Vicwest Income Fund Reports Results for the First Quarter 2010
Toronto Stock Exchange: VIC.UN
OAKVILLE, ON, May 12, 2010 /CNW/ - Vicwest Income Fund (the "Fund") (TSX: VIC.UN) today reported financial results for the three months ended March 31, 2010.
Highlights:
- Revenue for the quarter of $76.1 million, a decrease of $8.2 million
or 9.7% from the same period in 2009.
- EBITDA(1) for the quarter was $4.5 million, very strong when compared
on a historical level, though down from $6.3 million in the same
period in 2009.
- Gross profit for the first quarter was $14.2 million compared to
$15.6 million in 2009. As a percentage of revenue, gross profit of
18.6% was in line with 18.5% in the prior year.
- Net income per unit for the quarter was $0.15, down from the $0.23
achieved in 2009.
- Net debt level declined to $33.2 million at the end of the first
quarter of 2010 compared to $44.6 million at March 31, 2009. Net debt
to EBITDA ratio at March 31, 2010 was 0.8 to 1.0.
- Declared cash distributions in the quarter were of $6.8 million, or
$0.39 per unit, consistent with the cash distributions declared in
the same period of 2009.
"Our first quarter 2010 represents a very strong result for the Fund in what is normally our slowest earnings period due to the seasonal slowdown in construction activity," said Colin Osborne, President and Chief Executive Officer. "Our construction business increased revenue marginally compared to the prior year, despite the challenging construction environment that exists, and our Westeel division delivered a very strong quarter, although it did moderate from the record level achieved in the first quarter of 2009 when we were working through an excessive backlog."
"During the quarter, the Fund continued to make investments to increase internal operating efficiencies. Vicwest building products division completed the consolidation of its Delta and Surrey plants in B.C. into one custom-designed facility. The new facility will reduce operating costs and working capital through the introduction of operational synergies and lean manufacturing practices. Also, we continued to build on our earlier achievements in working capital management in the quarter, further reducing the net debt level to $33.2 million from $44.6 million at the end of the first quarter in 2009, with a net debt to trailing twelve months EBITDA ratio of 0.8 to 1.0."
"Looking ahead to the balance of 2010, with continuing steel price increases, we expect to experience some margin compression into the next quarter. On the Vicwest building products side of the business, order intake is ramping up, as expected, as we exit the slow seasonal period, while at our Westeel division, order intake is stronger than in the prior year, with early signs of improvement in international markets.
"After the quarter, the Fund also announced its plans to seek Unitholder approval to convert from an income trust to a corporation and its intention to pay quarterly dividends commencing in 2011. This is in light of the changes announced by the federal government concerning the taxation of income trusts and is consistent with our strategy to provide superior long-term financial returns to Unitholders through both yield and capital appreciation. Further details are provided in a separate press release," said Osborne.
RESULTS OF OPERATIONS
Comparative Statements of Income
For the periods ended March 31, 2010 and 2009
(Thousands of Canadian dollars, unaudited)
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Three months ended
March 31,
2010 2009
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$ $
Revenue 76,140 84,300
Cost of goods sold 61,954 68,678
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Gross profit 14,186 15,622
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Gross profit percentage 18.6% 18.5%
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Selling, general and administrative 11,210 11,021
Foreign exchange loss (gain) 47 (182)
Net interest and financing 344 604
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Income before income taxes 2,585 4,179
(Recovery of) provision for income taxes (15) 165
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Net income 2,600 4,014
EBITDA(1) 4,458 6,293
As a percentage of revenue 5.9% 7.5%
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Certain amounts in the prior period's financial statements have been
reclassified to conform to the current period's presentation.
Amortization of property, plant and equipment relating to the
manufacturing of product has been reclassified to cost of goods sold
($1.1 million in 2010 and $1.0 million in 2009).
FIRST QUARTER RESULTS
Revenue
Consolidated revenue in the first quarter of 2010 was $76.1 million, down $8.2 million, or 9.7%, from the $84.3 million reported for the first quarter of 2009. The reduction was attributable to the Westeel Storage Solutions division ("Westeel") which had experienced a reduction in revenue of $9.0 million when compared to the first quarter of 2009, while Vicwest building products division ("Vicwest BP") reported a marginal revenue increase of $0.8 million.
