Horizon North Logistics Inc. Announces Results for the Quarter Ended June 30, 2015
CALGARY, July 29, 2015 /CNW/ - TSX Symbol: HNL
Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three and six months ended June 30, 2015 and 2014.
Second Quarter Highlights
- The second quarter of 2015 experienced generally higher activity levels in large camps, relocatable structures and mat rentals compared to Q2 2014 but was negatively impacted by pricing concessions provided to key customers and the effects of competitive pricing on new projects;
- Q2 2015 EBITDAS decreased compared to Q2 2014 and were impacted by three significant cost items which are not anticipated to reoccur; higher costs related to a large camp installation project, restructuring costs incurred to drive efficiency improvements and a provincial sales tax assessment related to prior periods;
- The balance sheet continued to strengthen as a result of reduced working capital and disciplined capital spending exiting the quarter with a trailing twelve month Debt to EBITDAS ratio of 1.28:1.00;
- On July 8, 2015 Horizon North successfully completed a bought deal equity financing for net proceeds of $76.6 million with the proceeds used to initially pay down the Corporation's outstanding credit facilities which can then be redrawn to accelerate expansion related to LNG projects and other corporate opportunities.
Second Quarter Financial Summary
| Three months ended June 30 |
Six months ended June 30 |
||||||||||
| (000's except per share amounts) |
2015 |
2014 |
% |
2015 |
2014 |
% |
|||||
| Revenue |
$ |
84,888 |
$ |
96,094 |
(12%) |
$ |
218,856 |
$ |
218,305 |
- |
|
| EBITDAS(1) |
10,093 |
15,496 |
(35%) |
39,507 |
39,046 |
1% |
|||||
| EBITDAS as a % of revenue |
12% |
16% |
18% |
18% |
|||||||
| Operating earnings (loss) |
(4,034) |
1,871 |
(316%) |
11,405 |
13,301 |
(14%) |
|||||
| Operating earnings as a % of revenue |
(5%) |
2% |
5% |
6% |
|||||||
| Total profit (loss) |
(5,958) |
680 |
(976%) |
4,324 |
8,398 |
(49%) |
|||||
| Total comprehensive income (loss) |
(6,308) |
602 |
(1,148%) |
4,392 |
8,519 |
(48%) |
|||||
| Earnings per share |
|||||||||||
| Basic |
$ |
(0.05) |
$ |
0.01 |
(600%) |
$ |
0.04 |
$ |
0.08 |
(50%) |
|
| Diluted |
$ |
(0.05) |
$ |
0.01 |
(600%) |
$ |
0.04 |
$ |
0.08 |
(50%) |
|
| Total assets |
489,950 |
513,060 |
(5%) |
489,950 |
513,060 |
(5%) |
|||||
| Long-term loans and borrowings |
114,235 |
126,417 |
(10%) |
114,235 |
126,417 |
(10%) |
|||||
| Cash from operations |
40,275 |
37,579 |
7% |
72,661 |
33,399 |
118% |
|||||
| Capital spending |
|||||||||||
| Purchase of property, plant & equipment |
12,950 |
48,346 |
(73%) |
28,138 |
76,224 |
(63%) |
|||||
| Proceeds from disposals of property, plant & equipment |
(3,168) |
(3,833) |
(17%) |
(6,126) |
(9,360) |
(35%) |
|||||
| Net Capital spending |
9,782 |
44,513 |
(78%) |
22,012 |
66,864 |
(67%) |
|||||
| Senior debt to EBITDAS(2) |
1.28:1.00 |
1.30:1.00 |
(2%) |
1.28:1.00 |
1.30:1.00 |
(2%) |
|||||
| Total debt to EBITDAS(2) |
1.28:1.00 |
1.33:1.00 |
(4%) |
1.28:1.00 |
1.33:1.00 |
(4%) |
|||||
| Debt to total capitalization ratio |
0.31:1.00 |
0.30:1.00 |
3% |
0.31:1.00 |
0.30:1.00 |
3% |
|||||
| Dividends declared(3) |
$ |
19,497 |
$ |
8,825 |
121% |
$ |
28,337 |
$ |
17,642 |
61% |
|
| Dividends declared per share(3) |
$ |
0.16 |
$ |
0.08 |
- |
$ |
0.24 |
$ |
0.16 |
- |
|
| (1) |
Please refer to page 25 of the Management Discussion and Analysis for the definitions of Non-GAAP and additional GAAP measures and reconciliation of Net Earnings to EBITDAS. |
| (2) |
Please refer to page 15 of the Management Discussion and Analysis for the definitions of Debt to EBITDAS. |
| (3) |
Dividends declared for the three months ended June 30, 2015 represents the second and third quarter 2015 dividends and for the six months ended 2015 the first, second and third quarter dividends as described in note 8 of the Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2015. |
Second Quarter Overview
