Canada NewsWire
CALGARY, May 11, 2020
TSX Symbol: HNL
CALGARY, May 11, 2020 /CNW/ - Horizon North Logistics Inc. ("Horizon North" or the "Corporation") reported its financial and operating results for the three months ended March 31, 2020 and 2019.
First Quarter Highlights
First Quarter Financial Summary
Three months ended March 31, | ||||||||
(000's except per share amounts) | 2020 | 2019 | % change | |||||
Revenue | $ | 115,016 | $ | 128,745 | (11) | |||
EBITDAS(1) | 8,706 | 17,405 | (50) | |||||
EBITDAS as a % of revenue | 8% | 14% | ||||||
Operating income (loss) before impairment | (3,668) | 6,328 | (158) | |||||
Operating income (loss) | (25,218) | 6,328 | (499) | |||||
Operating income (loss) as a % of revenue | (22%) | 5% | ||||||
Net income (loss) before impairment | (4,395) | 3,737 | (218) | |||||
Impairment loss(2) | (21,550) | — | ||||||
Tax recovery from impairment loss | 3,105 | — | ||||||
Net income (loss) | (22,840) | 3,737 | (711) | |||||
Net comprehensive income (loss) | (22,839) | 3,737 | (711) | |||||
Earnings (loss) per share | ||||||||
Basic | $ | (0.14) | $ | 0.02 | ||||
Diluted | $ | (0.14) | $ | 0.02 | ||||
Total assets | $ | 476,031 | $ | 512,820 | (7) | |||
Total loans and borrowings | 134,971 | 35,081 | 285 | |||||
Funds flow | 8,292 | 17,998 | (54) | |||||
Net Capital spending (proceeds) | (1,770) | 14,769 | (112) | |||||
Dividends declared | $ | — | $ | 3,285 | ||||
Dividends declared per share | $ | — | $ | 0.02 |
(1) | EBITDAS (Earnings before interest, taxes, depreciation, amortization, share based compensation, impairment and gain/loss on disposal of property, plant and equipment) is not a recognized measure under IFRS. Management believes that in addition to total profit and total comprehensive income, EBITDAS is a useful supplemental earnings measure as it provides an indication of the Corporation's operating performance and it is regularly provided to and reviewed by the Chief Operating Decision Maker. Horizon North's method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by other entities. |
(2) | Refer to Note 7 of the Q1 2020 Consolidated Financial Statements for further information regarding the impairment loss. |
Quarterly Operational Overview
Revenue for Q1 2020 decreased by 11% when compared to Q1 2019, primarily due to decreased throughput in the Modular Solutions segment as well as decreased Rentals & Logistics segment revenues, partially offset by increased camp rental and catering activity in the Camp & Catering segment.
Industrial Services
Revenues from Industrial Services for Q1 2020 increased by 1% compared to Q1 2019 primarily due to increased catering only activity. Catering only activity increased 27% in Q1 2020 compared to Q1 2019, with revenue per catering only day lower by 3% as a result of different contract mix. Rentals & Logistics revenues decreased by 24% in Q1 2020 compared to Q1 2019 primarily due to a decrease in mat rental revenue and equipment sales.
Modular Solutions
Modular Solutions revenues for Q1 2020 were 21% lower than Q1 2019 primarily as a result of decreased activity and backlog in Western Canada, partially offset by the addition of Eastern Canada revenues.
Other Financial Measures
Horizon North's Q1 2020 EBITDAS decreased by $8.7 million, or 50%, compared to Q1 2019. As a percentage of revenue, EBITDAS were 8% compared to 14% in Q1 2019. The decrease in EBITDAS compared to Q1 2019 was primarily driven by negative EBITDAS in Modular Solutions due to reduced gross margins in Western Canada on projects, including a negative gross margin due to project and execution challenges on a remote location hotel, as well as plant inefficiencies resulting from lower plant utilization and decreased mat rental and equipment sale revenue for Rentals & Logistics. This was partially offset by stronger results in Camp & Catering.
Total Loans and Borrowings, which excludes the lease liabilities under IFRS 16 - Leases ("IFRS 16"), were $135.0 million at March 31, 2020 compared to $108.1 million at December 31, 2019. As a result of the increased debt and lower EBITDAS, the total debt to EBITDAS ratio was 9.14:1:00 at March 31, 2020 compared to 4.67:1:00 at December 31, 2019.
Outlook
The Global Environment
Like many other businesses, Horizon North is being challenged by the global uncertainty surrounding the COVID-19 pandemic and diminished commodity prices. Horizon North's Board and management team remain focused on keeping the Corporation's employees and customers safe, prioritizing cash flow and responding to customers' needs. In response to the current global environment, Horizon North has taken a number of steps to help mitigate the negative impacts of these events and to maintain its liquidity position through the following:
As at March 31, 2020, the Corporation had working capital of $59.4 million, the ability to draw an additional $28.6 million on its credit facility and was in full compliance with all covenants.
On March 9, 2020, Horizon North and Dexterra, a wholly-owned subsidiary of Fairfax Financial, announced the Proposed Transaction. Completion of the Proposed Transaction is subject to a number of closing conditions, as more particularly set out in the Share Purchase Agreement that is available on Horizon North's profile on SEDAR at www.sedar.com. Pursuant to the Proposed Transaction, Horizon North will acquire all of the outstanding shares of Dexterra in exchange for Horizon North issuing such number of common shares of Horizon North ("Horizon North Shares") such that Fairfax Financial will control 49% of Horizon North Shares on a fully-diluted basis after completion of the Proposed Transaction and existing Horizon North shareholders will hold 51% of the combined company.
