Horizon North Logistics Inc. Announces Results for the Quarter Ended June 30, 2014
TSX Symbol: HNL
CALGARY, July 29, 2014 /CNW/ - Horizon North Logistics Inc. ("Horizon" or the "Corporation") reported its financial and operating results for the three and six months ended June 30, 2014 and 2013.
Second Quarter Highlights
- Manufacturing sales revenues were, as expected, significantly lower compared to the same period of last year as manufacturing capacity was dedicated mainly towards executing internal projects; margins were negatively affected by higher than expected costs related to completing a significant oil sands project;
- Matting revenues increased driven by strong mat sales and mat rental demand; margins were negatively impacted by a more competitive pricing environment, higher lumber pricing affecting mat construction costs and by a shift in revenue mix;
- Camp rental and catering operations were impacted by the seasonality of Q2 and delay of a camp project that was expected to be generating revenue throughout the quarter but began operating towards the end of the period;
Second Quarter Financial Summary
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||||||||||||
| (000's except per share amounts) | 2014 | 2013 | % Change |
2014 | 2013 | % Change |
||||||||||||||||||||
| Revenue | $ | 96,094 | $ | 148,426 | (35%) | $ | 218,305 | $ | 288,385 | (24%) | ||||||||||||||||
| EBITDAS(1) | 15,496 | 32,708 | (53%) | 39,046 | 69,341 | (44%) | ||||||||||||||||||||
| EBITDAS as a % of revenue | 16% | 22% | 18% | 24% | ||||||||||||||||||||||
| Operating earnings | 1,871 | 14,257 | (87%) | 13,301 | 37,466 | (64%) | ||||||||||||||||||||
| Operating earnings as a % of revenue | 2% | 10% | 6% | 13% | ||||||||||||||||||||||
| Total profit | 680 | 10,123 | (93%) | 8,398 | 26,632 | (68%) | ||||||||||||||||||||
| Total comprehensive income | 602 | 9,986 | (94%) | 8,519 | 26,370 | (68%) | ||||||||||||||||||||
| Earnings per share | - basic | $ | 0.01 |
$ | 0.09 |
(89%) |
$ | 0.08 |
$ | 0.24 |
(67%) |
|||||||||||||||
| - diluted | $ | 0.01 | $ | 0.09 | (89%) | $ | 0.08 | $ | 0.24 | (67%) | ||||||||||||||||
| Total assets | 513,060 | 499,135 | 3% | 513,060 | 499,135 | 3% | ||||||||||||||||||||
| Long-term loans and borrowings | 126,417 | 121,516 | 4% | 126,417 | 121,516 | 4% | ||||||||||||||||||||
| Cash from operations | 37,579 | 23,252 | 62% | 33,399 | 29,327 | 14% | ||||||||||||||||||||
| Capital spending | ||||||||||||||||||||||||||
| Purchase of property, plant & equipment | 48,346 | 18,332 | 164% | 76,224 | 39,584 | 93% | ||||||||||||||||||||
| Proceeds from disposals of property, plant & equipment |
(3,833) | (15,192) | (75%) | (9,360) | (16,765) | (44%) | ||||||||||||||||||||
| Net Capital spending | 44,513 | 3,140 | 1,318% | 66,864 | 22,819 | 193% | ||||||||||||||||||||
| Debt to EBITDAS | 1.30:1 | 0.86:1 | 1.30:1 | 0.86:1 | ||||||||||||||||||||||
| Debt to total capitalization ratio(1) | 0.30 | 0.30 | 0% | 0.30 | 0.30 | 0% | ||||||||||||||||||||
| Dividends declared | $ | 8,825 | $ | 6,839 | 29% | $ | 17,642 | $ | 13,646 | 29% | ||||||||||||||||
| Dividends declared per share | $ | 0.08 | $ | 0.06 | 33% | $ | 0.08 | $ | 0.06 | 33% | ||||||||||||||||
| (1) | See Non-GAAP and additional GAAP measures definitions within the press release for details. |
Overview
Horizon's results for the three and six months ending June 30, 2014 ("Q2 2014 or "first half of 2014") were below the three and six months ending June 30, 2013 ("Q2 2013" or "first half of 2013") primarily due to the timing of large manufacturing sales projects. The first half of 2013 had a significant oil sands project in full production whereas the first half of 2014 manufacturing sales did not have a similar sized project underway.
Revenues and EBITDAS from manufacturing sales were significantly lower in Q2 2014 and the first half of 2014 compared to the same periods of 2013 as described above. Total direct hours for Q2 2014 and the first half of 2014, which include all direct hours in the manufacturing plants and installation hours on project sites, were 276,132 hours, a decrease of 16% and 538,339 hours, a decrease of 12% respectively compared to the same periods of 2013. Total direct hours allocated to third party contracts, as a percentage of total hours, in Q2 2014 and first half of 2014 were 42% and 34% respectively compared to 78% and 74% in the comparative periods of 2013. EBITDAS in Q2 2014 and the first half of 2014 decreased compared to the same periods of 2013 as a result of the lower external sales levels and higher than expected costs in completing a significant oil sands project.
Revenues and EBITDAS from camp rental and catering operations for Q2 2014 and the first half 2014 decreased compared to the same periods of 2013. The decrease was mainly a result of lower activity levels at several of the large camp operations in the Alberta oil sands region and drill camp operations. Combined fleet utilization for Q2 2014 and first half of 2014 was 54% and 59% respectively compared to 60% and 63% for the same periods of 2013. Decreased EBITDAS in 2014 was a result of lower activity levels and a different mix of revenue compared to the first half of 2013. The first half of 2014 had higher service revenue as a result of a large camp mobilization project which first half of 2013 did not have. Service revenue typically has significantly lower margin than camp operations. As a result, EBITDAS as a percentage of revenue for Q2 2014 and the first half of 2014 were 21% and 25% respectively compared to 25% and 28% in the comparative periods of 2013.
Matting revenues increased in Q2 2014 and the first half of 2014 compared to the same periods of 2013 driven primarily by higher mat sales. Mat rental revenues were relatively consistent in the comparative periods. The average number of access mats in the owned fleet for Q2 2014 was relatively similar to Q2 2013 at 17,400 mats, however, for the first half comparison, 2014 averaged 1,300 more mats than the first half of 2013. EBITDAS in Q2 2014 and the first half of 2014 decreased compared to the same periods of 2013 and, as a percentage of revenue, EBITDAS in Q2 2014 and the first half of 2014 was 22% and 20% respectively compared to 28% and 26% in the same periods of 2013. The lower EBITDAS was a result of a more competitive pricing environment, higher lumber pricing affecting mat construction costs and by a shift in revenue mix.
