Hyduke Energy Services Inc. HYKCF

HYD Announces Record Profitability!!

[pritz]

HYDUKE ENERGY SERVICES INC. ANNOUNCES RECORD PROFITABILITY FOR FIRST QUARTER ENDED JULY 31, 2005 09:25 EDT Monday, October 03, 2005 FSC / Press Release HYDUKE ENERGY SERVICES INC. ANNOUNCES RECORD PROFITABILITY FOR FIRST QUARTER ENDED JULY 31, 2005 Edmonton, Alberta CANADA, October 03, 2005 /FSC/ - Hyduke Energy Services Inc. (HYD - TSX Venture), announced today operating results for the first quarter of fiscal 2006. Continued strength in domestic demand combined with continued penetration into international markets have resulted in Hyduke achieving record revenues for the first quarter of fiscal 2006. Revenue of $23.2 million represents an 89% increase over revenue of $12.3 million for the same period in the prior year. Fiscal 2006 first quarter gross margin of $3.5 million represents a 68% increase over gross margin of $2.1 million in the prior year. Fiscal 2006 first quarter net income of $1.4 million ($0.080 per share) represents a 173% increase over net income of $0.5 million ($0.029 per share) for the same period in the prior year. Selected Annual Financial Information Three Months Ended July 31 ------------------------------------------------------------------------------ ($000's, except per share data and ratios) 2005 2004 2003 ------------------------------------------------------------------------------ Revenues 23,245 12,324 9,931 ------------------------------------------------------------------------------ Gross margin 3,536 2,104 1,752 ------------------------------------------------------------------------------ Gross margin (%) 15.2% 17.1% 17.6% ------------------------------------------------------------------------------ Net income 1,392 509 310 ------------------------------------------------------------------------------ Net income per share ? basic 0.080 0.029 0.035 ------------------------------------------------------------------------------ Net income per share ? diluted 0.079 0.029 0.035 ------------------------------------------------------------------------------ Total assets 33,270 26,765 23,917 ------------------------------------------------------------------------------ Total long-term debt 5,381 5,065 9,618 ------------------------------------------------------------------------------ Current ratio (current assets divided by current liabilities) 1.31 to 1.00 1.02 to 1.00 0.75 to 1.00 ------------------------------------------------------------------------------ Debt to Equity ratio (total debt divided by shareholders' equity) 2.43 to 1.00 2.44 to 1.00 9.27 to 1.00 ------------------------------------------------------------------------------ Note: Please refer to the published audited financial statements and management's discussion and analysis as reported on the System for Electronic Document Analysis and Retrieval ("SEDAR") website at www.sedar.com for full detail on the financial position, results of operations and cash flows of the organization. SUMMARY OF OPERATING RESULTS Revenues ------------------------------------------------------------------------------- Revenues by Industry Segment Three Months Ended July 31 2005 2004 Change ($000's) ($) ($) (%) ------------------------------------------------------------------------------- Drilling equipment 16,160 6,116 164% ------------------------------------------------------------------------------- Well service equipment 5,070 3,981 27% ------------------------------------------------------------------------------- Other oilfield services 2,015 2,227 (10%) ------------------------------------------------------------------------------- Total revenue 23,245 12,324 89% ------------------------------------------------------------------------------- For the three months ended July 31, 2005, Hyduke recorded total sales of $23,245,344 compared to $12,323,775 in the prior year. The total increase of $10,921,569 (89%) is comprised of increases in the Drilling Equipment segment of $10.0 million (164%) and the Well Service Equipment segment of $1.1 million (27%) offset by a slight decrease in the Other Oilfield Services segment of $0.2 million (10%). Sales growth in the Drilling Equipment segment is due primarily to four factors. First, Hyduke's strategic initiative to develop international markets has been successful with international revenues increasing to approximately $6.8 million in fiscal 2006 first quarter from under $0.3 million in the prior year. Specifically, Hyduke completed and delivered its first major international API rig project in the first quarter. Additionally, Hyduke is approximately 70% complete on its second major international API rig project at quarter-end. Second, Canadian drilling activity continues at high levels and demand for consumables and repair services is high. Third, the high demand for drilling services resulted in drilling contractors investing in new capital equipment. Finally, Hyduke is continuing its emphasis on expanding market share in existing products and services and on providing additional products and services to the drilling equipment sector. Sales growth in the Well Service Equipment segment is due to continuing strong demand for Hyduke's services and Hyduke's continuing emphasis on expanding market share and providing additional products and services. The slight sales decrease in the Other Oilfield Services segment is due to one additional large crane sale and rig-up in fiscal 2004 compared to fiscal 2005. Gross margin Gross Margin by Industry Segment ------------------------------------------------------------------------------- Revenues by Industry Segment Three Months Ended July 31 2005 2004 Change ($000's) ($) (%) ($) (%) ($) (%) ------------------------------------------------------------------------------- Drilling equipment 2,794 16.4% 1,044 17.1% 1,750 168% ------------------------------------------------------------------------------- Well service equipment 531 10.0% 610 15.3% (79) (13%) ------------------------------------------------------------------------------- Other oilfield services 211 10.3% 450 20.2% (239) (53%) ------------------------------------------------------------------------------- Total gross margin 3,536 15.2% 2,104 17.1% 1,432 68% ------------------------------------------------------------------------------- For the three months ended July 31, 2005, overall gross margin increased to $3,535,773 from $2,104,080 or a year over year increase of $1,431,693 (68%). Drilling Equipment: The reduced gross margin percentage in fiscal 2006 first quarter compared to the prior year is primarily due to four factors. First, increased work in progress on a year-over-year