HNZ shows drop in Q2 results
Aug. 18, 2014, Wellington, Nz. - HNZ Group Inc. has announced its financial and operating results for the second quarter ended June 30, 2014.
By Carey Fredericks
SECOND QUARTER RESULTS
HNZ generated revenue of $51.5 million in the second quarter of 2014, compared with revenue of $64.0 million a year ago. This decrease is mostly due to a decrease in Visual Flight Rules (VFR) operations in Afghanistan and in western Canada. The Corporation flew 11,365 hours compared to 15,365 hours in the second quarter of 2013, a decrease of 26.0 per cent.
Instrument Flight Rules (IFR) revenue increased by $6.7 million as a result of an increase in oil and gas activities in New Zealand and the start, in September 2013, of the previously-announced Shell offshore support contract in the Philippines. VFR revenue decreased by $16.7 million primarily due to the reduced number of aircraft and daily flight hours in Afghanistan and the reduction of activities in western Canada, which has experienced a very difficult quarter. Ancillary revenue decreased by $2.5 million due to the decrease in repair and maintenance revenues from the Heli-Welders and Nampa businesses, as well as Contracted Flying and Training Services revenue.
Operating expenses increased by $2.6 million in the second quarter compared to last year. This is mainly due to selling, general and administrative expenses overall and base costs in connection with increased oil and gas activities in New Zealand and the Philippines.
Adjusted EBITDAR and adjusted EBITDA for the second quarter of 2014 were $9.6 million and $7.1 million respectively, compared to $21.4 million and $21.0 million a year earlier.
Net income attributable to the shareholders of HNZ totalled $2.0 million, or $0.16 per share in the second quarter of 2014, compared to $12.6 million, or $0.97 per share for the same period in 2013. Adjusted cash flows related to operating activities before net change in non-cash working capital balances and deferred revenues were $6.4 million in the second quarter of 2014, versus $16.8 million in the corresponding period a year earlier, mainly due to lower net income.
Adjusted net free cash flows for the six months ended June 30, 2014 totalled $12.8 million, compared to $22.2 million for the same period a year ago. For the twelve-month period ended June 30, 2014, adjusted net free cash flows stood at $45.0 million, compared with $54.3 million for the year ended December 31, 2013.
“This was a very challenging quarter for HNZ,” said Don Wall, president and chief executive officer of HNZ Group Inc.“ HNZ Global was in line with expectations, revenues from Afghanistan declined at a slightly slower pace than expected but the remainder of the business had a difficult quarter. While the weakness was significant, the decline is part of a broader industry cycle and we believe revenues from the Canadian market will strengthen in the third quarter. We have disposed of two redundant aircraft amounting to proceeds of $4.0 million in the second quarter. Since the beginning of the year, we reduced our debt by $15 million and, at the end of the quarter, had a $0.3 million cash position net of debt combined with a $175 million credit facility to support our growth opportunities and targeted acquisitions.”
As at June 30, 2014, the Corporation’s financial position remains strong with working capital of $44.9 million and cash and cash equivalents net of debt and bank indebtedness, of $0.3 million, with $8 million drawn under HNZ's revolving operating credit facility of $125 million that matures on Jan. 31, 2017. HNZ also has an option to increase the credit facility to $175 million subject to certain conditions. For the second quarter, the long-term debt-to-equity ratio was 0.03, compared to 0.19 last year.
For the six-month period ended June 30, 2014, revenue stood at $107.4 million, compared with revenue of $118.2 million in the corresponding period of 2013. This variation is explained by a decrease in VFR revenue of $28.4 million and a decrease in ancillary revenue of $0.2 million, partially offset by an increase in IFR revenue of $17.8 million. The contracts in Afghanistan, in aggregate, are still generating strong revenues despite fewer aircraft and decreased flight hours this year compared to prior years. HNZ flew 21,152 hours over the six-month period ended June 30, 2014, compared to 24,637 hours in the same period in 2013.
Adjusted EBITDAR and adjusted EBITDA amounted to $22.0 million and $16.7 million respectively, compared to $34.8 million and $33.8 million a year earlier.
Net income attributable to the shareholders of the Corporation totalled $5.6 million, or $0.55 per share, compared with $19.1 million, or $1.47 per share for the same period in 2013. Adjusted cash flows related to operating activities before net change in non-cash working capital balances and deferred revenues totalled $16.1 million, versus $28.1 million in the corresponding period a year earlier.
STRATEGIC MANAGEMENT AND BOARD APPOINTMENTS
In 2014, HNZ made the following strategic appointments to its management team and board of directors.
On March 31, 2014, HNZ announced that Laurence ("Larry") Murphy agreed to join the board of directors of the corporation. Murphy has more than 40 years of experience working with international oil and gas and engineering companies, in operational, business development and executive roles.
On July 23, 2014, HNZ announced the addition of Rick Burt as vice president offshore operations, business development and strategy. Rick brings 35 years of industry experience to the Corporation and adds considerable strength to the Corporation's international offshore oil and gas support capability. In his new role, Rick will be part of the HNZ Global team and will report to Keith Mullett, executive vice president (International). He will be based in Edmonton, Alta.
“While the first half of the year was challenging, we do expect improvements into the third quarter. We will continue to strive to operate as efficiently as possible, recognizing that we plan and manage our business to our annual and long term requirements and not quarter by quarter. Our primary emphasis is on growing the corporation and we plan to make the necessary investments to support our strategy. The contract in Afghanistan will conclude Oct. 31, 2014 and revenues are expected to be in-line with previously disclosed information. Moving forward post-Afghanistan, we will continue to focus our efforts on gaining offshore oil and gas support business in Asia Pacific, Eastern Canada and Africa. The recent hiring of Rick Burt, as Vice President Offshore Operations, Business Development and Strategy will enhance our sales efforts in this growing sector. We have also added a sales manager in western Canada to strengthen the VFR business and increased capacity at the Nampa Valley component overhaul shop. We are optimistic that Canadian Helicopters’ results will improve and that we will see continued growth in HNZ Global,” concluded Wall.