Horizon North Logistics Inc. Announces Results For The Quarter Ended June 30, 2011

CALGARY, Aug. 3, 2011 /CNW/ - TSX Symbol: HNL

Horizon North Logistics Inc. ("Horizon" or the "Corporation") reported its financial and operating results for the three and six months ended June 30, 2011 and 2010.

Second Quarter Highlights

• Consolidated revenues increased by 90% and consolidated EBITDAS increased by 201% as compared to the same period of 2010;
• Revenues from the Camps Catering segment increased by 86% as compared to the same period of 2010, driven by increased rental and catering activity and strong service revenues; and
• Revenues from the Matting segment increased by 116% as compared to the same period of 2010, led by strong mat sales and related services.

Financial Summary

Overview and Outlook

Horizon's second quarter 2011 results reflect continued strong demand for our products and services. Activity levels are being driven by improved and stable commodity prices, particularly oil prices. Stronger oil pricing is providing support for oil sands development projects to which Horizon's core business lines are closely tied, with 63% of Horizon's consolidated second quarter 2011 revenues generated from oil sands related customers. The long term nature of these projects, combined with mineral mining and infrastructure projects, have served to significantly reduce the seasonality in our business as evidenced by continued strong EBITDAS and earnings through what has historically been our slowest quarter.

Capital Program

Horizon is continuing to invest in its core business lines, raising its 2011 capital expenditure program from $84 million to $100 million. The majority of this increase represents investment in camp rental fleet assets with our bed count expected to increase from 5,600 at June 30, 2011 to 6,400 by year end. Additional investment is also being made in the matting rental fleet, which is expected to increase 24% by year end.

Credit Facilities

In conjunction with increasing operational activity and an expanded capital expenditure program, Horizon increased its credit facilities in the quarter. A new facility in the amount of $80 million replaces the previous aggregate $60 million of credit facilities, and includes a $35 million accordion feature, available upon request by the Corporation and subject to review and approval by the lenders. The new facility is a 3 year, committed facility with an initial maturity date of June 30, 2014 and is extendable annually, at the Corporation's request, for an additional 1 year.

Dividend Payment

July 15, 2011 marked Horizon's first quarterly dividend payment of $4.2 million, or $0.04 per share, to shareholders of record as of June 30, 2011. The Board of Directors of Horizon have declared a dividend for the third quarter of 2011 at $0.04 per share, payable to shareholders of record at close of business on September 30, 2011. The dividend will be paid on October 14, 2011.

Quarterly Financial Results

^{(1)All 2010 figures have been restated in accordance with International Financial Reporting Standards.}

^{(1)All 2010 figures have been restated in accordance with International Financial Reporting Standards.}

Camps Catering

Camps Catering revenue is comprised of camp rental and catering revenue, camp and space unit sales, equipment, space rental revenue and service revenue from transportation and installation.

Revenues from operations in the Camps Catering segment were $74.7 million for the three months ended June 30, 2011 compared to $40.2 million for the three months ended June 30, 2010, an increase of $34.5 million or 86%. EBITDAS from operations for the three months ended June 30, 2011 was $20.5 million or 27% of revenue compared to $7.7 million or 19% of revenue for the three months ended June 30, 2010, an increase of $12.8 million or 168%.

The significant increase in both revenue and EBITDAS in the Camps Catering segment is reflective of the robust business environment in the oil sands sector, which is driven by the significant investments oil sands operators are making in additional phases to existing operations and in new projects. In comparison to the second quarter of 2010, the current level of activity is a result of these investments being in the execution phase. This phase drives higher manpower levels resulting in increased demand for turnkey camp rental and for camp sales. For the six months ended June 30, 2011, 67% of this segments revenue was derived from oil sands as compared to 56% in the same period of 2010. The increased investment in the oil sands sector has been driven by the price of oil, which has remained between $75 and $100 per barrel since mid 2010. In the mining sector, continuing robust mineral prices resulted in several significant mine expansion projects in British Columbia and the Northwest Territories being initiated. In the second quarter of 2011, these mining projects were near the top of their manpower curve, as compared to the same period of 2010 when they were in the early stages of project planning and start-up.

Camp rental and catering revenue

Revenues from camp rental and catering operations were $39.8 million for the three months ended June 30, 2011 compared to $21.3 million for the three months ended June 30, 2010, an increase of $18.5 million or 87%. Revenues are derived from the following main business areas: large camp operations, drill camp operations, catering only operations, and ancillary equipment rentals.

The table below outlines the key performance metrics used by management to measure performance in the large camp and drill camp operations.

Revenues from the large camp operations for the three months ended June 30, 2011 increased by $16.9 million or 99% as compared to the three months ended June 30, 2010. Revenues from large camps are closely tied to the level of activity in the oil sands, as oil sands operators' increased their manpower, the demand for camp rental and catering increased. The higher demand is reflected in 201,201 bed rental days for the quarter ended June 30, 2011 as compared to 105,066 in the same period in 2010, an increase of 96,135. The higher bed rental day volume was accommodated by increased capacity of 992 beds as at June 30 2011 as compared to June 30, 2010 and by higher utilization of the camps. In addition to higher volumes, the revenue per bed rental day increased by $6 which is reflective of the mix of customers, with an increase of the shorter term customers compared to the long term contract customers.

