HNZ Group reports 2014 second quarter results

  • Revenue of $51.5 million, versus $64.0 million last year
  • Adjusted EBITDAR of $9.6 million or 18.6% compared to $21.4 million or 33.4% a year ago
  • Adjusted EBITDA of $7.1 million or 13.8% compared to $21.0 million or 32.8% a year ago
  • Net income of $2.0 million or $0.16 per share, versus $12.6 million or $0.97 per share last year
  • Year-to-date debt reduced by $15 million resulting in $0.3 million cash position net of debt
  • Solid balance sheet enabling HNZ to remain proactive in the search for strategic acquisitions

MONTREAL, Aug. 13, 2014 /CNW Telbec/ - HNZ Group Inc. (TSX: HNZ.A, HNZ.B) (the "Corporation"), an international provider of helicopter transportation and related support services, today announced its financial and operating results for the second quarter ended June 30, 2014.




Financial Highlights

Quarters ended June 30,

Six months ended June 30,

(in thousands of dollars, except per share data)

2014

2013

2014

2013

Revenue

51,459

63,947

107,410

118,156

Adjusted EBITDAR (1)

9,567

21,389

22,048

34,824

Adjusted EBITDA (2)

7,113

21,027

16,730

33,846

Net income (3)

2,036

12,636

5,629

19,150


Per share - basic and diluted ($)

0.16

0.97

0.43

1.47

Adjusted Cash flows related to operating activities (4)

6,440

16,769

16,101

28,124

Weighted-average shares outstanding (all classes)

13,068,700

13,068,700

13,068,700

13,068,700

(1)

Adjusted EBITDA (as defined below) before aircraft operating leases expense but including payments made to lessors to cover variable costs for leased aircraft such as maintenance and crew costs (see reconciliation in the Non-IFRS financial measures section)

(2)

Net income before net financing charges, income taxes, depreciation and amortization, adjusted for gain or loss on disposal of property, plant and equipment, goodwill impairment charge (if any), change in fair value of the obligation to purchase the shares of non-controlling interests in subsidiaries as disclosed in the reconciliation of the EBITDA and EBITDAR (see reconciliation in the Non-IFRS financial measures section)

(3)

Attributable to the shareholders of the Corporation

(4)

Before net changes in non-cash working capital balances and deferred revenues (see reconciliation in the Non-IFRS financial measures section)

SECOND QUARTER RESULTS
The Corporation generated revenue of $51.5 million in the second quarter of 2014, compared with revenue of $64.0 million a year ago. This decrease is mostly due to a decrease in Visual Flight Rules (VFR) operations in Afghanistan and in western Canada. The Corporation flew 11,365 hours compared to 15,365 hours in the second quarter of 2013, a decrease of 26.0%.

Instrument Flight Rules (IFR) revenue increased by $6.7 million as a result of an increase in oil and gas activities in New Zealand and the start, in September 2013, of the previously-announced Shell offshore support contract in the Philippines. VFR revenue decreased by $16.7 million primarily due to the reduced number of aircraft and daily flight hours in Afghanistan and the reduction of activities in western Canada, which has experienced a very difficult quarter. Ancillary revenue decreased by $2.5 million due to the decrease in repair and maintenance revenues from the Heli-Welders and Nampa businesses, as well as Contracted Flying and Training Services revenue.

Operating expenses increased by $2.6 million in the second quarter compared to last year. This is mainly due to selling, general and administrative expenses overall and base costs in connection with increased oil and gas activities in New Zealand and the Philippines.

Adjusted EBITDAR and adjusted EBITDA for the second quarter of 2014 were $9.6 million and $7.1 million respectively, compared to $21.4 million and $21.0 million a year earlier.

Net income attributable to the shareholders of the Corporation totaled $2.0 million, or $0.16 per share in the second quarter of 2014, compared to $12.6 million, or $0.97 per share for the same period in 2013. Adjusted cash flows related to operating activities before net change in non-cash working capital balances and deferred revenues were $6.4 million in the second quarter of 2014, versus $16.8 million in the corresponding period a year earlier, mainly due to lower net income.

Adjusted net free cash flows for the six months ended June 30, 2014 totaled $12.8 million, compared to $22.2 million for the same period a year ago. For the twelve-month period ended June 30, 2014, adjusted net free cash flows stood at $45.0 million, compared with $54.3 million for the year ended December 31, 2013.