Operating earnings and earnings per share decreased in Q2 2014 and the first half of 2014 as compared to the same periods of 2013 driven primarily by lower EBITDAS.
Outlook
Consolidated revenues and EBITDAS are expected to improve in the latter half of 2014, with EBITDAS for the third and fourth quarters being in the $30-35 million and $35-40 million range respectively.
Manufacturing activities in the second half of 2014 will turn to external projects with 64% of capacity dedicated to external projects as compared to 45% in the first half of the year. Given the increased project demand, total manufacturing hours are expected to be 11% higher in the second half of 2014 as compared to the first half of 2014. Margins are expected to return to more normal levels new external manufacturing projects come on line. Efforts to expand the demand for manufacturing services continue, and discussions with potential customers for the modular construction of permanent facilities are ongoing.
Camp rental and catering operations are expected to improve through the last half of the 2014. Large camp activities for Q3 2014 are expected to be slightly ahead of Q2 2014 results and increase substantially in Q4 2014. A 540 bed camp project that had been delayed due to customer permitting issues began operating in late Q2 2014 although the equipment required for this project was manufactured in the last half of 2013. Utilization at several open camp facilities is expected to improve based on demand from increasing customer activity in those areas while a number of dedicated customer camp assets that experienced lower utilization during transition between contracts are expected to achieve stronger utilization. Drill camp operations have improved considerably in Q3 2014 and are expected to improve through Q4 2014 as we target more competitive pricing and begin deploying equipment in new configurations to satisfy evolving customer requirements.
Matting sales are expected to remain strong due to demand for longer term customer projects. Mat sales margins are under pressure from both increased competition and rising material costs. Matting rentals are expected to stay strong with a focus on increasing the size of the rental fleet and displacing the use of third party matting.
Horizon continues to expand its geographic base with 1,150 beds deployed on natural gas related projects as of June 30, 2014 as compared to 770 beds at this time last year. In addition, Horizon has acquired and is pursuing additional land positions in key development areas near proposed LNG project sites in order to be well positioned for future growth in these areas.
Horizon remains active on the project bidding front, however a number of contract awards are dependent on the outcome of final investment decisions related to proposed LNG projects. Competition for contract awards is increasing, particularly in the up to 500 person camp segment. In addition, competition in certain regions of the Fort McMurray Alberta oil sands region has increased with the opening of additional temporary camps.
Dividend payment
Horizon North Logistics Inc. announced today that its Board of Directors has declared a dividend for the third quarter of 2014 at $0.08 per share. The dividend is payable to shareholders of record at the close of business on September 30, 2014 to be paid on October 13, 2014. The dividends are eligible dividends for Canadian tax purposes.
Second Quarter Financial Results
| Three months ended June 30, 2014 | |||||||||||||||||||||||||
| (000's) | Camps & Catering |
Matting | Corporate | Inter-segment Eliminations |
Total | ||||||||||||||||||||
| Revenue | $ | 79,746 | $ | 16,750 | $ | - | $ | (402) | $ | 96,094 | |||||||||||||||
| Expenses | |||||||||||||||||||||||||
| Direct costs | 62,991 | 12,833 | - | (402) | 75,422 | ||||||||||||||||||||
| Selling & administrative | 1,708 | 183 | 3,285 | - | 5,176 | ||||||||||||||||||||
| EBITDAS | 15,047 | 3,734 | (3,285) | - | 15,496 | ||||||||||||||||||||
| EBITDAS as a % of revenue | 19% | 22% | - | - | 16% | ||||||||||||||||||||
| Share based compensation | 205 | 39 | 203 | - | 447 | ||||||||||||||||||||
| Depreciation & amortization | 11,951 | 1,625 | 171 | (49) | 13,698 | ||||||||||||||||||||
| (Gain) loss on disposal of property, plant and equipment |
(503) | (17) | - | - | (520) | ||||||||||||||||||||
| Operating earnings (loss) | $ | 3,394 | $ | 2,087 | $ | (3,659) | $ | 49 | $ | 1,871 | |||||||||||||||
| Finance costs | 937 | ||||||||||||||||||||||||
| Income tax expense | 254 | ||||||||||||||||||||||||
| Other comprehensive income | 78 | ||||||||||||||||||||||||
| Total comprehensive income | $ | 602 | |||||||||||||||||||||||
| Earnings per share | - basic | $ | 0.01 | ||||||||||||||||||||||
| - diluted | $ | 0.01 | |||||||||||||||||||||||
| Three months ended June 30, 2013 | |||||||||||||||||||||||||
| (000's) | Camps & Catering |
Matting | Corporate | Inter-segment Eliminations |
Total | ||||||||||||||||||||
| Revenue | $ | 134,942 | $ | 14,956 | $ | - | $ | (1,472) | $ | 148,426 | |||||||||||||||
| Expenses | |||||||||||||||||||||||||
| Direct costs | 101,716 | 10,668 | (1,464) | 110,920 | |||||||||||||||||||||
| Selling & administrative | 1,505 | 140 | 3,153 | - | 4,798 | ||||||||||||||||||||
| EBITDAS | 31,721 | 4,148 | (3,153) | (8) | 32,708 | ||||||||||||||||||||
| EBITDAS as a % of revenue | 24% | 28% | - | - | 22% | ||||||||||||||||||||
| Share based compensation | 178 | 38 | 179 | - | 395 | ||||||||||||||||||||
