Investors: 2009 Press Releases
Diversification Helps HSE Maintain 81% of Revenue in Challenging First Quarter 2009 Business Environment
NEWS RELEASE - May 12, 2009
HSE Integrated Ltd. (“HSE”, “Our”, “We”, or the “Company”) today announced its financial results for the first quarter of the 2009 fiscal year ended March 31, 2009.
Total revenue for the quarter declined 18.7% to $22.4 million from $27.6 million for the same period in the 2008 fiscal year. This had a very negative impact on operating margin which declined 60.3% to $2.0 million (8.9% of revenue) from $5.0 million (18.2% of revenue) in the prior year. Sales, general and administrative expenses (“SG&A”) declined 7.4% to $2.2 million from $2.4 million. HSE reports a loss for the quarter of $1.8 million (a loss of $0.05 per share) compared to $0.0 in the first quarter of 2008 ($0.00 per share). EBITDA declined from $2.6 million in Q1 2008 to ($0.2) million in Q1 2009.
All of the revenue decline took place in the Oilfield portion of the Company’s activities, the segment of the business related to health and safety services for conventional oil and gas exploration, drilling, completion and workover activities. Because of the collapse in crude oil and natural gas prices and the global credit crisis that took place in the latter half of 2008, HSE’s client E&P companies drastically reduced capital and operating expenditures in the first quarter. Therefore, Oilfield revenues declined 35.7% to $10.3 million in Q1 2009 from $16.0 million in the prior year.
Industrial health and safety revenues, however, increased on a year-over-year basis by 4.6% to $12.1 million from $11.6 million last year. In the past four years HSE has aggressively expanded revenues beyond conventional oil and gas to include oilsands, refining, petrochemicals, manufacturing, utilities, mining, offshore oil and gas, power generation and food and beverage. While none of these sectors are immune to the economic downturn, the Company’s industrial and geographic diversification has created a situation where growth in stronger markets exceeded the decline in those negatively impacted by the recession.
The Company’s balance sheet remained strong. At March 31, 2009, working capital was $19.5 million compared to $20.5 million at December 31, 2008 and $19.9 million at March 31, 2008. Long term bank debt remained unchanged from year end at $10.8 million and there was no draw on the operating line of credit. HSE had $1.1 million in cash on hand at March 31, 2009 compared to a draw on the operating facility of $4.1 million on March 31 of the prior year.
In response to the downturn in revenues and the economy, by mid-January HSE began a significant cost-reduction initiative to bring fixed and variable costs in line with reduced business levels. This included layoffs, job reclassifications, temporary pay cuts, unpaid leave, and a reduction of all non-essential expenses such as advertising, travel, and in-person staff meetings. On May 1, 2009, a significant change in the field technician pay structure was implemented for western Canada. Going forward, it is expected that the cumulative impact of these initiatives will significantly reduce the total revenue level at which HSE can generate a positive cashflow in the current economic environment. During the period HSE incurred $282,000 in one-time severance costs.
For the first quarter the results of HSE’s new U.S. operation, Boots & Coots HSE Services LLC (“BCHSE”), were included in the consolidated financial results. BCHSE did not generate a positive cashflow in the first quarter. However, the customer response is encouraging and the long-term outlook for BCHSE remains positive. BCHSE is participating in the same corporate cost-reduction initiatives as the Company has initiated in Canada.
David Yager, Chairman and CEO, offered the following comments for HSE’s first quarter 2009 financial results:
“In an extremely difficult business environment, HSE is doing what it must to manage costs in a period of very low demand for Oilfield health and safety services. We entered the year with the belief that the winter drilling season would at least to some degree track historic levels. However, by mid-January it became apparent that client capital spending reductions would be greater than anticipated, and therefore we began an aggressive cost cutting program. HSE believes that the severe downturn in conventional oil and gas exploration, drilling, completion and workover services is temporary. HSE is committed to this sector and its clients, and therefore has taken the necessary steps to be an important player in this industry when demand for its services recovers.
