Horizon North Logistics Inc. Announces Results for the Quarter Ended March 31, 2016
TSX Symbol: HNL
CALGARY, May 4, 2016 /CNW/ - Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three months ended March 31, 2016 and 2015.
First Quarter Key Points
- Revenues and EBITDAS for the first quarter of 2016 improved compared to the fourth quarter of 2015 but were significantly lower than Q1 2015 as a result of the decline in economic conditions since Q1 2015;
- EBITDAS as a percentage of revenue declined compared to Q1 2015 with cost reduction and operational efficiency initiatives partially offsetting the decrease in pricing experienced since Q2 2015;
- Funds from operations continues to be strong and support the capital program and quarterly dividend; and
- The balance sheet remains strong with debt and covenants well within required levels allowing flexibility to take advantage of opportunities as they present themselves.
First Quarter Financial Summary
| Three months ended March 31 |
||||||||
| (000's except per share amounts) |
2016 |
2015 |
% change |
|||||
| Revenue |
$ |
77,909 |
$ |
133,968 |
(42%) |
|||
| EBITDAS(1) |
13,236 |
29,414 |
(55%) |
|||||
| EBITDAS as a % of revenue |
17% |
22% |
||||||
| Operating earnings |
179 |
15,439 |
(99%) |
|||||
| Operating earnings as a % of revenue |
- |
12% |
||||||
| Total (loss) profit |
(256) |
10,282 |
(101%) |
|||||
| Total comprehensive (loss) income |
(325) |
10,700 |
(102%) |
|||||
| Earnings per share – basic |
$ |
- |
$ |
0.09 |
(100%) |
|||
| – diluted |
$ |
- |
$ |
0.09 |
(100%) |
|||
| Total assets |
$ |
476,341 |
$ |
527,926 |
(10%) |
|||
| Long-term loans and borrowings |
70,088 |
135,196 |
(48%) |
|||||
| Funds from operations |
13,235 |
28,635 |
(54%) |
|||||
| Capital spending |
||||||||
| Purchase of property, plant & equipment |
7,455 |
15,188 |
(51%) |
|||||
| Proceeds from disposals of property, plant & equipment |
(3,649) |
(2,958) |
23% |
|||||
| Net Capital spending |
3,806 |
12,230 |
(69%) |
|||||
| Senior debt to EBITDAS(2) |
1.51:1.00 |
1.42:1.00 |
||||||
| Total debt to EBITDAS(2) |
1.51:1.00 |
1.45:1.00 |
||||||
| Debt to total capitalization ratio |
0.17:1.00 |
0.33:1.00 |
||||||
| Dividends declared |
$ |
2,651 |
$ |
8,840 |
(70%) |
|||
| Dividends declared per share |
$ |
0.02 |
$ |
0.08 |
(75%) |
|||
| (1) See Non-GAAP measures definitions within the press release for details. |
First Quarter Overview
Horizon North's performance for the three months ended March 31, 2016 ("Q1 2016" or "the first quarter of 2016") improved compared to the three months ended December 31, 2015 ("Q4 2015" or "the fourth quarter of 2015") which had a comparable economic environment. Moderately higher seasonal pipeline activity in the Fort McMurray area drove stronger financial and operational measures compared to Q4 2015. However, in comparison to the three months ended March 31, 2015 ("Q1 2015" or "the first quarter of 2015"), the Q1 2016 results were significantly lower across all measures as a result of decreased demand for Horizon North's products and services. The significant decline in economic conditions between the comparative quarters was mainly due to low oil and gas prices which drove Horizon North's customers to dramatically reduce capital projects and cut operating costs. In particular, Horizon North experienced much lower demand for new manufactured products and saw significantly fewer seasonal exploration and pipeline construction projects compared to Q1 2015. Consolidated revenues for Q1 2016 decreased $56.1 million or 42% compared to Q1 2015 as a result of lower activity levels and reduced pricing across all operations. Manufacturing contributed the majority of the revenue decrease ($24.8 million) where demand for new manufactured product has all but disappeared. The Camps & Catering operations experienced lower activity levels and softer pricing in the first quarter of 2016 as customers were slow to ramp-up operations after the winter break and there was a marked reduction in the seasonal exploration and pipeline construction projects compared to Q1 2015.
