Investors: 2010 Press Releases
HSE Emerges From Challenging 2009 Fiscal Year with Strong Balance Sheet and Positioned for Growth
NEWS RELEASE - March 24, 2010
HSE Integrated Ltd. (“HSE”, “Our”, “We”, or the “Company”) today announced its financial results for the fiscal year ended December 31, 2009.
Revenue for the year was $81.6 million, a 28.3% decline from $113.8 million in the prior year. Operating margin shrank 57.0% to $9.1 million from $21.1 million in 2008. Due to the significant revenue decline, EBITDA declined by 91.9% to $0.8 million from 2008’s $10.4 million. This resulted in a loss of $6.6 million or $0.18 per basic and diluted share compared to earnings of $0.2 million or $0.01 per share in the 2008 fiscal year.
For the fourth quarter of 2009, revenues were $19.1 million, a 36.2% reduction from $29.9 million in the fourth quarter of 2008. As a result, EBITDA for the quarter declined by 81.7% to $0.5 million compared to $2.7 million in the prior year. HSE reported a loss of $2.2 million in Q4 compared to earnings of $0.4 million for the same period in 2008.
The primary focus in the first half of the year was cost control. The objective was to reduce fixed and variable costs in order to generate positive EBITDA from sharply reduced revenues without impairing the Company’s capacity to exploit the economic recovery when it occurred. Measures included capital and operating cost reductions, staff reductions, pay cuts, and restructuring of health and safety technician remuneration programs.
SG&A for the year was $8.2 million, a 23.1% reduction from $10.7 million in 2008. For the fourth quarter, SG&A was $2.1 million, 27.6% lower than the $2.9 million in SG&A in the same period of the 2008 fiscal year.
Due to the foregoing cost control measures, HSE generated positive EBITDA in the third and fourth quarters, albeit at sharply reduced levels. This permitted the Company to keep its core delivery capabilities intact. This meant retention of core technical staff, no major capital asset divestitures, no closures of key field service locations, and continuation of several long-term growth initiatives in new markets and service areas.
Balance sheet and cash management was critical for HSE to adapt to the new market realities yet maintain the Company’s capabilities to exploit economic recovery when it occurred. HSE entered the year with $17.7 million in long-term liabilities. It exited the year with this figure reduced by 69.5% to $5.4 million. At December 31, 2009 tangible assets (cash, accounts receivable, inventory, income taxes recoverable and property and equipment) totaled $45.8 million. This exceeded all tangible liabilities (accounts payable, income taxes payable, long-term debt and obligations under capital leases) of $11.1 million by $34.7 million or $0.92 per basic and diluted common share.
Working capital exclusive of long-term debt obligations at December 31, 2009 was $14.1 million, down from $20.5 million at year-end 2008. At year-end, working capital exceeded all long-term debt obligations by $7.7 million.
The $32.2 million year-over-year revenue shrinkage was disproportionately oriented towards Oilfield health and safety services which declined from $51.3 million in 2008 to $27.3 million, a 46.7% reduction. The primary driver for this decline was the drilling of 54.8% fewer new oil and gas wells in the Western Canadian Sedimentary Basin. According to the Canadian Association of Oilwell Drilling Contractors, only 9,342 new wells were drilled in 2009 compared to 20,679 in 2008.
Industrial health and safety services also declined, but not as sharply due to the diversification of clients by industry and region. Revenues in 2009 were $54.3 million, down $8.2 million or 13.1% from $62.5 million in the prior year. In 2009 two-thirds of HSE’s revenues came from Industrial health and safety clients while Oilfield revenues fell to one-third of total revenues, the lowest in the history of the Company.
Economic recovery began in the fourth quarter of 2009 on several fronts. Due to stronger oil prices and drilling incentives introduced by the Alberta government, drilling activity began to recover, a trend which continued into the first quarter of 2010. Oilsands projects that were postponed or cancelled early in 2009 began to proceed. Large industrial operations in central Canada that were closed due to economic uncertainty began to re-open.
