Armtec Infrastructure Income Fund Reports Third Quarter Results

Toronto Stock Exchange: ARF.UN

GUELPH, ON, Nov. 11, 2009 /CNW/ - Armtec Infrastructure Income Fund (TSX: ARF.UN) today reported financial results for the three months and nine months ended September 30, 2009.


    -   Revenues of $165.2 million, an increase of 20% over the same period
        in 2008 primarily reflecting Groupe Tremca and Pre-Con transactions
        in May and June 2009. Year to date, revenues were $346.9 million, an
        increase of 26.1% over 2008.

    -   EBITDA was $38.1 million for the quarter, a 46% improvement over the
        $26.1 million in the comparable period of 2008. Year to date, EBITDA
        was $62.7 million, compared to $43.5 million in the prior year.

    -   Distributable cash(1) increased to $32.9 million or $1.63 per unit in
        the quarter, from $22.5 million, or $1.33 per unit, in the third
        quarter of 2008. Year to date, distributable cash was $48.0 million
        or $2.44 per unit, up from $35.7 million or $2.27 per unit in the
        comparable period in 2008.

    -   Declared distributions were $10.9 million, or $0.54 per unit, in the
        third quarter of 2009, up from $9.1 million, or $0.53 per unit, in
        the same period of the prior year. Year to date, declared
        distributions were $32.2 million, or $1.62 per unit for 2009, up from
        $23.3 million, or $1.47 per unit in the comparable period of 2008.

    -   Subsequent to quarter-end, a corporate reorganization was announced
        to capitalize on the organization's significant acquisition growth
        and to transform the Fund into one operating entity.

"In the third quarter of 2009, the Fund experienced a strong seasonal increase in shipments which led to a solid operational performance, as first half delays in infrastructure investments materialized, offsetting continued weakness in some of our private markets. We also benefited from the incremental impact of acquisitions closed over the last 12 months," said Charles Phillips, President and Chief Executive Officer. "With these acquisitions behind us and their integration well underway, the Fund announced a corporate reorganization transforming the former divisional structure into a stronger, more resilient regionally based organization to market our comprehensive range of products and services more efficiently and cost-effectively. When fully in place, this will enable us to leverage our national scale and reach to deliver innovative products and enhanced services in local markets across the country."

    Results of Operations

    (in thousands of
    Canadian dollars                Three Months Ended     Nine Months Ended
    unless otherwise noted)       September  September  September  September
    (unaudited)                    30, 2009   30, 2008   30, 2009   30, 2008
    Revenue                       $ 165,161  $ 137,794  $ 346,860  $ 274,979
    Cost of sales                   106,649     92,481    231,280    189,376
    Amortization of property,
     plant and equipment              3,677      2,493      9,452      5,609

    Gross margin                     54,835     42,820    106,128     79,994
    As a % of revenue                  33.2%      31.1%      30.6%      29.1%
    Distribution and warehousing      7,097      8,154     15,440     12,560
    Selling, general and
     administrative                  13,552     11,215     37,877     29,926
    Restructuring expenses              579          -      1,856          -
    Amortization of intangible
     assets                           3,243      2,745      8,521      8,590

    Earnings from operations         30,364     20,706     42,434     28,918
    Interest and financing expenses  (4,284)    (2,707)    (9,579)    (4,956)

    Earnings before taxes            26,080     17,999     32,855     23,962
    Interest and financing expenses   4,284      2,707      9,579      4,956
    Total amortization                6,920      5,238     17,973     14,199
    Restructuring expenses              579          -      1,856          -
    Fair value increments of
     acquired inventory                 234        149        402        333

    EBITDA                        $  38,097  $  26,093  $  62,665  $  43,450
    As a % of revenue                  23.1%      18.9%      18.1%      15.8%
    Basic and diluted earnings
     per unit                     $    1.33  $    1.16  $    1.80  $    1.72
    Basic and diluted
     distributable cash
     per unit(1)                  $    1.63  $    1.33 $     2.44  $    2.27
    (1) Please refer to the Liquidity, Distributable Cash and Distributions
        section of this MD&A for the reconciliation of this non-GAAP measure