| Depreciation & amortization | 11,584 | 2,144 | 137 | (52) | 13,813 | ||||||||||||||||||||
| (Gain) loss on disposal of property, plant and equipment |
4,301 | (1) | (57) | - | 4,243 | ||||||||||||||||||||
| Operating earnings (loss) | $ | 15,658 | $ | 1,967 | $ | (3,412) | $ | 44 | $ | 14,257 | |||||||||||||||
| Finance costs | 1,081 | ||||||||||||||||||||||||
| Income tax expense | 3,053 | ||||||||||||||||||||||||
| Other comprehensive income | 137 | ||||||||||||||||||||||||
| Total comprehensive income | $ | 9,986 | |||||||||||||||||||||||
| Earnings per share | - basic | $ | 0.09 | ||||||||||||||||||||||
| - diluted | $ | 0.09 | |||||||||||||||||||||||
| Six months ended June 30, 2014 | |||||||||||||||||||||||||
| (000's) | Camps & Catering |
Matting | Corporate | Inter-segment Eliminations |
Total | ||||||||||||||||||||
| Revenue | $ | 186,443 | $ | 32,730 | $ | - | $ | (868) | $ | 218,305 | |||||||||||||||
| Expenses | |||||||||||||||||||||||||
| Direct costs | 143,646 | 25,876 | - | (868) | 168,654 | ||||||||||||||||||||
| Selling & administrative | 3,345 | 402 | 6,858 | - | 10,605 | ||||||||||||||||||||
| EBITDAS | 39,452 | 6,452 | (6,858) | - | 39,046 | ||||||||||||||||||||
| EBITDAS as a % of revenue | 21% | 20% | - | - | 18% | ||||||||||||||||||||
| Share based compensation | 461 | 80 | 415 | - | 956 | ||||||||||||||||||||
| Depreciation & amortization | 23,564 | 3,079 | 358 | (97) | 26,904 | ||||||||||||||||||||
| (Gain) loss on disposal of property, plant and equipment |
(2,140) | 25 | - | - | (2,115) | ||||||||||||||||||||
| Operating earnings (loss) | $ | 17,567 | $ | 3,268 | $ | (7,631) | $ | 97 | $ | 13,301 | |||||||||||||||
| Finance costs | 1,937 | ||||||||||||||||||||||||
| Income tax expense | 2,966 | ||||||||||||||||||||||||
| Other comprehensive income | (121) | ||||||||||||||||||||||||
| Total comprehensive income | $ | 8,519 | |||||||||||||||||||||||
| Earnings per share | - basic | $ | 0.08 | ||||||||||||||||||||||
| - diluted | $ | 0.08 | |||||||||||||||||||||||
| Six months ended June 30, 2013 | |||||||||||||||||||||||||
| (000's) | Camps & Catering |
Matting | Corporate | Inter-segment Eliminations |
Total | ||||||||||||||||||||
| Revenue | $ | 260,859 | $ | 31,188 | $ | - | $ | (3,662) | $ | 288,385 | |||||||||||||||
| Expenses | |||||||||||||||||||||||||
| Direct costs | 190,326 | 22,738 | - | (3,631) | 209,433 | ||||||||||||||||||||
| Selling & administrative | 2,960 | 316 | 6,335 | - | 9,611 | ||||||||||||||||||||
| EBITDAS | 67,573 | 8,134 | (6,335) | (31) | 69,341 | ||||||||||||||||||||
| EBITDAS as a % of revenue | 26% | 26% | - | - | 24% | ||||||||||||||||||||
| Share based payments | 536 | 89 | 456 | - | 1,081 | ||||||||||||||||||||
| Depreciation & amortization | 22,353 | 4,185 | 273 | (103) | 26,708 | ||||||||||||||||||||
| (Gain) loss on disposal of property, plant and equipment |
4,164 | (21) | (57) | - | 4,086 | ||||||||||||||||||||
| Operating earnings (loss) | $ | 40,520 | $ | 3,881 | $ | (7,007) | $ | 72 | $ | 37,466 | |||||||||||||||
| Finance costs | 2,196 | ||||||||||||||||||||||||
| Income tax expense | 8,638 | ||||||||||||||||||||||||
| Other comprehensive income | 262 | ||||||||||||||||||||||||
| Total comprehensive income | $ | 26,370 | |||||||||||||||||||||||
| Earnings per share | - basic | $ | 0.24 | ||||||||||||||||||||||
| - diluted | $ | 0.24 | |||||||||||||||||||||||
Camps & Catering
Camps & Catering revenue is comprised of camp rental and catering operations revenue, manufacturing sales revenue, space rental revenue and the associated service revenue within each operation.
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||
| (000's except bed rental days and catering only days) | 2014 | 2013 | % change | 2014 | 2013 | % change | |||||||||||||||||
| Camp rental and catering operations revenue | $ | 58,843 | $ | 63,248 | (7%) | $ | 139,411 | $ | 144,453 | (3%) | |||||||||||||
| Manufacturing sales | 17,932 | 68,736 | (74%) | 41,735 | 111,010 | (62%) | |||||||||||||||||
| Relocatable structures | 2,971 | 2,958 | 0% | 5,297 | 5,396 | (2%) | |||||||||||||||||
| Total revenue | $ | 79,746 | $ | 134,942 | (41%) | $ | 186,443 | $ | 260,859 | (29%) | |||||||||||||
| EBITDAS | $ | 15,047 | $ | 31,721 | (53%) | $ | 39,452 | $ | 67,573 | (42%) | |||||||||||||
| EBITDAS as a % of revenue | 19% | 24% | 21% | 26% | |||||||||||||||||||
| Operating earnings | $ | 3,394 | $ | 15,658 | (78%) | $ | 17,567 | $ | 40,520 | (57%) | |||||||||||||
| Bed rental days(1) | 403,657 | 449,165 | (10%) | 839,056 | 934,986 | (10%) | |||||||||||||||||
| Catering only days(2) | 22,287 | 45,100 | (51%) | 53,854 | 101,751 | (47%) | |||||||||||||||||
| (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 for the three and six months ended June 30, 2014 were $79.7 million and $186.4 million respectively, a decrease of $55.2 million or 41% and $74.5 million or 29% compared to the same periods of 2013. EBITDAS for the three and six months ended June 30, 2014 were $15.0 million and $39.5 million respectively, a decrease of $16.7 million or 53% and $28.1 million or 42% compared to the same period of 2013. The decrease in camp and catering operations revenues was primarily a result of softer demand at certain camp facilities in the Alberta oil sands region. Manufacturing sales revenues decreased significantly with the majority of capacity allocated to internal fleet construction and deployment in 2014 compared to being focused on a large external sales project in 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.
