Armtec Infrastructure Income Fund Reports Third Quarter Results

    Toronto Stock Exchange: ARF.UN

    GUELPH, ON, Oct. 31 /CNW/ - Armtec Infrastructure Income Fund (TSX:
ARF.UN) today reported financial results for the third quarter ended September
30, 2007.

    -  Revenues of $63.8 million, an increase of 6.3% or $3.8 million from
       the same quarter last year, driven by strong sales in infrastructure
       and residential markets, offsetting declines experienced in natural
       resources. For the nine-month period, revenue grew $5.2 million to
       $135.5 million due to improved sales into the infrastructure,
       agricultural and residential markets.
    -  Gross margin improvement to $21.1 million or 33.0 % of revenues for
       the third quarter, and for the nine-month period to $42.3 million or
       31.2% of revenues. Margin improvement is attributed to implemented
       lean manufacturing initiatives combined with a favourable product mix.
    -  EBITDA(1) increased to $12.9 million compared to $11.9 million for the
       same quarter in 2006 and to $21.1 million, for the nine-month period
       of 2007, up from $18.7 million last year.
    -  Distributable cash(1) increased to $12.2 million from $10.8 million
       for the third quarter of 2007 and to $19.3 million for the nine-month
       period from $16.1 million last year.
    -  Declared distributions of $12.1 million up from $10.1 million for the
       nine-month period of 2006.
    -  Monthly distributions increased to $0.14 to be paid to unitholders of
       record on October 31, 2007. The Fund's 2007 performance is expected to
       result in a special distribution at year end such that the Fund should
       not pay income tax on its 2007 earnings.
    -  On October 1, 2007, the Fund acquired Con-Force, a leading
       manufacturer of precast and pre-stressed concrete in Western Canada,
       for approximately $120 million.

    "In the third quarter, Armtec built on the advances made earlier in the
year and remains focused on achieving solid growth. The market continues to
deliver strong infrastructure and residential volumes particularly in the
Western Canadian market," said Charles Phillips, President and Chief Executive
Officer. "Our acquisition of Con-Force is a transformational step forward as
it increases consolidated revenues by approximately two-thirds, and expands
our range of products and services. Armtec is now positioned for further
expansion in North America's infrastructure markets".


    (in thousands of Canadian       Three Months Ended     Nine Months Ended
     dollars)                     September  September  September  September
    (unaudited)                    30, 2007   29, 2006   30, 2007   29, 2006
    Revenue                        $ 63,847   $ 60,079  $ 135,458  $ 130,341
    Cost of sales                    41,853     39,974     90,455     88,933
    Amortization of property,
     plant and equipment                911        853      2,704      2,584
    Gross margin                     21,083     19,252     42,299     38,824
    As a % of revenue                  33.0%     32.0%       31.2%      29.8%
    Distribution and warehousing      3,214      2,826      6,776      6,642
    Selling, general and
     administrative                   5,847      5,375     17,121     16,033
    Amortization of intangible
     assets                             656        603      1,969      1,745
    Earnings from operations         11,366     10,448     16,433     14,404
    Interest and financing expenses    (550)      (853)    (1,409)    (2,035)
    Earnings before taxes            10,816      9,595     15,024     12,369
    Interest and financing expenses     550        853      1,409      2,035
    Total amortization                1,567      1,456      4,673      4,329
    EBITDA                         $ 12,933   $ 11,904  $  21,106  $  18,733
    As a % of revenue                  20.3%      19.8%      15.6%      14.4%

    Third Quarter Results

    Third quarter revenues of $63.8 million have increased 6.3% or
$3.8 million from the same quarter last year. Improved volumes in the
infrastructure market in Western and Atlantic Canada supported the quarter's
sales growth while other markets remained consistent with the comparable 2006
period. Sales growth in the infrastructure and residential markets offset a
decline experienced in natural resources during the third quarter due to the
timing of customer requirements. A large energy project shipped in the
comparative quarter of 2006.
    Gross margin for the third quarter ended September 30, 2007 was $21.1 
million, an improvement of $1.8 million over $19.3 million earned in the third
quarter of 2006. As a percentage of sales, margins also improved over 2006
levels by 1.0 percentage point to 33.0% in the third quarter of 2007. 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. Compared to 2006 levels, amortization of property, plant
and equipment in the third quarter of 2007 was flat at $0.9 million.
    EBITDA for the three months ended September 30, 2007 improved 8.4% to
$12.9 million as compared to $11.9 million in the third quarter of 2006. The
2007 growth was attributed to increased sales with improved margins of
$1.8 million as compared to 2006. Selling, general and administrative costs
were 8.8% higher in third quarter due in part to some non recurring expenses
and increased distribution costs which are dependent on the volume and type of
product shipped.

