Annual Report 2018
Table of Contents
Page
Information on Annual Meeting ifc
President’s Letter to Shareholders 3
Management’s Discussion and Analysis 4
Management’s Report to Shareholders 33
Independent Auditors’ Report to Shareholders 34
Consolidated Financial Statements 38
Notes to the Consolidated Financial Statements 42
Corporate Information obc
Information on the Annual General Meeting
The Annual General Meeting of holders of common shares of Horizon North Logistics Inc. will be held on
the 3rd day of May 2019 at 9:00 a.m. (local time) in the McMurray Room of the Calgary Petroleum Club,
319 – 5th Avenue SW, Calgary, Alberta.
Shareholders are encouraged to attend and those unable to do so are requested to complete and submit
the Instrument of Proxy at their earliest convenience.
President’s Letter to Shareholders
Dear Shareholders,
Over the past four years, Horizon North has changed dramatically. A previous reliance on services provided for oil and gas clients
has been replaced by a diverse portfolio of offerings across two divisions – Industrial Services and Modular Solutions – that will,
along with the strongest balance sheet among our peers, allow us to grow and weather headwinds in any of the industries we
serve.
On the Industrial Services side of our business, our reputation is well-established as a leading provider of turn-key camp,
hospitality, access and maintenance solutions. Our 2019 strategy in this division is focused on four key areas of Canada:
• Oil Sands – Underpinned by two prominent relationships with Aboriginal communities north and south of Fort
McMurray, we have a nimble, turn-key offering in this region which allows for hospitality and maintenance services to
align with the fluctuating labour demands that exist throughout the year.
• Montney/Duvernay (W5/W6) – We continue to be the largest provider of open camp rooms in this prolific hydrocarbon
resource basin, as well as a leading provider of hospitality and management services in customer-owned facilities. This
region also profiles our access solutions, including matting and soil stabilization, which serve as a key entry point for us
to future opportunities, demonstrating our capability to provide a full suite of efficient, high-quality services to our
clients.
• Northern Canada – Our specialized, solution-driven teams are experts in the unique aspects of working in the North.
Through their expertise and the support of key Inuit partnerships, we provide our customers in northern Canada with
world-class hospitality and maintenance services that meet the demands of the highly variable, remote environments.
The recent opening of an 800-person camp in the northern reaches of Baffin Island where we provide hospitality,
management and maintenance services is an ideal illustration of our capabilities in a unique area of the world.
• West Coast – With a positive final investment decision from LNG Canada in 2018, our 57-acre land profile at the
entrance to Kitimat will act as a substantial platform for us in 2019 and beyond. The first phase of our world-class
Crossroads open lodge is projected to open in the spring with 240 rooms and will expand to more than 800 rooms as
activity in the region grows. The mixed-use community that surrounds the lodge will demonstrate the wide array of
modular products we offer, including hotel, office/retail space, and single- and multi-family residential.
On the Modular Solutions side of our business, we will continue a focus on growing our backlog of projects and driving economies
of scale in our facilities. To meet growing demand, we executed two acquisitions in 2018 which substantially increased our
manufacturing capacity, adding facilities in Aldergrove and Calgary. The ability to provide effective solutions in the Lower
Mainland, Alberta and Saskatchewan will bolster the work being done at our center of excellence in Kamloops and will position
Horizon North even more strongly as one of Canada’s leaders in modular construction.
One area where our “disruption for construction” model is beginning to play a significant role is affordable housing, the need for
which has become a key conversation in many areas of our country. Over the past two years, Horizon North has built a reputation
in this market as a partner of choice, due in large part to our efforts in British Columbia to assist government agencies in providing
courageous and creative solutions to supportive housing for those experiencing homelessness. Our recent acquisitions will allow
us to continue our leadership in supporting this noble cause in other areas of Canada.
In all aspects of our work, there are common links that remain fundamental to us as we move forward and grow. It begins with
our commitment to safety, which was demonstrated once again by our award of Gold Level Standing in the Manufacturing division
for Canada’s Safest Employers. Our investment in strong partnerships with Aboriginal communities is also a critical pillar of our
business. Through 24 strong partnerships across western and northern Canada, we work to provide economic benefits and
community support to the individuals and families who call the areas home. Finally, we remain dedicated to our Horizon North
employees, with a commitment to an innovative, collaborative work environment for all members of our team.
Thank you for your continued support on our journey.
Rod Graham,
President, CEO and Director
Page | 3
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
This Management’s Discussion and Analysis (“MD&A”), prepared as at March 12, 2019 focuses on key statistics from the
Consolidated Financial Statements and pertains to known risks and uncertainties relating to the business carried on by Horizon
North Logistics Inc. (“Horizon North” or the “Corporation”). This discussion should not be considered all-inclusive, as it does not
attempt to include changes that may occur in general economic, political and environmental conditions.
We encourage readers to read the “Caution Regarding Forward-Looking Statements and Information” section at the end of
this document.
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 business supplies workforce accommodations, camp management services, access
solutions, maintenance and utilities. Our Modular Solutions business 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.
Annual Key Comments
•
•
•
•
•
•
The Modular Solutions business improved significantly in 2018 achieving positive EBITDAS and increasing by $25.1 million
compared to 2017. Backlog exiting the year was $88.8 million compared to $43.9 million in 2017 with the funnel of high-
quality, high probability opportunities also increasing, closing 2018 approximately $290.0 million compared to $148.0 million
exiting 2017;
Horizon North successfully completed two acquisitions in 2018: Shelter Modular Inc., a modular manufacturing company
based in Aldergrove, British Columbia including a 32,760 sq. ft. facility, and the custom manufacturing business of C&V
Portable Accommodations Ltd. including an 87,000 sq. ft facility based in Rocky View County, Alberta bringing total
manufacturing square footage to 193,630 sq. ft.;
The Industrial Services business announced several contract awards for over $118.0 million: a hospitality services contract
south of Fort McMurray, Alberta, several camp services contracts for customers in the Montney region of Alberta and British
Columbia, and a 150-bed camp facility for a liquified petroleum gas (“LPG”) project located in Prince Rupert, British Columbia;
On January 8, 2018, Horizon North completed the $14.0 million strategic asset acquisition of the 288 bed Moose Haven
Lodge south of Fort McMurray, Alberta to secure opportunities in the Fort McMurray, Alberta area;
Horizon North initiated the mobilization and installation of the first phase of 260 beds of a potential 1,000 bed open camp
facility in Kitimat, British Columbia as part of the execution of its west coast liquefied natural gas (“LNG”) strategy;
Horizon North’s balance sheet improved as a result of continued focus on reducing working capital and a disciplined capital
program, as well as through net proceeds received from a bought deal equity financing of $47.5 million that closed on June
25, 2018 to support the execution of the Corporation’s LNG strategy and anticipated growth in the Modular Solutions
business; and
•
Horizon North continued its dividend policy and paid its 29th consecutive quarterly dividend.
Page | 4
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Annual Financial Summary
(000’s except per share amounts)
2018
% change
2017
% change
2016
Years ended December 31,
Revenue
EBITDAS(1)
EBITDAS as a % of revenue
Operating loss
Operating loss as a % of revenue
Total loss
Total comprehensive loss
Loss per share
Basic
Diluted
Total assets
$ 394,245 22
$ 324,082 29
$ 250,935
36,683
22
30,045
5
28,661
9%
9%
11%
(7,296) 23
(5,935) (73)
(22,204)
(2%)
(2%)
(9%)
(8,196) 5
(7,843) (61)
(20,316)
(8,196) 4
(7,846) (62)
(20,383)
$ (0.05)
$ (0.05)
$ (0.05)
$ (0.05)
$ (0.15)
$ (0.15)
$ 472,410 (2)
$ 479,750 (1)
$ 485,101
Total loans and borrowings
31,666
(58)
74,604
(1)
75,268
Funds flow
Net Capital spending (proceeds)
Total Debt to EBITDAS(2)
Debt to total capitalization ratio(1)
Dividends declared
Dividends declared per share
39,685
(28)
55,308
47
37,693
21,866
(192)
(23,830) (227)
18,692
0.86:1.00
0.09:1.00
2.48:1.00
0.19:1.00
2.46:1.00
0.19:1.00
$ 12,762
$ 0.08
$ 11,573
$ 0.08
$ 11,112
$ 0.08
(1)
(2)
Please refer to Management’s Report on Disclosure Controls and Procedures and Internal Control over Financial Reporting section of the Management’s Discussion and Analysis for the
definitions of Non-GAAP and additional GAAP measures and reconciliation of Net Earnings to EBITDAS.
Please refer to Liquidity and Capital Resources section of the Management’s Discussion and Analysis for the definitions of Total Debt to EBITDAS.
Annual Overview
Results for the year ended December 31, 2018 (“2018”) were somewhat mixed in relation to the comparative year ended
December 31, 2017 (“2017” or “comparative year”). The revenue increase compared to 2017 was driven by the ramp up of the
Modular Solutions business and increased manufacturing capacity, along with increased camp installation work in the Camp &
Catering segment. Partially offsetting these increases, Camp & Catering segment revenues from equipment sales decreased as a
result of a significant camp equipment sale in Q2 2017 which generated $20.0 million in revenues and $6.0 million in EBITDAS.
Rentals & Logistics segment revenues also decreased compared to 2017 due to lower demand for matting sales.
Industrial Services
Revenues from Industrial Services for 2018 decreased compared to the same period of 2017 mainly due to the Q2 2017 camp
equipment sale noted above. Excluding the sale, Camp & Catering revenues increased compared to 2017 following a 38% increase
in the demand for catering only activity and an increase in camp installation work related to previously announced contract
awards. Camp rental and catering activity softened compared to 2017 with a 7% decrease in bed rental days offset by the camp
installation work, noted above, increasing the revenue per bed rental day to $98 or by 11%. Rentals & Logistics revenues
decreased compared to 2017 primarily due to a 43% decrease in mat sales. This decrease was partially offset by the continued
strong demand for access mat rentals along the northern British Columbia and Alberta border.
Modular Solutions
Modular Solutions revenues for 2018 were significantly higher than 2017 as a result of increased capacity to execute the growing
backlog of projects. Compared to 2017, capacity increased significantly as a result of ramping up direct headcount at the
Kamloops, British Columbia plant and through the acquisitions of the Aldergrove, British Columbia and the Rocky View County,
Alberta facilities. The increase in throughput capacity facilitated the execution of higher volumes of backlog and generated much
stronger revenues. The number and scope of projects increased in 2018 consisting largely of government sponsored affordable
Page | 5
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
housing projects for government housing agencies in British Columbia and commercial projects, compared to a variety of smaller
projects in 2017.
Other Financial Measures
EBITDAS for 2018 increased $6.6 million or 22% and remained unchanged as a percentage of revenue compared to 2017. The
increase in EBITDAS was a result of the significant improvement in the Modular Solutions business related to the impact of
increased contract volume and efficiencies gained by economies of scale.
Horizon North’s Total Debt to EBITDAS ratio was 0.86:1.00 at December 31, 2018 compared to 2.48:1.00 at December 31, 2017
as a result of a bought deal equity financing completed in Q2 2018 with net proceeds of $47.5 million used to reduce debt. Horizon
North continued to maintain a strong focus on managing the Statement of Financial Position through minimizing working capital
and closely managing the capital program.
Outlook
In 2019, Horizon North will continue to diversify both its portfolio of offerings and customer base through a focus on its two
operating divisions: Industrial Services and Modular Solutions.
Industrial Services
In 2019, Horizon North will continue to leverage its reputation as a leading provider of turn-key camp, hospitality, access and
maintenance solutions with focus on the following four key areas:
• Oil Sands – Horizon North expects to leverage its operational footprint and history, along with two prominent
relationships with Aboriginal communities north and south of Fort McMurray, to pursue full turn-key opportunities as
well as catering and hospitality opportunities in customer-owned facilities;
• Montney/Duvernay – Horizon North is the largest provider of open camp services in this area and is a market leader in
providing catering and hospitality services in customer-owned facilities. Horizon North will continue to leverage existing
assets and relationships while looking to develop additional areas of opportunity to support ongoing activity in this
area;
• Northern Canada – Horizon North has a long history and expertise in providing hospitality, management and
maintenance services across Canada’s northern regions. In 2019, Horizon North will continue to focus on developing
and expanding its capabilities and footprint across Canada’s highly variable and remote northern regions; and
• West Coast – Horizon North initiated the first phase of development on its 57-acre parcel of land located at the entrance
to Kitimat, British Columbia in late 2018. In 2019, Horizon North expects to open the first phase of its world-class
Crossroads open lodge with 260 beds ready in the spring and plans to expand to a potential 1,000 beds as activity in
the region grows.
Modular Solutions
For 2019, Horizon North’s focus is to continue to grow its backlog of modular construction projects and drive economies of scale
in our facilities and project execution capabilities. Horizon North will continue to focus on hotel development, multi-family
residential development and social, student and senior infrastructure development. Horizon North completed two acquisitions
in 2018 to provide additional capacity in western Canada and is actively investigating opportunities to expand its geographic
footprint to service other areas of Canada with strong demand profiles for our unique construction model.
Statement of Financial Position
The strength of the Statement of Financial Position remains a key priority and Horizon North took several steps in 2018 to
significantly reduce its overall debt and leverage position. This strong position will allow Horizon North to undertake an expanded
capital program in 2019 with a budget of $50.4 million focused on its Crossroads open lodge project in Kitimat, BC, refreshing and
providing the ability for moderate growth of its matting rental fleet and supporting the expanding Modular Solutions business.
Page | 6
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Dividend Payment
Horizon North announced today that its Board of Directors has declared a dividend for the first quarter of 2019 at $0.02 per
share. The dividend is payable to shareholders of record at the close of business on March 31, 2019 to be paid on April 15, 2019.
The Board of Directors regularly monitors the strength of the Statement of Financial Position, cash from operations and capital
requirements to ensure the overall sustainability of Horizon North is not compromised. The dividends will be eligible dividends
for Canadian tax purposes.
Page | 7
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Annual Financial Results
Twelve months ended December 31, 2018
(000’s)
Revenue
Expenses
Direct costs
Selling & administrative expenses
EBITDAS
EBITDAS as a % of revenue
Share based compensation
Depreciation & amortization
(Gain) loss on disposal of property, plant and equipment
Operating earnings (loss)
Finance costs
Earnings on equity Investments
Income tax recovery
Total loss
Other comprehensive income
Total comprehensive loss
Loss per share – basic
– diluted
(000’s)
Revenue
Expenses
Direct costs
Selling & administrative expenses
EBITDAS
EBITDAS as a % of revenue
$
$
$
$
$
Share based compensation
Depreciation & amortization
Impairment loss
(Gain) loss on disposal of property, plant and equipment
Corporate
Eliminations
Total
$
(3,179)
$
394,245
Industrial
Services
Modular
Solutions
264,269
$
133,155
$
219,750
4,550
119,385
3,304
-
-
13,752
39,969
$
10,466
$
(13,752)
$
15%
8%
507
39,466
(715)
711
$
216
1,395
245
2,028
425
409
8,610
$
(16,614)
$
Twelve months ended December 31, 2017
Corporate
Eliminations
Total
$
(82)
$
324,082
Industrial
Services
Modular
Solutions
277,409
$
46,755
$
213,534
6,438
59,174
2,207
-
-
12,766
57,437
$
(14,626)
$
(12,766)
$
21%
241
40,770
3,457
(12,185)
(31%)
127
2,030
-
(4)
-
806
645
-
147
(3,179)
-
-
-
-
$
3
(3)
$
$
$
$
335,956
21,606
36,683
9%
2,751
41,289
(61)
(7,296)
2,894
(67)
(1,927)
(8,196)
-
(8,196)
(0.05)
(0.05)
$
(82)
-
-
-
-
(2)
-
(52)
54
$
$
$
$
272,626
21,411
30,045
9%
1,174
43,443
3,457
(12,094)
(5,935)
2,824
(916)
(7,843)
(3)
(7,846)
(0.05)
(0.05)
Page | 8
Operating earnings (loss)
$
25,154
$
(16,779)
$
(14,364)
$
Finance costs
Income tax recovery
Total loss
Other comprehensive loss
Total comprehensive loss
Loss per share – basic
– diluted
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Fourth Quarter Key Comments
• Q4 2018 financial results were the strongest since Q1 2017 driven primarily by improved Modular Solutions performance;
•
The Modular Solutions business improved significantly in 2018 achieving positive EBITDAS and increasing by $25.1 million
compared to 2017. Backlog exiting the year was $88.8 million compared to $43.9 million in 2017 with the funnel of high-
quality, high probability opportunities also increasing, closing 2018 approximately $290.0 million compared to $148.0 million
exiting 2017; and
•
The Industrial Services business announced several camp service contracts:
•
•
•
a hospitality services contract south of Fort McMurray, Alberta through its Aboriginal partnership with Chipewyan
Prairie Dene First Nations;
a contract extension in the Grande Prairie, Alberta area; and
a 150-bed facility for an LPG project located in Prince Rupert, British Columbia.
Fourth Quarter Financial Summary
(000’s except per share amounts)
Revenue
EBITDAS(1)
EBITDAS as a % of revenue
Operating earnings (loss)
Operating earnings (loss) as a % of revenue
Total income (loss)
Total comprehensive income (loss)
Earnings (loss) per share
Basic
Diluted
Total assets
Total loans and borrowings
Funds flow
Net Capital spending
Total Debt to EBITDAS(2)
Debt to total capitalization ratio(1)
Dividends declared
Dividends declared per share
Three months ended December 31,
2018
2017
% change
$
118,045
$ 82,664
43
13,654
6,786
101
12%
2,240
2%
1,413
8%
(4,074) (155)
(5%)
(3,885) (136)
1,413
(3,892) (136)
$
$
$
0.01
$ (0.03)
0.01
$ (0.03)
472,410
$ 479,750 (2)
31,666
74,604
(58)
17,294
6,868
152
5,130
1,645
212
0.86:1.00
0.09:1.00
2.48:1.00
0.19:1.00
$
$ 2,894
$ 0.02 $ 0.02
3,285
(1)
(2)
Please refer to Management’s Report on Disclosure Controls and Procedures and Internal Control over Financial Reporting section of the Management’s Discussion and Analysis for the
definitions of Non-GAAP and additional GAAP measures and reconciliation of Net Earnings to EBITDAS.
Please refer to Liquidity and Capital Resources section of the Management’s Discussion and Analysis for the definitions of Debt to EBITDAS.
Page | 9
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Fourth Quarter Overview
Results for the three months ended December 31, 2018 (“Q4 2018”) improved across all financial measures, compared to the
three months ended December 31, 2017 (“Q4 2017”). The revenue increase compared to 2017 was driven by the Modular
Solutions and Camp & Catering segments, partially offset by the Rentals & Logistics segment.
Industrial Services
Revenues from Industrial Services for Q4 2018 increased compared to Q4 2017 mainly due to higher camp installation activity in
the northeast region of British Columbia and stronger access mat rentals. This was offset by softer mat sales and lower related
installation and transportation services. Camp rental and catering activity levels increased compared to Q4 2017 with utilization
of 54% or up 4% and revenue per bed rental day at $107, an increase of 39%, due to camp installation activity with no associated
bed rental days. Catering only activity remained consistent compared to Q4 2017 with stronger revenue per catering only day,
higher by 9%, as a result of different contract mix. Rentals & Logistics revenues decreased compared to Q4 2017 primarily due to
a decrease in equipment sales and a reduction in related installation and transportation services. These were somewhat offset
by increased demand and stronger pricing for mat rental activity along the northern British Columbia and Alberta border.
Modular Solutions
Modular Solutions revenues for Q4 2018 were significantly higher than Q4 2017 as a result of increased capacity to execute the
growing backlog of projects. Compared to Q4 2017, capacity increased significantly as a result of ramping up direct headcount at
the Kamloops, British Columbia plant and the acquisition of the Aldergrove, British Columbia facility. In addition, the acquisition
of the Rocky View County, Alberta facility in November 2018 allowed for a further ramp up of production exiting 2018. The
increase of throughput capacity facilitated the execution of higher volumes of backlog and generated much stronger revenues.
The volume of government sponsored affordable housing projects in Q4 2018 was considerably higher compared to Q4 2017.
Other Financial Measures
Horizon North’s Q4 2018 EBITDAS increased by $6.9 million or 101% compared to Q4 2017. As a percentage of revenue, EBITDAS
were 12% compared to 8% in Q4 2017. The increase in EBITDAS was primarily driven by significantly improved operating results
in the Modular Solutions segment compared to Q4 2017.
Horizon North continued to maintain a strong focus on managing its Statement of Financial Position through minimizing working
capital and closely managing the capital program. Total loans and borrowings were $31.7 million at December 31, 2018 compared
to $74.6 million at December 31, 2017. The decrease was mainly due to completion of the bought deal equity financing in Q2
2018 with net proceeds of $47.5 million used to reduce debt and improve EBITDAS. As a result of the decreased debt and stronger
EBITDAS, the total Debt to EBITDAS ratio was 0.84:1.00 at December 31, 2018 compared to 2.48:1.00 at December 31, 2017.