Revenues from the drill camp operations increased for the three months ended June 30, 2011 as compared to the same period of 2010. Increased volumes and utilization were a result of overall higher drilling activity in Western Canada, with Canadian Association of Oilwell Drilling Contractors (CAODC) reporting average rig utilization in Western Canada for the three months ended June 30, 2011 at 24% as compared to 19% in the same period of 2010. The increase in drilling activity is reflected in the higher volumes by 4,226 bed days and 5% higher utilization for the three months ended June 30, 2011 as compared to the same period of 2010. These increases were offset by lower revenue per bed day. The lower rate was a combination of aggressive pricing and additional equipment and services requested by the customer once the camp is operational.

The table below outlines the key performance metrics used by management to measure performance in the catering only and equipment rental operations.

^{(1) 2010 revenue has been restated in accordance with International Financial Reporting Standards.}

Revenues from the provision of catering and housekeeping only services, with no associated bed rentals, for the three months ended June 30, 2011 increased marginally as compared to same period of 2010. The majority of the increased volume was due to higher manpower levels at a significant mine expansion project in the Northwest Territories. The project is now under full construction as compared to the same period of 2010 when it was initiating construction. The remaining volume increase came from catering and housekeeping services on customer owned drill camps. The higher volumes were offset by lower revenue per day rate, the decrease was primarily a result of renegotiating the agreement for higher volumes at a preferred daily rate.

Camp and space unit sales revenue

Camp and space unit sales revenues for the three months ended June 30, 2011 were $15.2 million as compared to $14.1 million for the same period in 2010, an increase of $1.1 million or 7%. The increase in revenues were mainly due to higher output put as a result of efficiencies gained from the longer production runs experienced in the three months ended June 30, 2011, as compared to short runs of non standard product in the same period of 2010. Production staff increased to an average of 400 people in the three months ended June 30, 2011 as compared to 300 people in the same period of 2010. This higher production capacity is focused on expanding the number of beds in the internal fleet, as a result, camp and space sales revenues are expected to continue at a similar level through-out the remainder of 2011 as the mix of internal fleet build and third party sales is expected to be relatively static.

Rental revenue

Space rental revenues for the three months ended June 30, 2011 were $1.5 million as compared to $1.1 million for the same period in 2010, an increase of $0.4 million or 36%. The increase came from higher volumes with fleet utilization for the three months ended June 30, 2011 at 88% compared to 83% for the same period in 2010. Rental rates strengthened as a result of the customer mix, with more space units being rented to mining and resource customers where rates are higher.

Service revenue

Revenues from camp mobilization, demobilization, transportation, and installation work for the three months ended June 30, 2011 were $18.1 million as compared to $3.8 million in the same period of 2010, an increase of $14.3 million or 376%. These revenues are largely driven by activity levels in both the camp rental and catering business and the camp and space sales business. For the three months ended June 30, 2011, service revenues were derived primarily from the transport and installation of two large manufacturing projects in the Fort McMurray area, as well as the mobilization of equipment in response to the to the wild fires in the Slave Lake area of central Alberta. The equipment was used to support emergency response crews and the municipality in the aftermath of the wild fires. The same period of 2010 had one large manufacturing project which did not have any associated installation revenue.

Direct costs

Direct costs for the three months ended June 30, 2011 were $53.3 million or 71% of revenue as compared to $31.6 million or 79% of revenue for the same period of 2010. Direct costs are closely related to revenues with the increase in overall costs a result of the higher activity levels seen in the three months ended June 30, 2011 as compared to the same period of 2010. As a percentage of revenue, direct costs declined by 8% compared to the same period of 2010. The decrease was attributable, in part, to efficiency gains in the manufacturing process, which come from long production runs of similar product. The manufacturing efficiencies are derived mainly from decreased labour hours associated with the project. Direct cost in the Camps catering segment declined as a percentage of revenue due to higher revenue volumes. These operations have a significant level of fixed cost, as utilization of the camps increases the fixed costs decrease as a percentage of revenue. The fixed costs are comprised of costs such as rent, taxes, utilities and minimum staff levels.

Matting

Matting revenue is comprised of mat rental revenue, mat sales revenue, installation, transportation, service, and other revenue as follows:

^{(1)2010 revenue, EBITDAS and operating earnings have been restated in accordance with International Financial Reporting Standards.}

Revenues from the Matting segment for the three months ended June 30, 2011 were $12.3 million as compared to $5.7 million for the same period of 2010, an increase of $6.6 million or 116%. EBITDAS for the three months ended June 30, 2011 were $3.4 million or 28% of revenue as compared to $1.7 million for the same period of 2010 or 31% of revenue, an increase of $1.7 million or 97%.

