Hyduke announces fiscal 2015 audited financial results

NISKU, AB, March 28, 2016 /CNW/ - Hyduke Energy Services Inc. (HYD - TSX), announced operating results for years ended December 31, 2015 and 2014.  Hyduke's Financial Statements and Management's Discussion and Analysis have been filed with regulators and are available at www.hyduke.com and at www.sedar.com. Following is a summary of the 2015 audited financial statements.







Year ended
Dec 31, 2015

Year-over-year
change (%)

Year ended
Dec 31, 2014
(restated)(1)

Year ended
Dec 31, 2013
(restated)(1)

Revenue

23,201

(49.1%)

45,547

53,754

Cost of goods sold

21,083

(43.6%)

37,354

43,793

Gross margin

2,118

(74.1%)

8,193

9,961

Gross margin %

9.1%

(49.3%)

18.0%

18.5%

Selling, general & administrative

7,211

(24.5%)

9,552

8,301

Net loss

from continuing operations

(5,359)

(2.2%)

(5,477)

(47)

Net loss

(6,396)

(27.6%)

(8,834)

(4,943)

Per share – basic

(0.21)


(0.32)

(0.21)

Per shares – diluted

(0.21)


(0.32)

(0.21)

EBITDAS – continuing operations

(3,660)

(23.3%)

(4,772)

1,391

Total assets

27,695

(28.0%)

38,314

44,300

Total liabilities

11,897

(27.5%)

16,405

17,497

(1)            

Prior year numbers have been restated due to reclassification of entities to discontinued operations

Total revenue for the year was $23.2 million.  This represents a decline of $22.3 million or 49.1% over the prior year.  The decline is due to a significant reduction in the demand for oilfield equipment and oilfield supplies.  The Company mitigated the effect of the oil and gas sector downturn by diversifying product and service offerings to include storage tank repairs and custom steel fabrication.  The diversification commenced in the third quarter of 2015. 

Gross margin of $2.1 million or 9.1% declined 74.2% from 2014 gross margin of $8.2 million or 18.0%. 

Selling, general and administrative expenses decreased $2.3 million or 24.5% to $7.2 million.  During 2014, the Company incurred professional fees of $1.0 million relating to the settlement of several outstanding legal claims against the Company and a possible divestiture of a subsidiary.  To reduce costs, the Company vacated leased properties in 2014 resulting in a decline in rent expense, computer expenses, property taxes, insurance and utilities in 2015. During 2015, the Company reduced 15% of its administrative employees and reduced employment hours and/or compensation levels ranging from 10%-20% for remaining employees. The Board of Directors took a voluntary 25% reduction in fees. During 2015, approximately $670 of severances ($555 in 2014) were incurred for terminations in executive, senior management and administrative staff positions. After normalizing for severances, administration and employment expenses declined $1,013 or 21% from 2014 levels.

Negative EBITDAS for continuing operations was $3.6 million for 2015, an increase of $1.1 million from negative EBITDAS of $4.8 million in 2014. 

At December 31, 2015, Hyduke maintained a cash balance of $2.1 million and had a current ratio of 1.4 to 1.00 and debt to equity ratio of 0.5 to 1.00.

Total assets of $27.6 million as at December 31, 2015 represents a decrease of $10.7 million (28.0%) from December 31, 2014 and is due primarily to the collection of accounts receivable and a reduction in inventory and unbilled revenue. 

Total liabilities of $11.9 million as at December 31, 2015 represents a decrease of $4.5 million (27.5%) from December 31, 2014.  The reduction is due to the payment of accounts payables and accrued liabilities.

MANAGEMENT REVIEW AND OUTLOOK

Due to precipitous collapse of crude oil and later natural gas prices, 2015 was characterized by significant expenditure reductions by exploration and production (E&P) companies worldwide. Canada was not immune. As highlighted in the MD&A the number of operating drilling and well servicing rigs in 2015 declined sharply from the prior year. According to the CAODC the total number of wells drilled in Western Canada in 2015 was only 5,292, a 52% declined from 10,927 in 2014. As measured by the total number of wells drilled, this is the lowest level of drilling activity in Western Canada since 1992.

This had a negative impact on Hyduke in virtually every area of its business, from fabricating new drilling and well servicing equipment to supplying operating supplies to rigs. While there was some work carried over from 2014 in the early part of the year, there were few new orders as drilling and well servicing contractors scaled back their investments in new equipment.