Page | 10
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Fourth Quarter Financial Results
Three months ended December 31, 2018
Corporate
Eliminations
Total
$
(163)
$
118,045
$
$
$
$
$
$
(000’s)
Revenue
Expenses
Direct costs
Selling & administrative expenses
EBITDAS
EBITDAS as a % of revenue
Share based compensation
Depreciation & amortization
(Gain) loss on disposal of property, plant and equipment
Operating earnings (loss)
Finance costs
Income tax expense
Total income
Other comprehensive income
Total comprehensive income
Earnings per share – basic
– diluted
(000’s)
Revenue
Expenses
Direct costs
Selling & administrative expenses
EBITDAS
EBITDAS as a % of revenue
Share based compensation
Depreciation & amortization
Loss on disposal of property, plant and equipment
Operating earnings (loss)
Finance costs
Earnings on equity Investments
Income tax recovery
Total loss
Other comprehensive loss
Total comprehensive loss
Loss per share – basic
– diluted
-
-
-
-
Industrial
Services
Modular
Solutions
74,429
$
43,779
$
62,379
981
11,069
$
15%
134
9,711
(102)
36,495
780
6,504
$
15%
63
385
237
3,919
(3,919)
$
481
91
409
1,326
$
5,819
$
(4,900)
$
Three months ended December 31, 2017
Industrial
Services
Modular
Solutions
64,055
$
18,638
$
49,661
992
13,402
$
21%
81
9,815
54
21,447
648
(3,457)
$
(19%)
37
525
-
3,159
(3,159)
$
243
105
-
3,452
$
(4,019)
$
(3,507)
$
Corporate
Eliminations
Total
$
(29)
$
82,664
(163)
-
-
-
-
$
5
(5)
$
$
$
$
98,711
5,680
13,654
12%
678
10,192
544
2,240
374
453
1,413
-
1,413
0.01
0.01
(29)
-
-
-
-
-
-
$
$
$
$
$
71,079
4,799
6,786
8%
361
10,445
54
(4,074)
533
(105)
(617)
(3,885)
(7)
(3,892)
(0.03)
(0.03)
Page | 11
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Industrial Services
Industrial Services is comprised of two segments, Camps & Catering and Rentals & Logistics.
(000’s)
Camps & Catering
Rentals & Logistics
Total revenue
EBITDAS
EBITDAS as a % of revenue
Operating earnings
Camps & Catering Segment
Three months ended December 31,
Twelve months ended December 31,
2018
$ 65,357
$
% change
51,765 26
2017
2018
220,117
$
$
% change
224,430 (2)
2017
9,072
12,290 (26)
44,152
52,979 (17)
74,429
64,055 16
264,269
277,409 (5)
$
11,069
15%
$
13,402 (17)
$
21%
39,969
15%
$
57,437
21%
(30)
$ 1,326 $ 3,452 (62)
$ 711 $ 25,154 (97)
Camps & Catering revenues are comprised of three revenue streams: camp rental and catering revenue which include the service
and transport revenue associated with camp setup and demobilization activity; catering only revenue consisting mainly of
catering and housekeeping activities; and used equipment sales revenue.
Three months ended December 31,
Twelve months ended December 31,
2017
% change
(000’s except for operational metrics)
Camp rental and catering revenue
Catering only revenue
Equipment sales revenue
Total revenue
EBITDAS
EBITDAS as a % of revenue
Operating earnings (loss)
Camp rental and catering revenue
Bed rental days (1)
Revenue per bed rental day
Rentable beds at period end
Average rentable beds (2)
Utilization (3)
Catering only revenue
Catering only days(4)
Revenue per catering only day
$
$
$
$
$
2018
51,432
$
12,109
1,816
65,357
8,440
$
13%
1,303
$
481,185
107
$
9,635
9,613
54%
2017
% change
36,295
11,180
4,290
51,765
8,849
17%
1,637
468,944
77
10,172
10,168
50%
$
$
$
$
42
8
(58)
26
(5)
(20)
3
39
(5)
(5)
2018
165,663
$
47,132
7,322
220,117
27,565
$
13%
(2,086)
$
160,488
34,267
29,675
224,430
43,524
19%
21,282
1,692,280
1,827,292
98
$
9,635
9,554
49%
88
10,172
10,764
47%
115,429
105
$
116,226
96
(1)
9
$
473,604
100
$
343,421
100
3
38
(75)
(2)
(37)
(110)
(7)
11
(5)
(11)
38
-
(1)
(2)
(3)
(4)
One bed rental day represents the provision of one bed for one day under a combined rental and catering manday rate, or the provision of one bed for one day under an equipment
rental rate for dedicated camp equipment.
Average rentable beds are equal to total average beds in the fleet over the period less beds required for staff.
Utilization equals the total number of bed rental days divided by average rentable beds in the period.
One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.
Revenues from the Camps & Catering segment for Q4 2018 were $65.4 million, an increase of $13.6 million or 26% compared to
Q4 2017. The increase in Q4 2018 segment revenues was a result of higher camp set-up activity in the northeastern British
Columbia region related to the mobilization of several contracts announced earlier in the year. EBITDAS for Q4 2018 were $8.4
million, a decrease of $0.4 million or 5% compared to Q4 2017. The decrease in Q4 2018 segment EBITDAS and EBITDAS as a
percentage of revenue was a result of Q4 2018 having a higher proportion of revenue from lower margin camp set-up projects
compared to Q4 2017.
Revenues from the Camps & Catering segment for 2018 decreased $4.3 million or 2% compared to 2017. The decrease was
primarily related to a camp equipment sale which occurred in Q2 2017. Excluding equipment sales, revenues increased 8% as a
result of significantly stronger catering only activity.
EBITDAS for 2018 decreased $16.0 million or 37% compared to 2017. Excluding the equipment sales realized in Q2 2017, EBITDAS
decreased 27% primarily due to the change in revenue mix between the comparative periods with 2018 having less higher margin
camp activity and increased lower margin catering only and camp set-up activity.
Page | 12
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Camp rental and catering revenue
Revenues from Camp Rental and Catering operations for Q4 2018 increased by $15.1 million or 42% compared to Q4 2017. The
increase in Q4 2018 was driven by a 3% increase in activity levels and 39% increase in revenue per manday mainly related to the
service revenue associated with camp set-up activity with no associated bed rentals.
Revenues from Camp Rental and Catering operations for 2018 increased by $5.2 million or 3% compared to 2017. The increase
year over year was driven by higher camp set-up activity in the northeastern British Columbia region offset by a 7% decrease in
volume. The lower volumes were mainly attributable to low occupancy in several camps in the Fort McMurray, Alberta area.
Catering only revenue
Revenues from the provision of catering and housekeeping services, with no associated bed rentals, for Q4 2018 increased by
$0.9 million or 8% compared to Q4 2017. The increase was mainly due to the second phase of a significant catering contract in
Nunavut beginning operations in late Q4 2018. Revenue per catering only day increased by 9% primarily due to the different
contract mix between the comparative quarters.
Revenues for 2018 increased by $12.9 million or 38% compared to 2017 as a result of a significant long-term catering contract
entered into in the second half of 2017 and the startup of the second phase of the significant contract noted above. Revenue per
catering only day stayed consistent for 2018.
Equipment sales revenue
Equipment sales revenues include new camp construction and used fleet sales. Revenues for Q4 2018 decreased by $2.5 million
or 58% compared to Q4 2017 as a result of a camp equipment sale in the comparative period. Used equipment sales are a key
part of the fleet management strategy to ensure an appropriate equipment portfolio.
Revenues for 2018 decreased by 75% compared to 2017 primarily due to a significant camp equipment sale which occurred in
Q2 2017.
Page | 13
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Rentals & Logistics Segment
Rentals & Logistics revenues are comprised of four revenue streams: relocatable structures which is comprised of office units,
lavatory units, mine dry units, wellsite units and the associated equipment; mat rentals which consists of access mats and includes
rig mats and the associated equipment; used equipment sales; and installation, transportation and service associated with the
rentals and sales.
Three months ended December 31,
Twelve months ended December 31,
2017
% change
2017
% change
(000’s except for operational metrics)
Relocatable structures revenue (1)
Mat rental revenue (2)
Equipment sales revenue
Installation, transportation, service, and other revenue
Total revenue
EBITDAS
EBITDAS as a % of revenue
Operating earnings
Relocatable Structures
Average fleet size
Fleet end of period
Rental days (3)
Utilization (4)
Mat rental
Average fleet size (5)
Fleet end of period (6)
Mat rental days (7)
Utilization (8)
Revenue per mat rental day (9)
Equipment Sales (10)
Relocatable structures
Mats
$
$
$
$
2018
1,206
$
2,451
1,458
3,957
1,004
1,724
3,253
6,309
9,072
$
12,290
2,629
$
29%
23
1,017
918
42,624
46%
35,231
34,606
3,648
30%
965
1,178
1,173
38,904
36%
31,101
29,800
2,082,171
1,927,770
64%
1.18
$
12
2,073
67%
0.89
26
3,734
$
$
$
20
42
(55)
(37)
(26)
(28)
(98)
(14)
(22)
10
13
16
8
33
$
(54)
(44)
2018
5,077
$
11,447
6,245
21,383
44,152
$
12,404
$
28%
2,797
1,112
918
186,667
46%
36,178
34,606
4,424
7,892
11,842
28,821
52,979
13,913
26%
3,872
1,260
1,173
172,451
37%
32,739
29,800
10,191,014
8,645,129
77%
1.12
$
96
9,139
72%
0.91
50
16,060
15
45
(47)
(26)
(17)
(11)
(28)
(12)
(22)
8
11
16
18
23
92
(43)
Relocatable structures revenue includes rental revenue generated from office, lavatory and mine dry units and complexes as well the associated equipment.
One rental day equals the rental of one unit for one day.
Utilization equals the total number of unit rental days divided by average rentable units in the period.
Average mat rental fleet numbers reflect all owned and third-party mats.
(1)
(2) Mat rental revenue includes revenues generated from the rental of mats.
(3)
(4)
(5)
(6) Mats in rental fleet at period end represents the number of owned mats and third-party mats in the Matting fleet.
(7)
(8)
(9)
(10)
One mat rental day equals the rental of one mat for one day.
Utilization equals the total number of mat rental days divided by average rentable mats in the period.
Revenue per mat rental day equals mat rentals revenue divided by total mat rental days.
Represents the number of units sold in the period.
Revenues from the Rentals & Logistics segment for Q4 2018 decreased $3.2 million or 26% compared to Q4 2017. The decrease
was primarily related to lower mat sales and a reduction in the associated installation and transportation services for matting
and soil stabilization activity compared to Q4 2017. The lower mat sales were a result of higher mat rental demand with the
majority of mat production allocated to the rental fleet in response to increased demand. The mat rental demand is mainly a
result of the ongoing high level of activity in the Duvernay and Montney regions along the northern British Columbia and Alberta
border. EBITDAS as a percentage of revenue was relatively consistent at 29% compared to 30% in Q4 2017.
Revenues from the Rentals & Logistics segment for 2018 decreased $8.8 million or 17% compared to 2017. The decrease in
revenue was driven by lower mat sales combined with the associated transport installation activity and lower soil stabilization
activity compared to 2017. EBITDAS as a percentage of revenue was 28% compared to 26% in 2017. The increase in EBITDAS as a
percentage of revenue was a result of higher mat rental demand combined with stronger revenue per mat rental day compared
to 2017.
Page | 14
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Relocatable structures revenue
Relocatable structures revenues include the rental of relocatable structures such as office units, lavatory units, mine dry units
and other associated equipment.
Relocatable structures revenues for Q4 2018 increased by $0.2 million or 20% compared to Q4 2017. The increase was a result
of higher activity levels with Q4 2018 rental days up 10% combined with stronger pricing compared to Q4 2017.
Revenues for 2018 increased $0.7 million or 15% compared to 2017. The increase was primarily a result of the 8% increase in
rental days and stronger pricing compared to 2017. The mix of equipment on rent was comprised of more multi-unit complexes
and saw generally stronger pricing compared to 2017. Utilization improved by 9% as a result of the stronger activity levels and a
smaller fleet size from the continuous focus on fleet management, selling the less productive rental units in 2018.
Mat rental revenue
Mat rental revenue for Q4 2018 increased $0.7 million or 42% compared to Q4 2017. The increase was a result of stronger pricing
combined with higher mat rental demand. Rental rates were $1.18 per mat rental day compared to $0.89 per mat rental day in
Q4 2017 as a result of a more favourable contract environment in 2018 and stronger demand along the northern British Columbia
and Alberta border. Compared to Q4 2017, activity levels increased with mat rental days up 8% mainly as a result of mats
remaining on rent further into the season.
Revenue for 2018 increased by $3.6 million or 45% compared to 2017 as a result of higher activity levels and stronger pricing
along the northern British Columbia and Alberta border. The strengthening demand drove an 18% increase in mat rental days
and 23% increase in revenue per mat rental day compared to 2017.
Equipment sales revenue
Equipment sales are the sale of new and used Rentals & Logistics fleet, which is comprised of new and used mats, space rental
assets and other equipment such as garbage bins and light towers.
Equipment sales revenues for Q4 2018 decreased by $1.8 million or 55% compared to Q4 2017. The decrease was driven by lower
Q4 2018 mat sales with only 2,073 mats sold compared to 3,734 in Q4 2017. The majority of Q4 2018 mat production was
allocated to refreshing and increasing the mat rental fleet as a result of higher mat rental demand.
Revenues for 2018 decreased by $5.6 million or 47% compared to 2017. The decrease was driven by lower mat sales with only
9,139 mats sold compared to 16,060 in 2017. The majority of new mat production in 2018 was used to refresh and increase the
rental mat fleet resulting in fewer new mat sales and the majority of mat sales in 2018 being used mats.
Installation, transportation, service, and other revenue
Installation, transportation, service, and other revenue include the revenues associated to the mobilization and installation of
rental fleet, mat management services, and soil stabilization services.
Revenues for Q4 2018 decreased by $2.4 million or 37% compared to Q4 2017. The decrease was driven primarily by the reduction
in mat installation services as a result of timing of mat rental activity and a decrease in soil stabilization activity due to weather
related soil conditions compared to Q4 2017.
Revenues for 2018 decreased by $7.4 million or 26% compared to 2017. The decrease was driven primarily by the reduction in
mat sales which usually have transportation and installation work associated with the sales and lower volumes of soil stabilization
projects year over year.
Industrial Services Direct Costs
Direct costs in the Industrial Services business unit for Q4 2018 were $62.4 million or 84% of revenue compared to $49.7 million
or 78% of revenue for Q4 2017. Direct costs are driven by both the level and mix of business activity consisting primarily of labour,
raw material, trucking, rent and utility costs. The increase of $12.7 million in direct costs in Q4 2018 compared to Q4 2017 was
primarily related to higher camp installation activity, and a significant number of third-party mats on rent to fulfill rental demand.
As a percentage of revenue, direct costs increased as a result of an increase in low margin camp installation work and the rental
cost associated with third party mats decreased rental margins.
Page | 15
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Direct costs in the Industrial Services business unit for 2018 were $219.8 million or 83% of revenue compared to $213.5 million
or 77% of revenue for 2017. The increase in direct costs for 2018 was mainly related to the increase in catering only activity and
the increase in camp installation work. As a percentage of revenue, direct costs increased primarily as a result of a camp
equipment sale in Q2 2017 which had a strong margin, higher camp installation costs and an increase in lower margin catering
only activity in 2018 compared to 2017.
Modular Solutions
Modular Solutions consists of production, transportation and installation of residential, retail and commercial modular buildings.
The table below outlines the key performance metrics used by management to measure performance in the Modular Solutions
operations:
(000’s)
Modular Solutions revenue
EBITDAS
EBITDAS as a % of revenue
Operating earnings (loss)
Backlog (1)
(1)
Three months ended December 31,
Twelve months ended December 31,
2018
43,779
6,504
15%
$
$
5,819
$
88,825
$
2017
18,638
(3,457)
(19%)
(4,019)
43,878
% change
135
(288)
(245)
102
$
$
$
$
2018
133,155
10,466
8%
$
$
8,610
$
88,825
$
2017
46,755
(14,626)
(31%)
(16,779)
43,878
% change
185
(172)
(151)
102
$
$
$
$
Backlog is the total value of work that has not yet been completed that: (a) has a high certainty of being performed based on the existence of an executed contract or work order specifying
job scope, value and timing; or (b) has been awarded to Horizon North, as evidenced by an executed letter of award or agreement, describing the general job scope, value and timing of
such work, and where the finalization of a formal contract in respect of such work is reasonably assured and expects to be recognized in the next 12 months.
Modular Solutions segment revenues for Q4 2018 were $43.8 million compared to $18.6 million in Q4 2017. The increase was
attributable to the significant increase in the backlog between the comparative periods and increased capacity to execute.
Projects in Q4 2018 were comprised mainly of commercial projects, including a hostel project, and several affordable housing
projects for government housing agencies in British Columbia.
Revenues for 2018 were $133.2 million compared to $46.8 million in 2017. The increase included the production and installation
of affordable housing projects for government housing agencies in British Columbia, an 85-room hotel in Oliver, British Columbia,
a hostel project and several residential housing projects.
A key metric for the Modular Solutions segment is the backlog of projects and timing of backlog execution. Currently, the focus
for this business unit is to secure and increase backlog, which was $88.8 million at the end of 2018 compared to $43.9 million at
the end of 2017.
Modular Solutions direct costs
Direct costs are comprised of labour, raw materials and transportation which vary directly with revenues, and a relatively fixed
component which includes rent, utilities and the design and technical services required in the bidding cycle and post award
production and installation of the product.
Direct costs were 83% of revenues in Q4 2018 compared to 115% in Q4 2017. The improvement was mainly driven by economies
of scale from higher activity levels absorbing the relatively fixed component of the direct costs.
Direct costs for 2018 were 90% of revenues compared to 127% in 2017. The improvement was mainly driven by higher activity
levels absorbing the relatively fixed component of the direct costs.
Page | 16
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Selling & Administrative Expense
Selling & administrative expenses are comprised of sales and marketing costs associated with each segment, along with corporate
costs which reflect head office costs and include the Named Executive Officers of the Corporation, Corporate Secretary,
information technology, corporate accounting staff and associated costs of supporting a public company.
Selling & administrative expenses for Q4 2018 were $5.7 million, an increase of $0.9 million compared to Q4 2017. As a
percentage of revenue, selling and administrative expenses were 5% compared to 6% in the comparative quarter of 2017.
Selling & administrative expenses for 2018 were $21.6 million, an increase of $0.2 million compared to 2017. As a percentage of
revenue, selling and administrative expenses for 2018 were 5% compared to 7% in 2017.
Other Items
Depreciation and amortization
(000’s)
Depreciation of property, plant and equipment
Amortization of intangibles
Total depreciation and amortization
$
$
2018
9,508
$
684
10,192
$
2017
% change
9,763
682
10,445
-
(3)
(2)
$
$
2018
38,540
$
2,749
41,289
$
2017
% change
40,701
2,742
43,443
-
(5)
(5)
Three months ended December 31,
Twelve months ended December 31,
Depreciation of property, plant and equipment in Q4 2018 was relatively unchanged compared to Q4 2017 as a result of a camp
equipment sale in Q2 2017 offset by the purchase of a 288-person camp facility south of Fort McMurray, Alberta during Q1 2018
and the capital required for new contracts.
Depreciation of property, plant and equipment for 2018 decreased by $2.2 million or 5% in 2018 compared to 2017. The decrease
was mainly a result of certain camp setup assets being fully depreciated and fleet disposals throughout the period partially offset
by the set-up capital and equipment required for new contracts at the end of 2018.
The amortization of intangibles is related to the acquisition of Karoleena Inc. in June 2016 and Empire Camp Equipment Ltd. in
August 2016.
Financing costs
Financing costs include interest on loans and borrowings. For Q4 2018, financing costs were $0.4 million, a decrease of $0.2
million compared to Q4 2017. For 2018, financing costs were relatively unchanged compared to 2017 at $2.9 million. The financing
costs were driven by higher average debt levels in the first half of 2018 which averaged $80.5 million and an increase in the
effective interest rate compared to a higher average debt level in 2017. The average debt levels for 2018 decreased to $57.4
million compared to $70.1 million in 2017 as a result of the proceeds received from the bought deal equity financing that closed
in Q2 2018.
The effective interest rate on loans and borrowings for 2018 was 5.3% compared to 4.3% in 2017. The higher effective interest
rate was driven by increases in the Bank of Canada prime rate partially offset by the tiered interest rate structure of the credit
facility and lower debt levels.
Income taxes
For the year ended December 31, 2018, income tax recovery was $1.9 million (2017 - $0.9 million), with an effective tax rate of
19.0% (2017 – 10.5%). The increase in income tax recovery was attributable to a larger net loss for the year ended December 31,
2018 combined with the decrease in permanent differences resulting from the legislative rate change and rate differential on loss
carryback in the prior year, as well as fewer unrecognized non-capital losses in foreign jurisdictions in the current year.
Gain/Loss on disposal
For Q4 2018, the loss on disposal was $0.5 million compared to a loss on disposal of $0.1 million in Q4 2017. The gains and losses
on disposals are typically generated from ongoing feet management of operational assets.
For 2018, the gain on disposal was $0.1 million compared to a gain of $12.1 million for 2017. Included in the gain on disposal in
2017 was the insurance settlement in excess of book value from the Blacksand Executive Lodge assets destroyed in the Fort
McMurray, Alberta wildfires in 2016.
Page | 17
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Liquidity and Capital Resources
Liquidity is principally monitored through cash and cash equivalents and available borrowing capacity under the Corporation’s
committed credit facility. The outstanding balance under the credit facility fluctuates as it is drawn to finance working capital
requirements, capital expenditures, acquisitions and dividends or repaid with funds from operations, disposals and financing
activities.
Summary of cash flows (000’s)
Operating activities
Investing activties
Financing activities
Change in cash position
December 31,
December 31,
2018
37,542
$
(27,487)
(10,055)
-
$
2017
14,726
(2,553)
(12,173)
-
$
$
For 2018, operating activities generated $37.5 million of cash, compared to $14.7 million of cash in 2017. The variance was driven
primarily by the collection of aged accounts receivable in 2018. Cash used in investing activities for 2018 included the purchase
of a 288-person camp facility south of Fort McMurray, Alberta compared to the insurance settlement received in 2017. Cash used
in financing activities included dividend payments and the net effect of the bought deal equity financing completed in Q2 2018.
Working capital position (000’s)
Current assets
Current liabilities excluding loans and borrowings(1)
Working capital(2)
(1)
(2)
Calculated as the sum of trade and other payables, deferred revenue and income taxes payable.
Calculated as current assets less current liabilities, excluding loans and borrowings.