"This was a very challenging quarter for HNZ," said Don Wall, President and Chief Executive Officer of HNZ Group Inc. " HNZ Global was in line with expectations, revenues from Afghanistan declined at a slightly slower pace than expected but the remainder of the business had a difficult quarter. While the weakness was significant, the decline is part of a broader industry cycle and we believe revenues from the Canadian market will strengthen in the third quarter. We have disposed of two redundant aircraft amounting to proceeds of $4.0 million in the second quarter.  Since the beginning of the year, we reduced our debt by $15 million and, at the end of the quarter, had a $0.3 million cash position net of debt combined with a $175 million credit facility to support our growth opportunities and targeted acquisitions."

As at June 30, 2014, the Corporation's financial position remains strong with working capital of $44.9 million and cash and cash equivalents net of debt and bank indebtedness, of $0.3 million, with $8 million drawn under the Corporation revolving operating credit facility of $125 million that matures on January 31, 2017.  The Corporation also has an option to increase the credit facility to $175 million subject to certain conditions. For the second quarter, the long-term debt-to-equity ratio was 0.03, compared to 0.19 last year.

SIX-MONTH RESULTS
For the six-month period ended June 30, 2014, revenue stood at $107.4 million, compared with revenue of $118.2 million in the corresponding period of 2013. This variation is explained by a decrease in VFR revenue of $28.4 million and a decrease in ancillary revenue of $0.2 million, partially offset by an increase in IFR revenue of $17.8 million. The contracts in Afghanistan, in aggregate, are still generating strong revenues despite fewer aircraft and decreased flight hours this year compared to prior years. The Corporation flew 21,152 hours over the six-month period ended June 30, 2014, compared to 24,637 hours in the same period in 2013.

Adjusted EBITDAR and adjusted EBITDA amounted to $22.0 million and $16.7 million respectively, compared to $34.8 million and $33.8 million a year earlier.

Net income attributable to the shareholders of the Corporation totaled $5.6 million, or $0.55 per share, compared with $19.1 million, or $1.47 per share for the same period in 2013. Adjusted cash flows related to operating activities before net change in non-cash working capital balances and deferred revenues totaled $16.1 million, versus $28.1 million in the corresponding period a year earlier.

STRATEGIC MANAGEMENT AND BOARD APPOINTMENTS
In 2014, the Corporation made the following strategic appointments to its management team and board of directors.

On March 31, 2014, the Corporation announced that Laurence ("Larry") Murphy agreed to join the board of directors of the Corporation. Mr. Murphy has over 40 years of experience working with international oil and gas and engineering companies, in operational, business development and executive roles.

On July 23, 2014, the Corporation announced the addition of Rick Burt as Vice President Offshore Operations, Business Development and Strategy. Rick brings 35 years of industry experience to the Corporation and adds considerable strength to the Corporation's international offshore oil and gas support capability. In his new role, Rick will be part of the HNZ Global team and will report to Keith Mullett, Executive Vice President (International). He will be based in Edmonton, Alberta.

OUTLOOK
"While the first half of the year was challenging, we do expect improvements into the third quarter.  We will continue to strive to operate as efficiently as possible, recognizing that we plan and manage our business to our annual and long term requirements and not quarter by quarter. Our primary emphasis is on growing the Corporation and we plan to make the necessary investments to support our strategy. The contract in Afghanistan will conclude October 31, 2014 and revenues are expected to be in-line with previously disclosed information. Moving forward post-Afghanistan, we will continue to focus our efforts on gaining offshore oil and gas support business in Asia Pacific, Eastern Canada and Africa. The recent hiring of Rick Burt, as Vice President Offshore Operations, Business Development and Strategy will enhance our sales efforts in this growing sector.  We have also added a sales manager in western Canada to strengthen the VFR business and increased capacity at the Nampa Valley component overhaul shop.  We are optimistic that Canadian Helicopters' results will improve and that we will see continued growth in HNZ Global," concluded Mr. Wall.

CHANGES IN MD&A DISCLOSURE
Since the first quarter of 2014, the Corporation added "Adjusted net free cash flows" and "Adjusted EBITDAR" measures in its MD&A.

