Collicutt Energy Services Ltd.

Collicutt Energy Services Ltd.

February 24, 2005 08:00 ET

Collicutt Energy Services Ltd. Announces its 4th Quarter and 2004 Results




FEBRUARY 24, 2005 - 08:00 ET

Collicutt Energy Services Ltd. Announces its 4th
Quarter and 2004 Results

RED DEER, ALBERTA--(CCNMatthews - Feb. 24, 2005) - Collicutt Energy
Services Ltd. (TSX:COH) ("Collicutt") announces its financial and
operating results for the three and twelve-month periods ended December
31, 2004.

Collicutt is a leading Canadian oilfield service company engaged in two
primary business activities - Service and Fabrication. The Service
division maintains, repairs and refurbishes natural gas compression and
power generation equipment. The Fabrication division designs and
fabricates natural gas compression equipment and power generation
systems. The Company is strategically focused on the Western Canadian
Sedimentary Basin (WCSB) through an extensive branch network and a state
of the art fabrication facility in Red Deer.

Revenues for the three-month period ending December 31, 2004 were $33.2
million, an increase of $3.5 million from the same period last year.
Collicutt is reporting a year-to-date net loss of $0.2 million ($0.01
per share), a decrease of $1.1 million from earnings of $0.9 million
($0.09 per share) in 2003. Operating cash flow was $0.13 per share
(2003: $0.22) for the quarter ended December 31, 2004 and $0.29 per
share (2003: $0.42) for the year then ended.

Financial Review
($000s except share data - Unaudited)

Three months ended Twelve months ended

December 31, December 31, December 31, December 31,
2004 2003 2004 2003
Revenue 33,191 29,746 117,859 123,154
Net earnings 488 1,268 (159) 943
Earnings per share
- basic 0.04 0.12 (0.01) 0.09
- diluted 0.04 0.12 (0.01) 0.09
Cash flow per share
- basic 0.13 0.22 0.29 0.42
- diluted 0.13 0.22 0.29 0.42
EBITDA(1) 2,091 3,270 5,101 7,094
Weighted average
number of shares
- basic 10,913,215 10,901,585 10,012,423 10,895,325
- diluted 10,969,001 10,942,508 10,912,423 10,942,429
Actual shares
- shares 10,913,215 10,903,215 10,913,215 10,903,215
- options 621,500 723,500 621,500 723,500

(1) EBITDA is calculated from the consolidated statement of earnings as
revenue less operating and general and administrative expenses and
is used to assist management and investors in assessing the
Company's ability to generate cash from operations. Cash flow, which
is expressed before changes in non-cash working capital, is used by
management to analyse operating performance, leverage and liquidity.
EBITDA and cash flow are non-GAAP earning measures that do not have
any standardized meaning prescribed by GAAP and may not be
comparable to similar measures provided by other companies.


The following constitutes management's opinion concerning the Company's
operating and financial results for the three and twelve-month periods
ended December 31, 2004, and its outlook based on current information
and expectations as at February 11, 2005. This discussion and analysis
should be read in conjunction with the audited consolidated financial
statements and MD&A in the company's Annual Report for the year ended
December 31, 2003. Additional information is also available on the
Company's website ( and all previous public filings,
including the Annual Information Form (AIF) are available through SEDAR

Collicutt has two reportable segments - Service and Fabrication. The
Service division maintains, repairs, and refurbishes natural gas
compression and power generation equipment. The Fabrication division
designs and assembles natural gas compression packages, power generation
systems and oilfield production equipment.

The strategic goals set out in 2003 continued to be management's primary
focus in 2004. These included maximizing facility utilization,
optimizing the capital structure, improving business processes and
enhancing customer responsiveness. The Company made considerable
progress on these objectives in 2004, particularly during the last two
quarters. However, the improved activity levels of the latter two
quarters were insufficient to offset the weak results of the first two
quarters of the year.

In 2003, increased facility utilization was identified as a critical
success factor and in 2003, the Simpower fabrication operation was
relocated to Red Deer, to integrate all fabrication operations into one
location. In May 2004, the Company announced the consolidation of the
head office, fabrication and service operations into the Red Deer head
office and fabrication facility. This was completed in September 2004,
although facility modifications continued into the fourth quarter. As a
result, the Company reduced operating and administrative overhead costs
and should realize additional operational improvements and efficiencies
into 2005.

