News Column

Northern Frontier Corp. Announces its Second Quarter 2014 Financial Results

August 18, 2014

/THIS NEWS RELEASE IS INTENDED FOR DISTRIBUTION IN CANADA ONLY AND IS NOT AUTHORIZED FOR DISTRIBUTION TO THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

CALGARY, Aug. 18, 2014 /CNW/ - Northern Frontier Corp. (TSX-V: FFF) (the "Corporation" or "NorthernFrontier") is pleased to announce its second quarter 2014 financial results.

Financial Results

For the three months ended June 30, 2014 ("Q2 2014"), management continued to focus on developing its civil service and logistics business, evaluating our pipeline of acquisition opportunities and sourcing the capital to execute on our growth strategy. During Q2 2014 Northern Frontier:

• generated revenue of $11.6 million, a decrease of $6.3 million or 36% from the three months ended March 31, 2014 ("Q1 2014"); • realized EBITDA of $0.8 million (7% of revenue) as compared to $3.5 million (20% of revenue) for Q1 2014; • negotiated the proposed acquisition of Central Water and Equipment Services Ltd. ("Central Water"); and • was evaluating financing options to restructure the Corporation's balance sheet and to close the acquisition of Central Water.

Selected Financial Information

 
(in 000's CAD, except as noted)3 months ended

Jun 30, 2014
3 months ended

Jun 30, 2014
6 months ended

 Jun 30, 2014
7 months ended

 Jun 30, 2013
                 
Revenue $  11,572 $             - $  29,431 $            -
                 
Gross Profit   1,946   -   6,479   -
  as a % of revenue   17%   N/A   22%   N/A
                 
EBITDA (1)   814   (24)   4,298     (140) 
  per share 

  as a % of revenue
$        0.07

7%
$       (0.03)

N/A
$        0.38

15%
$     (0.15)

N/A
                 
Net loss and comprehensive loss   (2,493)   (561)   (2,162)   (1,167)
  per share - basic and diluted$       (0.22)      (0.61)$       (0.19)    (1.27)
                 
Dividends declared   729   -   1,458   -
  per share     0.065   N/A$        0.130   N/A
                 
Cash generated by (used in) operations (before non-cash

working capital)
  (1,023)   (561)   1,734   (1,167)
  per share$       (0.09)      (0.61)$        0.15$      (1.27)
                 
Capital expenditures   3,606   -   7,570   -
                 
Capital management: (2)                
  Cash flow coverage ratio (3)           1.90   N/A
  Funded debt to EBITDA           3.18   N/A
Weighted average common shares outstanding - basic   11,220,409   918,533   11,208,125   918,533
Weighted average common share outstanding - diluted   11,220,409   918,533   11,208,125   918,533



Financial Position

 


(in 000's CAD, except as noted)
Jun 30, 2014Dec 31, 2013
     
Working Capital (4)$    5,524$    5,149
Total assets 75,134 75,463
Funded Debt (5)38,206 32,723
Equity 28,347 31,592
Common shares outstanding 11,220,409 11,160,609
Common share purchase warrants outstanding 5,115,639 5,115,639


(1)EBITDA (earnings before finance costs, taxes, depreciation and amortization, gain/loss on disposal of property and equipment, share-based compensation and other specified costs) is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".
(2)The definition of these measures are in accordance with the lending agreements and are calculated based on the lenders' interpretation, which may not be equal to individual financial statement amounts.
(3)Cash flow coverage ratio is defined as EBITDA less unfunded capital expenditures and distributions to required principal and interest payments on funded debt.
(4)Working Capital (current assets excluding cash and cash equivalents less current liabilities excluding current portion of loans and borrowings and obligations under finance lease) is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".
(5)Funded Debt (loans and borrowings (before unamortized debt issue costs) and obligations under finance lease less cash and cash equivalents) is not a recognized measure under IFRS. Refer to "Non-GAAP Measures".



Northern Frontier did not have active operations until September 27, 2013 when it completed its platform acquisition of 794522 Alberta Ltd. ("NEC") and certain operating assets of CRC Open Camp & Catering Ltd. ("CRC"). As a result, the Corporation does not have a prior year comparable period, hence the Corporation has used the prior quarter for variance purposes. Furthermore, operating activities are negatively impacted by wet and / or unstable ground conditions due to rain and thawing in the spring. As such, the second quarter is typically weaker than the first quarter of the year.

The decrease in revenue and EBITDA for Q2 2014 as compared to Q1 2014 was the result of customer programs transitioning from winter to summer, wet conditions experienced during the quarter, revenue mix and certain project deferrals by our key customers.

The Corporation was in breach of certain financial covenants under its credit facilities at June 30, 2014 (effective with the release of the June 30, 2014 financial statements). Subsequent to June 30, 2014, the Corporation negotiated a series of proposed debt and equity transactions, in part, to refinance its current debt facilities outstanding (herein referred to as the "Refinancing"). It is expected that the Refinancing will close on or about August 28, 2014 and that it will remedy the financial covenant breaches. If the proposed Refinancing does not close as contemplated, the Corporation will remain in breach of the aforementioned covenants and there is no assurance that the parties to the credit facilities will not exercise their rights under their respective agreements which could negatively impact the Corporation's liquidity.

Proposed Acquisition of Central Water

As previously announced (May 20, 2014, June 27, 2014 and August 11, 2014) the Corporation agreed to acquire Central Water (the "Acquisition"), a leading provider of water and fluids transfer services in the oil and natural gas and industrial sectors in western Canada. The purchase price of $24.1 million, subject to an adjustment for current year growth capital expenditures made by Central Water, currently estimated to be approximately $0.6 million, which is subject to change and will be finalized on closing (before giving effect to certain post-closing adjustments) is approximately 3.65x Central Water's trailing EBITDA for the 12 months ended June 30, 2014. The purchase price also has certain earn-out adjustments, as detailed in our previous news releases referenced above.

Central Water provides a variety of equipment and services for storage tank and pipeline hydro-testing, site maintenance, dewatering, emergency and remote site water transfer and water and fluid disposal. Management's acquisition rationale included:

• highly profitable business with low capital intensity; • complementary to Northern Frontier's existing operations, adding diversification to services and revenue sources; • opportunity to cross-sell and cross-utilize service offerings across the respective customer bases; and • meaningful organic growth potential within the bulk water and fluids transfer segment via existing and ancillary services.

Refinancing of Existing Credit Facilities

As announced on August 11, 2014, The Corporation has executed a term sheet with its existing senior lender for up to $80.6 million of new committed syndicated senior credit facilities (the "New Senior Credit Facilities") and expects to establish the New Senior Credit Facilities in conjunction with and as conditions of closing the Acquisition and the Offering (as defined herein). The New Senior Credit Facilities are expected to consist of:

• a $15.0 million committed revolving credit facility; • a $42.6 million committed non-revolving term loan; and • a $20.0 million committed revolving reducing term loan.

The New Senior Credit Facilities will be subject to a pricing grid based on the then applicable ratio of senior funded debt to EBITDA. The interest rate grid for the New Credit Facilities will be set at market rates in line with other senior credit facilities of this size and nature. The New Senior Credit Facilities is expected to have maturities of four years

As conditions of closing of the Offering and the Corporation entering into the New Senior Credit Facilities, the Corporation intends to repay and terminate all of its existing Senior Facility and Subordinated Facility (the "Refinancing"), exclusive of existing finance leases.

Bought Deal Equity Financing

As announced on August 11, 2014, concurrent with the completion of the Acquisition, the Corporation intends to complete a bought deal equity offering (the "Offering") with a syndicate of investment dealers co-led by Cormark Securities Inc., Acumen Capital Finance Partners Limited and GMP Securities L.P. and including M Partners Inc. (the "Underwriters"). The Corporation has entered into an agreement with the Underwriters pursuant to which the Underwriters have agreed to purchase 9,303,000 Units from the treasury of the Corporation at a price of $2.15 per Unit (the "Offering Price") and offer them to the public by way of short form prospectus for gross proceeds to the Corporation of approximately $20.0 million.  Each Warrant will entitle the holder to acquire one common share of the Corporation (a "Warrant Share") at a price of $3.40 per Warrant Share for 18 months following the Closing Date.  Additionally, the Corporation has granted the Underwriters an option to purchase up to an additional 1,395,450 Units from the treasury of the Corporation at the Offering Price for additional gross proceeds to the Corporation of up to approximately $3.0 million, exercisable at any time up to 30 days following the Closing Date, for market stabilization purposes and to cover over-allotments, if any.

