WINNIPEG, March 14 /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 months and
year ended December 31, 2006.
Sales(1) $ 176.7 million
Adjusted EBITDA(1) $ 29.9 million
Net Income(1) $ 15.0 million
Distributable Cash(1) $ 23.9 million
Distributions(1) $ 22.6 million
Distributable cash per unit(1) $ 1.0061
Distributions per unit(2) $ 0.9504
Payout ratio(3) 94.5%
(1) Sales, Adjusted EBITDA, net income, distributable cash, distributions
and distributable cash per unit are for Pollard LP for the year ended
December 31, 2006.
(2) Distributions per unit are for the Fund for the year ended
December 31, 2006.
(3) Payout ratio is calculated as distributions per unit divided by
distributable cash per unit.
"We are very pleased with the results produced during our first full year
as a public entity," stated John Pollard, Co-Chief Executive Officer. "We have
seen our EBITDA and distributable cash grow. We continue to lay the groundwork
for ongoing growth with existing products and customers, as well as developing
new products for expansion."
"Our volume of both instant tickets and charitable gaming products grew
significantly in 2006 and we will continue to build on the gains achieved last
year. While still small, the growth in our licensed properties products and
Lottery Management Services is very encouraging. Our payout ratio since going
public 17 months ago approximates 93% and is evidence of the ongoing success
of our business plan."
Consolidated Statement of Net Income and Unitholders' Equity
Year ended December 31, 2006
(in thousands of dollars, except for unit amounts)
Share of income of Pollard Holdings Limited Partnership $ 2,197
Administrative expenses (198)
Net income for the period 1,999
Opening unitholders' equity 62,194
Closing unitholders' equity $ 58,219
Basic and diluted earnings per unit $ 0.3180
Number of Fund Units outstanding December 31, 2006 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, adjusted for the amortization of certain intangible assets
arising from the use of purchase accounting and certain administrative
expenses, is reflected in the statement of income of the Fund. The results of
operations of the Fund are dependent on the performance of Pollard LP.
The Fund has declared distributions totaling $0.9504 per unit during the
year ended December 31, 2006.
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)
Year August 5, November 1, Months
ended 2005 to 2004 to ended
December December August December
31, 2006 31, 2005 4, 2005 31, 2005
(note 2) (note 2)
Sales $176.7 $ 76.3 $131.0 $207.3
Cost of Sales 136.5 59.2 100.9 160.1
Gross Profit 40.2 17.1 30.1 47.2
Gross Profit as a % of
sales 22.8% 22.4% 23.0% 22.8%
Administration Expenses 19.3 8.5 14.0 22.5
Expenses as a %
of sales 10.9% 11.2% 10.7% 10.9%
Adjusted EBITDA 29.9 11.6 21.4 33.0
Adjusted EBITDA as a %
of sales 16.9% 15.2% 16.3% 15.9%
31, 2006 31, 2005
Total Assets $104.7 $ 99.8
Total Long Term Liabilities $ 49.8 $ 50.2
The above selected financial and operating information has been derived
from, and should be read in conjunction with, the audited consolidated
financial statements of Pollard LP.
(1) As a result of the year end change from October 31 to December 31,
and the transfer of the Pollard Amalco Inc. ("Amalco") business on
August 5, 2005, the period ending December 31, 2005, reflects
fourteen months of operations. The financial information for the
fourteen month period ended December 31, 2005, ("Fiscal 2005")
combines the operations of Amalco and Pollard LP, and may not
necessarily be indicative of the results that would have been
attained if Pollard LP and Amalco had operated as a separate legal
entity or through a limited partnership.
(2) The information prior to August 5, 2005, represents the financial
information of the business carried on by Amalco and is for
comparative purposes only. The pro forma financial results for the
fourteen months ended December 31, 2005, includes results of the
predecessor company, Pollard Amalco Inc. for the period
November 1, 2004 to August 4, 2005, and the results of Pollard LP for
the period August 5, 2005 to December 31, 2005. Please refer to
Note 2 of the consolidated financial statements of Pollard LP.