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 June 30 | |||||||||||||||||||||||||||
| (000's for revenue only) | 2014 | 2013 | |||||||||||||||||||||||||
| Large camp |
Drill camp |
Total | Large camp |
Drill camp |
Total | ||||||||||||||||||||||
| Revenue | $ | 46,078 | $ | 1,457 | $ | 47,535 | $ | 52,924 | $ | 2,656 | $ | 55,580 | |||||||||||||||
| Bed rental days(1) | 394,262 | 9,395 | 403,657 | 433,151 | 16,014 | 449,165 | |||||||||||||||||||||
| Revenue per bed rental day | $117 | $155 | $118 | $122 | $166 | $124 | |||||||||||||||||||||
| Number of rentable beds at period end | 7,484 | 928 | 8,412 | 7,152 | 873 | 8,025 | |||||||||||||||||||||
| Average rentable beds available(2) | 7,254 | 925 | 8,179 | 7,330 | 888 | 8,218 | |||||||||||||||||||||
| Utilization(3) | 60% | 11% | 54% | 66% | 20% | 61% | |||||||||||||||||||||
| Six months ended June 30 | |||||||||||||||||||||||||||
| (000's for revenue only) | 2014 | 2013 | |||||||||||||||||||||||||
| Large camp |
Drill camp |
Total | Large camp |
Drill camp |
Total | ||||||||||||||||||||||
| Revenue | $ | 108,514 | $ | 7,184 | $ | 115,698 | $ | 112,305 | $ | 12,302 | $ | 124,607 | |||||||||||||||
| Bed rental days(1) | 798,082 | 40,974 | 839,056 | 864,412 | 70,574 | 934,986 | |||||||||||||||||||||
| Revenue per bed rental day | $136 | $175 | $138 | $130 | |
$174 | |
$133 | |||||||||||||||||||
| Number of rentable beds at period end | 7,484 | 928 | 8,412 | 7,152 | 873 | 8,025 | |||||||||||||||||||||
| Average rentable beds available(2) | 7,165 | 873 | 8,038 | 7,333 | 879 | 8,212 | |||||||||||||||||||||
| Utilization(3) | 62% | 26% | 58% | 65% | 44% | 63% | |||||||||||||||||||||
| 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 period. |
Revenues from large camp operations for the three and six months ended June 30, 2014 decreased by $6.8 million or 13% and $3.8 million or 3% respectively compared to the same periods of 2013. The decrease was mainly attributable to lower activity levels at several large camps.
Large camp bed rental days decreased by 38,889 days or 9% and 66,330 days or 8% respectively compared to the same periods of 2013. The decreased rental days were primarily due to lower activity at several large camps in the Alberta oil sands area. In 2013 these camps had strong occupancy by several clients who had active projects in the area. These projects were not active in 2014 resulting in lower utilization of the facilities. The large camp utilization for Q2 2014 and the first half of 2014 was 60% and 62% respectively compared to 66% and 65% in the same periods of 2013.
Large camp revenue per bed rental day decreased by $5 or 4% for the three months ended June 30, 2014 compared to the same period of 2013, however revenue per bed rental day for the first half of 2014 increased by $6 or 5% compared to the first half of 2013. The revenue per bed rental day is a result of the different mix of contracts in place in the comparative periods.
Revenues from drill camp operations for the three and six months ended June 30, 2014 decreased $1.2 million or 45% and $5.1 million or 42% respectively compared to the same periods of 2013. The decrease was a result of lower activity levels in the first half of 2014 compared to the same period of 2013 with an average of 11 camps operating in the first half of 2014 compared to 19 camps operating in the first half of 2013. The decreased activity was mainly attributable to increasingly competitive market conditions with downward pressure on pricing.
The table below outlines the key performance metrics used by management to measure performance in the catering only operations:
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||||||||||||||||
| (000's for revenue only) | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||||
| Catering only revenue | $ | 2,753 | $ | 4,393 | $ | 7,050 | $ | 10,048 | ||||||||||||||||||||||
| Catering only days(1) | 22,287 | 45,100 | 53,854 | 101,751 | ||||||||||||||||||||||||||
| Revenue per catering only day | $124 | $97 | $131 | $99 | ||||||||||||||||||||||||||
| (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 services, with no associated bed rentals, for the three and six months ended June 30, 2014 decreased $1.6 million or 37% and $3.0 million or 30% respectively compared to same periods of 2013 as a result of lower volumes in both the large camp catering and drill camp catering operations. The large camp catering operations had fewer camps operating in the first half of 2014 compared to the same period of 2013 as a result of customers completing specific projects. The decrease in the catering for customer owned drill camps was mainly related a significant customer who temporarily slowed down to relocate several drill camps.
The table below outlines the service revenue generated from the camp and catering operations:
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||||||||||
| (000's) | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||||
| Camp and catering operations service related revenue | $ | 8,555 | $ | 3,275 | $ | 16,663 | $ | 9,798 | |||||||||||||||||||||||
Service revenues are related to the transportation, set-up and de-mobilization of relatively short term camps for customers. Revenues for the three and six months ended June 30, 2014 increased $5.3 million or 161% and $6.9 million or 70% respectively compared to the same periods in 2013. The increase was mainly due to the timing of specific service projects undertaken in the comparative periods, with a large camp mobilization occurring in the first half of 2014 and no similar sized project in the first half of 2013.
Manufacturing sales
Manufacturing sales revenues include the in-plant construction, transportation and installation of camps sold to third parties. Revenues for the three and six months ended June 30, 2014 were $17.9 million and $41.7 million, a decrease of $50.8 million or 74% and $69.3 million or 62% respectively as compared to the same periods of 2013. The decrease was primarily driven by the volume of external sales projects, in the first half of 2013 manufacturing sales was focused on the production and installation of a large project in the Alberta oil sands while the first half of 2014 was mainly focused on internal production to satisfy fleet requirements for Horizon North Relocatable Structures and for recently announced camp and catering projects.
