HNZ Group reports 2015 third quarter results

  • Revenue of $59.6 million, versus $58.1 million last year
  • Adjusted EBITDAR of $15.7 million or 26.3% compared to $20.2 million or 34.7% a year ago
  • Adjusted EBITDA of $12.6 million or 21.2% compared to $17.9 million or 30.8% a year ago
  • Recorded a non-cash trade name impairment charge of $17.4 million or $15.1 million net of tax impact
  • Net income of $7.1 million before impairment charge or $0.54 per share for the third quarter, or net loss after impairment of $8.0 million or $0.61 per share versus net income of $9.6 million or $0.73 per share last year
  • To preserve capital as market conditions are expected to remain challenging the Board decided to suspend the monthly dividend effective January 1, 2016
  • Solid financial position with a $4.9 million net cash position and $125 million credit facility

MONTREAL, Nov. 15, 2015 /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 third quarter ended September 30, 2015.




Financial Highlights

Quarters ended September 30,

Nine months ended September 30,

(in thousands of dollars, except per share data)

2015


2014


2015


2014

Revenue

59,606


58,123


139,971


165,533

Adjusted EBITDAR (1)

15,689


20,159


24,885


42,206

Adjusted EBITDA (2)

12,627


17,904


18,604


34,634

Trade name impairment charge

17,400


-


17,400


-

Net income (loss) (3)

(8,007)


9,584


(11,115)


15,214

      Per share - basic and diluted ($)

(0.61)


0.73


(0.85)


1.16

Adjusted cash flows related to operating activities (4)

10,700


14,702


17,304


30,803

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 (loss) before net financing charges, income taxes, depreciation and amortization, adjusted for gain or loss on disposal of property, plant and equipment, trade name 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)

 

THIRD QUARTER RESULTS
The Corporation generated revenue of $59.6 million in the third quarter of 2015, compared with revenue of $58.1 million a year ago. This increase is mostly attributable to increased offshore and ancillary revenues, partially offset by a decrease in onshore revenue. The Corporation flew 14,707 hours compared to 16,700 hours in the third quarter of 2014, a decrease of 11.9%.

Offshore revenue increased by $5.7 million from the third quarter of 2014, mainly due to the new Shell Canada Energy offshore support contract in Halifax, Nova Scotia, the increased revenues from the Shell offshore support contract in the Philippines and the newly-acquired business of Norsk, partially offset by reduced oil and gas revenues in New Zealand and mining revenues in Australia.

Ancillary revenue increased by $4.7 million mainly due to increased activity at Nampa and Heli-Welders and increased flight training revenues from HNZ Topflight, partially offset by a decrease in aircraft leasing revenues.

Onshore revenues decreased by $8.9 million due to the completion of the USTRANSCOM contracts in Afghanistan and reduced utility flying revenue in Canada, partially offset by increased revenues from the North Warning System contract.  

Operating expenses, before aircraft operating leases expense, increased by $5.4 million to $44.0 million in the third quarter compared to last year. The increase in operating expenses reflects the changing revenue mix and the funding of startups in eastern Canada and Norway.

Adjusted EBITDAR and adjusted EBITDA for the third quarter of 2015 were $15.7 million and $12.6 million respectively or 26.3% and 21.1% of revenues, compared to $20.2 million and $17.9 million or 34.8% and 30.8% of revenues a year earlier.

During the third quarter of 2015, the Corporation recorded a trade name impairment charge of $17.4 million, $15.1 million net of tax impact, with respect to future estimated cash flows from its Canadian onshore cash generating unit.  This is due to the expected ongoing reduction in demand for helicopter services as a result of lower resource support activity. The trade name impairment charge is a non-cash and non-recurring adjustment and has no adverse impact on the Corporation's ability to meet its debt covenants.

Net income attributable to the shareholders of the Corporation prior to the recognition of the trade name impairment charge was $7.1 million or $0.54 per share, compared to $9.6 million, or $0.73 per share for the same period in 2014. After recognizing the trade name impairment, the Corporation experienced a net loss of $8.0 million or $0.61 per share. Adjusted cash flows related to operating activities before net change in non-cash working capital balances and deferred revenues were $10.7 million in the third quarter of 2015 versus $14.7 million in the corresponding period a year earlier, mainly due to the changing revenue mix and funding of startups compared to the previous year.

