Cinram Reports 2011 First Quarter Results

(All figures in U.S. dollars unless otherwise indicated)

TORONTO, May 10 /CNW/ - Cinram International Income Fund ("Cinram" or the "Fund") (TSX: CRW.UN) today reported its 2011 first quarter financial results.

Q1-2011 Operating Results

  • Consolidated revenue of $176.7 million in the 2011 first quarter compared to $298.6 million in the first quarter of 2010.
    • Revenue from the pre-recorded multimedia products fell to $149.8 million from $269.3 million in the first quarter of 2010, primarily as a result of the loss of the Warner Home Video contract in 2010 and a general softness in new releases in the first quarter of 2011 compared with the first quarter of 2010, which had hits such as Avatar, Blind Side and Sherlock Holmes.
    • Revenue from the Video Games segment in the first quarter of 2011 was $11.2 million, down from $17.3 million in 2010, primarily as a result of the loss of two major clients that were sold to other companies during 2010.
    • Revenue from our other businesses, including Wireless, Retail services and our new digital offerings grew to $15.7 million from $12.0 million in 2010.
  • Earnings before interest, taxes and amortization (EBITA1), excluding other charges was $(1.0) million in 2011, compared to $34.4 million in the first quarter of 2010.
    • EBITA from the pre-recorded multimedia business was down significantly, from $30.8 million in 2010 to $(5.4) million in the first quarter of 2011. While some direct manufacturing costs closely track productions volumes, other cost elements, even semi variable costs, are required to be maintained in order to ensure that the proper competencies and capabilities are in place to handle the growth in demand that we normally expect in the third and fourth quarters.
    • EBITA generated by the Video Games business segment in the first quarter of 2011 was $1.5 million, or 13.4% of revenue, compared with $2.2 million, or 12.8% of revenue, in the comparable period in 2010.
    • EBITA from the other business units almost doubled from $1.5 million in the first quarter of 2010, or 12.3% of revenue, to $2.8 million in 2011, or 18.2% of revenue.

Commented Steve Brown, CEO, "The lower revenues and earnings compared to 2010 were not surprising given the departure of Warner Home Video in July 2010 and the industry wide decline in volume in the first quarter. The loss of some of our Games customers due to dispositions was disappointing, however, I am pleased that we were able to actually grow our margins in the Video Games group, despite this lower revenue level. I was also very encouraged to see growth in both revenue and profitability in our other business segments, which includes our wireless division and our digital services/software group. Although starting from a relatively small base, this business segment, in many ways, is a leading indicator to where we want to take Cinram in the future."

The Fund reported a net loss from continuing operations for the 2011 first quarter of $(22.8) million or $(0.41) per unit (basic) compared with net earnings from continuing operations of $16.1 million or $0.29 per unit (basic) in 2010.

Pre-recorded multimedia segment:

  • As expected, first quarter pre-recorded multimedia revenue (which includes replication and distribution of Blu-ray discs, DVDs and CDs) was down 44% to $149.8 million from $269.3 million in 2010, as the prior year results included revenue associated with Warner Home Video combined with a more robust slate of studio releases.
  • Cinram replicated 120.3 million DVDs in the first quarter of 2011, compared to 242.3 million units in 2010.
  • DVD revenue (which includes replication and distribution services) was $115.8 million, compared to $229.9 million in the prior year.
  • Blu-ray disc replication revenue was $7.2 million in the first quarter of 2011, compared to $8.9 million in the comparable 2010 period.
  • CD revenue (including replication and distribution of CDs) was down 12% to $26.8 million from $30.5 million due to lower unit shipments, consistent with industry declines for this format.

On May 4, 2011, the Fund executed a multi-year agreement with Relativity Media to serve as the exclusive provider of replication for DVD and Blu-ray products in North America.

On April 14, 2011, Cinram announced that it had signed a new multi-year contract with Twentieth Century Fox Home Entertainment ("Fox"). Under the renewed service agreements Cinram will continue to serve as the primary supplier for replication and distribution services for Fox across North America and Europe, extending Cinram and Fox's long standing relationship.

As announced on March 16, 2011, Cinram was appointed by Wm Morrisons Supermarkets PLC as sole provider of storage and distribution services for the music, video and games categories in the United Kingdom, commencing in September 2011. Simultaneously, Cinram's Vision 2.0 software was chosen to implement a retail services solution to help Morrisons manage and control its inventory, and balance supply with demand.

Digital initiatives:

As previously announced on January 31, 2011, Cinram acquired Los Angeles-based digital media company One K Studios (1K). The move is part of a broad initiative to advance Cinram, a provider of media delivery services around the world, further into digital platforms. 1K specializes in building enhanced consumer experiences for movies, TV shows, music, books and games. 1K has been a key service provider to many of the world's top media and technology companies, including Apple, Paramount Home Entertainment, HBO, and Warner Bros Home Entertainment. These services will be integrated with Cinram's existing media production and logistics business, creating an end-to-end supply chain for our customers.

