Armtec Infrastructure Income Fund reports second quarter results



    Toronto Stock Exchange: ARF.UN

    GUELPH, ON, Aug. 1 /CNW/ - Armtec Infrastructure Income Fund
(TSX: ARF.UN) today reported financial results for the second quarter ended
June 30, 2007.

    Highlights:

    
    -   Revenues of $49.8 million are consistent with the second quarter of
        2006, with sales growth in agricultural markets offsetting a decline
        in natural resources. For the six month period, revenue grew
        $1.3 million to $71.6 with sales growth in agricultural and
        infrastructure markets offsetting a decline in natural resources.
    -   Gross margin improved to 32.4% from 31.1% of revenues for the second
        quarter and for the six month period to 29.6% from 27.9% of revenues.
        Margin improvement is a result of a favourable product mix combined
        with continued lean manufacturing initiatives.
    -   EBITDA(1) increased to $8.8 million compared to $8.7 million for the
        quarter and to $8.2 million which represents a 19.7% improvement over
        the $6.8 million for the total six month period.
    -   Distributable cash(1) increased to $8.2 million from $7.8 million for
        the second quarter. For the first six months, distributable cash
        improved $1.7 million or 32.3% from $5.3 million in 2006 to
        $7.0 million in 2007.
    -   Declared distributions of $8.0 million up from $6.6 million for the
        first half of 2006.
    

    "Our second quarter results were in-line with our expectations and
maintain the momentum established in our strong first quarter. Improved sales
in agricultural and large infrastructure projects have been the primary
drivers of revenue growth so far this year," said Charles Phillips, President
and Chief Executive Officer. "Agricultural markets are improving. Crop prices
are rising due in part to increased demand for ethanol. With the investments
we have already made to add manufacturing capacity and capitalize on increased
infrastructure product demand, and our lean manufacturing initiatives and
broad product mix, Armtec is focused on achieving further growth opportunities
creating value for our unitholders," he added.

    
    RESULTS OF OPERATIONS


    (in thousands of Canadian
     dollars)                       Three Months Ended      Six Months Ended
    (unaudited)                                June 30,              June 30,

                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                        $ 49,763   $ 49,822   $ 71,611   $ 70,262
    Cost of sales                    32,738     33,465     48,602     48,959
    Amortization of property,
     plant and equipment                923        865      1,793      1,731
    -------------------------------------------------------------------------
    Gross margin                     16,102     15,492     21,216     19,572
    As a % of revenue                  32.4%      31.1%      29.6%      27.9%
    Distribution and warehousing      2,424      2,374      3,562      3,816
    Selling, general and
     administrative                   5,818      5,291     11,274     10,658
    Amortization of intangible
     assets                             656        600      1,313      1,142
    -------------------------------------------------------------------------
    Earnings from operations          7,204      7,227      5,067      3,956
    Interest and financing expenses    (524)      (666)      (859)    (1,182)
    -------------------------------------------------------------------------
    Earnings before taxes             6,680      6,561      4,208      2,774
    Interest and financing expenses     524        666        859      1,182
    Total amortization                1,579      1,465      3,106      2,873
    -------------------------------------------------------------------------
    EBITDA                         $  8,783   $  8,692   $  8,173   $  6,829
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    As a % of revenue                  17.6%      17.4%      11.4%       9.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Second Quarter Results

    After a strong start to 2007, due in part to the timing of certain large
engineered product orders, second quarter revenues of $49.8 million were
consistent with the second quarter of 2006. Armtec serves a variety of end
markets and geographic regions which has supported stable revenues in the
quarter despite declines in some markets. Sales growth in the agricultural
market during the second quarter of 2007 offset the decline experienced in
natural resources. Residential and infrastructure market activity remained
consistent with the second quarter of 2006.
    Gross margin for the second quarter ended June 30, 2007 was
$16.1 million, an improvement of $0.6 million over $15.5 million earned in the
second quarter of 2006. As a percentage of sales, margins have improved over
2006 levels 1.3 percentage points to 32.4% in the second quarter of 2007. The
margin improvement is attributed to implemented lean manufacturing initiatives
combined with a favourable product mix. The Fund continues to invest in lean
manufacturing in order to continually improve manufacturing processes and
material utilization. Amortization of property, plant and equipment was flat
at $0.9 million compared to 2006 levels.
    EBITDA for the three months ended June 30, 2007 was $8.8 million compared
to $8.7 million in the second quarter of 2006. Sales were consistent at
$49.8 million for both 2007 and 2006 quarters. Margin improvements related to
mix and the result of lean initiatives were offset by increased selling,
general and administrative costs incurred to support sales efforts in growing
markets and the establishment of the joint venture in South Korea.

    Results for six month period

    For the six months ended June 30, 2007, revenues were $71.6 million, an
increase of $1.3 million over $70.3 million for the same period of 2006. The
revenue increase was due primarily to improved sales into the agricultural and
infrastructure markets. Agricultural installation conditions improved in 2007
as compared to 2006 and crop prices, which drive demand for drainage, are
rising due in part to an increased demand for ethanol. Large orders destined
for public infrastructure projects across the country also contributed to the
growth in the first half of 2007. Natural resource activity was lower in 2007
as compared to levels in the first half of 2006.
    Gross margin for the first six months ended in 2007 was $21.2 million, an
improvement of $1.6 million over $19.6 million for the same period in 2006. As
a percentage of sales, gross margin increased 1.7 percentage points to 29.6%
as compared to 27.9% in the same period of 2006. Increased sales, favourable
product mix with growth in higher margin engineered applications and continued
lean manufacturing initiatives all contributed to the margin increase.
Management continues to focus on lean manufacturing initiatives to continually
improve manufacturing processes and the utilization of raw materials.
Amortization remains consistent at $1.8 million for the 2007 period verses
$1.7 million for 2006.
    EBITDA for the six months ended June 30, 2007 was $8.2 million compared
to $6.8 million in the same period of 2006. The $1.4 million or 19.7% increase
was primarily due to a 1.9% growth in revenue and improved margin contribution
over 2006. This margin was influenced by a shift in product mix related to
increased sales of higher margin Engineered Products offsetting declines in
Other Product sales. The continuous review and application of lean
manufacturing improvements continues to support earnings in a competitive
market place. Higher selling and administrative costs in support of sales
efforts in active market areas and the establishment of the joint venture in
South Korea offset some of the margin improvements achieved so far this year.

    OUTLOOK

    Armtec serves a diverse range of markets and geographic areas. The
largest of these markets is publicly financed infrastructure which has become
a priority for governments at all levels after many years of neglect. The
outlook for infrastructure spending is positive as a result of the current
projects and the multi-year commitments announced in the 2007 provincial
budgets. Increases in the level of spending in Western Canada, as well as
consistent activity across the rest of the country, at all levels of
government, support the demand from this sector. Identified international
projects, on the other hand, do not support the same level of activity as the
Fund experienced in 2006. International shipments are generally part of large
infrastructure projects and subject to variability with customer delivery
requirements.
    Natural resource markets continue to have mixed results. Investment
activity in energy and mining projects is expected to continue, but further
growth from the levels of the last few years is not expected. Forestry markets
remain challenged due to the low forestry and pulp and paper prices, mill
closures as well as government mandated cutting restrictions.
    Agricultural markets are improving. Crop prices are rising due in part to
the increased demand for ethanol. Residential construction activity in the
United States has declined considerably and this has impacted the demand for
certain products across North America. While the Canadian high density
polyethylene pipe ("HDPE") markets served by the Fund have experienced
consistent activity, competition among North American suppliers has increased.
    The 2006 acquisition of Twister and the recent completion of HDPE
production expansion in Alberta has increased capacity and positioned Armtec
as the only manufacturer of both HDPE and corrugated steel pipe manufacturer
in the province. In 2006, the Fund also acquired Prairie Steel in
Saskatchewan. Future development of proven oil, uranium and potash reserves is
expected to generate new investment in this province. Armtec's product
offering now includes BEBO bridge products and CONTECH(R) Stormwater
Solutions. These new offerings are expected to support the Fund's shipments
into the infrastructure market in 2007.
    During the second quarter of 2007, the Fund finalized a joint venture in
South Korea. While it is still in the early stages of the operation, the joint
venture is expected to support Armtec's growth strategy by broadening the
Fund's geographic presence. The market in South Korea is significant and is
expected to expand due to the continuing development of the country's road
system.

    CONFERENCE CALL & WEBCAST

    Management will host a conference call at 2:00 p.m. (ET) on Thursday,
August 2, 2007 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 web site at
www.armtecincomefund.com.
    A taped rebroadcast will be available to listeners following the call
until 12:00 a.m. on Thursday, August 10, 2006. To access the rebroadcast,
please dial 416-915-1035 or 1-866-245-6755 and quote the passcode 484417,
followed by the number sign.
    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.

    ABOUT ARMTEC

    Armtec is a leading manufacturer and marketer of drainage products and
engineered solutions for infrastructure applications in a diverse
cross-section of industries, including the public infrastructure market and
private sector markets such as natural resources, residential drainage, and
agricultural drainage in Canada. Armtec is Canada's only national
multi-material manufacturer specializing in corrugated high density
polyethylene pipe, corrugated steel pipe and related engineered products.
Armtec also distributes a broad line of water control and geosynthetic
products, and sells internationally certain high value-added engineered
products manufactured in Canada and South Korea.

    NON-GAAP MEASURES

    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 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 titled
measures used by other issuers.

    Distributable Cash

    Distributable cash is not a defined term under Canadian GAAP but is
determined by the Fund as net earnings for the period adjusted to remove
non-cash expenses, including amortization and future income taxes, and reduced
by expenditures required to sustain the current state of operations.
Management believes that distributable cash is a useful measure of performance
as it provides investors with an indication of the amount of cash available
for distribution to unitholders. 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.

    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;
collections from customers; 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; collective bargaining
agreement; interest rates; uninsured and underinsured losses; environmental,
health and safety requirements; operating hazards; risk of future legal
proceedings; securities laws compliance and corporate governance standards;
tax law risk; dependence of the Fund on Armtec Limited Partnership; and
certain risks associated with the structure of the Fund including income tax
matters; leverage and restrictive covenants; credit facility; nature of units;
effect of market interest rates on the price of units; restrictions on
potential growth. 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. There have been no
material changes to Armtec's business from January 1, 2007 to August 1, 2007
that require an update to the discussion of the applicable risks.

    FORWARD-LOOKING STATEMENTS

    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 August 1, 2007.
    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.

    
    ----------------------
    (1) For more information, refer to the Non-GAAP measures section of this
        press release.
    





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, VP, Finance & Interim Chief Financial Officer,
Armtec Limited Partnership, Tel: (519) 822-0210, Fax: (519) 822-8894

Organization Profile

ARMTEC INFRASTRUCTURE INCOME FUND

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