Adjusted net free cash flows for the nine months ended September 30, 2015 were $12.6 million, compared to $26.1 million for the same period a year ago. For the twelve-month period ended September 30, 2015, adjusted net free cash flows stood at $15.0 million, compared with $28.5 million for the year ended December 31, 2014.

"In what is normally a seasonally strong quarter, third quarter revenues increased 3% while Adjusted EBITDA fell 29%, reflecting the lost contribution of Afghanistan, and challenging market conditions," said Don Wall, President and Chief Executive Officer of HNZ Group. "Given the decline in resource activity with no signs of a recovery in the short-term, the Board has decided to suspend the dividend. The macro-economic environment in the near to mid-term has created uncertainty that our cash flow can support dividend payments without the use of our credit facility. This difficult decision will allow the Corporation to save $14.4 million in annual dividend payments and safeguard our strong balance sheet with a current net cash position of $4.9 million. The combination of positive cash flow, no dividend payout and a solid balance sheet will provide us with the ability to withstand ongoing economic challenges as well as to be opportunistic should this weakness provide investment opportunities."

As at September 30, 2015, the Corporation's financial position is strong with working capital of $49.8 million, and cash and cash equivalents of $11.3 million, combined with an operating credit facility drawdown of $6.3 million.

On August 24, 2015, the Toronto Stock Exchange (the "TSX") accepted the Corporation's notice of intention to make a normal course issuer bid to purchase up to 392,061 common shares and/or variable voting shares of the Corporation through the facilities of the TSX for a period of twelve months ending on August 26, 2016. This represents approximately 3% of the issued and outstanding common and variable voting shares of the Corporation. As of November 13, 2015, the Corporation has not repurchased any shares.

NINE-MONTH RESULTS
For the nine-month period ended September 30, 2015, revenue totaled $140.0 million, compared with revenue of $165.5 million in the corresponding period of 2014. This variation is explained by a decrease in onshore revenue of $34.3 million, partially offset by an increase in ancillary revenue of $4.7 million increase and an increase in offshore revenue of $4.1 million. The Corporation flew 32,390 hours over the nine-month period ended September 30, 2015, compared to 37,852 hours in the same period in 2014.

Adjusted EBITDAR and adjusted EBITDA for the nine-month period amounted to $24.9 million and $18.6 million respectively, compared to $42.2 million and $34.6 million a year earlier.

Net income attributable to the shareholders of the Corporation prior to the recognition of the trade name impairment charge was $3.9 million or $0.30 per share, compared to $15.2 million, or $1.16 per share for the same period in 2014. After recognizing trade name impairment, the Corporation experienced a net loss of $11.1 million or $0.85 per share. Adjusted cash flows related to operating activities before net change in non-cash working capital balances and deferred revenues totaled $17.3 million, versus $30.8 million in the corresponding period a year earlier.

AWARD OF UNITED STATES DEPARTMENT OF DEFENSE NORTH WARNING SYSTEM CONTRACT
On September 3, 2015, the Corporation announced that it had received a notice of intent to award a contract from the United States Department of Defense in support of the North Warning System ("NWS"). HNZ, operating under the brand Canadian Helicopters, has been selected as the "successful offeror" with regard to the consolidated Rotary Wing Operations and Maintenance, Bulk Fuel and Supplemental Rotary Wing contract. The Department of Defense decision was taken following a competitive bidding process. A total of nine owned IFR medium and heavy helicopters, including some redeployed fleet from Afghanistan, will be used for the contract.

The contract, which began on October 1, 2015, includes a year-round service employing five aircraft on the Operations and Maintenance component, and four aircraft in a seasonal capacity servicing the Bulk Fuel and Supplemental components with various commencement dates. The NWS is an early warning radar system, comprised of 47 radar sites spanning the Canadian Arctic. The contract is for a six-month base period with four one-year and one six-month extensions, each exercisable at the option of the Department of Defense, for a total of five years with expected aggregate revenues of approximately US$61 million.

OUTLOOK
"HNZ remains focused on cost reduction initiatives and the extent of these efforts are now more comprehensive considering our outlook on the industry. The Board and Management believes that the decision to suspend the dividend and invest in the business on an opportunistic basis, which will reduce risk and create more shareholder value on a long-term basis," concluded Mr. Wall. 

