Horizon North Logistics Inc. Announces Results for the Quarter Ended June 30, 2016
CALGARY, Aug. 11, 2016 /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, 2016 and 2015.
Second Quarter Key Comments
- Horizon North's operations were significantly impacted by the wildfires in the Fort McMurray area. All guests and employees were safely evacuated; however, the 665 bed Blacksand Executive Lodge was completely destroyed by the wildfire and the nearby Birch Mountain Lodge suffered extensive smoke damage. The impacted camps and equipment were appropriately insured and Horizon North is working closely with insurers on the claim;
- Despite losing a significant number of working days in May due to wildfire related evacuation orders, results for Q2 2016 were reasonably strong with June reflecting increased demand for accommodation associated with emergency personnel, post-fire assessment and recovery activities;
- Horizon North continued to increase the momentum of its transformational change, completing the acquisition of Karoleena Inc. in June and announcing the strategic acquisition of Empire Camp Equipment Ltd. ("Empire Camps"). These acquisitions support Horizon North's focus to evolve two distinct product and service lines; a permanent modular offering and an industrial offering which represents Horizon North's more traditional camp & catering and rentals products and services;
- Horizon North's Statement of Financial Position closed the quarter in a strong position with a trailing twelve months Debt to EBITDAS ratio of 1.17:1.00 as a result of a reduced capital program, tightly managed working capital and reduced debt.
Second Quarter Financial Summary
| Three months ended June 30 |
Six months ended June 30 |
|||||||||||
| (000's except per share amounts) |
2016 |
2015 |
% |
2016 |
2015 |
% |
||||||
| Revenue |
$ |
52,509 |
$ |
84,888 |
(38%) |
$ |
130,418 |
$ |
218,856 |
(40%) |
||
| EBITDAS(1) |
3,690 |
10,093 |
(63%) |
16,926 |
39,507 |
(57%) |
||||||
| EBITDAS as a % of revenue |
7% |
12% |
13% |
18% |
||||||||
| Operating (loss) earnings |
(9,358) |
(4,034) |
(132%) |
(9,179) |
11,405 |
(180%) |
||||||
| Operating (loss) earnings as a % of revenue |
(19%) |
(5%) |
(7%) |
5% |
||||||||
| Total (loss) profit |
(7,982) |
(5,958) |
(34%) |
(8,238) |
4,324 |
(290%) |
||||||
| Total comprehensive (loss) income |
(7,984) |
(6,308) |
(27%) |
(8,309) |
4,392 |
(289%) |
||||||
| Earnings (loss) per share |
||||||||||||
| Basic |
$ |
(0.06) |
$ |
(0.05) |
(20%) |
$ |
(0.06) |
$ |
0.04 |
(250%) |
||
| Diluted |
$ |
(0.06) |
$ |
(0.05) |
(20%) |
$ |
(0.06) |
$ |
0.04 |
(250%) |
||
| Total assets |
448,773 |
489,950 |
(8%) |
448,773 |
489,950 |
(8%) |
||||||
| Long-term loans and borrowings |
46,847 |
114,235 |
(59%) |
46,847 |
114,235 |
(59%) |
||||||
| Funds from operations |
3,986 |
8,803 |
(55%) |
17,221 |
37,438 |
(54%) |
||||||
| Capital spending |
||||||||||||
| Purchase of property, plant & equipment |
5,667 |
12,950 |
(56%) |
13,122 |
28,138 |
(53%) |
||||||
| Proceeds from disposals of property, plant & equipment |
(1,550) |
(3,168) |
(51%) |
(5,199) |
(6,126) |
(15%) |
||||||
| Net Capital spending |
4,117 |
9,782 |
(58%) |
7,923 |
22,012 |
(64%) |
||||||
| Senior debt to EBITDAS(2) |
1.17:1.00 |
1.28:1.00 |
1.17:1.00 |
1.28:1.00 |
||||||||
| Total debt to EBITDAS(2) |
1.17:1.00 |
1.28:1.00 |
1.17:1.00 |
1.28:1.00 |
||||||||
| Debt to total capitalization ratio |
0.13:1.00 |
0.31:1.00 |
0.13:1.00 |
0.31:1.00 |
||||||||
| Dividends declared |
$ |
2,676 |
$ |
19,497 |
(86%) |
$ |
5,327 |