Geographic revenue:

First quarter North American revenue decreased 40% to $103.8 million from $173.9 million in 2010, principally as a result of lower pre-recorded multimedia product revenue and lower video game distribution revenue, offset by growth in the other business segments.  North America accounted for 59% of first quarter consolidated revenue, compared with 58% in the prior year period.

European revenue was down 42% in the first quarter to $72.9 million from $124.7 million in 2010, consistent with North America, due primarily to the loss of the Warner Home Video contract combined with a weak film slate release.  First quarter European revenue represented 41% of consolidated sales, compared with 42% in the first quarter of 2010.

Balance sheet and liquidity:

As of March 31, 2011, our net debt position (long-term debt excluding unamortized transactions costs, less cash and cash equivalents) improved to $192.4 million, compared with $202.3 million at the end of 2010.

On April 11, 2011, Cinram closed the refinancing and recapitalization transaction as previously announced on January 25, 2011. The refinancing and recapitalization plan has resulted in a $120 million reduction in the Fund's gross senior debt, thereby significantly de-leveraging the Company and removed a major impediment to the growth of the business.

Unit data

For the three-month period ended March 31, 2011, the basic weighted average number of units and exchangeable limited partnership units outstanding was 55.2 million, consistent with December 31, 2010.

Reconciliation of EBITA and EBIT to net earnings (loss) from continuing operations

     
  Three months ended March 31
(unaudited, in thousands of U.S. dollars) 2011 2010
EBITA excluding other charges $(1,040) $34,443
Other charges (income), net 5,441 (7,175)
EBITA1                                                                           $(6,481) $41,618
Amortization of property, plant and equipment 8,052 11,977
Amortization of intangible assets 733 1,290
EBIT2                                                                            $(15,266) $28,351
Net finance costs 5,937 7,671
Income taxes 1,571 4,626
Net earnings (loss) from continuing operations $(22,774) $16,054

IFRS Reporting Commenced First Quarter of 2011

Starting with the first quarter of 2011, Cinram has reported its financial results in accordance with International Financial Reporting Standards (IFRS), as required for public companies in Canada. Previously, the company prepared its financial results under Canadian generally accepted accounting standards (GAAP).  The comparative financial information has been restated to reflect the adoption of IFRS, with effect from January 1, 2010.  Periods prior to January 1, 2010 will not be presented under IFRS.

1 EBITA is defined in this report as earnings (loss) from continuing operations before net finance costs (including interest expense, foreign exchange translation gains/losses, investment income and change in fair value of derivatives), income taxes, and amortization, and is a standard measure that is commonly reported and widely used in the Fund's industry to assist in understanding and comparing operating results. EBITA is not a defined term under IFRS. Accordingly, this measure should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with IFRS. See reconciliation of EBITA to net earnings under IFRS as found in the table above.
2 EBIT is defined in this report as earnings (loss) from continuing operations before net finance costs (including interest expense, foreign exchange translation gains/losses, investment income and change in fair value of derivatives) and income taxes, and is a standard measure that is commonly reported and widely used in the Fund's industry to assist in understanding and comparing operating results. EBIT is not a defined term under IFRS. Accordingly, this measure should not be considered as a substitute or alternative for net earnings or cash flow, in each case as determined in accordance with IFRS. See reconciliation of EBIT to net earnings under IFRS as found in the table above.

About Cinram

Cinram International Inc., an indirect, wholly-owned subsidiary of the Fund, is one of the world's largest providers of pre-recorded multimedia products and related logistics services. With facilities in North America and Europe, Cinram International Inc. manufactures and distributes pre-recorded DVDs, Blu-ray Discs, CDs, and CD-ROMs for motion picture studios, music labels, publishers and computer software companies around the world. Cinram now also provides distribution and logistics services to the telecommunications industry in North America through its wireless subsidiaries. The Fund's units are listed on the Toronto Stock Exchange under the symbol CRW.UN. The Cinram group of companies now also incorporates 1K Studios, a digital media firm based in Los Angeles specializing in building enhanced consumer experiences for movies, TV shows, music, books and games. For more information, visit www.cinram.com.

Certain statements included in this release constitute "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund, or results of the multimedia duplication/ replication industry, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, among others, the following: the Fund's ability to retain major customers; general economic and business conditions, which will, among other things, impact the demand for the Fund's products and services; multimedia replication industry conditions and capacity; the ability of the Fund to implement its business strategy; the Fund's ability to invest successfully in new technologies and other factors which are described in the Fund's filings with the securities commissions.


