WINNIPEG, Aug. 6 /CNW/ - Pollard Banknote Income Fund (TSX Symbol PBL.UN)
(the "Fund") today released the financial results of the Fund and Pollard
Holdings Limited Partnership ("Pollard LP") for the three and six months ended
June 30, 2008.
June 30, 2008
Sales(1) $ 44.6 million
EBITDA(1) $ 7.4 million
Net Income(1) $ 4.5 million
Adjusted Distributable Cash(1) $ 5.8 million
Distributions(1) $ 5.6 million
Adjusted Distributable Cash per unit(1) $ 0.2487
Distributions per unit(2) $ 0.2376
Payout ratio(3) 95.6%
(1) Sales, EBITDA, Net Income, Adjusted Distributable Cash, Distributions
and Adjusted Distributable Cash per unit are for Pollard LP for the
three months ended June 30, 2008.
(2) Distributions per unit are for the Fund for the three months ended
June 30, 2008.
(3) Payout ratio is calculated as Distributions per unit divided by
Adjusted Distributable Cash per unit.
"We are very pleased to announce our second quarter results, which
reflect increased sales and production allowing us to exceed our distributable
cash targets for the quarter", stated John Pollard, Co-Chief Executive
"Despite the strong Canadian dollar relative to the US dollar, our sales
exceeded $44.5 million, more than $5 million higher than the first quarter of
2008. EBITDA margins returned to the higher levels achieved in 2006; instant
ticket sales and production volumes were at near record levels. The improved
financial results reflect the strong demand for our lottery products coupled
with improvements in production efficiencies. We expect this level of product
demand to continue."
"Work continues on schedule for the installation of our new press line,
with expected live production to start in the beginning of the fourth quarter,
with full capacity operational in 2009. This significant increased capacity
will allow us to meet both the growing demand from our existing clients and
future requirements of new customers."
"We believe our high production levels and ongoing strong customer demand
will allow us to meet or exceed our distributable cash target for the
remainder of 2008."
This news release should be read in conjunction with the Management's
Discussion and Analysis of the Fund and Pollard LP as at June 30, 2008.
Consolidated Statement of Operations and Unitholders' Equity
Three months ended June 30, 2008
(in thousands of dollars, except for unit amounts)
Share of income of Pollard Holdings Limited Partnership $721
Administrative expenses (47)
Net Income for the period 674
Opening Unitholders' equity 54,287
Closing Unitholders' equity $53,468
Basic and diluted income per unit $0.11
Number of Fund Units outstanding June 30, 2008 6,285,700
The Fund commenced business operations on August 5, 2005, and earnings
from the Fund's investment in Pollard LP have been accounted for using the
equity method of accounting. Under this method, the Fund's share of earnings
of Pollard LP are adjusted for the amortization of certain intangible assets
arising from the use of purchase accounting, certain administrative expenses
and future income tax reductions. The results of operations of the Fund are
dependent on the performance of Pollard LP.
The Fund has declared the following distributions totaling $0.2376 per
unit during the three months ended June 30, 2008.
Period covered Date of record Payment Date Per unit amount
April April 30 May 15 $0.0792
May May 30 June 16 $0.0792
June June 30 July 15 $0.0792
Pollard LP is one of the leading providers of products and services to
lottery and charitable gaming industries throughout the world. Management
believes Pollard LP is the largest provider of instant-win scratch tickets
based in Canada and the second largest producer of instant tickets in the
SELECTED FINANCIAL INFORMATION
(millions of dollars) Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Sales $44.6 $40.6 $83.7 $82.7
Cost of Sales 34.5 31.7 67.1 64.7
Gross Profit 10.1 8.9 16.6 18.0
Gross Profit as a % of sales 22.6% 21.9% 19.8% 21.8%
Selling and Administration
Expenses 4.9 4.6 9.7 9.5
Expenses as a % of sales 11.0% 11.3% 11.6% 11.5%
EBITDA 7.4 5.9 12.0 12.3
EBITDA as a % of sales 16.6% 14.5% 14.3% 14.9%
June 30, December 31,
Total Assets $104.1 $107.1
Total Long Term Liabilities $56.9 $46.9
The selected financial and operating information has been derived from,
and should be read in conjunction with, the unaudited interim consolidated
financial statements of Pollard LP.
Results of Operations - Three months ended June 30, 2008
During the three months ended June 30, 2008, Pollard LP achieved sales of
$44.6 million, compared to $40.6 million in the three months ended June 30,
2007. Factors impacting the $4.0 million sales increase were:
Strengthening of the Canadian dollar
During the three months ended June 30, 2008, Pollard LP generated
approximately 66% of its revenue in U.S. dollars including a significant
portion of international sales which are priced in U.S. dollars. During the
second quarter of 2008 the actual Canadian dollar value versus the U.S. dollar
was converted at $1.018, compared to a rate of $1.1073 during the second
quarter of 2007. This 8.1% decline in the U.S. dollar value resulted in an
approximate decrease of $2.6 million in revenue relative to the second quarter
Increased sales volume
The volume of sales generated during the second quarter of 2008 was
significantly higher than the comparable three months of 2007. Overall instant
ticket and related services volumes for the second quarter of 2008 were higher
by approximately 17% which, coupled with an increase in the average selling
prices, resulted in $7.5 million higher sales compared to the second quarter
of 2007. Increased instant ticket orders from existing customers plus orders
from new customers, including the National Lotteries of Denmark and Singapore,
resulted in the higher volume. Particular strength in demand occurred from our
Canadian Lottery customers. Strong demand also was seen from a number of U.S.
customers. The volumes of pull-tab tickets decreased by approximately 4% due
to the timing of orders from certain distributors. Bingo paper volumes
decreased by approximately 12% compared to the second quarter of 2007 due
partially to the timing of orders from certain lottery customers. The
pull-tab, bingo and other product lines volume decline reduced sales by $0.9
Cost of sales and gross margin
Cost of sales was $34.5 million in the second quarter of 2008 compared to
$31.7 million in the second quarter of 2007 primarily reflecting the higher
volume of ticket production partially offset by the lower exchange rate on
U.S. dollar transactions in the second quarter of 2008.
Gross profit increased from $8.9 million in the second quarter of 2007 to
$10.1 million in the second quarter of 2008. The gross profit margin increased
to 22.6% from 21.9% in the second quarter of 2007, reflective of the higher
The gross margin percentage has returned to levels achieved in prior
years reflecting improved production efficiencies and higher production
Selling and administration expenses
Selling and administration expenses were $4.9 million in the second
quarter of 2008 which is higher than $4.6 million in the second quarter of
2007. In absolute terms selling and administration expenses are higher to
support the greater production and sales volume, however, at 11.0% of sales
the expense ratio is lower than 2007 which was 11.3%.
EBITDA was $7.4 million in the second quarter of 2008 compared to $5.9
million in the second quarter of 2007. EBITDA margins were 16.6% in the second
quarter of 2008 compared to 14.5% in the second quarter of 2007. The primary
reason for the increase in EBITDA was the higher gross profit due to increased
sales and production volumes.
Net Income was $4.5 million in the second quarter of 2008 and in the
second quarter of 2007 net income was $10.0 million. This difference was
primarily due to lower foreign exchange gains and lower mark-to-market gains
on the foreign currency.
Adjusted Distributable Cash and Adjusted Distributable Cash per unit
Pollard LP generated $5.8 million in Adjusted Distributable Cash, or
$0.2487 per unit, for the second quarter of 2008. This exceeded the target of
$0.2376 for the three months. The excess Adjusted Distributable Cash compared
to the target is due primarily to a higher level of gross profit. Adjusted
Distributable Cash will vary on a quarter-to-quarter basis due to changes in
the product mix and short term variation in the order quantities from
Use of Non-GAAP Financial Measures
Reference to "EBITDA" is to earnings before interest, income taxes,
amortization, unrealized foreign exchange gains and losses, mark-to-market
gains and losses on foreign exchange contracts and long term incentive plan
expense. Reference to "Adjusted Distributable Cash" is to cash available for
distribution to Unitholders, calculated as cash flow from operations, before
changes in non-cash working capital, less maintenance capital expenditures.
Management views Adjusted Distributable Cash as an operating performance
measure, as it is a measure generally used by Canadian income funds as an
indicator of financial performance. Adjusted Distributable Cash is important
as it summarizes the funds available for distribution to Unitholders. As the
Fund and Pollard LP will distribute substantially all of its cash on an
ongoing basis and since EBITDA and Adjusted Distributable Cash are metrics
used by many investors to compare issuers on the basis of the ability to
generate cash from operations, management believes that, in addition to Net
Income, EBITDA and Adjusted Distributable Cash are useful supplementary
EBITDA, Adjusted Distributable Cash, Maintenance Capital Expenditures and
Growth Capital Expenditures are not measures recognized under GAAP and do not
have standardized meanings prescribed by GAAP. Therefore, these measures may
not be comparable to similar measures presented by other entities. Investors
are cautioned that EBITDA should not be construed as an alternative to Net
Income or Loss determined in accordance with GAAP as indicators of the Fund's
and Pollard LP's performance or to cash flows from operating, investing and
financing activities as measures of liquidity and cash flows.
The outlook for the remainder of Fiscal 2008 and Fiscal 2009 is very
positive. Demand for our products remains at its highest level and as a
result, sales and production volumes are expected to be very high. The benefit
of these higher sales and production volumes will however be partially offset
by the impact of the higher Canadian dollar exchange rate relative to the U.S.
dollar. Accordingly, we expect Distributable Cash will meet or exceed target
levels going forward.
Strong growth in the instant ticket market continues in both North
America and internationally. Lottery organizations in Canada have shown
particularly impressive growth in their instant ticket product lines and
Pollard will benefit from these additional sales. We believe the strong demand
for our lottery products will carry on for the remainder of 2008 and beyond.
Governments continue to face financial challenges and lottery operations are
one of the few avenues available to increase government revenue. Instant
tickets have been and continue to be one of the strongest growth products
within lotteries' business options.
We expect to obtain available extensions on all major existing contracts
and retain our contracts which are due to go out for bid in 2008.
Work is proceeding on the implementation of the new press line, with the
delivery occurring in the third quarter of 2008. The line is on schedule with
expected production to start in the beginning of fourth quarter of 2008, with
full capacity and improved efficiencies becoming available in 2009.
The charitable gaming market remains steady with improved production
efficiencies and cost improvements contributing to higher margins.
Contributions from licensed products are expected to improve in the last
two quarters of 2008 due to increased sales.
On July 14, 2008, the Federal Government released draft legislation which
included the mechanisms for income funds to convert to a corporation without
generating a taxable event for the Unitholders. Pollard Banknote will monitor
developments relating to this and other legislation and will develop specific
strategic responses once the legislation is enacted. The introduction of
taxation under the Tax Fairness Plan legislation is not expected to apply to
the Pollard Banknote Income Fund until 2011.
Pollard Banknote believes that its current credit facilities and ongoing
cash flow from operations will be sufficient to allow it to meet ongoing
requirements for investment in capital expenditures, including the acquisition
of the new press line, working capital and distributions at existing levels.
Certain statements in this report may constitute "forward-looking"
statements which involve known and unknown risks, uncertainties and other
factors which may cause actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. When used in this
document, such statements include such words as "may," "will," "expect,"
"believe," "plan," and other similar terminology. These statements reflect
management's current expectations regarding future events and operating
performance and speak only as of the date of this document. There should not
be an expectation that such information will in all circumstances be updated,
supplemented or revised whether as a result of new information, changing
circumstances, future events or otherwise.
For further information:
For further information: John Pollard, Co-Chief Executive Officer,
Telephone: (204) 474-2323 ext 204, Facsimile: (204) 453-1375; Gordon Pollard,
Co-Chief Executive Officer, Telephone: (204) 474-2323 ext 211, Facsimile:
(204) 453-1375; Rob Rose, Chief Financial Officer, Telephone: (204) 474-2323
ext 250, Facsimile: (204) 453-1375