Concurrent with the facility integration, Collicutt signed an agreement
to sell the vacant Service facility for gross proceeds of $4.8 million
(Net: $4.6 million). This sale is to close in the first quarter of 2005.
The Company applied a non-refundable deposit of $0.6 million from the
sale agreement and $4.0 from its operating loan to reduce long-term debt
in Q4. The proceeds on closing in 2005 will be applied to the operating
loan. This disposition will result in a 27% reduction of long-term debt,
a significant improvement in the Company's capital structure.

During 2003, Collicutt assumed responsibility for fabrication sales and
marketing, discontinuing the incumbent sales agency arrangement. In
2004, the Calgary based sales and quotations team continued to develop
and, by the end of the first quarter, they had a full complement of
sales, applications engineering and estimation personnel. This
transition was relatively smooth as quotation levels have been
maintained and in some instances increased. However, overall fabrication
sales have declined by $7.3 million or 9.8% during this period. This
decline reflects a $10.8 million dollar decrease in power product
revenues, offset by a $3.7 million increase in compression package sales.

The implementation of a new Service software suite will be completed
during the second quarter of 2005, slightly delayed from the original
target schedule of the third quarter of 2004. This tool will eventually
provide more timely and relevant information to divisional and corporate
management, and represents a significant technological advancement in
the Service division.

During 2004 a significant time was spent on the long-established service
business with the objective of regaining and expanding its market share.
Service activity increased by 3.9% on a year-over-year basis and further
improvements are anticipated in 2005.

Collicutt had been providing parts and service to Hanover's compression
rental fleet on an exclusive basis since November 20, 1997. Effective
November 1, 2004, Hanover divested of its Canadian leasing and rental
operation, discontinuing the exclusive service arrangement. In 2004,
Hanover accounted for 6.8% of total revenues (2003: 9.0%). The resources
previously devoted to this alliance have been redeployed and Collicutt
is endeavouring to replace these revenues over the coming quarters.

The Fabrication division continued to concentrate on lean manufacturing
and improving operational efficiency as its strategy to increase margins
and market share in an industry plagued by excess production capacity.
The potential impact of these initiatives was not readily apparent in
2004 as divisional revenues declined by 9.8% and EBIT declined to $0.5
million from $2.2 million in 2003.

Q4 Q3 Q2 Q1
Total revenues 33,191 31,046 27,735 25,887
Net income (loss) 488 389 (479) (557)
EPS Basic 0.04 0.04 (0.04) (0.05)
Diluted 0.04 0.04 (0.04) (0.05)
Total assets 110,158 106,833 99,105 92,094
Long-term debt 12,138 17,120 17,578 18,028

Q4 Q3 Q2 Q1
Total revenues 29,746 30,303 35,338 27,767
Net income (loss) 1,268 (445) 1,002 (882)
EPS Basic 0.12 (0.04) 0.09 (0.08)
Diluted 0.12 (0.04) 0.09 (0.08)
Total assets 99,210 103,947 110,325 100,561
Long-term debt 18,470 21,692 22,362 22,853

Consolidated revenues decreased by $5.3 million from $123.2 million in
2003 to $117.9 million in 2004. The underlying product mix was markedly
different on a year-over-year basis, as the Service division was more
active and the Fabrication division less so than the previous year.

On a quarterly basis in 2004, Service fell short of prior year levels in
the first and second quarters but outperformed the 2003 results for the
latter two quarters, as industry activity increased, particularly in

Conversely, the Fabrication division underperformed each of the
comparative quarters with the exception of the fourth quarter, as
increased competitive pressure and decreased power generation spending
produced lower revenues in 2004.

2004 fourth quarter revenue was $33.2 million dollars, an increase of
$3.5 million over the same period in 2003. Service provided $2.8 million
of this increase and Fabrication $0.7 million.

Consolidated gross profit decreased by 14.4% to $19.0 million in 2004
from $22.2 million in 2003 and the gross profit percentages decreased
from 18.0% to 16.1% over the same period. 2004 results reflect lower
revenues in higher margin power products and lower divisional gross
margins in Service and Fabrication. Despite higher fourth quarter
revenues, gross profit was $0.5 million below 2003 levels, 3.8% lower as
a percentage of revenue.

