Investors: 2010 Press Releases
HSE Reports Improved Operating Margins in Q1 2010 Financial Results
NEWS RELEASE - May 12, 2010
HSE Integrated Ltd. (“HSE” or the “Company”) today released its financial results for the first quarter of the current fiscal year, the three month period ended March 31, 2010.
Revenue declined by 6.7% from $22.4 million in Q1 2009 to $20.9 million in Q1 2010. This reduction in revenue was caused primarily by service pricing reductions in markets related to conventional and non-conventional oil and gas to assist clients in adjusting to reduced commodity prices, and a shift from safety-intensive sour natural gas drilling and completions towards sweet crude oil drilling.
Despite the reduced revenue, the Company’s operating margin increased by 60% from $2.0 million (8.9%) in 2009 to $3.2 million (15.3%) in the current year. This is a result of HSE’s cost mitigation and efficiency initiatives and a significant improvement in the performance of the Company’s U.S. operations.
EBITDA was approximately seven times higher in quarter one 2010 than the comparative quarter in 2009, rising from ($0.2) million (-1.0%) in 2009 to $1.2 million (5.8%), a $1.4 million improvement. This was a combination of improved operating margin and a further reduction of SG&A expenses which declined a further $0.2 million year-over-year to $2.0 million.
Despite the improvement of the operating and EBITDA margins, the Company incurred a loss of $0.2 million or ($0.01) a share. This compares to a loss of $1.8 million or ($0.05) per share in the first quarter of 2009.
HSE’s balance sheet and working capital position remain strong. Working capital (not including current portion of long-term debt) increased to $14.9 million at March 31, 2010 from $14.1 million at December 31, 2009. Total long-term debt obligations (term debt, operating debt and capital leases) declined by $0.1 million to $6.3 million during the same period.
At March 31, 2010 net tangible assets (cash, accounts receivable, inventory, property plant and equipment) totaled $46.0 million. This exceeded all tangible liabilities (accounts payable, income taxes payable, long-term debt, capital leases) of $11.5 million by $34.5 million or $0.92 per basic and diluted common share.
During the first quarter Industrial health and safety services revenue declined 1.8% from $12.1 million in 2009 to $11.9 million in 2010. This was due primarily to pricing reductions to major clients in non-conventional oil development which offset a general recovery in business in all other Industrial markets.
Oilfield health and safety revenues declined 12.4% from $10.3 million in the first quarter of 2009 to $9.0 million this year. The primary drivers were pricing reductions to major clients, intense competition caused by sectoral overcapacity, and a significant shift to sweet conventional oil drilling and development away from safety-intensive sour natural gas activities.
David Yager, Chairman and CEO of HSE, had the following comments about the Company’s financial performance.
“While there was a general recovery in the economy and business climate and all markets in which HSE operates in the first quarter of 2010 compared to the previous year, business challenges remain. To help our clients adjust to reduced commodity prices and because of intense competition due to overcapacity relative to demand, HSE has reduced pricing. The other major change in the marketplace which is discussed in detail in the MD&A is the shift away from the development of natural gas – particularly safety-intensive hydrogen sulphide gas – towards sweet conventional crude oil. These developments offset a recovery quarter in all other markets.
Regardless, HSE’s cost control and operating efficiency initiatives helped the Company improve operating margin and EBITDA. During the quarter the Company had one-time expenses of about $0.2 million related to preparing to convert to the International Financial Reporting Standards next year. Without this expense, HSE would have broken even on a profit/loss basis for the quarter despite the lowest first quarter revenue since 2005.
Going forward, the Company is continuing to see improvement in demand for services in most markets. Recovered crude oil prices combined with the fiscal policy changes introduced by the Alberta government have renewed interest in drilling in this province, HSE’s major market for Oilfield health and safety services. While not as safety-intensive as historical activity, this market is nevertheless improved compared to last year. Industrial markets in Ontario, Atlantic Canada and the United States continue to expand. The outlook for the remainder of 2010 and beyond is stable to improving which will result in improved financial performance compared to 2009. Depressed natural gas prices, however, will continue to constrain a full recovery in this sector.
The Company’s balance sheet remains strong. During the quarter the negotiation of a new senior credit facility allowed the transfer of most of the Company’s bank debt from current to long-term. This became effective in early May but is reported as at March 31, 2010 on the financial statements. The $14.9 million working capital position leaves HSE in a good position to continue to exploit economic recovery as it takes place in all markets.
HSE continues to build on its “brand” as the only national supplier of a comprehensive suite of integrated health and safety services. The most encouraging development is larger clients understanding the merits of national service agreements and preferred supplier arrangements. These arrangements are not available to HSE’s competitors. The Company’s focused marketing efforts on large, national clients is intended to yield future positive financial performance.”
Conference Call Thursday May 13, 2010 9 AM MDT
On May 13, 2010 David Yager, CEO, and Lori McLeod-Hill, CFO, will be hosting a conference call to discuss the Q1 2010 financial results.
Conference Call Time and Date: Thursday May 13, 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 June 10, 2010: 1-416-849-0833 or 1-800-642-1687 (Passcode: 73247007)
Webcast: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3070100
About HSE
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 Texas through a jointly owned company called Boots & Coots HSE Services LLC.
HSE Integrated Ltd. 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