Toronto Stock Exchange: ARF.UN
GUELPH, ON, July 31 /CNW/ - Armtec Infrastructure Income Fund
(TSX: ARF.UN) today reported financial results for the second quarter ended
June 30, 2008 and announced an increase in monthly unitholder distributions to
$0.18 per unit, or $2.16 per unit annualized. The first distribution at the
new rate will be paid on September 15, 2008, to unitholders of record on
August 29, 2008.
- Revenues were the highest in the Fund's history, increasing 82.4% in
the second quarter and year to date recorded an increase of 91.6%
over 2007, as a result of the Con-Force and Durisol acquisitions.
- EBITDA(1) also set a record at $15.4 million for the quarter,
compared to $8.8 million in the comparable period of 2007. Year to
date, EBITDA was $17.2 million, compared to $8.2 million in the prior
- Establishment of a new division following the acquisition of Durisol,
a Hamilton-based manufacturer of highway noise barriers and related
highway infrastructure products.
- Acquisitions of AE Concrete, Brooklin, Boucher and the proposed
Burnco acquisition will expand the Con-Force division's product line
and geographic coverage.
- Distributable cash(1) increased to $12.8 million or $0.84 per unit in
the quarter, from $8.2 million, or $0.79 per unit, in the second
quarter of 2007. Year to date, distributable cash was $13.0 million
or $0.86 per unit, up from $7.0 million or $0.68 per unit in the
comparable period in 2007.
- Declared distributions were $7.5 million, or $0.49 per unit, in the
second quarter of 2008 up from $4.0 million, or $0.39 per unit in the
same period of the prior year. Year to date, declared distributions
were $14.3 million, or $0.94 per unit for 2008 up from $8.0 million,
or $0.78 per unit in the comparable period of 2007.
- Increased monthly cash distribution by 6% to $0.18 per unit,
effective in August 2008.
"The second quarter of 2008 was a very active one for the Fund as we
announced five acquisitions which followed the transformational acquisition of
Con-Force late last year. We have broadened our product line in the very
active Western Canadian precast industry, expanded our geographic footprint
and added exciting new growth products. In the second quarter, our financial
results reflect the addition of the Con-Force division and the strength of the
core public infrastructure markets right across the country," said Charles
Phillips, President and Chief Executive Officer. "We remain committed to
increasing unit holder value through a strategy of geographic, market and
product diversity and our 2008 growth initiatives have all supported this
approach. In light of the positive contribution we see as a result of our 2008
initiatives, the Board today agreed to again increase our distributions to
Results of Operations
(in thousands of Canadian
dollars unless otherwise Three Months Ended Six Months Ended
noted) June 30, June 30, June 30, June 30,
(unaudited) 2008 2007 2008 2007
Revenue $ 90,758 $ 49,763 $ 137,185 $ 71,611
Cost of sales 62,671 32,752 96,895 48,623
Amortization of property,
plant and equipment 1,662 923 3,116 1,793
Gross margin 26,425 16,088 37,174 21,195
As a % of revenue 29.1% 32.3% 27.1% 29.6%
Distribution and warehousing 3,177 2,424 4,406 3,562
Selling, general and
administrative 9,538 5,804 18,711 11,253
Amortization of intangible
assets 3,066 656 5,845 1,313
Earnings from operations 10,644 7,204 8,212 5,067
Interest and financing
expenses (1,173) (524) (2,249) (859)
Earnings before taxes 9,471 6,680 5,963 4,208
Interest and financing
expenses 1,173 524 2,249 859
Total amortization 4,728 1,579 8,961 3,106
EBITDA $ 15,372 $ 8,783 $ 17,173 $ 8,173
As a % of revenue 16.9% 17.6% 12.5% 11.4%
(1) For more information, refer to the Non-GAAP measures described below.
Second Quarter Results
For the three-month period ended June 30, 2008, revenues totalled
$90.8 million, representing an 82.4% increase over the comparable period in
2007. The Con-Force division, acquired in October 2007, contributed $34.5
million in revenues as a result of continued strong activity for 2008 in
British Columbia and Alberta. Manitoba experienced delays in a large parkade
project due to unfavourable weather conditions but production has caught up
and returned to the original schedule in the second quarter.