Consolidated general and administrative expenses decreased by $1.4
million to $14.0 million in 2004 from $15.4 million in 2003, as
Collicutt further reduced its overhead infrastructure. This trend
continued in the fourth quarter where expenses decreased $0.2 million
from $3.8 million in 2003 to $3.6 million for the same period in 2004,
despite the inclusion of the additional costs of consolidating the Red
Deer operations onto one site.

Interest expense decreased 10.0% or $0.2 million in 2004, reflecting
reduced long-term debt levels and lower prime-rate charges on the
operating line in 2004.

Consolidated Net (Loss) Earnings decreased to a loss of $0.2 million
from income of $0.9 million in 2003. Included in 2003 results are a gain
of $0.8 million on the sale of land and $0.6 million of costs to
relocate the Simpower fabrication operation to Red Deer. Without the
impact of these one-time charges, the reduction in earnings would have
been $0.9 million on a year-over-year basis.

Fourth quarter net earnings decreased $0.8 million from $1.3 million in
2003 to $0.5 million in 2004. The $0.8 million gain on sale of land in
the fourth quarter of 2003 accounted for most of this variance.

Capital expenditures were $2.4 million in 2004 and included the capital
costs of the facility integration, the ERP Software for the Service
division, and other routine additions to the service fleet and
fabrication division.

Related Party Transactions - in the course of its normal business
activities, the Company engaged in routine transactions with Hanover
Compressor Company, a 24% shareholder of the Company. These occurred
under normal market conditions on the same terms as are applied to
unrelated party transactions. As at December 31, 2004 Hanover divested
its ownership in the Company and is no longer a related party.

Service revenues are generated from a network of 11 branches located
throughout Western Canada. Service revenues increased to $50.4 million
in 2004 from $48.5 million in 2003 as field service and re-fabrication
operations, in particular, were busier. 2004 fourth quarter service
revenues improved 22.6% over the same period in 2003, as Collicutt
experienced a return to more typical activity levels.

Earnings before interest and taxes ("EBIT") declined to $4.7 million in
2004 from $4.9 million in 2003, reflecting the marginally lower gross
margin percentages and a 3.5% increase in overhead costs. The higher
overheads reflect a full year of operations in the Rocky Mountain House
and Fort Nelson locations and were partially offset by savings from the
combined Red Deer operations.

EBIT for the fourth quarter of 2004 increased to $1.8 million from $1.0
million for the same period last year as a result of higher revenues and
gross margin percentages that were 1.1% higher than the fourth quarter

Capital expenditures in 2004 increased to $1.1 million from $1.0 million
in 2003. Other than some leasehold improvements in Fort Nelson and
Edmonton, the remaining capital costs were for routine additions and
fleet replacements.

Fabrication revenues decreased 9.8% to $67.4 million in 2004 from $74.7
million in 2003. While compression revenues increased by 7.6% on a
year-over-year basis, power product sales declined 52.2% and custom
fabrication 3.7%. Strategically, the Company chose not to quote on lower
margin power projects and, at the same time, the market softened for
higher margin turbine power packages. 2004 fourth quarter fabrication
revenue was $18.0 million, compared to $17.3 million in 2003, as
compression activity increased and lower sales in power generation

EBIT decreased by $1.7 million to $0.5 million in 2004 from $2.2 million
in 2003, impacted by lower gross margin percentages in all product
areas, except for reciprocating power which saw an 7.8% increase.
Although compression revenue was above 2003, 2004 compression gross
margin percentages declined 3.7% due to inefficiencies in quotations and

EBIT for the fourth quarter 2004 was $0.4 million compared to $1.5
million for the same period in 2003. The EBIT decrease reflects a 8.3%
decline in gross margin percentages in Q4 2004 as all fabrication
product lines generated lower quarterly margins on a year-over-year

Capital Expenditures decreased by $0.9 million on a year-over-year basis
and related to routine facility and equipment additions.


Cash flow from operations, before changes in non-cash working capital,
decreased by $1.4 million to $3.2 million in 2004 from $4.6 million in
2003. In addition to funding recurring operational activities, cash
resources were used to purchase $2.4 million of capital assets and fund
a $6.3 million long-term debt reduction. Working capital, inclusive of
the non-current portion of callable long-term debt, increased 30.4% to
$18.0 million in 2004 from $13.8 million in 2003. The reclassification
to current assets of the net book value ($3.5 million) of the Red Deer
Service assets held for resale was a major component of this change.

At December 31, 2004, Collicutt had combined operating and term loan
indebtedness of $30.9 million (2003: $32.7 million). In compliance with
a CICA Emerging Issues Committee abstract, the non-current portion of
long-term debt was classified as current due to its callable feature.
This accounting disclosure is not indicative of the Company's intention
to repay these amounts within the next year or of the lender's intention
to enforce repayment within the next year.

Long-term debt, inclusive of the current portion, decreased by $6.3
million, or 34.2%, on a year-over-year basis, from $18.4 million in 2003
to $12.1 million in 2004. The decrease resulted from monthly payments
and the use of operating loan funds in advance of the receipt of
proceeds on the sale of the Red Deer Service building loan. The debt to
equity ratio, calculated using all current and long-term liabilities,
increased from 0.94 to 1 in 2003 to 1.16 to 1 at December 2004.

The Company has an operating loan facility of $38.0 million (2003: $38.0
million). At December 31, 2004, $18.7 million had been drawn upon (2003:
$14.2 million). Management is confident that this level of financing,
combined with cash flow from operations, is sufficient to fund
operational activities for the foreseeable future.


This document contains forward-looking statements, which are subject to
certain risks, uncertainties and assumptions. Should one or more of
these risk factors materialize, or should assumptions prove incorrect,
actual results may vary significantly from those expected.


2004 was a year during which the oil services sector became increasingly
active as drilling activity was quite buoyant in Western Canada in
response to strong commodity pricing. Indications are that at this early
stage, 2005 will be another busy year.

Strong resource pricing and high drilling activity, combined with
substantial depletion rates on existing production bode well for
compression equipment and service demand. As the consumption of natural
gas increases and depletion takes its toll, the demand for new and
refurbished equipment to maintain production from aging fields will
likely increase.

Excess compression production capacity will continue to impact the
competitive dynamics of this industry segment. Collicutt is not
unaffected by these competitive trends and must continue to adapt to a
market in which there is greater production capacity than corresponding
product demand.

In 2005, Collicutt will continue to strategically focus on its extensive
service operations. The Company is expecting increased re-fabrication
sales and is focused on replacing the foregone revenues resulting from
the loss of the Hanover service agreement. A number of improvements and
efficiencies are also anticipated with the implementation of a new ERP
system within the Service division.

No service branch additions are being planned for 2005. Improvements and
growth will be sought through additional centralization and refinement
of business processes and increased revenues within the existing branch
network. As industry activity in this sector increases, attracting and
retaining skilled trades people will become increasingly important if
the Company is to successfully expand market share. In 2005, the Company
will be challenged to increase Service revenues as it replaces the
revenues it previously derived from the Hanover rental fleet.

Within the Fabrication division, our goal remains to leverage market
share by becoming the lowest cost producer in our industry, without
sacrificing product quality or delivery time. We have a ways to go to
achieve this but are confident that the focus on lean manufacturing
practices will ultimately help us achieve this goal. In 2005, the
Company will implement additional modules of the fabrication ERP system,
with the objective of producing more accurate and timely quotations and
improved internal control. The division has also established a project
team approach by customer, which will facilitate improved customer
service. Management expects 2005 activity levels in compression and
reciprocating power generation will be higher than 2004, reflecting
higher industry activity and an increasing focus on coal bed methane
applications. The first quarter of 2005 will be quite busy as the
division works its way through a sizeable order backlog. One significant
market impediment in 2005 will be timely access to major components from
our suppliers as lead times have grown considerably.