The table below outlines the key performance metrics used by management to measure performance in the manufacturing sales operations:
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
| Direct Hours | Hours | % of total hours |
Hours | % of total hours |
Hours | % of total hours |
Hours | % of total hours |
|||||||||||||||||||
| External hours | 116,131 | 42% | 254,645 | 78% | 241,957 | 45% | 452,241 | 74% | |||||||||||||||||||
| Internal hours | 160,001 | 58% | 73,015 | 22% | 296,382 | 55% | 162,074 | 26% | |||||||||||||||||||
| Total direct hours (1) | 276,132 | 100% | 327,659 | 100% | 538,339 | 100% | 614,314 | 100% | |||||||||||||||||||
| (1) | Total direct hours incudes; hours worked in the manufacturing plants and on-site installation hours. |
Total direct hours for the three months ended June 30, 2014 decreased 51,527 hours or 16% compared to the same period of 2013. The decrease in hours was accomplished mainly through reduced overtime and attrition to align with project volumes. Of particular note was the allocation of hours between internal and external projects. In the second quarter of 2014, 58% of total hours were focused on internal projects in order to meet the requirements for the camp and catering projects previously announced and to grow the relocatable structures fleet. For the six months ended June 30, 2014 total direct hours decreased by 75,976 hours or 12% compared to the same period of 2013. As mentioned above, the reduction in hours was a planned decrease to align resources with work volumes. The allocation of total direct hours to internal projects for the first half of 2014 was 55% of total direct hours compared to 26% in the same period of 2013. This was a result of focusing total direct hours on internal projects to meet previously announced projects.
Relocatable Structures
Relocatable structures (formerly space rentals) revenues include the rental of relocatable structures and the associated transportation. Relocatable Structures includes; office units, lavatory units, mine dry units, and associated equipment.
Revenues were relatively consistent in the comparative periods. In the first half of 2014 Relocatable structures utilized a significant portion of manufacturing's capacity to increase the fleet, as a result utilization decreased compared to the same period of 2013. Utilization for the three months ended June 30, 2014 was 72% on a fleet size of 1,204 units compared to 91% on a fleet size of 833 units in the same period of 2013. Utilization is expected to increase in the second half of 2014 as the new fleet additions are deployed.
Direct costs
Direct costs for the three and six months ended June 30, 2014 were $63.0 million or 79% of revenue and $143.6 million or 77% of revenue respectively compared to $101.7 million or 75% of revenue and $190.3 million or 73% of revenue for the same period of 2013. Direct costs are closely related to business volumes with the decrease primarily due to lower volumes in the manufacturing sales operations. As a percentage of revenue, direct costs increased primarily as a result of the nature of projects flowing through the manufacturing sales operations. In addition, increased costs to complete several installation projects drove higher direct costs.
Matting
Matting revenue is comprised of access mat rental revenue, other mat and rental equipment revenue, mat sales revenue, installation, transportation, service, and other revenue as follows:
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||
| (000's except mat rental days and numbers of mats) | 2014 | 2013 | % change | 2014 | 2013 | % change | |||||||||||||||||
| Access mat rental revenue(1) | $ | 4,509 | $ | 4,248 | 6% | $ | 6,010 | $ | 5,946 | 1% | |||||||||||||
| Other mat and rental equipment revenue(2) | $ | 395 | $ | 486 | (19%) | $ | 1,414 | $ | 1,630 | (13%) | |||||||||||||
| Total mat and rental equipment revenue | $ | 4,904 | $ | 4,734 | 4% | $ | 7,424 | $ | 7,576 | (2%) | |||||||||||||
| Mat sales revenue | 5,423 | 2,124 | 155% | 13,350 | 7,046 | 89% | |||||||||||||||||
| Installation, transportation, service and other revenue | 6,423 | 8,098 | (21%) | 11,956 | 16,566 | (28%) | |||||||||||||||||
| Total revenue | $ | 16,750 | $ | 14,956 | 12% | $ | 32,730 | $ | 31,188 | 5% | |||||||||||||
| EBITDAS | $ | 3,734 | $ | 4,148 | (10%) | $ | 6,452 | $ | 8,134 | (21%) | |||||||||||||
| EBITDAS as a % of revenue | 22% | 28% | 20% | 26% | |||||||||||||||||||
| Operating earnings | $ | 2,087 | $ | 1,967 | 6% | $ | 3,268 | $ | 3,881 | (16%) | |||||||||||||
| Access mat rental days - owned mats(3) | 1,245,892 | 1,138,663 | 9% | 1,868,404 | 1,768,456 | 6% | |||||||||||||||||
| Access mat rental days - third party mats(4) | 803,442 | 696,310 | 15% | 839,004 | 755,258 | 11% | |||||||||||||||||
| Total access mat rental days | 2,049,334 | 1,834,973 | 12% | 2,707,408 | 2,523,714 | 7% | |||||||||||||||||
| Average owned access mats in rental fleet(5) | 17,393 | 17,697 | (2%) | 17,026 | 15,768 | 8% | |||||||||||||||||
| Average sub rental access mats in rental fleet(6) | 8,801 | 7,670 | 15% | 4,592 | 4,153 | 11% | |||||||||||||||||
| Owned access mats in rental fleet at quarter end(7) | 18,937 | 19,678 | (4%) | 18,220 | 19,678 | (7%) | |||||||||||||||||
| Mats sold: | |||||||||||||||||||||||
| New mats | 6,806 | 2,495 | 173% | 16,671 | 7,954 | 110% | |||||||||||||||||
| Used Mats | 2,663 | 467 | 470% | 4,386 | 1,844 | 138% | |||||||||||||||||
| Total mats sold | 9,469 | 2,962 | 220% | 21,057 | 9,798 | 115% | |||||||||||||||||
| (1) | Access mat rental revenue includes revenues generated from the rental of traditional oak and oak edged mats. |
| (2) | Other mat and 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 period end represents the number of owned access mats in the Matting fleet. |
Revenues from the Matting segment for the three and six months ended June 30, 2014 were $16.8 million, an increase of 12% and $32.7 million, an increase of 5% compared to the same periods of 2013. EBITDAS for the three and six months ended June 30, 2014 were $3.7 million, a decrease of 10% and $6.5 million, a decrease of 21% compared to the same period of 2013.
The increase in revenues from the comparative periods was primarily result of higher mat sales tempered by moderated customer demand for trucking and installation services. The decrease in EBTIDAS in the three and six months ended June 30, 2014 compared to the same periods of 2013 was related to competitive market conditions and the sales mix.
Mat and rental equipment revenue
Access mat rental revenues for the three months ended June 30, 2014 increased by $0.3 million or 6% compared to the same period of 2013 with revenues in the first half of 2014 essentially flat compared to the first half of 2013. Mat rental activity increased in the second quarter and first half of 2014 with mat rental days up 12% and 7% respectively compared to the same periods of 2013. The higher activity was mainly weather related with first half of 2013 being wetter than the first half of 2014. The increased activity was partially offset by lower revenue per mat rental day in the three and six months ended June 30, 2014. Revenue per mat rental day for second quarter of 2014 was $2.20 a decrease of $0.12 or 5% compared to the same period of 2013. For the first half of 2014 the revenue per mat rental day was $2.22, a decrease of $0.14 or 6% compared to the first half of 2013. The declines in revenue per mat rental day were primarily due to a more competitive pricing environment.