    Year to Date Results

    For the nine months ended September 30, 2007, revenues were
$135.5 million, an increase of $5.2 million or 3.9% over $130.3 million for
the same period of 2006. The increase in revenue was due to improved sales
into the infrastructure, agricultural and residential markets. Increased
government spending on infrastructure projects in Western Canada offset some
declines in other areas. Agricultural installation conditions improved in 2007
as compared to 2006 and crop prices, which drive demand for drainage, are
rising due in part to increased agricultural commodity prices. Residential
installations, particularly in Western Canada, have also contributed to the
growth. Natural resource activity was lower in 2007 as compared to levels
during the same period of 2006.
    Gross margin for the first nine months of 2007 was $42.3 million, an
improvement of $3.5 million over $38.8 million for the same period in 2006. As
a percentage of sales, gross margin increased 1.4 percentage points to 31.2%
as compared to 29.8% in the same period of 2006. The improved margins were
attributed to the increase in sales combined with a favourable product mix and
continued lean manufacturing initiatives. Amortization increased slightly to
$2.7 million but remains consistent at 2% of sales for both the 2007 and 2006
    For the nine months ended September 30, 2007, EBITDA was $21.1 million
compared to $18.7 million in the same period of 2006. The 12.7% or
$2.4 million increase was primarily due to a 3.9% growth in revenue and
improved margins over 2006. Margins were influenced by a shift in product mix
related to increased sales of higher margin products. The continuous review
and application of lean manufacturing improvements continues to support
earnings in a competitive market place. Higher selling and administrative
expenses in support of sales efforts in active market areas and some non
recurring expenses offset some of the margin improvements achieved so far this


    Subsequent to the third quarter Armtec acquired 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. The diversity of products sold by Armtec has been
further expanded with this transformational acquisition.
    Con-Force's largest market is the growing infrastructure market in
Western Canada and they have also developed a strong reputation in the
northwestern United States. The acquisition is a major step forward for Armtec
allowing the Company to reduce the effects of seasonality as many of
Con-Force's products can be installed throughout the year. Con-Force has
experienced significant 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 economic growth in
Western Canada. The Fund will continue to integrate Con-Force over the next
few quarters.
    The outlook for Armtec's core drainage and engineered solution business
remains strong as the outlook for infrastructure spending is positive with the
current projects and the multi-year commitments announced in the 2007
provincial budgets. The continuing infrastructure spending in Western Canada
and consistent activity across the rest of the country from the various levels
of government will continue to support demand for Armtec's products.
    Agricultural markets have improved with crop prices rising due in part to
the increased demand for commodities such as ethanol. The strength in this
market is expected to continue into the fall season. Mixed results continue to
be expected in the natural resource markets. Investment activity in energy and
mining projects are expected to continue, with essentially consistent results
expected year over year. Forestry markets remain challenged due to the low
forestry and pulp and paper prices, mill closures as well as government
mandated cutting restrictions.
    International projects to date have not supported the level of activity
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. The Company has continued to quote on many
large projects in markets around the world and continues to see good
applications and acceptance of its products. 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.
    The Fund's 2007 performance is expected to result in a special
distribution for 2007 such that the Fund should not pay income tax on its 2007
earnings. The growth activities carried out in 2007 have given rise to
increased deductions for income taxes, which will provide greater flexibility
in the determination of the appropriate distribution policy.


    Management will host a conference call at 10:00 a.m. (ET) on Thursday,
November 1, 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
    A taped rebroadcast will be available to listeners following the call
until 12:00 a.m. on Thursday, November 8, 2007. To access the rebroadcast,
please dial 416-915-1035 or 1-866-245-6755 and quote the passcode 944136.
    Armtec's full interim consolidated financial statements, notes to
financial statements and management's discussion and analysis are available at or at


    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.

    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 named
measures used by other issuers.

    Distributable Cash

    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.


    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 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.


    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 November 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 the
        attached Management's Discussion and Analysis.

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

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