TORONTO, Aug. 6 /CNW/ - General Donlee Income Fund (the "Fund" or "General Donlee") (TSX: GDI.UN) today announced its results for the second quarter, ended June 30, 2010, reflecting the company's continued focus on controlling costs as well as its strategies to both attract new customers and expand product offerings to existing customers.
Highlights of the second quarter's results include:
- Sales of $10.0 million, a decrease of only 5% over the same quarter
- Sales order backlog of $44.9 million as of June 30, 2010 an increase
of $3.3 million from the first quarter;
- Cash generated from operating activities of $1.0 million; and
- $0.270/Unit in distributions paid to Unitholders for the quarter.
"We are encouraged by the fact that our sales in the second quarter outpaced our average performance in the last three quarters," said Michael Snow, who joined General Donlee Limited as Chief Executive Officer on July 26th, 2010, succeeding Thomas Faucette, who retired earlier in the year. "We hope this is a positive sign of the coming recovery in our industry, and of General Donlee's preparedness to capitalize on it."
The fund is pleased to announce the appointment of Michael Snow to the board of trustees of the Fund, and to the board of directors of General Donlee Limited effective today.
Positive cash flow generated from operating activities during the quarter was $1.0 million, consisting of cash from operating activities of $1.2 million less the $0.2 million required for non-cash working capital items.
The Fund posted an unrealized loss of $1.0 million on the valuation of foreign exchange forward contracts when marked to market in the second quarter, as a result of the lower closing value of the Canadian dollar on June 30.
General Donlee was able to return its production backlog to $44.9 million by June 30, 2010, putting it back on par with the production backlog recorded at December 31, 2009 - already having shipped $20.4 million in sales in 2010 to date. This backlog, which is largely due to the long-term nature of many of General Donlee's projects, indicates continued demand for its products in the year ahead; its restoration to year-end 2009 levels after a slight reduction at the end of the first quarter suggests the continued opportunity for growth. The company is also seeing further positive signs with its increased activity in quoting of new business in both divisions.
The Fund maintained its regular monthly distributions to Unitholders at the rate of $0.090 per Unit in the second quarter of 2010. While the Fund's payout ratio in the quarter was higher than target, the Fund has at other times maintained lower payout ratios. The Trustees' decision to leave the payout unchanged in the second quarter reflects their long-term view of the business.
The following is a summary of the financial data for the consolidated results of operations of the Fund for the three-month and six-month periods ended June 30, 2010, and comparative results for the same periods in 2009.
except Unit and Three Months Ended Six Months Ended
per Unit amounts, ------------------ ----------------
unaudited) June 30/10 June 30/09 June 30/10 June 30/09
---------- ---------- ---------- ----------
Sales 10.0 10.5 20.4 24.3
Gross profit 2.4 2.7 4.9 7.1
Net income (loss) (0.5) 1.9 0.2 4.8
Basic income (loss)
per Unit $(0.086)(a) $0.352(b) $0.032(c) $0.884(d)
Distributable cash(1) 0.7 0.9 1.4 3.4
per Unit(1) $0.123(a) $0.161(b) $0.263(c) $0.628(d)
Distributions paid 1.4 1.5 2.9 2.9
per Unit $0.270 $0.270 $0.540 $0.540
(1) Distributable cash is not a defined term under Canadian generally
accepted accounting principles ("GAAP"), but is determined by the
Fund as cash flow provided by operating activities (adjusted to
remove changes in non-cash working capital items), less repayment of
long-term bank debt and less the pro-rated reserve for maintenance
capital expenditures, for which Management estimates $1.25 million
for 2010. See reconciliation of distributable cash below. Management
believes that this liquidity measure is a useful supplemental 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 as a measure of
profitability, or to using the statements of cash flows. Further, the
Fund's method of calculating distributable cash may not be comparable
to measures used by other companies or trusts. For details of
distributable cash, see the table below.
(a) Based on weighted average of 5,332,317 Units outstanding for
the second quarter of 2010.
(b) Based on weighted average of 5,398,973 Units outstanding for the
second quarter of 2009.
(c) Based on weighted average of 5,332,317 Units outstanding year-to-
(d) Based on weighted average of 5,453,347 Units outstanding year-to-
Overall Financial Performance for the six months ended June 30, 2010
General Donlee's sales results for the six months ended June 30, 2010 were $20.4 million, down by $3.9 million or 16% from a year earlier, reflecting lower power generation sales in 2010 and the negative effect of the 13% rise in the Canadian dollar as compared to the first half of 2009. Sales in the Company's aerospace and power generation products division were $11.9 million in the first six months of 2010, a decrease of $4.6 million, or 28%, over the same period in 2009, mainly due to a decrease in power generation sales and the rising Canadian dollar; however, these were offset somewhat by higher military aerospace sales. General Donlee's industrial products division's sales in the first six months of 2010 were $8.5 million, an increase of $0.7 million or 9% over the same period last year, due to the company's successful efforts both to attract new customers and to expand its sales to existing customers.
