Horizon North Logistics Inc. Announces Results for the Quarter and Year Ended December 31, 2013
CALGARY, Feb. 19, 2014 /CNW/ - TSX Symbol: HNL
Horizon North Logistics Inc. ("Horizon" or the "Corporation") reported its financial and operating results for the quarter and years ended December 31, 2013 and 2012.
| Annual Financial Summary | ||||||||||
| Years ended December 31 | ||||||||||
| (000's except per share amounts) | 2013 | % change | 2012 | % change | 2011 | |||||
| Revenue | $ | 554,387 | 5% | $ | 526,616 | 31% | $ | 402,993 | ||
| EBITDAS(1) | 126,334 | (13%) | 145,027 | 41% | 102,636 | |||||
| EBITDAS as a % of revenue | 23% | 28% | 25% | |||||||
| Operating earnings (1) | 63,291 | (38%) | 102,758 | 45% | 62,723 | |||||
| Operating earnings as a % of revenue | 11% | 20% | 16% | |||||||
| Total profit | 42,451 | (42%) | 72,883 | 63% | 44,822 | |||||
| Total comprehensive income | 42,637 | (42%) | 72,933 | 62% | 44,980 | |||||
| Earnings per share | - basic | $ | 0.39 | (42%) | $ | 0.67 | 60% | $ | 0.42 | |
| - diluted | |
0.38 | (42%) | 0.66 | 61% | 0.41 | ||||
| Total assets | $ | 471,115 | (5%) | $ | 495,993 | 39% | $ | 357,137 | ||
| Long-term loans and borrowings | 78,256 | (33%) | 116,872 | 112% | 55,234 | |||||
| Cash from operations | 125,369 | 47% | 85,036 | 3% | 87,711 | |||||
| Capital spending | ||||||||||
| Purchase of capital | 90,146 | (35%) | 139,346 | 38% | 101,034 | |||||
| Proceeds from capital disposals | (26,925) | 205% | (8,831) | 2% | (8,683) | |||||
| Net capital spending | 63,221 | (52%) | 130,515 | 41% | 92,351 | |||||
| Debt to total capitalization ratio(2) | 0.21 | (30%) | 0.30 | 43% | 0.21 | |||||
| Dividends declared | $ | 27,378 | $ | 21,662 | $ | 12,770 | ||||
| Dividends declared per share | $ | 0.25 | $ | 0.20 | $ | 0.12 | ||||
(1) See financial measures definitions on the last page of the press release for details.
Overview
Horizon's 2013 results were mixed compared to 2012, while revenue increased year over year EBITDAS, operating earnings and earnings per share declined. The increase in revenue came from strong performance in the manufacturing sales operations, a result of a large camp sale project in the Alberta oil sands being manufactured and installed throughout 2013. This revenue strength was partially offset by weaker performance in the camp rental and catering operation primarily as a result of lower utilization in the open style camps, particularly in the second half of 2013. In addition, 2013 matting revenues were down compared to 2012 with weather being a significant factor contributing to reduced sales and rental volumes. The summer saw extremely wet ground conditions in a very short period of time which limited the ability to work and the fourth quarter was cold with a quick freeze up. These factors resulted in a significantly different revenue mix in 2013 compared to 2012 which had an impact on earnings.
EBITDAS decreased in 2013 compared to 2012 primarily as a result of the shift in revenue mix. The manufacturing sales operation typically contributes lower margins in comparison to camp rental and catering operations and matting operations. In 2013 manufacturing sales increased to 41% of total revenue compared to 30% in 2012, as a result of this shift in revenues EBITDAS decreased.
Operating earnings and earnings per share decreased in 2013 compared to the same period of 2012, driven by lower EBITDAS, higher depreciation costs and losses on disposal of plant, property and equipment. Increased depreciation was a result of the addition of camp assets and camp setup costs related to new camps added late in 2012 and throughout 2013. Camp setup costs are typically depreciated over the contract term which is a much shorter time frame than camp equipment. The loss on disposal of assets came mainly from the disposal of set-up costs related to the decommissioning of a large camp in the second quarter of 2013, disposal of the Corporation's blast resistant structures business and the sale of ancillary land in the fourth quarter of 2014. All of these factors contributed to decreased operational earnings for the year ended December 31, 2013 compared to the same period of 2012.
