Horizon North Logistics Inc. (“Horizon North” or the “Corporation”) (TSX: HNL.TO) provided a series of announcements today in response to the COVID-19 pandemic and other global commodity conditions, and provided an update on the Corporation’s previously announced agreement with 10647802 Canada Limited, operating as Dexterra Integrated Facilities Management (“Dexterra”).
The Global Environment
Like many other businesses, Horizon North is being challenged by the global uncertainty surrounding the COVID-19 pandemic and diminished commodity prices. Horizon North’s Board of Directors and management team have been closely following these events and remain focused on keeping the Corporation’s employees and customers safe, prioritizing cash flow and responding to customers’ needs. In response to the current global environment, Horizon North is taking a series of steps to help mitigate the negative impacts of these events, including the previously announced pause in the Corporation’s dividend to improve financial flexibility and exercise fiscal prudence.
Our Response to COVID-19
Horizon North continues to support customers, partners and local communities through the Corporation’s Industrial Services and Modular Solutions businesses. In doing so, Horizon North continues to make the safety of employees and customers its top priority and has taken several measures to address the challenges presented by COVID-19, including:
- Regular communication with Horizon North employees with regard to the COVID-19 situation and steps being taken to mitigate risk, including online training on COVID-19 response;
- Physical distancing of all employees, customers and guests at the Corporation’s facilities in accordance with public health guidelines;
- Pre-packaging of food materials and staggering of shifts and mealtimes to increase physical distancing and reduce the size of gatherings in line with public health guidelines;
- Screening of all guests, contractors and employees prior to entry to any Horizon North site based on criteria that includes recent travel, symptoms of COVID-19 and contact with positive cases of COVID-19, among others, and refusing entry where necessary;
- The addition of more frequent sanitization and cleaning of common touch points at all facilities by designated personnel, and the communication and enforcement of proper hygiene measures;
- Encouraging office employees who can work from home effectively to do so to promote physical distancing and ensure Horizon North can continue to provide critical services to customers; and
- Following self-isolation protocols where individuals are ill or within other high-risk categories such as contact with a COVID-19 case or recent travel.
Reductions to 2020 Capital Spending Program
Responding to an anticipated reduction in demand from customers for the Corporation’s services, Horizon North is reducing its 2020 net capital outlook by two-thirds by reducing sustaining capital spend and deferring the remaining spend on both growth projects planned for 2020. Changes to the 2020 capital spending program are as follows:
- A reduction of sustaining capital from $13 million to approximately $8 million, including a pause in mat manufacturing;
- Deferral until fiscally prudent of key Horizon North growth projects, including no further spend on the Fairfield by Marriott hotel in Kitimat, British Columbia and the deferral of remaining construction of the temporary construction modular units and large complexes for a client supporting LNG development, resulting in a reduction from budgeted spending of $24 million to $8 million, which was primarily spent in the first quarter of 2020; and
- A reduction in expected proceeds from Horizon North dispositions from $10 million to $8 million.
With these reductions and deferrals, the combined net capital outlook is reduced from $30 million to approximately $10 million for 2020. Given the Corporation’s capital spend to date, the remaining spend for 2020 is anticipated to be $4 million. Further deferrals or reductions may be considered depending on activity levels over the course of 2020.
Reductions to Fixed Costs
Horizon North is taking measures to size the Corporation’s business accordingly for the current economic outlook while continuing to provide essential services to customers in the Industrial Services and Modular Solutions businesses. Fixed operating costs, along with general and administrative costs (“G&A”), are being reduced throughout the organization, including:
- Salary reductions for the Corporation’s executive team in the following manner:
- The salary of the President and Chief Executive Officer will be reduced by 25 per cent;
- The salary of Senior Vice Presidents will be reduced by 15 per cent; and
- The salary of Vice Presidents will be reduced by 10 per cent; and
- Reductions in compensation of the Board of Directors of 25 per cent.
Update on Liquidity and Banking Covenants
Horizon North continues to be in compliance with all financial and non-financial covenants related to its recently amended credit facility and does not anticipate any covenant related issues within the first quarter of 2020. Horizon North continues to assess the impacts of the COVID-19 pandemic and weakened commodity prices on operations and financial results.
Update on Dexterra Agreement
As announced on March 9, 2020, Horizon North and Dexterra, a subsidiary of Fairfax Financial Holdings Limited (TSX: FFH and FFH.U) (“Fairfax Financial”), have agreed to combine to create a leading Canadian support services company (the “Transaction”). With the uncertainty and corresponding anticipated decline in revenue as a result of the COVID-19 pandemic, Horizon North is withdrawing its previously announced financial guidance with respect to the Transaction and the parties’ anticipated financial results, as issued in the Corporation’s March 9 press release and March 10 investor relations presentation, including in respect of the post-closing dividend payments and cost synergies, while steps are taken to help mitigate the financial impact on the parties’ respective businesses. A revised investor relations presentation in respect of the Transaction and the combined operations of Horizon North and Dexterra is available each of the companies’ websites.
Despite the uncertain global environment, Horizon North and Dexterra remain committed to completion of the Transaction, with closing anticipated to occur in the second quarter of 2020, subject to the receipt of all necessary approvals and satisfaction of closing conditions.