A number of market opportunities have developed as a result of Hanover's
divestiture of its ownership interest in Collicutt. Prior to the sale,
Collicutt had been contractually precluded from selling compression
products into the US markets or from developing a compression leasing
and rental business. The Company's Canadian competitors have actively
pursued both of these market segments. These restrictions are no longer
in place and the Company's management is now analyzing these new market

As at December 31, ($000's - Unaudited)

2004 2003
Accounts receivable 28,642 22,624
Inventory and work-in-progress 41,673 36,245
Assets held for resale (Note 4) 3,860 344
Prepaid expenses and deposits 572 258
Future income taxes 510 426
Income taxes recoverable 513 184
75,770 60,081
Capital assets 34,388 39,129
110,158 99,210


Operating loan 18,713 14,232
Accounts payable and accrued liabilities 13,366 9,592
Deferred revenue 14,630 5,491
Current portion of long-term debt (Note 3) 1,542 1,810
Non-current portion of callable
long-term debt (Note 3) 9,544 15,114
57,795 46,239
Long-term debt 1,052 1,546
Future income taxes 385 382
59,232 48,167
Contingencies (Note 6)


Share capital 40,500 40,479
Contributed surplus 28 7
Retained earnings 10,398 10,557
50,926 51,043
110,158 99,210

($000s except per share amounts and number of common shares - Unaudited)

Three months ended Twelve months ended
December 31, December 31,
2004 2003 2004 2003

Sales 33,191 29,746 117,859 123,154
Cost of goods sold 27,495 23,498 98,864 101,004
Gross profit 5,696 6,248 18,995 22,150
Other income 8 828 74 318
5,704 7,076 19,069 22,468
General and administrative 3,613 3,806 13,968 15,374
Interest 480 546 1,814 2,048
Amortization 861 955 3,422 3,584
4,954 5,307 19,204 21,006
Earnings (loss) before
income taxes 750 1,769 (135) 1,462

Income tax expense (recovery)
Current 50 152 105 293
Future 212 349 (81) 226
262 501 24 519
Net earnings (loss) 488 1,268 (159) 943
Retained earnings,
beginning of period 9,910 9,289 10,557 9,614
Retained earnings,
end of period 10,398 10,557 10,398 10,557

Earnings (loss) per share
(Note 2)
Basic 0.04 0.12 (0.01) 0.09
Diluted 0.04 0.12 (0.01) 0.09

Weighted average number
of common shares
Basic 10,913,215 10,901,585 10,912,423 10,895,325
Diluted 10,969,001 10,942,508 10,912,423 10,942,429

Consolidated Statement of Cash Flows
($000s - Unaudited)

Three months ended Twelve months ended
December 31, December 31,
2004 2003 2004 2003
Cash flows related to
the following activities:

Net (loss) earnings 488 1,268 (159) 943
Adjustments for:
Amortization 861 955 3,422 3,584
Loss (gain) on sale
of assets 22 14 41 (11)
Stock based compensation
expense 3 7 21 7
Future income tax expense 212 349 (81) 226
Provision for warranty
costs (149) (273) (37) (183)
1,437 2,320 3,207 4,566
Net change in non-cash
working capital 2,975 2,557 843 3,194
4,412 4,877 4,050 7,760

Issuance of share capital - 20 21 20
Advance (repayment) on
operating loan 1,311 (33) 4,481 (225)
Repayment of long-term
debt (4,982) (3,479) (6,332) (6,823)
(3,671) (3,492) (1,830) (7,028)

Business acquisition - (127) - (127)
Purchase of capital assets (822) (1,314) (2,352) (2,384)
Proceeds on disposition
of capital assets 81 56 132 1,779
(741) (1,385) (2,220) (732)

Net (decrease) increase in
cash and cash equivalents - - - -
Cash and cash equivalents,
beginning of year - - - -
Cash and cash equivalents,
end of year - - - -

Segmented Information
($000s - Unaudited)

Three months ended Twelve months ended
December 31, December 31,
2004 2003 2004 2003

Service 15,200 12,420 50,444 48,483
Fabrication 17,971 17,326 67,415 74,671
33,191 29,746 117,859 123,154

Service 371 446 1,517 1,636
Fabrication 464 481 1,817 1,844
Corporate 26 28 88 104
861 955 3,422 3,584

Earnings (loss) before
interest and income taxes
Service 1,809 960 4,703 4,868
Fabrication 401 1,450 482 2,172
Corporate (980) (95) (3,506) (3,530)
1,230 2,315 1,679 3,510