Outlook
After a very soft quarter to end 2013, activity levels have improved to start 2014. In the camp rental and catering business, activity levels are slightly ahead of where they were last year at this time. The matting business is also seeing rental and sales levels similar to last year at this time with increases expected as spring break-up approaches.
First quarter and early second quarter plant activity will be focused on manufacturing the capital equipment required to meet the needs of our recently announced, multi-year oil sands contract. Third party revenues during this period will be mainly generated by the continued on-site installation work being performed at a large camp sale project in the Fort McMurray, Alberta oil sands region. The manufacturing sales revenue stream is the most variable component of Horizon's operation. Manufacturing capacity is currently 45% booked for 2014. By comparison, at this point in 2013, 75% of Horizon's manufacturing capacity was booked for either third party sales or construction of contracted camps. Horizon anticipates visibility regarding the utilization of its manufacturing capacity for the second half of 2014 to continue to improve and is encouraged by a continued strong bidding pipeline that relates to oil sands projects and LNG development in British Columbia.
The macro fundamentals of the workforce accommodation and matting businesses continue to be sound. Oil sands investment is forecasted to be near $30 billion per year for the foreseeable future and Canada's LNG projects are progressing with reserve delineation drilling occurring in the north eastern British Columbia gas fields. Anticipated announcements pertaining to provincial LNG/natural gas tax structures should facilitate project proponents making final investment decisions on gas liquefaction plant construction.
Dividend payment
Horizon North Logistics Inc. announced today that its Board of Directors has declared a dividend for the first quarter of 2014 at $0.08 per share. The dividend is payable to shareholders of record at the close of business on March 31, 2014 to be paid on April 15, 2014. The dividends are eligible dividends for Canadian tax purposes.
| Fourth Quarter Financial Summary | |||||||||
| Three months ended December 31 | |||||||||
| (000's except per share amounts) | 2013 | 2012 | % Change | ||||||
| Revenue | $ | 108,641 | $ | 138,558 | (22%) | ||||
| EBITDAS(1) | 15,687 | 36,039 | (56%) | ||||||
| EBITDAS as a % of revenue | 14% | 26% | |||||||
| Operating earnings (1) | (1,607) | 23,390 | (107%) | ||||||
| Operating earnings as a % of revenue | (1%) | 17% | |||||||
| Total profit | (2,520) | 15,991 | (111%) | ||||||
| Total comprehensive income | (2,376) | 15,959 | (110%) | ||||||
| Earnings per share | - basic | (0.02) | 0.15 | (111%) | |||||
| - diluted | (0.02) | 0.15 | (111%) | ||||||
| Total assets | $ | 471,115 | $ | 495,993 | (5%) | ||||
| Long-term loans and borrowings | 78,256 | 116,872 | (33%) | ||||||
| Cash from operations | 28,726 | 26,334 | 9% | ||||||
| Capital spending | |||||||||
| Purchase of capital | 34,883 | 23,378 | 57% | ||||||
| Proceeds from capital disposals | (3,493) | (3,428) | 2% | ||||||
| Net capital spending | 31,390 | 19,950 | 57% | ||||||
| Debt to total capitalization ratio(2) | 0.21 | 0.30 | (30%) | ||||||
| Dividends declared | $ | 6,880 | $ | 5,439 | |||||
| Dividends declared per share | $ | 0.0625 | $ | 0.05 | |||||
| (1) See financial measures definitions on the last page of the press release for details. |
| Fourth Quarter Financial Results | ||||||||||
| Three months ended December 31, 2013 | ||||||||||
| (000's) | Camps & Catering |
Matting | Corporate | Inter-segment Eliminations |
Total | |||||
| Revenue | $ | 97,827 | $ | 11,431 | $ | - | $ | (617) | $ | 108,641 |
| Expenses | ||||||||||
| Direct costs | 80,496 | 8,213 | - | (617) | 88,092 | |||||
| Selling & administrative | 1,426 | 182 | 3,254 | - | 4,862 | |||||
| EBITDAS | 15,905 | 3,036 | (3,254) | - | 15,687 | |||||