INTERIM CONSOLIDATED BALANCE SHEET
(in thousands of U.S. dollars)

     
  March 31
2011
(unaudited)
December 31
2010
     
ASSETS    
Current assets:    
Cash and cash equivalents $167,165 $164,399
Trade and other receivables 123,198 177,760
Inventories 24,819 24,109
Current income tax assets - 706
Prepaid and other assets 13,578 10,910
Total current assets 328,760 377,884
     
Property, plant and equipment 166,405 165,675
Investment property 8,559 8,446
Goodwill 40,634 40,634
Intangible assets 11,862 11,349
Other non-current assets 27,611 25,701
Total assets $583,831 $629,689
     
LIABILITIES AND UNITHOLDERS' DEFICIENCY    
Current liabilities:    
Trade and other payables $124,290 $149,559
Provisions 20,874 17,468
Employee benefits 35,948 39,498
Current tax liability 15,632 13,749
Current portion of long-term debt 359,419 365,927
Derivative financial instruments 6,487 11,087
Current portion of obligations under financing leases 1,037 1,141
Total current liabilities 563,687 598,429
     
Obligations under financing leases 975 1,086
Other non-current liabilities 7,137 7,254
Provisions - non current 7,284 5,787
Employee benefits 21,535 20,864
Deferred tax liabilities 2,441 1,229
Total Liabilities 603,059 634,649
     
Unitholders' deficiency (19,228) (4,960)
Total liabilities and unitholders' deficiency $583,831 $629,689

INTERIM CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(unaudited, in thousands of U.S. dollars, except per unit/exchangeable LP unit amounts)

     
  Three months ended March 31
  2011 2010
     
Revenue $176,702 $298,570
Cost of goods sold 158,763 241,494
Gross profit 17,939 57,076
Selling, general and administrative expenses 27,764 35,900
Other charges (income), net 5,441 (7,175)
Results from operating activities (15,266) 28,351
Net finance costs 5,937 7,671
Earnings (loss) before income tax expense (21,203) 20,680
Income tax expense 1,571 4,626
Earnings (loss) from continuing operations (22,774) 16,054
Earnings (loss) from discontinued operations, net of income tax - (219)
Earnings (loss) for the period $(22,774) $15,835
Earnings (loss) from continuing operations per unit:    
  Basic $(0.41) $0.29
  Diluted $(0.41) $0.29
Earnings (loss) per unit:    
  Basic $(0.41) $0.29
  Diluted $(0.41) $0.28

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands of U.S. dollars)
 
  Three months ended March 31
  2011 2010
     
Earnings (loss) for the period      $(22,774) $15,835
Other comprehensive income, net of income taxes of $1,302:    
  Unrealized gain (loss) on translating financial statements of foreign operations         235 (11,024)
  Unrealized gain on hedges of net investment in foreign operations  4,662 4,689
  Unrealized foreign exchange translation gain (loss), net of hedging activities  4,897 (6,335)
  Release of other comprehensive income due to de-designation of hedge  3,609 3,275
  Other comprehensive income (loss)  8,506 (3,060)
Total comprehensive income (loss) for the period, net of income taxes      $(14,268) $12,775

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands of U.S. dollars)
 
  Three months ended March 31
  2011 2010
     
Cash flows from operating activities:    
  Earnings (loss) for the period $(22,774) $15,835
  Items not involving cash:    
    Amortization expense 8,785 13,267
    Mark to market adjustment of derivative liability (4,600) (4,086)
    Release of accumulated other comprehensive income due to de-designation of hedge 3,609 3,275
    Gain on disposal of property, plant and equipment -  (7,460)
    Interest expense 8,173 8,470
    Income tax expense 1,571 4,626
    Other (371) 1,203
  Change in provisions 4,161 799
  Change in employee benefits (5,142) (7,903)
  Income taxes received (paid) (209) 4,410
  Change in non-cash operating working capital 28,601 (12,075)
  Net cash from operating activities 21,804 20,361
     
Cash flows from financing activities:    
  Transaction costs (3,017) -
  Repayment of long-term debt and bank indebtedness (7,156) (7,156)
  Interest paid  (7,829) (8,230)
  Decrease in obligations under financing leases (215) (682)
  Net cash used in financing activities  (18,217) (16,068)
     
Cash flows from investing activities:    
  Purchase of property, plant and equipment (1,115) (5,176)
  Proceeds on disposition of property, plant and equipment - 13,475
  Acquisitions (2,963) -
  Change in non-current liabilities (396) (1,046)
  Decrease in other assets 2,283 2,762
  Net cash from (used in) investing activities (2,191) 10,015
     
Cash used in discontinued operating activities (290) (406)
Foreign currency translation gain (loss) on cash held in foreign currencies 1,660 (1,957)
     
Net increase in cash and cash equivalents 2,766 11,945
     
Cash and cash equivalents, beginning of period 164,399 122,072
Cash and cash equivalents, end of period $167,165 $134,017

 

 

 

SOURCE Cinram International Income Fund

For further information:

John H. Bell
Tel: 416.332.2902
johnbell@cinram.com

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Cinram International Income Fund

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