Vicwest Income Fund Reports Strong Third Quarter Results

Toronto Stock Exchange: VIC.UN

OAKVILLE, ON, Nov. 10, 2009 /CNW/ - Vicwest Income Fund (the "Fund") (TSX: VIC.UN) today reported financial results for the three and nine months ended September 30, 2009.

    -   Third quarter revenue of $110.4 million, down $16.0 million or 12.7%
        from the same period in 2008. Year to date, revenues were
        $297.1 million, down 1.0% from 2008.
    -   Gross profit for the quarter was $28.5 million or 25.8% of revenues
        compared to $29.8 million or 23.5% of revenues in the same period of
        the prior year. Year to date, gross profit was $68.6 million or 23.1%
        of revenues, up 1.6% from the 21.5% reported in 2008.
    -   EBITDA(1) for the quarter was $16.7 million, compared to
        $19.3 million in 2008, a decrease of $2.6 million. Year to date,
        EBITDA was $35.6 million, down from $36.2 million in 2008.
    -   Distributable cash(1) for the quarter was $15.4 million, or $0.88 per
        unit, compared to $17.4 million or $1.00 per unit in the third
        quarter of 2008. Year to date, distributable cash was $31.6 million
        or $1.81 per unit, compared to $31.8 million or $1.75 per unit in the
        prior year.
    -   Net income for the quarter was $14.5 million or $0.83 per unit,
        compared to $16.3 million or $0.94 per unit in the third quarter of
        2008. Year to date, net income was $28.5 million or $1.64 per unit
        compared to $29.4 million or $1.62 per unit in 2008.
    -   Net debt-to-EBITDA ratio remained conservative with the quarter end
        ratio at 0.5 to 1, driven by strong cash flows from operations.

    (1) For more information, refer to Non-GAAP measures described below.

"In the third quarter, despite challenging conditions in most market segments, the Fund continued to deliver strong operational performance and achieved one of the best financial results in its history," said Colin Osborne, President, and Chief Executive Officer. "While revenues were down in the quarter, the Fund's gross profit was in line with the third quarter of 2008, which was an all-time record, and year-to-date, our results match last year's record revenue and earnings performance. These results reflect the strength of our market position, the diversity and unique character of our product offering, and a continued focus on managing input costs and operating efficiencies."

"Operationally, the Vicwest building products group continues to outperform a slow market as a result of its unique product offering, national manufacturing and distribution network, and effective cost control. Revenue was down only 4% in spite of a significant decline in construction starts, while net income was 10.4% higher than in the same period last year."

"As expected, in the Fund's Westeel segment, results for the quarter were adversely affected by a combination of an unusually late harvest, and the correction of an unsustainable backlog position in prior quarters. Subsequent to quarter-end, fall booking programs for domestic grain bins have been positive as retailers replenish their inventories; although this segment's overall fourth quarter performance will be dependent to a large degree on the level of international market activity."

"Finally, our operating realignment efforts continue, with a focus on reducing operating costs and improving customer service. Vicwest Saskatoon is in full operation, reducing customer lead-times in that region, and our B.C. operations have now secured a new site and have already begun relocating operations. We anticipate operating out of a single efficient facility in this province by the end of the first quarter of 2010," said Osborne.


    Comparative Statements of Income
    For the periods ended September 30, 2009 and 2008
    (Thousands of Canadian dollars)
                                  Three months ended       Nine months ended
                                        September 30,           September 30,
                                    2009        2008        2009        2008
                                       $           $           $           $

    Revenue                      110,439     126,374     297,071     300,053
    Cost of goods sold            81,903      96,616     228,436     235,520
    Gross profit                  28,536      29,758      68,635      64,533
    Gross margin                   25.8%       23.5%       23.1%       21.5%

    Selling, general and
     administrative               11,489      10,461      32,772      28,361
    Foreign exchange loss            304          35         277          11
    Amortization of property,
     plant and equipment           1,113       1,028       3,224       3,046
    Amortization of
     intangible assets               335         256       1,063         769
    Net interest and financing       425         733       1,507       2,022
    Income before income taxes    14,870      17,245      29,792      30,324
    Provision for income taxes       400         940       1,248         963
    Net income                    14,470      16,305      28,544      29,361

    EBITDA (see Non-GAAP
     Measures)                   $16,743     $19,262     $35,586     $36,161
    As a percentage of revenue     15.2%       15.2%       12.0%       12.1%



Consolidated revenue in the third quarter of 2009 was $110.4 million, down $16.0 million, or 12.7%, from the $126.4 million reported for the third quarter of 2008. The decrease was comprised of a $3.6 million decline in the Vicwest BP division compared to 2008, while Westeel reported a revenue decrease of $12.4 million in the quarter.