December 31,
December 31,
2018
116,125
$
54,012
62,113
$
2017
114,694
44,944
69,750
$
$
Working capital at December 31, 2018 was $62.1 million compared to $69.8 million at December 31, 2017, a decrease of $7.7
million. The decrease in working capital was primarily due to an increase in payables as a result of the ramp up of materials
required for ongoing project execution at December 31, 2018 compared to the comparative period.
Borrowing capacity (000’s)
Bank borrowing:
Available credit facility
Drawings on credit facility
Borrowing capacity(3)
December 31,
December 31,
2018
2017
$
$
150,000
$
30,894
119,106
$
150,000
73,016
76,984
(3)
Calculated as available bank lines less drawings on credit facility.
Effective March 27, 2018, Horizon North reached an agreement with its lenders to amend its credit facility. The maturity date
was extended to September 30, 2020 to provide certainty with respect to borrowing capacity as the Corporation evaluated its
capitalization and debt structure through 2018. The credit facility has an available limit of $150.0 million and is secured by a
$400.0 million first fixed and floating charge debenture over all assets of the Corporation and its wholly-owned subsidiaries. The
interest rate is calculated on a grid pricing structure based on the Corporation’s debt to EBITDAS ratio. Debt to EBITDAS is
calculated as at the quarter end for the most recently completed calendar quarter and for the 12 months ended on such date.
Amounts drawn on the credit facility incur interest at bank prime rate plus 0.50% to 2.25% or the Bankers’ Acceptance rate plus
1.50% to 3.25%. The credit facility has a standby fee ranging from 0.34% to 0.73%.
Page | 18
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
As at December 31, 2018, the Corporation was in compliance with all financial and non-financial covenants as shown below:
Debt Covenants
Maximum Consolidated Senior debt (1) to Consolidated Adjusted EBITDAS ratio (3)(4) (must be 3.00:1.00 or less)
Maximum Consolidated Total debt (2) to Consolidated Adjusted EBITDAS ratio (3)(5) (must be 4.25:1.00 or less)
Minimum Consolidated Interest coverage ratio(6) (must be 3.00:1.00 or more)
Covenants
Calculation
December 31, 2018
0.84:1.00
0.86:1.00
12.02:1.00
(1)
(2)
(3)
(4)
(5)
(6)
Senior debt is calculated as the sum of current and long-term portions of loans and borrowings less vehicle and equipment financing.
Total debt is calculated as the sum of current and long-term portions of loans and borrowings.
EBITDAS (Earnings before interest, taxes, depreciation, amortization, share based compensation, impairment, gain/loss on disposal of property, plant and equipment, and earnings from
equity investments) is not a recognized measure under IFRS. Management believes that in addition to total profit and total comprehensive income, EBITDAS is a useful supplemental
earnings measure as it provides an indication of the Corporation’s operating performance and it is regularly provided to and reviewed by the Chief Operating Decision Maker. Horizon
North’s method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by other entities.
Senior debt to EBITDAS is calculated as the ratio of senior debt to trailing 12 months EBITDAS.
Total debt to EBITDAS is calculated as the ratio of total debt to trailing 12 months EBITDAS.
Interest coverage is calculated as the ratio of trailing 12 months EBITDAS to 12 months trailing interest expense on loans and borrowings.
Capital Spending
For the three months ended December 31, 2018, gross capital spending was $10.1 million compared to $4.9 million in the same
period of 2017. Capital spending in Q4 2018 was mainly focused on augmenting the access mat fleet to support the strong mat
rental utilization, and the set-up capital related to the mobilization and commissioning of camp facilities.
Management evaluates and manages its capital spending plans taking into account proceeds from the sale of property, plant and
equipment, resulting in net capital spending of $5.1 million for 2018 compared to $1.6 million for 2017.
For the twelve months ended December 31, 2018, gross capital spending was $38.3 million compared to $20.1 million in 2017.
Capital spending in 2018 was mainly related to the purchase of a 288-person camp facility south of Fort McMurray, Alberta,
capital required to meet contract requirements and expanding the access mat fleet as a result of higher utilization.
Management evaluates and manages its capital spending plans taking into account proceeds from the sale of property, plant and
equipment, resulting in net capital spending of $21.9 million for 2018, compared to $23.8 million of net proceeds from disposal
for 2017. The net proceeds in 2017 mainly related to the insurance claim for the loss of the Blacksand Executive Lodge and the
proceeds from the 450-person camp received in Q2 2017.
Horizon North does not currently have any material capital commitments associated with contracts to supply equipment or to
purchase property, plant and equipment. Capital spending was funded primarily from cash from operations and the credit facility.
Page | 19
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Quarterly Summary of Results
(000’s except per share amounts)
Revenue
EBITDAS
Operating earnings (loss)
Total income (loss)
Total comprehensive income (loss)
Earnings (loss) per share – basic
Earnings (loss) per share – diluted
(000’s except per share amounts)
Revenue
EBITDAS
Operating (loss) earnings
Total (loss) income
Total comprehensive (loss) income
(Loss) earnings per share – basic
(Loss) earnings per share – diluted
Three months ended
2018
2018
December
September
2018
June
118,045
$
100,022
$
93,603
$
13,654
2,240
1,413
1,413
0.01
0.01
$
$
11,710
1,308
(157)
(112)
(0.00)
(0.00)
$
$
6,886
(3,800)
(3,390)
(3,435)
(0.02)
(0.02)
$
$
Three months ended
2017
2017
December
September
2017
June
82,664
$
79,283
$
91,647
$
6,786
(4,074)
(3,885)
(3,892)
(0.03)
(0.03)
$
$
6,434
(7,514)
(6,149)
(6,144)
(0.04)
(0.04)
$
$
8,571
(2,500)
(2,949)
(2,950)
(0.02)
(0.02)
$
$
$
$
$
$
$
$
2018
March
82,575
4,433
(7,044)
(6,062)
(6,062)
(0.04)
(0.04)
2017
March
70,488
8,254
8,153
5,140
5,140
0.04
0.04
Historically, Horizon North has been primarily a provider of products and services to the resource sector with its performance
associated with the fluctuations in commodity pricing and activity levels in that sector. The previous eight quarters have been
significantly impacted by reduced demand and downward pricing pressure. The allocation of manufacturing resources between
external projects and internal fleet requirements, along with the time and costs required to deploy camp and catering fleet assets,
significantly affect the timing of revenues between the quarters and impact performance. Although there is some seasonality,
with the first quarter generally stronger, this effect can be muted or compounded by the other factors. Trending in the Industrial
Services segment was impacted by the Fort McMurray, Alberta wildfires in May 2016 and the loss of the Blacksand Executive
Lodge with the settlement of the insurance claim collected in Q1 2017 and a significant camp equipment sale that occurred in Q2
2017.
Horizon North, as a key part of its bifurcation strategy, has focused its manufacturing infrastructure on permanent modular
construction projects rather than traditional camp manufacturing. This diversification strategy has decreased the Corporation’s
exposure to commodity prices reducing volatility and providing a more stable business operation. The strategic initiative of
business transformation was a high priority in 2016 continuing and building in 2017. The momentum continued to build during
2018 in the Modular Solutions segment with a significant increase in positive earnings as a result of strong backlog growth and
increased manufacturing capacity with the acquisitions of Shelter Modular Inc., and the custom manufacturing business of C&V
Portable Accommodations Ltd.
Page | 20
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Risks and Uncertainties
Volatility of Oil, Natural Gas and Mining Industry Conditions
The demand, pricing and terms for Horizon North’s products and services depend upon the level of industry activity for oil, natural
gas and mineral exploration and development in the western Canadian provinces and territories. Industry conditions are
influenced by numerous factors over which Horizon North has no control, including: oil, natural gas and mineral prices;
expectations about future oil, natural gas and mineral prices; the cost of exploring for, producing and delivering oil, natural gas
and minerals; the expected rates of declining current production; the discovery rates of new oil, natural gas and mineral reserves;
available pipeline and other oil, natural gas transportation capacity; demand for oil, natural gas and minerals; weather conditions;
global political, military, regulatory and economic conditions; and the ability of oil, natural gas and mining companies to raise
equity capital or debt financing for exploration and development work.
Current global economic events and uncertainty have the potential to significantly impact commodity pricing, changing the
economic feasibility of industry development projects. No assurance can be given that expected trends in oil, natural gas and
mineral production activities will continue or that demand for services provided by Horizon North will reflect the level of activity
in the industry. Any prolonged substantial reduction in oil, natural gas, and mineral prices would likely affect activity levels in
these industries and therefore affect the demand for the services provided by Horizon North.
Competition
Horizon North provides products and services to oil, natural gas and mineral exploration and production companies in the western
Canadian provinces and northern territories. The service businesses in which Horizon North operates are highly competitive. To
be successful, Horizon North has to provide services that meet the specific needs of its clients at competitive prices. The principal
competitive factors in the markets in which Horizon North operates are service, quality, availability, reliability and performance
of equipment used to perform its services, technical knowledge and experience, safety records and ongoing safety programs and
price. Horizon North competes with several competitors, which offer similar services in geographic areas in which Horizon North
operates. As a result of competition, Horizon North’s business, financial condition and results of operations could be adversely
affected.
Reduced levels of activity in the oil and natural gas and mining industries can intensify competition and result in lower revenue
to Horizon North. Variations in the exploration and development budgets of oil and natural gas and mining companies, which are
directly affected by fluctuations in energy prices and mineral prices, the cyclical nature and competitiveness of the oil and natural
gas and mining industries and governmental regulation, will have an effect upon Horizon North’s ability to generate revenue and
earnings.
Horizon North’s pursuit of opportunities in permanent modular construction is in competition with other modular builders as
well as traditional site-built providers. To be successful, Horizon North must demonstrate the value proposition of modular
construction and successfully execute projects.
Credit Risk
A substantial portion of Horizon North’s trade and other accounts receivable are with customers involved in the oil, natural gas
and mining industries, whose revenues may be impacted by fluctuations in commodity prices. Collection of these receivables
could be influenced by economic factors affecting the oil and natural gas and mining industries.
Many of the Corporation’s customers require reasonable access to credit facilities and debt capital markets to finance their
projects. If the availability of credit to the Corporation’s customers is reduced, they may reduce their expenditures, thereby
decreasing demand for the Corporation’s products and services. A reduction in spending by the Corporation’s customers could
adversely affect its operating results and financial condition. During the term of a contract, Horizon North may be required to use
its working capital to fund project costs until payments are collected from the customer. A greater incidence of payment default
by clients could result in a financial loss to the Corporation that could have a material adverse effect on its operating results and
financial position.
Page | 21
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Additional Funding Requirements
Horizon North’s cash flow may not be sufficient to fund its ongoing activities at all times. From time to time, Horizon North may
require additional financing. Failure to obtain such financing on a timely basis could cause Horizon North to miss certain
acquisition opportunities or prevent further growth of its operations. If Horizon North’s revenues decrease, it will affect Horizon
North’s ability to expend the necessary capital to maintain its operations. If Horizon North’s cash flow from operations is not
sufficient to satisfy its capital expenditure requirements, there can be no assurance that additional debt or equity financing will
be available to meet these requirements or terms acceptable to Horizon North.
Labour Relations
The largest component of Horizon North’s overall expenses is salaries, wages, benefits and payments to employees, agents and
contractors. Any significant increase in these expenses could impact the financial results of Horizon North. In addition, Horizon
North will be at risk if there are any labour disruptions. Horizon North believes that it has and will continue to foster a positive
relationship with employees, agents and contractors.
Agreements and Contracts
The business operations of Horizon North depend on successful execution of contracts. The key factors which will determine
whether a client will continue to use Horizon North will be service quality, availability, reliability and performance of equipment
used to perform its services, technical knowledge, experience, safety record, ongoing safety programs and competitive pricing.
There can be no assurance that Horizon North’s relationship with its customers will continue, and a significant reduction or total
loss of the business from these customers, if not offset by sales to new or existing customers, could have a material adverse effect
on Horizon North’s business, financial condition and results of operations.
Significant Customers
The Corporation had two major customers who generated 39% of total revenues in the twelve months of 2018 compared to one
major customer who generated 10% of total revenues in 2017. There can be no assurance that Horizon North’s relationship with
its customers will continue, and a significant reduction or total loss of the business from these customers, if not offset by sales to
new or existing customers, could have a material adverse effect on Horizon North’s business, financial condition and results of
operations.
Reliance on Key Personnel
Horizon North’s success depends in large measure on certain key personnel. The loss of services of such key personnel could have
a material adverse effect on Horizon North. Horizon North does not have key person insurance in effect for management. The
contributions of these individuals to the immediate operations of Horizon North are likely to be of central importance. Investors
must rely upon the ability, expertise, judgment, discretion, integrity and good faith of the management of Horizon North.
Permits
In most cases, permits issued by government agencies are required to build residential and commercial properties and to set up
and operate remote work camp facilities. The issuance of permits is dependent upon water and waste treatment alternatives
available, road traffic volumes and fire conditions in forested areas. Failure to receive or renew permits could have a negative
impact on the business of the Camps & Catering segment and Modular Solutions.
Government Regulation
The operations of Horizon North are subject to a variety of federal, provincial and local laws of Canada, including laws and
regulations relating to health and safety, the conduct of operations, the protection of the environment, the operation of
equipment used in its operations and the transportation of materials and equipment it provides for its customers. Horizon North
invests financial and managerial resources to ensure such compliance. Although such expenditures are generally not material to
service providers, such laws or regulations are subject to change. Accordingly, it is impossible for Horizon North to predict the
cost or impact of such laws and regulations on its future operations.
Page | 22
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Environmental Regulation
The Government of Canada and provincial governments in areas where Horizon North does business have been working through
various forms of regulation and legislation focused on climate change and greenhouse gas emissions. Future federal legislation,
together with provincial emission reduction requirements may require the reduction of emissions or emissions intensity from
Horizon North’s operations and facilities and those of its customers. A number of Horizon North’s customers are involved in the
oil and natural gas exploration and development industry, with specific focus on oil sands related projects. Focus and scrutiny has
recently intensified on oil sands development, which could lead to incremental environmental regulation or legislation.
Potential changes in requirements may result in increased operating costs and capital expenditures for oil and natural gas and
mining industry participants, thereby delaying or decreasing the demand for Horizon North’s services.
Management is unable to predict the impact of potential emissions targets and it is possible that changes could adversely affect
Horizon North’s business, financial condition and results of operations. These regulations would likely result in higher operating
costs for our customers in the region, putting further pressure on project economics, and may also impair Horizon North’s ability
to provide its services economically.
Merger and Acquisition Activity
Horizon North considers acquisitions of complementary businesses and assets a part of the Corporation’s business strategy.
Achieving the benefits of acquisitions depends in part on: the acquired assets performing as expected, successfully realizing
synergies, retaining key employees and customer relationships and integrating operations in a timely and efficient manner. Such
integration may require substantial management effort, time, resources and may divert management’s focus. Any acquisition
could have a material adverse effect on operating results, financial condition and the price of the Corporation’s securities.
Aboriginal & Community Relations
A component of Horizon North’s business strategy is based on developing and maintaining positive relationships with the
Aboriginal people and communities in the areas where Horizon North operates. These relationships are important to Horizon
North’s operations and customers who desire to work on traditional Aboriginal lands. The inability to develop and maintain
relationships and to be in compliance with local requirements could adversely affect Horizon North’s business strategy, growth
and profitability.
Seasonal Operations
Each of Horizon North’s businesses are affected by the seasonality associated with western Canadian oil and natural gas drilling
industry. The Camps & Catering segment is exposed to seasonality where the busiest months are January through March and the
slowest months are April through September. The Rentals & Logistics segment is typically busiest in the spring and summer
months of April through September when soft ground conditions hinder the movement of heavy equipment. The Modular
Solutions segment is not impacted by seasonality.
Business Continuity, Disaster Recovery and Crisis Management
In the event of a serious incident, the inability to restore or replace critical capacity in a timely manner may impact Horizon
North’s business and operations. A serious incident could therefore have a material adverse effect on Horizon North’s business,
financial condition and results of operations. In the event of a major disaster, Horizon North has in place business continuity
arrangements, including disaster recovery plans and insurance coverage to minimize any losses.
Page | 23
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Cyber Security
Horizon North manages cyber security risk by ensuring appropriate technologies, processes and practices are effectively designed
and implemented to help prevent, detect and respond to threats as they emerge and evolve. The primary risks to Horizon North
include, loss of data, destruction or corruption of data, compromising of confidential customer or employee information, leaked
information, disruption of business, theft or extortion of funds, regulatory infractions, loss of competitive advantage and
reputational damage. Horizon North applies technical and process controls in line with industry-accepted standards to protect its
information assets and systems. Data backup and recovery processes are in place to minimize risk of data loss and resulting
disruption of business. Through ongoing vigilance and regular employee awareness, Horizon North has not experienced a cyber
security event of a material nature. As it is difficult to quantify the significance of such events, cyber-attacks such as, security
breaches of Corporation, customer, employee, and vendor information, as well as hardware or software corruption, failure or
error, telecommunications system failure, service provider error, intentional or unintentional personnel actions, malicious
software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in
systems, unauthorized release of confidential or otherwise protected information and the corruption of data, may in certain
circumstances be material and could have an adverse effect on Horizon North’s business, financial condition and results of
operations. As result of the unpredictability of the timing, nature and scope of disruptions from such attacks, Horizon North could
potentially be subject to: operational delays, the compromising of confidential or otherwise protected information, destruction
or corruption of data, security breaches, other manipulation or improper use of its systems and networks or financial losses, any
of which could have a material adverse effect on Horizon North’s reputation and competitive position, financial condition or
results of operations.
Trade Relations
On September 30, 2018, the United States, Mexico and Canada announced the completion of negotiations concerning the North
American Free Trade Agreement, signalling their intention to adopt a new United States-Mexico-Canada Agreement (“USMCA”).
The proposed USMCA remains subject to further legal review and the domestic ratification procedures of each of the United
States, Mexico and Canada. As the final terms and ratification of the USMCA remain uncertain, it is currently unclear how this
agreement may affect Canada and what effects the final terms will have on the Corporation.
Fort McMurray Proposed Camp Restrictions
In January 2019, the councillors of the Regional Municipality of Wood Buffalo voted in favour of imposing a moratorium on new
oilsands camps within a 75 kilometre radius of Fort McMurray. The proposed moratorium, if implemented, could negatively
impact growth opportunities, new business and revenues for the Camps & Catering segment in the Fort McMurray region.
Other Risks
Due to the nature of Horizon North’s business, it is subject to a number of regulations, environmental laws and risks associated
with lawsuits arising from accidents and claims. Horizon North manages these risks through a combination of quality
management, training and by securing insurance coverage to protect the assets of Horizon North in the event of litigation.
Changes in Accounting Policies
Horizon North’s IFRS accounting policies are provided in note 3 to the Consolidated Financial Statements as at the years ended
December 31, 2018 and 2017. As at December 31, 2018, Horizon North updated its accounting policies to include the adoption
of IFRS 9 - Financial Instruments and IFRS 15 - Revenue from Contracts with Customers transition and provided an update on the
new standard not yet adopted IFRS 16 Leases transition. The details are provided in note 3 of the Consolidated Financial
Statements as at December 31, 2018.
Critical Accounting Estimates and Judgments
This MD&A of the Corporation’s financial condition and results of operations is based on its Consolidated Financial Statements
which are prepared in accordance with International Financial Reporting Standards (IFRS). The presentation of these financial
statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of provisions at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. These estimates and judgments are based on historical experience and on
various assumptions that are believed to be reasonable under the circumstances. Anticipating future events cannot be done with
certainty, therefore these estimates may change as new events occur, more experience is acquired and as the Corporation’s
Page | 24
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
operating environment changes. The accounting estimates believed to be the most difficult, subjective or complex are the most
critical to the reporting of results of operations and financial positions. They are as follows:
Revenue recognition
The Corporation recognizes revenue over time for its construction contracts and estimates progress of these contracts by
comparing costs incurred to the total expected costs of the project. Determining the timing of the transfer of control – at a point
in time or over time – requires judgement.
Construction Receivable Estimate
The Corporation recognizes that the value of many construction contracts increases over the duration of the construction period.
Change orders may be issued by customers to modify the original contract scope of work or certain conditions may result in
possible disputes or claims regarding additional amounts owing may arise. Construction work related to a change order or claim
may proceed, and costs may be incurred, in advance of final determination of the value of the change order. As many change
orders and claims may not be settled until the end of the construction project, significant increases or decreases in revenue and
income may arise during any particular accounting period.
Collectability of receivables
The Corporation estimates the collectability of accounts receivable, including unbilled accounts receivable related to current
period service revenue. An analysis of historical bad debts, client credit-worthiness, the age of accounts receivable and current
economic trends and conditions are used to evaluate the adequacy of the allowance for doubtful accounts and the collectability
of receivables. Significant estimates must be made and used in connection with establishing the allowance for doubtful accounts
in any accounting period. Material differences may result if management made different judgments or utilized different
estimates.
Asset Retirement Obligation
The Corporation recognizes an asset retirement obligation (“ARO”) to account for future demobilization and reclamation of
specific camps. Use of an ARO requires estimates of the asset retirement costs, timing of payments, present value discount rate
and inflation rate to determine the amount recognized, in accordance with the accounting policy set out in the notes to the
Consolidated Financial Statements.
Impairment
Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, which is
the higher of its fair value less costs of disposal (“FVLCOD”) and its value in use (“VIU”). The FVLCOD calculation is based on
available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less
incremental costs for disposing of the asset. If no such transactions can be identified, an appropriate valuation model is used. The
VIU calculation is based on a discounted cash flow model. The cash flows are derived from the Corporation’s forecast and do not
include restructuring activities that the Corporation is not yet committed to or significant future investments that will enhance
the asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the discounted
cash flow model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.
The Corporation is required to make a judgment regarding the need for impairment at each reporting date by evaluating
conditions specific to the organization that may lead to the impairment of assets.
Purchase price equations
The acquired assets and assumed liabilities are generally recognized at fair value on the date the Corporation obtains control of
a business. The measurement of each business combination is based on the information available on the acquisition date. The
estimate of fair value of the acquired intangible assets and other assets and the liabilities are largely based on projected cash
flows, discount rates and market conditions at the date of acquisition. The estimate of fair value of property, plant and equipment
is based on available data from comparable sales transactions.