Mat sales revenue
Revenues from mat sales for the three and six months ended June 30, 2014 increased significantly as compared to the same period of 2013, up $3.3 million or 155% and $6.3 million or 89% respectively. The volume of mats sold increased substantially, as the economics on longer term customer projects favor owning mats as opposed to renting. Higher sales volumes in the three and six months ended June 30, 2014 were partially offset by lower revenues per mat compared to the same periods of 2013. Revenues per mat were $572, a decrease of $144 or 20% for Q2 2014 and $634, a decrease of $85 or 12% for the first half of 2014 compared to the same periods of 2013. The decrease in price is reflective of a more competitive pricing environment as well as the mix between new and used mats sold in the comparative periods, used mats are typically priced lower 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 and six months ended June 30, 2014 were $6.4 million, a decrease of $1.7 million or 21% and $12.0 million, a decrease of $4.6 million or 28% respectively compared to the same periods in 2013. The decrease in revenue is a primarily a result of softer demand for these services.
Direct costs
Direct costs for the three and six months ended June 30, 2014 were $12.8 million or 77% of revenue and $25.9 million or 79% of revenue compared to $10.7 million or 71% of revenue and $22.7 million or 73% of revenue for the same periods of 2013. Direct costs are driven by both the level and mix of business activity. The increase in overall direct costs was driven primarily by higher mat sales which reflect the associated direct costs of mat manufacturing. As a percentage of revenue, direct costs increased in the three and six months ended June 30, 2014 as a result of the mix of business activities and as a result of upward cost pressure mainly driven by oak lumber costs.
Corporate
Corporate costs are the costs of the head office which include the President and Chief Executive Officer, Chief Financial Officer, Senior Vice President of Corporate Development and Planning, Vice President of Health, Safety, and Environment, Vice President of Aboriginal Relations, Corporate Secretary, corporate accounting staff, information technology, and associated costs of supporting a public company. Corporate costs for the three and six months ended June 30, 2014 were $3.3 million, an increase of $0.1 million or 3% and $6.9 million, an increase of $0.5 million or 8% respectively compared to the same periods in 2013. Corporate costs, as a percentage of total revenue were 3.4% and 3.1% respectively compared to 2.1% and 2.2% in the same periods of 2013, primarily a result of the decrease in revenues as costs remain similar.
Other Items
Selling and administrative
Selling and administrative expenses for the three and six months ended June 30, 2014 were $5.2 million, an increase of $0.4 million or 8% and $10.6 million, an increase of $1.0 million or 10% compared to the same periods in 2013. As a percentage of revenue, selling and administrative expenses were 5.4% and 4.9% compared to 3.2% and 3.3% in the same periods of 2013, primarily a result of the decrease in revenues as costs remain similar.
Depreciation and amortization
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||||||||
| (000's) | 2014 | 2013 | % change | 2014 | 2013 | % change | |||||||||||||||||||||||
| Depreciation of property, plant and equipment | $ | 12,878 | $ | 11,762 | 9% | $ | 25,265 | $ | 22,606 | 12% | |||||||||||||||||||
| Amortization of intangibles | 820 | 2,051 | (60%) | 1,639 | 4,102 | (60%) | |||||||||||||||||||||||
| Total depreciation and amortization | $ | 13,698 | $ | 13,813 | (1%) | $ | 26,904 | $ | 26,708 | 1% | |||||||||||||||||||
Depreciation of property, plant and equipment increased $1.1 million in the three months ended June 30, 2014 as compared to the same period of 2013. The increase was mainly a result of camp assets added between June 30, 2013 and June 30, 2014. For the six months ended June 30, 2014 depreciation increased $2.7 million compared to the same period of 2013. The increase was primarily related to the growth of the camp fleet in the comparative periods.
Amortization costs related to customer relationships decreased $1.2 million or 60% and $2.5 million or 60% as compared to the same periods of 2013. A portion of these assets have now been fully amortized with the remainder to be fully amortized by December 2014.
Financing costs
Financing costs include interest on loans and borrowings and accretion of notes payable. For the three and six months ended June 30, 2014 financing costs were $0.9 million, a decrease of $0.1 million or 13% and $1.9 million, a decrease of $0.3 million or 13% respectively compared to 2014. The decrease in financing costs was mainly a result of slightly lower average debt levels in the second quarter and first half of 2014 compared to the same periods of 2013. The effective interest rate on loans and borrowings for the three and six months ended June 30, 2014 was 3.6%, consistent with the comparative period.
Income taxes
For the three and six months ended June 30, 2014 income tax expense was $0.3 million, an effective tax rate of 27% and $3.0 million, an effective tax rate of 26% compared to $3.1 million, an effective tax rate of 23% and $8.6 million, an effective tax rate of 25% in the same periods of 2013.
Gain/Loss on disposal
For the three and six months ended June 30, 2014 Horizon recognized gains on disposal of $0.5 million and $2.1 million respectively compared to losses of $4.2 million and $4.1 million in the comparative periods of 2013. The gain on disposal of assets in the three and six months ended June 30, 2014 came mainly from the disposal of camp assets and property related to the northern assets. The loss in the second quarter of 2013 was associated to the disposal of undepreciated setup costs related to a large camp dismantled in that quarter and subsequently sold in the third quarter of 2013.
