Pollard Banknote Announces Annual and 4th Quarter Financial Results

WINNIPEG, March 3 /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 months and year ended December 31, 2009.

    
    HIGHLIGHTS                          4th Quarter ended  4th Quarter ended
                                        December 31, 2009  December 31, 2008
                                        -----------------  -----------------

    Sales(1)                              $  46.9 million    $  50.2 million
    Gross Profit(1)                       $   9.2 million    $  10.4 million
    Selling and Administration(1)         $   4.8 million    $   5.5 million
    Realized F/X (Loss) Gain(1)           $  (1.1 million)   $   0.8 million
    EBITDA(1)                             $   5.7 million    $   8.1 million

    Adjusted Distributable Cash(1)        $   3.9 million    $   6.2 million
    Distributions(1)                      $   3.4 million    $   5.6 million
    Adjusted Distributable Cash per
     unit(1)                              $        0.1653    $        0.2630
    Distributions per unit(2)             $        0.1425    $        0.2376
    Payout ratio(3)                                 86.19%              90.3%


                                           Year ended         Year ended
                                        December 31, 2009  December 31, 2008
                                        -----------------  -----------------

    Sales(1)                              $ 191.8 million    $ 178.0 million
    Gross Profit(1)                       $  38.8 million    $  36.9 million
    Selling and Administration(1)         $  21.2 million    $  20.2 million
    Realized F/X (Loss) Gain(1)           $  (4.5 million)   $   4.1 million
    EBITDA(1)                             $  21.0 million    $  28.1 million

    Adjusted Distributable Cash(1)        $  13.8 million    $  21.5 million
    Distributions(1)                      $  16.4 million    $  22.4 million
    Adjusted Distributable Cash per
     unit(1)                              $        0.5877    $        0.9129
    Distributions per unit(2)             $        0.6968    $        0.9504
    Payout ratio(3)                                 118.6%             104.1%

    (1) Amounts are for Pollard LP for the year ended December 31, 2009.

    (2) Distributions per unit are for the Fund for the year ended
        December 31, 2009.

    (3) Payout ratio is calculated as Distributions per unit divided by
        Adjusted Distributable Cash per unit.
    

"2009 was a year that presented us with a number of challenges," commented John Pollard, Co-Chief Executive Officer. "Both our gross margin and our distributable cash levels were lower than 2008 due partially to higher costs associated with the ramp up of our new press and the negative impact of foreign exchange hedges which locked in lower Canadian dollar exchange rates. However, as we begin 2010 we believe that with the changes we have made, the foundation has been laid to provide for much stronger results. The fourth quarter of 2009 showed some of these improving trends, particularly relating to manufacturing efficiency and we believe these trends will continue throughout 2010."

"The market for instant lottery tickets has remained very resilient during the past 18 months despite the economic downturn experienced throughout the world and particularly in North America. The overall sales of instant tickets at the retail level grew slightly in 2009 compared to 2008 and we expect this trend to continue in the short term. Longer term as the economy improves and governments continue to look for lotteries to generate greater returns, we see a very positive outlook for instant lottery tickets."

"Our new press line installation was completed this past year and during the last six months we have seen significantly increased efficiencies and production levels. This press will result in lower per unit costs relative to our current presses and 2010 will benefit from this trend."

"While closing our Kamloops facility in February 2010 was a difficult decision, the financial savings as a result of consolidating production into fewer facilities will be significant. These costs savings will begin to accrue in the second quarter of the year."

THE FUND

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 is adjusted for the amortization of certain intangible assets arising from the use of purchase accounting and certain administrative expenses. The results of operations of the Fund are dependent on the performance of Pollard LP. The Fund has declared distributions totaling $0.6968 per unit during the year ended December 31, 2009.

POLLARD LP

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 tickets based in Canada and the second largest producer of instant tickets in the world.