CHANGES IN BUSINESS SEGMENTATION AND MD&A DISCLOSURE
During the first quarter, the Corporation changed the reporting of its financial results to the following business segments: offshore operations; onshore operations; and ancillary services. This new segmentation reflects Management's view of the business and also HNZ's growth strategy going forward, with an emphasis on growing offshore helicopter transportation services.

Offshore operations revenue is generated from helicopter transportation services. It is comprised of work mainly related to personnel and cargo transport using medium and heavy category aircraft for oil and gas or mining companies. The offshore operations also include medevac and search and rescue activities, and the provision of crew to an international oil and gas company in Australia. Offshore revenue typically relies on fixed monthly standing charges plus an hourly flying rate.

Onshore operations revenue is also generated from helicopter transportation services. Onshore operations are diverse and typically use light and to a lesser extent medium category aircraft to perform work for a short period or season for oil and gas, mining and utility companies and governmental entities. Our onshore operations also include the provision of Emergency Medical Services for the government of Nova Scotia and our contracts with the United States Transportation Command for the North Warning System and in previous years in Afghanistan. The onshore revenue is currently earned primarily from our activities in Canada and Antarctica and has inherent seasonality and variability in demand.

Ancillary services revenue is mostly generated from the Corporation's repair and maintenance services in Canada and in the United States, from flight training in Canada including the internationally recognized HNZ Topflight advanced training centre in Penticton, British Columbia, and from other minor sources including aircraft leases.

CONFERENCE CALL
The Corporation will hold a conference call to discuss these results on Monday, November 16, 2015 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: 69593424. This tape recording will be available until November 23, 2015.

ABOUT HNZ GROUP INC.
HNZ Group is an international provider of helicopter transportation and related support services with operations in Canada, New Zealand, Australia, Norway, Southeast Asia and Antarctica. The Corporation operates in excess of 120 helicopters to support offshore and onshore charter activities. Offshore operations worldwide are provided through HNZ Global and partner Norsk Helikopterservice while onshore charter operations are managed by Canadian Helicopters in Canada, Asia-Pacific and Antarctica. Clients consist of multinational companies and government agencies including offshore and onshore oil and gas, mineral exploration, military support, hydro and utilities, forest management, construction, air ambulance and search and rescue. In addition to charter services, it provides ancillary services which include primarily third-party repair and maintenance services and flight training including the internationally recognized HNZ Topflight advanced training centre in Penticton, British Columbia. HNZ Group is a publicly traded company on the Toronto Stock Exchange (TSX: HNZ.A, HNZ.B) and is headquartered near Montreal, Canada employing approximately 700 personnel from 34 locations around the world.

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 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 (loss) 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 September 30


Nine-month periods

ended September 30

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

2015

2014


2015

2014

Revenue

59,606

58,123


139,971

165,533

Operating expenses before aircraft operating leases expenses

44,041

38,604


116,714

123,856

Foreign exchange gain

(124)

(640)


(1,628)

(529)

Adjusted EBITDAR

15,689

20,159


24,885

42,206

Aircraft operating leases expenses[1]

3,062

2,255


6,281

7,572

Adjusted EBITDA

12,627

17,904


18,604

34,634

- Amortization

4,558

4,575


13,639

12,958

- Trade name impairment charge

17,400

-


17,400

-

- Net gain on disposal of property, plant and equipment

(493)

(1,075)


(803)

(289)

- Net financing charges

149

115


458

461

Income (loss) before income taxes

(8,986)

14,289


(12,090)

21,504

Net income (loss) attributable to:






Shareholders of the Corporation

(8,007)

9,584


(11,115)

15,214

Non-controlling interests

(1,020)

218


(1,169)

382

Net income (loss)

(9,027)

9,802


(12,284)

15,596

 

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




Nine months ended

Last twelve
months ended

Year

ended

(in $000's)

September 30,
2015

September 30,

2014

September 30,

2015

December 31,
2014

Cash flows related to operating activities

3,195

27,456

13,575

37,836

Add (deduct):

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

14,109

3,347

6,796

(3,966)

Adjusted cash flows related to operating activities

17,304

30,803

20,371

33,870

Less:

Maintenance CAPEX

4,719

4,724

5,361

5,366

Adjusted Net Free Cash Flows

12,585

26,079

15,010

28,504

 

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., Matthew Wright, Vice-President and Chief Financial, Officer, Tel: 780-429-6903


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