Results of Operations - Year ended December 31, 2006
During the year ended December 31, 2006, Pollard LP achieved sales of
$176.7 million, compared to $207.3 million in Fiscal 2005. Factors impacting
the $30.6 million sales difference were:
Fewer number of days in Fiscal 2006
Due to the change in year end, Fiscal 2006 consists of twelve months,
versus fourteen months in Fiscal 2005. The shorter reporting period accounted
for an approximate difference of $27.0 million in sales relative to 2005.
Strengthening of the Canadian dollar
During the year ended December 31, 2006, Pollard LP generated
approximately 72% of its revenue in U.S dollars including a significant
portion of international sales which are priced in U.S. dollars. During 2006
the actual Canadian dollar value versus the U.S dollar was converted at
$1.1217, compared to $1.2104 during Fiscal 2005. This 7.3% change in value
resulted in an approximate decline of $10.1 million in revenue relative to
Increased sales volume
The volume of sales generated during Fiscal 2006 was higher than the
comparable period of 2005. After adjusting for the additional two months,
overall instant ticket and related services volumes for Fiscal 2006 were
higher by approximately 8.7% compared to a similar period in Fiscal 2005. The
volumes of pull tab tickets increased by approximately 6.8% and bingo paper
volumes increased by approximately 27%.
Vending machine sales declined approximately $6.0 million due to a large
instant ticket and pull tab vending machine sale to the Iowa Lottery in Fiscal
2005 that was not repeated this year. After accounting for the reduction in
vending machine volumes, the remaining increase in sales volume resulted in
additional sales of $12.5 million.
The increase in volume in instant tickets was primarily due to a
continuing increase in volume from a number of existing core customers,
augmented by the impact of new contracts starting up in late 2005 and 2006. A
new contract with the Maryland Lottery started midway through 2006 and the
full year impact of sales to the Belgium Lottery helped increase volumes over
2005. Proprietary products such as pouched tickets and Fusion(TM) products
continued to drive a significant portion of the instant ticket volume growth.
Cost of sales and gross profit
Cost of sales was $136.5 million in Fiscal 2006 compared to $160.1
million in Fiscal 2005 reflecting the lower sales in Fiscal 2006, due to the
fewer number of days plus reduced U.S dollar denominated costs due to the
strengthening of the Canadian dollar relative to the U.S. dollar.
Gross profit decreased from $47.2 million in Fiscal 2005 to $40.2 million
in Fiscal 2006 due primarily to the two fewer months in Fiscal 2006. The gross
profit margin percentage stayed consistent at 22.8% in 2006 despite the impact
of the strengthening value of the Canadian dollar versus the U.S. dollar.
Selling and administration expenses
Selling and administration expenses were $19.3 million in Fiscal 2006
compared to $22.5 million in Fiscal 2005 primarily due to the fewer number of
days in Fiscal 2006. Total selling and administration expenses as a percentage
of sales remained consistent at 10.9%.
Adjusted EBITDA was $29.9 million in Fiscal 2006, compared to $33.0
million in Fiscal 2005. The decrease was primarily due to fewer number of days
in Fiscal 2006. Adjusted EBITDA margins were 16.9% in Fiscal 2006, compared to
15.9% in Fiscal 2005. The increase in adjusted EBITDA margin was due primarily
to higher foreign exchange gains realized, offset partially by lower levels of
amortization in Fiscal 2006.
Net income decreased by $4.2 million to $15.0 million in Fiscal 2006 from
$19.2 million in Fiscal 2005, due to the factors discussed previously. Net
income decreased due to fewer number of days and a mark-to-market loss on
foreign currency contracts of $4.0 million in Fiscal 2006 (compared to a
mark-to-market gain of $4.1 million in Fiscal 2005). Partially offsetting
these factors were lower income taxes and higher foreign exchange gains.
Distributable cash and distributable cash per unit
Pollard LP generated $23.7 million in distributable cash, or $1.0061 per
unit for Fiscal 2006. This exceeds the target of $0.9504 as established in the
final prospectus of the Fund dated July 27, 2005. The increase in
distributable cash over the target is due primarily to a higher level of
EBITDA. The excess cash is utilized to maintain future distributions, fund
growth capital expenditures and fund investments in working capital.
Results of Operations - Three months ended December 31, 2006
SELECTED FINANCIAL INFORMATION
(millions of dollars)
31, 2006 31, 2005
Sales $ 42.3 $ 44.6
Cost of Sales 33.7 35.7
Gross Profit 8.6 8.9
Selling and administration 4.9 5.1
Interest 0.7 0.7
Foreign exchange gain (0.8) (0.6)
Mark-to-market loss on foreign currency contracts 4.2 0.9
Other (0.2) (0.3)
Income (loss) before undernoted (0.2) 3.1
Employee profit sharing plan 0.4 0.4
Income (loss) before income taxes (0.6) 2.7
Current 0.3 0.3
Future (recovery) 0.3 (0.1)
Net income (loss) ($1.2) $2.5
Adjusted EBITDA $ 6.1 $ 6.2
Distributable Cash $ 4.9 $ 5.1
During the three months ended December 31, 2006, Pollard LP achieved
sales of $42.3 million, approximately $2.3 million lower than the three months
ended December 31, 2005. Sales were reduced by $1.5 million due to the
strengthening Canadian dollar relative to the U.S. dollar. The remaining
decrease in sales was due to a decrease in instant ticket volume primarily due
to the timing of certain instant ticket orders from current customers.
Gross profit margin was 20.3%, slightly higher than the 20.0% in the
three months ended December 31, 2005, due to a slightly more profitable mix of
Selling and administration expenses as a percent of sales were 11.6%
versus 11.4% in the three months ended December 31, 2005.
Adjusted EBITDA of $6.1 million was $0.1 million less than Adjusted
EBITDA of the three months ended December 31, 2005. Adjusted EBITDA margins
were 14.4% in the three months ended December 31, 2006 compared to 13.9%
achieved in the three months of 2005, due primarily to a higher gross margin
Income tax expense increased to $0.6 million in the three months of 2006
compared to $0.2 million during the three months of 2005. The increase in the
income tax expense was due to greater taxable income earned in Pollard LP's
incorporated subsidiaries in Fiscal 2006.
In the three months ended December 31, 2006, a net loss of $1.2 million
was recorded in comparison to net income of $2.5 million in the three months
of 2005. This change is primarily due to an increase in the mark-to-market
loss on foreign currency contracts in the three months ended December 31,
Pollard LP generated $4.9 million in distributable cash, or $0.2098 per
unit for the three months ended December 31, 2006.
Use of Non-GAAP Financial Measures
Reference to "EBITDA" is to earnings before interest, income taxes,
amortization, unrealized foreign exchange gains and losses and mark-to-market
gains and losses on foreign exchange contracts, and to "Adjusted EBITDA" is to
EBITDA adjusted for certain non-recurring items, principally discretionary
historical management bonuses. Reference to "Distributable Cash" is to cash
available for distribution to unitholders. Management views distributable cash
as an operating performance measure, as it is a measure generally used by
Canadian income funds as an indicator of financial performance. 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 is a metric 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,
Adjusted EBITDA and distributable cash are useful supplementary measures.
EBITDA, Adjusted EBITDA, 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 and Adjusted 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 2007 outlook continues to be positive, with sales, production and
distributable cash expected to meet or exceed the levels achieved in 2006.
The instant ticket market shows strong growth consistent with that
experienced over the last number of years. Overall retail sales growth in the
industry in 2005 was approximately 10%, with particular strength achieved in
the largest instant ticket market in the world, the United States, with retail
sales growth at 14%. 2006 sales growth trends appear to have maintained these
strong levels and it is expected this will also continue in 2007.
While no new lotteries are expected to start up in the United States in
2007, ongoing organic or "same store" sales growth in existing lotteries
continues to be very strong. A number of factors drive the increased retail
sales of instant tickets including increasing prize payout percentages, higher
price points, frequent introduction of new games, interesting and varied play
formats and increasing use of branded or licensed properties. All of these
trends are expected to continue in 2007.
Instant ticket sales outside the United States are expected to grow,
although not at the same levels witnessed in the United States.
Pollard Banknote is expected to see sales growth from existing core
customers during 2007 and the impact of full year sales from new contracts
started in 2006 such as the Maryland Lottery instant ticket and distribution
contract. Pollard Banknote has no significant contracts up for renewal in 2007
(assuming exercise of available extensions), and will bid aggressively on our
competitor contracts which will be up for tender during the upcoming year.
In the fall of 2006, Pollard Banknote was awarded a new ten-year contract
as sole provider of instant tickets for the Ontario Lottery and Gaming
Corporation (OLG). The ten-year contract, with an option allowing OLG to
extend for an additional five years, will begin in 2007 and allow OLG and
Pollard Banknote to work together to grow the instant ticket product line in
Canada's largest market.
Despite the expected overall strong growth in instant tickets, sales and
order volumes will vary on a quarter-to-quarter basis due to the timing of
client orders, which vary based on marketing plans, new product offerings,
inventory management and other factors.
An ongoing source of sales growth for both the instant ticket industry
and Pollard Banknote are licensed properties and related merchandise prizes.
The number of properties under license has grown from 12 in 2005 to 19 in
2006, including such high profile properties as Laurel & Hardy(TM),
Cadillac(R) and Rocky(TM). Pollard Banknote will continue to add important
properties to its portfolio and provide comprehensive product and services to
a number of lotteries including prize package fulfillment services, second
chance drawing management and provision of merchandise prize packages.
It is anticipated that governments will continue to look at outsourcing
the management of lotteries and gaming in general as a way to improve
efficiencies. Lottery Management Services is an important product offering and
Pollard Banknote will look for additional outsourcing opportunities throughout
The second generation Instant Ticket Vending Machine (ITVM) has now been
produced and is being placed with lotteries for field trials. Future sales of
the ITVM are dependent upon the timing of requests for proposals from lottery
organizations. Pollard Banknote is well positioned to take advantage of these
opportunities when they arise.
Overall volumes in the charitable gaming market, including pull-tabs and
bingo paper, remain very consistent with prior years. Within this stable
market, Pollard Banknote has been able to increase market share in 2006 and
will expect to maintain these additional sales levels throughout 2007.
Bingo paper sales are expected to remain at the higher levels attained in
2006, when volumes increased 27% over 2005. In addition, the full year impact
of the new contract with Manitoba Lotteries Corporation should have a positive
impact on sales. Pull-tab sales are expected to continue the steady growth
achieved in 2006 due to the full year results of two new contracts initiated
during 2006. Industry consolidation should also have a positive impact on
manufacturing capacity within the industry, allowing for increased revenue
Pollard Banknote will pursue a number of manufacturing and cost
improvement initiatives in 2007 to reduce costs and improve margins. Currently
an automated finishing and packaging line is being implemented in one of the
facilities and upon completion, it is expected to significantly improve
manufacturing efficiencies and lower costs.
Developments relating to the Tax Fairness Plan will be monitored and as
legislation and regulations are enacted, Pollard Banknote will develop
specific strategic responses at that time. It is anticipated that the
introduction of additional taxation under these proposals will not apply to
the Pollard Banknote Income Fund until 2011.
Pollard Banknote believes that its credit facilities and ongoing cash
flow from operations will be sufficient to allow it to meet ongoing
requirements for investment in capital expenditures, working capital and
distributions at existing business levels.
Certain statements in this news release 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
news release, such statements include such words as "may," "will," "expect,"
"believe," "plan," and other similar terminology. This news release reflects
management's current expectations regarding future events and operating
performance and speaks only as of the date of this news release. 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; Rob Rose, Chief
Financial Officer, Telephone: (204) 474-2323 ext 250, Facsimile: (204)
453-1375; Gordon Pollard, Co-Chief Executive Officer, Telephone: (204)
474-2323 ext 211, Facsimile: (204) 453-1375