$ |
28,337 |
(81%) |
||
| Dividends declared per share |
$ |
0.02 |
$ |
0.16 |
(88%) |
$ |
0.04 |
$ |
0.24 |
(83%) |
||
| (1) See Non-GAAP measures definitions within the press release for details. |
||||||||||||
The Fort McMurray Fire and Horizon North
Horizon North was proud to play a role in supporting the people and community of Fort McMurray throughout the tragic events of the wildfire, stepping in to help wherever there was a need, opening the doors of our camps north of Fort McMurray to house hundreds of evacuees and emergency personnel. As events unfolded through May, Horizon North's operations in the affected areas were evacuated and restarted several times due to the shifting winds and the erratic nature of the fire. However, on May 16, 2016 a mandatory evacuation order was issued for all operations on the AOSTRA road due to high temperatures and strong winds which drove the wildfire directly towards the Blacksand Executive Lodge. All guests and personnel were safely evacuated; however, that evening Horizon North's premier 665 bed Blacksand Executive Lodge was completely destroyed by the wildfire and the nearby Birch Mountain Lodge sustained heavy smoke damage. The loss of the 665 Blacksand Executive Lodge beds represented 7% of Horizon North's 9,111 rentable beds pre-wildfire. During the remainder of the quarter Horizon North focused on restarting operations in order to meet the existing contract commitments at both Birch Mountain Lodge and Blacksand Executive Lodge with operational capability of approximately 1,000 beds in the area being restored by mid-June. In the near term, Horizon North is focused on ensuring contract commitments to our customers are being fulfilled and the cleanup efforts at Blacksand Executive Lodge.
Business and Industry Environment
Readers are cautioned that the content in this section is for general information purposes only and is not intended to be used as guidance.
Horizon North's primary business is the supply of turnkey remote housing and access solutions for the natural resource sector to support remote development and operational requirements. Currently, Horizon North is significantly weighted to resource customers with the majority of its revenues generated from the oil and gas sector.
Although oil prices have begun to recover recently, they remain dramatically lower between the comparative quarters and year-to-date. The decreased commodity prices have significantly impacted Horizon North's customers who responded by reducing capital programs and activity levels as well as focusing on cost reduction. Customers' reaction to the low oil and gas prices translated directly to significantly reduced demand for Horizon North's products and services along with downward pressure on pricing. The tables below are some of the measures which impact the demand for Horizon North's products and services.
| Three months ended June 30 |
||||||||||
| Average oil and natural gas prices |
2016 |
% change |
2015 |
% change |
2014 |
|||||
| West Texas Intermediate (US$/bbl)(1) |
$ |
45.41 |
(22%) |
$ |
57.85 |
(44%) |
$ |
103.35 |
||
| Natural Gas – Henry Hub (US$/MMBtu)(1) |
$ |
2.14 |
(22%) |
$ |
2.75 |
(40%) |
$ |
4.61 |
||
| Western Canadian Select – WCS (CDN$/bbl)(2) |
$ |
41.61 |
(27%) |
$ |
56.98 |
(37%) |
$ |
90.46 |
||
| Natural Gas – AECO (CDN$/GJ)(3) |
$ |
1.40 |
(47%) |
$ |
2.62 |
(45%) |
$ |
4.73 |
||
| (1) Average of NYMEX daily closing prices. |
||||||||||
| (2) Average of WCS daily closing prices. |
||||||||||
| (3) Average of AECO daily closing prices.
