TSX Symbol: HNL

CALGARY, May 8, 2018 /PRNewswire/ - Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three months ended March 31, 2018 and 2017.

First Quarter Highlights

  • Subsequent to Q1 2018, Horizon North successfully completed the previously announced acquisition of Shelter Modular Inc., a 34,000 sq. ft. full service modular manufacturing company based in Aldergrove, British Columbia;
  • Growth of the workforce in the Kamloops, British Columbia manufacturing facility lagged expectations and contributed to weaker than expected results for the quarter. The Aldergrove facility will add additional capacity to execute on the growing backlog in the Modular Solutions division;
  • On May 7, 2018 Horizon North entered into a master teaming agreement with EllisDon Corporation ("EllisDon").  The teaming agreement will apply to projects such as hotels, commercial buildings and multi-family structures undertaken by Horizon North's Modular Solutions division.  Horizon North and EllisDon will select, pursue, and execute such projects jointly, bringing the respective strengths of each organization to our customers;
  • The Modular Solutions business gained significant momentum throughout Q1 2018, closing with a backlog of $62.5 million compared to $43.9 million at Q4 2017 with an additional $127.0 million of high-quality, high probability opportunities;
  • Horizon North's joint venture partnership, Halfway River Horizon North, was conditionally awarded $63 million of turn-key camp services in the Montney region of northeast British Columbia. Pending regulatory and internal customer approvals, the contract is expected to start in Q3 2018 and run through Q4 2019;
  • Horizon North continued its dividend policy and paid its 26th consecutive quarterly dividend; and
  • EBITDAS for Q1 2018 were below the comparable period of 2017, which included $1.0 million of insurance proceeds. The decrease was a result of lower large camp and mat sales volumes combined with a shifting contract mix in the Camps & Catering operations as part of a capital light strategy.

First Quarter Financial Summary

Three months ended March 31

(000's except per share amounts)

2018

     2017(2)

%
Change

Revenue

$

82 ,575

$

70,488

17

EBITDAS(1)

4,433

8,254

(46)

EBITDAS as a % of revenue

5%

12%

Operating (loss) earnings

(7,044)

8,153

(186)

Operating (loss) earnings as a % of revenue

(9%)

12%

Total (loss) profit

(6,062)

5,140

(218)

Total comprehensive (loss) income  

(6,062)

5,140

(218)

Earnings (loss) per share





Basic                                    

$

(0.04)

$ 0.04

Diluted                                             

$

(0.04)

$

0.04

Total assets

$

482,753

$

485,961

(1)

Total Long-term loans and borrowings

85,550

70,771

21

Adjusted fund flow

4,672

6,661

(30)

Net Capital spending

16,339

(9,612)

(270)


Total debt to EBITDAS(1)

3.26:1.00

2.84:1.00


Debt to total capitalization ratio(1)

0.22:1.00

0.18:1.00


Dividends declared

$

2,907

$

2,892

Dividends declared per share

$

0.02

$

0.02


(1)

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

(2)

Includes insurance settlement in Q1 2017 related to the Fort McMurray wild fires.

 

First Quarter Operational Overview

Results for the three months ended March 31, 2018, except for revenue, decreased across all measures compared to the three months ended March 31, 2017. The increase in revenue for Q1 2018, was mainly driven by the Modular Solutions division as a result of greater project volumes compared to Q1 2017. Partially offsetting this increase were lower mat sales and large camp volumes from the Industrial Services division, compared to Q1 2017. Decreased EBITDAS was a result of lower volumes in Industrial Services combined with a different contract mix in the Camps & Catering operation. Additionally, the first quarter of 2017 included an insurance settlement related to the total loss of the Blacksand Executive Lodge during the 2016 Fort McMurray wildfires. See "Effect of Q1 insurance settlement" on page 6 of this MD&A for a normalization of Q1 2017 results.

Industrial Services

Revenues from Industrial Services for Q1 2018 decreased by 2% compared to Q1 2017. The decrease was mainly a result of lower mat sales along with the associated transport and installation activity. The decrease in mat sales was primarily a result of allocating the majority of Q1 2018 mat production to rental fleet to meet continued strong rental demand. The majority of the demand continues to be driven by high levels of activity in the W5/W6 area south of Grande Prairie, Alberta. Partially offsetting the lower mat sales revenue were increased revenues from Camps & Catering which experienced higher catering only activity as a result of recent Aboriginal partnerships in the Fort McMurray, Alberta area which were not in place in Q1 2017. In addition, used camp equipment sales were higher compared to Q1 2017.