Page | 25
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Financial Instruments and Risk Management
(a) Overview
The Corporation is exposed to a number of different financial risks arising from the normal course of business operations as
well as through the Corporation’s financial instruments comprised of cash and cash equivalents, trade and other receivables,
trade and other payables, and loans and borrowings. These risk factors include credit risk, liquidity risk, and market risk,
including currency exchange risk and interest rate risk.
The Corporation’s risk management practices include identifying, analyzing and monitoring the risks faced by the
Corporation. The following presents information about the Corporation’s exposure to each of the risks and the Corporation’s
objectives, policies and processes for measuring and managing risk.
(b) Credit risk
Credit risk is the risk that a customer will be unable to pay amounts due causing a financial loss. The Corporation’s practice
is to manage credit risk by examining each new customer individually for credit worthiness before the Corporation’s standard
payment terms are offered. The Corporation’s review may include financial statement review, credit references, or bank
references. Customers that lack credit worthiness transact with the Corporation on a prepayment only basis.
The Corporation constantly monitors individual customer trade receivables and accrued revenue, taking into consideration
industry, aging profile, maturity, payment history and existence of previous financial difficulties in assessing credit risk. A
formal review is performed each month for each subsidiary, focusing on amounts in trade receivable and accrued revenue
which have been outstanding for periods which are considered abnormal for each customer. The Corporation establishes an
allowance for doubtful accounts for specifically identifiable customer balances which are assessed to have credit risk
exposure.
The following shows the aged balances of trade and other receivables:
(000’s)
Trade receivables
Neither impaired nor past due
Outstanding 31-60 days
Outstanding 61-90 days
Outstanding more than 90 days
Total trade receivables
Construction receivables
Neither impaired nor past due
Outstanding 31-60 days
Outstanding 61-90 days
Outstanding more than 90 days
Total construction receivables
Accrued revenue
Accrued construction revenue
Other receivables
Allowance for doubtful accounts
Total trade and other receivables
December 31,
December 31,
2018
2017
$ 16,944 $ 23,161
4,908
11,820
2,068
2,221
4,549
7,267
$ 28,469 $ 44,469
$ 13,658 $ 18,655
73
918
1,055
-
2,124
14,006
$ 16,910 $ 33,579
30,687
12,953
29,000
9,695
960
1,034
(3,059)
(2,965)
$ 102,967 $ 98,765
In the twelve months ended December 31, 2018, the Corporation provided an allowance for $3.1 million of receivables aged
greater than 90 days and collected $32,000 that had previously been allowed for. The Corporation also applied $1.1 million
of allowance for doubtful accounts against the associated receivable balance. As at March 12, 2019, the Corporation has
collected $0.6 million on amounts outstanding more than 90 days.
Page | 26
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Construction receivables represent progress billings to customers under open construction contracts, holdback amounts
billed on construction contracts which are not due until the contract work is substantially completed, amounts recognized
as revenue under open construction contracts not billed to customers and highly probable claims. At December 31, 2018,
included in construction receivables were holdbacks of $6.9 million (2017 - $0.2 million).
(c) Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting obligations associated with financial
liabilities. The Corporation believes that it has access to sufficient capital through internally generated cash flows and
committed credit facilities to meet current spending forecasts.
To manage liquidity risk, the Corporation forecasts operational results and capital spending on a regular basis. Actual results
are compared to these forecasts to monitor the Corporation’s ability to continue to meet spending forecasts.
The following shows the timing of cash outflows relating to trade and other payables and loans and borrowings:
Year 1
Year 2
Year 3
Year 4
Year 5 and beyond
December 31, 2018
December 31, 2017
Trade and
payables(1)
$
51,937
$
Loans and
borrowings(2)
$
-
Trade and
payables(1)
Loans and
borrowings(2)
37,936
$
-
4,382
30,894
-
73,016
-
-
6,276
-
424
-
-
-
6,641
63,384
$
-
$
30,894
4,941
49,153
$
-
$
73,016
(1) Trade and other payables include trade and other payables, income taxes payable, and provisions.
(2)
Loans and borrowings include non-interest-bearing notes payable and Horizon North’s senior secured revolving term credit facility. Cash flows of Horizon North’s note payable have
been recorded according to estimated utilization of specific equipment.
(d) Market risk
Market risk is the risk or uncertainty arising from possible market price movements and their impact on future performance
of the Corporation. The market price movements that could adversely affect the value of the Corporation’s financial assets,
liabilities and expected future cash flows include foreign currency exchange risk and interest rate risk. As the Corporation’s
exposure to foreign currency exchange risk and interest rate risk is limited, the Corporation does not currently hedge its
financial instruments.
(i) Foreign currency exchange risk
The Corporation has limited exposure to foreign currency exchange risk as sales and purchases are typically
denominated in CAD. The Corporation’s exposure to foreign currency exchange risk arises from the purchase of some
raw materials, which are denominated in USD, and foreign operations with USD functional currency.
As the foreign currency exchange risks are primarily based on the realized foreign exchange, the following sensitivity
analysis is to determine the impact on cash used in operating activities. The effect of a $0.01 increase in the USD/CAD
exchange rate would decrease cash used in operating activities for the twelve months ended December 31, 2018 by
approximately $62,400 (twelve months ended December 31, 2017 - $77,000). This assumes that the quantity of USD
raw material purchases and the foreign operations in the year remain unchanged and that the change in the USD/CAD
exchange rate is effective from the beginning of the year.
(ii)
Interest rate risk
The Corporation is exposed to interest rate risk as changes in interest rates may affect interest expense and future cash
flows. The primary exposure is related to the Corporation’s revolving credit facility which bears interest at a rate of
prime plus 0.50% to 2.25%. If prime were to have increased by 1.00%, it is estimated that the Corporation’s net earnings
would have decreased by approximately $0.6 million for the twelve months ended December 31, 2018 (December 31,
2017 - $0.7 million). This assumes that the amount and mix of fixed and floating rate debt in the year remains unchanged
and that the change in interest rates is effective from the beginning of the year.
Page | 27
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Outstanding Shares
Horizon North had 164,268,988 voting common shares issued and outstanding and exercisable options to purchase 5,818,549
shares for a total potential of 170,087,537 shares as at March 12, 2019.
Off-Balance Sheet Financing
Horizon North has no off-balance sheet financing.
Management’s Report on Disclosure Controls and Procedures and Internal Control over
Financial Reporting
Disclosure Controls and Procedures
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) have designed, or caused to be designed under their
supervision, disclosure controls and procedures (“DC&P”) as defined in National Instrument 52-109 of the Canadian Securities
Administrators, to provide reasonable assurance that: (i) material information relating to the Corporation is made known to the
CEO and the CFO by others, particularly during the period in which the interim filings are being prepared; and (ii) information
required to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation.
Throughout 2019, Horizon North will continue to evaluate its DC&P, making modifications from time-to-time as deemed
necessary. There were no changes in Horizon North’s DC&P that occurred during the period ended December 31, 2018 that have
materially affected, or are reasonably likely to materially affect, Horizon North’s DC&P.
Internal Controls Over Financial Reporting
The CEO and the CFO have designed, or caused to be designed under their supervision, internal controls over financial reporting
(“ICFR”) as defined in National Instrument 52-109 of the Canadian Securities Administrators, in order to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with IFRS.
There were no changes to the Corporation’s ICFR during the period ended December 31, 2018 that have materially affected, or
are reasonably likely to materially affect, the Corporation’s ICFR.
In accordance with the requirements of NI 52-109, an evaluation of the effectiveness of DC&P and ICFR was carried out under
the supervision of the CEO and CFO at December 31, 2018. Based on this evaluation, the CEO and CFO have concluded that the
Corporation’s DC&P and ICFR were effective as at December 31, 2018.
Limitations on the Effectiveness of Disclosure Controls and Procedures and Internal Control over Financial
Reporting
Because of their inherent limitations, DC&P and ICFR may not prevent or detect misstatements, errors or fraud. Control systems,
no matter how well conceived or implemented, can provide only reasonable, not absolute, assurance that the objectives of the
control systems are met.
Page | 28
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Non-GAAP measures
Certain measures in this MD&A do not have any standardized meaning as prescribed by generally accepted accounting principles
(“GAAP”) and, therefore, are considered non-GAAP measures. These measures are regularly reviewed by the Chief Operating
Decision Maker and provide investors with an alternative method for assessing the Corporation’s operating results in a manner
that is focused on the performance of the Corporation’s ongoing operations and to provide a more consistent basis for
comparison between periods. These measures should not be construed as alternatives to total profit and total comprehensive
income determined in accordance with GAAP as an indicator of the Corporation’s performance. The method of calculating these
measures may differ from other entities and accordingly, may not be comparable to measures used by other entities. The
following non-GAAP measures are used to monitor the Corporation’s performance:
EBITDAS: Earnings before interest, taxes, depreciation, amortization, impairment, gain/loss on disposal of property, plant
and equipment and share based compensation (“EBITDAS”). Management believes that in addition to total profit and total
comprehensive income, EBITDAS is a useful supplemental earnings measure as it provides an indication of the Corporation’s
operating performance and it is regularly provided to and reviewed by the Chief Operating Decision Maker.
Debt to total capitalization: Calculated as the ratio of debt to total capitalization. Debt is defined as the sum of current and
long-term portions of loans and borrowings. Total capitalization is calculated as the sum of debt and shareholders’ equity.
Reconciliation of non-GAAP measures
The following provides a reconciliation of non-GAAP measures to the nearest measure under GAAP for items presented
throughout the MD&A.
EBITDAS
(000’s)
Total income (loss)
Add:
Share based compensation
Depreciation & amortization
Finance costs
Three months ended December 31,
Twelve months ended December 31,
2018
2017
2018
2017
$ 1,413
$ (3,885)
$ (8,196)
$ (7,843)
678
361
2,751
1,174
10,192
10,445
41,289
43,443
374
533
2,894
2,824
Impairment loss on re-measurment of assets held for sale
-
-
-
3,457
Loss (gain) on disposal of property, plant and equipment
544
54
(61)
(12,094)
Earnings from equity investments
Income tax expense (recovery)
EBITDAS
Related Parties
(000's)
Joint venture
Recovery of administrative overhead
Key management personnel interests
Sales
Included in accounts receivable
-
(105)
(67)
-
453
(617)
(1,927)
(916)
$
13,654
$
6,786
$
36,683
$
30,045
December 31,
December 31,
2018
2017
$
- $ 60
$ 256 $ 1,264
84
140
The Corporation earned revenue during the year ended December 31, 2018 of $0.3 million (2017 – $0.1 million) for catering
services provided to Trican Well Service Ltd., of which a director of the Corporation is a Director. There was $0.1 million (2017 -
$nil) included in trade receivables as at December 31, 2018.
All related party transactions are in the normal course of operations and have been measured at the agreed exchange amounts,
which is the amount of consideration established and agreed to by the related parties and is similar to those negotiated with
third parties. All outstanding balances are to be settled with cash, and none of the balances are secured.
Page | 29
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
Advisories
This Management’s Discussion and Analysis, prepared as at December 31, 2018, focuses on key statistics from the Consolidated
Financial Statements and pertains to known risks and uncertainties relating to the business carried on by Horizon North. This
discussion should not be considered all-inclusive, as it does not attempt to include changes that may occur in general economic,
political and environmental conditions. Additional information related to the Corporation, including the Corporation’s annual
information form, is available on SEDAR at www.sedar.com. Unless otherwise indicated, the Consolidated Financial Statements
have been prepared in accordance with International Financial Reporting Standards and the reporting currency is in Canadian
dollars.
Caution Regarding Forward-Looking Statements and Information
Certain statements contained in this MD&A constitute forward-looking statements or information (“forward-looking
statements”). These statements relate to future events or future performance of Horizon North. All statements other than
statements of historical fact are forward-looking statements. The use of any of the words “anticipate”, “plan”, “continue”,
“estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “should”, “believe” and similar expressions are intended to
identify forward-looking statements.
In particular, such forward-looking statements include:
Under the heading “Annual Key Comments” the statements that:
•
“The Modular Solutions business improved significantly in 2018 achieving positive EBITDAS and increasing by $25.1 million
compared to 2017. Backlog exiting the year was $88.8 million compared to $43.9 million in 2017 with the funnel of high-
quality, high probability opportunities also increasing, closing 2018 approximately $290.0 million compared to $148.0 million
exiting 2017; and
•
Horizon North continued its dividend policy and paid its 29th consecutive quarterly dividend”
Under the heading “Outlook” the statement that:
“In 2019, Horizon North will continue to diversify both its portfolio of offerings and customer base through a focus on its two
operating divisions: Industrial Services and Modular Solutions.
Industrial Services
In 2019, Horizon North will continue to leverage its reputation as a leading provider of turn-key camp, hospitality, access and
maintenance solutions with focus on the following four key areas:
• Oil Sands – Horizon North expects to leverage its operational footprint and history, along with two prominent
relationships with Aboriginal communities north and south of Fort McMurray, to pursue full turn-key opportunities as
well as catering and hospitality opportunities in customer-owned facilities;
• Montney/Duvernay – Horizon North is the largest provider of open camp services in this area and is a market leader in
providing catering and hospitality services in customer-owned facilities. Horizon North will continue to leverage existing
assets and relationships while looking to develop additional areas of opportunity to support ongoing activity in this
area;
• Northern Canada – Horizon North has a long history and expertise in providing hospitality, management and
maintenance services across Canada’s northern regions. In 2019, Horizon North will continue to focus on developing
and expanding its capabilities and footprint across Canada’s highly variable and remote northern regions; and
• West Coast – Horizon North initiated the first phase of development on its 57-acre parcel of land located at the entrance
to Kitimat, British Columbia in late 2018. In 2019, Horizon North expects to open the first phase of its world-class
Crossroads open lodge with 260 beds ready in the spring and plans to expand to a potential 1,000 beds as activity in
the region grows.
Modular Solutions
For 2019, Horizon North’s focus is to continue to grow its backlog of modular construction projects and drive economies of scale
in our facilities and project execution capabilities. Horizon North will continue to focus on hotel development, multi-family
residential development and social, student and senior infrastructure development. Horizon North completed two acquisitions
Page | 30
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
in 2018 to provide additional capacity in western Canada and is actively investigating opportunities to expand its geographic
footprint to service other areas of Canada with strong demand profiles for our unique construction model.
Statement of Financial Position
The strength of the Statement of Financial Position remains a key priority and Horizon North took several steps in 2018 to
significantly reduce its overall debt and leverage position. This strong position will allow Horizon North to undertake an expanded
capital program in 2019 with a budget of $50.4 million focused on its Crossroads open lodge project in Kitimat, BC, refreshing and
providing the ability for moderate growth of its matting rental fleet and supporting the expanding Modular Solutions business.”
Under the heading “Dividend Payment” regarding the payment of a dividend to shareholders of record at the close of business
on March 31, 2019 to be paid on April 15, 2019.
Under the heading “Modular Solutions” the statement that:
“A key metric for the Modular Solutions segment is the backlog of projects and timing of backlog execution. Currently, the focus
for this business unit is to secure and increase backlog, which was $88.8 million at the end of 2018 compared to $43.9 million at
the end of 2017.”
Under the heading “Liquidity and Capital Resources” the statement that:
“The maturity date was extended to September 30, 2020 to provide certainty with respect to borrowing capacity as the
Corporation evaluated its capitalization and debt structure through 2018.”
Under the heading “Quarterly Summary of Results” the statement that:
“Horizon North, as a key part of its bifurcation strategy, has focused its manufacturing infrastructure on permanent modular
construction projects rather than traditional camp manufacturing. This diversification strategy has decreased the Corporation’s
exposure to commodity prices reducing volatility and providing a more stable business operation.”
The forward-looking statements and information are based on certain assumptions made by Horizon North which include, but
are not limited to, assumptions relating to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
industry activity for oil, natural gas and mineral exploration and development in the western Canadian provinces and
northern territories;
commodity prices;
the impacts of a positive FID from LNG Canada with respect to the Kitimat LNG project;
capital investment in the Canadian oil and gas sector;
dividend payments;
anticipated activity levels for 2019;
operational results and capital spending;
anticipated backlog in the Modular Solutions business;
trade and other receivables;
future operating costs and Corporation’s access to capital;
the effects of regulation by governmental agencies;
the competitive environment in which the Corporation operates;
the ability of the Corporation to attract and retain personnel;
the development of LNG and commodity transportation infrastructure;
the relationships between the Corporation and its customers; and
general economic and financial conditions.
Although Horizon North believes that the expectations and assumptions on which the forward-looking statements are based are
reasonable, undue reliance should not be placed on the forward-looking statements because Horizon North cannot give any
assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their
very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated
due to a number of known and unknown risks and uncertainties. Such risks and uncertainties include, but are not limited to, the
following:
•
•
volatility in the price and demand for oil, natural gas and minerals;
fluctuations in the demand for the Corporation’s services;
Page | 31
Management’s Discussion and Analysis
Three months and years ended December 31, 2018 and 2017
•
•
•
availability of qualified personnel;
changes in regulation by governmental agencies, including environmental regulation; and
other factors listed under “Risks and Uncertainties” in this MD&A and other risk factors identified in the Corporation’s annual
information form.
Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Additional information on these and
other risk factors that could affect Horizon North’s operations and financial results are included in Horizon North’s annual
information form which may be accessed through the SEDAR website at www.sedar.com. In addition, the reader is cautioned
that historical results are not indicative of future performance. The forward-looking statements and information contained in this
MD&A are made as of the date hereof and Horizon North does not undertake any obligation to update publicly or revise any
forward-looking statements and information, whether as a result of new information, future events or otherwise, unless so
required by applicable securities laws.
Certain information set out herein may be considered as “financial outlook” within the meaning of applicable securities laws. The
purpose of this financial outlook is to provide readers with disclosure regarding Horizon North’s reasonable expectations as to
the anticipated results of its proposed business activities for the periods indicated. Readers are cautioned that the financial
outlook may not be appropriate for other purposes.
Page | 32
Management’s Report to Shareholders
The accompanying consolidated financial statements of Horizon North Logistics Inc. (“Horizon North” or the “Corporation”) have
been approved by the Board of Directors (the “Board”) of Horizon North and have been prepared by management in accordance
with International Financial Reporting Standards. Financial statements will, by necessity, include certain amounts based on
estimates and judgments. The financial information contained throughout this report has been reviewed to ensure consistency
with these consolidated financial statements.
Management has overall responsibility for internal controls and maintains accounting systems designed to provide reasonable
assurance that transactions are properly authorized, assets safeguarded and that the financial records form a reliable base for
the preparation of accurate and timely financial information. The Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of disclosure controls and procedures and internal controls over financial reporting and have
concluded that they are effective.
The Board oversees the management of the business and affairs of Horizon North; including ensuring management fulfills its
responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The
Board carries out this responsibility principally through its Audit Committee, which consists of four independent directors. An
independent firm of chartered accountants, appointed as external auditor by the shareholders, has audited the consolidated
financial statements and its report is included herein. The Audit Committee has reviewed the consolidated financial statements
with management and the external auditor.
Rod Graham
President and
Chief Executive Officer
March 12, 2019
Scott Matson
Senior Vice President Finance and
Chief Financial Officer
Page | 33
KPMG LLP
205 5th Avenue SW
Suite 3100
Calgary AB T2P 4B9
Tel (403) 691-8000
Fax (403) 691-8008
www.kpmg.ca
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Horizon North Logistics Inc.
Opinion
We have audited the consolidated financial statements of Horizon North Logistics Inc. (the "Company"),
which comprise:
•
•
•
•
the consolidated statements of financial position as at December 31, 2018 and December 31, 2017;
the consolidated statements of comprehensive income (loss) for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended;
• and notes to the consolidated financial statements, including a summary of significant accounting
policies.
Hereinafter referred to as the “financial statements”.
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Company as at December 31, 2018 and December 31, 2017, and its
consolidated financial performance and its consolidated cash flows for the years then ended in accordance
with International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit
of the Financial Statements” section of our auditors’ report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
Page | 34
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in Management’s Discussion and Analysis to be filed with the relevant
Canadian Securities Commissions;
the information, other than the financial statements and the auditors’ report thereon, including in a
document likely to be entitled “2019 Annual Report”.
Our opinion on the financial statements does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
We obtained the Management’s Discussion and Analysis to be filed with the relevant Canadian Securities
Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other
information, we conclude that there is a material misstatement of this other information, we are required to
report that fact in the auditors’ report. We have nothing to report in this regard.
Information, other than the financial statements and the auditors’ report thereon, included in a document
likely to be entitled “2018 Annual Report” is expected to be made available to us after the date of this
auditors’ report. If, based on the work we will perform on this other information, we conclude that there is
a material misstatement of this other information, we are required to report that fact to those charged with
governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company‘s financial reporting process.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
Page | 35
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes
our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion.
• The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company's ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report
to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’
report. However, future events or conditions may cause the Company to cease to continue as a going
concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represents the underlying transactions and events in
a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
Page | 36
• Provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other matters
that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group Company to express an opinion on the financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
The engagement partner on the audit resulting in this auditors’ report is Reinier Deurwaarder.
