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Press release from CNW Group

Horizon North Logistics Inc. Announces Results For the Quarter Ended June 30, 2013

Tuesday, July 30, 2013

Horizon North Logistics Inc. Announces Results For the Quarter Ended June 30, 2013

18:36 EDT Tuesday, July 30, 2013

CALGARY, July 30, 2013 /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, 2013 and 2012.

Second Quarter Highlights

  • Record consolidated quarterly revenues boosted by strong manufacturing sales;
  • Second quarter matting revenues declined by $10 million year over year due to timing of customer projects and we weather;
  • Lower EBITDAS due to revenue mix and wet weather impacting operations in Q2 2013;
  • Earnings per share impacted by write off of $4.5 million in camp set-up costs related to asset re-deployment during the quarter;
  • Continued capital investment, exiting the quarter with 8,775 rentable beds and 19,678 rental mats, an increase of 28% and 29% respectively compared to the same quarter of 2012.

Second Quarter Financial Summary

                                     
    Three months ended June 30   Six months ended June 30
(000's except per share amounts)     2013     2012     %
Change
    2013                 2012     %
Change
Revenue   $ 148,426   $ 139,551     6%   $  288,385   $  268,148     8%
EBITDAS (1)     32,708     40,463     (19%)     69,341     74,908     (7%)
EBITDAS as a % of revenue     22%     29%           24%     28%      
                                     
Operating earnings (1)     14,257     30,056     (53%)     37,466     56,136     (33%)
Total comprehensive income     9,986     21,854     (54%)     26,370     40,646     (35%)
Earnings per share - basic     $ 0.09     $ 0.20     (55%)   $  0.24   $  0.38     (37%)
                                  - diluted     $ 0.09     $ 0.20     (55%)   $  0.24   $  0.37     (35%)
Total assets     499,135     428,494     16%     499,135     428,494     16%
                                     
Long-term loans and borrowings     121,516     86,161     41%     121,516     86,161     41%
Funds from operations (2)     25,195     30,422     (17%)     54,341     57,845     (6%)
Capital spending     18,332     35,346     (48%)     39,584     69,523     (43%)
Debt to total capitalization ratio (3)     0.30     0.26     15%     0.30     0.26     15%
Dividends declared   $ 6,839   $  5,407     26%   $  13,646   $  10,799     26%
Dividends declared per share   $ 0.0625   $  0.05     25%   $  0.0625   $  0.05     25%
(1)      See financial measures definitions on the last page of the press release for details.

Overview

The second quarter of 2013 was impacted by several significant factors. Operational challenges were faced by many of Horizon's customers due to extremely wet site conditions in northern Alberta, including the Fort McMurray and Fox Creek areas. Difficult site conditions significantly slowed or halted progress on projects somewhat reducing activity in comparison to the first quarter of 2013. In addition, as a result of Horizon's continuous evaluation of asset utilization, a large camp was closed in the second quarter of 2013 in order to relocate the beds and make more effective use of the assets. In the matting operations, lower than anticipated customer activity and changing project timelines led to decreased revenues in the quarter and year to date. Lastly, Manufacturing Sales secured the sale of a 325 bed camp to a large mining operator in Northern Canada. The camp will be provided using a combination of existing assets and newly manufactured equipment and includes the associated transportation and installation services.

Revenue for the three and six months ended June 30, 2013 increased by 6% and 8% respectively compared to the same period of 2012. The increase was mainly due to the larger bed fleet in camps & catering and a strong second quarter for manufacturing sales including a portion of the used camp sale mentioned above.

EBITDAS decreased in the three and six months ended June 30, 2013 compared to the same periods of 2012. The mix of revenue in the comparative periods shifted with a larger proportion of revenue generated from manufacturing sales operations in 2013 which typically has lower margins than camp rental and catering operations. In 2012, both revenue and EBITDAS included a $5.1 million end of contract billing for minimum utilization over the term of a particular contract in excess of actual utilization.

Operating earnings decreased in the three and six months ended June 30, 2013 compared to the same periods of 2012. Depreciation costs have increased as a result of the 2012 capital program, which included a significant amount of camp set-up related costs. These costs are depreciated over a shorter duration than the typical camp equipment. Additionally, the closure and movement of a large camp, mentioned above, during the second quarter of 2013 resulted in a loss on disposal of related camp set-up costs.

Outlook

With the second quarter behind us, Horizon anticipates a significant amount of fleet to be in transition throughout the third quarter keeping revenue per manday and utilization rates similar to the second quarter 2013. Manufacturing is now fully booked through 2013 and this strength will help offset some third quarter softness in camps and catering and matting. Increasing clarity to customers' project timelines indicates momentum building in the fourth quarter. Oil sands development activities, driven primarily by SAGD projects, continue to be the main driver of Horizon's growth with oil sands activity accounting for 61% of Horizon's consolidated revenues for the first half of 2013.