The Armtec division also experienced a modest increase of $1.0 million in
second quarter revenues as compared to the same period in 2007. The
improvement in the quarter was attributed to the increase in activity in the
building trades market in Central and Eastern Canada offset primarily by a
decrease in the forestry sector in Western Canada which continues to be
negatively impacted by the severe decline in the U.S. housing market.
International project activity in the second quarter of 2008 was stronger
than the same period in 2007 due to a number of projects across the Con-Force
and Durisol divisions and an improvement in Armtec division shipment levels.
The new Durisol division was established on June 5, 2008, and has
contributed $5.4 million towards the revenue growth of $41.0 million during
EARNINGS FROM OPERATIONS
Earnings from operations for the three months ended June 30, 2008, were
$10.6 million compared to $7.2 million, an increase of $3.4 million or 47.8%
over the same period of 2007. Durisol contributed approximately $0.6 million
since the date of acquisition, June 5, 2008. The earnings from operations
achieved by Con-Force in the second quarter improved over the first quarter of
2008. In the first quarter, the Manitoba operations were delayed as a result
of the harsh weather. In particular the installation of the Tecumseh parkade
was delayed. The facility was fully operational throughout the second quarter,
with the parkade project returning to its original schedule. The Armtec
division experienced softer earnings in the quarter related to a shift in
product mix from the more value added engineered products to more distribution
based products which contributed a lower margin on average. Sales levels in
Western Canada decreased although were offset by improved sales levels in
Central and Eastern Canada.
Gross margin for the three months ended June 30, 2008, was $26.4 million,
an improvement of $10.3 million over $16.1 million in 2007 or a 64.3%
increase. As a percentage of sales, gross margin decreased to 29.1% as
compared to 32.3% in 2007. The decrease in margin percentage was attributed to
the Armtec division experiencing a shift in product mix and, to a lesser
extent, geographic mix as well as the addition of the Con-Force division whose
growth in revenue contributed a slightly lower margin percentage than the
Armtec division has historically achieved. Amortization of property, plant and
equipment increased to $1.7 million from $0.9 million in 2007 due to the
addition of Con-Force assets.
Distribution and warehousing costs, which vary with the mix of products
sold, were up $0.8 million over the same three-month period in 2007. During
the second quarter, Armtec and Con-Force started work on a joint warehouse
location in Alberta.
Selling, general and administrative expenses were $9.5 million as
compared to $5.8 million for 2007. The largest increase relates to the
addition of Con-Force, which represented $3.5 million of the increase in the
quarter. Selling and administrative costs in the Armtec division increased
slightly, related to increased sales efforts in Eastern and Western Canada.
Additional costs were incurred at the Fund level related to the strengthening
of the management team to support the current and future growth in the new
multi-divisional organization. A division president was appointed to the
Armtec division and the CFO position was filled in March of 2008. As well, a
vice-president of information technology was added to support the growing
needs of an expanding business platform.
Amortization of intangible assets increased by $2.4 million over 2007 due
principally to the amortization of the intangible assets acquired with
Con-Force. Further intangible assets subject to amortization will be allocated
on the finalization of the purchase allocation related to Durisol, AE
Concrete, Brooklin and Boucher. Amortization of the new intangible assets
commence subsequent to the respective acquisition date.
Year to Date Results
Revenues for the six months ended June 30, 2008, were $137.2 million, an
increase of $65.6 million, or a 91.6% increase over the same period in 2007.
Of this increase, $63.1 million related to the revenues generated by the
Con-Force division. The Con-Force division recorded strong revenues relating
to the continuation of large projects in each location. The largest
contributor was the Golden Ears Bridge which will be completed this year.
During the second quarter, Con-Force commenced production on the Calgary
Airport parkade - the largest single contract award in Con-Force's history at
over $40 million.
