Q2 2006 CHC Helicopter Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen, thank you for standing by and welcome to the CHC Helicopter Corporation second quarter results conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. (Operator Instructions). As a reminder, this conference is being recorded today, Wednesday, December 14, 2005. I would now like to turn our conference over to Sylvain Allard, President and CEO.

SYLVAIN ALLARD, PRESIDENT, CEO, CHC HELICOPTER: Thanks, Rose. Good morning everyone and thank you for joining this conference call. As per the Safe Harbor clause, we're going to discuss certain subjects that may contain forward-looking information. The Company cautions you that actual results could differ materially from those that may be projected in these discussions. Additional detailed information concerning a number of factors that could cause results to differ materially from the information that will be given is readily available on the Company's Form 20-F, annual information form and in other filings with U.S. and Canadian securities authority.

Now let's review the second quarter for fiscal 2006. As you read in our press release, our second quarter was a very busy one as we signed several new oil and gas contracts, sold our remaining interest in CHL and were awarded the Maritime Coast Guard contract in the UK. We have also exercised our option to acquire a significant equity position in BHS as we pursue opportunities in Brazil.

Financially, our second quarter showed strong growth in revenue in all operating divisions, but the continued strength of the Canadian dollar had a significant impact on our reported revenues. Our net earnings were also negatively impacted by higher cost of debt and operating expense to support our extensive fleet expansion program to satisfy upcoming new contracts.

Revenue for the second quarter was $252.1 million, an increase of $12.6 million from the same period last year. This increase was primarily due to an impressive $32.7 million, or a 14% increase, which was offset by a negative foreign exchange impact of approximately $20 million. Excluding FX, revenue in global operations increased by 20.3% from the second quarter last year and EBITDAR increased in our global and European operations, most significantly in global operations where segment EBITDAR increased 22.4% from the second quarter last year.

Net earnings from continuing operations for the second quarter were $41.6 million, or $0.91 per diluted share, an increase of 25.6 million, or $0.56 per diluted share from the same period last year. Several significant onetime factors impacted net earnings in the quarter compared to last year. On the positive side, the largest impact was due to the after-tax gain on the sale of CHL and other long-term investments of $17.5 million, or $0.38 per share diluted. As well, we had a decrease in tax expense of $5.8 million, or $0.13 per diluted share. On the negative side, we have incurred after-tax restructuring costs of $3.7 million, or $0.08 per diluted share.

All of these factors combined increased earnings by $0.43 per share diluted, leaving $0.48 per share in operating earnings. In addition to these onetime items, foreign exchange negatively impacted operating income by $2 million, or $0.04 by diluted share and after-tax interest expense also increased by $2.6 million, or $0.06 per share as a result of higher interest cost and debt level related to investment in new aircraft. Our tax rate also increased slightly by 2.9%, further reducing net earnings by $0.5 million.

As we reported last quarter, effective May 1, 2005, the Company was organized under a new operational and management structure. Consistent with this new structure, we are reporting our results under four segments -- Global Operations, European Operations, Heli-One and Corporate. The focus for management of both Global Operations and European Operations is operating efficiency and, thus, maximization of segment EBITDAR. The focus for Heli-One and the Corporate Group is maximizing return on assets, including the Company's aircraft fleet at fair market value. Management incentives are primarily based on these direct and controllable measures.

In the second quarter, the Company realized general and administration cost reductions of approximately $2 million in relation to restructuring changes and headcount reduction, primarily in the Netherlands where we consolidated the operations of Schreiner into the Company's new operating segments. We expect that further headcount reductions will be realized primarily in Europe, impacting the European operations and the Heli-One segment. It is important to note that the Company has temporarily increased the number of employees in some jurisdictions to manage the restructuring initiatives and progress and has also increased personnel to support newly acquired businesses and the worldwide implementation of a standard IT platform, reporting and control procedures.

Also, as we discussed last quarter, we are finalizing the implementation of our new European ownership structure that will yield several benefits. First, it will align our legal structure with the management structure of Heli-One and our European operations whereby Heli-One will own the helicopters and spares and the operations will focus on delivering a safe and efficient customer service. Second, the new European structure will not rely on Mr. Dobbins' (ph) ownership to meet the European licensing requirements; and third, it will reduce our average effective tax rates and cash outflows. We expect that the new European structure will be implemented next spring.

Total restructuring costs in the first quarter -- in the second quarter were 5.3 million, primarily consisting of severance costs and professional fees. We expect further restructuring costs of about $8 million during next two quarters and we expect continued support cost reductions that should impact positively on operating margins and net income progressively through fiscal 2006.

Beyond support cost reduction, the benefit of this consolidation in Vancouver was remarkable from a management point of view. It helped us tremendously in coping with the increased demand in our operations as well as given us the ability to centralize our financial functions to effectively address the SOX requirements in a complex multinational company, like CHC.

I will now provide highlights of operating results by segment. First, our Global Operations segment. Our Global Operations segment is continuing to growth at an accelerated pace compared to last year and maintaining its 20% plus growth rate in revenue and in EBITDAR. Revenue for the second quarter was $80 million, an increase of 8.8 million from the same period last year. This increase was primarily the result of increased flying revenue of $16.9 million revenue from new and extended contracts in the international markets which was partially offset by a negative foreign exchange impact of $5.7 million. Flying activity was strong and increased by almost 1800 hours in the second quarter, compared to the same period last year, and by nearly 800 hours compared with first quarter of this year.

Segment EBITDAR for the second quarter was $22.5 million, an increase of 2.6 million from the same period last year. This increase was primarily due to an increase of $4.5 million earned on increased revenue, offset by unfavorable foreign exchange impact of $1.9 million. Excluding FX, segment EBITDAR increased 22.4% from the second quarter of last year.

Growth in the Global Operations segment is expected to continue as contracts already awarded generate additional revenue and segment EBITDAR and as new opportunities develop in Southeast Asia and West Africa, more specifically, Nigeria. And as I pointed out earlier, we have also exercised our option to acquire a significant equity position in BHS as we pursue opportunities in Brazil. Brazilian Helicopters is one of the largest helicopter operators in Brazil offshore sector with 200 employees and operating a fleet of eight aircraft, including Super Puma Mark IIs and 76s.

We should be in a position to announce the results of our tender for Petrobras for several new medium helicopters any day now. I am hopeful that we will be awarded our fair share of this contract that is scheduled to start in mid-2006.

And as far as awards are concerned, Global Operations announced the following contracts during this quarter -- a five-year contract renewal plus one year option with Petronas (ph) for S-76C Pluses (ph) and (indiscernible) Southeast Asia; a new four-year contract for the lease of two Bell 412s in India; a one-year contract extension in Iran with E&I for the provision of two Eurocopter Dauphins and a new two-year contract plus one-year option with Kine (ph) Energy in Bangladesh. And much closer to home, a multi-year renewal for Sikorsky 61 services in support of the Sable Offshore Energy project in Halifax, Canada. As of October 31, 2005 Global Operations operated 128 aircraft, consisting of 19 heavy, 85 medium, seven lights and 17 fixed-wing. The fleet increased by 14 aircraft since the second quarter of last year.

Now let's talk about our European operations. And before a discussion of the financial performance of our European segment, I would like to talk about yesterday's announcement concerning the award of the UK maritime and Coast Guard agency. This new contract represents a major breakthrough for our European team and will enhance our search and rescue portfolio in Europe tremendously. This new contract will add over $215 million in revenue over a five-year period and will position CHC as …