Adjusted net free cash flows
Management believes this supplementary disclosure provides useful additional information to the cash flows of the Corporation including the amount available for distribution to the shareholders, repayment of debt and other investing activities.

Adjusted EBITDAR
This information is widely used by other important industry players. It will be a more precise tool of comparison with companies that do present this information, as the Corporation is planning to do more offshore work and expand its lease fleet. This measure is also a more stable one since it presents pre-capital numbers.

CONFERENCE CALL
The Corporation will hold a conference call to discuss these results on Thursday August 14, 2014 at 11:00 AM (ET). Interested parties can join the call by dialing 514-807-9895 (Montreal) or 1-888-231-8191 (toll free). If you are unable to call at this time, you may access a tape recording of the conference call by dialing 416-849-0833 (Toronto), 514-807-9274 (Montreal), or 1-855-859-2056 (toll free) followed by access code: 82478779. This tape recording will be available until August 21, 2014.

ABOUT HNZ GROUP INC.
The Corporation is an international provider of helicopter transportation and related support services with operations in Canada, Australia, New Zealand, Afghanistan, Antarctica and Southeast Asia. The Corporation operates in excess of 130 helicopters in support of a range of multinational companies and government agencies, including onshore and offshore oil and gas, mineral exploration, military support, hydro and utilities, forest management, construction, air ambulance and search and rescue. In addition to charter services, the Corporation provides flight training and third-party repair and maintenance services. The Corporation is headquartered near Montreal, Canada and employs approximately 800 personnel from 36 locations around the world. The Corporation operates from fixed-base locations as well as from temporary locations, commonly referred to as "pool locations", and provides helicopters in a wide variety of climatic conditions and terrain across Canada, Australia, New Zealand, Afghanistan, Antarctica and Southeast Asia.

FORWARD-LOOKING STATEMENTS
Certain statements in this press release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Examples of such statements include, but are not limited to, the financial position, results of operations, objectives, dividend policy, participation in bidding processes, continuing business relationship with actual or potential key clients (in particular USTRANSCOM in Afghanistan, Rio Tinto and Shell), expected revenues from contracts with key clients, seasonal levels of activity, maintenance of contractual relationships, impact of any economic uncertainty, expected competition, use of available funds, maintenance of strategic relationships with aboriginal groups and regulations (in particular environmental and transportation regulations) and legislation (including tax legislation) applicable to the Corporation.

Although the forward-looking statements contained in this press release are based upon what management of the Corporation believes are reasonable assumptions, the Corporation cannot assure investors that actual results will be consistent with these forward-looking statements. The assumptions on which the forward-looking statements are based include, but are not limited to, general economic trends, industry trends, current contractual and business relationships, capital markets and current competitive, governmental, regulatory and legal environment.

These statements are not based on historical facts but instead reflect current expectations of management regarding future events and operating performance and speak only as of the date of this press release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed in this press release or referred to under "Risk Factors". These forward-looking statements are made as of the date of this press release, and the Corporation assumes no obligation to update or revise them to reflect new events or circumstances, unless required by applicable laws.

NON-IFRS FINANCIAL MEASURES
This press release contains certain non-IFRS financial measures as defined under applicable securities legislation, including adjusted EBITDAR, adjusted EBITDA, Adjusted cash flows related to operating activities and Adjusted net free cash flows. The Corporation believes that such non-IFRS financial measures improve the period-to-period comparability of the Corporation's results by providing more insight into the performance of ongoing core business operations. As required by applicable securities legislation, the Corporation has provided reconciliations of those measures to the most directly comparable IFRS measures. Investors and other readers are encouraged to review the related IFRS financial measures and the reconciliation of non-IFRS measures to their most directly comparable IFRS measures set forth below and should consider non-IFRS measures only as a supplement to, not as a substitute for or as measure to, measures of financial performance prepared in accordance with IFRS.