Lack of demand for new manufactured product in Q1 2016 led to further headcount and cost reductions to align manufacturing capacity with demand. The decrease in revenue, compared to Q1 2015, was due to the differences in volume and scope of projects in the comparative quarters with Q1 2015 activity focused on executing a large camp project in the Alberta oil sands for a third party customer compared to several small projects in Q1 2016. Total direct hours in Q1 2016 decreased by 79% compared to Q1 2015 with 32% of total direct hours in Q1 2016 allocated to external sales compared to 75% in the same period of 2015.
The Camp and Catering operations also experienced decreased demand and reduced pricing compared to Q1 2015. Large camps saw lower utilization and reduced pricing across most camps as customers were slow to re-start operations after the winter break and reduced usage to trim costs compared to Q1 2015. The timing of pricing reductions negotiated in 2015 meant Q1 2015 revenues did not reflect any pricing decreases while Q1 2016 revenues reflected the lower pricing. Additionally, the significant seasonal lift experienced in Q1 2015 was far more muted in 2016 as a result of reduced capital spending on exploration and pipeline construction projects. The lower activity levels led to a decrease in most large camp measures compared to Q1 2015. Bed rental days, revenue per average available bed (RevPAAB) and utilization all decreased by 10%, 32% and 19% respectively compared to Q1 2015.
Revenues from the Matting operations decreased 51%, driven by low levels of customer activity and reduced pricing compared to Q1 2015. Mat rentals, mat sales and service all declined as customers postponed projects and tightly managed operating costs. Rental mat utilization decreased 44% with revenue per mat rental day lower by 7% and mat sales down 79% compared to Q1 2015.
Consolidated EBITDAS for Q1 2016 decreased $16.2 million or 55% compared to Q1 2015 and as a percentage of revenue EBITDAS was 17%, down from 22% in Q1 2015. The decline in EBITDAS for the comparative quarters was a direct result of the lower activity levels across all of the operations as discussed above. The downward pricing pressure experienced across all product and service lines drove the reduction in EBITDAS as a percentage of revenue. It is important to note that although pricing declined between the comparative quarters, the Corporation's focus on cost reduction and efficiency initiatives was significant in partially offsetting the impact of lower pricing.
Total profit and earnings per share decreased by 102% and 100% respectively compared to Q1 2015 as a result of the lower EBITDAS discussed above and relatively consistent depreciation and amortization expense quarter over quarter.
Horizon North's balance sheet remains strong with debt covenants and loans and borrowings well within required levels. The strong balance sheet leaves Horizon North with the flexibility to take advantage of opportunities as they arise. The focus continues to be on decreasing working capital and disciplined capital spending.
Dividend payment
Horizon North announced today that its Board of Directors has declared a dividend for the second quarter of 2016 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on June 30, 2016 to be paid on July 15, 2016. The Board of Directors regularly monitors the strength of the balance sheet, cash from operations and capital requirements to ensure the overall sustainability of Horizon North is not compromised. The dividends are eligible dividends for Canadian tax purposes.
Capital Spending
For the three months ended March 31, 2016, capital spending was $7.5 million compared to $15.2 million in the same period of 2015 as a result of a reduced capital program and disciplined capital management. Capital spending in Q1 2016 was mainly focused on land improvements related to the Kitimat, British Columbia property in preparation for future development and fleet equipment and setup for newly contracted projects.
Management evaluates and manages its capital spending plans taking into account proceeds from the sale of property, plant and equipment which amounted to $3.6 million in the quarter resulting in net capital spending for the three months ended December 31, 2016 of $3.8 million compared to $12.2 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
Low and volatile oil and gas prices have persisted into 2016 with little indication of recovering in the near term. Without a clear indication of improving commodity prices, Horizon North anticipates its pricing and activity levels will continue to moderate throughout the year as the continued economic uncertainty drives customers to reduce capital budgets and delay purchasing decisions.
Given the current environment Horizon North's focus for 2016 will be living within its means, matching expenditures to cash from operations. To achieve this Horizon North will be focused aligning manufacturing headcount to the current order book, managing the capital program to only essential maintenance and targeted expansion capital and reducing costs and improving efficiencies throughout the organization.
Horizon North's strategic initiative of business transformation will remain a high priority in 2016, continuing and building on the efforts started in 2015. The business transformation realigns and restructures the Corporation to focus on a fully integrated product and service offering, diversifying the business base and driving cost and efficiency initiatives. Diversifying the business base will be achieved through expanding into the permanent modular and facilities management markets.
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 their remote development and operational requirements. Currently, Horizon North is significantly levered to resource customers with the majority of its revenues generated from the oil and gas sector.
The dramatic decrease in oil and gas prices throughout 2015 significantly impacted Horizon North's customers who responded by reducing capital programs and activity levels as well as focusing on cost reduction. Customer's reaction to the low oil and gas prices translated directly to significantly reduced demand for Horizon North's products and services as well as 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 March 31 |
|||||||||||||||
| Average oil and natural gas prices |
2016 |
% change |
2015 |
% change |
2014 |
||||||||||
| West Texas Intermediate (US$/bbl)(1) |
$ |
34.79 |
(31%) |
$ |
50.20 |
(48%) |
$ |
96.75 |
|||||||
| Natural Gas – Henry Hub (US$/MMBtu)(1) |
$ |
2.03 |
(28%) |
$ |
2.82 |
(34%) |
$ |
4.28 |
|||||||
| Western Canadian Select – WCS (CDN$/bbl)(2) |
$ |
26.68 |
(37%) |
$ |
42.04 |
(50%) |
$ |
83.39 |
|||||||
| Natural Gas – AECO (CDN$/GJ)(3) |
$ |
2.00 |
(23%) |
$ |
2.60 |
(51%) |
$ |
5.36 |
|||||||
| (1) Average of NYMEX daily closing prices. |
|||||||||||||||
| (2) Average of WCS daily closing prices. |
|||||||||||||||
| (3) Average of AECO daily closing prices. |
|||||||||||||||
| Twelve months 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) |
$ |
12(2) |
(48%) |
$ |
23 |
(30%) |
$ |
33 |
|||||||
| (1) Canadian Association of Petroleum Producers. |
|||||||||||||||
| (2) Analysts' consensus estimate. |
|||||||||||||||
| Twelve months ended December 31 |
|||||||||||||||
| 2016 |
2015 |
2014 |
|||||||||||||
| Drilling Activity (Western Canada) |
Forecast |
% change |
Actual |
% change |
Actual |
||||||||||
| Active rigs (1) |
151 |
(18%) |
184 |
(51%) |
370 |
||||||||||
| Operating days(1) |
53,461 |
(18%) |
64,851 |
(51%) |
131,021 |
||||||||||
| (1) Canadian Association of Oilwell Drilling Contractors. |
|||||||||||||||
Additional Information
A copy of the Corporation's Condensed Consolidated Interim Financial Statements for the three months ended March 31, 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 9:00 a.m. MT (11:00 a.m. ET) on – May 5, 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 May 12, 2016 by dialing 1-403-451-9481 or 1-855-859-2056 - Passcode: 97003248.
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:
"Low and volatile oil and gas prices have persisted into 2016 with little indication of recovering in the near term. Without a clear indication of improving commodity prices Horizon North anticipates its pricing and activity levels will continue to moderate throughout the year as the continued economic uncertainty drives customers to reduce capital budgets and delay purchasing decisions.
Given the current environment Horizon North's focus for 2016 will be living within its means, matching expenditures to cash from operations. To achieve this Horizon North will be focused aligning manufacturing headcount to the current order book, managing the capital program to only essential maintenance and targeted expansion capital and reducing costs and improving efficiencies throughout the organization.
Horizon North's strategic initiative of business transformation will remain a high priority in 2016, continuing and building on the efforts started in 2015. The business transformation realigns and restructures the Corporation to focus on a fully integrated product and service offering, diversifying the business base and driving cost and efficiency initiatives. Diversifying the business base will be achieved through expanding into the permanent modular and facilities management markets."
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 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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