Third Quarter Results


The Fund recorded revenue of $165.2 million during the third quarter of 2009; an increase of $27.4 million or 19.9% over the same period of 2008. The acquisitions of Groupe Tremca and Pre-Con completed during 2009 ("2009 Acquisitions") and to a lesser extent, the incremental benefit of the acquisitions completed during the third quarter of 2008 (Con-Force Concrete Products, Brooklin and Boucher) contributed incremental revenue of $39.5 million. A $12.1 million decline in the base business compared to the same period in 2008 was as a result of continued weakness in the private markets served by the Armtec division as well as a net decrease in structural project shipments in the B.C market.

On an end-use market basis, revenue increased in the infrastructure, residential, and commercial end-use markets, offset partially by declines in agricultural and natural resources. Geographically, softness in Western Canada was offset by strong contributions in Central and Eastern Canada, primarily the result of the 2009 Acquisitions.

Earnings from Operations

For the three months ended September 30, 2009, earnings from operations were $30.4 million compared to $20.7 million in the comparable period of 2008. Gross margin for the third quarter of 2009 was $54.8 million, an increase of $12.0 million or 28.0%, over $42.8 million in 2008. As a percentage of revenue, gross margin improved to 33.2% as compared to 31.1% in 2008. Improvements were noted in all three divisions.

Distribution and warehousing costs in the third quarter of 2009 were $7.1 million or 4.3% of revenue as compared to $8.2 million, or 5.9% of revenue, for the comparable quarter of 2008. These costs vary with the mix and volume of products sold, and they change with the seasonally increased volumes related to the construction and infrastructure application product lines. The most significant improvement was achieved through cost control initiatives in the Armtec division.

For the current quarter selling, general and administrative expenses were $13.6 million or 8.2% of revenue as compared to $11.2 million, or 8.1% of revenue, for the comparable quarter of 2008. The increase was due principally to the 2008 and 2009 acquisitions.

Amortization of intangible assets decreased $0.5 million to $3.2 million when compared to the third quarter of 2008. This reflects a reduction in the amortization of customer contract intangibles acquired with Con-Force in 2007, partially offset by additional amortization related to the 2008 and 2009 Acquisitions.

Year to Date Results


The Fund recorded revenue of $346.9 million for the nine months ended September 30, 2009, an increase of $71.9 million or 26.1% over the same period of 2008. Revenue from the 2009 Acquisitions, combined with the incremental contribution of acquisitions completed during the course of 2008, contributed $96.8 million of the increase during the first nine months of 2009. Revenue from the base business declined 8.9% due to the decrease in Armtec's Western Canadian market volumes and low levels of activity across all of the Con-Force division's B.C. businesses. From an end-use market perspective, revenue improvements in infrastructure, agricultural, residential and commercial offset declines in the natural resource end-use market.

Earnings from Operations

Earnings from operations for the nine-month period ended September 30, 2009 increased 46.7% to $42.4 million, from $28.9 million in the same period of 2008. Gross margin was $106.1 million for the first nine months of 2009 or 30.6% of revenue as compared to $80.0 million or 29.1% of revenue for the same period 2008. Gross margin as a percentage of revenue increased in both the Con-Force and Durisol divisions, with a small decline in Armtec attributable to the first quarter results.

Distribution and warehousing costs increased in 2009, by $2.9 million over the 2008 levels, to $15.4 million or 4.5% of revenue, compared with $12.6 million or 4.6% in 2008. While consistent as a percent of revenue, the increase in costs is attributable to the volume increase in the construction and infrastructure application products from the 2008 acquired businesses.

For the first nine months of 2009 selling, general and administrative expenses were $37.9 million or 10.9% of revenue as compared to $29.9 million, or the same 10.9% of revenue, for the comparable quarter of 2008. The dollar increase relates principally to the 2008 and 2009 Acquisitions. Amortization of intangible assets of $8.5 million was consistent with the first nine months of 2008.