The $80 million capital program which anticipates adding 1,000 beds to the camp and catering fleet is on track.

Dividend payment

Horizon North Logistics Inc. announced today that its Board of Directors has declared a dividend for the second quarter of 2013 at $0.0625 per share.The dividend is payable to shareholders of record at the close of business on September 30, 2013 to be paid on October 11, 2013. The dividends are eligible dividends for Canadian tax purposes.

Second Quarter Financial Results

                                 
    Three months ended June 30, 2013
(000's)   Camps &
Catering
  Matting   Corporate   Inter-segment
Eliminations
  Total
Revenue   $  134,942   $ 14,956   $  -   $ (1,472)   $ 148,426
Expenses                              
      Direct costs     101,716     10,668     (1)     (1,464)     110,919
      Selling & administrative     1,505     140     3,154     -     4,799
EBITDAS     31,721     4,148     (3,153)     (8)     32,708
EBITDAS as a % of revenue     24%     28%     -     1%     22%
                               
Share based payments     178     38     179     -     395
Depreciation & amortization     11,584     2,144     137     (52)     13,813
Loss (gain) on disposal of property, plant and equipment     4,301     (1)     (57)     -     4,243
Operating earnings (loss)   $ 15,658   $  1,967   $ (3,412)   $ 44   $  14,257
Finance costs                             1,081
Share of equity accounted investees                             -
Income tax expense                             3,053
Other comprehensive income                             137
Total comprehensive income                           $ 9,986
Earnings per share - basic                           $  0.09
  - diluted                           $  0.09

                               
    Three months ended June 30, 2012 
(000's)   Camps &
Catering
  Matting   Corporate   Inter-segment
Eliminations
  Total
Revenue   $  117,616   $  25,232   $  -   $  (3,297)   $ 139,551
Expenses                              
      Direct costs     78,849     18,918     (1)     (3,174)     94,592
      Selling & administrative     1,639     153     2,704                 -     4,496
EBITDAS     37,128     6,161     (2,703)     (123)     40,463
EBITDAS as a % of revenue     32%     24%     -     4%     29%
                               
Share based payments     339     52     262                 -     653
Depreciation & amortization     7,396     2,152     130     (38)     9,640
Loss (gain) on disposal of property, plant and equipment     142     (28)                 -                 -     114
Operating earnings (loss)   $ 29,251   $  3,985   $  (3,095)   $ (85)   $  30,056
Finance costs                             849
Share of equity accounted investees                             19
Income tax expense                             7,419
Other comprehensive income                             (85)
Total comprehensive income                           $  21,854
Earnings per share - basic                            $  0.20
  - diluted                           $  0.20

                             
  Six months ended June 30, 2013
(000's) Camps &
Catering
  Matting   Corporate   Inter-segment
Eliminations
  Total
Revenue $ 260,859   $  31,188   $ -   $ (3,662)   $ 288,385
Expenses                            
      Direct costs   190,326     22,738     -     (3,631)     209,433
      Selling & administrative   2,960     316     6,335     -     9,611
EBITDAS   67,573     8,134     (6,335)     (31)     69,341
EBITDAS as a % of revenue   26%     26%     -     1%     24%
                             
Share based payments   536     89     456     -     1,081
Depreciation & amortization   22,353     4,185     273     (103)     26,708
Loss (gain) on disposal of property, plant and equipment   4,164     (21)     (57)     -     4,086
Operating earnings (loss) $ 40,520   $ 3,881   $ (7,007)   $ 72   $ 37,466
Finance costs                           2,196
Share of equity accounted investees                           -
Income tax expense                           8,638
Other comprehensive income                           262
Total comprehensive income                         $ 26,370
Earnings per share - basic                              $  0.24
  - diluted                              $  0.24

                               
  Six months ended June 30, 2012
(000's) Camps &
Catering
  Matting   Corporate   Inter-segment
Eliminations
  Total
Revenue $ 230,543   $ 43,570   $  -   $ (5,965)   $  268,148
Expenses                            
      Direct costs   157,403     32,773     -     (5,574)     184,602
      Selling & administrative   2,652     264     5,722     -     8,638
EBITDAS   70,488     10,533     (5,722)     (391)     74,908
EBITDAS as a % of revenue   31%     24%     -     7%     28%
                             
Share based payments   373     63     307     -     743
Depreciation & amortization   13,828     3,909     244     (61)     17,920
Loss (gain) on disposal of property, plant and equipment   137     (28)     -     -     109
Operating earnings (loss) $  56,150   $ 6,589   $  (6,273)   $ (330)   $ 56,136
Finance costs                           1,543
Share of equity accounted investees                           (27)
Income tax expense                           13,990
Other comprehensive income                           (16)
Total comprehensive income                         $ 40,646
Earnings per share - basic                             $  0.38
  - diluted                              $  0.37

Camps & Catering

Camps & Catering revenue is comprised of camp rental and catering operations revenue, manufacturing sales revenue, space rental revenue and the associated service revenue within each operation.