    
    SELECTED FINANCIAL INFORMATION

    (millions of dollars)                  Year ended         Year ended
                                        December 31, 2009  December 31, 2008
                                       --------------------------------------

    Sales                                         $191.8             $178.0

    Cost of Sales                                  153.0              141.1
                                       --------------------------------------

    Gross Profit                                    38.8               36.9
      Gross Profit as a % of sales                  20.2%              20.7%

    Selling and Administration
    Expenses                                        21.2               20.2
      Expenses as a % of sales                      11.1%              11.3%

    Realized Foreign Exchange loss
     (gain)                                          4.5               (4.1)
      Loss (gain) as a % of sales                    2.3%              (2.3%)

    EBITDA                                          21.0               28.1
      EBITDA as a % of sales                        10.9%              15.8%

                                        December 31, 2009  December 31, 2008
                                        -----------------  -----------------

    Total Assets                                  $105.0             $113.0
    Total Long Term Liabilities                    $76.5              $60.4
    

The previous selected financial and operating information has been derived from, and should be read in conjunction with, the consolidated financial statements of Pollard LP.

Results of Operations - Year ended December 31, 2009

Sales

During the year ended December 31, 2009, ("Fiscal 2009"), Pollard LP achieved sales of $191.8 million, compared to $178.0 million in the year ended December 31, 2008 ("Fiscal 2008"). Factors impacting the $13.8 million sales increase were:

Change in the value of the Canadian dollar

During Fiscal 2009, Pollard LP generated approximately 70% of its revenue in U.S. dollars including a significant portion of international sales which are priced in U.S. dollars. During Fiscal 2009 the actual U.S. dollar value was converted to Canadian dollars at $1.16, compared to a rate of $1.07 during Fiscal 2008. This 9% decrease in the U.S. dollar value resulted in an approximate increase of $11.0 million in revenue relative to Fiscal 2008.

Other

The volume of sales generated during Fiscal 2009 was consistent with Fiscal 2008. Average selling price of instant tickets increased slightly, resulting in $1.3 million higher sales when compared with Fiscal 2008. Increased sales of related lottery services generated an additional $1.5 million in sales.

Cost of sales and gross margin

Cost of sales was $153.0 million in Fiscal 2009 compared to $141.1 million in Fiscal 2008. The increase in Fiscal 2009 was primarily due to the weaker Canadian dollar impacting on U.S. dollar transactions, increased manufacturing overhead related to the increase in capacity and certain manufacturing inefficiencies in the first half of the year.

Gross profit increased from $36.9 million (20.7% of sales) in Fiscal 2008 to $38.8 million (20.2% of sales) in Fiscal 2009. The gross profit increased from Fiscal 2008 due to the impact of the weaker Canadian dollar increasing revenues greater than cost of sales, which was partially offset by the increased manufacturing overhead costs and manufacturing inefficiencies noted above.

Selling and administration expenses

Selling and administration expenses were $21.2 million in Fiscal 2009 compared to $20.2 million in Fiscal 2008, due to higher resources committed to sales and marketing including higher staff costs and higher travel costs in the first half of Fiscal 2009.

Total selling and administration expenses were 11.1% of sales in Fiscal 2009, slightly lower as a percent of sales than Fiscal 2008.

Foreign exchange loss

Foreign exchange transactions generated a loss of $0.8 million in Fiscal 2009 compared to a loss of $0.3 million in Fiscal 2008. Within the foreign exchange loss are unrealized gains of $3.6 million relating to the foreign exchange gain on U.S. dollar denominated debt (caused by the strengthening of the Canadian dollar) and realized gains on accounts payable of $0.8 million offset by $3.5 million in realized losses relating to forward hedge contracts (caused by fixed exchange rates in the hedges being lower than the actual rates) and $1.7 million in realized losses on U.S. dollar denominated accounts receivable.

Over the course of Fiscal 2009 the Canadian dollar strengthened versus the U.S. dollar. While our cash flow during the year remained effectively hedged, our ongoing investment in U.S. dollar denominated accounts receivable was impacted negatively when the Canadian dollar strengthened. These realized losses are non-recurring, assuming the relationship of the Canadian dollar remains steady relative to the U.S. dollar.

In Fiscal 2008 the foreign exchange loss consisted of an unrealized loss of $4.3 million relating to the foreign exchange gain on U.S. dollar denominated debt and $4.0 million in realized gains relating primarily to forward hedge contracts and increased value in U.S. dollar denominated accounts receivable.

Gain on sale of property, plant and equipment

During the year Pollard LP disposed of a surplus office building and land in Winnipeg, Manitoba, to an affiliate of Equities for proceeds of $3.4 million, resulting in a gain of approximately $1.7 million. The selling price was based on current fair market value as determined through an independent appraisal. During 2008 gains on property sales totaled $2.2 million.

EBITDA

EBITDA was $21.0 million in Fiscal 2009, compared to $28.1 million in Fiscal 2008. The EBITDA margin was 10.9% in Fiscal 2009, compared to 15.8% in Fiscal 2008.

The $7.1 million decrease in EBITDA was primarily due to the change to a realized foreign exchange loss from a gain in 2008, partially offset by a higher gross profit.

Amortization

Amortization includes amortization of property and equipment, intangible assets, primarily patents and deferred financing costs, and totalled $6.6 million during Fiscal 2009, compared to $6.2 million during Fiscal 2008. Amortization was higher by $0.4 million in Fiscal 2009, due to the amortization related to the addition of the new press line in 2008.

Interest

Interest expense increased from $3.8 million in Fiscal 2008 to $4.4 million in Fiscal 2009, primarily due to an increase in bank debt associated with capital expenditures and higher interest rates associated with the new syndicated credit facility completed on October 30, 2009.

Mark-to-market gain (loss) on foreign currency contracts

A non-cash gain of $9.8 million was recorded in Fiscal 2009, compared to a non-cash loss of $17.0 million recognized in Fiscal 2008. The strengthening of the Canadian dollar relative to the U.S. dollar during 2009 resulted in a non-cash increase in the value of the forward foreign currency contracts. During 2008 the Canadian dollar weakened significantly during the second half of the year which generated a large non-cash loss. These contracts expire during the first nine months of 2010 with the final contract maturing in September 2010.

Employee profit sharing

Employee profit sharing costs decreased to $0.9 million in Fiscal 2009 from $1.4 million in Fiscal 2008. The change was due to a decrease in the income subject to employee profit sharing in Fiscal 2009. Mark-to-market changes on foreign currency contracts and interest rate swaps are excluded from the calculation of employee profit sharing.

Income taxes

Income tax expense was $1.0 million in Fiscal 2009 compared to $3.7 million in Fiscal 2008. The income tax expense is lower due to differences relating to the foreign exchange impact of Canadian dollar denominated debt in the U.S. subsidiaries.

Net income (loss)

Net Income for Fiscal 2009 was $17.8 million compared to Net Loss of $6.9 million in Fiscal 2008. The main reasons for the increase in Net Income were: a large non-cash mark-to-market gain on foreign currency contracts of $9.8 million compared to a large non-cash mark-to-market loss of $17.0 million in 2008; lower income taxes of $1.0 million compared to $3.7 million in 2008; partially offset by the Kamloops facility closing expense of $4.7 million recorded in 2009.

Adjusted Distributable Cash and Adjusted Distributable Cash per unit

Pollard LP generated $13.8 million in Adjusted Distributable Cash, or $0.59 per unit for Fiscal 2009. Adjusted Distributable Cash varies on a year-to-year basis due to changes in the product mix and short term variations in the order quantities from customers.

    
    Results of Operations - Three months ended December 31, 2009
    SELECTED FINANCIAL INFORMATION

    (millions of dollars)                  Three months       Three months
                                              ended              ended
                                        December 31, 2009  December 31, 2008
                                       --------------------------------------
                                           (unaudited)        (unaudited)

    Sales                                           $46.9              $50.2
    Cost of Sales                                    37.7               39.8
                                       --------------------------------------
    Gross Profit                                      9.2               10.4
    Expenses:
      Selling and administration                      4.8                5.5
      Interest                                        1.3                1.1
      Foreign exchange loss                           0.4                2.2
      Mark-to-market loss (gain) on
       foreign currency contracts and
       interest rate swaps                           (1.9)              10.0
      Amortization of de-designated
       hedges                                         0.6                  -
      Facility closing                                4.7                  -
      Other                                          (0.5)              (1.1)
                                       --------------------------------------
    Loss before undernoted                           (0.2)              (7.3)
    Employee profit sharing plan                     (0.2)               0.2
                                       --------------------------------------
    Loss before income taxes                         (0.0)              (7.5)
    Income taxes:
      Current                                         0.4                0.5
      Future                                            -                1.3
                                       --------------------------------------
                                                      0.4                1.8
                                       --------------------------------------
    Net loss                                        $(0.4)             $(9.3)
                                       --------------------------------------
                                       --------------------------------------
    Adjustments:
      Interest                                        1.3                1.1
      Unrealized foreign exchange
       (gain) loss                                   (0.7)               3.0
      Mark-to-market (gain) loss on
       foreign currency contracts and
       interest rate swaps                           (1.9)              10.0
      Amortization of de-designated
       hedges                                         0.6                  -
      Facility closing                                4.7                  -
      Income taxes                                    0.4                1.8
      Amortization                                    1.7                1.4
                                       --------------------------------------