| EBITDAS as a % of revenue | 16% | 27% | 14% | |||||||
| Share based compensation | 310 | 40 | 222 | - | 572 | |||||
| Depreciation & amortization | 11,841 | 1,644 | 163 | (53) | 13,595 | |||||
| Loss on disposal of property, plant and equipment |
3,127 | - | - | - | 3,127 | |||||
| Operating earnings (loss) | $ | 627 | $ | 1,352 | $ | (3,639) | $ | 53 | $ | (1,607) |
| Finance costs | 786 | |||||||||
| Share of equity accounted investees | - | |||||||||
| Income tax expense | 127 | |||||||||
| Other comprehensive income | (144) | |||||||||
| Total comprehensive loss | $ | (2,376) | ||||||||
| Earnings per share | - basic | $ | (0.02) | |||||||
| - diluted | $ | (0.02) | ||||||||
| Three months ended December 31, 2012 | ||||||||||
| (000's) | Camps & Catering |
Matting | Corporate | Inter-segment Eliminations |
Total | |||||
| Revenue | $ | 117,214 | $ | 24,151 | $ | - | $ | (2,807) | $ | 138,558 |
| Expenses | ||||||||||
| Direct costs | 81,691 | 18,752 | - | (2,688) | 97,755 | |||||
| Selling & administrative | 1,728 | 196 | 2,840 | - | 4,764 | |||||
| EBITDAS |
33,795 | 5,203 | (2,840) | (119) | 36,039 | |||||
| EBITDAS as a % of revenue | 29% | 22% | 4% | 26% | ||||||
| Share based compensation | 379 | 55 | 291 | - | 725 | |||||
| Depreciation & amortization | 9,867 | 2,122 | 122 | (56) | 12,055 | |||||
| Gain on disposal of property, plant and equipment | (38) | (80) | (13) | - | (131) | |||||
| Operating earnings (loss) | $ | 23,587 | $ | 3,106 | $ | (3,240) | $ | (63) | $ | 23,390 |
| Finance costs | 971 | |||||||||
| Share of equity accounted investees | 504 | |||||||||
| Income tax expense | 5,924 | |||||||||
| Other comprehensive loss | 32 | |||||||||
| Total comprehensive income |
$ | 15,959 | ||||||||
| Earnings per share | - basic | $ | 0.15 | |||||||
| - diluted | $ | 0.15 | ||||||||
| Camps & Catering
Camps & Catering revenue is comprised of camp rental and catering operations revenue, manufacturing sales revenue, space |
|||||
| Three months ended December 31 | |||||
| (000's except bed rental days and catering only days) | 2013 | 2012 | % change | ||
| Camp rental and catering operations revenue | $ | 55,138 | $ | 76,668 | (28%) |
| Manufacturing sales | 39,942 | 38,019 | 5% | ||
| Space rental | 2,747 | 2,527 | 9% | ||
| Total revenue | $ | 97,827 | $ | 117,214 | (17%) |
| EBITDAS | $ | 15,905 | $ | 33,795 | (53%) |
| EBITDAS as % of revenue | 16% | 29% | |||
| Operating earnings |
$ | 627 | $ | 23,587 | (97%) |
| Bed rental days(1) | 384,496 | 433,832 | (11%) | ||
| Catering only days(2) | 27,128 | 58,794 | (54%) | ||
| (1) | One bed rental day represents the provision of one bed for one day under a combined rental and catering manday rate, or the provision of one bed for one day under an equipment rental rate for dedicated camp equipment. |
| (2) | One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day. |
Revenues from the Camps & Catering segment were $97.8 million for the three months ended December 31, 2013, a decrease of $19.4 million or 17% compared to the same period of 2012. EBITDAS for the three months ended December 31, 2013 were $15.9 million, a decrease of $17.9 million or 53% compared to the same period of 2012.
The decrease in revenue for the three months ended December 31, 2013 was attributable to lower levels of activity compared to the same period of 2012. The majority of the decline in activity was related to low utilization at several large open style camps as demand for beds in the area did not materialize as expected. Lower camp rental and catering operations revenue overshadowed the increased revenues in both manufacturing sales and space rentals.
Horizon's revenues in the Camps & Catering segment continue to be driven by Alberta oil sands activity with 61% of revenues generated from oil sands compared to 63% in the same period of 2012. Additionally, natural gas exploration and development activities started to grow with Horizon increasing its exposure through the last half of 2013.
Camp rental and catering operations revenue
Revenues are derived from the following main business areas: large camp operations, drill camp operations, catering only operations, and the associated service work within each operation. Service work includes the transportation, set-up and de-mobilization of camp and catering projects. Revenues from camp and catering operations were $55.1 million for the three months ended December 31, 2013 compared to $76.7 million for the three months ended December 31, 2012, a decrease of $21.6 million or 28%.
| 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) | 2013 | 2012 | |||||||||||
| Large camp |
Drill camp |
Total | Large camp |
Drill camp |
Total | ||||||||
| Revenue | $ | 40,396 | $ | 3,570 | $ | 43,966 | $ | 59,718 | $ | 3,925 | $ | 63,643 | |
| Bed rental days(1) | 362,986 | 21,510 | 384,496 | 410,456 | 23,376 | 433,832 | |||||||
| Revenue per bed rental day | $ 111 | $ 166 | $ 114 | $ 145 | $ 168 | $ 147 | |||||||
| Rentable beds at period end | 7,059 | 882 | 7,941 | 6,905 | 871 | 7,776 | |||||||
| Average rentable beds available(2) | 6,977 | 871 | 7,848 | 6,897 | 836 | 7,733 | |||||||
| Utilization(3) | 57% | 27% | 53% | 65% | 30% | 61% | |||||||
| (1) | One bed rental day represents the provision of one bed for one day under a combined rental and catering manday rate, or the provision of one bed for one day under an equipment rental rate for dedicated camp equipment. |
| (2) | Average rentable beds available is equal to total average beds in the fleet over the period less beds required for staff. |
| (3) | Utilization equals the total number of bed rental days divided by average rentable beds available in the quarter. |
Revenues from large camp operations for the three months ended December 31, 2013 decreased $19.3 million or 32% compared to the same period in 2012. The decrease was primarily driven by lower volumes at several of the large open style camps.
Bed rental days in the fourth quarter of 2013 were 362,986, a decrease of 47,470 days or 12% compared to the same period of 2012. Bed utilization for the three months ended December 31, 2013 was 57%, down from 65% in the same period of 2012. This decrease was due to lower than anticipated volumes throughout the fourth quarter of 2013 at several larger open style camps and a larger fleet.
Revenue per bed rental day was $111, a decrease of $34 or 23% per bed day. This decrease is driven by the mix of contracts and a higher number of split rate contracts in place in the fourth quarter of 2013 as compared to the same period of 2012. Under the split rate contract beds are considered 100% utilized as the customer has contracted the beds and pays a separate rate for the catering and camp management services. The remainder of the decrease was due to slightly lower rates at the open style of camps.
Revenues from drill camp operations for the three months ended December 31, 2013 decreased by $0.3 million or 8% compared to the same period of 2012. Revenue decreased primarily as a result of lower volumes as there were fewer drill camps operating in the fourth quarter of 2013 compared to the same period of 2012.
The tables below outline the key performance metrics used by management to measure performance in the catering only operations:
| Three months ended December 31 | ||||
| (000's for revenue only) | 2013 | 2012 | ||
| Catering only revenue | $ | 3,364 | $ | 6,119 |
| Catering only days(1) | 27,128 | 58,794 | ||
| Revenue per catering only day | $ | 124 | $ | 104 |
| (1) | One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day. |
Revenues from the provision of catering and housekeeping only services, with no associated bed rentals, decreased $2.7 million or 44% for the three months ended December 31, 2013 as compared to same period of 2012. The decreased revenues were mainly a result of lower volumes in the catering only for customer owned drill camps. The increase in revenue per catering day was additional services requested by the customer and the mix of contracts compared to the same period of 2012.
| The table below outlines the service revenue generated from the camp and catering operations: | ||||
| Three months ended December 31 | ||||
| (000's) | 2013 | 2012 | ||
| Camp and catering operations service related revenue | $ | 7,808 | $ | 6,906 |
Service revenues are related to the transportation, set-up and de-mobilization of relatively short term camps for customers. Revenue increased by $0.9 million or 13% primarily as a result of the timing of projects in the comparative quarter.
Manufacturing sales
Manufacturing sales revenues include the in-plant construction, transportation and installation of camps sold to third parties. Revenues for the three months ended December 31, 2013 were $39.9 million as compared to $38.0 million for the same period in 2012, an increase of $1.9 million or 5%.
Actual direct manufacturing hours were 192,300 hours for the three months ended December 31, 2013 as compared to 188,123 in the comparative period, an increase of 4,177 hours or 3%. Of total direct hours in the fourth quarter of 2013, 22% were allocated to external sales compared to 43% in the fourth quarter of 2012. While the majority of in-plant manufacturing capacity was focused on internal rental fleet build, which does not generate external revenue, installation activities in the quarter were focused on a large project for a major oil sands operator which more than offset this difference to result in similar revenue levels in the comparative quarters.