                                   
  Three months ended June 30   Six months ended June 30
(000's except bed rental days and catering only days)               2013                 2012     %
change
                2013                 2012     %
change
Camp rental and catering operations revenue $  63,248   $  60,788     4%   $  144,453   $  136,531     6%
Manufacturing sales               68,736                 54,036     27%                 111,010                 87,350     27%
Space rental revenues               2,958                 2,792     6%                 5,396                 6,662     (19%)
Total revenue $  134,942   $  117,616     15%   $  260,859   $  230,543     13%
                                   
EBITDAS $  31,721   $  37,128     (15%)   $  67,573   $  70,488     (4%)
EBITDAS as a % of revenue   23.5%     31.6%           25.9%     30.6%      
Operating earnings $  15,658   $  29,251     (46%)   $  40,520   $  56,150     (28%)
Bed rental days (1)               449,165                 250,403     79%                 934,986                 587,577     59%
Catering only days (2)               45,100                 53,697     (16%)                 101,751                 126,216     (19%)
(1)      One bed rental day represents; the provision of one bed for one day under a combined rental and catering manday rate; or the provision of one bed for one day under an equipment rental rate for dedicated camp equipment.
(2) One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.

Revenues from the Camps & Catering segment for the three and six months ended June 30, 2013 were $134.9 million and $260.9 million respectively, an increase of $17.3 million or 15% and $30.3 million or 13% compared to the same periods of 2012. EBITDAS for the three and six months ended June 30, 2013 were $31.7 million and $67.6 million, a decrease of $5.4 million or 15% and $2.9 million or 4% respectively compared to the same periods of 2012. Included in 2012 revenue and EBITDAS for the three and six months ended June 30, was a payment of $5.1 million representing an end of contract billing for minimum utilization over the term of a particular contract in excess of the actual utilization. Excluding this 2012 payment, revenues increased by $22.4 million or 20% and $35.4 million or 16% for the three and six months ended June 30 as compared to the same periods in 2012. EBITDAS when excluding the 2012 $5.1 million payment were consistent for the comparative quarters and increased by $2.2 million or 3% for the comparative six months ended June 30.

Horizon's revenues in the Camps & Catering segment for the comparative periods were primarily driven from being significantly tied to Alberta oil sands activity. During the second quarter of 2013 a significant portion of manufacturing sales and service was focused on the manufacture and installation of a large project in the oil sands region while the camp and catering operations in the comparative quarter operated an average of 2,222 additional fleet beds with the majority of those incremental beds being located in the Alberta oil sands region on SAGD projects.

Camp rental and catering operations revenue

Revenues are derived from the following main business areas: large camp operations, drill camp operations, catering only operations, barge camp rental, ancillary equipment rental and the associated service work within each operation. Service work includes the transportation, set-up and de-mobilization of camp and catering projects. Revenues from camp rental and catering operations were $63.2 million for the three months ended June 30, 2013 compared to $60.8 million for the three months ended June 30, 2012, an increase of $2.5 million or 4%. Year to date, revenues increased $7.9 million or 6%.

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

                                   
  Three months ended June 30
(000's for revenue only) 2013     2012
    Large
camp
    Drill
camp
    Total     Large
camp
    Drill
camp
    Total
Revenue $       52,924   $      2,656   $    55,580   $       49,363   $       808     50,171
Bed rental days (1)   433,151     16,014     449,165     246,237     4,166     250,403
Revenue per bed rental day $ 122   $ 166   $ 124   $ 180 (4)   $ 194   $ 180 (4)
                                   
Number of rentable beds at period end   7,152     873     8,025     5,116     950     6,066
Average rentable beds available (2)   7,330     888     8,218     5,108     950     6,058
Utilization (3)   66%     20%     61%     53%     5%     45%

                                   
    Six months ended June 30
(000's for revenue only) 2013     2012
    Large
camp
    Drill
camp
    Total     Large
camp
    Drill
camp
    Total
Revenue $     112,305   $    12,302   $ 124,607   $     102,143   $    8,963   $ 111,106
Bed rental days (1)   864,412     70,574     934,986     539,975     47,602     587,577
Revenue per bed rental day   $130     $174     $133     $180 (4)     $188     $180 (4)
                                   
Number of rentable beds at period end   7,152     873     8,025     5,116     950     6,066
Average rentable beds available (2)   7,333     879     8,212     4,894     950     5,844
Utilization (3)   65%     44%     63%     61%     28%     55%
(1)      One bed rental day represents; the provision of one bed for one day under a combined rental and catering manday rate; or the provision of one bed for one day under an equipment rental rate for dedicated camp equipment.
(2) Average rentable beds available is equal to total average beds in the fleet over the period less beds required for staff.
(3) Utilization equals the total number of bed rental days divided by average rentable beds available times days in the quarter.
(4) Revenue per bed rental day for the three months ended June 30, 2012 and six months ended June 30, 2012 excludes the $5.1 million payment.

Revenues from large camp operations for the three months ended June 30, 2013 increased by $3.6 million or 7% compared to the same period in 2012 with the year to date revenue higher by $10.2 million or 10% in the comparative period. Normalizing for the $5.1 million payment in 2012, revenue increased for the three months ended June 30, 2013 by $8.7 million or 20% and $15.3 million or 16% as compared to the adjusted comparative periods in 2012. The increased revenues in the quarter and year to date were driven mainly by larger fleet numbers and improved utilization somewhat offset by a lower revenue per bed rental day.

In the comparative periods ended June 30, 2013 and 2012 Horizon increased the large camp fleet by 2,036 beds or 40%, a result of the 2012 and 2013 capital plan based on customer contracts.

Bed utilization for the three months and six months ended June 30, 2013 was 66% and 65% respectively. The increase compared to the same periods of 2012, was primarily a result of the nature of contracts in place during the comparative periods with significantly more split rate contracts in place in 2013 as compared to the same periods of 2012. Of the large camp bed rental days, 41% were split rate contracts compared to 8% in the same periods of 2012.

The revenue per bed rental day declined in the comparative periods by $58 and $50 respectively. As anticipated, the majority of the decrease was the higher proportion of split rate contracts in place compared to the same periods of 2012. As well, lower pricing at some camps compared to the same periods of 2012 contributed to the decreased rate. Although the metrics above are impacted by this contract structure, there is no fundamental effect on the contract economics.

Revenues from drill camp operations for the three and six months ended June 30, 2013 increased by $1.8 million or 229% and $3.3 million or 37% compared to the same periods of 2012. The increase was a result of higher utilization of Horizon's drill camps partially offset by a lower revenue per bed rental day. Despite generally lower drilling activity in the first half of 2013, the specific customers utilizing Horizon's drill camps remained active.

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

                         
    Three months ended June 30   Six months ended June 30
(000's for revenue only)     2013     2012     2013     2012
Catering only revenue   $ 4,393   $ 5,577   $  10,048   $  13,121
Catering only days (1)     45,100     53,697     101,751     126,216
Revenue per catering only day   $ 97   $ 104   $ 99   $ 104
(1)      One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.

Revenues from the provision of catering and housekeeping only services, with no associated bed rentals, for the three and six months ended June 30, 2013 decreased $1.2 million or 21% and $3.1 million or 23% as compared to same period of 2012. The lower volumes were mainly a result of a catering only project in northern Canada which was not operational for the comparative periods of 2013. The lower rate was mainly the result of change in contract mix as compared to the same period of 2012.

The table below outlines the service revenue generated from the camp and catering operations:

                       
  Three months ended June 30   Six months ended June 30
(000's)               2013                 2012                 2013                 2012
Camp and catering operations service related revenue         $ 3,275           $ 5,040           $ 9,798           $ 12,304

Service revenues in the camp & catering operations are related to the transportation, set-up and de-mobilization of camps. Revenue for the three and six months ended June 30, 2013 decreased $1.8 million or 36% and $2.5 million or 20% respectively compared to the same periods in 2012. The decrease was mainly due to the nature of the specific service projects undertaken in the comparative periods.

Manufacturing sales

Manufacturing sales revenues include the manufacture of camps sold to third parties and the transportation and installation activities associated with those sales. Revenues for the three and six months ended June 30, 2013 were $68.7 million and $111.0 million respectively an increase of $14.7 million or 27% and $23.7 million or 27% as compared to the same periods of 2012. Manufacturing sales, transportation and installation all contributed to the higher revenue in the comparative periods. The majority of the increase was from the initial portion related to the sale of a 325 person camp which will be transported and installed in the remainder of the year. The remainder was a higher level of installation activity on a large camp project in the Fort McMurray area. Direct manufacturing hours were 213,305 for the three months ended June 30, 2013 compared to 159,124 in the same period of 2012, an increase of 54,181 hours or 34%. For the six months ended June 30, 2013 direct manufacturing hours were 419,081 compared to 293,927 in the same period of 2012, an increase of 125,154 hours or 43%. This increase in direct hours was achieved by ramping up staffing levels at the existing production facilities throughout 2012 and the first half of 2013. As a percentage of total direct hours, hours allocated to external sales were 67% and 63% respectively, compared to 85% and 77% for the comparative periods in 2012.