| Condensed consolidated statement of financial position (Unaudited) | |||||||||||
| (000's) | June 30, 2014 |
December 31, 2013 |
|||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Trade and other receivables | $ | 92,694 | $ | 90,856 | |||||||
| Inventories | 11,426 | 15,638 | |||||||||
| Prepayments | 5,085 | 3,000 | |||||||||
| Income taxes receivable | 2,722 | 4,114 | |||||||||
| 111,927 | 113,608 | ||||||||||
| Non-current assets: | |||||||||||
| Property, plant and equipment | 394,568 | 349,252 | |||||||||
| Intangible assets | 1,329 | 2,968 | |||||||||
| Goodwill | 1,664 | 1,664 | |||||||||
| Deferred tax assets | 1,080 | 1,067 | |||||||||
| Other assets | 2,492 | 2,556 | |||||||||
| 401,133 | 357,507 | ||||||||||
| $ | 513,060 | $ | 471,115 | ||||||||
| Liabilities and Shareholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Trade and other payables | $ | 56,437 | $ | 56,677 | |||||||
| Deferred revenue | 2,901 | 3,447 | |||||||||
| Income taxes payable | 663 | 284 | |||||||||
| Current portion of loans and borrowings | 1,554 | 1,496 | |||||||||
| 61,555 | 61,904 | ||||||||||
| Non-current liabilities: | |||||||||||
| Asset retirement provisions | 5,770 | 5,656 | |||||||||
| Loans and borrowings | 126,417 | 78,256 | |||||||||
| Deferred tax liabilities | 32,030 | 30,872 | |||||||||
| 225,772 | 176,688 | ||||||||||
| Shareholders' equity: | |||||||||||
| Share capital | 185,188 | 183,851 | |||||||||
| Contributed surplus | 12,483 | 11,836 | |||||||||
| Accumulated other comprehensive income | 515 | 394 | |||||||||
| Retained earnings | 89,102 | 98,346 | |||||||||
| 287,288 | 294,427 | ||||||||||
| $ | 513,060 | $ | 471,115 | ||||||||
| Condensed consolidated statement of comprehensive income (Unaudited) | ||||||||||||||||||||||||
| Three and Six months ended June 30, 2014 and 2013 | ||||||||||||||||||||||||
| Three months ended June 30 |
Six months ended June 30 |
|||||||||||||||||||||||
| (000's) | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||
| Revenue | $ | 96,094 | $ | 148,426 | $ | 218,305 | $ | 288,385 | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Direct costs | 75,425 | 110,919 | 168,656 | 209,433 | ||||||||||||||||||||
| Depreciation | 12,878 | 11,762 | 25,265 | 22,606 | ||||||||||||||||||||
| Share based compensation | 244 | 216 | 541 | 625 | ||||||||||||||||||||
| (Gain) loss on disposal of property, plant and equipment | (520) | 4,243 | (2,115) | 4,086 | ||||||||||||||||||||
| Direct operating expenses | 88,027 | 127,140 | 192,347 | 236,750 | ||||||||||||||||||||
| Gross profit | 8,067 | 21,286 | 25,958 | 51,635 | ||||||||||||||||||||
| Selling & administrative expenses: | ||||||||||||||||||||||||
| Selling & administrative expenses | 5,173 | 4,799 | 10,603 | 9,611 | ||||||||||||||||||||
| Amortization of intangible assets | 820 | 2,051 | 1,639 | 4,102 | ||||||||||||||||||||
| Share based compensation | 203 | 179 | 415 | 456 | ||||||||||||||||||||
| Selling & administrative expenses | 6,196 | 7,029 | 12,657 | 14,169 | ||||||||||||||||||||
| Operating earnings | 1,871 | 14,257 | 13,301 | 37,466 | ||||||||||||||||||||
| Finance costs | 937 | 1,081 | 1,937 | 2,196 | ||||||||||||||||||||
| Profit before tax | 934 | 13,176 | 11,364 | 35,270 | ||||||||||||||||||||
| Current tax (recovery) expense | (309) | 4,716 | 1,821 | 9,555 | ||||||||||||||||||||
| Deferred tax expense (recovery) | 563 | (1,663) | 1,145 | (917) | ||||||||||||||||||||
| Income tax expense | 254 | 3,053 | 2,966 | 8,638 | ||||||||||||||||||||
| Total profit | 680 | 10,123 | 8,398 | 26,632 | ||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||
| Translation of foreign operations | 78 | 137 | (121) | 262 | ||||||||||||||||||||
| Other comprehensive loss (income), net of income tax | 78 | 137 | (121) | 262 | ||||||||||||||||||||
| Total comprehensive income | $ | 602 | $ | 9,986 | $ | 8,519 | $ | 26,370 | ||||||||||||||||
| Earnings per share: | ||||||||||||||||||||||||
| Basic | $ | 0.01 | $ | 0.09 | $ | 0.08 | $ | 0.24 | ||||||||||||||||
| Diluted | $ | 0.01 | $ | 0.09 | $ | 0.08 | $ | 0.24 | ||||||||||||||||
| Condensed consolidated statement of changes in equity | ||||||||||||||||||||||||||
| (000's) | Share Capital |
Contributed Surplus |
Accumulated Other Comprehensive (loss) Income |
Retained Earnings |
Total | |||||||||||||||||||||
| Balance at December 31, 2012 | $ | 179,999 | $ | 10,783 | $ | 208 | $ | 83,273 | $ | 274,263 | ||||||||||||||||
| Total profit | - | - | - | 26,632 | 26,632 | |||||||||||||||||||||
| Share based compensation | - | 1,081 | - | - | 1,081 | |||||||||||||||||||||
| Share options exercised | 1,838 | (585) | - | - | 1,253 | |||||||||||||||||||||
| Translation of foreign operations | - | - | (262) | - | (262) | |||||||||||||||||||||
| Dividends declared | - | - | - | (13,646) | (13,646) | |||||||||||||||||||||
| Balance at June 30, 2013 | $ | 181,837 | $ | 11,279 | $ | (54) | $ | 96,259 | $ | 289,321 | ||||||||||||||||
| Total profit | - | - | - | 15,819 | 15,819 | |||||||||||||||||||||
| Share based compensation | - | 1,127 | - | - | 1,127 | |||||||||||||||||||||
| Share options exercised | 2,014 | (570) | - | - | 1,444 | |||||||||||||||||||||
| Translation of foreign operations | - | - | 448 | - | 448 | |||||||||||||||||||||
| Dividends declared | - | - | - | (13,732) | (13,732) | |||||||||||||||||||||
| Balance at December 31, 2013 | 183,851 | 11,836 | 394 | 98,346 | 294,427 | |||||||||||||||||||||
| Total profit | - | - | - | 8,398 | 8,398 | |||||||||||||||||||||
| Share based compensation | - | 956 | - | - | 956 | |||||||||||||||||||||
| Share options exercised | 1,337 | (309) | - | - | 1,028 | |||||||||||||||||||||
| Translation of foreign operations | - | - | 121 | - | 121 | |||||||||||||||||||||
| Dividends declared | - | - | - | (17,642) | (17,642) | |||||||||||||||||||||
| Balance at June 30, 2014 | $ | 185,188 | $ | 12,483 | $ | 515 | $ | 89,102 | $ | 287,288 | ||||||||||||||||
| Condensed consolidated statement of cash flows | ||||||||||||
| Three and Six months ended June 30, 2014 and 2013 | ||||||||||||
| June 30, | June 30, | |||||||||||
| (000's) | 2014 | 2013 | ||||||||||
| Cash provided by (used in): | ||||||||||||
| Operating activities: | ||||||||||||
| Profit for the period | $ | 8,398 | $ | 26,632 | ||||||||
| Adjustments for: | ||||||||||||
| Depreciation | 25,265 | 22,606 | ||||||||||