    EBITDA                                            5.7                8.1
    Less:
      Cash taxes                                     (0.4)              (0.5)
      Interest                                       (1.3)              (1.1)
      Maintenance capital expenditures               (0.1)              (0.2)
                                       --------------------------------------
    Cash Available for Distribution
     (before Fund expenses)                           3.9                6.3
    Expenses of the Fund                                -               (0.1)
                                       --------------------------------------
    Adjusted Distributable Cash                      $3.9               $6.2
                                       --------------------------------------
                                       --------------------------------------
    

During the three months ended December 31, 2009, Pollard LP achieved sales of $46.9 million, compared to $50.2 million in the three months ended December 31, 2008. The main factors impacting the $3.3 million sales decrease are:

    
    -   During the three months ended December 31, 2009, Pollard LP generated
        approximately 68% of its revenue in U.S. dollars. During the fourth
        quarter of 2009 the actual U.S. dollar value was converted to
        Canadian dollars at $1.09, compared to a rate of $1.21 during the
        fourth quarter of 2008. This 9.9% decrease in the U.S. dollar value
        resulted in an approximate decrease of $3.3 million in revenue
        relative to the fourth quarter of 2008.

    -   Overall instant ticket volumes for the three months ended
        December 31, 2009 were lower by approximately 2.5% which, when
        combined with an increase in related lottery services sales and a
        small increase in average selling price, resulted in $0.1 million
        higher sales when compared with the three months ended December 31,
        2008. Charitable gaming sales were lower by $0.1 million.
    

Cost of sales was $37.7 million in the three months ended December 31, 2009, compared to $39.8 million in the three months ended December 31, 2008.

Gross profit decreased from $10.4 million to $9.2 million in the three months ended December 31, 2009. The gross profit margin percentage decreased to 19.6% from 20.7% in the three months ended December 31, 2008.

Cost of sales were lower primarily due to the stronger Canadian dollar relative to the U.S. dollar. Gross profit and gross profit margin are lower than 2008 due to higher overhead costs and manufacturing infrastructure costs related to the build up of capacity and the impact of fixed costs relative to slightly lower volumes.

Selling and administration expenses were $4.8 million in the three months ended December 31, 2009, compared to $5.5 million in the three months ended December 31, 2008. The decrease in expenses is due primarily to the impact of the stronger Canadian dollar on U.S. dollar denominated expenditures. In addition, cost containment programs instituted during 2009 helped lower discretionary expenditures. As a percentage of sales the fourth quarter of 2009 was lower than the fourth quarter of 2008, 10.2% versus 11.0%.

Foreign exchange loss was $0.4 million in the three months ended December 31, 2009, compared to a loss of $2.2 million in the three months ended December 31, 2008. Within the foreign exchange loss are unrealized gains of $0.7 million relating to the foreign exchange gain on U.S. dollar denominated debt (caused by the strengthening of the Canadian dollar) and realized gains on accounts payable of $0.2 million, offset by $0.9 million in realized losses relating to forward hedge contracts (caused by fixed exchange rates in the hedges being lower than the actual rates) and $0.4 million in realized losses on U.S. dollar denominated accounts receivable.

EBITDA was $5.7 million in the three months ended December 31, 2009, compared to $8.1 million in the three months ended December 31, 2008. EBITDA margins were 12.1% in the three months ended December 31, 2009, compared to 16.1% achieved in the three months ended December 31, 2008.

