Horizon North Logistics Inc. Announces Results for the Quarter Ended June 30, 2017
CALGARY, Aug. 1, 2017 /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, 2017 and 2016.
Second Quarter Highlights
- Horizon North was awarded a contract for the provision of a 380 person camp and related camp services in the Qikiqtaaluk region of Nunavut with revenue over the three year term expected to be $62 million, commencing in Q3 2017;
- In Q2 2017, Horizon North delivered its first modular hotel, an 85 room hotel in Revelstoke, British Columbia. This project demonstrated the advantage of modular construction with the first paying hotel guest just eight months after breaking ground, a significantly compressed timeline compared to standard construction;
- Horizon North completed the sale of a 450 bed camp facility in the Alberta oil sands area to the existing customer;
- Operating results for Q2 2017 were stronger than Q2 2016 driven by higher activity levels across the Industrial Services business lines and the sale of the 450 person camp facility in the Alberta oil sands area;
- The Modular Solutions business continued to build momentum through Q2 2017, exiting the quarter with $30.9 million of backlog and an improving line of sight on additional projects; and
- Horizon North continues to closely manage its balance sheet, monitoring working capital, the capital program and the level of leverage.
Second Quarter Financial Summary
| Three months ended June 30 |
Six months ended June 30 |
||||||||||
| (000's except per share amounts) |
2017 |
2016 |
% |
2017 |
2016 |
% |
|||||
| Revenue |
$ |
91,647 |
$ |
52,509 |
75 |
$ |
162,135 |
$ |
130,418 |
24 |
|
| EBITDAS(1) |
8,571 |
3,690 |
132 |
16,825 |
16,926 |
(1) |
|||||
| EBITDAS as a % of revenue |
9% |
7% |
10% |
13% |
|||||||
| Operating (loss) earnings |
(2,500) |
(9,358) |
(73) |
5,653 |
(9,179) |
(162) |
|||||
| Operating (loss) earnings as a % of revenue |
(3%) |
(18%) |
3% |
(7%) |
|||||||
| Total (loss) profit |
(2,949) |
(7,982) |
(63) |
2,191 |
(8,238) |
(127) |
|||||
| Total comprehensive (loss) income |
(2,950) |
(7,984) |
(63) |
2,190 |
(8,309) |
(126) |
|||||
| Earnings (loss) per share |
|||||||||||
| Basic |
$ |
(0.02) |
$ |
(0.06) |
$ |
0.02 |
$ |
(0.06) |
|||
| Diluted |
$ |
(0.02) |
$ |
(0.06) |
$ |
0.02 |
$ |
(0.06) |
|||
| Total assets |
$ |
487,095 |
448,773 |
9 |
$ |
487,095 |
$ |
448,773 |
9 |
||
| Total Long-term loans and borrowings |
69,425 |
46,847 |
48 |
69,425 |
46,847 |
48 |
|||||
| Funds from operations |
3,012 |
3,986 |
(24) |
9,673 |
17,221 |
(44) |
|||||
| Net Capital spending |
3,750 |
4,117 |
(9) |
(5,862) |
7,923 |
(174) |
|||||
| Senior debt to EBITDAS(1) |
2.39:1.00 |
1.17:1.00 |
2.39:1.00 |
1.17:1.00 |
|||||||
| Debt to total capitalization ratio(1) |
0.18:1.00 |
0.13:1.00 |
0.18:1.00 |
0.13:1.00 |
|||||||
| Dividends declared |
$ |
2,893 |
$ |
2,676 |
$ |
5,785 |
$ |
5,327 |
|||
| Dividends declared per share |
$ |
0.02 |
$ |
0.02 |
$ |
0.04 |
$ |
0.04 |
|||
| (1) |
See Non-GAAP measures definitions within the press release for details. |
Second Quarter Overview
The results for Q2 2017 improved compared to Q2 2016 as a result of higher activity levels across all of Horizon North's operations and the sale of an existing 450 person camp located in the Alberta oil sands area.
Revenues from Camps & Catering operations for Q2 2017 increased compared to Q2 2016. The increase was a result of strong large camp activity and the sale of an existing camp located in the Alberta oil sands area. Higher large camp volumes in the Fort McMurray, Alberta area were driven mainly by turn-around activities. Increased activity levels in the Grande Prairie, Alberta area were mainly a result of increased drilling activity and pipeline construction projects which were extended from Q1 2017 into Q2 2017 as a result of poor weather conditions. Large camp activity levels drove revenue per average available bed ("RevPAAB") and utilization of $42 and 51% respectively compared to $40 and 52% in Q2 2016. Q2 2017 utilization was on an average fleet of 9,397 rentable beds compared to 8,527 rentable beds in Q2 2016.
The sale of an existing 450 person camp also contributed to higher revenues in the quarter. The sale of fleet equipment is part of Horizon North's approach to manage and optimize the size and mix of the rental fleet. It is standard practice for Horizon North to include equipment buyout options in camp rental contracts and on this particular contract the customer exercised the buyout option on contract expiry.
Revenues from Rentals and Logistics operations for Q2 2017 increased compared to Q2 2016 as a result of stronger mat sales and rental activity, which drove higher transport and installation activity. The surge in demand for matting has been driven by increased drilling activity and wet ground conditions mainly in the Grande Prairie, Alberta area. Mat fleet utilization was significantly higher in Q2 2017 compared to Q2 2016, with lower revenue per mat rental day partially offsetting the utilization increase. Utilization and pricing of the mat rental fleet in Q2 2017 was 88% and $0.96 per mat rental day respectively, compared to 47% and $1.20 in Q2 2016. Relocatable structures activity strengthened compared to Q2 2016, with utilization of 42% in Q2 2017 compared to 40% in Q2 2016.
Modular Solutions revenues for Q2 2017 included multiple commercial projects, the most significant being an 85 room hotel in Revelstoke, British Columbia, and several residential projects. In Q2 2016, Horizon North acquired Karoleena Inc. and the Q2 2016 revenues reflect the first residential projects associated with this acquisition.
EBITDAS in Q2 2017 increased compared to Q2 2016 as a result of the higher activity levels and the camp sale discussed above. This increase was partially offset by a provision for doubtful accounts primarily related to camp rental contracts. The EBITDAS loss in Modular Solutions was expected and reflective of the significant technical effort required to bid for opportunities, complete pre-production design and engineering and the lower utilization experienced throughout the first half of Q2 2017.
Depreciation and amortization for Q2 2017 decreased compared to Q2 2016 as a result of camp setup costs being fully depreciated and the disposal of assets throughout the year, primarily the Blacksand Executive Lodge assets which were destroyed in the 2016 Fort McMurray, Alberta wildfires.
Horizon North continues to maintain a strong focus on managing the Statement of Financial Position through monitoring working capital and managing a reduced capital program. Total loans and borrowings at the end of each comparative quarter were $69.4 million for Q2 2017 compared to $46.8 million for Q2 2016. As a result of the decreased trailing twelve month EBITDAS, Horizon North's relative leverage increased with a Debt to trailing twelve month EBITDAS ratio at June 30, 2017 of 2.39:1.00 compared to 1.17:1.00 at June 30, 2016.
Outlook
Horizon North continues to move forward with its bifurcation strategy. While the Industrial operations are impacted by oil price volatility, which further reduces visibility into customer demand, Modular Solutions' line of sight into demand is strengthening with improved clarity on project timing and scope.
With oil prices currently in the mid $40's customer uncertainly has reappeared. Many energy customers are evaluating their capital spending profiles for the second half of 2017 with visibility on demand becoming less clear. However, there are certain geographic areas such as the Montney and Deep Basin which are expected to remain busy and Horizon North has a significant presence in these areas. Accordingly, management believes second half results for Industrial Services operations will be consistent compared to the first half of 2017. Given the current economic environment, Horizon North anticipates pricing of its services to remain at current rates despite any localized improvements to utilization. 2017 will continue to focus on cost reduction and efficiency initiatives across all operations to maintain and improve margins, as well, Horizon North will be assessing its portfolio of assets to ensure a focus on core business lines.
The outlook for Modular Solutions is encouraging with a quote log that continues to strengthen, convert into backlog and provide higher visibility for production. It is expected that efficiencies will increase in the second half of 2017 as a result of higher expected utilization of production capacity, value engineering initiatives and the consolidation of modular manufacturing facilities in Kamloops, British Columbia. However, spring flooding and the current wild fires in the interior of British Columbia have impacted certain projects resulting in some delays in permitting current projects as local governments focus on the urgent fire situation. Despite these challenges, it is anticipated that Modular Solutions will contribute positive EBITDAS in the second half of 2017.
Additionally, recent changes in government are anticipated to elevate the priority for social infrastructure initiatives, such as affordable housing. With several significant affordable housing projects in the quote log, it is anticipated the probability and timing of these projects will be moved up.