The Armtec division experienced a decrease of $3.0 million in revenues
over the same period of in 2007, entirely due to softness in the first quarter
of 2008. The decrease in revenues was due to reduced volumes. The prolonged
winter in Central and Eastern Canada shortened the available time for
installation of agricultural products. The sales of these products are
expected to return in the third and fourth quarters after the fall harvest.
This division has also seen a softening in Western Canada; however, it was
offset by growth in Central and Eastern Canada. Sales into the forestry
sector, particularly in the west, continued to decline and reflect the
difficult market conditions related to the current weakness in the U.S.
A third division was created through the June 5, 2008 acquisition of
Durisol. Product sales of $5.4 million for the month of June were related
primarily to absorptive wall panels and a new slab technology used for
resurfacing roadways. The slab product is quicker to install than typical
applications, reducing the disruption to traffic flow. This product is
currently being installed through a project with the Ministry of
Transportation in Ontario.
International project activity in 2008 was stronger than the same period
in 2007 in all divisions. The Armtec division's International project backlog
is returning to historical levels as compared to a downturn in activity in
2007. These projects are generally part of large infrastructure projects and
are subject to variability with customer delivery requirements.
EARNINGS FROM OPERATIONS
Earnings from operations for the six months ended June 30, 2008, were
$8.2 million compared to $5.1 million, an increase of $3.1 million, or 62.1%,
over the same period in 2007. Gross margin for the period was $37.2 million or
$16.0 million over 2007 results of $21.2 million. As a percentage of sales,
gross margin decreased to 27.1% as compared to 29.6% in 2007. During the six
months, the Armtec division experienced lower margins, principally impacted by
lower sales volumes in Western Canada and product mix. The Con-Force division
contributed greater earnings based on sales volume though at somewhat lower
gross margin levels than generated by the Fund in 2007. Amortization of
property, plant and equipment increased to $3.1 million from $1.8 million in
2007 due to the addition of Con-Force assets in October 2007.
Distribution and warehousing costs were $0.8 million higher at
$4.4 million compared to 2007 costs of $3.6 million. These costs vary with the
sales mix of products sold and delivery service requirements to the end
customer. The difference is attributable to a joint warehouse location in
Alberta which has not realized any additional sales at this time.
Selling, general and administrative expenses were $18.7 million as
compared to $11.3 million for 2007. The largest increase relates to the
addition of Con-Force, which represented $6.9 million of the increase year to
date. Durisol incurred $0.3 million as it was acquired on June 5, 2008. The
Armtec division incurred a slight increase in administrative expenses related
to the continued expansion of sales resources in both Eastern and Western
Canada. Additional costs were incurred at the Fund level related to the
strengthening of the management team to support the current and future growth
in the new multi-divisional organization. A division president was appointed
to the Armtec division and the CFO position was filled in March of 2008. As
well, a vice-president of information technology was added to support the
growing needs of an expanding business platform.
Amortization of intangible assets increased by $4.5 million over 2007 due
principally to the amortization of the intangible assets acquired with
Con-Force. Approximately $2.6 million was related to the customer contract
intangible. The Fund expects the remaining $1.0 million of amortization
related to this customer contract intangible to be recognized during the
remainder of 2008.
The full year impact of the Con-Force acquisition, and the partial year
impact of the Durisol and other concrete product business acquisitions, will
support the growth of the Fund in 2008. In addition, the industry outlook for
the Fund remains positive. Government support for infrastructure spending
continues, as a result of the multi-year commitments announced in recent
provincial budgets and some new commitments in the 2008 programs. In 2008, the
Con-Force division will begin the production of a parkade for the Calgary
airport. At over $40 million, this contract is the single largest contract
award in Con-Force's history.
Support for the infrastructure spending across the country is coming from
various levels of government and continues to be augmented through the use of
public-private partnerships. With anticipated price increases, the number of
government projects may be reduced to remain within budgeted spends.
Infrastructure spending for repairs and improvements, announced by the Central
and Eastern Canadian provincial transportation ministries, is expected to
strengthen in 2008 over 2007.