The decrease in EBITDA was primarily a result of the change to a realized foreign exchange loss from a gain in 2008, (due to the impact of the exchange rates of the hedge program) and a lower gross profit, partially offset by lower selling and administration expenses.

Amortization includes amortization of property and equipment, intangible assets, primarily patents and deferred financing costs which totaled $1.7 million during the three months ended December 31, 2009, which is higher than $1.4 million for the three months ended December 31, 2008, due to the increased amortization relating to the new press line installed in 2008.

Interest expense increased from $1.1 million in the three months ended December 31, 2008, to $1.3 million in the three months ended December 31, 2009, due to an increase in bank debt associated with capital expenditures and higher interest rates associated with the new syndicated credit facility completed October 30, 2009.

A non-cash mark-to-market gain of $1.9 million was recorded in the three months ended December 31, 2009, compared to a non-cash mark-to market loss of $10.0 million recognized in the comparable period of 2008. The strengthening of the Canadian dollar in relation to the U.S. dollar during the fourth quarter of 2009 resulted in a large non-cash increase in value in forward foreign currency contracts. These contracts expire during the first 9 months of 2010 with the final contract maturing in September 2010.

The income tax expense decreased to $0.4 million in the three months ended December 31, 2009, compared to $1.8 million during the three months ended December 31, 2008. The decrease in the income tax expense was due to differences relating to the foreign exchange impact of Canadian dollar denominated debt in the U.S. subsidiaries.

In the three months ended December 31, 2009, $0.4 million was recorded as a Net Loss in comparison to a Net Loss of $9.3 million in the three months ended December 31, 2008. This change is primarily due to change in the mark-to-market foreign currency contracts and interest rate swaps from a loss of $10.0 million to a gain of $1.9 million; foreign exchange loss of $0.4 million compared to a foreign exchange loss of $2.2 million in 2008; and lower income tax expense. In addition, an expense for the Kamloops Facility closure was recorded for $4.7 million in the three months ended December 31, 2009.

Pollard LP generated $3.9 million in Adjusted Distributable Cash, or $0.1653 per unit for the three months ending December 31, 2009.

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 interest rate swaps, facility closing reserve 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 Cash 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.

Outlook

The instant lottery ticket market showed strong resilience throughout 2009, with the overall market (measured by retail sales of instant lottery tickets), growing slightly when compared to 2008. Expectations are this trend will continue through 2010, with the overall market growing slightly in the low single digit range. While this growth is lower than the growth witnessed for many years during the last two decades, it shows the strength of this product line when faced with the economic uncertainty experienced throughout the world and particularly in North America over the last 12-18 months. Various jurisdictions are under more pressure than ever to raise funds for government programs and with other sources of revenue such as taxes under significant pressure, lotteries are increasingly charged with generating higher revenues. Lottery sales, and particularly sales of instant win scratch lottery tickets, have continued to show relatively strong results during these difficult times and this is expected to continue throughout 2010.

Other than New Jersey, we have no material customer contracts that come due in 2010 (when extensions are considered). The New Jersey Lottery contract has been extended until up to June 30, 2010 and Pollard has been advised that the Lottery intends on re-issuing a request for proposal to award a new long term contract. We continue to bid aggressively on all new contract opportunities as well as working to increase our market share for individual contracts where we share work with other suppliers.

Despite the underlying strength in the instant ticket market, sales and order volumes will continue to vary on a quarter-to-quarter basis due to the timing of client orders, which vary based on marketing plans, new product offerings, inventory management and other factors. Volumes in the first quarter of 2010 are expected to be slightly lower than the rest of the year due to the timing of certain orders from existing clients and some scheduled annual maintenance shut downs of certain existing press capacity.

We will continue to focus resources on developing our specialized product line offerings. Lottery Management Services continue to grow as we provide a variety of operational and support services to different lotteries throughout our client base. Organic growth will continue from traditional growth in the lottery services we provide and we will aggressively pursue strategic new opportunities to profitably expand our portfolio. Licensed games and merchandise sales increased in 2009 by 50% compared to 2008 and while currently a small part of our lottery offerings, we are focused on growing this operation again in 2010. Additional marketing resources have been committed to expanding our sales in this area.

