Vicwest Income Fund Reports Results for the Second Quarter 2010
Toronto Stock Exchange: VIC.UN
OAKVILLE, ON, Aug. 5, 2010 /CNW/ - Vicwest Income Fund (the "Fund") (TSX: VIC.UN) today reported financial results for the three and six months ended June 30, 2010.
As expected, the Fund reported a reduction in performance metrics compared to a year ago when a significant backlog was converted to revenue. In addition, demand in western Canadian agricultural market was negatively impacted in the quarter as a result of severe flooding. Concurrently, steel input costs rose substantially during the period, and were not fully recovered due to weak downstream markets conditions. Despite these factors, and their impact on second quarter results, the Fund remained solidly profitable and executed on a number of key strategies to position the Fund for stronger long-term results.
Results for the Three Months Ended June 30
- Revenue for the second quarter was $94.0 million compared to $102.3
million a year ago.
- Gross profit was $15.7 million (16.7% gross margin) compared to $22.6
million (22.1% gross margin) in 2009.
- EBITDA(1) was $6.1 million compared to $12.6 million a year ago.
- Net income per unit was $0.22 compared to $0.58 a year ago.
- The ratio of the last 12 months' EBITDA to net debt was 1.3 to 1.
- Declared cash distributions were $0.39 per unit, consistent with last
year's second quarter payout.
Vicwest Building Products division recorded a 2.7% year-over-year decrease in second quarter revenue due to reduced volumes to light commercial markets, partially offset by an increase in volumes to industrial, commercial and institutional markets. Westeel division recorded a 15.6% year-over-year decrease in revenue due to the combined effect of unusually high backlog levels being converted to revenue in the prior year, and the impact of the flooding in western Canada. This was partially offset by continuing growth in international shipments. Rapid steel cost increases affected available margins in both divisions.
Results for the Six Months Ended June 30
- Revenue for the first six months of 2010 was $170.1 million compared
to $186.6 million a year ago.
- Gross profit was $29.9 million (17.6% gross margin) compared to $38.2
million (20.5% gross margin) in 2009.
- EBITDA(1) was $10.5 million compared to $18.8 million a year ago.
- Net income per unit was $0.37 compared to $0.81 a year ago.
- Declared cash distributions were $0.78 per unit, consistent with last
year's payout over the same time period.
Management Commentary
"The broad diversification of markets, focus on value-added products and solid operational efficiency allowed the Fund to sustain its long track record of profitable operations despite strong headwinds that affected both revenue and costs in the quarter," said Colin Osborne, President and Chief Executive Officer. "The pass through of higher steel costs within certain end markets has been slower than normal due to market conditions, but we are confident that our strategies will produce the desired margins over the long term."
The Fund continues to execute on its strategy to expand its presence in international agricultural markets, and in the second quarter overseas agricultural sales were up approximately 64% compared to prior year, representing almost 35% of the Westeel division's total revenue.
In June of 2010, the Fund launched its pilot "Trim Express" (Moulures Experts) facility, a short lead time business concept designed to capture an increasing share of the urban construction trim market. This concept will be tested and evaluated over the next two quarters. The Fund also expanded production capacity at its Vicwest BP Victoriaville plant and began full operations at its consolidated plant in British Columbia.
In terms of outlook, the Fund entered the third quarter with backlog levels in line with last year; however, in the short term, management believes two primary factors will present challenges to the Fund's performance: margin compression due to a combination of rapid steel price increases and market competition, as well as the impact of severe weather on western Canadian agricultural markets.
Management will continue to focus efforts on strategies that will drive sustainable growth and profitability regardless of the business cycle, including expanding international sales, and entrenching structural operating efficiencies through efforts such as plant consolidation and the implementation of Enterprise Resource Planning.