Modular Solutions

Modular Solutions revenues for Q1 2018 were above Q1 2017 as a result of the increased number and scope of projects. The projects in Q1 2018 included several government sponsored affordable housing projects, a hotel project and several commercial condominium projects compared to a single government sponsored affordable housing project and one hotel project in Q1 2017.

Other Financial Measures

Horizon North's Q1 2018 EBITDAS decreased compared to Q1 2017, mainly as a result of the volume and contract mix discussed above. As well, Q1 2017 EBITDAS included $1.0 million of business interruption insurance proceeds related to the 2016 Fort McMurray, Alberta wildfires. Operating loss and loss per share for Q1 2018 was significantly lower compared to Q1 2017 due to lower EBITDAS and the Q1 2017 insurance settlement.

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 $85.6 million at March 31, 2018 compared to $74.6 million at December 31, 2017. As a result of the increased debt, Total Debt to EBITDAS ratio was 3.26:1.00 compared to 2.48:1.00 at December 31, 2017.

Outlook

Horizon North's focus in Q2 and the remainder of 2018 will continue to be on:

  • Moving forward initiatives started in 2017 intended to strengthen and diversify the Industrial Services business;
  • Ensuring Horizon North is positioned and prepared to take advantage of LNG opportunities; and
  • Expand the Modular Solution backlog while honing execution.

For Industrial Services, Horizon North anticipates moderate strengthening of activity levels in the Camps & Catering operations compared to Q1 2018. The contract mix experienced in Q1 2018 is expected to shift in the second half of 2018 and include more large camp activity with the expectation of the $63 million conditional contract award becoming a firm contract. Horizon North does not expect any significant strengthening in pricing and will continue to focus on cost controls and operational discipline to improve EBITDAS levels.

The Industrial Services business will be focused on continuing to build-out and expand on the three phase strategy initiated in 2017:

  • Leverage the Aboriginal relationships entered into in the second half of 2017 which cover regions north and south of Fort McMurray, Alberta. A significant project undertaken in the second half of 2017 has shown the potential of this region and Horizon North will continue to develop similar opportunities;
  • Focus on the Duvernay and Montney regions through securing strategic land locations which position Horizon North to participate fully in the continued high activity levels expected in world class resource plays similar to the conventional W5/W6 market; and
  • Grow Horizon North's presence in the mining sector, specifically on developing opportunities in northern Canada where Horizon North has a strong track record.

With the likelihood of one LNG project proceeding to final investment decision, Horizon North will continue to develop plans and work to ensure it is well positioned to take full advantage of opportunities as they arise by strengthening existing relationships with regional First Nations and the municipality as well as completing the development of its land asset in Kitimat, British Columbia.

The Modular Solutions business is expected to continue its growth based on Q1 2018 backlog and the high-quality opportunity pipeline underpinned largely by social infrastructure and affordable housing projects. Ramp up of the workforce in the Kamloops plant continues to lag expectations and the desired staffing levels will likely not be achieved until the second half of 2018.  The integration of the Shelter Modular Inc. acquisition is expected to be completed by the end of Q2 2018 adding to capacity growth in the second half of 2018. Horizon North anticipates that Modular Solutions will continue its trend of earnings improvement and contribute positive EBITDAS throughout 2018 as increased volumes drive improved economies of scale.

The recently announced teaming agreement with EllisDon will further strengthen Modular Solutions ability to grow. The agreement applies to specified projects such as hotels, commercial buildings, and multi-family structures undertaken by Horizon North's Modular Solutions division. Horizon North and EllisDon will select, pursue, and execute such projects jointly, bringing the respective strengths of each organization to customers.

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. Cost reduction measures across our operations and the continued centralization of certain general and administrative functions will drive improved cash flow through efficiencies. In addition to a limited and tightly managed capital program, Horizon North will continue to assess its portfolio of assets in 2018 to ensure a focus on core business lines.

Dividend payment

Horizon North announced today that its Board of Directors has declared a dividend for the second quarter of 2018 at $0.02 per share. The dividend is payable to shareholders of record at the close of business on June 30, 2018 to be paid on July 13, 2018. 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 months ended March 31, 2018 and 2017 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.