The strength of the Statement of Financial Position is a key priority and Horizon North will continue to closely manage debt levels and working capital. Focus will be on maintaining a manageable leverage position and to balance cash outflow with cash inflow through reducing debt, managing working capital and minimizing capital spending.
Dividend payment
Horizon North announced today that its Board of Directors has declared a dividend for the third quarter of 2017 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on September 30, 2017 to be paid on October 16, 2017. 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.
Additional Information
A copy of the Corporation's Condensed Consolidated Interim Financial Statements for the three and six months ended June 30, 2017 and 2016 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 August 2nd, 2017 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/investors/webcasts/
An archived recording of the conference call will be available approximately two hours after completion of the call until August 8, 2017 by dialing 1-403-451-9481 or 1-855-859-2056 - Passcode: 58648514.
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.
Caution Regarding Forward-Looking Statements and Information
Certain statements contained in this MD&A constitute forward-looking statements or information ("forward-looking statements"). 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 statement that:
"Horizon North continues to move forward with its bifurcation strategy. While the Industrial operations are impacted by oil price volatility, which further reduces visibility into customer demand, Modular Solutions' line of sight into demand is strengthening with improved clarity on project timing and scope.
With oil prices currently in the mid $40's customer uncertainly has reappeared. Many energy customers are evaluating their capital spending profiles for the second half of 2017 with visibility on demand becoming less clear. However, there are certain geographic areas such as the Montney and Deep Basin which are expected to remain busy and Horizon North has a significant presence in these areas. Accordingly, management believes second half results for Industrial Services operations will be consistent compared to the first half of 2017. Given the current economic environment, Horizon North anticipates pricing of its services to remain at current rates despite any localized improvements to utilization. 2017 will continue to focus on cost reduction and efficiency initiatives across all operations to maintain and improve margins, as well, Horizon North will be assessing its portfolio of assets to ensure a focus on core business lines.
The outlook for Modular Solutions is encouraging with a quote log that continues to strengthen, convert into backlog and provide higher visibility for production. It is expected that efficiencies will increase in the second half of 2017 as a result of higher expected utilization of production capacity, value engineering initiatives and the consolidation of modular manufacturing facilities in Kamloops, British Columbia. However, spring flooding and the current wild fires in the interior of British Columbia have impacted certain projects resulting in some delays in permitting current projects as local governments focus on the urgent fire situation. Despite these challenges, it is anticipated that Modular Solutions will contribute positive EBITDAS in the second half of 2017.
Additionally, recent changes in government are anticipated to elevate the priority for social infrastructure initiatives, such as affordable housing. With several significant affordable housing projects in the quote log, it is anticipated the probability and timing of these projects will be moved up.
The strength of the Statement of Financial Position is a key priority and Horizon North will continue to closely manage debt levels and working capital. Focus will be on maintaining a manageable leverage position and to balance cash outflow with cash inflow through reducing debt, managing working capital and minimizing capital spending."
- The Corporation's focus of its manufacturing infrastructure on permanent modular construction to decrease the dependence on the resource sector to provide a smoother and more reliable business operation;
- With consistent backlog, revenues and plant efficiencies are expected to improve and generate more stable and predictable results;
- The impact of the revisions to the credit facility, including the maturity date thereof;
- The payment of a dividend for the third quarter of 2017 at $0.02 per share and payable to shareholders of record at the close of business on September 30, 2017 to be paid October 16, 2017; and
- The timing of cash outflows related to trade and other payables and loans and borrowings.
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 2017;
- operational results and capital spending;
- future operating costs and Corporation's access to capital;
- the effects of regulation by governmental agencies;
- the competitive environment in 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 on 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, including certain information under the heading "Outlook", 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.
About Horizon North
Horizon North is a publicly listed corporation (TSX: HNL.TO) providing a full range of industrial, commercial, and residential products and services. Our Industrial division supplies workforce accommodations, camp management services, access solutions, maintenance and utilities. Our Modular Construction division integrates modern design concepts and technology with state of the art, off-site manufacturing processes; producing high quality building solutions for commercial and residential offerings including offices, hotels, and retail buildings, as well as distinctive single detached dwellings and multi-family residential structures. As a result of our diverse product and service offerings, Horizon North is uniquely positioned to meet the needs of our customers in numerous sectors, anywhere in Canada.
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, 900, 240 - 4th Street S.W., Calgary, Alberta T2P 4H4; Telephone (403) 517 - 4654, Fax (403) 517 - 4678; website: www.horizonnorth.ca
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