Strong revenue increases, with new Con-Force division, deliver solid
Toronto Stock Exchange: ARF.UN
GUELPH, ON, March 5 /CNW/ - Armtec Infrastructure Income Fund (TSX:
ARF.UN) today reported financial results for the year and the fourth quarter
ended December 31, 2007.
- Successfully completed the transformational acquisition of Con-Force
for total consideration of $122.1 million.
- Revenues of $206.2 million, an increase of 24.1% or $40.0 million
over 2006. Of this increase, $32.1 million related to the inclusion
of revenues generated by Con-Force. The Armtec division increased
$7.9 million or 4.8% over the previous year which was driven by
strong sales in infrastructure, agricultural, commercial and
residential markets. For the fourth quarter, revenue for the Fund
grew $35.0 million to $70.8 million mostly due to the addition of
- Gross margin for the year was $61.3 million, an improvement of
$12.0 million over $49.3 million in 2006. This improvement was
attributed to sales growth, favourable product mix and lean
manufacturing initiatives. In the fourth quarter, gross margin was
$19.4 million or 27.4% of sales, a $9.1 million improvement over the
same period in 2006.
- EBITDA(1) increased to $30.8 million compared to $22.3 million in
2006 and more than doubled to $9.7 million for the fourth quarter,
compared to $3.6 for the same period in the prior year.
- Distributable cash(1) increased to $27.1 million in 2007 or
$2.36 per unit from $18.6 million or $2.02 per unit in 2007 and to
$7.9 million or $0.52 per unit for the fourth quarter 2007 from
$2.5 million or $0.26 per unit last year.
- Declared distributions were $21.0 million or $1.76 per unit in 2007
up from $15.9 million or $1.68 per unit in 2006, and $8.9 million for
the fourth quarter of 2007 including a special distribution of
$0.17 per unit, up from $5.8 million in the same period in 2006.
"In 2007, Armtec successfully completed the transformational acquisition
of Con-Force which represents a major step forward in our growth strategy. At
the same time, we set another new record in sales and earnings in our Armtec
division while participating in what turned out to be a record year at
Con-Force," said Charles Phillips, President and Chief Executive Officer.
"With our new Armtec and Con-Force organizational structure in place, the Fund
is in a great position to build on its existing strengths and broaden our
position in all of our markets. The outlook for our markets remains positive
and we now have more quality products, a strong team and the focus to take
maximum advantage of the many opportunities ahead of us."
Results of Operations
(in thousands of Canadian Fourth Quarter Year Ended
dollars unless 2007 2006 2007 2006
otherwise noted) (unaudited)(unaudited)
Revenue $ 70,768 $ 35,825 $ 206,226 $ 166,166
Cost of sales 49,998 24,639 140,831 113,415
Amortization of property,
plant and equipment 1,365 909 4,069 3,493
Gross margin 19,405 10,277 61,326 49,258
As a % of revenue 27.4% 28.7% 29.7% 29.6%
Distribution and warehousing 2,313 1,913 9,089 8,555
Selling, general and
administrative 8,753 5,669 25,496 21,859
Amortization of intangible
assets 3,609 555 5,578 2,428
Earnings from operations 4,730 2,140 21,163 16,416
Interest and financing expenses (1,408) (421) (2,817) (2,328)
Earnings before taxes 3,322 1,719 18,346 14,088
Interest and financing expenses 1,408 421 2,817 2,328
Total amortization 4,974 1,464 9,647 5,921
EBITDA $ 9,704 $ 3,604 $ 30,810 $ 22,337
As a % of revenue 13.7% 10.1% 14.9% 13.4%
(1) For more information, refer to the Non-GAAP measures described below.
Full Year Results
For the year ended December 31, 2007, revenues were $206.2 million, an
increase of $40.0 million, or 24.1%, over $166.2 million in 2006. Of this
increase, $32.1 million related to the revenues generated by Con-Force, which
was acquired by the Fund on October 1, 2007. With this transaction, management
of the Fund determined that the previously reported operating segment that
manufactures drainage products and engineered solutions for infrastructure
applications will remain as the Armtec division and the new Con-Force division
will form a second operating segment. In addition to the identification of two
operating segments, the Fund has also identified a fifth market, commercial
development. Revenues related to commercial development were previously
classified as infrastructure in prior periods. The markets now include
infrastructure, agriculture, commercial, residential, and natural resources.
After considering the effects of the Con-Force division, the Armtec
division experienced an increase of $7.9 million in revenues, or 4.8%, over
the previous year. The improvement was due to improved sales into the
infrastructure, agricultural, commercial and residential markets. Increased
government spending on infrastructure projects in Western Canada and the
improvement of agricultural installation conditions were responsible for
revenue increases, offsetting international infrastructure sales declines. The
Con-Force division recorded strong revenue reflecting the large backlog of
public infrastructure and commercial projects the division is working on in
Gross margin for the year ended December 31, 2007, was $61.3 million, an
improvement of $12.0 million over $49.3 million in 2006. As a percentage of
sales, gross margin increased slightly to 29.7% as compared to 29.6% in 2006.
The improved margins were attributed to the increase in sales combined with a
favourable product mix and continued lean manufacturing initiatives.
Amortization of property, plant and equipment increased to $4.1 million but
remains consistent at 2% of sales for both 2007 and 2006.
EARNINGS FROM OPERATIONS
Earnings from operations for the year ended December 31, 2007, were
$21.2 million compared to $16.4 million, an improvement of $4.8 million or
28.9% over the previous year. Revenue growth through the Con-Force acquisition
and improvements in revenue and gross margin levels in the Armtec division
contributed to the improvement in operating earnings.
Selling, general and administrative expenses were $25.5 million as
compared to $21.9 million for 2006. The largest increase relates to the
inclusion of Con-Force since the acquisition on October 1, 2007. The Fund has
non-recurring expenses of $0.5 million due to one-time expenses related to the
formation of the joint venture in South Korea, the establishment of a
unitholders' rights plan, as well as training and process development related
to the Armtec division Enterprise Resource Planning ("ERP") system launch. The
Fund has continued to expand sales resources in active marketplaces to meet
current customer and market demands and to support expanded product offerings.
Distribution and warehousing costs were $0.5 million higher at
$9.1 million compared to 2006 at $8.6 million. These costs vary with the
volume of sales and mix of products sold requiring delivery service to the end
Amortization of intangible assets increased significantly for the Fund in
2007 over 2006. As part of the transaction to acquire Con-Force, intangible
assets related to trademarks, customer contracts, customer lists, an ERP
system and non-compete agreements were acquired. Of the total $53.6 million of
intangible assets acquired, $2.9 million was amortized, of which $2.1 million
was related to customer contracts during the fourth quarter. The Fund expects
that the remaining $3.6 million of amortization related to customer contracts
will be recognized over the next year. The remaining increase in amortization
related to additional intangible assets acquired in November 2006 for a
culvert manufacturing operation. The Fund also entered into a licence
agreement to sell BEBO(TM) Arch Structures in Central and Western Canada in
July 2006, which contributed to the increase in intangible amortization.
Fourth Quarter Results
Revenues for the fourth quarter of 2007 increased $35.0 million to
$70.8 million from $35.8 million in 2006. Of this increase, $32.1 million was
due to the addition of Con-Force since the date of acquisition on October 1,
2007. The $2.9 million or 7.9% increase in the Armtec division revenues was
due to sales growth in most markets. Western Canadian sales into the natural
resources, residential and commercial markets improved over 2006 levels. Sales
for Pipe Products were very strong for corrugated steel pipe offsetting lower
sales of corrugated high density polyethylene pipe. Engineered Product sales
for the fourth quarter of 2007 increased over the prior year due to continued
sales of CONTECH Stormwater treatment solutions and gate sales. Standard
Product sales also improved slightly over the same period in 2006.
Gross margin for the three months ended December 31, 2007, was
$19.4 million, or 27.4%, of sales which was a $9.1 million improvement over
the $10.3 million or 28.7% of sales in 2006. The improvement was primarily
attributed to the inclusion of results of Con-Force and Armtec division sales
increases combined with improved margins in the Armtec division.
Earnings from operations for the three months ended December 31, 2007,
were $4.7 million as compared to $2.1 million in the same period in 2006.
Warehouse and distribution costs were higher in 2007, associated with improved
agricultural volumes. Selling, general and administrative cost increases
during the quarter were primarily related to the addition of the Con-Force
division. The Armtec division incurred additional costs in the quarter related
to end-user training for the new ERP system in preparation for the January go
Amortization of intangible assets increased over the comparative quarter
in 2006 due to the additional intangible assets associated with the purchase
of the precast concrete business. An amount of $5.7 million was assigned to
represent the value of contracts in process at the time of acquisition. This
intangible asset is amortized as the related contracts are recognized in
revenue. During the quarter, $2.1 million was amortized. The remaining balance
of $3.6 million is expected to be amortized throughout 2008. Also contributing
to the increase in amortization was the November 2006 Armtec division
acquisition of intangible assets related to the purchase of the culvert
manufacturing operation in Saskatchewan.
EBITDA for the three months ended December 31, 2007, more than doubled to
$9.7 million as compared to $3.6 million in 2006. This growth is attributed to
the addition of Con-Force as well as improved revenue levels and related
margins in the Armtec division.
During the fourth quarter of 2007, Armtec completed the transformational
acquisition of Con-Force, a leading manufacturer and installer of precast and
pre-stressed concrete components for a variety of applications, including
bridges, parkades, stadiums, office and residential buildings. Con-Force has a
more consistent revenue level throughout the year, and this will mitigate the
effects of seasonality as in most markets, precast products can be installed
throughout the year. Con-Force has experienced substantial growth over the
last two years and has made significant capital investments to be able to
accommodate the increased volumes and improve productivity as a result of the
rapid growth in demand for precast solutions in Western Canada.
The outlook for Armtec's core drainage and engineered solution business
as well as the new Con-Force division remains positive, as does the outlook
for infrastructure spending due to the Con-Force project backlog and the
multi-year commitments announced in the 2007 provincial budgets. Strong
infrastructure spending in Western Canada and consistent activity across the
rest of the country from the various levels of government will continue to
support the demand for Armtec's products.
Agricultural markets have improved with crop prices rising due to
increased demands for commodities. The strength in this market is expected to
continue into 2008. No improvements are projected for 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. Forestry markets remain challenged due to low forestry and pulp and
paper prices, mill closures as well as government mandated cutting
restrictions. After a strong year in the residential building market, Canadian
starts are expected to decline slightly in 2008 but remain well above historic
averages. A new distribution arrangement in the U.S. market is expected to
mitigate this impact.
The full-year impact of Con-Force operations as well as the 2007 capacity
expansion in Alberta has further increased the Fund's scope in the active
Western Canadian marketplace. The 2006 additions to Armtec's product offering,
which included BEBO bridge products and CONTECH Stormwater Solutions, are
expected to continue to contribute to the Fund's sales growth in the
infrastructure market in 2008.
International project activity in 2007 was well below the volumes the
Fund experienced in 2006. The Fund's international sales are generally part of
large infrastructure projects and are subject to variability with customer
delivery requirements. Early indications from 2008 would suggest some recovery
in international volumes as a result of a significant pick-up in quotation
activity in a broad range of projects. International project revenues will
also be supported by the full-year impact of the greenfield manufacturing
operation in South Korea, which was part of a joint venture that was finalized
in the second quarter of 2007.
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.
TAXABILITY OF 2007 DISTRIBUTIONS
Of the distributions declared in 2007, 5.5% was a return of capital and
the remaining 94.5% was subject to income tax in the hands of unitholders.
CONFERENCE CALL & WEBCAST
Management will host a conference call at 10:00 a.m. (ET) on Thursday,
March 6, 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 March 13, 2008. To access the rebroadcast, please dial
416-915-1035 or 1-866-245-6755 and quote the passcode 600386.
Armtec's full interim consolidated financial statements, notes to
financial statements and management's discussion and analysis are available at
www.sedar.com or at www.armtecincomefund.com.
Armtec is a leading manufacturer and marketer of drainage products and
engineered bridging solutions for infrastructure applications 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 in Canada. The Fund's
Armtec division is Canada's only national multi-material manufacturer
specializing in corrugated high density polyethylene pipe, 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.
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.
RISKS AND UNCERTAINTIES
The Fund is subject to certain risks and uncertainties that could have a
material adverse effect on Armtec's results of operations, business prospects,
financial condition, cash distributions to unitholders and the trading price
of the Fund's units. These uncertainties and risks include, but are not
limited to: industry cyclicality; competition; acquisition and expansion risk;
capital and liquidity risk; reductions in demand for Armtec'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 AOT; potential dilution. Cash distributions are not
guaranteed. Further information about these and other risks and uncertainties
can be found in the disclosure documents filed by Armtec Infrastructure Income
Fund with the securities regulatory authorities, available at www.sedar.com.
Please see the separately released Annual Information Form and Management's
Discussion and Analysis for changes to the Fund's business from January 1,
2007 to March 5, 2008 that updates the discussion of these applicable risks.
This news release may contain "forward-looking" statements 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, performance or
achievements expressed or implied by such forward-looking statements.
Forward-looking statements contain such words as "may" "will", "expect",
"believe", "plan" and other similar terminology. These statements reflect
current expectations regarding future events and operating performance and
speak only as of March 5, 2008.
Forward-looking statements involve significant 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. A number of factors could cause actual results to differ materially
from the results discussed in the forward-looking statements, including, but
not limited to the factors discussed under "Risks and Uncertainties" in the
separately released Management's Discussion and Analysis. Although the
forward-looking statements contained in this release are based upon what
management of Armtec believes are reasonable assumptions, the Fund cannot
assure investors that actual results will be consistent with these
forward-looking statements. These forward-looking statements are made as of
the date of this press release and 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; Carrie Boutcher, Vice President, Finance & Interim CFO, Armtec
Limited Partnership, Tel: (519) 822-0210, Fax: (519) 822-8894