Mat rental revenue

Mat rental revenues for the three months ended June 30, 2011 were $2.1 million as compared to $1.5 million for the same period of 2010, an increase of $0.6 million or 40%. The increase in rental revenue was driven by higher revenues per mat rental day, which averaged $2.63 per day for the three months ended June 30, 2011 as compared to $1.83 for the same period of 2010. The higher rates were offset by lower volumes, mat rental days for the three months ended June 30, 2011 were 787,029, or 95% utilization compared to 833,659 mat rental days or 75% utilization for the same period of 2010. The higher utilization is a result of the decreased rental mat fleet for the three months ended June 30, 2011 as compared to the same period of 2010. Due to the high customer demand for used mats in the fourth quarter of 2010 and the first quarter of 2011, several large used mat sales resulted in a lower average mat rental fleet.

Mat sales revenue

Revenues from mat sales for the three months ended June 30, 2011 were significantly higher by $4.1 million or 462% as compared the same period of 2010. The majority of the increase came from two significant new mat sales where both customers purchased them for steam assisted gravity drainage (SAGD) drilling projects. Revenue per mat sold during the second quarter of 2011 was $789, up from $533 in the same period of 2010. The higher revenue per mat is reflective of the mix of new and used mats sold, as new mats have a higher selling price than used mats.

Installation, transportation, service, and other revenue

Installation, transportation, service, and other revenues are driven primarily from the level of activity in the mat rental and mat sale businesses. Revenues for the three months ended June 30, 2011 were higher by $1.9 million as compared to the same period in 2010, the increase coming primarily from stronger mat sales.

Direct costs

Direct costs for the three months ended June 30, 2011 were $8.7 million or 71% of revenue as compared to $3.8 million or 67% of revenue for the same period of 2010. Direct costs are driven by the level of business activity, with the significant increase in revenue, as compared to the same period of 2010, direct costs have increased accordingly. Direct costs, as a percentage of revenue, increased 4% for the three months ended June 30, 2011 as compared the same period of 2010. This increase of direct cost, as a percentage of revenue, is mainly driven from higher costs associated with the mat rental operation, these costs are related to mats rented from third parties required to complete customer mat rental orders.

Marine Services

Marine Services revenue is comprised of, barge camp revenue, and rental and other revenue as follows:

^{(1)2010 revenue, EBITDAS and operating earnings have been restated in accordance with International Financial Reporting Standards.}

Revenues from the Marine Services segment for the three months ended June 30, 2011 were $1.0 million as compared to $0.4 million in the same period of 2010, an increase of $0.6 million or 146%. The increase was primarily due to the ongoing provision of two barge camps and associated service and support personnel at a customer's mining project in Nunavut.

EBITDAS for the three months ended June 30, 2011 was $0.2 million or 23% of revenue as compared to a loss of $0.6 million for the same period of 2010. The increase in EBITDAS was due to the ongoing barge camp rental in 2011, whereas these barge camps were not working in the same period of 2010.

Corporate

Corporate costs are the costs of the head office which include the President and Chief Executive Officer, Chief Financial Officer, Vice President of Safety, Vice President of Aboriginal Relations, Corporate Secretary, Corporate Accounting staff, and associated costs of supporting a public company. Costs for the three months ended June 30, 2011 were $2.1 million as compared to $1.5 million in the same period in 2010. This increase of $0.6 million reflects the increased cost to support the higher level of business activity. Corporate costs, as a percentage of revenue, decreased to 2.5% for the three months ended June 30, 2011 as compared to 3.4% in the same period of 2010.

Consolidated Statement of Financial Position (Unaudited)
June 30, 2011 and December 31, 2010

Consolidated Statement of Comprehensive Income (Unaudited)
For the three and six months ended June 30, 2011 and 2010

Consolidated Statement of Changes in Equity (Unaudited)
June 30, 2011, December 31, 2010, and June 30, 2010

Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 2011 and 2010

Caution Regarding Forward-Looking Information and Statements

Certain statements contained in this Press Release constitute forward-looking statements or information. These statements relate to future events or future performance of Horizon. 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 "Capital Program" under "Overview and Outlook" the statements that "Horizon is continuing to invest in its core business lines, raising its 2011 capital expenditure program from $84 million to $100 million. The majority of this increase represents investment in camp rental fleet assets with our bed count expected to increase from 5,600 at June 30, 2011 to 6,400 by year end. Additional investment is also being made in the matting rental fleet, which is expected to increase 24% by year end." Under the heading "Dividend Payment" under "Overview and Outlook" the statement that "The dividend will be paid on October 14, 2011."

The foregoing statements are based on the assumption that the Corporation's revenues will continue to be as strong as anticipated to justify each increased capital spending.

There are a number of risks which could impact these generally high levels of activity which could negatively impact the Corporation's business. As such, many factors could cause the performance or achievements of the Corporation to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.

Corporate Information

Additional information related to the Corporation, including the Corporation's annual information form, financial statements, and MDA is available on SEDAR at www.sedar.com. Unless otherwise indicated, the consolidated financial statements have been prepared in accordance with IFRS and the reporting currency is in Canadian dollars.