HYDUKE ANNOUNCES FISCAL 2004 NINE MONTH NET INCOME UP $2.4 MILLION OVER PRIOR YEAR
****Another O&G service company with phenomenal results. Very undervalued IMO
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FSC / Press Release
HYDUKE ANNOUNCES FISCAL 2004 NINE MONTH NET INCOME UP $2.4 MILLION OVER PRIOR YEAR
Edmonton, Alberta CANADA, March 31, 2004 /FSC/ - Hyduke Energy Services Inc. (HYD - TSX Venture), announced today continued strong operating results for the nine months ending January 31, 2004. Net Income of $1.994 million ($0.223 per share) represents a $2.427 million increase over the comparable period in the prior year. While continued strong demand for oilfield services and improved market development have resulted in a Revenue increase of 34% ($8.4 million) over the prior year, an even greater improvement was made in production efficiencies resulting in a Gross Margin increase of 132% ($3.7 million). Hyduke continues to control overhead costs as evidenced by a slight increase in Operating Expenses of $134,212 (6.6%) and a slight decrease in Other Expenses of $67,154 (4.5%) respectively.
NINE MONTHS ENDED JANUARY 31, 2004
Selected Financial Information Nine Months Ended
January 31, January 31, Change
2004 2003
($) ($) ($) (%)
Revenue 32,979,075 24,599,333 8,379,742 34
Gross margin 6,472,704 2,787,348 3,685,356 132
EBITDA 3,199,310 810,733 2,388,577 294
Net income (loss) 1,994,241 (432,564) 2,426,805 n/a
Net income (loss) per share
? basic 0.223 (0.048) 0.271 n/a
Net income (loss) per share
? diluted 0.214 (0.048) 0.262 n/a
Note: Please refer to the published quarterly financial statements as reported on SEDAR for full detail on the financial position, operations and cash flows of the organization.
Revenue
For the nine months ended January 31, 2004, the Company recorded total sales of $32,979,075 compared to $24,599,333 in the prior year. This represents a total increase of $8,379,742 (34.1%) which is comprised of increases in sales in the well service equipment and supplies segment of $3,944,579 the drilling equipment segment of $4,140,921, the pneumatics segment of $469,174, the inspection and engineering segment of $196,880 and offset by a decrease in sales in the truck mounted equipment segment of $224,026 and the machining segment of $147,786. Divisional increases are consistent with the overall increase in demand for oilfield services in Canada on a year over year basis. Decreases in the truck mounted equipment and machining segment are related primarily to reductions in demand from two major customers.
Gross margin
For the nine months ended January 31, 2004, gross margin increased to $6,472,704 from $2,787,348 or a year over year increase of $3,685,356 (132%) due to two reasons.
The first reason, which represents approximately 34% of the increase, relates to increased sales volumes.
The second reason, which represents approximately 66% of the increase, relates to improved realized gross margins (from 11.3% in the prior year to 19.6% in the current year) from a combination of improved operating efficiencies, improved pricing from strong demand for oilfield services and increased sales volumes improving gross margin percentages after covering manufacturing fixed costs included in cost of sales.
Operating expenses
Administration and employment expense of $1,256,713 represents an increase over the prior year of $266,850 or 27%. This increase relates to increased staff associated with Hyduke's safety program, quality assurance program and increased demand for administrative and support functions.
Office and automation expenses of $656,571 are consistent with the prior year.
Sales and marketing expenses of $158,397 are consistent with the prior year.
Consulting and professional fees of $77,301 represents a decrease over the prior year of $86,232 or 53% and is primarily due to reduced legal and information technology fees.
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Other expenses
Amortization of capital assets expense of $425,803 is consistent with the prior year.
Amortization of other intangible assets expense of $521,372 is consistent with the prior year.
Short-term debt and bank indebtedness interest expense of $254,755 represents an increase of $64,480 or 34% and is due to increased levels of bank indebtedness.
Interest on long-term debt expense of $540,063 is consistent with the prior year.
Gain on disposal of assets of $50,816 relates to capital gain realized on disposals of short term investments.
Other income of $249,894 represents an increase of $112,392 or 82% and relates to increased rental revenues, handling fees and financing charges and fluctuates with activity levels.
