Horizon North Logistics Inc. Announces Results for the Quarter Ended September 30, 2016

CALGARY, Nov. 1, 2016 /CNW/ - TSX Symbol: HNL

Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three and nine months ended September 30, 2016 and 2015.

Third Quarter Key Comments

• Horizon North was awarded several modular construction projects in Q3 2016, including an 85 room Ramada hotel in Revelstoke, British Columbia and an affordable housing project in Vancouver, British Columbia for the Vancouver Affordable Housing Authority. These projects will significantly strengthen the manufacturing backlog for the remainder of 2016 and early 2017.
• Horizon North successfully completed the acquisition of Empire Camp Equipment Ltd. ("Empire Camps") on August 23, 2016;
• Demand for Horizon North's products and services, compared to Q3 2015, remained soft as a result of lower for longer commodity prices. Horizon North's customers continue to actively lower costs through deferral of plant maintenance projects and significantly limited capital budgets;
• Debt and Total Debt to EBITDAS increased as a result of the timing difference between the acquisition of Empire Camps and expected settlement of insurance claims related to the loss of Blacksand Executive Lodge; and
• The insurance claims related to the losses experienced in the Fort McMurray wildfire were formally submitted and Horizon North continues to work closely with insurers to facilitate the claims process.

Third Quarter Financial Summary

		Three months ended September 30					Nine months ended September 30
(000's except per share amounts)			2016		2015	% Change		2016		2015	% Change
Revenue		$	60,097	$	82,311	(27%)	$	190,515	$	301,167	(37%)
EBITDAS^(1)			7,126		14,435	(51%)		24,052		53,942	(55%)
EBITDAS as a % of revenue			12%		18%			13%		18%
Operating (loss) earnings			(4,721)		313	(1,608%)		(13,900)		11,718	(219%)
Operating (loss) earnings as a % of revenue			(8%)		-			(7%)		4%
Total (loss) profit			(4,863)		(170)	2,761%		(13,101)		4,154	(415%)
Total comprehensive (loss) income			(4,860)		(273)	1,680%		(13,169)		4,119	(420%)
Earnings (loss) per share
	Basic	$	(0.04)	$	-	-	$	(0.10)	$	0.04	(350%)
	Diluted	$	(0.04)	$	-	-	$	(0.10)	$	0.04	(350%)
Total assets			488,535		483,745	1%		488,535		483,745	1%
Long-term loans and borrowings			73,044		47,316	54%		73,044		47,316	54%
Funds from operations			6,892		14,046	(51%)		24,113		51,484	(53%)
Capital spending
	Purchase of property, plant & equipment		4,738		13,098	(64%)		17,860		41,236	(57%)
	Proceeds from disposals of property,
	plant & equipment		(1,624)		(1,326)	22%		(6,823)		(7,452)	(8%)
Net Capital spending			3,114		11,772	(74%)		11,037		33,784	(67%)
Senior debt to EBITDAS^(2)			1.97:1.00		0.64:1.00			1.97:1.00		0.64:1.00
Total debt to EBITDAS^(2)			1.97:1.00		0.64:1.00			1.97:1.00		0.64:1.00
Debt to total capitalization ratio			0.18:1.00		0.13:1.00			0.18:1.00		0.13:1.00
Dividends declared		$	2,892	$	10,609	(73%)	$	8,219	$	28,337	(71%)
Dividends declared per share		$	0.02	$	0.08	(75%)	$	0.06	$	0.24	(75%)

(1)        See Non-GAAP measures definitions within the press release for details.

Third Quarter Overview
Results for the three months ended September 30, 2016 ("Q3 2016") decreased across all financial measures compared to three months ended September 30, 2015 ("Q3 2015"). Persistent poor economic conditions driven by low commodity prices have caused Horizon North's customers to defer projects and severely reduce capital budgets. As a result, Horizon North has seen limited opportunities to maintain or grow the revenue backlog; new projects added to the backlog were won with very aggressive pricing and reduced margins in order to maintain market share. The third quarter experienced softer demand across all operations. In particular, the camp and catering operations were weaker than expected as post Fort McMurray wildfire activity decreased significantly in September combined with the deferral of projects by our regular customer base drove lower volumes. Similarly the rentals and manufacturing operations experienced weaker demand reducing utilization and demand.

Revenues from camp rental and catering operations for Q3 2016 decreased compared to the same period of 2015 as a result of generally lower activity levels mainly attributable to contracts which expired or ramped down during the year as the associated projects completed. In addition, Q3 2015 experienced high demand for base and line incident camps associated with fire suppression efforts, activity which did not materialize in Q3 2016. As contracts completed and ramped down throughout 2016 refilling the backlog was particularly challenging given the ongoing low levels of project spending and capital investment by our customers which limited the number and scope of bidding opportunities. Projects which were added to the backlog were won with very aggressive pricing and reduced margins resulting in revenue per average available bed ("RevPAAB") and utilization of $44 and 50% respectively, down from $58 and 54% in Q3 2015. The rentable bed fleet at the close of Q3 2016 was 9,405 rentable beds, a decrease of 220 beds. The decrease was a result of equipment sales throughout 2016 and the loss of the Blacksand Executive Lodge beds which were partially offset by the acquisition of the Empire Camps beds.