Vicwest BP revenue was up $0.8 million, or 2.0%, from the first quarter of 2009 with increased revenue in Light Commercial construction markets being partially offset by reductions in revenue in industrial, commercial and institutional ("ICI") construction markets. As compared to the first quarter of 2009, shipping volumes were positive, with increases in Light Commercial steel based products, particularly in cladding, trims and flats, offsetting a reduction in volumes to the Fund's ICI markets. Overall, the construction markets were negatively impacted by reduced pricing quarter over quarter.
Westeel's revenue of $34.9 million represented a decrease of approximately 20.5% from the first quarter of 2009. The higher revenue in 2009 was attributable to a significant backlog entering 2009 resulting from pent up demand in the agricultural industry for grain storage.
Gross Profit
Gross profit decreased from $15.6 million in the first quarter of 2009 to $14.2 million in the quarter ending March 31, 2010; however, gross profit as a percentage of revenue remained relatively consistent, increasing from 18.5% to 18.6%. During the first quarter of 2010, Vicwest BP's gross profit was negatively impacted by $0.7 million due to additional costs relating to the British Columbia plant consolidation and the Saskatoon plant, combined with increased shipping and quality assurance costs. Westeel's gross profit decreased in the quarter primarily due to reduced volumes, while gross profit percentage increased due to a combination of factors, including favourable product mix, pricing and raw material procurement.
Selling, General and Administrative Expenses
During the first quarter of 2010, the Fund's selling, general and administrative expenses remained relatively constant at $11.2 million or 14.7% of revenue compared to $11.0 million, or 13.0% of revenue in the first quarter in 2009. Increased costs related to the continued investment in customer service initiatives, management restructuring in the Westeel division and period costs related to the enterprise resource planning system implementation, which were offset by lower incentive due to lower reported net income as well as a recovery in trustee compensation as a result of a decline in the value of Fund units.
EBITDA(1)
EBITDA for the three months ended March 31, 2010 was $4.5 million as compared to $6.3 million for the first quarter of 2009. The reduction in EBITDA was primarily due to the decrease in gross profit.
Net Income
For the quarter ended March 31, 2010, net income was $2.6 million compared to $4.0 million for 2009, representing a reduction of $1.4 million. This decrease was due to a contraction in revenue and gross profit, an increase in selling, general and administrative expenses, offset by a decrease in interest expense during the quarter.
DISTRIBUTABLE CASH(1)
Statement of Distributable Cash
For the periods ended March 31, 2010 and 2009
(Thousands of Canadian dollars except unit and per unit amounts,
unaudited)
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Three months ended
March 31,
2010 2009
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$ $
Net income 2,600 4,014
Amortization of property, plant and equipment 1,173 1,070
Amortization of intangible assets 356 440
Net interest and financing 344 604
(Recovery of) provision for income taxes (15) 165
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EBITDA(1) 4,458 6,293
Net interest expense (283) (544)
Cash income taxes (22) 29
Maintenance capital additions(1) (1,010) (402)
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Distributable cash(1) 3,143 5,376
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Cash distributions declared 6,791 6,794
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Average units outstanding 17,413,201 17,419,468
Net income per unit 0.15 0.23
Distributable cash per unit 0.18 0.31
Cash distributions declared per unit 0.39 0.39
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The Fund's business is subject to seasonality; however, regular monthly distributions are generally made evenly throughout the year. Although the Fund intends to make distributions of its available cash, these distributions are not assured. Actual distributions will depend on numerous factors, including the financial performance for the year, business cyclicality, debt covenants and obligations, seasonality, working capital requirements, future capital requirements and other factors.
The Fund's definition of distributable cash includes reductions for capital expenditures for maintenance of existing productive capacity(1). Productive capacity is not expected to diminish materially from production use, technological change, obsolescence or changes in information technology. Consequently, the Fund does not consider productive capacity maintenance to be a significant risk to the sustainability of future distributions. Similarly, the Fund has a strong balance sheet with a conservative debt level and the impact of current financial obligations is not considered a significant risk to future distribution levels.