A special meeting of holders of Horizon North Shares has been called for May 26, 2020 to approve the issuance of the Horizon North Shares in connection with the Proposed Transaction. As of the date hereof, the parties have received all regulatory approvals in relation to the Proposed Transaction, including receipt of a no-action letter in relation to the Proposed Transaction from the Canadian Competition Bureau and conditional approval from the Toronto Stock Exchange. Completion of the Proposed Transaction is subject to shareholder approval and a number of other customary conditions.
Management of the Corporation and Dexterra continue to strongly support the Proposed Transaction. The Proposed Transaction will combine Horizon North's strong western Canadian focused workforce accommodation and national modular solutions businesses with Dexterra's asset light facilities management platform and central Canadian focused workforce accommodations businesses. This highly complementary platform is expected to better serve current and future customers and the new company will be a leader in support services. The combined entity expects significant cross-selling opportunities across its combined platform as well as annual cost synergies of $5.0 million.
As a result of the Proposed Transaction, the Corporation expects its leverage and liquidity position to be significantly improved as Dexterra is expected to have no debt upon close of the Proposed Transaction and had $16.4 million of EBITDAS in 2019. The Corporation has entered into discussions with its lenders with the intent of negotiating a new credit facility for the combined entity with additional financial flexibility and improved terms.
Operations Outlook
In 2020, Horizon North will continue to diversify both its portfolio of offerings and customer base through its two operating divisions: Industrial Services and Modular Solutions.
The Proposed Transaction is expected to create a leading support services company in Canada that will offer a range of services in light asset facilities management, workforce accommodations, industrial services and modular construction solutions to a broader base of combined customers across a more diversified industry and geographic platform throughout Canada.
Industrial Services
Horizon North is a leading provider of turn-key workforce accommodation, hospitality, access and maintenance services with focus on the following four key areas:
For the Rentals & Logistics segment, the transportation business fleet, mechanical shops, and associated staffing has been significantly rationalized by approximately 50%. This includes the pause in mat manufacturing discussed under "The Global Environment" section.
Modular Solutions
The Corporation will continue to focus on government sponsored housing with a compliment of industrial and commercial projects in its Modular Solutions segment in 2020. Results for Q1 2020 included the effects of decreased activity and margins in Western Canada as well as decreased backlog which were only partially offset by the addition of NRB Inc. ("NRB"). Horizon North's focus will remain on growing backlog and on optimizing execution of modular construction projects while developing and expanding its product offerings to serve a variety of customers and end markets. In addition, a portion of manufacturing capacity in 2020 will be utilized for modular units and large complexes associated with the Corporation's contract with a client supporting LNG development in British Columbia. As discussed above, development of the Fairfield by Marriott in Kitimat, British Columbia has been deferred until 2021.
The Modular Solutions division is well positioned to benefit from the increased Federal support for affordable and social housing following the Federal election on October 21, 2019 through the demonstrated success of the affordable and social housing strategy and execution in Western Canada in combination with the addition of southern Ontario manufacturing capacity. Horizon North will continue to explore opportunities across the pan-Canadian geography to grow the affordable and social housing backlog and projects and has recently signed a non-binding letter of intent with CreateTO to design, deliver and install 110 modular units of permanent supportive housing in the first phase of the City of Toronto's pilot initiative. Upon completion, this initiative would see up to 250 modular supportive homes constructed in Toronto and revenue from the first phase of this project is expected to be between $17.0 and $20.0 million.
Our Modular Solutions division has been performing well on affordable and social housing projects, but under performing on hotel projects. Management has taken a number of corrective actions including closure of the Aldergrove facility, temporary shutdown of the Calgary facility and significant reductions in overhead costs. Management expects these changes to improve efficiency and profitability on future hotel projects, and the Modular Solutions division overall.
Additional Information
A copy of the Corporation's condensed consolidated interim financial statements for the three months ended March 31, 2020 and 2019 and related Management's Discussion and Analysis have been filed with the Canadian securities regulatory authorities and are available on SEDAR at www.sedar.com and www.horizonnorth.ca. Unless otherwise indicated, the condensed consolidated interim 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 press release 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, share based compensation, gain/loss on investments, and gain/loss on disposal of property, plant and equipment ("EBITDAS"). Management believes that in addition to total profit (loss) and total comprehensive income (loss), EBITDAS is a useful supplemental earnings measure as it provides an indication of the Corporation's operating performance and it is regularly provided to and reviewed by the Chief Operating Decision Maker.
Caution Regarding Forward-Looking Statements and Information
Certain statements contained in this press release 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 but are not limited to, statements with respect to:
Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty. The forward-looking statements are based on certain factors and assumptions made by Horizon North which include, but are not limited to, assumptions relating to:
Although Horizon North believes that the factors 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:
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 contained in this press release are made as of the date hereof and Horizon North does not undertake any obligation to update publicly or revise any forward-looking statements, 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 "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 under its two operating divisions: Industrial Services and Modular Solutions. The Industrial Services business includes workforce accommodations, camp management services, access solutions, maintenance and utilities. The Modular Solutions business integrates modern design concepts and technology with state of the art, off-site manufacturing processes; producing high quality building solutions for commercial, industrial 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.
Corporate Information
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