Capital expenditures
Service 354 296 1,112 990
Fabrication 253 988 429 1,302
Corporate 215 30 811 92
822 1,314 2,352 2,384

As at
December 31, 2004 December 31, 2003
Service 40,877 39,584
Fabrication 66,660 58,366
Corporate 2,621 1,260
110,158 99,210


December 31, 2004 (Tabular amounts in $000s except for share data)

Note 1: Accounting Policies

The unaudited interim consolidated financial statements should be read
in conjunction with the consolidated financial statements contained in
the Annual Report for the year ended December 31, 2003. The interim
consolidated financial statements do not contain all of the disclosures
required for annual financial statements. The interim financial
statements follow the same accounting policies and methods of
application as the most recent annual financial statements.

The interim consolidated financial statements are prepared by
management, in accordance with Canadian GAAP, and contain all
adjustments necessary to present the consolidated financial statements
fairly using the same accounting principles and methods as the audited
consolidated financial statements for the year ended December 31, 2003.

Effective January 1, 2004, Canadian accounting standards require
recognition of compensation costs arising out of stock-based
compensation plans. In 2003, the Company prospectively adopted this
requirement in accordance with CICA handbook section 3870.

Note 2: Basic And Diluted Earnings Per Share

December 31, 2004 December 31, 2003
Per Per
Net share Net share
Earnings Shares amount Earnings Shares amount

Basic earnings
per share 488 10,913,215 0.04 1,268 10,901,585 0.12

per share
effect of
stock option
conversions 50,762 40,923

available to
and assumed
conversion 488 10,963,977 0.04 1,268 10,942,508 0.12

Options and
excluded from
diluted income
per common share
as their effect
would be
anti-dilutive 451,500 491,500

December 31, 2004 December 31, 2003
Per Per
Net share Net share
Earnings Shares amount Earnings Shares amount

Basic (loss)
earnings per
share (159) 10,912,423 (0.01) 943 10,895,325 0.09

earnings per
effect of
stock option
conversions - 47,104

Income available
to common
and assumed
conversion (159) 10,912,423 (0.01) 943 10,942,429 0.09

Options and
excluded from
diluted income
per common share
as their effect
would be
anti-dilutive 621,500 486,500

Note 3: Financial Instruments

to mitigate its exposure to fluctuations in interest rates, the Company
entered into an interest rate swap arrangement to fix the interest rate
on $10.6 million of its debt at 6.5%, inclusive of bank stamping fees of
2.05%. The fair value of the interest rate swap contracts at December
31, 2004 was negative $178,820.

Note 4: Assets Held For Resale

Assets held for resale include the Red Deer Service building with a net
book value of $3.5 million and lands held for resale with a net book
value of $0.4 million ($0.3 million: December 31, 2003). The Company
signed an agreement to sell the Red Deer Service facility on November 1,
2004 for proceeds of $4.8 million. This transaction is scheduled to
close February 28, 2005.

Note 5: Comparative Amounts

Certain comparative numbers have been reclassified to conform to the
presentation in the current year.

Note 6: Contingencies

The Company is involved in various litigation matters arising in the
ordinary course of business. The Company is currently defending an
action that was initiated in 2005 totalling $6 million relating to the
alleged non-performance and termination of a contract. The Company
intends to vigorously defend this action and does not believe any
liability will be incurred. Accordingly, no provision has been made in
the financial statements with respect to this matter.

Collicutt Energy Services Ltd. is an oilfield service company engaged in
the service and fabrication of natural gas compression, power generation
systems, and oilfield production equipment. From its centrally located
headquarters in Red Deer, Alberta, the Company operates from 11
strategic branch locations throughout the Western Canadian Sedimentary

Collicutt Energy Services common shares trade on the Toronto Stock
Exchange under the trading symbol "COH".


Contact Information

    Collicutt Energy Services Ltd.
    Steven M. Collicutt
    President and Chief Executive Officer
    (403) 358-3200
    Collicutt Energy Services Ltd.
    Thomas E. Lewis
    Vice-President, Finance and Chief Financial Officer
    (403) 358-3200