WINNIPEG, Nov. 7 /CNW/ - Pollard Banknote Income Fund (TSX Symbol PBL.UN)
(the "Fund") today released the financial results of the Fund and Pollard
Holdings Limited Partnership ("Pollard LP") for the three and nine months
ended September 30, 2007.
September 30, 2007
Sales(1) $ 42.1 million
EBITDA(1) $ 7.6 million
Net Income(1) $ 9.4 million
Adjusted Distributable Cash(1) $ 6.2 million
Distributions(1) $ 5.6 million
Adjusted Distributable Cash per unit(1) $ 0.2633
Distributions per unit(2) $ 0.2376
Payout ratio(3) 90.2%
(1) Sales, EBITDA, Net Income, Adjusted Distributable Cash,
Distributions and Adjusted Distributable Cash per unit are for
Pollard LP for the three months ended September 30, 2007.
(2) Distributions per unit are for the Fund for the three months ended
September 30, 2007.
(3) Payout ratio is calculated as Distributions per unit divided by
Adjusted Distributable Cash per unit.
"We are very pleased with our results in the third quarter, with
distributable cash returning to higher levels, and we are looking forward to
even stronger results in the 4th quarter," remarked Co-Chief Executive Officer
John Pollard. "As expected, our production volumes increased significantly
relative to the first half of 2007. Sales volumes continued to build
throughout the quarter and our product mix was weighted toward some of our
higher margin products."
"A number of recent initiatives are coming to fruition, including
completion of the testing period of our automated finishing and packaging
line. We continue to receive a number of contract extensions and successful
re-bids. We are delighted with recent wins providing work for new clients in
Poland and ongoing clients in Wisconsin and Connecticut."
"The fourth quarter forecasted volumes remain high and indications for
fiscal 2008 are positive. A number of our key clients have been growing their
instant ticket product lines and we continue to work with them. We believe our
distributable cash will exceed our target in the fourth quarter by a
significant margin and will meet or exceed our target for the year."
This news release should be read in conjunction with the Management's
Discussion and Analysis of the Fund and Pollard LP as at September 30, 2007.
Consolidated Statement of Net Income and Unitholders' Equity
Three months ended September 30, 2007
(in thousands of dollars, except for unit amounts)
Share of income of Pollard Holdings Limited Partnership $2,043
Administrative expenses (22)
Future tax reduction 69
Net Income for the period 2,090
Opening Unitholders' equity 57,826
Closing Unitholders' equity $58,422
Basic and diluted earnings per unit $0.33
Number of Fund Units outstanding September 30, 2007 6,285,700
The Fund commenced business operations on August 5, 2005, and earnings
from the Fund's investment in Pollard LP have been accounted for using the
equity method of accounting. Under this method, the Fund's share of earnings
of Pollard LP, adjusted for the amortization of certain intangible assets
arising from the use of purchase accounting, certain administrative expenses,
and a future income tax reduction is reflected in the statement of income of
the Fund. The results of operations of the Fund are dependent on the
performance of Pollard LP.
As the Tax Fairness Plan legislation is now enacted, the Fund is required
to recognize future income tax assets and liabilities with respect to
temporary differences between the carrying amount and tax bases of its assets
and liabilities that are expected to reverse in or after 2011. A future income
tax asset has been recorded for the current temporary differences relating to
capital assets since these differences are expected to exist at January 1,
2011. The Fund does not expect the temporary difference between the carrying
amount and tax base of intangible assets to reverse in the foreseeable future
and accordingly has reduced the asset by a valuation allowance for that
The Fund has declared the following distributions totaling $0.2376 per
unit during the three months ended September 30, 2007.