|
||||||||||
| Year ended December 31 |
||||||||||
| 2016 |
2015 |
2014 |
||||||||
| Capital Investments (billions) |
Forecast |
% change |
Estimated |
% change |
Estimated |
|||||
| Canadian oil and gas industry(1) |
$ |
31 |
(31%) |
$ |
45 |
(44%) |
$ |
81 |
||
| Oil sands(1) |
$ |
17(2) |
(23%) |
$ |
22(2) |
(39%) |
$ |
36 |
||
| (1) Canadian Association of Petroleum Producers. |
||||||||||
| (2) Alberta Economic Development and Trade, Alberta Government.
|
||||||||||
| Year ended December 31 |
||||||||||
| 2016 |
2015 |
2014 |
||||||||
| Drilling Activity (Western Canada) |
Forecast |
% change |
Actual |
% change |
Actual |
|||||
| Active rigs (1) |
151 |
(18%) |
184 |
(50%) |
370 |
|||||
| Operating days(1) |
53,461 |
(18%) |
64,851 |
(51%) |
131,021 |
|||||
| (1) Canadian Association of Oilwell Drilling Contractors. |
||||||||||
Second Quarter Overview
Horizon North's results for the three months ended June 30, 2016 ("Q2 2016") reflect the impact of the Fort McMurray wildfire, which include; housing of hundreds of evacuees, multiple evacuations and restarts of camps in the affected areas, recovery efforts and the write off of destroyed assets. Costs which were not deemed to be insurable, such as the efforts to assist the people and community of Fort McMurray were expensed in the quarter while costs to be covered by insurance were moved to the Statement of Financial Position as a recoverable cost. All assets destroyed in the fire were written off in the quarter and the loss associated with the write off was also moved to the Statement of Financial Position as a recoverable cost. The insurance claim is in the early stages and Horizon North is working very closely with its insurers to expedite the process and determine the final claim amount.
Results for Q2 2016 were reasonably strong despite the events of the quarter as June experienced higher demand for accommodations driven by emergency personnel who continued to monitor fire hot spots as well as post-fire assessment and recovery work. However, when compared to the three months ended June 30, 2015 ("Q2 2015"), Q2 2016 was significantly below in all financial measures. Between the comparative quarters, Horizon North experienced decreased demand for its products and services across all of its operations as a result of the continued uncertain economic environment. Persistent economic uncertainty and low oil prices have driven customers to significantly reduce their operational and capital expenditures as well as exert significant downward pressure on pricing. The manufacturing operations experienced the most significant decrease between the comparative quarters, accounting for half of the revenue decrease, as demand for manufactured products sharply declined.
Revenues from camp rental and catering operations for Q2 2016 decreased compared to the same period of 2015. The majority of the decrease was related to the decline in economic conditions between the comparative periods with volumes and pricing down significantly in Q2 2016 compared to Q2 2015. The impact of the wildfire was significant in the month of May with some camp operations experiencing a loss of up to 20 working days in the month however June rebounded strongly offsetting the majority of the revenue lost due to the wildfire. The net effect was a revenue decrease for Q2 2016 of approximately $2.5 million. Although Q2 2015 saw significant pricing reductions as existing contracts were renegotiated, Q2 2016 fully reflects the measures customers took throughout 2015 to deal with the falling oil prices. In Q2 2016 revenue per average available bed ("RevPAAB") and utilization were $40 and 52% respectively, down from $54 and 59% in Q2 2015, reflective of the lower demand and decreased pricing. The average fleet size stayed relatively consistent between the comparative periods mainly due to the removal of the 665 beds at Blacksand Executive Lodge.