Space rental revenues

Space rental revenues for the three and six months ended June 30, 2013 were relatively consistent in the second quarter and down $1.3 million year to date as compared to the same periods in 2012. The first quarter of 2012 included a significant used rental equipment sale which was not repeated in 2013. The space rental fleet size and utilization was relatively consistent at 910 units and 89% for the comparative periods.

Direct costs

Direct costs for the three and six months ended June 30, 2013 were $101.7 million or 75% of revenue and $190.3 million or 73% of revenue compared to $78.8 million or 67% of revenue and $157.4 million or 68% of revenue for the same period of 2012. Direct costs are closely related to business volumes and the increased direct costs are primarily a result of the higher activity levels in the comparative periods. As a percentage of revenue, direct costs increased primarily as a result of a shift in the revenue mix compared to the same periods of 2012. In 2013 a larger proportion of revenue was derived from manufacturing operations which by its nature has higher direct costs than the camps and catering operations.

Matting

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

                                   
  Three months ended June 30   Six months ended June 30
(000's except mat rental days and numbers of mats)             2013               2012   %
change
              2013               2012   %
change
Access mat rental revenue (1) $  4,248   $  6,311     (33%)   $ 5,946         $  8,439     (30%)
Other mat and rental equipment revenue (2) $  486   $  422     15%   $ 1,630         $  1,103     48%
Total mat and rental equipment revenue $  4,734   $  6,733     (30%)   $ 7,576         $  9,542     (21%)
Mat sales revenue   2,124     8,440     (75%)     7,046     15,009     (53%)
Installation, transportation, service and other revenue   8,098     10,059     (19%)     16,566     19,019     (13%)
Total revenue $ 14,956   $  25,232     (41%)   $ 31,188         $  43,570     (28%)
                                   
EBITDAS $  4,148   $  6,161     (33%)   $  8,134         $  10,533     (23%)
EBITDAS as a % of revenue   28%     24%           26%     24%      
Operating earnings $  1,967   $  3,985     (51%)   $ 3,881         $  6,589     (41%)
Access mat rental days - owned mats (3)   1,138,663     1,129,339     1%     1,768,456     1,873,683     (6%)
Access mat rental days - third party mats (4)   696,310     1,035,156     (33%)     755,258     1,035,156     (27%)
Total access mat rental days   1,834,973     2,164,495     (15%)     2,523,714     2,908,839     (13%)
                                   
Average owned access mats in rental fleet (5)   17,697     15,377     15%     15,768     13,172     20%
Average sub rental access mats in rental fleet (6)   7,670     11,375     (33%)     4,153     5,688     (27%)
Access mats in rental fleet at quarter end (7)   19,678     15,287     29%     19,678     15,287     29%
                                   
Mats sold:                                  
      New mats   2,495     10,135     (75%)     7,954     17,542     (55%)
      Used Mats   467     1,647     (72%)     1,844     3,546     (48%)
Total mats sold   2,962     11,782     (75%)     9,798     21,088     (54%)
(1) Access mat rental revenue includes revenues generated from the rental of traditional oak and oak edged mats.
(2) Other mat and rental equipment revenue includes the rental of rig mats, quad mats, other ancillary equipment such as well site accommodation units and light towers.
(3) One mat rental day equals the rental of one owned access mat for one day.
(4) One mat rental day equals the rental of one third party sub rented access mat for one day.
(5) Average access mat rental fleet numbers reflect only owned access mats.
(6) Average sub rental access mats is the average number of non-owned access mats in the rental fleet. These mats are rented from third parties on a short term basis.
(7) Access mats in rental fleet at quarter end represents the number of owned access mats in the Matting fleet on June 30.

Revenues from the Matting segment for the three and six months ended June 30, 2013 were $15.0 million and $31.2 million, a decrease of $10.3 million or 41% and $12.4 million or 28% respectively compared to the same period of 2012. EBITDAS for the three and six months ended June 30, 2013 were $4.1 million or 28% of revenue and $8.1 million or 26% of revenue, a decrease of $2.0 million or 33% and $2.4 million or 23% compared the same period of 2012.

The decrease in revenues was a result of both moderated customer demand and very wet site conditions in the second quarter of 2013. Generally, in the first half of 2013 customers reduced the scope of projects or postponed projects resulting in lower volumes in rentals, sales and installation work. As well, extremely wet and muddy site conditions throughout the second quarter had many customers stop work and wait for conditions to improve. Even with matting, site conditions were too poor to work effectively and safely.