Bill McFarland, a Director of Fairfax Financial, Chairman of Dexterra and future Chairman of the combined company on closing of the Transaction said: “Fairfax Financial is excited about the future possibilities for the combined businesses and we look forward to closing the Transaction in the second quarter. We continue to believe that the Transaction will create a pan-Canadian leader in support services and add significant value for all shareholders through capital appreciation and the payment of dividends.”
Rod Graham, President and Chief Executive Officer of Horizon North, said: “We recognize the unprecedented situation being faced in Canada and around the world with COVID-19 and diminished commodity prices. However, we remain committed to a transformational combination with Dexterra that will provide a premier, made-in-Canada company that brings size, scope, scalability and sophistication to the markets we serve. We look forward to leveraging the synergies of this combination over the next several years.”
About Horizon North
Horizon North is a publicly listed corporation (TSX: HNL.TO) providing a full range of industrial, commercial, and residential products and services. Our Industrial Services division supplies workforce accommodations, camp management services, access solutions, maintenance and utilities. Our Modular Solutions division integrates modern design concepts and technology with state of the art, off-site manufacturing processes; producing high quality building solutions for commercial and residential offerings including offices, hotels, and retail buildings, as well as distinctive single detached dwellings and multi-family residential structures. As a result of our diverse product and service offerings, Horizon North is uniquely positioned to meet the needs of our customers in numerous sectors, anywhere in Canada.
Dexterra provides quality solutions for the operation and maintenance of built assets and infrastructure including facilities management and operations, remote workforce accommodation, and forestry services. Dexterra is a Canadian business with a 70-year heritage servicing clients in both the private and public sectors. Dexterra has an outstanding record of creating and managing places that play a vital role in our national economy and our local communities. Our expertise in bringing together the right people with the right skills to transform service delivery and improve your customers’ experiences is what sets us apart. Website: dexterra.com
Additional information related to Horizon North, including the Corporation’s annual information form, press releases, financial statements and MD&A are available on SEDAR at www.sedar.com
For further information, please contact Rod Graham, President and Chief Executive Officer or Scott Matson, Senior Vice President and Chief Financial Officer, 900, 240 – 4th Avenue S.W., Calgary, Alberta T2P 4H4; Telephone (403) 517 – 4654, Fax (403) 517 – 4678; website: www.horizonnorth.ca
This news release contains certain statements or disclosures relating to Horizon North that are based on the expectations of its management as well as assumptions made by and information currently available to Horizon North which may constitute forward-looking statements or information (“forward-looking statements”) under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Horizon North anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words “anticipate”, “will”, “expected”, “continues”, “future”, “opportunity”, “believe” and similar expressions. In particular, but without limiting the foregoing, this news release contains forward-looking statements, including certain financial outlooks, pertaining to the following: Horizon North’s corporate strategy, including the reduction of its 2020 capital spending program and spending plans for the remainder of 2020; customer demand for the Corporation’s products and services, including expected revenue from customers in light of the current economic environment; the deferral of certain growth programs and anticipated proceeds from disposition; reductions in fixed operating costs; compliance with existing banking covenants and anticipated timing for completion of the Transaction and the ability of Horizon North and Dexterra to satisfy conditions to the closing of the Transaction; the expectation that Horizon North’s largest shareholder will vote in favour of the Transaction; the expected revenue of the combined company; the anticipated benefits of the Transaction and features of the combined company, including the ability of the new company to create long-term value, create growth potential, improve cash flows, provide capital returns, better serve customers and carry forward best practices from both companies.
The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Horizon North including, without limitation: that Horizon North and Dexterra will continue to conduct their operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry and economic conditions; the ability to continue operations as described in response to the COVID-19 pandemic; availability of debt and/or equity sources to fund Horizon North’s capital and operating requirements as needed; certain cost assumptions; the timing of receipt of required approvals for the Transaction; the benefits of the Transaction and the combined company; anticipated synergies and the expected size thereof; financial results related to and growth opportunities associated with the combined company; future dividends; the state of the economy and the support services industry generally; and the availability and cost of financing and labour.
Horizon North believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct, including in respect of the COVID-19 pandemic and the current economic environment. The forward-looking statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation: general economic, market and business conditions, including in light of the COVID-19 pandemic; the camp services may not be provided in the timelines anticipated, in the manner anticipated or at all; the delivery of and demand for the Corporation’s services and products may not have the results currently anticipated by Horizon North; reliance on industry partners; the risks that the parties will not receive required approvals to complete the Transaction or may not be able to satisfy the conditions to closing; that the other closing conditions to the Transaction may not be satisfied and the Transaction may not close; the ability of Horizon North to integrate Dexterra’s business into its business and operations and realize financial, operational and anticipated synergies and benefits; the resources required to integrate Horizon North and Dexterra in connection with the Transaction; and certain other risks detailed from time to time in Horizon North’s public disclosure documents including, without limitation, those risks identified in this news release, and in Horizon North’s annual information form, copies of which are available on Horizon North’s SEDAR profile at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive and are cautioned not to place undue reliance on these forward-looking statements.
The forward-looking statements contained in this news release are made as of the date hereof and the Corporation undertakes no obligations to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.