Period covered Date of record Payment Date Per unit amount
July July 31 August 15 $0.0792
August August 31 September 17 $0.0792
September September 28 October 15 $0.0792
Pollard LP is one of the leading providers of products and services to
lottery and charitable gaming industries throughout the world. Management
believes Pollard LP is the largest provider of instant-win scratch tickets
based in Canada and the second largest producer of instant tickets in the
SELECTED FINANCIAL INFORMATION
(millions of dollars) Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
Sales $42.1 $42.9 $124.8 $134.4
Cost of Sales 31.7 33.2 96.4 102.8
Gross Profit 10.4 9.7 28.4 31.6
Gross Profit as a % of sales 24.8% 22.7% 22.8% 23.5%
Selling and Administration
Expenses 4.7 4.7 14.2 14.4
Expenses as a % of sales 11.2% 10.9% 11.4% 10.7%
EBITDA 7.6 7.6 19.9 23.8
EBITDA as a % of sales 18.2% 17.7% 16.0% 17.7%
30, 2007 31, 2006
Total Assets $108.6 $104.7
Total Long Term Liabilities $46.7 $49.8
The previous selected financial and operating information has been
derived from, and should be read in conjunction with, the unaudited interim
consolidated financial statements of Pollard LP.
Results of Operations - Three months ended September 30, 2007
During the three months ended September 30, 2007, Pollard LP achieved
sales of $42.1 million, compared to $42.9 million in the three months ended
September 30, 2006. Factors impacting the $0.8 million sales difference were:
Strengthening of the Canadian dollar
During the three months ended September 30, 2007, Pollard LP generated
approximately 67% of its revenue in U.S dollars including a significant
portion of international sales which are priced in U.S. dollars. During the
third quarter of 2007 the actual Canadian dollar value versus the U.S dollar
was converted at $1.058, compared to $1.116 during the third quarter of 2006.
This 5.2% change in the U.S. dollar value resulted in an approximate decrease
of $1.6 million in revenue.
The volume of instant tickets generated during the third quarter of 2007
was higher than the comparable three months of 2006. Overall instant ticket
and related services volumes for the third quarter of 2007 were higher by
approximately 4.3% compared to the third quarter of 2006 due to the impact of
the timing of instant ticket orders from current customers. The volume of
pull-tab tickets decreased by approximately 6.5% due to the timing of orders
from certain distributors. Bingo paper volumes increased by approximately 5%
compared to the third quarter of 2006.
Our core group of lottery customers remains unchanged from 2006. During
the course of a quarter a number of factors will impact the actual order
pattern. These include the status of inventory levels, timing within the
lottery's marketing plans, impact of new or changed marketing strategies and
new product development, among others.
Cost of sales and gross profit
Cost of sales was $31.7 million in the third quarter of 2007 compared to
$33.2 million in the third quarter of 2006 reflecting the lower Canadian cost
of items purchased in U.S. dollars in 2007.
Gross profit increased from $9.7 million in the third quarter of 2006 to
$10.4 million in the third quarter of 2007. The gross profit margin increased
to 24.8% from 22.7% in the third quarter of 2006. The mix of products sold
during the quarter included more higher margin items. In addition, production
volumes increased during the third quarter relative to 2006 and the first half
of 2007, resulting in a positive impact on the gross profit margin.
Selling and administration expenses
Selling and administration expenses were $4.7 million in the third
quarter of 2007 which is consistent with the third quarter of 2006.
Total selling and administration expenses were 11.2% of sales which is
similar to 2006 which was 10.9%.
EBITDA was $7.6 million in the third quarter of 2007, which is consistent
with the third quarter of 2006. EBITDA margins were 18.2% in the third quarter
of 2007 compared to 17.7% in the third quarter of 2006. The primary reason for
the increase was higher gross margin percentage.
Net Income increased by $5.9 million to $9.4 million in the third quarter
of 2007 from $3.5 million in the third quarter of 2006. This was primarily due
to higher gross profit margin, higher mark-to-market gains on the foreign
currency contracts, increased foreign exchange gains and a lower effective tax
Adjusted Distributable Cash and Adjusted Distributable Cash per unit
Pollard LP generated $6.2 million in Adjusted Distributable Cash, or
$0.2633 per unit, for the third quarter of 2007. This exceeded the target of
$0.2376 as established in the final prospectus of the Fund dated July 27,
2005. The excess Adjusted Distributable Cash compared to the target is due
primarily to increased gross profit.
Use of Non-GAAP Financial Measures
Reference to "EBITDA" is to earnings before interest, income taxes,
amortization, unrealized foreign exchange gains and losses, mark-to-market
gains and losses on foreign exchange contracts and long term incentive plan
expense. Reference to "Adjusted Distributable Cash" is to cash available for
distribution to Unitholders, calculated as cash flow from operations, before
changes in non-cash working capital, less maintenance capital expenditures.