Chartered Professional Accountants
Calgary, Canada
March 12, 2019
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
Page | 37
Consolidated statements of financial position
(000’s)
Assets
Current assets:
December 31,
December 31,
2018
2017
Trade and other receivables (Note 12)
$
102,967
$
98,765
Inventories (Note 13)
Prepayments
Income taxes receivable
Total current assets
Non-current assets:
Property, plant and equipment (Note 14)
Intangible assets (Note 15)
Goodwill (Note 15)
Other assets (Note 16)
Total non-current assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Trade and other payables
Deferred revenue (Note 6)
Income taxes payable
Current portion of asset retirement obligations (Note 18)
Finance lease liabilities
Total current liabilities
Non-current liabilities:
Asset retirement obligations (Note 18)
Loans and borrowings (Note 17)
Deferred tax liabilities (Note 11)
Total liabilities
Shareholders’ equity:
Share capital (Note 20)
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Total shareholders’ equity
$
$
8,782
4,376
-
7,427
5,437
3,065
116,125
114,694
327,123
1,599
24,792
2,771
356,285
338,122
4,348
20,545
2,041
365,056
472,410
$
479,750
48,113
$
2,075
1,217
1,835
772
54,012
11,447
30,894
39,314
33,001
7,008
-
3,347
1,588
44,944
11,217
73,016
45,509
135,667
174,686
338,377
17,195
761
(19,590)
336,743
286,754
16,181
761
1,368
305,064
Total liabilities and shareholders’ equity
$
472,410
$
479,750
The accompanying notes are an integral part of the consolidated financial statements.
Ann Rooney
Director
Rod Graham
Director
Page | 38
Consolidated statements of comprehensive loss
Years ended December 31, 2018 and 2017
(000’s except per share amounts)
Revenue (Note 6)
Operating expenses:
Direct costs (Note 7)
Depreciation (Note 14)
Amortization of intangible assets (Note 15)
Impairment loss on re-measurement of assets held for sale
Share based compensation (Note 20)
Gain on disposal of property, plant and equipment
Direct operating expenses
Gross profit
Selling & administrative expenses:
Selling & administrative expenses (Note 8)
Share based compensation (Note 20)
Selling & administrative expenses
Operating loss
Finance costs
Earnings from equity investments
Loss before tax
Current tax expense (recovery)
Deferred tax (recovery) expense
Income tax recovery (Note 11)
Total loss
Other comprehensive income:
Translation of foreign operations
Other comprehensive loss, net of income tax
Total comprehensive loss
Loss per share:
Basic and Diluted (Note 21)
The accompanying notes are an integral part of the consolidated financial statements.
December 31,
December 31,
2018
2017
$
394,245
$
324,082
335,956
38,540
2,749
-
1,382
(61)
378,566
15,679
21,606
1,369
22,975
(7,296)
2,894
(67)
(10,123)
1,004
(2,931)
(1,927)
(8,196)
-
-
272,626
40,701
2,742
3,457
659
(12,094)
308,091
15,991
21,411
515
21,926
(5,935)
2,824
-
(8,759)
(3,673)
2,757
(916)
(7,843)
(3)
(3)
$
$
(8,196)
$
(7,846)
(0.05)
$ (0.05)
Page | 39
Consolidated statements of changes in equity
(000’s)
Balance at December 31, 2016
Total loss
Share based compensation (Note 20)
Share options exercised (Note 20)
Translation of foreign operations
Dividends (Note 22)
Share
Capital
286,674
$
Contributed
Surplus
15,465
$
$
Accumulated
Other
Comprehensive
Income
764
$
-
-
-
-
80
-
734
(18)
-
-
-
-
-
-
(3)
Balance at December 31, 2017
$
286,754
$
16,181
$
761
$
Total loss
Share based compensation (Note 20)
Share options exercised (Note 20)
Issue of share capital (Note 20)
Share issue costs, net of tax (Note 20)
Dividends (Note 22)
-
-
181
53,330
(1,888)
-
-
1,047
(33)
-
-
-
-
-
-
-
-
-
Retained
Earnings
20,784
$
Total
323,687
(7,843)
(7,843)
-
-
-
(11,573)
1,368
$
(8,196)
-
-
-
-
(12,762)
734
62
(3)
(11,573)
305,064
(8,196)
1,047
148
53,330
(1,888)
(12,762)
Balance at December 31, 2018
$
338,377
$
17,195
$
761
$
(19,590)
$
336,743
The accompanying notes are an integral part of the consolidated financial statements.
Page | 40
Consolidated statements of cash flows
Years ended December 31, 2018 and 2017
(000’s)
Cash provided by (used in):
Operating activities:
Loss for the period
Adjustments for:
Depreciation (Note 14)
Amortization of intangible assets (Note 15)
Share based compensation (Note 20)
Amortization of other assets (Note 16)
Gain on disposal of property, plant and equipment
Book value of used fleet sales
Earnings on equity investments
Impairment loss on re-measurement of assets held for sale
Unrealized foreign exchange loss
Finance costs
Income tax recovery (Note 11)
Asset retirement obligation settled (Note 18)
Income taxes paid
Interest paid
Funds flow
Changes in non-cash working capital items (Note 27)
Net cash flows from operating activities
Investing activities:
Purchase of property, plant and equipment (Note 14)
Proceeds on disposal of property, plant and equipment
Business acquisition, net of cash acquired (Note 5)
Net cash flows used in investing activities
Financing activities:
Shares issued, net of share issue costs (Note 20)
Finance lease liabilities
Repayment of loans and borrowings
Payment of dividends (Note 22)
Net cash flows used in financing activities
Change in cash position
Cash, beginning of period
Cash, end of period
The accompanying notes are an integral part of the consolidated financial statements.
December 31,
2018
December 31,
2017
$
(8,196)
$
(7,843)
38,540
2,749
2,751
128
(61)
8,201
(67)
-
-
2,894
(1,927)
(5,424)
3,136
(3,039)
39,685
(2,143)
37,542
(30,859)
7,994
(4,622)
(27,487)
47,561
(1,804)
(43,441)
(12,371)
(10,055)
-
-
-
$
$
40,701
2,742
1,174
128
(12,094)
21,000
-
3,457
(5)
2,824
(916)
(441)
7,570
(2,989)
55,308
(40,582)
14,726
(15,596)
13,240
(197)
(2,553)
62
1,588
(2,252)
(11,571)
(12,173)
-
-
-
Page | 41
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
1. Reporting Entity
Horizon North Logistics Inc. (“Horizon North” or the “Corporation”) is a corporation registered and domiciled in Canada and
is a publicly-traded corporation, listed on the Toronto Stock Exchange under the symbol HNL. The Corporation’s registered
offices are at 900, 240-4th Avenue SW, Calgary, AB T2P 4H4. The consolidated financial statements of the Corporation as at
and for the year ended December 31, 2018 comprise of the Corporation and its subsidiaries and the Corporation’s interest
in associates and jointly controlled entities. Horizon North provides a full range of industrial, commercial, and residential
products and services. Industrial services include workforce accommodations, camp management services, access solutions,
maintenance and utilities. The Corporation’s 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.
2. Basis of Presentation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”).
The consolidated financial statements were authorized for issue by the Board of Directors on March 12, 2019.
(b) Basis of measurement
The consolidated financial statements have been prepared using the historical cost basis. Certain prior period amounts
have been amended to conform to current period presentation.
(c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Corporation and subsidiaries’
functional currency with the exception of a United States (“US”) operational entity which has a US dollar functional
currency.
(d) Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses. The judgments, estimates and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual outcomes may differ from these estimates.
The judgments, estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the
period of the revision and future periods if the revision affects both current and future periods.
The judgments, estimates and assumptions that have the most significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities recognized in the consolidated financial statements are as follows:
Estimates
•
•
Revenue Recognition Estimate – The Corporation recognizes revenue over time for its construction contracts and
estimates progress of these contracts by comparing costs incurred to the total expected costs of the project.
Construction Receivable Estimate – The Corporation recognizes that the value of many construction contracts
increases over the duration of the construction period. Change orders may be issued by customers to modify the
original contract scope of work or conditions resulting in possible disputes or claims regarding additional amounts
owing may arise. Construction work related to a change order or claim may proceed, and costs may be incurred,
in advance of final determination of the value of the change order. As many change orders and claims may not be
settled until the end of the construction project, significant increases or decreases in revenue and income may
arise during any particular accounting period.
Page | 42
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
2. Basis of Presentation (continued)
(d) Use of estimates and judgments (continued)
Estimates (continued)
•
•
•
•
Collectability of receivables – The Corporation estimates the collectability of accounts receivable, including
unbilled accounts receivable related to current period service revenue. An analysis of historical bad debts, client
credit-worthiness, the age of accounts receivable and current economic trends and conditions are used to evaluate
the adequacy of the allowance for doubtful accounts and the collectability of receivables. Significant estimates
must be made and used in connection with establishing the allowance for doubtful accounts in any accounting
period. Material differences may result if management made different judgments or utilized different estimates.
Asset Retirement Obligation (“ARO”) – The Corporation recognizes an asset retirement obligation to account for
future demobilisation and reclamation of specific camps. Use of an ARO requires estimates of the asset retirement
costs, timing of payments, present value discount rate and inflation rate to determine the amount recognized in
accordance with the accounting policy set out in Note 3(i).
Impairment – Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) exceeds its
recoverable amount, which is the higher of its fair value less costs of disposal (“FVLCOD”) and its value in use
(“VIU”). The FVLCOD calculation is based on available data from binding sales transactions, conducted at arm’s
length, for similar assets or observable market prices less incremental costs for disposing of the asset. If no such
transactions can be identified, an appropriate valuation model is used. The VIU calculation is based on a discounted
cash flow model. The cash flows are derived from the Corporation’s forecast and do not include restructuring
activities that the Corporation is not yet committed to or significant future investments that will enhance the
asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for
the discounted cash flow model as well as the expected future cash-inflows, gross margin and EBITDAS
assumptions and the growth rate used for extrapolation purposes.
Purchase price equations – the acquired assets and assumed liabilities are generally recognized at fair value on the
date the Corporation obtains control of a business. The measurement of each business combination is based on
the information available on the acquisition date. The estimate of fair value of the acquired intangible assets and
other assets and the liabilities are largely based on projected cash flows, discount rates and market conditions at
the date of acquisition. The estimate of fair value of property, plant and equipment is based on available data from
comparable sales transactions.
Judgments
•
•
Impairment – The Corporation is required to make a judgment regarding the need for impairment testing at each
reporting date by evaluating conditions specific to the organization that may lead to the impairment of assets.
Revenue Recognition – The Corporation is required to make a judgment in determining the timing of the transfer
of control– at a point in time or over time - for the recognition of revenue.
Page | 43
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Corporation. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases. The
accounting policies of subsidiaries are aligned with the policies adopted by the Corporation. Acquisitions of non-
controlling interests are accounted for as transactions with equity holders in their capacity as equity holders;
therefore, no goodwill is recognized as a result of such transactions.
(ii) Special purpose entities
The Corporation has established a number of special purpose entities (“SPE”) for operating purposes. An SPE is
consolidated when, based on an evaluation of the substance of its relationship with the Corporation and the SPEs’
risks and rewards, the Corporation concludes that it controls the SPE. SPEs controlled by the Corporation were
established under terms that impose strict limitations on the decision-making powers of the SPEs’ management
and that result in the Corporation receiving the majority of the benefits related to the SPEs’ operations and net
assets, being exposed to the majority of risks incident to the SPEs’ activities, and retaining the majority of the
residual or ownership risks related to the SPEs or their assets.
(iii) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from
transactions with equity accounted investees are eliminated against the investment to the extent of the
Corporation’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but
only to the extent that there is no evidence of impairment.
(b) Business combinations
Business combinations are accounted for using the acquisition method. Determining whether an acquisition meets the
definition of a business combination or represents an asset purchase requires judgment on a case by case basis. If the
acquisition meets the definition of a business combination, the assets acquired and assumed liabilities are classified or
designated based on the contractual terms, economic conditions, the Corporation’s operating and accounting policies,
and other factors that exist on the acquisition date. The acquired identifiable net assets are measured at their fair value
at the date of acquisition. Any excess of the purchase price over the fair value of the net assets acquired is recognized
as goodwill.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Corporation incurs
in connection with a business combination are expensed as incurred.
(c) Financial instruments
Effective January 1, 2018, the Corporation adopted IFRS 9 - Financial Instruments, which replaced IAS 39 - Financial
Instruments: Recognition and Measurement. The adoption of IFRS 9 did not have a material impact on the Corporation’s
Consolidated Financial Statements.
IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value
through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVTPL”). The previous IAS 39
categories of held to maturity, loans and receivables and available for sale are eliminated. The classification of financial
assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual
cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the
standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.
Page | 44
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies (continued)
(c) Financial instruments (continued)
Impairment of financial assets: IFRS 9 replaces the “incurred loss” model in IAS 39 with an “expected credit loss” model.
The new impairment model applies to financial assets measured at amortized cost, and contract assets and debt
instruments at FVOCI. Under IFRS 9, credit losses are recognized earlier than IAS 39.
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities.
The differences between the two standards did not impact the Corporation at the time of transition. The adoption of
IFRS 9 has not had a significant effect on the Corporation’s accounting policies related to financial liabilities.
Financial Instrument
Trade and other receivables
Trade and other payables
Loans and borrowings
(i) Non-derivative financial assets
IAS 39 Category
Loans and receivables
Other financial liabilities
Other financial liabilities
IFRS 9 Category
Amortized cost
Amortized cost
Amortized cost
The initial classification of a financial asset depends upon the Corporation’s business model for managing its
financial assets and the contractual terms of the cash flows. There are three measurement categories into which
the Corporation classified its financial assets:
•
•
•
Amortized Cost: Includes assets that are held within a business model whose objective is to hold assets to
collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that
represent solely payments of principal and interest;
FVOCI: Includes assets that are held within a business model whose objective is achieved by both collecting
contractual cash flows and selling the financial assets, where its contractual terms give rise on specified dates
to cash flows that represent solely payments of principal and interest; or
FVTPL: Includes assets that do not meet the criteria for amortized cost or FVOCI and are measured at fair
value through profit or loss. This includes all derivative financial assets.
The Corporation initially recognizes trade and other receivables on the date that they originate. All other financial
assets are recognized initially on the trade date at which the Corporation becomes a party to the contractual
provisions of the instrument.
The Corporation’s financial assets, trade and other receivables, are initially recognized at fair value plus any directly
attributable transaction costs. Subsequently, loans and receivables are measured at amortized cost using the
effective interest method, less any impairment losses.
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the asset expire,
or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in
transferred financial assets that is created or retained is recognized as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when,
and only when, there is a legal right to offset the amounts and the Corporation intends either to settle on a net
basis or to realize the asset and settle the liability simultaneously.
(ii) Non-derivative financial liabilities
The Corporation’s financial liabilities are categorized as measured at amortized cost.
The Corporation initially recognizes debt securities issued and subordinated liabilities on the date that they are
originated. All other financial liabilities are recognized initially on the trade date at which it becomes a party to the
contractual provisions of the instrument.
The Corporation derecognizes a financial liability when its contractual obligations are discharged, cancelled or
expire.
Page | 45
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies (continued)
(c) Financial instruments (continued)
(ii) Non-derivative financial liabilities (continued)
Bank overdrafts that are repayable on demand and form an integral part of the Corporation’s cash management
are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition these financial liabilities are measured at amortized cost using the effective interest method.
(iii) Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and
share options are recognized as a deduction from equity, net of any tax effects.
(d) Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset, acquisition costs including
the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working
condition for their intended use, the costs of dismantling and removing the items and restoring the site on which
they are located, and borrowing costs on qualifying assets.
Costs related to assets under construction are capitalized when incurred. Assets under construction are not
depreciated until they are completed and available for use in the manner intended by management. When this
occurs, the asset is transferred to property, plant and equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the
proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized net within
operating expenses in profit or loss.
Proceeds from the sale of rental equipment that is routinely sold before the end of its useful life are included in
revenue and net cash flows from operating activities. The investments in the acquisition or manufacturing of
rental equipment is also included in net cash flows from operating activities if the assets are expected to be
predominantly sold before the end of their useful life, otherwise the investments are included in net cash flows
from investing activities.
(ii) Subsequent costs
The cost of replacing a major component of an item of property, plant and equipment is recognized in the carrying
amount of the item if it is probable that the future economic benefits embodied within the part will flow to the
Corporation, and its cost can be measured reliably. The carrying amount of the replaced major component is
derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or
loss as incurred.
(iii) Depreciation
Depreciation is calculated using the depreciable amount, which is the cost of an asset, less its residual value.
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of
an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of
the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease
term and their useful lives unless it is reasonably certain that the Corporation will obtain ownership by the end of
the lease term.
Page | 46
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies (continued)
(d) Property, plant and equipment (continued)
(iii) Depreciation (continued)
The estimated useful lives for the current and comparative periods are as follows:
Assets
Camp facilities
Camp setup & installation
Buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligation
Method
Residual Value
Useful life
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
20%
-
-
-
-
-
-
15 years
2 to 5 years
20 years
4 to 8 years
6 years
2 to 10 years
1 to 9 years
Depreciation methods, useful lives, and residual values are reviewed at each financial year end and adjusted if
appropriate. Land and assets under construction are not depreciated.
(e)
Intangible assets
(i) Goodwill
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures. Goodwill is measured at cost less
accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is
included in the carrying amount of the investment. Goodwill is not amortized but is tested at least annually for
impairment.
(ii) Assets acquired in business combinations
Non-operating intangible assets are intangible assets that are acquired as a result of a business combination, which
arise from contractual or other legal rights and are transferable or separable. On initial recognition they are
measured at fair value. Amortization is charged on a straight line basis to the statement of comprehensive income
over their expected useful lives which are:
Trade names
Architectural design
Customer contracts
Estimated useful lives
7 years
5 years
2.5 years
Amortization methods, useful lives, and residual values are reviewed at each financial year-end and adjusted if
appropriate.
(f)
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on a weighted
average or standard cost principle and includes expenditures incurred in acquiring the inventories, production or
conversion costs, and other costs in bringing them to their existing location and condition. In the case of manufactured
inventories and work-in-progress, cost includes an appropriate share of production overheads based on normal
operating capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.
Page | 47
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies (continued)
(g)
Impairment
(i) Financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine
whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates
that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect
on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets (including equity securities) are impaired can include default or
delinquency by a debtor, restructuring of an amount due to the Corporation on terms that the Corporation would
not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active
market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its
fair value below its cost is objective evidence of impairment.
The Corporation considers evidence of impairment for loans and receivables at both a specific asset and collective
level. All individually significant loans and receivables are assessed for specific impairment. All individually
significant loans and receivables found not to be specifically impaired are then collectively assessed for any
impairment that has been incurred but not yet identified. Loans and receivables that are not individually significant
are collectively assessed for impairment by grouping together receivables with similar risk characteristics.
An impairment loss in respect of a financial asset measured at amortized cost is calculated using the “expected
credit loss” model and recognizes expected credit losses as a loss allowance. The Corporation recognizes an
amount equal to the lifetime expected credit losses based on the Corporation’s historical experience and including
forward-looking information. The carrying amount of these assets in the consolidated statement of financial
position is net of any loss allowance. When a subsequent event causes the amount of impairment loss to decrease,
the decrease in impairment loss is reversed through profit or loss.
(ii) Non-financial assets
The carrying amounts of the Corporation’s non-financial assets, other than inventories and deferred tax assets are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication
exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite
useful lives or assets that are not yet available for use, the recoverable amount is estimated each year at the same
time.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs of disposal. In
assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into
the smallest group of assets that generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the CGU). The corporation has identified four CGUs: Camps and
Catering, Matting, Relocatable Structures, and Manufacturing. For the purposes of goodwill impairment testing,
goodwill acquired in a business combination is allocated to the CGU or group of CGUs that are expected to benefit
from the synergies of the business combination. This allocation is subject to an operating segment ceiling test and
reflects the lowest level at which that goodwill is monitored for internal reporting purposes.
The Corporation’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate
asset may be impaired, then the recoverable amount is determined for the group of CGUs to which the corporate
asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable
amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are
allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying
amounts of the other assets in the unit (group of units), on a pro rata basis.
Page | 48
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies (continued)
(g)
Impairment (continued)
(ii) Non-financial assets (continued)
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized
in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.
Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately, and
therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is
tested for impairment as a single asset when there is objective evidence that an impairment may exist.
(h) Employee benefits
(i) Defined contribution plan
The Corporation’s defined contribution plan is a post-employment benefit plan under which the Corporation pays
fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts.
Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in profit
or loss when they are due.
(ii) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related
service is provided. A liability is recognized for the amount expected to be paid under the short-term cash bonus
plans if the Corporation has a present legal or constructive obligation to pay this amount as a result of past service
provided by the employee and the obligation can be estimated reliably.
(iii) Share based compensation transactions
Equity-settled transactions
The grant date fair value of share-based compensation awards granted to officers and employees is recognized as
an expense, with a corresponding increase in equity, over the period that the employees unconditionally become
entitled to the awards (vesting period). The amount recognized as an expense is adjusted to reflect the number of
awards for which the related service and non-market vesting conditions are expected to be met, such that the
amount ultimately recognized as an expense is based on the number of awards that do meet the related service
and non-market performance conditions at the vesting date.
Cash-settled transactions
The Corporation has a Restricted Share Unit (“RSU”) plan for its eligible officers and employees. The fair value of
the amount payable to officers and employees in respect of the RSUs, for which the participants are eligible to
receive an equivalent cash value of the common shares at a future date, is recognized as an expense with a
corresponding increase in liabilities over the period that the employees and officers provide the related service
and become entitled to payment. The liability is re-measured at each reporting date and at the settlement date.
Any changes in the fair value of the liability are recognized as selling & administrative expenses in profit or loss.
(i) Provisions
A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax risk-free rate that
reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of
the discount is recognized as finance cost. As at December 31, 2018 and 2017 the Corporation has recognized a
provision for Asset Retirement Obligations.
Page | 49
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies (continued)
(j) Revenue
Effective January 1, 2018, the Corporation adopted IFRS 15 - Revenue from Contracts with Customers replacing IAS 11
- Construction Contracts, IAS 18 - Revenue and several revenue-related interpretations. IFRS 15 establishes a
comprehensive framework for determining whether, how much and when revenue is recognized.
The impacts of adopting IFRS 15 on the Corporation’s Consolidated Statement of Financial Position as at December 31,
2018, the Consolidated Statement of Comprehensive Loss and the Consolidated Statement of Cash Flow, did not result
in adjustments and did not materially impact the timing or measurement of revenue. However, IFRS 15 contains new
disclosure requirements.
