operations may not be comparable to measures used by other entities. Funds from operations is equal to cash flow from operations before changes in non-cash working capital items related to operations, interest and income taxes paid, financing costs, and income tax expense.
Debt to total capitalization
Debt to total capitalization is calculated as the ratio of debt to total capitalization. Debt is defined as the sum of current and long-term portions of loans and borrowings. Total capitalization is calculated as the sum of debt and shareholders' equity.
Caution Regarding Forward-Looking Information and Statements
Certain statements contained in this Management Discussion and Analysis ("MD&A") constitute forward-looking statements or information. These statements relate to future events or future performance of Horizon. All statements other than statements of historical fact are forward-looking statements. The use of any of the words "anticipate", "plan" "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "should", "believe" and similar expressions are intended to identify forward-looking statements.
In particular, such forward looking statements include: under the heading "Outlook" the statements that "Horizon continues to see significant opportunities for growth and expansion over the next few years..", and "Oil sands development activities are expected to remain strong over the next few years, ".
The foregoing statements are based on the assumption that the Corporation's revenues will continue to be as strong as anticipated to justify such increased capital spending.
There are a number of risks which could impact these generally high levels of activity which could negatively impact the Corporation's business. As such, many factors could cause the performance or achievements of the Corporation to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.
Corporate Information
Additional information related to the Corporation, including the Corporation's annual information form, financial statements, and MD&A is available on SEDAR at www.sedar.com. Unless otherwise indicated, the consolidated financial statements have been prepared in accordance with IFRS and the reporting currency is in Canadian dollars.
Bob German, President and Chief Executive Officer, or Scott Matson, Vice President Finance and Chief Financial Officer, 1600, 505 - 3rd Street S.W., Calgary, Alberta T2P 3E6, Telephone: (403) 517-4654, Fax: (403) 517- 4678; website: www.horizonnorth.ca
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