  • References to "Adjusted EBITDA" are to net income before net financing charges, income taxes, depreciation and amortization, adjusted for gain or loss on disposal of property, plant and equipment, goodwill impairment charge (if any) and change in fair value of the obligation to purchase the shares of non-controlling interests in subsidiaries. Adjustments to standard EBITDA are made by management to normalize for non-recurring events.
  • References to "Adjusted EBITDAR" are to Adjusted EBITDA before aircraft operating leases expense but including payments made to lessors to cover variable costs for leased aircraft such as maintenance and crew costs.
  • References to "Adjusted cash flows related to operating activities" are to cash flows related to operating activities before net changes in non-cash working capital balances and deferred revenues.
  • References to "Adjusted net free cash flows" are to cash flows from operating activities before net change in non-cash working capital balances and deferred revenues less "Maintenance CAPEX" as determined by management. Maintenance CAPEX is defined by management as any capital expenditure which is undertaken to maintain current output in terms of revenues and operating cash flows, as opposed to "Growth CAPEX" which is defined as capital expenditures undertaken to increase the Corporation's capacity for potential growth as determined by management.

Since Adjusted EBITDAR, Adjusted EBITDA, Adjusted cash flows related to operating activities and Adjusted Net Free Cash Flows are useful to many investors to compare issuers on the basis of the ability to generate cash from operations on a recurring basis, management believes that in addition to net income, Adjusted EBITDAR, Adjusted EBITDA, Adjusted cash flows related to operating activities and Adjusted net free cash flows are useful supplementary measures. Management believes that Adjusted net free cash flows provides useful additional information to investors concerning the operations and cash flows of the Corporation including the amount available for distribution to the shareholders, repayment of debt and other investing activities.

Adjusted EBITDAR, Adjusted EBITDA, Adjusted cash flows related to operating activities and Adjusted net free cash flows are not earnings or cash flows measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. Therefore, Adjusted EBITDAR, Adjusted EBITDA, Adjusted cash flows related to operating activities and Adjusted net free cash flows may not be comparable with similar measures presented by other entities. Investors are cautioned that Adjusted EBITDAR, Adjusted EBITDA, Adjusted cash flows related to operating activities and Adjusted net free cash flows should not be construed as alternatives to net income determined in accordance with IFRS as indicators of the Corporation's performance, or to cash flows related to operating, investing and financing activities as measures of liquidity and cash flows.



Adjusted EBITDAR and Adjusted EBITDA Reconciliation to income before income taxes



Three-month periods

ended June 30,


Six-month periods

ended June 30,

($000's except for shares and per share amounts)

2014

2013


2014

2013

Revenue

51,459

63,947


107,410

118,156

Operating expenses before aircraft operating leases expenses

42,169

41,636


85,251

82,678

Foreign exchange loss (gain)

(277)

922


111

654

Adjusted EBITDAR

9,567

21,389


22,048

34,824

Aircraft operating lease expenses[1]

2,454

362


5,318

978

Adjusted EBITDA

7,113

21,027


16,730

33,846

- Amortization

4,401

4,263


8,384

7,825

- Net loss (gain) on disposal of property, plant and equipment

703

(1,125)


785

(1,283)

- Net financing charges

150

357


346

910

- Change in fair value of other liabilities

39


39

Income before income taxes

1,859

17,493


7,215

26,355

Net income attributable to :






Equity holders of the Corporation

2,036

12,636


5,629

19,150

Non-controlling interests

16

221


165

303

Net income

2,052

12,857


5,794

19,453






Adjusted cash flows from operating activities and Adjusted net free cash flow Reconciliation to cash flows from operating activities







Six months ended


Last Twelve

months ended

Year

ended

(in $000's)

June 30,

2014

June 30,

2013


June 30,

2014

December 31,

2013

Cash flows related to operating activities

19,861

7,453


60,743

48,334

Add (deduct):

Net change in non-cash working capital balances and deferred revenues

(3,760)

20,671


(9,733)

14,699

Adjusted cash flows related to operating activities

16,101

28,124


51,010

63,033

Less:

Maintenance capital expenditures

3,271

5,946


6,032

(8,707)

Adjusted net free cash flows

12,830

22,178


44,978

54,326

Note to readers:  Complete consolidated financial statements and Management's Discussion & Analysis of Operating Results and Financial Position are available on the Corporation's website at www.hnz.com and on SEDAR at www.sedar.com.

___________________________
1 The aircraft operating lease expenses exclude the payments made to lessors to cover variable costs for leased aircraft such as maintenance and crew costs.

SOURCE HNZ Group Inc.

For further information: HNZ Group Inc.: Don Wall, President and Chief Executive Officer, Tel: 780-429-6919, Tel: 450-452-3007