The Corporation has adopted IFRS 15 using the modified retrospective method, with the effect of initially applying this
standard recognized at the date of initial application, January 1, 2018. Accordingly, the information presented for 2017
has not been restated, it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations. Revenue
is measured based on the consideration specified in a contract with a customer and excludes amounts collected on
behalf of third parties. The Corporation recognizes revenue when it transfers control of the product or service to a
customer, which is generally when title passes from the Corporation to its customer or when the customer receives the
benefits from the service.
The Corporation recognizes revenue from the following major products and services:
(i) Camp rental and catering revenue
The Corporation provides camp rental and catering services to its customers. Depending on the customer’s
requirements contracts may be for camp rental only, catering and maintenance services only, or both camp rental
and catering services. Revenue from the camp rental and catering services are recognized over time as services
are performed. Occupancy days or mandays at the applicable day rate are used to measure recognizable revenue
of the camp. Minimum mandays are included in certain contracts and contract variability, as a result of fluctuating
mandays, is recognized in the period in which the mandays occur.
(ii) Construction contract revenue
Construction contract revenue includes the initial amount agreed to in the contract plus any variations in contract
work, claims, and incentive payments, to the extent that it is highly probable that a significant revenue reversal
will not occur. The Corporation recognizes revenue over time for its construction contracts, and estimates progress
of these contracts by comparing costs incurred to the total expected costs of the project. Contract expenses are
recognized as incurred unless they create an asset related to future contract activity. An expected loss on a
contract is recognized immediately in profit or loss.
(iii) Rendering of services
The Corporation provides access mat rental, relocatable structure rental, and transportation services to customers.
Revenue from rendering of these services are recognized over time. Rental days are used to measure the rental
fleet revenue. Revenue is recognized at the applicable day rate for each asset rented, based on rates specified in
each contract, and as the services are performed.
(iv) Sale of used fleet
The Corporation routinely sells items of property, plant and equipment that it has held for rental and such assets
are transferred to inventories at their carrying amount when they cease to be held for rent. The proceeds from
the sale of such assets are recognized as revenue at a point in time when control of the assets transfers.
(v) Sale of other goods
Revenue from the sale of other goods is measured at the fair value of the consideration received or receivable.
The Corporation recognizes revenue when it transfers control of the product or service to a customer, which is
generally when title passes from the Corporation to its customer, collectability is reasonably assured, the
associated costs can be estimated reliably, and there is no continuing management involvement with the goods.
The Corporation recognizes revenue from the sale of other goods at a point in time.
Page | 50
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies (continued)
(k) Lease payments
At inception of an arrangement, the Corporation determines whether such an arrangement is, or contains, a lease. A
specific asset is the subject of a lease if fulfillment of the arrangement is dependent on the use of that specified asset.
An arrangement conveys the right to use the asset if the arrangement conveys to the Corporation the right to the risks
and rewards of the underlying asset.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Leases in terms of which substantially all the risks and rewards of ownership are transferred to the
Corporation are classified as finance leases. Payments made under operating leases (net of any incentives received
from the lessor) are charged to the consolidated statement of comprehensive income on a straight-line basis over the
period of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction
of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a
constant periodic rate of interest on the remaining balance of the liability.
Determining whether an arrangement contains a lease:
At inception or upon reassessment of the arrangement, the Corporation separates payments and other consideration
required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair
values. If the Corporation concludes for a finance lease that it is impracticable to separate the payments reliably, an
asset and a liability are recognized at an amount equal to the fair value of the underlying asset. Subsequently, the
liability is reduced as payments are made and an imputed finance charge on the liability is recognized using the
Corporation’s incremental borrowing rate.
(l) Finance income and costs
Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in profit or
loss, using the effective interest method.
Finance costs comprise of interest expense on borrowings, unwinding of the discount on provisions, and changes in the
fair value of financial assets at fair value through profit or loss. Borrowing costs that are not directly attributable to the
acquisition, construction, or production of a qualifying asset are recognized in profit or loss using the effective interest
method.
Foreign currency gains and losses are reported on a net basis.
(m) Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss
except to the extent that it relates to a business combination, or items recognized directly in equity or other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the
following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in
subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of
goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets
and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate
to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend
to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
Page | 51
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies (continued)
(m) Income tax (continued)
A deferred tax asset is recognized for unused tax losses, tax credits, and deductible temporary differences to the extent
that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit
will be realized.
(n) Earnings per share
The Corporation presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is
calculated by dividing the total profit or loss attributable to common shareholders of the Corporation by the weighted
average number of common shares outstanding during the period. Diluted EPS is calculated by the weighted average
number of common shares outstanding for the effects of all dilutive potential common shares, which is comprised of
share options granted to employees.
(o) Segment reporting
A segment is a distinguishable component of the Corporation that is engaged either in providing related products or
services (business segment) which is subject to risks and returns that are different from those of other segments. The
business segments are determined based on the Corporation’s management and internal reporting structure.
Segment results, assets and liabilities include items directly attributable to a segment, as well as those that can be
allocated on a reasonable basis. Unallocated items comprise mainly investments and related revenue, loans and
borrowings and related expenses, corporate assets (primarily the Corporation’s headquarters) and head office
expenses, and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and
intangible assets other than goodwill.
(p) Foreign currency translation
The consolidated financial statements are presented in Canadian Dollars (“CAD”).
Foreign currency transactions entered into are translated into the functional currency of the operations at the exchange
rate on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-
translated into the functional currency using the exchange rate on the period end date. Foreign currency translation
gains and losses resulting from the settlement of transactions and the re-translation at period end are recognized in
the statement of comprehensive income within total profit. Non-monetary items that originated in a foreign currency
are translated at the exchange rate from the original transaction date.
The US entity has a US Dollar (“USD”) functional currency therefore translated to be included in the consolidated
financial statements in CAD as follows: income and expenses are translated into CAD using the exchange rates on the
dates of the transactions and the assets and liabilities on the statement of financial position are translated into CAD at
the period end exchange rate. The effect of translation is recognized in other comprehensive income and included as
translation of foreign operations in accumulated other comprehensive income within equity.
Foreign currency gains and losses arising from monetary items receivable from or payable to a foreign operation, for
which settlement is neither planned nor likely to occur, form a part of the exchange differences in the net investment
in the foreign operations and are recognized initially in other comprehensive income. Upon disposal or partial disposal
of an entity with a functional currency other than CAD, any accumulated exchange differences will be reclassified to
the statement of comprehensive income within total profit.
Page | 52
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
3. Significant Accounting Policies (continued)
(q) New standards and interpretations not yet adopted
The new standards, amendments to standards and interpretations not yet effective for the year ended December 31,
2018, and not applied in preparing these consolidated financial statements are disclosed below. The Corporation
intends to adopt these standards, if applicable, when they become effective on or after January 1, 2019.
IFRS 16 Leases - IFRS 16 Leases introduces a single lessee accounting model and requires a lessee to recognize assets
and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is
required to recognize a right-to-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments. This standard substantially carries forward the lessor accounting
requirements of IAS 17, while requiring enhanced disclosures to be provided by lessors. Transitional provisions have
been provided. The Corporation will adopt IFRS 16 in its financial statements for the annual period beginning on January
1, 2019, using the modified retrospective method where the Corporation recognizes its right-to-use assets and lease
liabilities both equal to present value of the lease obligations.
Throughout 2018, the Corporation reviewed all its rental and lease related contracts to evaluate the impact on the
financial statements. With the modified retrospective method Horizon North expects the financial statement impact to
be a $16.0 million addition of right-of-use assets as well as lease liabilities with no changes in retained earnings on
January 1, 2019. From the lessor accounting side, the Corporation reviewed its various revenue streams and underlying
contracts with customers, and the Corporation will include those that are applicable to the disclosure requirements as
prescribed by IFRS 16 for the annual period beginning on January 1, 2019.
4. Determination of fair values
A number of the Corporation’s accounting policies and disclosures require the determination of fair value, for both financial
and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes
based on the following methods. When applicable, further information about the assumptions made in determining fair
values is disclosed in the notes specific to that asset or liability.
(a) Property, plant and equipment
The fair value of property, plant and equipment recognized as a result of a business combination is based on market
values. The market value of property is the estimated amount for which a property could be exchanged on the date of
valuation between a willing buyer and a willing seller, in an arm’s length transaction after proper marketing wherein
the parties had each acted knowledgeably and willingly. The fair value of items of plant, equipment, fixtures and fittings
is based on the market and cost approaches using quoted market prices for similar items when available and
replacement cost when appropriate.
(b) Other financial assets and liabilities
The fair value of other financial assets and liabilities is estimated as the present value of future cash flows, discounted
at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.
(c) Share-based compensation transactions
The fair value of the employee share options is measured using the Black-Scholes option pricing model. Measurement
inputs include the share price on measurement date, the exercise price of the instrument, the expected volatility (based
on weighted average historic volatility adjusted for changes expected due to publicly available information), the
weighted average expected life of the instruments (based on historical experience and general option holder behavior),
the expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market
performance conditions are not taken into account in determining fair value.
Units issued under the Restricted Share Unit (“RSU”) plan are initially measured based on fair market value of the
Corporation’s stock price when granted. The fair value of outstanding units is re-measured at each reporting date using
the Corporation’s stock price until the date of settlement. Under the terms of the RSU plan, the RSUs awarded will vest
in three equal portions on the first, second and third anniversary from the grant date and will be settled in cash, in the
amount equal to the fair market value of the Corporation’s stock price on that date.
Page | 53
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
5. Business Combinations
(a) Shelter Modular Inc. ("Shelter")
On April 16, 2018, the Corporation acquired all of the issued and outstanding shares of Shelter Modular Inc. for $3.6
million, payable in a combination of common shares of Horizon North (“Horizon Shares”) and assumption of existing
debt. The Corporation issued 983,004 common shares with a fair value at the acquisition date of $2.37 per share for a
total value of $2.3 million at closing.
Shelter is a full-service modular manufacturing company based in Aldergrove, British Columbia.
The following summarizes the major classes of consideration transferred at the acquisition date:
Shares issued
Assumption of debt
Total consideration
Amount (000’s)
$ 2,330
1,318
$ 3,648
The acquisition was accounted using the acquisition method on April 16, 2018, whereby the assets acquired, and the
liabilities assumed were recorded at their fair values with the surplus of the aggregate consideration relative to the fair
value of the identifiable net assets recorded as goodwill. The Corporation assessed the fair values of the net assets
acquired based on management’s best estimate of the market value, which included the condition of the assets
acquired, current industry conditions and the discounted future cash flows expected to be received from the assets as
well as the amount it was expected to cost to settle the outstanding liabilities.
The following summarizes the recognized amounts of assets acquired and liabilities assumed:
Net working capital
Property, plant and equipment
Deferred tax asset
Total net identifiable assets acquired
Goodwill
Total consideration
Amount (000’s)
$ (1,867)
339
2,566
$ 1,038
2,610
$ 3,648
The goodwill arises as a result of the synergies expected to be achieved as a result of combining Shelter with the rest
of the Corporation. None of the goodwill recognized is expected to be deductible for income tax purposes. There are
no identified intangible assets acquired.
From the date of acquisition to December 31, 2018, Shelter contributed $1.4 million of revenue and $0.3 million of
earnings before tax to the Corporation. If the business combination had been completed on January 1, 2018, the
revenue and loss before income tax for the year ending December 31, 2018 would have been $3.3 million and $0.2
million respectively.
The Corporation incurred costs related to the acquisition of Shelter of $0.2 million relating to share issuance, due
diligence and external advisory fees. The cost related to the share issuance totaling $48,000 were included in share
capital on the balance sheet. The costs related to the due diligence and external advisory fees totaling $0.2 million were
included in selling & administrative expenses on the consolidated statement of comprehensive loss.
Page | 54
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
5. Business Combinations (continued)
(b) C&V Portable Accommodations Ltd. (“C&V”)
On November 1, 2018, the Corporation acquired all the operating assets and inventory of the custom manufacturing
business of C&V for total cash consideration of $3.3 million. The operating assets acquired include the existing leasehold
of 87,000 square feet of manufacturing space, employees, and equipment.
The acquisition was accounted using the acquisition method on November 1, 2018, whereby the assets acquired were
recorded at their fair values with the surplus of the aggregate consideration relative to the fair value of the identifiable
net assets recorded as goodwill. The Corporation assessed the fair values of the net assets acquired based on
management’s best estimate of the market value, which included the condition of the assets acquired, and current
industry conditions as well as the amount it was expected to cost to settle the outstanding liabilities.
The following summarizes the recognized amounts of assets acquired:
Net working capital
Property, plant and equipment
Total net identifiable assets acquired
Goodwill
Total consideration
Amount (000’s)
$ 838
838
$ 1,676
1,637
$ 3,313
The allocations and determinations of the consideration described above are preliminary and subject to changes upon
final adjustments.
The goodwill arises as a result of the assembled workforce, the technical expertise and capabilities existing within the
acquired facility and also the synergies expected to be achieved as a result of combining the manufacturing facility with
the rest of the Corporation.
From the date of acquisition to December 31, 2018, the acquired custom manufacturing business of C&V contributed
$1.1 million of revenue and $0.3 million of loss before tax to the Corporation.
The Corporation incurred costs related to the acquisition of the custom manufacturing business of C&V of $31,500
relating to due diligence and external advisory fees.
Page | 55
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
6. Revenue
The Corporation recognizes revenue from the following major products and services:
Type of Product or Service Line
Camp Rental and Catering revenue
Construction contract revenue
Rendering of services
Sale of used fleet
Sale of other goods
(a) Disaggregation of revenue
Accounting policy
Customer obtains control of the goods or services over time
Customer obtains control of the goods or services over time
Customer obtains control of the goods or services over time
Customer obtains control of the goods or services at a point in time
Customer obtains control of the goods or services at a point in time
In the following table, revenue is disaggregated by major products and service lines and timing of revenue recognition.
The table also includes a reconciliation of the disaggregated revenue with the Corporations’ reportable segments.
Twelve months ended
December 31, 2018 (000’s)
Products & Service Lines
Camps &
Catering
Rentals &
Logistics
Modular
Solutions
Inter-segment
Eliminations
Total
Camp Rental and Catering revenue
$ 181,950 $ - $ - $ - $ 181,950
Construction contract revenue
-
-
133,155
-
133,155
Rendering of services
Sale of used fleet
Sale of other goods
Timing of Revenue Recognition
32,215
37,933
-
(308)
69,840
5,952
5,328
-
(2,871)
8,409
-
891
-
-
891
$ 220,117 $ 44,152 $ 133,155 $ (3,179) $ 394,245
Products and services transferred over time
$ 214,165 $ 37,933 $ 133,155 $ (308) $ 384,945
Products and services transferred at a point in time
5,952
6,219
-
(2,871)
9,300
$ 220,117 $ 44,152 $ 133,155 $ (3,179) $ 394,245
Twelve months ended
December 31, 2017 (000’s)
Products & Service Lines
Camps &
Catering
Rentals &
Logistics
Modular
Solutions
Inter-segment
Eliminations
Total
Camp Rental and Catering revenue
$ 179,392 $ - $ - $ - $ 179,392
Construction contract revenue
-
-
46,755
-
46,755
Rendering of services
Sale of used fleet
Sale of other goods
Timing of Revenue Recognition
15,362
41,233
-
(82)
56,513
28,463
5,266
-
-
33,729
1,213
6,480
-
-
7,693
$ 224,430 $ 52,979 $ 46,755 $ (82) $ 324,082
Products and services transferred over time
$ 194,754 $ 41,233 $ 46,755 $ (82) $ 282,660
Products and services transferred at a point in time
29,676
11,746
-
-
41,422
$ 224,430 $ 52,979 $ 46,755 $ (82) $ 324,082
Page | 56
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
6. Revenue (continued)
(b) Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with
customers.
(000’s)
Receivables, which are included in trade and other accounts receivables
Contract assets, which are included in trade and other accounts receivables
Contract liabilities, which are included in deferred revenue
December 31,
January 1,
2018
2018
$ 73,967 $ 89,070
29,000
9,695
2,075
7,008
The contract assets relate to the Corporation’s rights to consideration for work completed but not billed at the reporting
date. The contract assets are transferred to receivables when the rights become unconditional. This usually occurs
when the Corporation issues an invoice to the customer. The contract liabilities relate to the advance consideration
received from customers for which revenue is recognized over time.
The amount of $7.0 million recognized in contact liabilities at the beginning of the period has been recognized as
revenue for the year ended December 31, 2018.
7. Direct Operating Expenses
(000’s)
Wages and benefits
Job supplies
Rental equipment
Repairs & maintenance
Trucking costs
Other operating expenses
Direct costs
Depreciation
Amortization of intangibles
Impairment loss
Share based compensation
Gain on disposal of property, plant and equipment
December 31,
December 31,
2018
2017
$ 179,173 $ 137,809
92,267
79,992
5,909
4,081
8,122
7,590
6,818
6,637
43,667
36,517
335,956
272,626
38,540
40,701
2,749
2,742
-
3,457
1,382
659
(61)
(12,094)
$ 378,566 $ 308,091
The amount of inventories recognized as an expense during the twelve months ended December 31, 2018 is $60.3 million
(2017 - $24.9 million).
8. Selling & Administrative Expenses
(000’s)
Salaries and benefits
Other selling & administrative expenses
Selling & administrative expenses
Share based compensation
December 31,
December 31,
2018
2017
$ 14,673 $ 13,613
6,933
7,798
21,606
21,411
1,369
515
$ 22,975 $ 21,926
Page | 57
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
9. Personnel expenses
(000’s)
Wages, salaries & benefits
Contributions to defined contribution plans
Share based compensation
December 31,
December 31,
2018
2017
$ 190,705 $ 148,597
3,141
2,825
2,751
1,174
$ 196,597 $ 152,596
The Corporation has two types of defined contribution plans: a registered defined contribution plan covering a number of
its employees and a collectively bargained plan covering union employees. Under the registered defined contribution plan,
the Corporation matches individual contributions up to a maximum of 5% of the employee’s annual salary. Under the
collectively bargained plan, the Corporation contributes a set amount per hour worked.
10. Finance Costs
(000’s)
Interest Expense
Accretion of provisions
11. Income Taxes
December 31,
December 31,
2018
2017
$ 2,659 $ 2,728
235
96
$ 2,894 $ 2,824
The provision for income taxes differs from that which would be expected by applying statutory rates. A reconciliation of
the difference is as follows:
(000’s)
Income (loss) before tax
Combined federal and provincial income tax rate
Expected income tax expense (recovery)
Non-deductible share based compensation
Differences in jurisdictional tax rates
Share issuance costs
Revisions to prior year tax estimates
Deferred taxes not recognized
Rate differential on non-capital loss carryback
Non-taxable portion of capital gain
Non-deductible and other
December 31,
2018
December 31,
2017
$
(10,123)
$ (8,759)
27.0%
27.0%
$ (2,733) $ (2,365)
283
317
(69)
271
-
-
10
(66)
406
641
-
(10)
258
(85)
196
103
$
(1,927)
$ (916)
For the year ended December 31, 2018 income tax recovery was $1.9 million (2017 - $0.9 million), with an effective tax rate
of 19.0% (2017 – 10.5%). The increase in income tax recovery was attributable to a larger net loss for the year ended
December 31, 2018 combined with the decrease in permanent differences resulting from the legislative rate change and
rate differential on loss carryback in the prior year, as well as fewer unrecognized non-capital losses in foreign jurisdictions
in the current year.
Deferred tax assets and liabilities
(a) The Corporation has non-capital losses for Canadian tax purposes of $30.4 million available to reduce future taxable
income in Canada, and non-capital losses for United States tax purposes of $0.8 million available to reduce future
taxable income in the United States, which will expire after 2022.
Page | 58
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
11. Income Taxes (continued)
Deferred tax assets and liabilities (continued)
(b) Deferred tax assets have not been recognized in respect of the following items:
(000’s)
Tax losses
December 31,
December 31,
2018
2017
$ 2,049 $ 1,679
Tax losses not recognized expire in 2028 and beyond. Deferred tax assets have not been recognized in respect of these
items because it is not probable that future taxable profit will be available against which the subsidiary of the
Corporation can utilize the benefits.
The components of net deferred tax asset (liability) recognized are as follows:
(000’s)
Assets
2018
2017
Liabilities
2018
2017
Net
2018
2017
Property, plant and equipment
$ 137 $ 103 $ (53,267) $ (54,789) $ (53,130) $ (54,686)
Intangible assets
Goodwill
3,041
2,600
(328)
(398)
2,713
2,202
1,913
2,038
(151)
(151)
1,762
1,887
Non-capital loss carry forwards
6,628
581
-
-
6,628
581
Net capital loss carry forwards
-
166
-
-
-
166
Restructuring costs
69
65
-
-
69
65
Asset retirement obligation
3,586
3,932
-
-
3,586
3,932
Reserves
434
57
(2,174)
(184)
(1,740)
(127)
Foreign exchange adjustments
1
1
-
-
1
1
Share issue costs
$ 797
470 $ -
-
797
470
Deferred tax asset
Deferred tax liability
$ - $ -
(39,314)
(45,509)
$ (39,314) $ (45,509)
Movements in temporary differences during the year ended December 31, 2018 are as follows:
(000’s)
Property, plant and equipment
Intangible assets
Goodwill
Non-capital loss carry forwards
Net capital loss carry forwards
Restructuring costs
Asset retirement obligation
Reserves
Foreign exchange adjustments
Share issue costs
December 31,
2017
December 31,
2018
$ (54,686) $ 1,517 $ - $ 39 $ (53,130)
Recognized in
profit and loss
Recognized in
equity
Recognized from
business
combination
2,202
511
-
-
2,713
1,887
(125)
-
-
1,762
581
3,517
-
2,530
6,628
166
(166)
-
-
-
65
4
-
-
69
3,932
(346)
-
-
3,586
(127)
(1,613)
-
-
(1,740)
1
-
-
-
1
470
(371)
698
-
797
$ (45,509) $ 2,928 $ 698 $ 2,569 $ (39,314)
Page | 59
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
11. Income Taxes (continued)
Deferred tax assets and liabilities (continued)
Movements in temporary differences during the year ended December 31, 2017 are as follows:
(000’s)
Property, plant and equipment
Intangible assets
Goodwill
Non-capital loss carry forwards
Net capital loss carry forwards
Restructuring costs
Asset retirement obligation
Reserves
Foreign exchange adjustments
Share issue costs
12. Trade and other receivables
(000’s)
Trade receivable
Accrued receivable
Construction receivables
Other receivables
Allowance for doubtful accounts
Trade and other receivables
December 31,
2016
December 31,
2017
$ (51,396) $ (3,290) $ - $ - $ (54,686)
Recognized in
profit and loss
Recognized in
equity
Recognized from
business
combination
1,708
494
-
-
2,202
2,029
(142)
-
-
1,887
479
102
-
-
581
241
(75)
-
-
166
37
28
-
-
65
3,514
418
-
-
3,932
(60)
(67)
-
-
(127)
4
(3)
-
-
1
692
(222)
-
-
470
$ (42,752) $ (2,757) $ - $ - $ (45,509)
December 31,
December 31,
2018
2017
$ 28,469 $ 44,469
30,687
12,953
45,910
43,274
960
1,034
106,026
101,730
(3,059)
(2,965)
$ 102,967 $ 98,765
Construction receivables represent progress billings to customers under open construction contracts, holdback amounts
billed on construction contracts which are not due until the contract work is substantially completed, amounts recognized
as revenue under open construction contracts not billed to customers and highly probable claims. The Corporation estimates
that the carrying value of financial assets within trade and other receivables approximate their fair value.