Horizon North's results for the three months ended June 30, 2015 ("Q2 2015") compared to the three months ended June 30, 2014 ("Q2 2014") decreased for most financial measures. However, results came in close to expectations with the exception of $5.6 million in non-recurring charges as a result of; higher costs associated with a large camp installation project, restructuring costs incurred to drive efficiency improvements throughout the organization and a provincial sales tax assessment. Q2 2015 is where Horizon North saw the impact of the current uncertain economic environment with results reflecting the effect of pricing accommodations negotiated on existing contracts and reduced pricing on new projects. Q2 2015 was a busy quarter for large camps, space rentals and mat rentals each experiencing higher volumes compared to Q2 2014 demonstrating the ongoing demand for Horizon North's services and our commitment to working with our key customers through the current uncertain economic environment. As well, Horizon North continues to work with suppliers to find efficiencies and reduce costs.
Manufacturing revenues were consistent between the comparative quarters with activity similarly focused on site installation projects in each quarter. Total direct hours, which include all direct hours in the manufacturing plants and installation hours on project sites, for Q2 2015 were down 28%, mainly attributable to the reduction of manufacturing capacity as management continues to align headcount with the reduced manufacturing order backlog. Of the total direct hours, 67% were allocated to third party contracts as compared to 42% in the same period of 2014.
Revenues from camp rental and catering operations for Q2 2015 decreased compared to the same period of 2014 as a result of negotiated pricing accommodations on existing contracts and reduced service revenues. Partially offsetting the downward pricing pressure was a 13% increase in manday volumes in the large camp operations, driven by a very active fire camp season in Q2 2015 and the addition of several large camps in the second half of 2014. Utilization in the comparative quarters softened to 56% from 60% and RevPAAB decreased to $97 from $117 primarily due to the decline in revenues and the increase in fleet by 1,526 beds between the comparative quarters.
Matting revenues decreased in the comparative quarters with the majority of the decrease coming from lower mat sales as a result of customers reducing their capital programs. Access mat rental revenues remained relatively consistent quarter over quarter with the rental volumes up 42% offsetting decreases in rental pricing. The higher volumes drove utilization to 80% from 79% in the comparative quarters but with an average fleet size of 30,705 mats compared to 17,393 mats in Q2 2014.
Horizon North's EBITDAS in Q2 2015 decreased compared to Q2 2014 mainly as a result of higher costs associated with a camp installation project, restructuring costs discussed above, and a provincial sales tax assessment recorded in the quarter. With the exception of the manufacturing operation, EBITDAS in camps and catering, relocatable structures and matting increased compared to the same period of 2014. Operating earnings and earnings per share for Q2 2015 decreased compared to the same period of 2014 due to the reduced revenues and EBITDAS discussed above. Depreciation and amortization remained relatively consistent in the comparative quarters.
Horizon North's balance sheet continued to improve in the second quarter of 2015. The improvement was mainly a result of reduced working capital, strong cash from operations and disciplined capital spending which facilitated the reduction of debt by $21.0 million in the quarter, exiting the quarter with total loans and borrowing of $114.2 million and trailing twelve months Debt to EBITDAS ratio of 1.28:1.00. The balance sheet was further strengthened by the receipt of net proceeds in the amount of $76.6 million from the bought deal equity financing which closed July 8, 2015.