Mat and rental equipment revenue

Access mat rental revenues for the three and six months ended June 30, 2013 were $4.2 million and $5.9 million, down $2.1 million or 33% and $2.5 million or 30% respectively compared to the same periods of 2012. The decrease in revenue was a combination of lower activity and lower revenue per mat rental day rate. Total mat rental days in the three and six months ended June 30, 2013 were down by 329,522 or 15% and 385,125 or 13% respectively, a result of moderated customer demand and the very wet site conditions. The lower daily mat rental rate was due to softer customer demand and the mix of contracts in the comparative periods.

Utilization of the owned mat fleet for the three and six months ended June 30, 2013 was 71% and 62% respectively, compared to 80% and 78% in the same periods of 2012. The decrease in utilization is reflective of the size of the owned mat rental fleet. The fleet increased in size by 15% and 20% in the comparative periods, while owned mat rental days remained relatively flat for the quarter Of note is reduced reliance on third party mats in the first half of 2013, with third party mat rental days decreasing significantly.

Mat sales revenue

Revenues from mat sales for the three and six months ended June 30, 2013 were $2.1 million and $7.0 million, down $6.3 million or 75% and $8.0 million or 53% respectively compared to the same periods of 2012. The decrease in revenue is reflective of moderating customer requirements and timing of projects. The mix of new and used access mat sales and the revenue per mat stayed relatively consistent in the comparative periods.

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 and are charged for separately from rentals and sales. Revenues for the three and six months ended June 30, 2013 were $8.1 million and $16.6 million, a decrease of $2.0 million or 19% and $2.5 million or 13% respectively compared to the same periods in 2012. The decrease was mainly reflective of the lower volume of rentals and mat sales in the comparative periods.

Direct costs

Direct costs for the three and six months ended June 30, 2013 were $10.7 million or 71% of revenue and $22.7 million or 73% of revenue compared to $18.9 million or 75% and $32.8 million or 75% of revenue for the same period of 2012. Direct costs are driven by the level of business activity, with the decrease in mat sales and installation revenue compared to the same periods of 2012, direct costs have decreased accordingly. Direct costs as a percentage of revenue decreased by 4% and 2% respectively for the three and six months ended June 30, 2013 as compared the same periods of 2012. The decrease is primarily a result of lower costs in the rental operation due to decreased usage of sub rented mats in comparison to the same periods of 2012.

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, information technology, and associated costs of supporting a public company. Corporate costs for the three and six months ended June 30, 2013 were $3.2 million and $6.3 million, an increase of $0.4 million or 17% and $0.6 million or 11% compared to the same periods in 2012. The increased costs in both periods reflects the cost to support higher levels of business activity. Corporate costs, as a percentage of total revenue were relatively consistent in the comparative periods at approximately 2%.

Other Items

Selling and administrative

Selling and administrative expense for the three and six months ended June 30, 2013 was $4.8 million and $9.6 million, an increase of $0.3 million or 6.7% and $1.0 million or 11.2% compared to the same periods for 2012. The increase is reflective of the higher levels of business activity in the first half of 2013 as compared to the same period of 2012. As a percentage of revenue selling and administrative expense remained consistent at 3.2% of revenue.

Depreciation and amortization

                                   
  Three months ended June 30   Six months ended June 30
(000's)   2013     2012     %
change
    2013     2012     %
change
Depreciation $  11,762   $  7,589     55%   $  22,606   $  13,818     64%
Amortization   2,051     2,051     -%     4,102     4,102     -%
Total depreciation and amortization $  13,813   $  9,640     43%   $ 26,708   $  17,920     49%

Depreciation and amortization costs for the three and six months ended June 30,2013 were $13.8 million and $26.7 million, an increase of $4.2 million or 43% and $8.8 million or 49% compared to the same periods of 2012. The increased depreciation was a result of camp asset additions including camp set-up and installation costs which are depreciated over the term of the contract, generally a shorter time frame than the camp assets. Depreciation for the camp set-up and installation was $3.7 million higher in the six months ended June 30, 2013 as compared to the same period of 2012.

Financing costs

Financing costs include interest on loans and borrowings and accretion on notes payable. For the three and six months ended June 30, 2013 financing costs were $1.1 million and $2.2 million, an increase of $0.2 million and $0.7 million compared to the same periods of 2012. Increased interest expense was due to a larger weighted average debt of $115.9 million in the three months ended June 30, 2013 as compared to $69.9 million in the same period in 2012. The effective interest rate on the loans and borrowing remained relatively consistent in the comparative periods at 3.6%.

Income taxes

For the three and six months ended June 30, 2013 income taxes expense was $3.1 million and $8.6 million, an effective tax rate of 23.2% and 24.5% compared to $7.4 million and $14.0 million, an effective tax rate of 25.4% and 25.6% in the comparative periods of 2012. The decrease in the effective tax rate for the three and six months ended June 30, 2013 was primarily due to the non taxable portion of an asset sale.