Nevertheless, numerous challenges remain. Although natural gas prices increased from multi-year lows in the summer of 2009, they still remain depressed relative to capital costs. Oil and gas developers are seeking lower prices from their suppliers to offset lower resource prices and profit margins. Therefore, HSE is operating in a much more competitive environment in the Oilfield sector in terms of pricing and overcapacity. The switch to the drilling of more oilwells than gaswells in Canada in 2009 for the first time since the early 1990s has reduced HSE’s business because gaswells tend to require more safety services than oilwells. This is particularly applicable to gaswells containing toxic hydrogen sulphide gas.
However, the worst is clearly over for HSE. In the first quarter of 2009 all facets of the economy were in sharp decline and no visibility existed as to when this trend would end. In the first quarter of 2010, the outlook in all sectors and regions in which HSE operates is improved. The Company has significantly reduced debt, has a strong working capital position, and its service delivery capacity and capabilities are intact. This will allow HSE to exploit the economic recovery as it progresses.
David Yager, Chairman and CEO, offered the following comments for HSE’s financial results for the fourth quarter and 2009 fiscal year:
“Since HSE entered its modern corporate structure in 2004, it has embarked on a long-term strategy of industrial and regional diversification. This has meant significant expansion beyond its traditional roots in the highly-cyclical upstream conventional oil and gas business in western Canada to numerous other sectors and regions. This has included oilsands, hydrocarbon processing, and diverse industries in central Canada, Atlantic Canada and the United States.
As this expansion and diversification took place, management’s extensive experience with the cyclicality of all facets of the resource business guided us towards a conservative balance sheet and manageable levels of long-term debt. The experiences of past sharp economic downturns also taught management how to manage through challenging times.
These two basic tenets of HSE’s growth strategy and management’s experience in surviving tough times served our Company well in 2009. We acted quickly to respond to the new market realities. We acted as compassionately as possible to protect the jobs of the greatest number of our valuable employees. And we demonstrated fiscal responsibility by continually reducing debt to ensure that HSE retained a strong balance sheet, the springboard from which our Company will exploit recovery.
The market in 2010 and beyond will be different than it was prior to the recession of 2009.
The negatives are primarily in Oilfield. They include more competitive pricing, stiff competition due to overcapacity, and the unknown result of how an increase in oilwell drilling and a completely different North American natural gas market will affect a health and safety services business that was created in a different market environment, one heavily oriented towards conventional natural gas.
But there are positives as well, largely in Industrial. HSE’s largest competitor for Industrial health and safety services is the asset owners themselves who have historically bought their own equipment and hired and trained staff to deliver the services. Because of the recession, more companies are focusing on their core businesses and considering outsourcing non-core functions like health and safety to expert service. This creates opportunities for HSE.
Further, 2009 forced our Company to analyze and streamline our cost structure. Going forward, HSE will be much more profitable at historical revenue levels than it has been in the past. Because HSE provides essential services for a diverse portfolio of industries in many markets across North America, those sales increases are certain to occur in the months and years ahead.
Corporations that survive tough years like 2009 come out leaner and stronger. Our management and staff did an outstanding job during this difficult period. Thank you so much for your dedication and contribution.”
For further information and analysis please see the attached Management Discussion and Analysis and Financial Statements.
Conference Call Time and Date:
Thursday March 25, 2010 11:00 AM ET (9:00 AM MT)
Dial-In Number: 1-647-427-7450 (Toronto area) or 1-888-231-8191
Conference Replay to April 22, 2010:
1-800-642-1684 or 1-416-849-0833
(Passcode: 62649485 followed by the pound [#] sign)
Webcast:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2996620
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 and 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 2009 first, second and third quarter report, in the 2009 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 news release makes reference to the following terms which are not recognized under generally accepted accounting principles (“GAAP”): EBITDA; tangible assets; tangible liabilities; and net tangible assets per common share. Management believes that, in addition to GAAP amounts for assets, liabilities and earnings, these measures are useful supplementary information.
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.
Tangible assets, tangible liabilities and net tangible assets per share provides a measure of the book value per share for comparison to the company’s recent trading price.
The method of calculating these measures may differ from that of other companies and accordingly may not be comparable to measures used by other companies.
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