Manufacturing revenues for Q3 2016 were below the comparative quarter as a result of a limited number of projects with low contract value. By contrast, activity in Q3 2015 was focused on the completion of a significant oil sands camp installation project which drove the majority of revenue. Total direct hours, which include all direct hours in the manufacturing plants and associated installation hours on project sites, for Q3 2016 were down 90% compared to Q3 2015 with 34% of total direct allocated to third party contracts compared to 43% in the same period of 2015.

Revenues from the Rentals and Logistics segment for Q3 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 space rental units, combined with downward pressure on pricing. Utilization and pricing of the mat rental fleet was 57% and $0.96 per mat rental day respectively, compared to 54% and $1.34 in the same period of 2015. The higher utilization, compared to Q3 2015, was mainly related to the change in fleet size which decreased by 12%. For space rental units, lower demand resulted in utilization of 38% in Q3 2016 compared to 63% in Q3 2015.

Horizon North's EBITDAS in Q3 2016 decreased compared to Q3 2015 mainly as a result of the significantly lower activity levels and the downward pressure on pricing compared to Q3 2015. Operating loss and loss per share for Q3 2016 increased compared to the same period of 2015 due to the reduced revenues and EBITDAS discussed above. Depreciation and amortization for Q3 2016 decreased compared to Q3 2015 as camp setup costs became fully depreciated throughout the year and due to the loss of the Blacksand Executive Lodge.

Horizon North continued to maintain a strong focus on managing the Statement of Financial Position through minimizing working capital and a reduced capital program. Total loans and borrowings were $73.0 million at the end of Q3 2016 compared to $52.0 million at July 31, 2016 and $47.3 million in Q3 2015. The increase was mainly due to timing between the Empire Camps acquisition and settlement of the insurance claim. As a result of the increased debt, the Debt to EBITDAS ratio was 1.97:1.00 compared to 0.64:1.00 at September 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 December 30, 2016 to be paid on January 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.

Capital Spending

For the three months ended September 30, 2016 capital spending was $4.7 million compared to $13.1 million in the same period of 2015 as a result of a focused and disciplined 2016 capital program. Capital spending in Q3 2016 was mainly focused on; fulfilling land improvements commitments related to the Kitimat, British Columbia property in preparation for future development and limited fleet equipment and camp setup costs.

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 three months ended September 30, 2016 of $3.1 million compared to $11.8 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's Q3 results were reflective of the slower than anticipated pace of the Fort McMurray wildfire recovery efforts and customer deferrals of plant maintenance programs as a result of the wildfires in May or deferring costs to 2017. These factors have led us to soften our expectations for Q4 2016 and the first half of 2017. Horizon North is encouraged by the modular construction contract awards in Q3, however, we continue to believe the next six to nine months will be challenging given the current economic environment and expect a period of relative commodity price stability will be required in order for capital investment to re-start.

Transformational change to our business will continue to be a high priority, moving the Corporation towards two distinct business offerings; Modular Construction, consisting of residential, retail and commercial products and Industrial which represents the more traditional camps and catering and rentals products and services. The third quarter was very encouraging for both offerings with Modular Construction signing several significant projects including an 85 room hotel and Industrial successfully closing the Empire Camps acquisition.

The strength of the Statement of Financial Position is a key priority for Horizon North and we will continue to closely manage debt levels and working capital. Our focus will be to maintain a manageable leverage position and balance cash outflow with cash inflow through reducing debt, minimizing working capital and minimal capital spending.

Additional Information

A copy of the Corporation's Condensed Consolidated Interim Financial Statements for the three and nine months ended September 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 9:00 a.m. MT (11:00 a.m. ET) on – November 2, 2016 to discuss Horizon North's third 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 November 9, 2016 by dialing 1-403-451-9481 or 1-855-859-2056 - Passcode: 4447620.

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 statements that:
  
  "Horizon North is encouraged by the modular construction contract awards in Q3, however, we continue to believe the next six to nine months will be challenging given the current economic environment and expect a period of relative commodity price stability will be required in order for capital investment to re-start."
  
  "Transformational change to our business will continue to be a high priority, moving the Corporation towards two distinct business offerings; Modular Construction, consisting of residential, retail and commercial products and Industrial which represents the more traditional camps and catering and rentals products and services."
  
  "The strength of the Statement of Financial Position is a key priority for Horizon North and we will continue to closely manage debt levels and working capital. Our focus will be to maintain a manageable leverage position and balance cash outflow with cash inflow through reducing debt, minimizing working capital and minimal capital spending.";
  
  
• The payment of a dividend for the third quarter of 2016 at $0.02 per share and payable to shareholders of record at the close of business on December 30, 2016 to be paid on January 16, 2017;
  
  
• The maturity date of the credit facility; 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 2016 and 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 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.

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