Westeel revenue of $31.9 million represented a decrease of 28.0% from the third quarter of 2008. The decrease was due to the anticipated softer third quarter demand in domestic markets for agricultural storage products, particularly in galvanized bins from the Winnipeg facility and reduced shipments of liquid storage tanks and hopper cones. Westeel's export revenue from international markets was down slightly to the comparable quarter in 2008 as credit conditions in foreign markets continued to affect order intake and shipping volumes.

Vicwest BP revenue of $78.5 million was down 4.4% from the third quarter of 2008, with most of the decline coming from ICI construction markets. The depressed economic environment and lower levels of construction activity were most evident in central Canada, with volumes in western Canada generally flat to 2008, slowing the trend of the first half of 2009 which lagged 2008, especially in Alberta and British Columbia. The Fund's third quarter revenues in eastern Canada exceeded the comparable quarter in 2008 and were supported by incremental shipments from its acquisition of RCA metals in October 2008 and improved selling prices.

Gross Profit

Gross profit for the quarter was $28.5 million, or 25.8% of revenue, compared to $29.8 million, or 23.5% of revenue, for the third quarter of 2008. The gross profit decrease of $1.2 million resulted from volume reductions in the Westeel division, partially offset by a strong margin performance in the Vicwest BP division, which was supported by favourable product mix and beneficial timing of raw material procurements. Westeel's gross profits and margins decreased largely due to lower volumes in galvanized bins, hopper cones and tank sales.

Selling, General and Administrative Expenses

During the third quarter of 2009, the Fund incurred selling, general and administrative expenses of $11.5 million, or 10.4% of revenue, compared to $10.5 million, or 8.3% of revenue, in the third quarter in 2008. Of the $1.0 million increase, approximately $0.7 million represented the Fund's investment in human capital and technology to support new product line growth and customers in both domestic and international markets. The Fund also incurred additional costs, quarter-over-quarter, relating to information technology costs associated with the Fund's enterprise resource planning ("ERP") initiative, the higher market value of unit based deferred trust unit plan for trustees, and increased provisions for credit and collection risk. These costs were offset by reductions in legal and consulting fees.

EBITDA (see Non-GAAP Measures)

EBITDA for the three months ended September 30, 2009, was $16.7 million as compared to $19.3 million in 2008. This decline was principally due to the revenue and resultant gross profit decrease in the Westeel division and the increased selling, general and administrative expenses of the Fund.


Amortization expense of property, plant and equipment for the three months ended September 30, 2009 was $1.1 million, which was consistent with the $1.0 million expensed in 2008. For the quarter ending September 30, 2009, intangible asset amortization expense was $0.3 million, comparable to the $0.3 million in 2008.

Net Income

For the quarter ended September 30, 2009, net income was $14.5 million compared to $16.3 million for 2008, reflecting a decrease of $1.8 million. The decline was primarily due to lower gross profits, higher selling, general and administrative expenses and a declining steel price environment.

    DISTRIBUTABLE CASH (see Non-GAAP Measures)

    Statement of Distributable Cash
    For the periods ended September 30, 2009 and 2008
    (Thousands of Canadian dollars except unit and per unit amounts)
                                  Three months ended       Nine months ended
                                        September 30,           September 30,
                                    2009        2008        2009        2008
                                       $           $           $           $

    Net income                    14,470      16,305      28,544      29,361
    Amortization of property,
     plant and equipment           1,113       1,028       3,224       3,046
    Amortization of
     intangible assets               335         256       1,063         769
    Net interest and financing       425         733       1,507       2,022
    Provision for income taxes       400         940       1,248         963
    EBITDA (see Non-GAAP
     Measures)                    16,743      19,262      35,586      36,161
    Net interest expense            (365)       (682)     (1,327)     (1,868)
    Cash income taxes                (20)       (159)       (425)       (203)
    Maintenance capital
     additions (see Non-GAAP
     Measures)                      (978)     (1,000)     (2,240)     (2,287)
    Distributable cash
     (see Non-GAAP Measures)      15,380      17,421      31,594      31,803
    Cash distributions
     declared                      6,794       6,794      20,382      21,197
    Average units
     outstanding              17,419,468  17,419,468  17,419,468  18,167,112
    Net income per unit            $0.83       $0.94       $1.64       $1.62
    Distributable cash
     per unit                      $0.88       $1.00       $1.81       $1.75
    Cash distributions
     declared per unit             $0.39       $0.39       $1.17       $1.17

Although the Fund's business is subject to seasonality, regular monthly distributions are generally made evenly throughout the year. While 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 (see Non-GAAP Measures). 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 ended September 30, 2009 decreased 11.5% to $15.4 million compared to $17.4 million in 2008. During the quarter, the Fund declared cash distributions of $6.8 million, which is consistent with the amount declared in same period of 2008.

The Fund is obligated under its Declaration of Trust to distribute all taxable income earned within a calendar year. Results to date indicate that the Fund will be obligated to declare a special distribution in December to the extent that the Fund's 2009 taxable income exceeds the Fund's cumulative monthly distributions. Any such special distribution could be paid through a combination of cash and additional Fund units with the additional units being immediately consolidated with existing units such that the unitholder's number of units would remain unchanged after the consolidation.


This Outlook 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 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.

The Fund expects that Westeel Storage Solutions sales in the near term will continue to lag the first half of 2009 although fall booking programs for domestic grain bins have been positive as retailers begin to replenish their inventories. While fall harvests are expected to be higher than originally anticipated, yields will be lower than 2008 due to less than desirable summer growing conditions. Grain prices have declined although mitigated somewhat by lower input prices with the expectation that farm incomes will be relatively flat to the prior year. Growth in export sales is expected to remain affected by dampened credit availability in foreign jurisdictions; however, the Fund will continue to invest resources in developing sales from promising international markets. Continuing weak sales of Westeel's tank products are expected due to low commodity prices for natural gas and oil combined with reduced drilling and construction activity.

In Vicwest BP's markets, total building permits, while still significantly down from 2008, are showing signs of slow improvement, particularly in Ontario and British Columbia. It is expected sales will taper off toward the end of this year, following the historical seasonal pattern. Given the slower economy, price competition remains intense in all segments including light commercial and agricultural markets.

Steel costs softened through the first seven months of 2009 which put downward pressure on margins throughout most of this period. This changed during the third quarter as Vicwest BP margins were enhanced with favourable steel procurement initiatives as steel prices reached a bottom in the late summer and then began to rise in rapid succession. In the fourth quarter, steel suppliers have continued to introduce price increases, which in the near term will result in some margin compression while downstream markets adjust.


Since July 2005, the business of the Vicwest Income Fund has been conducted within the structure of an income trust pursuant to its declaration of trust. In 2007, changes were made to the Income Tax Act that will require certain income trusts, including Vicwest Income Fund, to pay taxes after fiscal 2010, similar those paid by taxable Canadian corporations. In the future, the payment of such taxes will reduce the cash flow of the business, thereby reducing the amount available for distribution to unitholders.

While the Fund does not currently have definitive plans related to the future capital structure of the business or policies related to future payout ratios, in 2010 Vicwest Income Fund expects to propose to unitholders that, no later than the end of 2010, the Fund would convert to a corporate structure. Such a conversion would be subject to 66 ?% of unitholders voting in support of a change. At that time, the operations would expect to make dividend payouts, rather than distributions to owners, from available cash flow. During 2010, the board would expect to advise owners on the proposed level of dividend and dividend policy.


Management will hold a conference call and live audio webcast on Wednesday, November 11, 2009, at 11:30 a.m. (EST) to discuss the Fund's third 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 416-644-3415 or 1-800-814-4860. To access the audio replay, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4176063 followed by the number sign. The replay will be available until midnight on November 18, 2009.

To access the live audio webcast please go to: or, visit Vicwest's website at (under Presentations & Calls).

Both CNW and Vicwest will archive the webcast.


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. Headquartered in Oakville, Ontario, the Vicwest Building Products division fabricates and markets metal roofing, siding and other building products under the Vicwest, Mercury Metals, Valley Truss & Metal and RCA Metal trade names. Through the Westeel Storage Solutions division, headquartered in Winnipeg, Manitoba, the Fund designs and 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 16 manufacturing facilities strategically located across Canada with more than 1,000 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 September 30, 2009 and 2008 will be filed with applicable regulatory authorities and will be available on and on


"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 Canadian 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.


The Fund is subject to various risks and uncertainties including: cyclicality, steel supply and pricing, reduction in demand, capital and liquidity risk, seasonality and weather, competition, foreign exchange, labour, pension funding, growth challenges, product liability, customer concentration, collections from customers, lack of long term agreements, uninsured risks, interest rates, distribution agreements, environmental, climate change, supply and install contracts, operating hazards, risk of future legal proceedings and income tax matters. These business risks are described in detail in the Fund's Annual Information Form and the Fund's Annual Report for the year ended December 31, 2008. All of these factors remain substantially unchanged since the December 31, 2008 year end.


Certain statements in this MD&A 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 other statements concerning the Fund's 2009 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 industry, changes in interest rates and general economic conditions, adverse weather, cost and availability of materials used to manufacture the Fund's products, competitive developments affecting the building products industry, and the risk factors 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 MD&A 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 MD&A may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this MD&A. All forward-looking statements in this MD&A are qualified by these cautionary statements. 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

SOURCE Vicwest Inc.

For further information: 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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