Investors: 2008 Press Releases
Record Growth in Industrial Safety Tempered By Reduced Demand for Oilfield Services in 2007 Fiscal Year
NEWS RELEASE - March 31,, 2008
HSE Integrated Ltd. (“HSE”, “Our”, “We”, or the “Company”) announced its financial results for the fiscal year ended December 31, 2007. Financial and operating highlights are summarized below:
- Revenue was $97.3 million for the year, a reduction of 3.2% compared to the prior year.
- The success of the Company’s revenue diversification strategy was demonstrated, as significant declines in revenues from conventional Oilfield activity were largely offset by growth in Industrial and Environment revenues. Revenues from Industrial markets (non-conventional upstream oil and gas, plants, facilities, training, and safety management services) increased by over 77%, growing to $41.6 million in the year from $23.5 million for the same period in the prior year. Industrial safety services revenue as a percentage of the total business mix in the year almost doubled – 42.7% in 2007 compared to 23.3% in fiscal 2006. A significant portion of the increase in Industrial revenues came from the delivery of a range of HSE’s services to operations and facilities in the oilsands producing and development areas of Northeast Alberta. This geographic area experienced growth rates of 290% over the prior year, and by the end of 2007 represented over 17% of total revenue (2006 – 4%).
- Customer demand continues to increase for the Company’s air quality monitoring or “Environment” market, which rose 19.1%.
- EBITDA declined to $7.0 million for the year (2006 - $15.3 million) because the redeployment of personnel to Industrial safety services only partially offset a 34.9% decline in generally higher margin Oilfield services revenue.
- There was a net loss for the year of $27.3 million, as compared to net earnings of $3.5 million in the prior year. A majority of the loss for the year was due to a write-down of goodwill and intangibles of $25.5 million as a result of reduced overall market activity on the Oilfield side of the business. A review of property and equipment did not conclude an impairment in the value of these assets. Equipment redeployment continues as the Company relocates safety equipment surplus from the Oilfield sector in Alberta to expanding field service operations in British Columbia, Saskatchewan, Ontario, New Brunswick, Nova Scotia and Michigan.
- In the fourth quarter of 2007, the Company achieved revenues of $26.5 million, which were largely similar to the revenue levels in the fourth quarter of 2006. Softer activity levels in the Oilfield safety service side of the business were largely offset by higher revenue levels from Industrial and Environment. There was a 40% decline in EBITDA to $2.6 million in the fourth quarter of 2007, when compared to the same period in the prior year. The decline in EBITDA was primarily caused by a reduction in the utilization of higher margin equipment rentals to customers, an increase in the provision for doubtful accounts ($0.4 million), and one time costs, the majority of which was severance, associated with overhead cost reduction initiatives ($0.4 million). There was a net loss of $9.2 million in the fourth quarter of 2007, versus net earnings of $1.0 million for the same period in 2006. A large majority of the loss was related to write-downs of goodwill and intangible assets, but was offset by an income tax gain of $1.1 million due to reduced future income tax rates.
- During the year, the Company acquired Prairie Wide Safety Ltd. of Weyburn, Saskatchewan, which expanded the national delivery footprint for the Company’s full suite of services into the established and active hydrocarbon producing region of southeast Saskatchewan. The transaction was was accretive to earnings in the year.
- As part of a continual focus on increased efficiency and higher profit margins, the Company implemented a cost reduction initiative of over $3 million on an annualized basis, the major impact of which will take place in 2008 and beyond. This initiative includes field service facility consolidation and a reduction in equipment and personnel not essential for service delivery.
- During the year, HSE entered an agreement with its current lender for credit facilities that provide the Company with increased financial flexibility to both pursue strategic opportunities and to fund working capital needs. As at December 31, 2007, the Company was in compliance with its financial covenants under its credit facilities.
David Yager, Chairman and CEO, offered the following comments for HSE’s 2007 financial results.