Activity in Canada's commercial and residential building market continues
to be above historical levels but housing starts may decline in 2008. New
products introduced through the Brooklin acquisition and the proposed Burnco
acquisition, in conjunction with the Platon distribution agreement is
anticipated to mitigate the impact of a slow down in new home construction.
Commercial building activity remains strong, particularly with the activity in
No improvements are anticipated in the natural resources markets in the
near term. Investment activity in energy and mining projects is expected to
continue, with essentially consistent results expected year over year. The
record declines in the US housing market have contributed to a significant
decline in the demand for forestry products.
The agriculture market was negatively impacted in the first quarter of
2008 as a result of an abbreviated spring installation season. Consequently, a
number of projects have been delayed until the fall installation period. The
historically high level of crop prices and increased demand for commodities is
translating into increased demand for yield enhancing drainage products.
International sales are generally part of large infrastructure projects
and shipments tend to vary depending on customer delivery requirements. The
Fund experienced a lower level of activity in 2007; however, this market is
returning to historical levels and is now supported by the addition of the
Con-Force and Durisol divisions.
In 2008, unprecedented raw material increases are expected in all areas
of the Fund's business. Steel costs have increased as a result of cost pushes
from suppliers in the industry. More recently, increases have been posted for
resins. Aggregates, cement and rebar have been impacted as well. Historically,
the Fund has been able to pass changes in raw material pricing through to the
customers. The Fund expects to be able to continue with this pricing strategy
to mitigate the impact on results.
The majority of the Fund's revenues and purchases are in Canadian
dollars. Some products are sold and purchases are sourced internationally in
U.S. dollars, however management does not expect the strengthening Canadian
dollar to have a significant impact on the results of the Fund.
CONFERENCE CALL & WEBCAST
Management will host a conference call at 10:00 a.m. (ET) on Friday,
August 1, 2008 to discuss the results. Investors who wish to participate can
access the call using the following numbers: 416-849-9305 or 1-866-838-4337.
The call will be webcast live and archived on the Armtec website at
A taped rebroadcast will be available to listeners following the call
until midnight on August 8, 2008. To access the rebroadcast, please dial
416-915-1035 or 1-866-245-6755 and quote the passcode 371083.
Armtec's full interim consolidated financial statements, notes to the
interim consolidated financial statements and management's discussion and
analysis are available at www.sedar.com or at www.armtecincomefund.com.
The Fund is a leading manufacturer and marketer of a broad range of
infrastructure products and engineered solutions for application in a diverse
cross-section of industries. These include the public infrastructure market
and private sector markets such as natural resources, commercial building,
residential construction and agricultural drainage. The Fund's Armtec division
is Canada's only national multi-material manufacturer specializing in
corrugated high density polyethylene pipe, and corrugated steel pipe for
drainage applications and highly engineered solutions including, bridging
products and water management systems. The Con-Force division designs and
manufactures a wide range of bridging and construction products including the
advanced "NU" bridge girder system that allows for some of the longest spans
available in precast concrete technology. The Durisol division designs and
manufactures highway noise barriers and related infrastructure products, such
as retaining walls and acoustic enclosures, and is recognized as the only
fully qualified supplier of absorptive material in Ontario.
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")
References to EBITDA are to earnings before interest, taxes (other than
capital taxes), depreciation and amortization. Management believes that in
addition to net earnings, EBITDA is a useful supplemental measure of cash
available for distribution prior to debt service, changes in working capital,
capital expenditures and income taxes. However, EBITDA is not a recognized
measure under Canadian Generally Accepted Accounting Principles ("GAAP").
Investors are cautioned that EBITDA should not be construed as an alternative
to net and comprehensive earnings determined in accordance with GAAP as an
indicator of the Fund's performance or as an alternative to cash flows from
operating, investing and financing activities as a measure of the Fund's
liquidity and cash flows. The Fund's method of calculating EBITDA may differ
from the methods used by other issuers and, accordingly, the Fund's EBITDA may
not be comparable to similarly named measures used by other issuers.
Distributable cash is not a defined term under Canadian GAAP but is
determined by the Fund as cash flows provided by or used in operating
activities less items not affecting cash, expenditures required to sustain the
current state of operations, and the change in non-cash working capital.