The Fund's $0.2 million net income for the six months ended June 30, 2010 was $4.6 million less than its net income in the first half of 2009, reflecting lower power generation sales, the rising Canadian dollar, and the foreign exchange loss on forward contracts which, when marked-to-market at June 30, created a $0.9 million unrealized foreign exchange loss as compared to an unrealized foreign exchange gain of $1.4 million in the same period in 2009.
General Donlee's basic income per Unit was $0.032 for the six months ended June 30, 2010, down from $0.884 per Unit in the same period a year prior, as a result of the lower net income in 2010.
Distributable cash(1) for the six months ended June 30, 2010 was $1.4 million, or $0.263 per Unit, as compared to $3.4 million or $0.628 per Unit in the comparable period in 2009; the Fund maintained its monthly distribution level at $0.090 per Unit throughout the first half of 2010. In the six months ended June 30, 2010, distributions paid were $2.9 million or $0.540 per Unit, consistent with the $2.9 million or $0.540 per Unit in the same period in 2009.
General Donlee continues to maintain adequate working capital to support its operations, as well as additional credit facilities to support any growth. At June 30, 2010, General Donlee had working capital of $16.2 million, compared to the $17.9 million reported at December 31, 2009, and a current ratio of 4.0:1.
Distributable cash(1) for the three months ended June 30, 2010 was $0.7 million, or $0.123 per Unit, as compared to the $0.9 million or $0.161 per Unit posted in the three months ended June 30, 2009. Distributable cash(1) for the six months ended June 30, 2010 was $1.4 million, or $0.263 per Unit, as compared to the $3.4 million or $0.628 per Unit posted in the six months ended June 30, 2009.
Regular distributions paid to Unitholders were $0.270 per Unit for the three months ended June 30, 2010, unchanged from the same period in 2009. Regular distributions paid to Unitholders were $0.540 per Unit for the six months ended June 30, 2010, consistent with the same period in 2009.
The following table details General Donlee's calculation of distributable cash(1).
Three Months Ended Six Months Ended
($000, except per June 30 June 30 June 30 June 30
Unit amounts) 2010 2009 2010 2009
---- ---- ---- ----
Cash provided by operating
activities $1,012 $3,289 $1,865 5,303
Adjust for net changes in
non-cash working capital
balances related to operations 209 (1,868) 669 (776)
---- ------- --- -----
Cash provided by operating
activities before changes in
non-cash working capital
balances 1,221 1,421 2,534 4,527
Repayment of long-term
bank debt (255) (241) (506) (480)
Reserve for maintenance capital
expenditures (312) (312) (625) (625)
----- ----- ----- -----
Distributable cash(1) $654 $868 $1,403 $3,422
Distributions paid to
Unitholders $1,440 $1,455 $2,880 $2,939
Basic income (loss)
per Unit $(0.086) $0.352 $0.032 $0.884
per Unit $0.123 $0.161 $0.263 $0.628
Distributions paid per Unit $0.270 $0.270 $0.540 $0.540
Payout ratio(2) 220% 168% 205% 86%
2) Payout ratio is not a defined term under Canadian GAAP, but is
determined as actual distributions divided by distributable cash. The
Fund's method of calculating its payout ratio may not be comparable
to measures used by other companies or trusts.
Management and the Trustees of the Fund recognize the negative impact continued economic pressures in the industry have had on General Donlee's recent financial results; as related to distributions, they are particularly aware that the Fund's payout ratio to date in 2010 is higher than target. Recognizing that the Fund has traditionally maintained a conservative payout ratio, Management and the Trustees have not, to date, decided to reduce the distribution level in 2010 - but will continually monitor the Fund's results so as to ensure future distributions continue to strike the proper balance between the shorter-term and longer-term interests of Unitholders.
Conversion to a Dividend Paying Corporation
On March 5, 2010, the Fund announced its intention to convert the Fund from a publicly listed income trust to a publicly listed corporation. If approved, the conversion will be undertaken pursuant to a statutory plan of arrangement under the Canada Business Corporations Act. On April 20, 2010, the Fund signed a definitive agreement with General Donlee and General Donlee Canada Inc., a newly incorporated wholly owned subsidiary of the Fund, setting out the principal terms of the proposed arrangement. Pursuant to the proposed arrangement, the Fund's unitholders will receive one common share of General Donlee Canada Inc. for each unit of the Fund held, and General Donlee Canada Inc. will assume all of the obligations of the Fund, including the outstanding convertible debentures. In accordance with an interim order of the Supreme Court of Nova Scotia dated April 27, 2010, the plan of arrangement was approved by Unitholders at the annual and special meeting of unitholders held June 14, 2010. On July 28, 2010, the Fund obtained a final order from the Nova Scotia Supreme Court approving the plan of arrangement. Subject to final approval of the Toronto Stock Exchange, and other required approvals, it is anticipated that the plan of arrangement will be become effective on or about January 1, 2011.
At the halfway mark of 2010, General Donlee occupies an enviable space in today's industry. Despite the economic challenges of 2009, many of which have continued into the current year, the Company's results from operations remain profitable. It continues to seek, create and realize operational efficiencies; it has made capital investments and management decisions that have enabled it to maintain steady, if slightly lower than last year, production volumes.
Perhaps most tellingly, General Donlee's sales in the second quarter of 2010 were 8% higher than the average of the last three quarters - a result, which underpins the Company's positive outlook for the quarters to come. Management believes this performance signals a positive trend for the industries serviced, not to mention the positive impact of General Donlee's proactive strategy both to reach out to new customers and to expand its offering to existing customers.
Similarly, the return of its production order backlog to 2009 levels, at $44.9 million at the end of the second quarter even after having shipped $20.4 million in sales this year to date, reflects cause for growing optimism about the possibilities that lie ahead for General Donlee. Its customers - and the new customers with whom it is steadily building relationships - clearly continue to want to do business with General Donlee.
Despite the challenges that have faced both the industrial and the aerospace industries, General Donlee is well-positioned to create and seize opportunities in the quarters ahead. Among the many reasons to be confident:
- Its diverse platform of products produced;
- Its loyal and expanding customer base;
- Its flexible business model;
- Its proven abilities to control expenses to protect profitability,
while making the right capital investments to keep its business
operating efficiently and growing; and, last but far from least,
- Its new Chief Executive Officer, Michael Snow, who joined the company
on July 26, 2010, bringing a wealth of leadership in manufacturing
businesses serving customers across the Americas and Asia.
General Donlee's management is encouraged by the signs of recovery in its industry, and will continue to work tirelessly to replace customers and product volumes that have been impacted by the challenging economy.
"General Donlee's long-standing customers and Unitholders have come to know General Donlee for its record of consistent performance," said Mr. Snow. "Now and in the quarters ahead, we will work to keep earning their trust - and to show new prospects why they can view General Donlee with the same confidence."
The Fund is a trust established to hold the securities of General Donlee Limited, a leading diversified manufacturer of precision-machined products for the military, commercial and general aerospace industries, and a specialist in the manufacture of precision-machined products for the industrial products and power generation industries. General Donlee's operating strategy focuses on targeting niche markets for products that are aligned with its sophisticated manufacturing capabilities and skilled workforce.
On August 9, 2010, the Fund will file its interim Financial Statements (including the notes thereto) and Management's Discussion and Analysis for the period ended June 30, 2010, with SEDAR at www.sedar.com. These documents will also be available on the Fund's website at http://generaldonlee.com/investors/finReports.asp.
In addition to these documents, the Fund also files its annual financial statements and MD&A, Annual Information Form, its Notice of Annual Meeting and Management Information Circular, and its interim financial statements and MD&A with SEDAR.
This document and the documents incorporated by reference herein contain forward-looking statements. Forward-looking information and statements are identified by words or phrases such as "anticipates", "expects", "believes", "estimates", "intends", "could", "may", "plans", "predicts", "projects", "will", "would", "foresees", "remain confident that" and other similar expressions or the negative of these terms and include, without limitation, forward-looking statements made herein relating to: expected timing and effects of the proposed arrangement; listing on the stock exchange. Actual events or results may differ materially. Certain forward-looking statements are based on information currently available to Management, but are subject to a number of uncertainties and risks that could cause actual results to differ materially from the results discussed in the forward-looking statements. These uncertainties and risks include, but are not limited to: dependence on commercial aircraft sales and defence procurement; dependence on power generation sales and sales to the industrial sector; production rates; shipping schedules and timing of deliveries; dependence on key customers; dependence on third party suppliers and manufacturers; raw material costs; competition; satisfying product specifications; product liability and warranty claims; environmental and other government regulation; quality certification requirements; hedging effects; interest and foreign exchange rates; leverage and restrictive debt covenants; continued availability of credit facilities; regulatory requirements; reliance on key personnel and the Company's skilled workforce; changes in accounting policies; the ability to obtain orders, contract awards and terminations; input costs; possible changes to the tax laws affecting income trusts; economic growth and fluctuations (including the global credit crisis, and pension performance, funding and expenses); domestic and international economic conditions; and inability to obtain required consents, permits or approvals, for the proposed arrangement. In addition, these forward-looking statements relate to the date on which they are made. Although the forward-looking statements contained herein are based upon what Management believes to be reasonable assumptions, the Fund cannot assure Unitholders that actual results will be consistent with these forward-looking statements, except as required by law, and the Fund disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In formulating the forward-looking statements herein, Management has assumed that business and economic conditions affecting it will continue substantially in the ordinary course, including without limitation with respect to industry conditions, general levels of economic activity, regulation, taxes, foreign exchange rates and interest rates, that there will be no unexpected material changes in its facilities, equipment, customer and employee relations, credit arrangements or credit and collections experience, and that the integration of new equipment will proceed relatively smoothly.
Further information can be found in the disclosure documents filed by General Donlee Income Fund with the securities regulatory authorities, available at www.sedar.com or through the Fund's website at www.generaldonlee.com.
SOURCE GENERAL DONLEE INCOME FUND
For further information: For further information: Gerald Thain, Chief Financial Officer, Telephone: (416) 743-4417, E-mail: firstname.lastname@example.org, Web site: www.generaldonlee.com