RESULTS OF OPERATIONS
Comparative Statements of Income
For the periods ended June 30, 2010 and 2009
(Thousands of Canadian dollars, unaudited)
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Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
-----------------------------------------------
$ $ $ $
Revenue 93,962 102,332 170,102 186,632
Cost of goods sold 78,259 79,732 140,213 148,411
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Gross profit 15,703 22,600 29,889 38,221
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Gross profit percentage 16.7% 22.1% 17.6% 20.5%
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Selling, general and
administrative 11,279 11,224 22,489 22,244
Foreign exchange (gain) loss (8) 155 39 (27)
Net interest and financing 445 478 789 1,082
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Income before income taxes 3,987 10,743 6,572 14,922
Provision for income taxes 130 683 115 848
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Net income 3,857 10,060 6,457 14,074
EBITDA
(see Non-GAAP Measures) 6,067 12,550 10,525 18,843
As a percentage of revenue 6.5% 12.3% 6.2% 10.1%
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Commencing in fiscal 2010, 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. For the three and six month periods ended June 30, 2010, the
Fund reclassified $1.2 million and $2.3 million of amortization to cost
of goods (2009 - $0.9 million and $1.9 million).
RESULTS BY SEGMENT
Results of Operations
(Thousands of Canadian dollars, unaudited)
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Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
-----------------------------------------------
$ $ $ $
Vicwest BP
Revenue 57,810 59,436 99,030 99,855
Net income (loss) 1,397 3,485 (2,889) 336
Westeel
Revenue 36,152 42,896 71,072 86,777
Net income 2,849 7,563 10,042 15,524
Unallocated Costs
Interest and Financing
Expenses 445 478 789 1,082
Income tax (recovery)
provision (56) 510 (93) 704
Consolidated Net Income 3,857 10,060 6,457 14,074
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Commencing in fiscal 2010, certain amounts in the prior period's
financial statements have been reclassified to conform to the current
period's presentation. Certain corporate costs which were classified as
unallocated corporate costs have begun to be allocated to the divisions
based on revenue of the prior year in recognition of the Fund adopting a
shared services model for a number of Fund activities. For the three and
six months ended June 30, 2010, the Fund allocated corporate costs of
$1.4 million and $2.8 million to Vicwest BP (2009 - $1.5 million and $2.9
million), and the Fund allocated corporate costs of $0.9 million and $1.8
million to Westeel (2009 - $0.8 million and $1.6 million).
DISTRIBUTABLE CASH (see Non-GAAP Measures)
Statement of Distributable Cash
For the three and six months ended June 30, 2010 and 2009
(Thousands of Canadian dollars
except unit and per unit amounts, unaudited)
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Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
-----------------------------------------------
$ $ $ $
Net income 3,857 10,060 6,457 14,074
Amortization of property,
plant and equipment 1,279 1,041 2,452 2,111
Amortization of intangible
assets 356 288 712 728
Net interest and financing 445 478 789 1,082
Provision for income taxes 130 683 115 848
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EBITDA
(see Non-GAAP Measures) 6,067 12,550 10,525 18,843
Net interest expense (385) (418) (668) (962)
Cash income taxes (186) (434) (208) (405)
Maintenance capital additions
(see Non-GAAP Measures) (1,551) (860) (2,561) (1,262)
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Distributable cash
(see Non-GAAP Measures) 3,945 10,838 7,088 16,214
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Cash distributions declared 6,791 6,794 13,582 13,588
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Average units
outstanding 17,413,201 17,419,468 17,413,201 17,419,468
Net income per unit 0.22 0.58 0.37 0.81
Distributable cash per
unit 0.23 0.62 0.41 0.93
Cash distributions
declared per unit 0.39 0.39 0.78 0.78
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CONFERENCE CALL AND WEBCAST
Management will hold a conference call and live audio webcast on Friday August 6, 2010, at 11:00 a.m. (ET) to discuss the Fund's second 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.
The teleconference can be accessed at 416-644-3416 or 1-877-974-0445. A taped rebroadcast will be available to listeners following the call until midnight on August 13, 2010. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4328973 followed by the number sign.
To participate in the live audio webcast, please visit the Fund's website at www.vicwestfund.com. Both the Fund and CNW 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 chosen markets.
The Fund's Consolidated Interim Financial Statements and Management's Discussion and Analysis for the period ended June 30, 2010 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.
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(1) For more information, refer to Non-GAAP Measures described below.
%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
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