Demand for Industrial health and safety services is mixed. Some sectors such as mining, steel and auto manufacturing are struggling resulting in reduced business for HSE. Others such as oilsands, east coast offshore and nuclear power remain stable and are growing. Assisted by new clients and new markets, growth in selective Industrial health and safety exceeded declines in others, resulting in a year-over-year growth in revenue. Some client plant repair and maintenance activities that require health and safety services have been postponed as operators conserve cash. Whether or not HSE can increase total Industrial revenues for the fifth straight year is unknown at this time, but the Company does have growth opportunities in the current business environment.
The significant EBITDA and earnings decline is attributable to the higher margin Oilfield revenue decline and one-time charges incurred during the quarter.
Going forward, HSE is becoming cautiously optimistic that the worst is over in terms of clients cutting capital and operational spending. Oil prices have increased significantly from late 2008 and have stabilized above $50 a barrel. The introduction of oil and gas activity stimulus programs in Alberta and reduced drilling and service costs have increased the number of prospects that are economically viable at current commodity prices. Some capital projects, particularly in Atlantic Canada and the oilsands, are proceeding. New clients are being developed regularly because the total need for quality industrial health and safety services and expertise in all markets is substantially greater than HSE’s current market penetration.
The contribution by our staff has been extraordinary. The largest element of our cost cuts has been in all components of labor. Management and the Board of Directors recognize the company-wide sacrifice our team is making to get through this difficult period, and remains committed to ensuring that HSE emerges from the downturn as a challenging, exciting and rewarding career opportunity”.
For further information and analysis please see the attached Management Discussion and Analysis and Financial Statements.
CONFERENCE CALL
HSE will be hosting a conference to discuss their results at 11 AM (Eastern Daylight Time), 9 AM (Mountain Daylight Time) on Wednesday May 13, 2009.
Dial-In Number: 1-800-814-4862 or 1-416-644-3433
Conference Replay until June 13, 2009: 1-416-640-1917 or 1-877-289-8525 (Passcode: 21305784 followed by the pound sign)
Webcast: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2664640
ANNUAL GENERAL MEETING
HSE’s Annual General Meeting of Shareholders will be held in the Cardium Room at the Petroleum Club in Calgary, 319-5th Ave. S.W., at 3 PM on Friday May 15, 2009.
HSE is an integrated, national supplier of industrial Health, Safety and Environmental services. From its head office in Calgary, Alberta, it serves its clients from field service locations in Alberta, British Columbia, Saskatchewan, Ontario, Nova Scotia, New Brunswick, Newfoundland-Labrador and Michigan. HSE also operates in Midland, Texas, through a jointly owned company called Boots & Coots HSE Services LLC. HSE trades on the TSX under the symbol “HSL”.
Forward-Looking Statements
This news release contains forward-looking information and statements (collectively “forward-looking statements”) within the meaning of applicable securities laws 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, would, could, might, intend, plan, continue, ongoing, project, objective and other similar terms and phrases. These forward-looking 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 forward-looking statements are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future results and events to differ materially from that expressed in the forward-looking statements. Accordingly this news release is subject to the disclaimer and qualified by the assumptions and risk factors referred to in the Management Discussion and Analysis in the 2008 first, second and third quarter reports, in the 2008 annual report, and in other filings with securities commissions in Canada as reported in the Company’s profile at www.sedar.com. Any forward-looking statements in this news release speak only as of the date of this news release. Except as required by law, the Company disclaims any intention to update or revise any forward-looking statements to reflect new events or circumstances.
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.
HSE Integrated Ltd. trades on the TSX under the symbol “HSL”
For more information, please contact:
David Yager, Chairman & CEO
Telephone: (403) 266-1833
E-Mail:
Lori McLeod-Hill, CFO
Telephone: (403) 266-1833
E-Mail: lmcleod-hill@hseintegrated.com