Manufacturing production capacity is regularly reviewed by management to determine the allocation of production required to meet external third party sales contracts and internal fleet requirements.
Space rental revenues
Space rental revenues for the three months ended December 31, 2013 were $2.7 million as compared to $2.5 million for the same period in 2012, an increase of $0.2 million or 8%. The increase in revenue was primarily generated by the mix of contracts in the comparative quarter with utilization relatively consistent quarter over quarter at 81%.
Direct costs
Direct costs for the three months ended December 31, 2013 were $80.5 million or 82% of revenue as compared to $81.7 million or 70% of revenue for the same period of 2012. Direct costs are closely related to business activities as well as the mix of those activities. The decrease in direct costs reflects the lower activity levels in the camp rental and catering operations. As a percentage of revenue, direct costs were 82% as compared to 70% in the same period of 2012 which reflects the difference in the mix of volumes with manufacturing making up 41% of revenue in the fourth quarter of 2013 compared to 32% in the same period of 2012.
| Matting Matting revenue is comprised of mat rental revenue, mat sales revenue, installation, transportation, service, and other revenue |
|||||
| Three months ended December 31 | |||||
| (000's except mat rental days and numbers of mats) | 2013 | 2012 | % change | ||
| Access mat rental revenue(1) |
$ | 3,027 | $ | 2,919 | 4% |
| Other mat and rental equipment revenue(2) | $ | 868 | $ | 888 | (2%) |
| Total mat and rental equipment revenue | $ | 3,895 | $ | 3,807 | 2% |
| Mat sales revenue | 2,124 | 10,893 | (81%) | ||
| Installation, transportation, service, and other revenue | 5,412 | 9,451 | (43%) | ||
| Total revenue | $ | 11,431 | $ | 24,151 | (53%) |
| EBITDAS | $ | 3,036 | $ | 5,203 | (42%) |
| EBITDAS as a % of revenue | 27% | 22% | |||
| Operating earnings |
$ | 1,352 | $ | 3,106 | (56%) |
| Access mat rental days - owned mats(3) | 877,053 | 777,350 | 13% | ||
| Access mat rental days - third party mats(4) | 361,377 | 263,808 | 37% | ||
| Total access mat rental days | 1,238,430 | 1,041,158 | 19% | ||
| Average owned access mats in rental fleet(5) | 16,845 | 14,190 | 19% | ||
| Average sub rental access mats in rental fleet(6) | 3,930 | 2,866 | 37% | ||
| Access mats in rental fleet at quarter end(7) | 16,392 | 13,714 | 20% | ||
| Mats sold: | |||||
| New mats | 494 | 13,910 | (96%) | ||
| Used Mats | 3,464 | 992 | 249% | ||
| Total mats sold | 3,958 | 14,902 | (73%) | ||
| (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 rig mats, quad mats and other ancillary equipment such as well site accommodation units and light towers. |
| (3) | One mat rental day equals the rental of one owned access mat for one day. |
| (4) | One mat rental day equals the rental of one third party sub rented access mat for one day. |
| (5) | Average access mat rental fleet numbers reflect only owned access mats. |
| (6) | Average sub rental access mats is the average number of non-owned access mats in the rental fleet. These mats are rented from third parties on a short term basis. |
| (7) | Access mats in rental fleet at quarter end represents the number of owned access mats in the Matting fleet on December 31, 2013. |
Revenues from the Matting segment for the three months ended December 31, 2013 were $11.4 million as compared to $24.2 million for the same period of 2012, a decrease of $12.7 million or 53%. EBITDAS for the three months ended December 31, 2013 were $3.0 million or 27% of revenue as compared to $5.2 million or 22% of revenue for the same period of 2012, a decrease of $2.2 million or 42%.
Mat and equipment rental revenue
Mat rental revenues remained consistent in the comparative quarters as increased activity levels were offset by lower revenues per mat rental day. Mat rental days in the three months ended December 31, 2013 increased by 197,272 or 19% compared to the same period of 2012. Utilization of the owned mat rental fleet was slightly lower at 57% in the fourth quarter of 2013 compared to 60% for the same period of 2012 due to the mix of third party mats deployed and the larger owned fleet size. Revenue per mat rental day was $2.44 for the three months ended December 31, 2013 compared to $2.80 for the same period of 2012 as a result of the mix of contracts in place and competitive factors.