Manufacturing revenues for Q2 2016 were well below the comparative quarter as a result of the low demand in Q2 2016. Activity in Q2 2015 was focused on the completion of a significant oil sands camp installation project which drove the majority of revenue. By contrast Q2 2016 had no projects of similar scope and as a result revenues were down significantly. Total direct hours, which include all direct hours in the manufacturing plants and associated installation hours on project sites, for Q2 2016 were down 89% compared to Q2 2015, mainly attributable to the reduction of manufacturing capacity as management continued to align headcount with the reduced demand. Of the total direct hours, 17% were allocated to third party contracts compared to 67% in the same period of 2015.
Revenues from the Rentals and Logistics segment for Q2 2016 decreased compared to the same quarter of 2015. The lower revenue was a result of the reduced demand for rental equipment, particularly access mats and relocatable structure units, combined with downward pressure on pricing. Utilization and pricing of mat rental fleet was 47% and $1.20 respectively, down from 80% and $1.50 in the same period of 2015. Similarly for relocatable structures, lower demand resulted in utilization of 40% in Q2 2016 compared to 74% in Q2 2015.
Horizon North's EBITDAS in Q2 2016 decreased compared to Q2 2015 mainly as a result of the significantly lower activity levels and the downward pressure on pricing compared to Q2 2015. As well, the Fort McMurray wildfire impacted Q2 2016 EBITDAS and included approximately $0.4 million of cost to support the evacuees and community throughout the disaster. Operating loss and loss per share for Q2 2016 increased compared to the same period of 2015 due to the reduced revenues and EBITDAS discussed above. Depreciation and amortization for Q2 2016 decreased compared to Q2 2015 mainly as a result of the write of the Blacksand Executive Lodge.
Horizon North continued to maintain a strong Statement of Financial Position through disciplined management of working capital, low debt and a reduced capital program. The total loans and borrowings were $46.8 million at the end of the quarter with a Debt to EBITDAS ratio of 1.17:1.00 compared to $114.2 million and Debt to EBITDAS of 1.28:1.00 at June 30, 2015.
Dividend payment
Horizon North announced today that its Board of Directors has declared a dividend for the third quarter of 2016 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on September 30, 2016 to be paid on October 17, 2016. The Board of Directors regularly monitors the strength of the Statement of Financial Position, cash from operations and capital requirements to ensure the overall sustainability of Horizon North is not compromised. The dividends will be eligible dividends for Canadian tax purposes.
Reporting Segment Realignment
Horizon North has been undergoing a transformational change to realign the Corporation, focusing on delivering a more fully integrated product and service offering model and diversification of the business base. With significant progress made on the transformation change Horizon North has realigned its reporting segments to reflect the changes that have been implemented.
The Camps & Catering segment combines the camps & catering operations, the manufacturing operations and the associated service operations.
The Rental and Logistics segment now combines all similar rental operations; matting, relocatable structures rental operations, transportation operations and the associated service operations.
The update is subtle and essentially takes the relocatable structures rental operations and groups it with similar rental operations which are typically straight forward equipment rentals managed similarly and under a single management team.
All disclosures contained herein and comparatives throughout this management discussion and analysis have been realigned in a similar manner to ensure meaningful comparatives.
Capital Spending
For the six months ended June 30, 2016 capital spending was $13.1 million compared to $28.1 million in the same period of 2015 as a result of a focused and disciplined 2016 capital program. Capital spending in Q2 2016 was mainly focused on; fleet equipment setup costs for the Phoenix camp and fulfilling land improvements commitments related to the Kitimat, British Columbia property in preparation for future development.
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, 2016 of $7.9 million compared to $22.0 million for the same period of 2015.
Horizon North does not currently have any material capital commitments associated with contracts to supply equipment or to purchase property, plant and equipment. Capital spending was funded primarily from cash from operations and the credit facility.
Outlook
Horizon North does not see any significant indicators which would cause the Corporation to change its outlook for the remainder of the year. The majority of the impact from the wildfire in May was mitigated by a strong rebound in June as a result of increased demand for accommodations to support safety personnel ensuring a safe and orderly return to the affected areas, ongoing damage assessment activities and restoration efforts. We anticipate the strong demand associated with post fire activities to be short lived and do not expect any significant change to revenues and EBITDAS for the second half of 2016. In the manufacturing and rentals operations, we expect the second half of the year will continue to be challenging until the current economic environment improves. Given the volatility inherent in the current commodity price environment, a period of price stability will be required in order for capital investment to re-start. Our view is that such investment is not likely to occur in the remainder of 2016.
The strategic acquisition of Empire Camps is anticipated to be completed later in the third quarter of 2016 and will add revenue and EBITDAS likely in the fourth quarter of 2016.
Throughout the second half of the year Horizon North will continue to move forward with transformational changes to our business which will focus the Corporation on two main offerings, permanent modular which consists of residential, retail and commercial products and an industrial offering which represent the more traditional camps and catering and rentals products and services.
Despite recent announcements concerning LNG development, Horizon North will continue to maintain a foothold on the west coast of British Columbia. The Corporation is currently exploring other non-LNG related opportunities which would utilize our existing investment in the area. For the remainder of the year capital spending is expected to be minimal and aligned with activity levels.
Horizon North will continue to prudently manage the Statement of Financial Position focusing on minimizing working capital and discipline capital spending.
Additional Information
A copy of the Corporation's Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2016 and 2015 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 10:00 a.m. MT (12:00 a.m. ET) on – August 12, 2016 to discuss Horizon North's first 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 19, 2016 by dialing 1-403-451-9481 or 1-855-859-2056 - Passcode: 58399448.
Caution Regarding Forward-Looking Statements and Information
Certain statements contained in the Management's 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 statements include, under the heading "Outlook" the statements that:
"Horizon North does not see any significant indicators which would cause the Corporation to change its outlook for the remainder of the year. The majority of the impact from the wildfire in May was mitigated by a strong rebound in June as a result of increased demand for accommodations to support safety personnel ensuring a safe and orderly return to the affected areas, ongoing damage assessment activities and restoration efforts. We anticipate the strong demand associated with post fire activities to be short lived and do not expect any significant change to revenues and EBITDAS for the second half of 2016. In the manufacturing and rentals operations, we expect the second half of the year will continue to be challenging until the current economic environment improves. Given the volatility inherent in the current commodity price environment, a period of price stability will be required in order for capital investment to re-start. Our view is that such investment is not likely to occur in the remainder of 2016.
The strategic acquisition of Empire Camps is anticipated to be completed later in the third quarter of 2016 and will add revenue and EBITDAS likely in the fourth quarter of 2016.
Throughout the second half of the year Horizon North will continue to move forward with transformational changes to our business which will focus the Corporation on two main offerings, permanent modular which consists of residential, retail and commercial products and an industrial offering which represent the more traditional camps and catering and rentals products and services.
Despite recent announcements concerning LNG development, Horizon North will continue to maintain a foothold on the west coast of British Columbia. The Corporation is currently exploring other non-LNG related opportunities which would utilize our existing investment in the area. For the remainder of the year capital spending is expected to be minimal and aligned with activity levels.
Horizon North will continue to prudently manage the Statement of Financial Position focusing on minimizing working capital and discipline capital spending."
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;
- capital investment in the Canadian oil and gas sector;
- dividend payments;
- anticipated activity levels for 2016;
- 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;
- 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 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 measures are used to monitor the Corporation's performance:
EBITDAS: Earnings before interest, 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 provides full service solutions in camp management accommodations and catering, matting and soil stabilization, remote power and energy generation systems, and relocatable and permanent modular structures. Horizon North provides a full range of these services to top tier clients in the LNG, oil sands, oil and gas, mining/exploration, forestry and construction sectors. As a result of our diverse product and service offerings, Horizon North is uniquely positioned to meet the needs of our customers anywhere in Canada and Alaska.
Corporate Information
SOURCE Horizon North Logistics Inc.
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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