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, impairment, 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 "Highlights" the statement that:

"Horizon North's joint venture partnership Halfway River Horizon North was conditionally awarded $63 million of turn-key camp services in the Montney region of northeast British Columbia. Pending regulatory and internal customer approvals, the contract is expected to start in Q3 2018 and run through Q4 2019."

Under the heading "Outlook" the statement that:

"Horizon North's focus in Q2 and the remainder of 2018 will continue to be on:

  • Moving forward initiatives started in 2017 intended to strengthen and diversify the Industrial Services business;
  • Ensuring Horizon North is positioned and prepared to take advantage of LNG opportunities; and
  • Expand the Modular Solution backlog while honing execution.

For Industrial Services, Horizon North anticipates moderate strengthening of activity levels in the Camps & Catering operations compared to Q1 2018. The contract mix experienced in Q1 2018 is expected to shift in the second half of 2018 and include more large camp activity with the expectation of the $63 million conditional contract award becoming a firm contract. Horizon North does not expect any significant strengthening in pricing and will continue to focus on cost controls and operational discipline to improve EBITDAS levels.

The Industrial Services business will be focused on continuing to build-out and expand on the three phase strategy initiated in 2017:

  • Leverage the Aboriginal relationships entered into in the second half of 2017 which cover regions north and south of Fort McMurray, Alberta. A significant project undertaken in the second half of 2017 has shown the potential of this region and Horizon North will continue to develop similar opportunities;
  • Focus on the Duvernay and Montney regions through securing strategic land locations which position Horizon North to participate fully in the continued high activity levels expected in world class resource plays similar to the conventional W5/W6 market; and
  • Grow Horizon North's presence in the mining sector, specifically on developing opportunities in northern Canada where Horizon North has a strong track record.

With the likelihood of one LNG project proceeding to final investment decision, Horizon North will continue to develop plans and work to ensure it is well positioned to take full advantage of opportunities as they arise by strengthening existing relationships with regional First Nations and the municipality as well as completing the development of its land asset in Kitimat, British Columbia.

The Modular Solutions business is expected to continue its growth based on Q1 2018 backlog and the high-quality opportunity pipeline underpinned largely by social infrastructure and affordable housing projects. Ramp up of the workforce in the Kamloops plant continues to lag expectations and the desired staffing levels will likely not be achieved until the second half of 2018.  The integration of the Shelter Modular Inc. acquisition is expected to be completed by the end of Q2 2018 adding to capacity growth in the second half of 2018. Horizon North anticipates that Modular Solutions will continue its trend of earnings improvement and contribute positive EBITDAS throughout 2018 as increased volumes drive improved economies of scale.

The recently announced teaming agreement with EllisDon will further strengthen Modular Solutions ability to grow. The agreement applies to specified projects such as hotels, commercial buildings, and multi-family structures undertaken by Horizon North's Modular Solutions division. Horizon North and EllisDon will select, pursue, and execute such projects jointly, bringing the respective strengths of each organization to customers.

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. Cost reduction measures across our operations and the continued centralization of certain general and administrative functions will drive improved cash flow through efficiencies. In addition to a limited and tightly managed capital program, Horizon North will continue to assess its portfolio of assets in 2018 to ensure a focus on core business lines."

Under the heading "Modular Solutions" the statement that:

"The primary metric for Modular Solutions is the backlog of projects and timing of backlog execution. Currently, the focus for this business unit is to secure and increase backlog, which was $62.5 million at the end of Q1 2018 compared to $32.4 million at Q1 2017. With consistent backlog, revenues and plant efficiencies are expected to improve and generate more stable and predictable results."

Under the heading "Dividend Payment" regarding the payment of a dividend to shareholders of record at the close of business on June 30, 2018 to be paid on July 13, 2018.

Under the heading "Industrial Services" where Horizon North expects continued growth in catering only work as a result of additional First Nations partnerships.

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 2018;
  • operational results and capital spending;
  • anticipated backlog in the Modular Solutions business;
  • trade and other receivables;
  • 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 are based are reasonable, undue reliance should not be placed on the forward-looking statements because Horizon North cannot give any assurance that they will prove to be correct. Since forward-looking statements 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.

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 Services division supplies workforce accommodations, camp management services, access solutions, maintenance and utilities. Our Modular Solutions 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.

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SOURCE Horizon North Logistics Inc.