Mat sales revenue
Revenues from mat sales for the three months ended December 31, 2013 were $2.1 million, down $8.8 million or 81% compared the same period of 2012. The decrease is reflective of moderating customer requirements driven by colder than expected weather which affected the timing of projects. The mix of new and used mats shifted with a higher proportion of used mats sales in the fourth quarter of 2013 compared to the same period of 2012. The change in sales mix decreased revenue per mat in the comparative quarters as used mats typically sell for less than new 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, 2013 were $5.4 million, a decrease of $4.0 million or 43%. The decrease is mainly reflective of the lower activity levels in the fourth quarter of 2013 compared to the same period of 2012.
Direct costs
Direct costs for the three months ended December 31, 2013 were $8.2 million or 72% of revenue as compared to $18.8 million or 78% of revenue for the same period of 2012. Direct costs are driven by the level and mix of business activity and the large decrease in new mat sales drove direct costs significantly lower in the comparative quarters. Direct costs as a percentage of revenue decreased from 78% to 72% for the three months ended December 31, 2013 as compared the same period of 2012. The decrease is primarily a result of the mix of business activity in the comparative quarters, the fourth quarter of 2013 had significantly lower mat sales compared to 2012 and mat sales generally have higher material directs costs than rentals.
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, 2013 were $3.3 million compared to $2.8 million in the same period in 2012. Corporate costs, as a percentage of total revenue, were 3.0% compared to 2.0% for the same period of 2012. The increased percentage is reflective of the lower revenue in the fourth quarter of 2013 compared to the same period of 2012.
Other Items
Selling and administrative
Selling and administrative expenses were $4.9 million for the three months ended December 31, 2013, relatively unchanged compared to the same quarter of 2012. As a percentage of revenue, selling and administrative expenses were 4.5% in 2013 compared to 3.4% in 2012 as a result of the lower revenue in the fourth quarter of 2013 compared to the same period of 2012.
| Depreciation and amortization | |||||
| Three months ended December 31, | |||||
| (000's) | 2013 | 2012 | % change | ||
| Depreciation of property, plant and equipment | $ | 12,688 | $ | 10,004 | 27% |
| Amortization of intangibles | 907 | 2,051 | (56%) | ||
| Total depreciation and amortization | $ | 13,595 | $ | 12,055 | 13% |
Depreciation and amortization costs for the three months ended December 31, 2013 were $13.6 million as compared to $12.1 million in the same period of 2012. Depreciation increased by $2.7 million or 27% in the comparative quarters primarily as a result of camp asset additions which include camp set-up and installation costs. Camp set-up and installation costs are depreciated over the term of the contract, generally a shorter time frame than the camp assets. Depreciation related to the camp set-up and installation was $2.0 million higher in the fourth quarter of 2013 as compared to the same period of 2012 due to a large camp set-up in the fourth quarter of 2013.
Amortization costs related to customer relationships decreased $1.1 million or 56% as compared to the same period of 2012 as a portion of these assets have now been fully amortized.
Financing costs
Financing costs include interest on loans and borrowings and accretion of notes payable. For the three months ended December 31, 2013 financing costs were $0.8 million as compared to $1.0 million in the same period of 2012, a decrease of $0.2 million as a result of lower average debt of $59.2 million for the three months ended December 31, 2013 compared to $105.1 million in the same period of 2012. The effective interest rate in the fourth quarter of 2013 was 3.6%, essentially unchanged from the comparative period of 2012.
Income taxes
Income tax expense was $0.1 million, an effective tax rate of 5%, for the three months ended December 31, 2013 as compared to a tax expense of $5.9 million, an effective rate of 27% for the same period of 2012. The tax expense and effective tax rate in the fourth quarter of 2013 was a result of the operating loss before tax.
Gain/Loss on disposal
For the three months ended December 31, 2013, Horizon incurred a loss on disposal of $3.2 million compared to a slight gain in the comparative period of 2012. The loss on disposal was related to the disposal of the Corporation's blast resistant structures business and the disposal of ancillary land in the quarter.
| Consolidated statement of financial position | ||||
| (000's) | December 31, 2013 |
December 31, 2012 |
||
| Assets | ||||
| Current assets: | ||||
| Trade and other receivables | 90,856 | 133,195 | ||
| Inventories | 15,638 | 13,321 | ||
| Prepayments | 3,000 | 2,506 | ||
| Income taxes receivable | 4,114 | 146 | ||
| 113,608 | 149,168 | |||
| Non-current assets: | ||||
| Property, plant and equipment | 349,252 | 330,205 | ||
| Intangible assets | 2,968 | 10,028 | ||
| Goodwill | 1,664 | 2,136 | ||
| Deferred tax assets | 1,067 | 1,772 | ||
| Other assets | 2,556 | 2,684 | ||
| |
357,507 | 346,825 | ||
| $ | 471,115 | $ | 495,993 | |
| Liabilities and Shareholders' Equity | ||||
| Current liabilities: | ||||
| Trade and other payables | 56,677 | 59,511 | ||
| Deferred revenue | 3,447 | 588 | ||
| Income taxes payable | 284 | 12,661 | ||
| Current portion of loans and borrowings | 1,496 | 1,416 | ||
| 61,904 | 74,176 | |||
| Non-current liabilities: | ||||
| Asset retirement obligations | 5,656 | 1,364 | ||
| Loans and borrowings | 78,256 | 116,872 | ||
| Deferred tax liabilities | 30,872 | 29,318 | ||
| 176,688 | 221,730 | |||
| Shareholders' equity: | ||||
| Share capital | 183,851 | 179,999 | ||
| Contributed surplus | 11,836 | 10,783 | ||
| Accumulated other comprehensive income | 394 | 208 | ||
| Retained earnings | 98,346 | 83,273 | ||
| |
294,427 | 274,263 | ||
| $ | 471,115 | $ | 495,993 |
| Consolidated statement of comprehensive income Twelve months ended December 31, 2013 and 2012 |
||||
| (000's except per share amounts) | December 31, 2013 |
December 31, 2012 |
||
| Revenue |
$ | 554,387 | $ | 526,616 |
| Operating expenses: |
||||
| Direct costs | 409,007 | 364,361 | ||
| Depreciation | 47,623 | 32,007 | ||
| Share based compensation | 1,311 | 1,268 | ||
| Loss (gain) on disposal of property, plant and equipment | 6,152 | (93) | ||
| Direct operating expenses |
464,093 | 397,543 | ||
| Gross profit |
90,294 | 129,073 | ||
| Selling & administrative expenses: | ||||
| Selling & administrative expenses | 19,046 | 17,228 | ||
| Amortization of intangible assets | 7,060 | 8,204 | ||
| Share based compensation | 897 | 883 | ||
| Selling & administrative expenses |
27,003 | 26,315 | ||
| Operating earnings | 63,291 | 102,758 | ||
| Finance costs | 3,822 | 3,557 | ||
| Share of equity accounted investees | - | 529 | ||
| Profit before tax | 59,469 | 98,672 | ||
| Current tax expense | 14,759 | 19,862 | ||
| Deferred tax expense | 2,259 | 5,927 | ||
| Income tax expense |
17,018 | 25,789 | ||
| Total profit | 42,451 | 72,883 | ||
| Other comprehensive income: | ||||
| Translation of foreign operations | 186 | 50 | ||
| Other comprehensive income, net of income tax |
186 | 50 | ||
| Total comprehensive income | $ | 42,637 | $ | 72,933 |
| Earnings per share: | ||||
| Basic | $ | 0.39 | $ | 0.67 |
| Diluted | $ | 0.38 | $ | 0.66 |
| Consolidated statement of changes in equity | ||||||||||
| (000's) | Share Capital |
Contributed Surplus |
Accumulated Other Comprehensive Income |
Retained Earnings |
Total | |||||
| Balance at December 31, 2011 | $ | 173,438 | $ | 10,421 | $ | 158 | $ | 32,052 | $ | 216,069 |
| Total profit | - | - | - | 72,883 | 72,883 | |||||
| Share based compensation | - | 2,151 | - | - | 2,151 | |||||
| Share options exercised | 6,561 | (1,789) | - | - | 4,772 | |||||
| Translation of foreign operations | - | - | 50 | - | 50 | |||||
| Dividends declared and paid ($0.15 per share) | - | - | - | (16,223) | (16,223) | |||||
| Dividends declared ($0.05 per share) | - | - | - | (5,439) | (5,439) | |||||
| Balance at December 31, 2012 | $ | 179,999 | $ | 10,783 | $ | 208 | $ | 83,273 | $ | 274,263 |
| Total profit | - | - | - | 42,451 | 42,451 | |||||
| Share based compensation | - | 2,208 | - | - | 2,208 | |||||
| Share options exercised | 3,852 | (1,155) | - | - | 2,697 | |||||
| Translation of foreign operations | - | - | 186 | - | 186 | |||||
| Dividends declared and paid ($0.1875 per share) | - | - | - | (20,498) | (20,498) | |||||
| Dividends declared ($0.0625 per share) | - | - | - | (6,880) | (6,880) | |||||
| Balance at December 31, 2013 | $ | 183,851 | $ | 11,836 | $ | 394 | $ | 98,346 | $ | 294,427 |
| Consolidated statement of cash flows Twelve months ended December 31, 2013 and 2012 |
||||
| December 31, | December 31, | |||
| (000's) | 2013 | 2012 | ||
| Cash provided by (used in): | ||||
| Operating activities: | ||||
| Profit for the period | $ | 42,451 | $ | 72,883 |
| Adjustments for: | ||||
| Depreciation | 47,623 | 32,007 | ||
| Amortization of intangible assets | 7,060 | 8,204 | ||
| Share based compensation | 2,208 | 2,151 | ||
| Amortization of other assets | 128 | 127 | ||
| Share of equity accounted investees | - | 529 | ||
| Loss (gain) on sale of property, plant and equipment | 1,384 | (2,924) | ||
| Unrealized foreign exchange | 55 | 85 | ||
| Finance costs | 3,822 | 3,557 | ||
| Income tax expense | 17,018 | 25,789 | ||
| 121,749 | 142,408 | |||
| Income taxes paid | (31,104) | (11,727) | ||
| Interest paid | (3,412) | (2,904) | ||
| Changes in non-cash working capital items | 38,136 | (42,741) | ||
| 125,369 | 85,036 | |||
| Investing activities: | ||||
| Purchase of property, plant and equipment | (90,146) | (139,346) | ||
| Proceeds on sale of property, plant and equipment | 26,925 | 8,831 | ||
| (63,221) | (130,515) | |||
| Financing activities: | ||||
| Proceeds from shares issued on exercise of options | 2,697 | 4,772 | ||
| Net proceeds from loans and borrowings | (38,907) | 61,200 | ||
| Payment of dividends | (25,938) | (20,493) | ||
| |
(62,148) | 45,479 | ||
| Change in cash position | - | - | ||
| Cash, beginning of period | - | - | ||
| 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.
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 "After a very soft quarter to end 2013, activity levels have improved to start 2014. In the camp rental and catering business, activity levels are slightly ahead of where they were last year at this time. The matting business is also seeing rental and sales levels similar to last year at this time with increases expected as spring break up approaches", "The manufacturing sales revenue stream is typically the most variable component of Horizon's operation, with manufacturing capacity currently 45% booked for 2014. By comparison, at this point in 2013 75% of Horizon's manufacturing capacity was under contract. Horizon expects visibility regarding its manufacturing capacity for the second half of 2014 to continue to improve and is encouraged by a continued strong bidding pipeline that relates to oil sands projects, infrastructure projects and LNG development in British Columbia" and "The macro fundamentals of the workforce accommodation and matting businesses continue to be sound. Oil sands investment is forecasted to be near $30 billion per year for the foreseeable future and Canada's LNG projects are progressing with reserve delineation drilling occurring in the north eastern British Columbia gas fields. Anticipated announcements pertaining to provincial LNG/natural gas tax structures should facilitate project proponents making final investment decisions on gas liquefaction plant construction."
The foregoing statements are based on the assumption that oil sands development in Alberta and other resource development in western Canada will strengthen. Many factors could cause the performance or achievements of Horizon to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.
These include, but are not limited to, general economic, market and business conditions. Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Additional information on these and other risk factors that could affect Horizon's operations and financial results are included in Horizon's annual information form which may be accessed through the SEDAR website at www.sedar.com. The forward-looking statements and information contained in this MD&A are made as of the date hereof and Horizon does not undertake any obligation to update publicly or revise and forward-looking statements and information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
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.
SOURCE: Horizon North Logistics Inc.
For further information: 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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