| Amortization of intangible assets | 1,639 | 4,102 | ||||||||||
| Share based compensation | 956 | 1,081 | ||||||||||
| Amortization of other assets | 64 | 64 | ||||||||||
| Gain on sale of property, plant and equipment | (3,653) | (12) | ||||||||||
| Unrealized foreign exchange (gain) loss | 56 | (132) | ||||||||||
| Finance costs | 1,937 | 2,196 | ||||||||||
| Income tax expense | 2,966 | 8,638 | ||||||||||
| 37,628 | 65,175 | |||||||||||
| Income taxes paid | (50) | (21,638) | ||||||||||
| Interest paid | (1,810) | (2,075) | ||||||||||
| Changes in non-cash working capital items | (2,370) | (12,135) | ||||||||||
| 33,398 | 29,327 | |||||||||||
| Investing activities: | ||||||||||||
| Purchase of property, plant and equipment | (76,224) | (39,584) | ||||||||||
| Proceeds on sale of property, plant and equipment | 9,360 | 16,765 | ||||||||||
| (66,864) | (22,819) | |||||||||||
| Financing activities: | ||||||||||||
| Proceeds from loans and borrowings | 48,135 | 4,485 | ||||||||||
| Share purchase options exercised | 1,028 | 1,253 | ||||||||||
| Payment of dividends | (15,697) | (12,246) | ||||||||||
| 33,466 | (6,508) | |||||||||||
| Change in cash position | - | - | ||||||||||
| Cash, beginning of period | - | - | ||||||||||
| Cash, end of period | $ | - | $ | - | ||||||||
Non-GAAP and additional GAAP measures
Certain measures in this MD&A do not have any standardized meaning as prescribed by generally accepted accounting principles ("GAAP") and, therefore, are considered non-GAAP measures. These measures are regularly reviewed by the Chief Operating Decision Maker and provide investors with an alternative method for assessing the Corporation's operating results in a manner that is focused on the performance of the Corporation's ongoing operations and to provide a more consistent basis for comparison between periods. These measures should not be construed as alternatives to total profit and total comprehensive income determined in accordance with GAAP as an indicator of the Corporation's performance. The method of calculating these measures may differ from other entities and accordingly, may not be comparable to measures used by other entities. The following non-GAAP and additional GAAP measures are used to monitor the Corporation's performance:
| EBITDAS: Earnings before finance costs, taxes, depreciation, amortization, gain/loss on disposal of property, plant and equipment and share based compensation ("EBITDAS"). 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. | |||||
| Debt to total capitalization: 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. |
Reconciliation of non-GAAP and additional GAAP measures
The following provides a reconciliation of non-GAAP and additional GAAP measures to the nearest measure under GAAP for items presented throughout the MD&A.
a) EBITDAS
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||||||
| (000's) | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
| Total profit | $ | 680 | $ | 10,123 | $ | 8,398 | $ | 26,632 | |||||||||||||||||
| Add: | |||||||||||||||||||||||||
| Finance costs | 937 | 1,081 | 1,937 | 2,196 | |||||||||||||||||||||
| Income tax expense | 254 | 3,053 | 2,966 | 8,638 | |||||||||||||||||||||
| Depreciation | 12,878 | 11,762 | 25,265 | 22,606 | |||||||||||||||||||||
| Amortization of intangible assets | 820 | 2,051 | 1,639 | 4,102 | |||||||||||||||||||||
| (Gain) loss on disposal of property, plant and equipment | (520) | 4,243 | (2,115) | 4,086 | |||||||||||||||||||||
| Share based compensation | 447 | 395 | 956 | 1,081 | |||||||||||||||||||||
| EBITDAS | $ | 15,496 | $ | 32,708 | $ | 39,046 | $ | 69,341 | |||||||||||||||||
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 "Consolidated revenues and EBITDAS are expected to improve in the latter half of 2014, with EBITDAS for the third and fourth quarters being in the $30-35 million and $35-40 million range respectively " and "Manufacturing activities in the second half of 2014 will turn to external projects with 64% of capacity dedicated to external projects as compared to 45% in the first half of the year. Given the increased project demand, total manufacturing hours are expected to be 11% higher in the second half of 2014 as compared to the first half of 2014. Margins are expected to return to more normal levels new external manufacturing projects come on line. Efforts to expand the demand for manufacturing services continue, and discussions with potential customers for the modular construction of permanent facilities are ongoing."
Camp rental and catering operations are expected to improve through the last half of 2014. Large camp activities for Q3 2014 are expected to be slightly ahead of Q2 2014 results and increase substantially in Q4 2014" and "Utilization at several open camp facilities is expected to improve based on demand from increasing customer activity in those areas while a number of dedicated customer camp assets that experienced lower utilization during transition between contracts are expected to achieve stronger utilization. Drill camp operations have improved considerably in Q3 2014 and are expected to improve through Q4 2014 as we target more competitive pricing and begin deploying equipment in new configurations to satisfy evolving customer requirements."
"Matting sales are expected to remain strong due to demand for longer term customer projects. Mat sales margins are under pressure from both increased competition and rising material costs. Matting rentals are expected to stay strong with a focus on increasing the size of the rental fleet and displacing the use of third party matting." and "The Corporation remains active on the project bidding front, however a number of contract awards are dependent on the outcome of final investment decisions related to proposed LNG projects. Competition for contract awards is increasing, particularly in the up to 500 person camp segment. In addition, competition in certain regions of the Fort McMurray Oil Sands region has increased with the opening of additional temporary camps."
The foregoing statements are based on the assumption that the contracts entered into at this time with respect to such activity will not be amended or terminated and 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.
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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