Default under debt obligations - senior debt
On October 31, 2001, the Company consolidated all its bank indebtedness and entered into a credit agreement with a senior lender to provide a revolving credit facility and term loan. Under the terms of the credit agreement, the Company is required to maintain certain operational and financial covenants.
At various times throughout the year the Company was in breach of certain financial covenants under the senior lender credit agreement. At January 31, 2004, the Company had remedied the covenant breaches. Subsequent to January 31, 2004, the Company entered into an amending agreement whereby the historical covenant breaches were waived by the senior lender.
Default under debt obligations - subordinate debentures
The Company has issued two subordinated debentures totaling $2,000,000 bearing interest at 18% per annum payable in two components: 12% per annum payable monthly and 6% per annum payable annually beginning December 15, 2002. One debenture in the amount of $1,500,000 is repayable in 36 monthly instalments of $31,250 beginning December 15, 2003 with the balance of $375,000 due November 15, 2006. The other debenture in the amount of $500,000 is repayable in full on November 15, 2003.
The Company is in default as the 6% interest annual payment and the scheduled principal repayments have not been made in accordance with the debenture agreements. Under the debenture agreements, the debenture holder can accelerate repayment of all obligations of the debentures while the Company is in default.
The Company is working closely with the debenture holder to formally restructure the repayment schedule and waive the default. As the debenture holder has not given notice to accelerate repayment, the debentures have been classified in accordance with their original terms.
Subsequent event
On February 10, 2004, conditional approval was received from the TSX Venture Exchange to convert $4,185,000 in subordinated debt held by Gene Wirsta into 8,370,000 common shares of the Company. The Company recently received consent from its senior lender regarding this transaction. The proposed debt conversion was detailed in the September 16, 2003 Information Circular and was approved by the Company's shareholders at the October 30, 2003 Annual General and Special Meeting.
The Company owes Eugene Wirsta $4,185,000 and intends to issue 8,370,000 common shares of the Company at a deemed price of $0.50 per common share as full and final payment and satisfaction of this obligation. Subsequent to this conversion, Eugene Wirsta will own 8,897,500 common shares out of a total of 17,326,331 common shares or 51.4% of the Company. Eugene Wirsta is the Interim Chairman of the Board of Directors and is active in the day-to-day management of Hyduke. The Company plans to complete this conversion effective April 30, 2004.
Liquidity and solvency
As at January 31, 2004, the Company's current ratio was 0.82 to 1.00 as reported in the consolidated interim financial statements. Included in current liabilities is subordinated debt of $4,185,000 owing to Eugene Wirsta which is conditionally approved to be converted into common shares effective April 30, 2004. Management has calculated the Company's pro-forma current ratio, after considering the effect of the conversion as if it took place at January 31, 2004, to be 1.04 to 1.00.
Outlook
Drilling industry associations continue to forecast record levels of wells to be drilled during calendar 2004. Commodity prices for both oil and gas have remained consistently strong throughout 2003 and are expected to continue. Generally, the Hyduke group of companies will see oilfield service activity follow along with drilling activity. Hyduke is well positioned to capitalize on this strength and expects strong performance throughout this drilling season.
Risks and Uncertainties
This document contains certain forward-looking statements based on current estimates, expectations and management assessment of business risks and uncertainties. Factors beyond management's control such as commodity prices and general economic conditions could have a significant impact on Hyduke's actual future performance.
Hyduke Energy Services Inc. is an integrated oilfield services company specializing in the manufacture, repair and sales of oilfield equipment and supplies. The range of products include oilfield drilling and well service rigs, pump trucks, generator & combination buildings, pneumatic controls, various models of truck mounted cranes, oilfield supplies, drilling tools, engineering services, machining and fabrication.
For further information contact:
Gordon R McCormack
President and CFO
(780) 463-2585
TSX Venture Exchange Inc. has not reviewed and does not accept responsibility for the adequacy or accuracy of this News Release.
Hyduke Energy Services Inc.
9305-27 Avenue
Edmonton, Alberta, Canada
T6N 1C9
Telephone: (780) 463-2585
Facsimile: (780) 988-5768
TSX-V Symbol: HYD
Website: www.hyduke.com |
