HNZ Group reports 2013 third quarter results

HNZ Group Inc. (“the Corporation”), an international provider of helicopter transportation and related support services, has announced its financial and operating results for the third quarter ended Sept. 30, 2013.  

The Corporation generated revenue of $74.9 million, compared with revenue of $70.0 million in the third quarter of 2012. The increase in revenue was mainly due to an increase in Instrument Flight Rules (IFR), as well as smaller increases in Visual Flight Rules (VFR) and Ancillary revenues. While the Corporation flew 21,540 hours compared to 22,824 hours in the third quarter of 2012, the positive mix of hours flown generated an increase in revenues. 

IFR revenue increased by $4.0 million mainly due to an increase in activity in the mining sector in Australia related to the Rio Tinto contract and the start-up of the Shell offshore support contract in Asia. VFR revenue increased by $0.6 million primarily due to an increase in pipeline support revenues in Canada partially offset by reduced Canadian domestic mining activity. Ancillary revenue increased by $0.3 million due to an increase in the repair and maintenance revenues from the Nampa and Heli-Welders businesses partially offset by a reduction of third party aircraft lease revenue in the Southern Hemisphere. 

EBITDA for the third quarter of 2013 reached $30.1 million, compared to $27.8 million a year earlier. During the quarter, the Corporation recorded a foreign exchange net gain of $0.2 million compared to a net loss of $0.9 million last year. 

During the third quarter of 2013, the Corporation recorded a goodwill impairment charge of $23.5 million with respect to its Canadian Helicopters operations in Canada, including Afghanistan (and not HNZ Global helicopter transportation services in the Southern Hemisphere or its repair and maintenance services provided under the Heli-Welders or Nampa Valley Helicopters brands) primarily as a result of the reduced future cash flows expected from declining USTRANSCOM revenues in Afghanistan. The goodwill impairment charge is a non-cash adjustment and has no adverse impact on the company meeting its debt covenants. 

Net income attributable to the shareholders of the corporation prior to the recognition of the goodwill impairment charge was $17.7 million or $1.36 per share compared to $16.1 million or $1.23 per share for 2012. After recognizing goodwill impairment, the Corporation experienced a net loss of $5.8 million or $0.44 per share. Cash flows related to operating activities before net change in non-cash working capital balances and deferred revenues were $23.7 million in the third quarter of 2013, versus $21.6 million in the corresponding period a year earlier. 

“We are pleased with the strong third quarter performance of the Corporation,” said Don Wall, president and CEO of HNZ Group Inc. “Revenues were stronger than expected and the important mandate we started for Shell Global Solutions in Asia signifies excellent opportunity for our brand in Asia. Our expanded 10-year contract with Rio Tinto in Australia, which began in May, positively impacted HNZ’s third-quarter results, and, while modest in size, the increasing contribution to revenues from HNZ’s repair and maintenance subsidiaries point to the success of our diversification efforts. The goodwill impairment charge recorded in the third quarter of 2013 reflects the winding down of our work with USTRANSCOM in Afghanistan and while it does have an effect on net income, it does not reflect the strong quarterly operating results nor the strong growth prospects.” 

As at Sept. 30, 2013, the Corporation’s financial position remains strong with working capital of $49.7 million and debt and bank indebtedness, net of cash and cash equivalents, of $49.3 million, with $47 million drawn under the Corporation’s revolving operating credit facility of $125 million that matures on Jan. 31, 2017.The Corporation also has an option to increase the credit facility to $175 million subject to certain conditions. For the third quarter, the long-term debt-to-equity ratio was 0.19, compared to 0.16 a year ago. 

For the nine-month period ended Sept. 30, 2013, revenue reached $193.1 million, compared with revenue of $195.3 million in the corresponding period of 2012. This variation is mainly explained by a net decrease in VFR revenue of $4.7 million. This net decrease is mainly due to a decrease in revenues from Canadian mining, the Australian utility market and Afghanistan contracted revenues. The contracts in Afghanistan, in aggregate, experienced a level of revenues not significantly different from those previously announced despite the decrease in flying hours experienced this year compared to prior years due to the impact of annual rate escalation. The Corporation flew 46,177 hours over the nine-month period ended Sept. 30, 2013, compared to 52,428 hours in the same period in 2012. 

EBITDA amounted to $64.0 million, versus $63.5 million a year earlier. Net income attributable to the shareholders of the Corporation before goodwill impairment charge stood at $36.9 million, or $2.82 per share, compared with $36.8 million, or $2.79 per share, last year. After recognition of the goodwill impairment, the Corporation reported net income for the nine-month period of $13.4 million or $1.02 per share. Finally, cash flows related to operating activities before net change in non-cash working capital balances and deferred revenues totaled $51.8 million, versus $52.0 million, in 2012. 

The Corporation commenced providing service to Shell Global Solutions International B.V. (“Shell”) in September of 2013. In July 2013, Shell requested and the Corporation agreed to contract for an additional AW139 aircraft as back-up for the term of the contract as well as some additional crewing for the primary operational aircraft. As a result of these changes, revenues under the contract during the initial four year term are expected to be approximately US$57 million, instead of the US$40 million initially estimated. 

The Board has decided to adopt a policy of periodically rotating the roles of Board members. Consistent with that, effective Jan. 1, 2014 Larry Pollock will replace Randy Findlay as Chairman. Both Mr. Pollock and Mr. Findlay have been on the Board as independent directors since its Initial Public Offering in 2005 and have sat on the Boards’ Audit committee. Both Mr. Pollock and Mr. Findlay will continue to sit on the Board’s Audit Committee. 

Commenting on his appointment, Mr. Pollock said, “Randy Findlay has been extremely helpful in leading the Board through its history as a public company, initially as an income trust and then in late 2010 through its conversion to a corporation, as well as in guiding the Board through a significant growth period and we wish to thank him for that. I am very pleased to assume an expanded role on the Board and view the company’s future as bright”. 

“Looking ahead,” said Mr. Wall, “We expect HNZ’s activities in Afghanistan will go on producing strong revenues until the end of this year. Then, in subsequent quarters, as we detailed recently in an earlier press release, our mission in that country will increasingly wind down and we expect the Corporation’s revenue and earnings to be significantly affected. Meanwhile, HNZ’s core transportation services in Canada and the Southern Hemisphere appear both strong and growing, and we expect the coming quarters to continue delivering satisfactory financial results. 

The balance of this year will also be positively affected by the continuation of pipeline work in Canada, and we are well-positioned to benefit from an upsurge in the Canadian mining and exploration sector. Our new facility in Terrace, B.C., has recently been opened and will continue to serve our long-term customer Rio Tinto Alcan, and will support pipeline projects in Canada. Our balance sheet is strong,” concluded Mr. Wall, “and we are continuing to follow opportunities for expansion through acquisition and organic growth.”