As of August 18, 2014, the Acquisition, New Senior Credit Facilities, Offering and Refinancing have not been completed and there is no assurance that they will be completed in the future.

Outlook

Northern Frontier expects demand for our services to increase for the second half of fiscal 2014 based on discussions with our customers, driven by new construction and successful production results from existing facilities within the SAGD market that the Corporation participates in. Furthermore, management expects Central Water to contribute significantly to revenue and gross margin immediately following the close of the transaction which is expected to occur on or about August 28, 2014.

Additional Information

Northern Frontier's unaudited condensed interim financial statements for the three and six months ended June 30, 2014 and management discussion and analysis ("MD&A") for the three and six months ended June 30, 2014 have been filed with the Canadian securities regulatory authorities and may be accessed under the Corporation's profile on SEDAR at www.sedar.com.

Conference call

Management of Northern Frontier will hold a conference call on Tuesday, August 19, 2014, at 9:30 a.m.Calgary / 11:30 a.m.Toronto time.  The call will feature remarks by Chris Yellowega, President and CEO and Monty Balderston, Executive Vice President and CFO regarding the financial results.

Conference dial-in instructions are as follows:

Toronto: 416.764.8609

North America: 888.390.0605

Conference ID:  48884002

A replay of the call will be available 24 hours after the event until 11:59 p.m. EST on August 26, 2014. To access the archived conference call, please dial 1.888.390.0541 and enter passcode 884002.

About Northern Frontier Corp.

Northern Frontier's strategic objective is to create a large industrial and environmental services business through a buy and build growth strategy. Currently, the Corporation provides civil construction and excavation services to the industrial industry, primarily in the in situ Oilsands region south of Fort McMurray, Alberta.  Through providing these services to large industrial customers in the steam assisted gravity drainage ("SAGD") region of northeastern Alberta, the Corporation focuses on the ongoing demand for services to support operating facilities, sustaining capital expenditures to maintain production levels of those facilities and the development of new production capacity.

The Corporation's common shares and common share purchase warrants are listed on the TSX Venture Exchange under the trading symbol "FFF" and "FFF.WT", respectively.

Reader Advisory

Securities Law Matters

This news release does not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale of any securities in any jurisdiction in which such offering, solicitation or sale would be unlawful.

Forward-Looking Statements

This news release includes certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology.  These forward-looking statements include, among other things, statements in respect of:

completion of the Acquisition, New Credit Facilities, Offering and Refinancing;anticipated use of net proceeds from the New Credit Facilities, Offering and Refinancing;terms of the Acquisition, New Credit Facilities, Offering and Refinancing;anticipated benefits of completing the Acquisition, New Credit Facilities, Offering and Refinancing;expectations of future financial performance of the Corporation; andthe diversification of the Corporation's operations.

These statements are only predictions and are based upon current expectations, estimates, projections and assumptions, which the Corporation believes are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In making such forward-looking statements, assumptions have been made regarding, among other things, industry activity, the state of financial markets, business conditions, continued availability of capital and financing, future oil and natural gas prices and the ability of the Corporation to obtain necessary regulatory approvals. Although the Corporation believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements.

By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. These risks and uncertainties include: the possibility that the parties will not proceed with the Acquisition, New Credit Facilities, Offering and Refinancing, that the ultimate terms of the Acquisition, New Credit Facilities, Offering and Refinancing will differ from those that are currently contemplated, that the Acquisition, New Credit Facilities, Offering and Refinancing will not be successfully completed for any reason (including the failure to obtain the required approvals from regulatory authorities) and regulatory changes. Investors are cautioned that forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements.  The Corporation has no obligation to update any forward-looking statements set out in this news release, except as required by applicable law.

Non-GAAP Measures

Selected financial information for the three and six months ended June 30, 2014 is set out above and includes the following measures that are not recognized under International Financial Reporting Standards ("IFRS") and are non-generally accepted accounting principles ("non-GAAP") measures: EBITDA, Working Capital and Funded Debt. This information should be read in conjunction with the consolidated financial statements for the three and six months ended June 30, 2014 and the Corporation's MD&A for the three and six months ended June 30, 2014 available under the Corporation's profile on SEDAR at www.sedar.com. Further information regarding these non-GAAP measures is contained in the Corporation's MD&A.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

 

SOURCE Northern Frontier Corp.


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