Distributable cash for the three month period ending March 31, 2010 decreased to $3.1 million compared to $5.4 million for the same period in 2009. During the first quarter of 2010, the Fund declared regular cash distributions of $6.8 million which is consistent with the amount declared in the same period of 2009. Lower net income and increased maintenance capital additions were the primary cause of the decline in distributable cash in respect of the same period in 2009.
Since the inception of the Fund on July 1, 2005, cumulative cash distributions have been $154.7 million, representing a cumulative distribution ratio of 87.7% on distributable cash of $176.4 million.
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(1) For more information, refer to Non-GAAP Measures described below.
OUTLOOK AND CAPITAL STRUCTURE
This section contains certain forward-looking statements. Please refer to the disclosure under the heading "Forward-Looking Statements" for a discussion of risks and uncertainties related to such statements.
The Fund's business is subject to seasonality and results for the three month period ended March 31, 2010 are not necessarily indicative of what might occur over a twelve month period. The Fund's revenue and income fluctuate with the seasonal and cyclical factors in the construction, agricultural and energy industries in Canada. Revenue is generally lowest in the first quarter, improves in the second quarter as construction activity increases, and reaches a peak towards the end of the third quarter. The fourth quarter generally remains strong through October and November but drops off in December due to colder weather.
Vicwest BP faced significant price and margin compression with the rapid steel price increases at the beginning of the first quarter of 2010. However, as the quarter closed out, price increases implemented by Vicwest BP began to show improvements in margins. It is anticipated that steel price increases will continue, given the limited supply of steel in the marketplace. Recovery of these price increases will be challenging and could result in margin compression, at least through the second quarter of 2010.
It is expected that Westeel sales will continue to lag behind the results from the first half of 2009 with limited steel supply affecting revenues. There is an expectation that farm incomes will remain positive in 2010, although the early, dry spring is causing some concerns amongst farmers. Growth in export sales is expected to improve this year as credit restrictions are expected to ease in foreign jurisdictions and local economies improve. Westeel will continue to invest resources in developing sales from promising international markets. Tank sales are expected to experience a moderate recovery as economic conditions in the oil and gas resource sector improve.
On May 12, 2010, the Fund announced its plans to seek Unitholder approval to convert from an income trust into a corporation effective on or about January 1, 2011. The reorganization is being initiated as a result of the Federal Government's announcement in October, 2006 that changed the way income trusts, such as the Fund, are to be taxed effective January 1, 2011. Additionally, the Fund announced its intention to pay quarterly dividends, commencing in 2011, at an initial annualized rate of $1.08 per share. The Fund intends to maintain its current distributions at $1.56 per unit annualized ($0.13 per unit monthly) for the remainder of 2010. The reduced level of distributions reflects the approximate level of taxes on this amount of distributable pre-tax income that the business will be subject to commencing in 2011.
CONFERENCE CALL AND WEBCAST
Management will hold a conference call and live audio webcast on Thursday, May 13, 2010, at 8:30 a.m. (ET) to discuss the Fund's first quarter results. The call will be hosted by Colin Osborne, President and Chief Executive Officer and John Slattery, Executive Vice President and Chief Financial Officer. Following management's presentation, there will be a question and answer session for analysts and investors.
To participate in the teleconference, please call 416-644-3417 or 1-877-974-0446. To access the audio replay, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4284721 followed by the number sign. Callers are advised to dial in at least 10 minutes in advance. A taped rebroadcast will be available to listeners following the call until midnight on May 20, 2010. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4284721 followed by the number sign.
To participate in the live audio webcast, please visit the Fund's website at www.vicwestfund.com. Both CNW and the Fund will archive the webcast.
ABOUT VICWEST INCOME FUND
The Fund is one of Canada's leading manufacturers and distributors of building construction products, and steel containment products for agricultural grain, fertilizer and liquid storage. Through its Vicwest building products division, headquartered in Oakville, Ontario, the Fund fabricates and markets metal roofing, siding and other associated building products under the Vicwest, Mercury Metals, Valley Truss & Metal and RCA Metal trade names. The Fund's Westeel Storage Solutions division, headquartered in Winnipeg, Manitoba, manufactures storage solutions for agricultural grain and fertilizer, as well as liquid storage tanks and accessories. These products are manufactured and distributed under the trade names Westeel, Northern Steel Industries and NSI. The Fund has 15 manufacturing facilities strategically located across Canada with approximately 1,200 dedicated employees committed to providing superior quality products and delivering excellent service to customers in domestic and international markets.
The Fund's Consolidated Financial Statements and Management Discussion and Analysis of Financial Condition and Results of Operations for the periods ended March 31, 2010 and 2009 will be filed with applicable regulatory authorities and will be available on www.sedar.com and on the Fund's website at www.vicwestfund.com.
NON-GAAP MEASURES
"Distributable cash" is not a defined term under Canadian generally accepted accounting principles ("GAAP") but is determined by the Fund as net income for the period adjusted to remove non-cash items, including amortization, and is reduced by capital expenditures for the maintenance of productive capacity, cash taxes and interest. The Fund's management believes that distributable cash is a useful measure of performance as it provides investors with an indication of the cash available for distribution to Unitholders. Investors are cautioned however that distributable cash should not be construed as an alternate to using net income or the statement of cash flows as measures of profitability and cash usage respectively. Furthermore, the Fund's definition of distributable cash may differ from that of other issuers.
"EBITDA" is earnings before interest, taxes (other than capital taxes), depreciation and amortization. The Fund's management believes that in addition to net earnings or loss, EBITDA is a useful supplemental measure of cash available for distribution prior to debt service, changes in working capital, capital expenditures and taxes. However EBITDA is not a recognized measure under GAAP. Investors are cautioned that EBITDA should not be construed as an alternative to net earnings or loss determined in accordance with GAAP or as an indicator of the Fund's performance or as an alternative to cash flows from operating, investing and financing activities which measure the Fund's liquidity and cash flows. The Fund's method of calculating EBITDA may differ from the method used by other issuers and, accordingly, the Fund's EBITDA calculation may not be comparable to similarly titled measures used by other issuers.
RISKS AND UNCERTAINTIES
The Fund is subject to certain risks and uncertainties that could have a material adverse effect on the Fund'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, steel supply and pricing, reductions in demand for the Fund's products, seasonality and weather, competition, management of the Fund's information, foreign exchange, labour availability and collective bargaining agreements, income tax matters, customer concentration, relationship with suppliers, product liability, capital and liquidity, collections from customers, operating hazards, uninsured risks, supply and install contracts, interest rates, distribution arrangements, lack of long-term agreements, pension funding, future legal proceedings, dependence on key personnel, limitations on growth, environment, climate change, risk of securities laws compliance and corporate governance changes, tax law changes, dependence of the Fund on Vicwest Operating Limited Partnership and certain risks associated with the structure of the Fund including: leverage and restrictive covenants, credit facility, nature of units, effect of market interest rates on the price of units, restrictions on potential growth, and cash distributions not being guaranteed and will fluctuate with the performance of the business. Further information about these and other risks and uncertainties can be found in the disclosure documents filed by the Fund with the securities regulatory authorities, available at www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements in this press release constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements include, but are not limited to, statements made under the heading "Outlook and Capital Structure" and other statements concerning the Fund's 2010 and 2011 objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements. Factors that could cause such differences include the cyclical nature of the construction and agriculture industries, changes in general economic conditions and interest rates, adverse weather, cost and availability of materials used to manufacture the Fund's products, competitive developments, as well as other risk factors included in the most recently filed Management's Discussion and Analysis under the heading "Risks and Uncertainties" and as described from time to time in the reports and disclosure documents filed by the Fund with Canadian securities regulatory agencies and commissions. This list is not exhaustive of the factors that may impact the Fund's forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on the Fund's forward-looking statements. As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and neither the Fund nor any other person assumes responsibility for the accuracy and completeness of these forward looking statements. The factors underlying current expectations are dynamic and subject to change. Although the forward-looking information contained in this press release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain statements included in this press release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this press release. All forward-looking statements in this press release are qualified by these cautionary statements. The forward-looking statements contained herein are made as of the date of this press release and except as required by applicable law, the Fund undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
%SEDAR: 00022432E
For further information: Colin Osborne, President & Chief Executive Officer, Vicwest Income Fund, Tel: (905) 469-5700, Fax: (905) 825-1090; John Slattery, Executive Vice President & Chief Financial Officer, Vicwest Income Fund, Tel: (905) 469-5706, Fax: (905) 825-1090, www.vicwestfund.com
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