Management believes that distributable cash is a useful supplemental measure
of performance as it provides investors with an indication of the amount of
cash available for distribution to unitholders of the Fund by adjusting for
the seasonality of the business via changes in non-cash working capital,
adjusting for sustaining capital purchases and other items not affecting cash.
Investors are cautioned, however, that distributable cash should not be
construed as an alternative to using net earnings and comprehensive earnings
as a measure of profitability or the statement of cash flows. Furthermore, the
Fund's method of calculating distributable cash may not be comparable to other
similarly named calculations from other issuers.
This news release may contain "forward-looking" statements within the
meaning of applicable securities legislation which involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Fund or industry results, to be materially
different from any future results, events, expectations, performance or
achievements expressed or implied by such forward-looking statements. All such
forward-looking statements are made pursuant to the "safe harbour" provisions
of applicable Canadian securities legislation. Forward-looking statements may
include comments with respect to the Fund's objectives, strategies to achieve
those objectives, expected financial results, and the outlook for the Fund's
business. Forward-looking statements typically contain such words or phrases
such as "may", "outlook", "objective", "intend", "estimate", "anticipate",
"should", "could", "would", "will", "expect", "believe", "plan" and other
similar terminology suggesting future outcomes or events. These statements
reflect current expectations regarding future events and operating performance
and are based on information currently available to the Fund's management.
Forward-looking statements involve numerous assumptions, and significant
and inherent risks and uncertainties, should not be read as guarantees of
future performance or results and will not necessarily be accurate indications
of whether or not such results will be achieved. You should not unduly rely on
forward-looking statements as a number of factors, many of which are beyond
the control of the Fund, could cause actual results to differ materially from
the results discussed in the forward-looking statements, including, but not
limited to the factors listed below and those discussed in the Fund's
materials filed with the Canadian securities regulatory authorities from time
to time including the Annual Information Form and the Annual MD&A. Those risks
and uncertainties include, but are not limited to: industry cyclicality;
competition; acquisition and expansion risk; capital and liquidity risk;
reductions in demand for the Fund's products; information management; credit
risk; relationships with suppliers; lack of long-term agreements; expiration
of rights under license and distribution arrangements; availability and price
volatility of raw materials; product liability; intellectual property;
reliance on key personnel; labour markets; environmental; collective
bargaining; currency fluctuations; interest rates; uninsured and underinsured
losses; operating hazards; risk of future legal proceedings; securities laws
compliance and corporate governance standards; geographical risk; seasonality
and adverse weather; geopolitical; and certain risks associated with the
structure of the Fund including dependence of the Fund on Armtec entities;
income tax matters; leverage and restrictive covenants; credit facilities;
nature of units; distribution of securities on redemption or termination of
the Fund; restrictions on potential growth; effect of market interest rates on
the price of units; undiversified and illiquid holdings in Armtec Operating
Trust; potential dilution. These and other factors may cause the Fund's
performance to differ materially from that contemplated by forward-looking
statements. Cash distributions are not guaranteed.
There have been no material changes to the Fund's business or other
events or circumstances from January 1, 2008 to July 31, 2008, that require an
update to the discussion of the applicable risks or forward-looking
statements. Although the forward-looking statements contained in this report
are based upon what management of the Fund believes are reasonable
assumptions, the Fund cannot assure investors that actual results will be
consistent with these forward-looking statements. All forward-looking
statements in this news release are qualified by these cautionary statements.
These forward-looking statements and outlook are made as of the date of this
news release and, except as required by applicable law, the Fund assumes no
obligation to update or revise them to reflect new events or circumstances.
For further information:
For further information: Charles M. Phillips, President & Chief
Executive Officer, Armtec Limited Partnership, Tel: (519) 822-0210, Fax: (519)
822-8894; James R. Newell, Chief Financial Officer, Armtec Limited
Partnership, Tel: (519) 822-0210, Fax: (519) 822-8894; Carrie Boutcher, Vice
President, Finance, Armtec Limited Partnership, Tel: (519) 822-0210, Fax: