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

TSX Symbol: HNL

CALGARY, Nov. 2, 2011 /CNW/ - Horizon North Logistics Inc. ("Horizon" or the "Corporation") reported its financial and operating results for the three and nine months ended September 30, 2011 and 2010.

Third Quarter Highlights

• Consolidated revenues and EBITDAS increased significantly as compared to the same period of 2010 as a result of strong performance in the following segments;
• The Camps & Catering segment revenue increased by 64% as compared to the same period of 2010, led by rental and catering activity closely followed by camp and space sales and the associated service revenue. These higher levels of activity drove EBITDAS to increase by 84% as compared to the same period of 2010; and
• The Matting segment revenue increased by 111% as compared to the same period of 2010. The increase was primarily in mat sales from continued strong customer demand. As a result of the strong sales, EBITDAS increased by 69% as compared to the same period of 2010.

Financial Summary

Overview and Outlook

Horizon continued to gain momentum in the third quarter of 2011, building on strong performance in the first half of the year with third quarter results setting new quarterly records for revenue, EBITDAS and earnings per share.

Continued strong performance was driven by a number of factors, including Horizon's exposure to oil sands projects, with 61% of Horizon's consolidated third quarter revenues generated from oil sands related customers.  Continued strong commodity pricing resulted in improved drilling activity in western Canada while mining and infrastructure projects continue to move forward.

Capital Program

Horizon is on track to execute its 2011 capital program of $100 million.  The program is focused mainly on investment in camp rental fleet assets with the rentable bed count expected to exit 2011 at 6,000 beds.  Increasing activity levels through the last half of 2010 and through 2011 have allowed Horizon to fund the capital program primarily through operating cash flows while maintaining a strong and conservative balance sheet with similar levels of overall debt as compared to the same period of 2010.

Dividend Payment

October 14, 2011 marked Horizon's second dividend payment of $0.04 per share, or $4.3 million, paid to shareholders of record as of September 30, 2011.  The Board of Directors of Horizon have declared a dividend for the fourth quarter of 2011 at $0.04 per share, payable to shareholders of record at close of business on December 31, 2011.  The dividend will be paid on January 16, 2012.

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, space rental revenue and service revenue from transportation and installation.

Revenues from the Camps & Catering segment were $85.3 million for the three months ended September 30, 2011 compared to $51.9 million for the three months ended September 30, 2010, an increase of $33.4 million or 64%. EBITDAS from operations for the three months ended September 30, 2011 was $24.6 million or 29% of revenue compared to $13.5 million or 26% of revenue for the three months ended September 30, 2010, an increase of $11.2 million or 83%.

The strong performance of Horizon's Camps & Catering segment in the third quarter of 2011, as compared to the same period of 2010, was a result of continuing high levels of investment by oil and gas producers in Western Canada. This investment is being driven by the price of oil, which has remained at levels high enough to support strong project economics. The investment in oil and gas exploration, development and oil sand construction is requiring operators to increase manpower levels resulting in higher demand for turnkey camp rental and catering services and for camp sales to project owners. For the nine months ended September 30, 2011, 61% of this segment's revenue was derived from oil sands related activity as compared to 50% in the same period of 2010.

Camp rental and catering revenue

Revenues from camp rental and catering operations were $41.4 million for the three months ended September 30, 2011 compared to $28.5 million for the three months ended September 30, 2010, an increase of $12.9 million or 45%. 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 large camp operations for the three months ended September 30, 2011 increased by $11.8 million or 60% as compared to the three same period in 2010. Increased revenues from large camps are reflective of the continued strong industry conditions in the oil sands sector. The increasing number of oil sands exploration and development projects is driving higher manpower requirements for oil sands operators and as such increased demand for Horizon's camp rental and catering services. The higher demand is reflected in 190,983 bed rental days for the quarter ended September 30, 2011 as compared to 125,139 in the same period in 2010, an increase of 65,844 or 53%.  Utilization increased to 54% as compared to 50% in the same period of 2010, while the number of available beds increased to 3,861 for the quarter as compared to 2,741 for the same period in 2010 reflecting ongoing investment in the rental fleet. Revenue per bed rental day increased by $7 reflecting competitive pricing related to increasing oil sands activity.

Revenues from drill camp operations for the three months ended September 30, 2011 increased by $1.5 million or 141% as compared to the same period of 2010. Revenues in the drill camp operations are highly dependent on the level of drilling activity in Western Canada. Drilling activity has increased significantly in the three months ended September 30, 2011 as compared to the same period of 2010. The Canadian Association of Oilwell Drilling Contractors (CAODC) reported average rig utilization in Western Canada for the three months ended September 30, 2011 at 57% as compared to 41% in the same period of 2010. The increase in drilling activity is reflected in higher volumes and stronger utilization for the three months ended September 30, 2011 as compared to the same period of 2010. In addition to the higher volumes, revenue per bed rental day increased by $9 per day. The increase in rate is due to additional equipment and services requested by the customer once the camp is operational.

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

Revenues from the provision of catering and housekeeping only services, with no associated bed rentals, for the three months ended September 30, 2011 remained relatively unchanged as compared to same period of 2010. Volumes for the comparative period increased primarily as a result of higher activity levels at a significant mine expansion project in the Northwest Territories. The higher volumes were offset by a decrease in the revenue per catering only day, a result of a longer term agreement with higher volumes at a preferred daily rate.

Camp and space unit sales revenue

Camp and space unit sales revenues for the three months ended September 30, 2011 were $26.0 million as compared to $15.8 million for the same period in 2010, an increase of $10.2 million or 65%. The increase was mainly due to a large manufacturing project which was in full production for the three months ended September 30, 2011 as compared to the ramp-up phase in the same period of 2010. Production staff increased to an average of 360 people in the three months ended September 30, 2011 as compared to 330 people in the same period of 2010. Revenue from camp and space unit sales is highly dependent on the allocation of production capacity between external customer orders and internal fleet requirements; this allocation of production capacity is reviewed by management on a regular basis.

Space rental revenues

Space rental revenues for the three months ended September 30, 2011 were $1.3 million as compared to $1.1 million for the same period in 2010, an increase of $0.2 million or 18%. The increase came from slightly higher volumes with fleet utilization for the three months ended September 30, 2011 at 89% compared to 87% for the same period in 2010.

Service revenue

Revenues from camp mobilization, demobilization, transportation and installation for the three months ended September 30, 2011 were $16.6 million as compared to $6.5 million in the same period of 2010, an increase of $10.1 million or 155%. These revenues were driven by activity levels in both the camp rental and catering business and the camp and space sales business. For the three months ended September 30, 2011, service revenues were derived primarily from the transport and installation of a large manufacturing project in the Fort McMurray, Alberta area and a 250 person camp in the interior of British Columbia. The same period of 2010 had several smaller installation projects.

Direct costs

Direct costs for the three months ended September 30, 2011 were $58.3 million or 68% of revenue as compared to $38.0 million or 73% 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 September 30, 2011 as compared to the same period of 2010. As a percentage of revenue, direct costs declined by 5% 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 the same product. At the beginning of these production runs, the manufacturing process typically experiences lower efficiency as the project ramps up, as was the case in the third quarter of 2010. Direct cost in the Camps & Catering declined as a percentage of revenue as a result of higher activity levels. As utilization of the camps increases, the fixed costs are spread over a larger revenue base. 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:

Revenues from the Matting segment for the three months ended September 30, 2011 were $17.5 million as compared to $8.3 million for the same period of 2010, an increase of $9.2 million or 111%. EBITDAS for the three months ended September 30, 2011 were $5.5 million or 32% of revenue as compared to $3.3 million or 39% of revenue for the same period of 2010, an increase of $2.2 million or 67%.

Mat rental revenue

Mat rental revenues for the three months ended September 30, 2011 were $3.5 million as compared to $2.2 million for the same period of 2010, an increase of $1.3 million or 61%. The increase in rental revenue was driven by the mix of mats on rent and higher revenues per mat rental day for the oak access mats. As compared to the same period of 2010, the number of rig mat rental days was significantly higher and rented at an average daily rate of $38. The oak access mats averaged $2.80 per day for the three months ended September 30, 2011 as compared to $2.13 for the same period of 2010. The rental mix and higher daily rate combined for revenue per rental day of $3.79 for the three months ended September 30, 2011 as compared to $2.13 for the same period of 2010. This higher pricing was offset by lower volumes, with mat rental days for the three months ended September 30, 2011 at 936,092, or 98% utilization compared to 1,034,474 mat rental days or 84% utilization for the same period of 2010. The higher utilization was a result of the decreased rental mat fleet size for the three months ended September 30, 2011 as compared to the same period of 2010. The smaller fleet size is a result of two large used mat sales which occurred at the end of 2010 and early in 2011, with the strong mat sales throughout 2011 the growth of the fleet size has been gradual.

Mat sales revenue

Revenues from mat sales for the three months ended September 30, 2011 were higher by $5.1 million or 246% as compared the same period of 2010. The majority of the increase came from new mat sales where customers purchased them for their steam assisted gravity drainage (SAGD) drilling projects. Revenue per mat sold during the third quarter of 2011 was $749, up from $632 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 September 30, 2011 were higher by $2.8 million as compared to the same period in 2010. The increase is reflective of the higher volume of mat sales.

Direct costs

Direct costs for the three months ended September 30, 2011 were $11.9 million or 68% of revenue as compared to $4.9 million or 60% of revenue for the same period of 2010. Direct costs are driven by the level of business activity and 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 by 8% for the three months ended September 30, 2011, as compared the same period of 2010. This increase of direct cost, as a percentage of revenue, is mainly driven from the mix of the revenue as compared to the same period of 2010. A significantly higher proportion of revenue was generated from mat sales which have higher costs than rentals.

Marine Services

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

Revenues from the Marine Services segment for the three months ended September 30, 2011 were $1.6 million as compared to $5.0 million in the same period of 2010, a decrease of $3.4 million or 68%. The decrease was primarily due to lower levels of activity in the three months ended September 30, 2011 as compared to the same period of 2010.  In 2010 there was significant activity related to the repositioning of the two barge camps to a mining project in Nunavut.

EBITDAS for the three months ended September 30, 2011 was $0.5 million or 33% of revenue as compared to $2.7 million or 55% of revenue for the same period of 2010. The decrease in EBITDAS was due to the overall lower activity.

Corporate

Corporate costs are the costs of the head office which include the President and Chief Executive Officer, Chief Financial Officer, Vice President of Health, Safety, and Environment, Vice President of Aboriginal Relations, Corporate Secretary, corporate accounting staff, and associated costs of supporting a public company. Costs for the three months ended September 30, 2011 were $2.2 million as compared to $2.1 million in the same period in 2010. This increase of $0.1 million reflects the increased cost to support the higher level of business activity. Corporate costs, as a percentage of revenue, decreased to 2% for the three months ended September 30, 2011, as compared to 3% in the same period of 2010.

Other Items

Depreciation and amortization

Depreciation and amortization costs for the three months ended September 30, 2011 were $7.7 million as compared to $6.5 million in the same period of 2010. The increase was mainly from net additions of $19.4 million in depreciable assets, primarily growth in the camp facilities. Amortization of intangibles remained relatively unchanged year over year.

Financing costs

Financing costs on loans and borrowings for the three months ended September 30, 2011 were $0.6 million as compared to $0.6 million in the same period of 2010. Although the interest expense remained consistent year over year, the weighted average debt held in the three months ended September 30, 2011 was higher but was offset by a lower interest rate under the new credit facility.

Income taxes

Income tax expense was $5.0 million, an effective tax rate of 25%, for the three months ended September 30, 2011 as compared to a tax expense of $2.7 million, an effective rate of 27% for the same period of 2010. The increase in tax expense is a result of the higher profit in the three months ended September 30, 2011 as compared to the same period of 2010. The effective tax rate decreased as a result of the 1.5% decrease in federal tax rates from 2010 to 2011.

Selling and administrative

Selling and administrative expense was $4.7 million or 4.6% of revenue for the three months ended September 30, 2011 as compared to $2.6 million or 3.9% of revenue in the same period of 2010. The current quarter includes a charge to bad debt expense for $1.8 million. The expense represents the resolution of an outstanding contractual dispute with a customer in the Camps & Catering segment. Normalizing for this expense, selling and administration was $2.9 million or 2.8% of revenue.

Share repurchase

The Corporation was granted approval from the Toronto Stock Exchange for a Normal Course Issuer Bid to repurchase up to a maximum of 6,985,634 common shares of the Corporation over the period from September 14, 2010 to September 13, 2011. No shares were repurchased during the time period provided under the renewed program.

Capital reduction

At the May 5, 2011 Annual and Special Meeting of Shareholders, a reduction of capital was approved by way of a special resolution, which eliminated the deficit of $78.0 million as at January 1, 2011 and reduced share capital.  Elimination of the deficit simplifies the Corporation's statement of financial position and provides a more representative view of the actual accumulated operating results, as the majority of the deficit had been attributable to the write-down of goodwill in the year ended December 31, 2008.

Condensed consolidated statement of financial position (Unaudited)

Condensed consolidated statement of comprehensive income (Unaudited)
Three and nine months ended September 30, 2011 and 2010

Condensed consolidated statement of changes in equity (Unaudited)

Condensed consolidated statement of cash flows (Unaudited)
Nine months ended September 30, 2011 and 2010

Caution Regarding Forward-Looking Information and Statements

There are no statements contained in this Management Discussion and Analysis ("MD&A") that constitute forward-looking statements or information.

Corporate Information

Additional information related to the Corporation, including the Corporation's annual information form, financial statements, and MD&A 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.