Gain/Loss on disposal

For the three and six months ended June 30, 2013 the loss on disposals was $4.2 million and $4.1 million respectively compared to $0.1 million and $0.1 million in the comparative periods of 2012. The loss on disposal in the second quarter of 2013 was primarily due to the disposal of the remaining un-depreciated set-up costs related to a large camp which was dismantled and in transition in the second quarter of 2013.

Condensed consolidated statement of financial position (Unaudited)

           
(000's)   June 30,
            2013
    December 31,
2012
Assets          
           
Current assets:          
  Trade and other receivables $ 138,061   $ 133,195
  Inventories   11,358     13,321
  Prepayments   5,372     2,506
  Income taxes receivable   1,170     146
    155,961     149,168
Non-current assets:          
  Property, plant and equipment   330,300     330,205
  Intangible assets   5,926     10,028
  Goodwill   2,136     2,136
  Deferred tax assets   2,192     1,772
  Other assets   2,620     2,684
    343,174     346,825
  $  499,135   $ 495,993
           
Liabilities and Shareholders' Equity          
           
Current liabilities:          
  Trade and other payables $ 52,848   $ 59,511
  Deferred revenue   2,189     588
  Income taxes payable   1,602     12,661
  Current portion of loans and borrowings   1,443     1,416
    58,082     74,176
Non-current liabilities:          
  Asset retirement provisions   1,395     1,364
  Loans and borrowings   121,516     116,872
  Deferred tax liabilities   28,821     29,318
    209,814     221,730
Shareholders' equity:          
  Share capital   181,837     179,999
  Contributed surplus   11,279     10,783
  Accumulated other comprehensive (loss) income   (54)     208
  Retained earnings   96,259     83,273
    289,321     274,263
  $  499,135   $  495,993
           

Condensed consolidated statement of comprehensive income (Unaudited)
Three and Six months ended June 30, 2013 and 2012

                         
  Three months ended
June 30
Six months ended
June 30
(000's) 2013   2012   2013     2012
Revenue $  148,426   $ 139,551   $  288,385   $  268,148
                       
Operating expenses:                      
  Direct costs   110,919     94,592      209,433         184,602
  Depreciation   11,762     7,589     22,606     13,818
  Amortization of intangible assets   11     44     22     88
  Share based compensation   216     391       625     436
  Loss on disposal of property, plant and equipment   4,243     114        4,086     109
Direct operating expenses   127,151      102,730     236,772         199,053
Gross profit   21,275     36,821     51,613         69,095
                       
Selling & administrative expenses:                      
  Selling & administrative expenses   4,799     4,496     9,611       8,638
  Amortization of intangible assets    2,040     2,007     4,080        4,014
  Share based compensation   179     262     456      307
Selling & administrative expenses   7,018     6,765     14,147     12,959
Operating earnings    14,257     30,056     37,466     56,136
                       
Finance costs   1,081     849     2,196     1,543
Share of loss (gain) of equity accounted investees   -     19     -                (27)
Profit before tax   13,176     29,188      35,270        54,620
                       
  Current tax expense   4,716     6,304     9,555           11,064
  Deferred tax (recovery) expense   (1,663)     1,115     (917)          2,926
Income tax expense   3,053     7,419     8,638          13,990
Total profit   10,123     21,769     26,632        40,630
                       
Other comprehensive income:                      
  Translation of foreign operations    137     (85)           262           (16)
Other comprehensive loss (income), net of income tax    137     (85)        262           (16)
Total comprehensive income $  9,986   $  21,854    $  26,370        $  40,646
                       
Earnings per share:                      
  Basic $ 0.09   $ 0.20   0.24    $  0.38
  Diluted $  0.09   $  0.20   $  0.24        $  0.37
                         

Condensed consolidated statement of changes in equity (Unaudited)

                             
(000's)               Share
            Capital
    Contributed
Surplus
    Accumulated
Other
Comprehensive
(loss) Income
                Retained
            Earnings
                Total
Balance at December 31, 2011               173,438                 10,421                 158                 32,052                 216,069
                             
Total profit               -                 -                 -                 40,630                 40,630
Share based compensation               -                 743                 -                 -                 743
Share options exercised               4,773                 (1,294)                 -                 -                 3,479
Translation of foreign operations               -                 -                 16                 -                 16
Dividends paid ($0.05 per share)               -                 -                 -                 (10,799)                 (10,799)
Balance at June 30, 2012               178,211                 9,870                 174                 61,883                 250,138
                             
Total profit               -                 -                 -                 32,253                 32,253
Share based compensation               -                 1,408                 -                 -                 1,408
Share options exercised               1,788                 (495)                 -                 -                 1,293
Translation of foreign operations               -                 -                 34                 -                 34
Dividends paid ($0.05 per share)               -                 -                 -                 (10,863)                 (10,863)
Balance at December 31, 2012               179,999                 10,783                 208                 83,273                 274,263
                             