Early in the year it became obvious the Company would have to reduce spending and expenses in every possible area. This involved staff reductions, pay cuts, job sharing, and a search for all possible savings in the Company's supply chain. The Board of Directors took a voluntary 25% reduction in compensation effective January 1, 2015. Despite moving quickly and aggressively on expenses, business contracted more quickly than costs resulting in significant operating losses. While the Company downsized considerably, further expense reductions would have done major damage on the ability to exploit the recovery when it occurs or seek new business. Therefore, the decision was made to pursue new opportunities rather than wait for business from traditional clients and sources to return to normal.

As a continuation of a business restructuring and client diversification process that had begun in 2014, in early 2015 the company focused its efforts on seeking new business opportunities and clients involved in production operations, production maintenance and the construction of new producing facilities including oilsands. This process resulted in Hyduke asking for and receiving orders for the first time for fabrication equipment from companies involved in engineering procurement and construction (EPC), midstream operations, and production facility construction. What attracted these new clients to Hyduke was the quality of its team, facilities, and a commitment to delivery on time and on cost. Also attractive to clients was the Company's financial transparency because it is publicly traded. Clients knew Hyduke had cash in the bank and a strong positive working capital position. This meant the Company was not likely to go under prior to completion of the order. Several smaller fabrication companies in the Nisku industrial park have folded in the past year leaving clients high and dry and finished product undelivered.

Hyduke believes its delivery performance on the new business which began last year – combined with aggressive marketing efforts – will begin to have more meaningful positive impact on the Company's financial performance as the current year unfolds.

At the same time Hyduke has been exploring new business relationships and opportunities which will result in increased business in its flagship Nisku fabrication facility. The foundation of future growth may lie in "out-of-the-box" solutions for E&P companies which will allow them to sustain and grow their business in an ongoing environment of lower commodity prices. Management has been exploring new trends in procurement and supply chain which major E&P companies are investigating. As a result, the Company is now working directly for E&P companies on production equipment components for the first time in its history. Working with partners specializing in other key elements of the process, Hyduke is studying whether offering complete turnkey packages for major production investments such as tanks farms would provide end-user clients with a more compelling value proposition while at the same time ensuring the Company's highly capable team and top-notch fabrication facilities are fully utilized.

In recent weeks, there has been a recovery in oil prices from record low levels and a growing acknowledgement that current low prices are unsustainable. As recently as March 23, 2016 the International Energy Agency – a respected global energy analysis and forecasting agency based in Paris - publicly speculated whether the massive capital spending reductions on new supplies of oil in Canada and around the world will result in a future oil shortage and price spike in the not-too-distant future. Hyduke is confident it has good people, excellent facilities, and industry-leading processes resulting in the delivery of quality products on time and on budget. The Company will expend significant energy in 2016 ensuring it is able to exploit the new opportunities it has created for itself and the inevitable recovery when it comes.

Forward Looking Statements
This report contains certain forward-looking statements under the heading "Outlook" and elsewhere concerning future events or the Company's operations, anticipated financial performance, business prospects and strategies of Hyduke.  Forward-looking information typically contains statements with words such as "anticipate", "believe", "estimate", "expect", "plan", "intend" or similar words suggesting future outcomes or outlooks on, without limitation, estimates of business activity, supply and demand for the Company's products, the estimated amounts and timing of capital expenditures, anticipated future debt levels, or other expectations, beliefs, plans, objectives, assumptions or statements about future events or performance.  Readers are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties both general and specific that may cause actual future results to differ materially from those contemplated and contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur.  These factors may affect anticipated earnings or assets and include, but are not limited to: industry activity levels, market liquidity, customer credit risk, competition, oil and gas prices, product liability, fixed price contracts, development of new products, uninsured and underinsured losses, access to additional financing, source of supply of raw material and third party components, availability of key personnel, agreements and contracts, government regulations, foreign exchange exposure, interest rate risk, international scope of operations, environmental health and safety regulations and Hyduke's anticipation of and success in managing the risks implied by the foregoing.  The Company cautions that the foregoing list of important factors is not exhaustive.  The Company believes that the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this report should not be unduly relied upon.  The forward-looking statements in this report speak only as of the date of this report.  Hyduke undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities legislation.

About Hyduke

Trading on the TSX under the symbol "HYD," Hyduke Energy Services Inc. is a supplier of equipment and services to the oil and gas drilling and well servicing industry. 

The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this News Release.

SOURCE Hyduke Energy Services Inc.

For further information: Patrick Ross, President & Chief Executive Officer, (780) 955-0355; Veronica Dutchak, CA, Chief Financial Officer, (780) 955-0355

RELATED LINKS
http://www.hyduke.com

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