13. Inventories
(000’s)
Raw materials
Finished goods
December 31,
December 31,
2018
2017
$ 4,228 $ 3,904
4,554
3,523
$ 8,782 $ 7,427
Page | 60
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
14. Property, Plant and Equipment
Cost
(000’s)
Camp facilities, setup & installation
Land & buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligations
Assets under construction
Accumulated Depreciation
(000’s)
Camp facilities, setup & installation
Land & buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligations
Assets under construction
Carrying Amounts
(000’s)
Camp facilities, setup & installation
Land & buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligations
Assets under construction
$
$
$
$
Balance
December 31,
2017
416,034
63,001
44,315
20,203
6,211
14,321
2,100
566,185
Balance
December 31,
2017
160,046
12,274
30,647
13,653
4,616
6,827
-
228,063
Balance
December 31,
2017
255,988
50,727
13,668
6,550
1,595
7,494
2,100
338,122
$
$
$
$
$
$
Additions
25,368
2,097
3,342
8,737
1,157
3,907
(1,445)
43,163
Depreciation
23,553
2,138
4,461
4,185
676
3,527
-
38,540
$
$
$
$
Disposals
(30,355)
(5,979)
(3,993)
(4,705)
(1,514)
(3,646)
-
(50,192)
$
$
Disposals
(21,624)
(1,400)
(3,124)
(2,990)
(702)
(3,553)
-
(33,393)
Additions from
Business
Combinations
Impact of
Foreign
Translation
-
377
173
-
627
-
-
1,177
$
$
$
$
-
-
-
-
-
-
-
-
Impact of
Foreign
Translation
-
-
-
-
-
-
-
-
Balance
December 31,
2018
411,047
59,496
43,837
24,235
6,481
14,582
655
560,333
Balance
December 31,
2018
161,975
13,012
31,984
14,848
4,590
6,801
-
233,210
Balance
December 31,
2018
249,072
46,484
11,853
9,387
1,891
7,781
655
327,123
$
$
$
$
$
$
On January 8, 2018, the Corporation purchased a 288 person Camp Facility south of Fort McMurray, Alberta for an aggregate
purchase price of $14.0 million including the issuance of 665,779 common shares of the Corporation with a fair value of
$1.50 per share for a total value of $1.0 million.
As set out in Note 5, the Corporation acquired assets in the Shelter business combination as at the acquisition date of April
16, 2018 with a fair value of $0.3 million and on November 1, 2018, the Corporation acquired assets in the C&V business
combination with a fair value of $0.8 million.
Page | 61
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
14. Property, Plant and Equipment (continued)
Cost
(000’s)
Camp facilities, setup & installation
Land & buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligations
Assets under construction
Accumulated Depreciation
(000’s)
Camp facilities, setup & installation
Land & buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligations
Assets under construction
Carrying Amounts
(000’s)
Camp facilities, setup & installation
Land & buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligations
Assets under construction
$
$
$
$
Balance
December 31,
2016
456,452
62,341
44,255
19,954
8,293
12,692
1,452
605,439
Balance
December 31,
2016
157,197
12,590
29,683
13,309
4,997
4,892
-
222,668
Balance
December 31,
2016
299,255
49,751
14,572
6,645
3,296
7,800
1,452
382,771
$
$
$
$
$
$
Additions
9,660
2,302
4,838
6,082
(346)
1,827
648
25,011
Depreciation
27,469
1,323
4,754
3,959
1,197
1,999
-
40,701
$
$
$
$
Reclassification
to assets held
for sale
(10,085)
-
-
-
-
-
-
(10,085)
Reclassification
to assets held
for sale
(3,505)
-
-
-
-
-
-
(3,505)
$
$
$
$
Disposals
(39,987)
(1,642)
(4,778)
(5,833)
(1,736)
(198)
-
(54,174)
Disposals
(21,109)
(1,639)
(3,790)
(3,615)
(1,578)
(64)
-
(31,795)
$
$
$
$
Impact of
Foreign
Translation
(6)
$
-
-
-
-
-
-
(6)
$
Impact of
Foreign
Translation
(6)
$
-
-
-
-
-
-
(6)
$
$
$
Balance
December 31,
2017
416,034
63,001
44,315
20,203
6,211
14,321
2,100
566,185
Balance
December 31,
2017
160,046
12,274
30,647
13,653
4,616
6,827
-
228,063
Balance
December 31,
2017
255,988
50,727
13,668
6,550
1,595
7,494
2,100
338,122
(a) Assets under construction
At December 31, 2018 and December 31, 2017, included in capital assets under construction are internal information
technology projects under development, and fleet equipment under construction for expansion purposes. The
Corporation has not capitalized any borrowing costs for the twelve months ended December 31, 2018 (2017 - nil), due
to the short-term nature of construction.
(b) Finance lease arrangements
Included in property, plant and equipment is equipment under finance lease arrangements with a net book value of
$1.0 million at December 31, 2018 (2017 - $2.7 million).
Page | 62
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
14. Property, Plant and Equipment (continued)
(c)
Impairment indicators
For the purpose of impairment testing, the Corporation’s assets are grouped and reviewed at the CGU level which
represent the lowest level at which cash flows are generated.
The Corporation reviews the carrying value of the property, plant and equipment assets at each reporting period for
indications of impairment and considers both qualitative and quantitative factors when determining whether an asset
or CGU may be impaired. During the year ended December 31, 2018 the Corporation determined that the excess of the
carrying amount of the net assets of the Corporation over the market capitalization of the Corporation was considered
an indicator of impairment. This indicator of impairment was noted for the Camps & Catering, Matting, Relocatable
Structures and Manufacturing CGUs.
(d)
Impairment testing for cash-generating units
The recoverable amounts of the CGUs were determined based on value in use calculation using discounted future cash
flows generated from the continuing use of the unit over a five year period which incorporates the Corporation’s 2019
budget approved by the Board of Directors and estimated growth rates in subsequent years. The calculation of the
value in use was based on the following key assumptions:
•
•
•
•
•
The approved 2019 budget uses current contracts and market conditions to project revenue. Costs are calculated
using historical gross margins and additional known or pending factors.
The projections were based on a five year forecasted cash flow and extrapolated over the remaining useful life of
the primary assets and discounted at a post-tax rate of 13.90% (2017 – 14.88%) for all CGUs. The discount rate
was estimated based on the Corporation’s weighted average cost of capital, taking into account the nature of the
assets being valued and their specific risk profile.
Based on management’s best estimates at December 31, 2018, a historic five year average utilization, direct labour
hours, revenue per rentable day and profit margins, plus a 2% price inflation per year, were used to project cash
flows from 2020 to 2023 in the Camps & Catering, and Matting CGUs. Based on management’s best estimate at
December 31, 2018 a 5% to 15% growth rate was used to project the cash flows from 2020 to 2023 for the Camps
& Catering and Relocatable Structures CGUs.
The cash flows beyond 2023 have been extrapolated using a 2% per annum growth rate.
The forecasted cash flows are based on management’s best estimates of future pricing, asset utilization, rates for
available equipment and costs to maintain that equipment.
The results of the tests indicated no impairment for the Camps & Catering, Matting, Relocatable Structures, and
Manufacturing CGUs as at December 31, 2018 (2017 –$nil).
The most sensitive inputs to the value in use model used for all CGU’s are the discount rate, inflation rate and the
growth rate:
•
•
•
All else being equal, a 1.0% increase in the discount rate for the Camps & Catering CGUs would have resulted in
the carrying amount exceeding the recoverable amount by $2.9 million.
All else being equal, a 0.5% decrease in the inflation rates would not have resulted in any of the CGUs carrying
amounts exceeding the recoverable amounts.
All else being equal, a 1.0% decrease in the growth rate would not have resulted in any of the CGUs carrying
amounts exceeding the recoverable amounts.
Page | 63
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
15. Intangible Assets and Goodwill
Intangible assets, other than goodwill, have finite useful lives. The amortization charges for intangible assets are included
on the consolidated statement of comprehensive loss. Goodwill has an infinite life and is not amortized.
Cost
(000’s)
Trade names
Architectural design
Customer contracts
Amortization
(000’s)
Trade names
Architectural design
Customer contracts
Carrying Amounts
(000’s)
Trade names
Architectural design
Customer contracts
$
$
$
$
Balance
December 31,
2017
1,590
439
6,053
8,082
Balance
December 31,
2017
361
139
3,234
3,734
Balance
December 31,
2017
1,229
300
2,819
4,348
$
$
$
$
$
$
Disposals
-
-
-
-
Amortization
234
88
2,427
2,749
$
$
$
$
Additions
from business
combinations
-
-
-
-
$
$
$
-
$
$
$
Balance
December 31,
2018
1,590
439
6,053
8,082
Balance
December 31,
2018
595
227
5,661
6,483
Balance
December 31,
2018
995
212
392
1,599
Page | 64
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
15. Intangible Assets and Goodwill (continued)
Cost
(000’s)
Trade names
Architectural design
Customer contracts
Amortization
(000’s)
Trade names
Architectural design
Customer contracts
Carrying Amounts
(000’s)
Trade names
Architectural design
Customer contracts
Goodwill
(000’s)
Balance - beginning of year
Additions through business combinations (Note 5)
$
$
$
$
Balance
December 31,
2016
1,590
439
6,053
8,082
Balance
December 31,
2016
134
51
807
992
Balance
December 31,
2016
1,456
388
5,246
7,090
$
$
$
$
$
$
Additions
from business
combinations
-
-
-
-
Additions
-
-
-
-
$
$
Amortization
227
88
2,427
2,742
Balance
December 31,
2017
1,590
439
6,053
8,082
Balance
December 31,
2017
361
139
3,234
3,734
Balance
December 31,
2017
1,229
300
2,819
4,348
$
$
$
$
$
$
Balance
Balance
December 31,
December 31,
2018
20,545
$
4,247
24,792
$
2017
20,348
197
20,545
$
$
(a)
Impairment testing for cash-generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Corporation’s CGU which represent the lowest level
at which goodwill is monitored for internal management purposes and which are not higher than the Corporation’s
operating segments. At December 31, 2018, Goodwill, with a carrying amount of $17.2 million was allocated to the
Camps & Catering CGU and $7.6 million was allocated to the Manufacturing CGU.
The recoverable amounts of the CGUs were determined based on a value in use calculation which was determined by
discounting future cash flows generated from the continuing use of the unit on a five year forecast which incorporates
the Corporation’s 2019 budget approved by the Board of Directors. Additionally, information in relation to the
impairment test is disclosed in Note 14(e).
The results of the tests indicated no impairment for the Camps & Catering and Manufacturing CGU’s at December 31,
2018 (2017 – nil).
Page | 65
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
16. Other Assets
The Corporation’s other assets consists of a 25 year prepaid lease for a building and land to accommodate a portion of the
Corporation’s manufacturing operations in Kamloops, British Columbia with a carrying amount of $1.9 million (2017 - $2.0
million). The amount expensed during the year ended December 31, 2018 related to the prepaid lease was $0.1 million (2017
- $0.1 million) with 16 years remaining on the contract.
Also included in the Corporation’s other assets is an investment held for sale measured at fair value through profit and loss.
At December 31, 2018 the financial asset had a fair value of $0.9 million (2017 - $Nil).
17. Loans and Borrowings
(000’s)
Committed credit facility
December 31,
2018
December 31,
2017
$ 30,894 $ 73,016
The carrying value of Horizon’s debt approximates its fair value, as debt bears interest at variable rates which approximates
market rates.
On March 27, 2018, the Corporation amended its committed credit facility (“credit facility”) extending the maturity date to
September 30, 2020. The credit facility has an available limit of $150.0 million and is secured with a $400.0 million first fixed
and floating charge debenture over all assets of the Corporation and its wholly owned subsidiaries. The interest rate is
calculated on a grid pricing structure based on the Corporation’s debt to EBITDAS ratio. Debt to EBITDAS is calculated as at
the most recently completed calendar quarter and for the 12 months ended on such date. Amounts drawn on the credit
facility incur interest at bank prime rate plus 0.50% to 2.25% or the Bankers’ Acceptance rate plus 1.50% to 3.25%. The credit
facility has a standby fee ranging from 0.34% to 0.73%. The credit facility is subject to the following financial covenants:
Debt Covenants
Maximum Consolidated Senior debt (1) to Consolidated Adjusted EBITDAS ratio (3)(4) (must be 3.00:1.00 or less)
Maximum Consolidated Total debt (2) to Consolidated Adjusted EBITDAS ratio (3)(5) (must be 4.25:1.00 or less)
Minimum Consolidated Interest coverage ratio(6) (must be 3.00:1.00 or more)
Covenants
Calculation
December 31, 2018
0.84:1.00
0.86:1.00
12.02:1.00
(1) Senior debt is calculated as the sum of current and long-term portions of total loans and borrowings less vehicle and equipment financing.
(2) Total debt is calculated as the sum of current and long-term portions of total loans and borrowings.
(3) EBITDAS (Earnings before interest, taxes, depreciation, amortization, share based compensation, impairment, gain/loss on disposal of property, plant and equipment, and earnings
from equity investments) is not a recognized measure under IFRS. Management believes that in addition to total profit and total comprehensive income, EBITDAS is a useful
supplemental earnings measure as it provides an indication of the Corporation’s operating performance and it is regularly provided to and reviewed by the Chief Operating Decision
Maker. Horizon North’s method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by other entities.
(4) Senior debt to EBITDAS is calculated as the ratio of senior debt to trailing 12 months EBITDAS.
(5) Total debt to EBITDAS is calculated as the ratio of total debt to trailing 12 months EBITDAS.
(6)
Interest coverage is calculated as the ratio of trailing 12 months Adjusted EBITDAS to 12 months trailing interest expense on loans and borrowings.
As at December 31, 2018, the Corporation was in compliance with all financial and non-financial covenants related to the
Credit Facility.
Page | 66
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
18. Asset retirement obligations
Provisions include constructive site restoration obligations for camp projects to restore lands to previous condition when
camp facilities are dismantled and removed.
(000’s)
Balance, beginning of year
Additions
Discount rate change
Accretion of provisions
Asset retirement obligations settled
Revisions
Balance, end of year
December 31,
2018
December 31,
2017
$ 14,564 $ 13,082
1,620
(254)
96
(441)
461
3,768
(23)
235
(5,424)
162
$ 13,282 $ 14,564
The estimated present value of rehabilitating the sites at the end of their useful lives has been estimated using existing
technology, at inflated prices, and discounted using a risk-free rate. The future value amount at December 31, 2018 was
$14.3 million (2017 - $15.9 million) and determined using risk free interest rates of 1.85% to 2.13% (2017 - 1.66% to 1.97%)
and an inflation rate of 2.0% (2017 – 2.0%). The timing of these payments is dependent on various factors, such as the
estimated lives of the equipment and industry activity in the region but is anticipated to occur between 2019 and 2028.
(000’s)
Current
Non-current
Balance, end of year
19. Leases and commitments
(a) The Corporation has outstanding bank letters of credit as follows:
Maturity date
February 1, 2019
February 25, 2019
July 18, 2019
August 21, 2019
September 26, 2019
September 29, 2019
November 2, 2019
December 31,
2018
December 31,
2017
$ 1,835 $ 3,347
11,217
$ 13,282 $ 14,564
11,447
$
Amount (000's)
50
25
5
53
15
84
74
(b) The Corporation has entered into finance lease agreements for equipment with an average lease term 36 months (2017
– 18 months) and the obligations under finance leases are secured by the related assets. Interest rates for the
underlying finance lease obligations are fixed at rates ranging from 5.0% to 5.3% per annum.
The Corporation also rents premises and equipment under multiple operating lease contracts with varying expiration
dates.
The minimum lease payments under these leases over the next five years and beyond are as follows:
(000's)
2019
2020
2021
2022
2023 and beyond
Amount
$ 5,397
5,247
4,854
4,029
4,683
$ 24,210
Page | 67
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
20. Share Capital
(a) Authorized
Unlimited number of voting common shares without nominal or par value.
Unlimited number of preferred shares issuable in series.
(b)
Issued
Balance at December 31, 2016
Share options exercised
Balance at December 31, 2017
Share options exercised
Bought-deal equity financing
Common shares issued
Share issue costs, net of tax of $0.7 million
Balance at December 31, 2018
Amount (000’s)
144,622,006 $ 286,674
Number
80
53,333
144,675,339 $ 286,754
87,666
181
17,857,200
50,000
1,648,783
3,330
-
164,268,988
(1,888)
$ 338,377
On January 8, 2018, the Corporation acquired Moose Haven Lodge for an aggregate purchase price of $14.0 million
including the issuance of 665,779 common shares of the Corporation with a fair value of $1.50 per share for a total
value of $1.0 million.
On April 16, 2018, the Corporation acquired all of the issued and outstanding shares of Shelter Modular Inc. for an
aggregate purchase price of $3.6 million including the issuance of 983,004 common shares of the Corporation with a
fair value of $2.37 per share for a total value of $2.3 million (Note 5).
On June 25, 2018, the Corporation closed a bought deal equity financing agreement with a syndicate of underwriters
that purchased 17,857,200 common shares of the Corporation for resale to the public, including overallotment, at a
price of $2.80 per common share for gross proceeds of $50.0 million. In connection with the offering, the Corporation
incurred approximately $2.5 million in transaction costs which included $2.3 million in agent fees. Total transaction
costs, net of tax, were applied against the proceeds in share capital during the year ended December 31, 2018.
(c) Share option plan
The Corporation has a share option plan for its directors, officers, and key employees whereby options may be granted,
to a maximum of 10% of the issued and outstanding common shares, subject to terms and conditions. Share option
vesting privileges are at the discretion of the Board of Directors and were set at three years. The Corporation uses
graded vesting for share options over the period in which the option vests. All share options are equity settled with a
weighted average remaining contractual life of 2.5 years and all options granted have a maximum term of 5 years.
Page | 68
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
20. Share Capital (continued)
(c) Share option plan (continued)
Year ended
December 31, 2018
Year ended
December 31, 2017
Outstanding Weighted average
Outstanding Weighted average
options
exercise price
options
exercise price
Balance, beginning of period
8,342,385
$ 2.97
8,385,737
$ 4.15
Granted
Forfeited
Expired
Exercised
2,115,707
2.53
2,633,000
1.46
(388,350)
(224,000)
(87,666)
3.42
6.73
1.68
(1,012,614)
3.69
(1,610,405)
6.28
(53,333)
1.16
Balance, end of period
9,758,076
$ 2.78
8,342,385
$ 2.97
Balance, beginning of period
Vested
Forfeited
Expired
Exercised
Year ended
December 31, 2018
Year ended
December 31, 2017
Exercisable Weighted average
Exercisable Weighted average
options
exercise price
options
exercise price
4,029,525
$ 4.43
4,168,595
$ 5.71
2,165,855
(308,349)
(224,000)
(87,666)
1.78
3.91
6.73
1.68
1,995,285
3.31
(470,617)
5.10
(1,610,405)
6.28
(53,333)
1.16
Balance, end of period
5,575,365
$ 3.38
4,029,525
$ 4.43
The exercise prices for options outstanding and exercisable at December 31, 2018 are as follows:
Exercise price
per share
$1.16 to $1.37
$1.38 to $1.53
$1.54 to $2.40
$2.41 to $3.09
$3.10 to $8.13
Total options outstanding
Exercisable options
Weighted
average
exercise price
per share
1.17
1.47
2.17
2.76
7.27
2.78
Number
1,204,500
$
2,226,834
3,239,207
1,564,000
1,523,535
9,758,076
$
Weighted
average
remaining
contractual
life in years
2.3
3.4
1.8
4.5
0.5
2.5
Weighted
average
exercise price
per share
1.16
1.47
2.26
-
7.27
3.38
Number
766,498
$
707,832
2,577,500
-
1,523,535
5,575,365
$
The weighted average share price at the date of exercise for share options exercised during the year ended December
31, 2018 was $2.53/share (2017 – $1.45/share).
Page | 69
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
20. Share Capital (continued)
(c) Share option plan (continued)
The Corporation calculated the fair value of the share options granted using the Black-Scholes pricing model to estimate
the fair value of the share options issued at the date of grant. The weighted average fair market value of all options
granted during the year and the assumptions used in their determination are as follows:
Fair value per option
Forfeiture rate
Grant price
Expected life
Risk free interest rate
Dividend yield rate
Volatility
December 31,
2018
December 31,
2017
$ 0.81 $ 0.47
9.21%
8.51%
$ 2.53 $ 1.46
3.0 years
1.96%
3.15%
54.78%
3.0 years
0.81%
5.47%
64.69%
Expected volatility is estimated by considering historic average share price volatility. For the twelve months ended
December 31, 2018, share based compensation for share options included in operating earnings (loss) amounted to
$1.0 million (December 31, 2017 – $0.7 million).
(d) Restricted share unit plan
The Corporation has a Restricted Share Unit (“RSU”) plan for its directors, officers and key employees whereby RSUs
may be granted, subject to certain terms and conditions. Under the terms of the RSU plan, the awarded units will vest
in three equal portions on the first, second and third anniversary from the grant date, and will be settled in cash in the
amount equal to the fair market value of the Corporation’s stock price on that date.
The following table summarizes the RSUs outstanding:
Units outstanding at December 31, 2017
Granted
Forfeited
Settled
Units outstanding at December 31, 2018
Number
1,806,007
1,106,148
(172,258)
(747,283)
1,992,614
The following table summarizes the RSUs fair value per unit at the time of issuance and as at December 31, 2018:
Opening balance
Issued on March 15, 2018
Issued on March 26, 2018
Issued on April 17, 2018
Issued on June 1, 2018
Issued on July 30, 2018
Issued on September 4, 2018
Issued on November 2, 2018
Issued on December 3, 2018
Fair Value at Grant
Date
($ per unit)
Fair Value at
December 31, 2018
($ per unit)
1.97
2.15
2.40
2.98
2.47
2.44
2.71
2.18
1.80
1.80
1.80
1.80
1.80
1.80
1.80
1.80
1.80
Units Issued
1,806,007
228,426
21,900
15,021
766,603
12,198
50,000
6,000
6,000
As at December 31, 2018, $0.3 million (2017 - $0.6 million) was included in accounts payable and accrued liabilities for
outstanding RSUs. For the year ended December 31, 2018, share based compensation for RSUs included in operating
earnings (loss) amounted to $1.7 million (2017 - $0.4 million), with a weighted average remaining term of 1.0 years.
Page | 70
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
21. Earnings Per Share
The calculation of basic earnings per share for the twelve months ended December 31, 2018 was based on the total loss
attributable to common shareholders of $8.2 million (2017 – $7.8 million).
A summary of the common shares used in calculating earnings per share is as follows:
Number of common shares, beginning of period
Weighted average effect of common shares issued
Weighted average common shares outstanding – basic
Effect of share purchase options
(1)
Weighted average common shares outstanding – diluted
December 31,
December 31,
2018
144,675,339
2017
144,622,006
10,644,950
23,594
155,320,289
144,645,600
-
-
155,320,289
144,645,600
(1)
The Corporation utilizes the treasury stock method for calculating the dilutive effect of share purchase options when the average market price of the Corporation’s common stock
during the period exceeds the exercise price of the option
For the twelve months ended December 31, 2018, 9,758,076 share options (2017 – 8,342,385) were excluded from the
calculation of weighted average common shares outstanding - diluted as the result would be anti-dilutive.
22. Dividends
For the twelve months ended December 31, 2018, the Corporation paid dividends totaling $12.4 million respectively
(December 31, 2017 - $11.6 million).
(000’s except per share amounts)
Record Date
March 31
June 30
September 30
December 31
2018
2017
Amount per share
Total dividend
amount
Amount per share
Total dividend
amount
$ 0.02 $ 2,907 $ 0.02 $ 2,892
0.02
3,285
0.02
2,893
0.02
3,285
0.02
2,894
0.02
3,285
0.02
2,894
$ 0.08 $ 12,762 $ 0.08 $ 11,573
On March 12, 2019, the Corporation’s Board of Directors declared a dividend for the first quarter of 2019 at $0.02 per share.
The dividend is payable to shareholders of record at the close of business on March 31, 2019 to be paid on April 15, 2019.
23. Financial Risk Management
(a) Overview
The Corporation is exposed to a number of different financial risks arising from normal course business operations as
well as through the Corporation’s financial instruments comprised of cash and cash equivalents, trade and other
receivables, trade and other payables, and loans and borrowings. These risk factors include credit risk, liquidity risk,
and market risk, including currency exchange risk and interest rate risk.
The Corporation’s risk management practices include identifying, analyzing, and monitoring the risks faced by the
Corporation. The following presents information about the Corporation’s exposure to each of the risks and the
Corporation’s objectives, policies, and processes for measuring and managing risk.
Page | 71
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
23. Financial Risk Management (continued)
(b) Credit risk
Credit risk is the risk that a customer will be unable to pay amounts due, causing a financial loss; as a result, the
Corporation’s maximum exposure to credit risk is the amount of trade and other receivables and cash and cash
equivalents. The Corporation’s practice is to manage credit risk by examining each new customer individually for credit
worthiness before the Corporation’s standard payment terms are offered. The Corporation’s review may include
financial statement review, credit references, or bank references. Customers that lack credit worthiness transact with
the Corporation on a prepayment only basis.
The Corporation constantly monitors individual customer trade receivables, taking into consideration industry, aging
profile, maturity, payment history, and existence of previous financial difficulties in assessing credit risk. A formal review
is performed each month for each subsidiary, focusing on amounts which have been outstanding for periods which are
considered abnormal for each customer. The Corporation establishes an allowance for doubtful accounts for specifically
identifiable customer balances which are assessed to have credit risk exposure.
The following shows the aged balances of trade and other receivables:
(000’s)
Trade receivables
Neither impaired nor past due
Outstanding 31-60 days
Outstanding 61-90 days
Outstanding more than 90 days
Total trade receivables
Construction receivables
Neither impaired nor past due
Outstanding 31-60 days
Outstanding 61-90 days
Outstanding more than 90 days
Total construction receivables
Accrued revenue
Accrued construction revenue
Other receivables
Allowance for doubtful accounts
Total trade and other receivables
December 31,
December 31,
2018
2017
$ 16,944 $ 23,161
4,908
11,820
2,068
2,221
4,549
7,267
$ 28,469 $ 44,469
$ 13,658 $ 18,655
73
918
1,055
-
2,124
14,006
$ 16,910 $ 33,579
30,687
12,953
29,000
9,695
960
1,034
(3,059)
(2,965)
$ 102,967 $ 98,765
In the twelve months ended December 31, 2018, the Corporation provided an allowance for $3.1 million of receivables
aged greater than 90 days and collected $32,000 that had previously been allowed for. The Corporation also applied
$1.1 million of allowance for doubtful accounts against the associated receivable balance. As at March 12, 2019, the
Corporation has collected $0.6 million on amounts outstanding more than 90 days.
Construction receivables represent progress billings to customers under open construction contracts, holdback
amounts billed on construction contracts which are not due until the contract work is substantially completed, amounts
recognized as revenue under open construction contracts not billed to customers and highly probable claims. At
December 31, 2018, included in construction receivables were holdbacks of $6.9 million (2017 - $0.2 million).
Page | 72
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
23. Financial Risk Management (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting obligations associated with financial
liabilities. The Corporation believes that it has access to sufficient capital through internally generated cash flows and
committed credit facilities to meet current spending forecasts.
To manage liquidity risk, the Corporation forecasts operational results and capital spending on a regular basis. Actual
results are compared to these forecasts to monitor the Corporation’s ability to continue to meet spending forecasts.
As at December 31, 2018, the Corporation has $118.3 million of available room on its committed credit facility (Note
17). The following shows the timing of cash outflows relating to trade and other payables and loans and borrowings:
December 31, 2018
December 31, 2017
Trade and
other
payables(1)
Loans and
Borrowings(2)
Total
$ - $ - $ - $
51,937
-
51,937
4,382
30,894
35,276
-
-
-
424
-
424
2018
2019
2020
2021
2022
2023 and beyond
6,641
-
6,641
Trade and
other
payables(1)
37,936
-
6,276
-
4,941
-
Loans and
Borrowings(2)
-
$
73,016
-
-
-
-
Total
37,936
73,016
6,276
-
4,941
-
$
63,384
$
30,894
$
94,278
$
49,153
$
73,016
$
122,169
(1)
(2)
Trade and other payables include trade and other payables, income taxes payable, and provisions.
Loans and borrowings include Horizon North’s senior secured revolving term credit facility.
(d) Market risk
Market risk is the risk or uncertainty arising from possible market price movements and their impact on future
performance of the Corporation. The market price movements that could adversely affect the value of the
Corporation’s financial assets, liabilities, and expected future cash flows include foreign currency exchange risk and
interest rate risk. As the Corporation’s exposure to foreign currency exchange risk and interest rate risk is limited, the
Corporation does not currently hedge its financial instruments.
(i) Foreign currency exchange risk
The Corporation has limited exposure to foreign currency exchange risk as sales and purchases are typically
denominated in CAD. The Corporation’s exposure to foreign currency exchange risk arises from the purchase of
some raw materials, which are denominated in USD, and a foreign operational entity with USD functional currency.
As the foreign currency exchange risks are primarily based on the realized foreign exchange, the following
sensitivity analysis is to determine the impact on cash used in operating activities. The effect of a $0.01 increase
in the USD/CAD exchange rate would decrease cash used in operating activities for the twelve months ended
December 31, 2018 by approximately $62,400 (December 31, 2017 - $77,000). This assumes that the quantity of
USD raw material purchases and the foreign operations in the year remain unchanged and that the change in the
USD/CAD exchange rate is effective from the beginning of the year.
(ii)
Interest rate risk
The Corporation is exposed to interest rate risk as changes in interest rates may affect interest expense and future
cash flows. The primary exposure is related to the Corporation’s revolving credit facility which bears interest on a
grid pricing structure based on the Corporation’s debt to EBITDAS ratio. Amounts drawn on the credit facility incur
interest at bank prime plus 0.50% to 2.25% or the Bankers’ Acceptance rate plus 1.50% to 3.25%. If prime were to
have increased by 1.00%, it is estimated that the Corporation’s net earnings would have decreased by
approximately $0.6 million for the twelve months ended December 31, 2018 (December 31, 2017 - $0.7 million).
This assumes that the amount and mix of fixed and floating rate debt in the year remains unchanged and that the
change in interest rates is effective from the beginning of the year.
Page | 73
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
24. Capital Management
The Corporation’s main objective is to build a profitable, growth-oriented company. Therefore, the Corporation’s primary
capital management objective is to maintain a conservative balance sheet to maintain investor, creditor, and market
confidence and to sustain future development of the business.
The Corporation monitors capital through two key ratios: total loans and borrowings to EBITDAS(1) and total loans and
borrowings to total loans and borrowings plus shareholders’ equity.
Total loans and borrowings to EBITDAS(1) is calculated as current loans and borrowings plus long-term loans and borrowings
divided by trailing 12 months EBITDAS(1). Total loans and borrowings to EBITDAS(1) is monitored from both a historical and
anticipated EBITDAS(1) perspective.
Total loans and borrowings to total loans and borrowings plus shareholders equity is calculated as current loans and
borrowings plus long-term loans and borrowings divided by current loans and borrowings plus long-term loans and
borrowings plus shareholders’ equity.
The Corporation’s strategy during the twelve months ended December 31, 2018, which was unchanged from 2017, is to
maintain an appropriate level of loans and borrowings in comparison to EBITDAS(1) and total loans and borrowings plus
shareholders’ equity.
(000's)
Statement of financial position components of ratios
Current loans and borrowings (2)
Loans and borrowings (2)
Total loans and borrowings
Shareholders' equity
Total loans and borrowings plus shareholders' equity
Statement of comprehensive income components of ratios (trailing 12 months)
Operating loss
Depreciation
Amortization
Impairment loss
Gain on disposal of property, plant and equipment
Share based compensation
EBITDAS (1)
Total loans and borrowings to EBITDAS (1)
Total loans and borrowings to total loans and borrowings plus shareholders' equity
December 31,
December 31,
2018
2017
$ 772 $ 1,588
30,894
73,016
$ 31,666 $ 74,604
336,743
305,064
$ 368,409 $ 379,668
$ (7,296) $ (5,935)
38,540
40,701
2,749
2,742
-
3,457
(61)
(12,094)
2,751
1,174
$ 36,683 $ 30,045
0.86
0.09
2.48
0.20
(1)
EBITDAS (Earnings before interest, taxes, depreciation, amortization, share based compensation, impairment, gain/loss on disposal of property, plant and equipment, and earnings
from equity investments) is not a recognized measure under IFRS. Management believes that in addition to total profit and total comprehensive income, EBITDAS is a useful
supplemental earnings measure as it provides an indication of the Corporation’s operating performance and it is regularly provided to and reviewed by the Chief Operating Decision
Maker. Horizon North’s method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by other entities.
(2)
The Corporation’s loans and borrowings include the committed credit facility and finance lease liabilities. The Corporation’s variable-rate committed credit facility approximates its
carrying value, as it is at a floating market rate of interest.
Page | 74
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
25. Operating segments
The Corporation operates in Canada through three operating segments: Camps & Catering, Rentals & Logistics and Modular
Solutions.
The Camps & Catering segment combines the camps and catering operations, and the associated services. The Rentals &
Logistics segment combines all other rental operations; mat rental operations, relocatable structures rental operations,
transportation operations and the associated services. The Modular Solutions segment is comprised of all modular
manufacturing and installation operations for commercial and residential end markets. Corporate includes the costs of head
office administration, interest costs, taxes, other corporate costs and residual assets and liabilities.
Information regarding the results of all segments is included below. Inter-segment pricing is determined on an arm’s length
basis.
Twelve months ended
December 31, 2018 (000’s)
Revenue
(1)
EBITDAS
Depreciation and amortization
(Gain) loss on disposal of assets
Share based compensation
Operating (loss) earnings
Total assets
Capital expenditures
Twelve months ended
December 31, 2017 (000’s)
Revenue
(1)
EBITDAS
Depreciation and amortization
Impairment loss on re-measurment of assets held for sale
(Gain) loss on disposal of assets
Share based compensation
Operating earnings (loss)
Total assets
Capital expenditures
Camps &
Catering
Rentals &
Logistics
Modular
Solutions
Corporate
Inter-segment
Eliminations
$
220,117
$
44,152
$
133,155
$
-
$
(3,179)
$
27,565
29,465
(174)
360
(2,086)
344,297
26,385
12,404
10,001
(541)
147
2,797
54,436
10,356
10,466
1,395
245
216
8,610
70,810
2,416
Camps &
Catering
Rentals &
Logistics
Modular
Solutions
$
224,430
$
52,979
$
46,755
$
43,524
30,466
3,457
(11,900)
219
21,282
346,824
11,799
13,913
10,304
-
(285)
22
3,872
62,875
6,401
(14,626)
2,030
-
(4)
127
(16,779)
64,195
1,309
(13,752)
425
409
2,028
(16,614)
2,867
288
Corporate
-
$
(12,766)
645
-
147
806
(14,364)
5,856
606
3
(3)
-
-
-
-
-
Inter-segment
Eliminations
(82)
$
-
-
(2)
(52)
54
-
-
-
Total
394,245
36,683
41,289
(61)
2,751
(7,296)
472,410
39,445
Total
324,082
30,045
43,443
3,457
(12,094)
1,174
(5,935)
479,750
20,115
(1) EBITDAS (Earnings before interest, taxes, depreciation, amortization, share based compensation, impairment, gain/loss on disposal of property, plant and equipment, and earnings
from equity investments) is not a recognized measure under IFRS. Management believes that in addition to total profit and total comprehensive income, EBITDAS is a useful
supplemental earnings measure as it provides an indication of the Corporation’s operating performance and it is regularly provided to and reviewed by the Chief Operating Decision
Maker. Horizon North’s method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by other entities.
26. Related Parties
(000's)
Joint venture
Recovery of administrative overhead
Key management personnel interests
Sales
Included in accounts receivable
December 31,
December 31,
2018
2017
$
- $ 60
$ 256 $ 1,264
84
140
Page | 75
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
26. Related Parties (continued)
For the year ended December 31, 2017, the Corporation earned a management fee of $60,000 for the recovery of
administrative overhead related to accounting and management services provided to Arctic Oil & Gas Services Ltd (“AOGS”),
a joint venture that was 50% owned by the Corporation. As at December 31, 2017, the Corporation sold the 50% investment
in AOGS for total consideration of $1.
During the year ended December 31, 2017, AOGS earned revenue of $1.1 million for catering services provided to E. Gruben’s
Transport Ltd, of which a director of the Corporation is the Chief Executive Officer. The amounts included in trade receivables
of AOGS as at December 31, 2017 were $0.1 million.
The Corporation earned revenue during the year ended December 31, 2018 of $0.3 million (2017 – $0.1 million) for catering
services provided to Trican Well Service Ltd., of which a director of the Corporation is a Director. There was $0.1 million
(2017 - $nil) included in trade receivables as at December 31, 2018.
All related party transactions are in the normal course of operations and have been measured at the agreed exchange
amounts, which is the amount of consideration established and agreed to by the related parties and is similar to those
negotiated with third parties. All outstanding balances are to be settled with cash, and none of the balances are secured.
Key management personnel are those persons that have the authority and responsibility for planning, directing and
controlling the activities of the Corporation, directly or indirectly. Key management personnel of the Corporation include its
named executive officers and the board of directors.
Key management personnel compensation for the year ended December 31, 2018 and 2017 is comprised as follows:
(000's)
Short-term employee benefits
Post-employment benefits
Share based compensation
December 31,
December 31,
2018
2017
$ 2,936 $ 2,148
65
82
1,510
943
$ 4,511 $ 3,173
27. Supplemental Information
Components of change in non-cash working capital balances related to operating activities:
(000's)
Trade and other receivable
Inventories
Prepayments
Investment held for sale
Trade and other payables
Deferred revenue
Purchases of rental fleet
Finance cost payable
December 31,
December 31,
2018
2017
$ (3,364) $ (42,221)
(2,168)
(1,479)
(1,355)
1,061
(858)
14,721
(4,933)
(7,409)
(6)
-
4,464
5,231
(4,519)
110
$ (2,143) $ (40,582)
Page | 76
Notes to the consolidated financial statements
Years ended December 31, 2018 and 2017
28. Significant Subsidiaries
The consolidated financial statements of the Corporation include the accounts of its one wholly-owned partnership, as well
as ten special purpose entities:
Subsidiary Name
Horizon North Camp & Catering Partnership
Kitikmeot Camp Solutions Limited (“Kitikmeot”)
Acho Horizon North Camp Services Limited Partnership (“Acho”)
Secwepemc Camp & Catering Limited Partnership (“Secwepemc”)
Halfway River Horizon North Camp Services Limited Partnership (“HRHN”)
Two Lakes Horizon North Camp Services Limited Partnership (“TLHN”)
Tahltan Horizon North Services Inc.("Tahltan")
Acden Horizon North Limited Partnership ("Acden")
Sekui Limited Partnership ("Sekui")
Eclipse Camp Solutions Incorporated ("Eclipse")
Skin Tyee Horizon North Camp Services Limited Partnership ("STHN")
The Partnership is the primary operating entity of the Corporation.
(a) Special purpose entities
Ownership Interest (%)
Country of
December 31,
December 31,
Incorporation
2018
2017
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
100
100
49
49
49
49
49
49
49
49
49
49
49
49
49
49
49
49
49
49
The Corporation has a 49% interest in the ownership and voting rights of Kitikmeot, Acho, Secwepemc, HRHN, TLHN,
Tahltan, Acden, Sekui, Eclipse, and STHN and maintains two out of four board of director seats in these special purpose
entities (“SPE”). These SPE’s are consolidated when, based on an evaluation of the substance of its relationship with
the Corporation and the SPE’s risks and rewards, the Corporation concludes that it controls the SPE. The SPE’s do not
generate profit but rather have limited assets and the only non-flow through expenses are management fees paid to
the partners. An aboriginal billing vehicle or partnership is required to achieve aboriginal participation and secure
projects in specific regions of Canada. The Corporation’s control is established under terms that impose strict limitations
on the decision-making powers of the SPE’s management. The control results in the Corporation receiving the majority
of the benefits related to the SPE’s operations and net assets, being exposed to the majority of risks incident to the
SPE’s activities and retaining the majority of the residual or ownership risks related to the SPE’s or their assets.
29. Seasonality
Some of Horizon North’s businesses are affected by the seasonality associated with western Canadian oil and natural gas
drilling industry. The Camps & Catering segment is exposed to seasonality where the busiest months are January through
March and the slowest months are April through September. The Rentals & Logistics segment is typically busiest in the spring
and summer months of April through September when soft ground conditions hinder the movement of heavy equipment.
Modular Solutions segment is not impacted by seasonality.
Page | 77
Corporate Information
Directors
Ann Rooney(1)(2)
Calgary, Alberta
Bradley P. D. Fedora(2)(3)
Calgary, Alberta
Dale E. Tremblay(2)(3)
Calgary, Alberta
Kevin D. Nabholz(1)(3)
Calgary, Alberta
Mary Garden(1)(3)
Victoria, British Columbia
Richard T. Ballantyne(1)(2)
Salt Spring Island, British Columbia
Rod Graham
Calgary, Alberta
Russell Newmark(2)(3)
Calgary, Alberta
(1) Audit Committee Member
(2) Health, Safety and Environment Committee Member
(3) Corporate Governance and Compensation Committee Member
Corporate Office
900, 204-4th Avenue S.W.
Calgary, Alberta
T2P 4H4
P 403 517-4654
F 403 517-4678
Website
www.horizonnorth.ca
Officers
Kevin D. Nabholz
Chair of the Board
Rod Graham
President and Chief Executive Officer
Scott Matson
Senior Vice President Finance and Chief Financial Officer
Bill Anderson
Executive Vice President QHSE
Jan Campbell
Corporate Secretary
Legal Counsel
Borden Ladner Gervais LLP
Calgary, Alberta
Auditor
KPMG LLP
Calgary, Alberta
Stock Exchange Listing
Toronto Stock Exchange
Symbol: HNL
Transfer Agent
AST Trust Company
Calgary, Alberta