The outlook for the infrastructure market remains positive with various levels of government having committed to stimulus programs that augment their pre-recession commitments to increase infrastructure spending. While the incremental impact of these initiatives was delayed, it now appears that funds are being allocated. Many projects are still in the tender process and not anticipated to commence subcontracting and production until 2010. Geographically, the market for infrastructure projects in Western Canada remains at lower levels than in prior years with improvements evident in Central and Eastern Canada.

The Federal government support for residential renovation and repair has provided a modest benefit in residential end-use markets during 2009, however, housing starts have not returned to 2008 levels. The agriculture market continues to be influenced by the improved financial strength of its end-use customers although continued success in this market is heavily dependent on weather conditions during the limited installation season. On the other hand, demand from commercial construction projects and the forestry market remains well off the levels of previous years and no sign of improvement is in sight.

Management's emphasis remains on revenue growth opportunities afforded by the expanded customer and product base, productivity enhancing activities, and the continued management of working capital levels. Lean manufacturing has been adopted in each of the Fund's manufacturing locations with a formal program to assess and monitor the advancement of each facility.

The management team is focused on the next phase of integration of the acquired businesses. The Fund announced the Reorganization on October 5, 2009 which is anticipated to save approximately $6.0 to $8.0 million in costs while improving the focus on customer service. The activities required to achieve these annual savings are expected to be completed during the fourth quarter and the first half of 2010. The Fund expects to recognize a further restructuring charge of $5.1 million in the fourth quarter with approximately $1.1 million to be recognized in 2010. The Reorganization, which moves to a regional structure, reduces the overall salaried head count in the Fund. Projects underway include a review of procurement opportunities with an emphasis on logistics costs. Also the Fund currently runs on eight discrete ERP systems which over the next two years will be migrated to a common platform. The management team is currently reviewing the facilities in each geographic region to ensure the capital of the Fund is appropriately employed to achieve manufacturing efficiencies and better serve the customer.


Management will host a conference call at 10:00 a.m. (ET) on Thursday, November 12, 2009 to discuss the results. Investors who wish to participate can access the call using the following numbers: 416-644-3414 or 1-800-814-4859. 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 November 19, 2009. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4175989No..

Armtec's full interim consolidated financial statements, notes to the interim consolidated financial statements and management's discussion and analysis are available at or at


Armtec Infrastructure Income Fund is a leading manufacturer and marketer of a comprehensive range of infrastructure products and engineered construction solutions for customers in a diverse cross-section of industries that are located in every region of Canada, as well as in selected markets in North America and worldwide. These markets include Canada's national and regional public infrastructure markets and private sector markets in agricultural drainage, commercial building, residential construction and natural resources. Operating through its network of regional offices and production facilities across the country, Armtec is Canada's only national multi-material infrastructure application manufacturer. The Fund specializes in high density polyethylene and corrugated steel pipe products for drainage and bridge applications, water management systems, a full suite of highway noise barriers and offers a wide variety of precast and pre-stressed concrete products, which provide advanced construction components and high-value engineered solutions to its customers. Armtec Infrastructure Income Fund is listed on the TSX under the ARF.UN symbol. For more information, please visit


Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")

References to EBITDA are to earnings before interest, taxes (other than capital taxes), depreciation and amortization, certain non-recurring expenses and certain non-cash impacts resulting from purchase accounting. Management believes that in addition to net earnings, EBITDA is a useful supplemental measure of cash available for distributions prior to debt service, changes in working capital, capital expenditures and income taxes. However, EBITDA is not a recognized measure under Canadian 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.


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 should not be read as guarantees of future performance or results. Such statements will not necessarily be accurate indications of whether or not such future performance or 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. These uncertainties and risks include, but are not limited to: industry cyclicality; competition; acquisition and expansion risk; capital and liquidity risk; current global financial conditions; reduction in demand for 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 related to the structure of the Fund including dependence on the Fund's subsidiaries; income tax matters; unitholder limited liability; 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 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.

There have been no material changes to the Fund's business or other events or circumstances from January 1, 2009 to November 11, 2009, that require an update to the discussion of the applicable risks or forward-looking statements. Although the forward-looking statements contained in this release 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, Investor Relations & Treasurer, Armtec Limited Partnership, Tel: (519) 822-0210, Fax: (519) 822-8894

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