basis is associated with a more conservative gross margin being accrued associated with the Company's revenue recognition policies. Work in progress represents costs and expected margin on unbilled jobs in progress at period-end. Generally, the Company estimates margins on work in progress at a slightly lower amount than historical margins actually realized on completed and billed jobs. This conservatism is intended to hedge against unforeseen material and labor cost increases while the project is in progress. Specifically, at quarter-end, one major international rig project was approximately 70% complete and due to the significant estimations required in determining percentage of completion, the expected margins recorded have been accounted for more conservatively than work in progress on shorter-term projects. Second, a shortage of skilled trades has negatively impacted production efficiency. As a result, training and lower experience levels have not maintained efficiencies. It is expected that over time, improvement will be realized from the investment in training and experience gains will occur resulting in improved efficiency. Third, increased input costs have negatively affected longer term quoted projects. In response to volatile steel prices, Hyduke has been coordinating quoting, contract terms and conditions to customers and raw material procurement functions in an attempt to limit exposure to fluctuations in input costs. Fourth, increased costs have been incurred associated with safety and quality assurance programs and in particular, compliance with the API 4F certification. Management expects that compliance costs on these programs will be higher in the early years of adoption and will decrease over time. Additionally, it is expected that over time, these additional compliance costs will be reflected in a higher market price for products and services. Well Service Equipment: Reduced gross margin in this segment is primarily due to significant erosion in gross margin in the well service equipment manufacturing and repair division. This decrease in gross margin is primarily due to three factors. First and most importantly, a shortage of skilled and experienced heavy-duty mechanics and to a lesser degree, welders, has negatively impacted production efficiency. As a result, project hours due to training and lower experience levels have reduced efficiencies. It is expected that over time, improvement will be realized from the investment in training and experience gains will occur resulting in an improvement in efficiency. Second, new entrants into this industry segment have created pressure on market pricing in the face of increased input costs. Hyduke is addressing this competitive pressure by emphasizing product strengths that differentiate Hyduke from its competitors. These strengths include in-house engineering design and inspection, commitment to quality improvement and strong quality assurance programs. Third, similar to what has been experienced in the Drilling Equipment segment, increased input costs and safety and quality assurance compliance costs have contributed to lower margins. Other Oilfield Services: Reduced gross margin in this segment is primarily due to significant erosion in gross margin in the truck mounted crane and equipment division. This decrease in gross margin is primarily due to two factors. First and most importantly, a shortage of skilled and experienced heavy-duty mechanics and to a lesser degree, welders, has negatively impacted production efficiency. As a result, project hours due to training and lower experience levels have reduced efficiencies. It is expected that over time, improvement will be realized from the investment in training and experience gains will occur resulting in an improvement in efficiency. Secondly, similar to what has been experienced in the Drilling Equipment and Well Service Equipment segments, increased input costs and safety and quality assurance compliance costs have contributed to lower margins. Outlook Market conditions for the oil and gas sector in Western Canada are expected to continue to be favourable throughout the remainder of fiscal 2006. Additionally, Hyduke expects oil and gas activity internationally will be strong allowing continued expansion in its international market presence. Volatility in material and equipment component availability and pricing combined with tightening labour supply markets will continue to prevail throughout the year. Hyduke management is looking at a number of initiatives in 2006 to expand its production capacity. Hyduke is confident that fiscal 2006 will be another positive year in terms of revenue growth, gross margin improvement and strong net income. Forward-looking Statements This news release contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties. These business risks and uncertainties may cause actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward looking statements. About Hyduke Hyduke Energy Services Inc. is an integrated oilfield services company specializing in the manufacture, repair and distribution of oilfield equipment and supplies. Hyduke is headquartered in Edmonton, Alberta and has facilities in Edmonton, Calgary, Nisku, Red Deer and Lloydminster, Alberta. Hyduke operates in three industry segments. The Drilling Equipment segment includes manufacture and repair of land based drilling rigs and drilling rig structures, supply and repair of drilling rig equipment, procurement and distribution of drilling supplies, supply and service of pneumatic controls, engineering and design of drilling rigs and inspection and certification of drilling rig equipment. The Well Service Equipment segment includes manufacture and repair of well service rigs, mobile and skid mounted pump units and other well service equipment, procurement and distribution of well servicing supplies, supply and service of pneumatic controls, engineering and design of well service rigs and inspection and certification of well service equipment. The Other Oilfield Services segment includes manufacture and distribution of cased hole and overburden drill bits and drilling systems, custom and production machining services, and distribution and repair of truck-mounted equipment including cranes, winches and dump boxes. For further information contact: Gordon R. McCormack President and Chief Executive Officer [phone] TSX Venture Exchange 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: [phone] Facsimile: [phone] TSX-V Symbol: HYD Website: www.hyduke.com Maximum News Dissemination by Filing Services Canada Inc. Ph: [phone] Fx: [phone] www.usetdas.com © Copyright Filing Services Canada