Management views Adjusted Distributable Cash as an operating performance
measure, as it is a measure generally used by Canadian income funds as an
indicator of financial performance. Adjusted Distributable Cash is important
as it summarizes the funds available for distribution to Unitholders. As the
Fund and Pollard LP will distribute substantially all of its cash on an
ongoing basis and since EBITDA and Adjusted Distributable are metrics used by
many investors to compare issuers on the basis of the ability to generate cash
from operations, management believes that, in addition to Net Income, EBITDA
and Adjusted Distributable Cash are useful supplementary measures.
EBITDA, Adjusted Distributable Cash, Maintenance Capital Expenditures and
Growth Capital Expenditures are not measures recognized under GAAP and do not
have standardized meanings prescribed by GAAP. Therefore, these measures may
not be comparable to similar measures presented by other entities. Investors
are cautioned that EBITDA should not be construed as an alternative to Net
Income or Loss determined in accordance with GAAP as indicators of the Fund's
and Pollard LP's performance or to cash flows from operating, investing and
financing activities as measures of liquidity and cash flows.
The outlook for the fourth quarter remains positive. Confirmed instant
ticket orders are above the levels necessary to meet our Distributable Cash
target in the quarter. The higher level of orders reflects the variability of
the timing of customer orders as witnessed by the lower volumes in the first
half of 2007. In addition to the increased volume, the mix of instant ticket
orders remains weighted toward higher margin products, offsetting the lower
margins achieved in the first half of the year. Based on these volumes, we
anticipate exceeding our Distributable Cash target for the fourth quarter by a
significant margin and meeting or exceeding our target for the year. Our core
group of lottery customers continues to grow their instant ticket product
lines, notwithstanding quarter-to-quarter variations in order patterns which
were evident in the first half of 2007. The growth trend in the instant ticket
market remains strong and we expect that to continue.
We continue to receive contract extensions on all of our current
contracts, including such jurisdictions as Wisconsin and Connecticut. In
addition, a contract was awarded from the Totalizator Sportowy of Poland, the
first time we have been awarded work for this Eastern European Lottery.
Subsequent to the end of the third quarter we have also been advised that
the Mifal Hyapis (the Israel National Lottery) has named Pollard LP as winner
of a new five-year contract. We were previously the supplier to the Lottery
under a contract which expired August 2007, and we were awarded this contract
under a new competitive bid process.
Our automated finishing and packaging line is now in operation and will
help us improve our efficiencies and lower our costs in instant ticket
production. Greater impact of the automation will be delivered throughout the
fourth quarter as its use is expanded across all production in our Ypsilanti
plant. Our new production facility in Sault Ste. Marie, Ontario continues to
progress, with key staffing positions being filled for the planned opening
early in 2008.
The charitable gaming market has grown with the introduction of pull-tabs
in Florida, while the remainder of the market remains stable.
We are monitoring the status of the Tax Fairness Plan. The legislation
relating to the Tax Fairness Plan was passed into law during the second
quarter, however significant detailed rules and regulations are still lacking.
As these gaps in the regulatory framework are filled, we will develop specific
strategic responses at that time. The introduction of additional taxation
under this legislation will not apply to the Pollard Banknote Income Fund
We believe that our credit facilities and cash flow from operations will
be sufficient to allow us to meet our ongoing requirements for capital
expenditures, working capital and distributions to Unitholders at existing
Certain statements in this report may constitute "forward-looking"
statements which involve known and unknown risks, uncertainties and other
factors which may cause actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. When used in this
document, such statements include such words as "may," "will," "expect,"
"believe," "plan," and other similar terminology. These statements reflect
management's current expectations regarding future events and operating
performance and speak only as of the date of this document. There should not
be an expectation that such information will in all circumstances be updated,
supplemented or revised whether as a result of new information, changing
circumstances, future events or otherwise.
For further information:
For further information: John Pollard, Co-Chief Executive Officer,
Telephone: (204) 474-2323, ext 204, Facsimile: (204) 453-1375; Rob Rose, Chief
Financial Officer, Telephone: (204) 474-2323, ext 250, Facsimile: (204)
453-1375; Gordon Pollard, Co-Chief Executive Officer, Telephone: (204)
474-2323, ext 211, Facsimile: (204) 453-1375