Total profit               -                 -                 -                 26,632                 26,632
Share based compensation               -                 1,081                 -                 -                 1,081
Share options exercised               1,838                 (585)                 -                 -                 1,253
Translation of foreign operations               -                 -                 (262)                 -                 (262)
Dividends paid ($0.0625 per share)               -                 -                 -                 (6,807)                 (6,807)
Dividends declared ($0.0625 per share)               -                 -                 -                 (6,839)                 (6,839)
Balance at June 30, 2013 $  181,837    $  11,279    $  (54)   $  96,259   $  289,321
                             

Condensed consolidated statement of cash flows (Unaudited)
Six months ended June 30, 2013 and 2012

               
            June 30,     June 30,
(000's)                 2013     2012
Cash provided by (used in):            
             
Operating activities:            
Profit for the period   $  26,632   $  40,630
Adjustments for:            
  Depreciation     22,606     13,818
  Amortization of intangible assets     4,102     4,102
  Share based compensation     1,081     743
  Amortization of other assets     64     64
  Gain on equity investments     -     (27)
  Gain on sale of property, plant and equipment     (12)     (1,508)
  Unrealized foreign exchange (gain) loss     (132)     23
  Finance costs     2,196     1,543
  Income tax expense     8,638     13,990
      65,175     73,378
             
Income taxes paid     (21,638)     (7,510)
Interest paid     (2,075)     (1,140)
Changes in non-cash working capital items               (10,735)             (22,793)
      30,727     41,935
             
Investing activities:            
Purchase of property, plant and equipment     (39,584)     (69,523)
Proceeds on sale of property, plant and equipment     16,765     4,400
      (22,819)     (65,123)
             
Financing activities:            
Proceeds from loans and borrowings     4,485     30,508
Share purchase options exercised     1,253     3,479
Payment of dividends     (12,246)     (9,662)
      (6,508)     24,325
             
Changes in non-cash working capital items     (1,400)     (1,137)
      (7,908)     23,188
Increase in cash position     -                 -
             
Cash, beginning of period     -                 -
Cash, end of period   $  -   $  -

Financial Measures Definitions

EBITDAS

EBITDAS (Earnings before interest, taxes, depreciation, amortization, gain/loss on equity investments, gain/loss on disposal of property, plant and equipment, share of income/loss from equity accounted investees and share based compensation) is not a recognized measure under IFRS.  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 and operating earnings provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how those activities are financed or taxed.  Horizon's method of calculating EBITDAS may differ from other entities and accordingly, may not be comparable to measures used by other entities. EBITDAS should not be construed as alternatives to total profit and comprehensive income determined in accordance with IFRS as an indicator of the Corporation's performance.

Funds from operations

Funds from operations is not a recognized measure under IFRS.  Management believes that in addition to cash flow from operations, funds from operations is a useful supplemental measure as it provides an indication of the cash flow generated by the Corporation's principal business activities prior to consideration of changes in working capital. Investors should be cautioned, however, that funds from operations should not be construed as an alternative to cash flow from operations determined in accordance with IFRS as an indicator of the Corporation's performance.  Horizon's method of calculating funds from operations may differ from other entities and accordingly, funds from operations may not be comparable to measures used by other entities.  Funds from operations is equal to cash flow from operations before changes in non-cash working capital items related to operations, interest and income taxes paid, financing costs, and income tax expense.

Debt to total capitalization

Debt to total capitalization is 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 Information and Statements

Certain statements contained in this Management Discussion and Analysis ("MD&A") 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 "Outlook" the statements that "Horizon anticipates a significant amount of fleet to be in transition throughout the third quarter keeping revenue per manday and utilization rates similar to the second quarter 2013. Manufacturing is now fully booked through 2013 and this strength will help offset some third quarter softness in camps and catering and matting. Increasing clarity to customers' project timelines indicates momentum building in the fourth quarter. Oil sands development activities, driven primarily by SAGD projects, continue to be the main driver of Horizon's growth with oil sands activity accounting for 61% of Horizon's consolidated revenues for the first half of 2013." And "The $80 million capital program which anticipates adding 1,000 beds to the camp and catering fleet is on track."

These include, but are not limited to, general economic, market and business conditions.  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's operations and financial results are included in Horizon's annual information form which may be accessed through the SEDAR website at www.sedar.com.  The forward-looking statements and information contained in this MD&A are made as of the date hereof and Horizon does not undertake any obligation to update publicly or revise and forward-looking statements and information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

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.

 

SOURCE Horizon North Logistics Inc.

For further information:

Bob German, President and Chief Executive Officer, or Scott Matson, 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

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