Dividend payment
On June 17, 2015, the Corporation's Board of Directors declared a dividend for the third quarter of 2015 at $0.08 per share. The dividend is payable to shareholders of record at the close of business on September 30, 2015 to be paid on October 15, 2015. Horizon North expects to maintain its quarterly dividend of $0.08 per share based on a strong balance sheet, expectations of continued strong cash flow from operations and the potential for corporate growth opportunities. The Board of Directors regularly monitors these factors to ensure the overall sustainability of Horizon North is not compromised.
Capital Spending
For the six months ended June 30, 2015 capital spending was $28.1 million compared to $76.2 million in the same period of 2014 as a result of a focused and disciplined 2015 capital program. Capital in the first half of 2015 was mainly focused on expansion of the camp rental fleet, compared to the first half of 2014 which focused on building the relocatable structures fleet.
Management evaluates and manages its capital spending plans taking into account proceeds from the sale of property, plant and equipment resulting in net capital spending for the six months ended June 30, 2015 of $22.0 million compared to $66.9 million for the same period of 2014.
Outlook
Horizon North has not significantly changed its outlook for 2015 and anticipates the second half of the year will continue to be difficult while we wait for the current economic environment to improve. A challenging commodity price environment with depressed and fluctuating oil prices makes it difficult for customers to commit to new projects and recent changes in the Alberta political landscape have added additional uncertainty. These factors have resulted in customers either delaying or deferring their capital spending programs.
We continue to work closely with our customers through these challenging times and our second quarter results reflect the effects of pricing concessions provided on existing contracts and the effects of competitive pricing on new projects. Our strategy is to work with our key clients in order to remain competitive, while working towards a mutually beneficial solution over the longer term.
We continue to move forward with structural changes to our business, particularly in our manufacturing operations, which are being undertaken as part of realigning the direction of the Corporation to improve operational efficiency, stabilize our operating base and prepare for the next up-cycle. We have recently hired an experienced Vice President of Business Information Systems to enhance our information technology capabilities and are in the final stages of hiring a new Vice President of Manufacturing and are excited about the changes this individual will bring to our manufacturing platform.
Bidding activity continues to be reasonably strong in certain areas despite the challenging environment. We continue to focus on development of the market for modular construction of permanent facilities to solidify the demand for manufacturing capacity from areas other than traditional camp facility construction. However, we continue to act prudently and have worked to align manufacturing headcount and cost structure with current levels of demand.
Horizon North continues to progress on key development areas near proposed LNG project sites in British Columbia to be positioned for opportunities in this area. Suitable land positions have been secured in Kitimat and in Prince Rupert, British Columbia near proposed LNG project sites and we continue to dialogue with project proponents and local businesses in anticipation of future activity and development. Horizon North anticipates allocating additional capital to these locations in the second half of 2015 starting with some initial open camp developments to service existing customer request which will be expanded as demand and opportunities unfold. As such, the Board of Directors has approved an increase in Horizon North's 2015 capital spending budget to $50.0 million in anticipation of focusing capital to accelerate expansion plans related to potential LNG projects in British Columbia with an additional $10.0 million available subject to contract awards.
Horizon North's balance sheet continued to improve as a result of reduced working capital and disciplined capital spending which resulted in a reduction in net debt of $32.1 million since the beginning of the year. The balance sheet was further strengthened by a bought deal equity financing which was completed on July 8, 2015 and raised $76.6 million in net proceeds. The use of proceeds will be to initially pay down the Corporation's outstanding credit facilities which can then be redrawn to accelerate expansion related to LNG projects and other corporate opportunities.
Additional Information
A copy of the Corporation's Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2015 and 2014 and related Management's Discussion and Analysis have been filed with the Canadian securities regulatory authorities and is available on SEDAR at www.sedar.com and www.horizonnorth.ca. Unless otherwise indicated, the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and the reporting currency is in Canadian dollars
Conference call
Horizon North will host a conference call and webcast to begin promptly at 9:00 a.m. MT (11:00 a.m. ET) on – July 30, 2015 to discuss Horizon North's second quarter results.
To access the conference call by telephone the conference call dial in number is 1-888-231-8191
A live webcast of the conference call will be accessible on Horizon North's website at www.horizonnorth.ca by selecting the webcast link on the home page.
An archived recording of the conference call will be available approximately two hours after completion of the call until August 13, 2015 by dialing 1-403-451-9481 or 1-855-859-2056 - Passcode: 88292598.
Caution Regarding Forward-Looking Information and Statements
Certain statements contained in the Management Discussion and Analysis constitute forward-looking statements or information. These statements relate to future events or future performance of Horizon North. 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 information and statements include, but are not limited to, the following:
- Horizon North has not significantly changed its outlook for 2015 and anticipates the second half of the year will continue to be difficult;
- We continue to move forward with structural changes to our business, particularly in our manufacturing operations, which are being undertaken as part of realigning the direction of the Corporation to improve operational efficiency, stabilize our operating base and prepare for the next up-cycle;
- We continue to focus on development of the market for modular construction of permanent facilities to solidify the demand for manufacturing capacity from areas other than traditional camp facility construction;
- The use of proceeds will be to initially pay down the Corporation's outstanding credit facilities which can then be redrawn to accelerate expansion related to LNG projects and other corporate opportunities;
- the preparation of our west coast British Columbia land infrastructure;
- the payment of our declared quarterly dividend;
- our business strategy;
- our capital expenditure program for 2015;
- the forward-looking statements and information under the heading "Critical accounting Estimates and Judgments".
The forward-looking statements and information are based on certain assumptions made by Horizon North which include, but are not limited to, assumptions relating to:
- industry activity for oil, natural gas and mineral exploration and development in the western Canadian provinces and northern territories;
- commodity prices;
- anticipated activity levels for 2015;
- future operating costs and Corporation's access to capital;
- the effects of regulation by governmental agencies;
- the competitive environment in the which the Corporation operates;
- the ability of the Corporation to attract and retain personnel;
- the development of LNG and commodity transportation infrastructure; and
- the relationships between the Corporation and its customers; and
- general economic and financial conditions.
Although Horizon North believes that the expectations and assumptions on which the forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Horizon North cannot give any assurance that they will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of known and unknown risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following:
- volatility in the price and demand for oil, natural gas and minerals;
- fluctuations in the demand for the Corporation's services;
- availability of qualified personnel;
- changes in regulation by governmental agencies, including environmental regulation; and
- other factors listed under "Risks and Uncertainties" in this MD&A and other risk factors identified in the Corporation's annual information form.
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 North's operations and financial results are included in Horizon North's annual information form which may be accessed through the SEDAR website at www.sedar.com. In addition, the reader is cautioned that historical results are not indicative of future performance. The forward-looking statements and information contained in this MD&A are made as of the date hereof and Horizon North does not undertake any obligation to update publicly or revise any forward-looking statements and information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Certain information set out herein may be considered as "financial outlook" within the meaning of applicable securities laws. The purpose of this financial outlook is to provide readers with disclosure regarding Horizon North's reasonable expectations as to the anticipated results of its proposed business activities for the periods indicated. Readers are cautioned that the financial outlook may not be appropriate for other purposes.
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.
About Horizon North
Horizon North is a remote resource development service company that provides workforce accommodation solutions, camp management and catering services, and road and access matting solutions. Horizon North provides these services in support of oil sands development, oil and gas exploration, mining and infrastructure projects throughout Canada's western provinces and northern territories where local infrastructure does not meet project requirements.
SOURCE Horizon North Logistics Inc.
Corporate Information, For further information, please contact Rod Graham, President and Chief Executive Officer or Scott Matson, Senior 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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