BUSINESS

HNZ Global helicopter group adjusts to pullout of U.S. military from Afghanistan

11/11/2014 12:17 EST | Updated 01/11/2015 05:59 EST
MONTREAL - HNZ Group Inc. says the phased conclusion of military contracts in Afghanistan and reduced activity in the Western Canada resource sector pulled down third-quarter revenue by $18.8 million compared with the same time last year — a decline of 22 per cent.

The Montreal-based company — which supplies helicopter services to private-sector and government clients around the world — had $58.1 million of revenue in the three months ended Sept. 30, down from $74.9 million in the third quarter of 2013.

HNZ (TSX:HNZ.A) has recently been operating a reduced fleet of three helicopters in Afghanistan for the United States military effort, which has been winding down.

The USTRANSCOM contract generated about $6 million of revenue in the third quarter ended Sept. 30 but it ended a month later, as scheduled, on Oct. 31.

The company — which primarily supplies helicopters and flight crews to resource industries — says it plans to move two of the three remaining Sikorsky S61 heavy lift helicopters from Afghanistan to Canada and the third to another location in Asia. Most of those costs will be covered under terms of the USTRANSCOM contract.

HNZ president and CEO Don Wall said that U.S.-led military interventions against Islamic State forces in the Mideast may provide an opportunity but it's too soon to tell.

"Obviously we would like to support those activities but today we don't see anything on that activity front," Wall told analysts in a conference call.

HNZ currently operates more than 120 helicopters in Canada, Australia, New Zealand, Antarctica and Southeast Asia for multinational corporations and government agencies. The aircraft are used mainly to transport personnel and cargo to remote areas, fight forest fires and support exploratory, production and construction work.

HNZ executives said that there was less work from pipeline companies in Western Canada in this year's third quarter than in the comparable period last year, accounting for some of the revenue decline. But that was somewhat offset by strong demand for fire-related work, which tends to have higher margins than contracted jobs.

HNZ's net income in the third quarter was $9.6 million, or 73 cents per share, which compared with a year-earlier loss of $5.8 million or 44 cents per share. The 2013 third-quarter included a $23.5-million goodwill impairment, reflected reduced long-term value of some of its intangible assets.

The third quarter was also an improvement from the second quarter of 2014, ended Sept. 30, when net income was $2.03 million or 16 cents per share and revenue was $51.4 million.

"While the business environment and market conditions in Canada remain challenging, HNZ Global continued to perform well and the results demonstrate the value of having diversified operations," Wall said.

The offshore oil and gas industry will be a key emphasis for the company going forward, he said.

"Our strategy, as we've always said, is to grow our global presence and increase our footprint in Asia-Pacific, Eastern Canada and Africa."

Keith Mullett, HNZ's executive vice-president, international, said the company is tracking 15 possible offshore oil and gas contracts that could begin in the 2015 or 2016 financial years. So far margins have held up despite intense competition among air services providers and there's been no drop in activity despite a decline in oil prices, he said.

Benoit Poirier of Desjardins Capital Markets said the results easily beat his forecast, pointing to the resilience of HNZ's Canadian operations, which offset the ramping down in Afghanistan.

HNZ's adjusted profit was 70 cents per share, well above his estimate of 38 cents per share, while revenues exceeded his $54 million outlook by more than $4 million.

Meanwhile, the company's strong balance sheet, which included ending the quarter with $7.9 million in cash, provides the company with the flexibility to pursue growth opportunities, including acquisitions since it credit facility is undrawn and can be increased to $175 million.

On the Toronto Stock Exchange, HNZ's shares were up seven cents at $20 Tuesday afternoon.