The overall charitable gaming market remains stable and is expected to continue unchanged during 2010. Our volumes in the charitable gaming sector (pull-tabs and bingo paper) were strong in 2009 and we expect these levels of sales to remain steady throughout 2010. Ongoing cost management initiatives generated positive returns during 2009 and we expect these improvements to positively impact the results in 2010.

The Canadian dollar continued strengthening relative to the U.S. dollar throughout 2009. Our historical strategy of hedging our future net U.S. dollar cash flow has locked in our exchange value for U.S. dollar cash inflow until September 2010 at rates that are lower than the current exchange rate. On average our exchange rates for our U.S. dollar cash flow will be converted at approximately $1.02 Canadian for every $1 U.S. cash flow over the 9 months from January 2010 to September 2010. Depending on the actual exchange rate during this time, the hedging strategy may result in higher realized foreign exchange losses over the next three quarters.

We have discontinued hedging our net U.S. dollar cash flow with the final hedges expiring in September 2010.

During 2009 we completed the installation and ramp-up of our new press line. Towards the later part of the year we saw significant improvements in the productivity and efficiency of the press, which is now operating closer to our expectations. The features of this new press allow for increased capacity and lower per unit costs of production. In addition, the closure of our Kamloops facility will result in significant cost savings. Throughout 2010 these two major initiatives will result in improvements in our cost structure. A number of other costs containment programs introduced during 2009 will continue in 2010, which include a focus on reducing overhead as well as improving manufacturing practices.

The closure of the Kamloops production facility was completed at the end of February, 2010. All production previously done in this facility has been reallocated to our remaining facilities. The facility closing costs of approximately $4.7 million, which were accrued in the fourth quarter of 2009, will be expended beginning in March of 2010 and will continue throughout 2010 and 2011, reflective of the terms of the individual salary and related benefit continuance costs. Significant cost savings through reduced overhead and increased efficiencies will be realized beginning in the second quarter of 2010 and are expected to generate a minimum net annual savings of approximately $4.0 million.

Capital expenditures during 2009 were significantly lower than in 2008 due to the completion of the major expansion relating to the new press line. We anticipate our capital expenditures will continue to remain at similar levels to 2009 during the upcoming year as no major capital projects are currently planned.

Throughout 2010 we expect our improved operating results, savings generated from the closing of our Kamloops facility, modest capital expenditures and lower distributions to strengthen our balance sheet through reductions in debt.

On January 28, 2010, the Board of Directors of Pollard Banknote Limited, General Partner of Pollard LP and the Trustees of the Fund approved in principle a plan to convert the Pollard Banknote Income Fund into a publicly traded corporation, with conversion expected to occur May 2010. The conversion to a corporation is in response to the introduction of legislation relating to the Tax Fairness Plan which will introduce certain income taxation to the Pollard Banknote Income Fund starting January 1, 2011.

The conversion will utilize legislative tax-free conversion options and is expected to become effective in May 2010, following appropriate approvals and Unitholders' vote at the annual general meeting. It is anticipated that ultimately Unitholders in the Fund will hold shares in the new public corporation on a one for one basis compared to their current unit holdings. Subsequent to conversion the Canadian operations of Pollard LP will be subject to Canadian federal and provincial income tax.

After the conversion it is expected the new corporation will pay a dividend that will be in line with typical dividend payout ratios for publicly traded corporations. Accordingly, the plan approved in principle by the Trustees sets out a quarterly dividend after conversion of $0.03 per share. Prior to the conversion, effective with the distribution payable March 15, 2010, its monthly distribution to Unitholders will be adjusted to the equivalent rate of $0.01 per unit.

Pollard Banknote believes that its credit facilities and ongoing cash flow from operations will be sufficient to allow it to meet ongoing requirements for investment in capital expenditures, working capital and distributions and proposed dividends at existing business levels.

Forward-Looking Statements

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.

SOURCE Pollard Banknote Limited

For further information: For further information: John Pollard, Co-Chief Executive Officer, Telephone: (204) 474-2323 ext 204, Facsimile: (204) 453-1375; Gordon Pollard, Co-Chief Executive Officer, Telephone: (204) 474-2323 ext 211, Facsimile: (204) 453-1375; Rob Rose, Chief Financial Officer, Telephone: (204) 474-2323 ext 250, Facsimile: (204) 453-1375


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