“In the 2007 fiscal year we faced significant challenges and seized numerous opportunities. The biggest challenge was managing the first major downturn in conventional oil and gas activity since 2002. This major reversal is well understood by everyone associated with this business and it had a negative impact on our financial performance. However, because we’ve been developing other markets for years, we were able to seize the opportunity created by excess capacity and redeployed all of our skilled personnel and many of our specialized assets in other industries. This has permanently changed our business model going forward and created a new, ongoing and significantly larger client base. To adapt to this new business, we worked through our cost and margin issues. Now we’re confident that in the future, HSE is going to be a more valuable company for our three main stakeholders – clients, employees and capital providers. I encourage investors to look deeper and see how HSE’s broader and diversified client base will create future, profitable growth regardless of the levels of natural gas drilling activity in western Canada.”
Forward-Looking Statements
This news release may contain forward-looking statements concerning, among other things, the Company’s prospects, expected revenues, expenses, profits, financial position, strategic direction, and growth initiatives, all of which are subject to risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms and phrases such as expect, anticipate, estimate, believe, may, will, intend, plan, continue, project, objective and other similar terms and phrases. These statements are based on certain assumptions and analyses made by the Company based on its experience and assessment of current conditions, known trends, expected future developments and other factors it believes are appropriate under the circumstances. Such statements are subject to numerous external variables, both known and unknown, such as changes in commodity prices for natural gas and oil, changes in drilling activity, weather conditions, industry-specific and general economic conditions and exchange rate fluctuations. If any of these risks and uncertainties materializes or if assumptions are incorrect, actual results may differ materially from those expressed or implied in the forward-looking statements. The forward looking statements included in this news release are not guarantees of future performance and should not be unduly relied upon.
For further information and analysis please see the attached Management’s Discussion and Analysis and Financial Statements.
CONFERENCE CALL
HSE will be hosting a conference to discuss their results at 10 AM (Eastern Standard Time), 8 AM (Mountain Standard Time) on Tuesday April 1st, 2008.
Dial-In Number: 1-800-731-5319 or 1- 416-644-3416 Conference Replay to April 15, 2008: 1-416-640-1917 or 1-877-289-8525 (Passcode: 21267420 followed by the pound sign)
Webcast: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2214520
HSE is an integrated, national supplier of industrial Health, Safety and Environmental services. From its head office in Calgary, Alberta, its serves its clients from field service locations in Alberta, British Columbia, Saskatchewan, Ontario, Nova Scotia, New Brunswick and Michigan. HSE trades on the TSX under the symbol “HSL”.
Forward Looking Statements
This news release may contain forward-looking statements concerning, among other things, the Company’s prospects, expected revenues, expenses, profits, financial position, strategic direction, and growth initiatives, all of which are subject to risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms and phrases such as expect, anticipate, estimate, believe, may, will, intend, plan, continue, project, objective and other similar terms and phrases. These statements are based on certain assumptions and analyses made by the Company based on its experience and assessment of current conditions, known trends, expected future developments and other factors it believes are appropriate under the circumstances. Such statements are subject to numerous external variables, both known and unknown, such as changes in commodity prices for natural gas and oil, changes in drilling activity, weather conditions, industry-specific and general economic conditions and exchange rate fluctuations. If any of these risks and uncertainties materializes or if assumptions are incorrect, actual results may differ materially from those expressed or implied in the forward-looking statements. The forward looking statements included in this news release are not guarantees of future performance and should not be unduly relied upon.
Non GAAP Measures
This report makes reference to EBITDA, a measure that is not recognized under generally accepted accounting principles (GAAP). Management believes that, in addition to net earnings, EBITDA is a useful supplementary measure. EBITDA provides investors with an indication of earnings before provisions for interest, taxes, amortization, gains or losses on the disposal of property and equipment, foreign exchange gains or losses, and the non-cash effect of stock-based compensation expense. Investors should be cautioned that EBITDA should not be construed as an alternative to net earnings determined by GAAP as an indication of the Company’s performance. This method of calculating EBITDA may differ from that of other companies and accordingly may not be comparable to measures used by other companies.
For more information please contact:
HSE Integrated Ltd.
David Yager, Chairman & CEO
Telephone: (403) 266-1833
E-Mail:
Tony Hidalgo, Chief Financial Officer
Telephone: (403) 650-6481
E-Mail: