Armtec Infrastructure Income Fund Reports Results for the First Quarter 2010
Toronto Stock Exchange: ARF.UN
GUELPH, ON, May 5, 2010 /CNW/ - Armtec Infrastructure Income Fund (the "Fund" or "Armtec") (TSX: ARF.UN) today reported financial results for the first quarter ended March 31, 2010.
Highlights:
- Revenues of $73.3 million, an increase of 15.0% or $9.5 million over
2009, due to the incremental impact of 2009 business acquisitions of
Groupe Tremca and Pre-Con and improved volume in the construction and
infrastructure application products, partially offset by delayed
engineered solution projects.
- Gross margin was $12.8 million, an increase of $0.9 million from the
same period in 2009. As a percentage of revenue, gross margin
declined to 17.4% from 18.7% in the prior year, reflecting the
anticipated lower manufacturing activities in precast engineered
solutions operations.
- EBITDA(1) loss of $0.9 million compared to a profit of $0.9 million
in the same period in 2009.
- Declared distributions were $10.9 million or $0.54 per unit up from
$10.4 million in the prior year.
- Announced intent to convert to a corporation with an annualized
dividend of $1.60 paid quarterly.
"In the first quarter of 2010, Armtec achieved solid financial results which reflected the continuing benefits of the fast turnaround projects funded by the government's infrastructure stimulus program. As anticipated, engineered solutions results in the first quarter were not comparable to the same period in 2009 based on differences in the construction schedules associated with these large scale projects," said Charles M. Phillips, President and Chief Executive Officer. "With Armtec's corporate reorganization into a regionally based organization completed and our regional management teams fully operational, we are focused on executing the Fund's proven growth strategy and enhancing our unitholders' value."
RESULTS OF OPERATIONS
(in thousands of Canadian dollars Three Months Ended
except per unit amounts) March 31, March 31,
(unaudited) 2010 2009
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Revenue $ 73,293 $ 63,747
Cost of sales 56,784 49,049
Amortization of property, plant and equipment 3,730 2,794
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Gross margin 12,779 11,904
As a % of revenue 17.4% 18.7%
Distribution and warehousing 3,697 2,844
Selling, general and administrative 13,720 10,989
Reorganization expenses 676 521
Amortization of intangible assets 3,309 2,480
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Loss from operations (8,623) (4,930)
Interest and financing expenses (3,728) (2,882)
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Loss before taxes (12,351) (7,812)
Interest and financing expenses 3,728 2,882
Total amortization 7,039 5,274
Reorganization expenses 676 521
Fair value increments of acquired inventory - 41
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EBITDA $ (908) $ 906
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As a % of revenue (1.2)% 1.4%
Basic and diluted loss per unit $ (0.60) $ (0.39)
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Basic distributable cash per unit(1) $ (0.28) $ (0.21)
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Diluted distributable cash per unit(1) $ (0.27) $ (0.21)
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(1) Please refer to the Liquidity, Distributable Cash and Distributions
section of this MD&A for the reconciliation of this non-GAAP measure.
Distributable cash per unit excludes the impact of reorganization
expenses.
FIRST QUARTER RESULTS
Revenue
The Fund recorded revenue of $73.3 million during the first quarter of 2010; an increase of $9.5 million or 15.0% over the same period in 2009. The acquisitions of Groupe Tremca and Pre-Con, completed during 2009 (the "2009 Acquisitions"), contributed incremental revenue of $10.7 million. Base business volumes declined slightly by $1.1 million or 1.7% relative to the same period last year. The increased construction and infrastructure application product ("CIA") volumes partially offset the delayed engineered solutions deliveries. On a product basis, revenue from CIA products was $33.6 million, an increase of 51.7% over the same period in 2009, reflecting the impact of stimulus funding and favourable weather conditions. Revenue from engineered solutions of $39.7 million was 5.1% lower than 2009. Incremental revenue from the 2009 Acquisitions was predominantly in engineered solutions.
CIA product revenue improvements were driven by increased demand for drainage products, principally in the Central and Eastern Canadian municipal markets, reflecting the benefits of the government stimulus spending, along with growing demand for residential concrete products mainly in the Prairie region. These gains were offset in part by continued weakness in British Columbia, which was impacted by the construction pause around the 2010 Winter Olympics.
Base business revenue declines in engineered solutions, primarily in the Pacific region, were partially offset by the incremental revenue from the 2009 Acquisitions. While the 2010 results reflected bridge girder manufacturing for the Anthony Henday Drive project in Edmonton, there were fewer major projects than in the same period last year where significant revenue was generated from the Calgary Airport Parkade and the WinSport Canada Athletic Complex. This uneven activity level for large infrastructure projects is inherent in the pre-cast engineered solutions operations. Demand for sound barriers products remained consistent with the prior year.
Loss from Operations
The loss from operations for the first quarter was $8.6 million compared to a loss of $4.9 million in the same period of 2009. The loss from operations includes a charge of $0.7 million in 2010 in connection with the reorganization announced in the fourth quarter of 2009. Excluding the impact of the reorganization expenses, the loss from operations was $7.9 million or $3.5 million higher than 2009 levels. The higher loss from operations in 2010 was attributable to the incremental operating losses from the 2009 Acquisitions, higher total amortization from the 2009 Acquisitions, and lower volumes of major engineered solutions projects.
Gross margin for the first quarter of 2010 was $12.8 million; an increase of $0.9 million from $11.9 million in 2009. As a percentage of revenue, gross margin fell to 17.4% as compared to 18.7% in 2009. The decline in the gross margin percentage reflected the impact of lower manufacturing levels, and more competitive pricing, in the precast engineered solutions operations. This decline was partially offset by improved gross margin percentages on CIA products as a result of improved manufacturing efficiencies associated with higher demand.
Distribution and warehousing was $3.7 million, compared to $2.8 million in the first quarter of 2009. As a percentage of revenue, these costs were comparable with the same period last year.
Selling, general and administrative expenses were $13.7 million, or 18.7% of revenue, as compared to $11.0 million or 17.2% of revenue in 2009. The additional costs reflected the incremental impact of the 2009 Acquisitions offset in part by savings from the Fund's reorganization initiatives. Relative to revenue, the increase was the result of increased seasonality due to the addition of the 2009 Acquisitions.
Amortization of intangible assets was $3.3 million compared to $2.5 million in 2009. These changes principally reflected the amortization on intangible assets associated with the 2009 Acquisitions.
OUTLOOK
The outlook for the infrastructure market remains positive with various levels of government committed to addressing the national infrastructure deficit. The incremental stimulus spending related to fast turnaround projects continued to benefit the Fund's CIA product lines in the first quarter of 2010. Many existing project commitments are anticipated to commence subcontracting and begin production throughout the 2010 construction season. However, management still expects lower engineered solutions activity in the first half of 2010 based on project schedules on work that is already in the backlog or on which the Fund is "low and probable". Accordingly, the focus remains on maintaining market share in 2010 in an environment of more aggressive competition and lower project margins relative to 2009, and realizing the anticipated cost reductions from the reorganization. While construction in the British Columbia market paused for the 2010 Winter Olympics, stimulus-funded and other project activity has resumed. Given the deadline for deploying the additional stimulus funding, management anticipates a significant number of projects being bid in the second quarter of 2010, with production commencing as early as the third quarter.
The Fund's private markets experienced a significant drop in activity during the recession. Management expects residential and commercial end-use markets will continue to show improvement. Natural resource markets, particularly forestry, remain below historical levels with only slight and tentative signs of improvement. Agriculture markets, which are dependent on weather conditions, which have been favourable so far in the spring installation season, continue to benefit from the improved financial strength of our customers.
Construction activity in the Fund's markets tapers off with the onset of winter weather conditions and remains at low levels through the first quarter. It is not uncommon for the Fund to experience losses in the first quarter of the year as a result. In 2010, this was exacerbated by the timing of production in the engineered solutions business of the Fund. Based on the current construction schedules of projects in backlog, management anticipates the normal seasonal increase in production activity in the second quarter of 2010, offsetting the decline associated with the lower year-over-year engineered solutions volumes noted in the first quarter.
Subsequent to the quarter end, management completed the re-negotiation of the Bridge facility and extended the maturity to be co-terminus with that of the existing Term facility.
Management remains focused on furthering the integration of its acquisitions. The management teams are committed to building resiliency into the business in order to remain responsive to end-use and geographic market fluctuations, and to the underlying economic drivers impacting the Fund, while delivering value to employees, customers and unitholders. The Fund will make the changes necessary to address challenging demand conditions in order to emerge as a stronger, more customer focused business as the private markets recover.
On April 26, 2010, Armtec announced its intention to convert the Fund into a corporation effective on or about January 1, 2011 in response to the legislative changes to the tax treatment of business income trusts. The conversion must be approved by not less that 66 2/3% of votes cast by unitholders at Armtec's annual and special meeting on June 24, 2010. Armtec also announced that following the conversion, it expects to pay quarterly dividends at an initial annualized rate of $1.60 per share. The dividend policy reflects the current distribution level adjusted to take into account the expected level of income taxes to be incurred. An individual holder of an Armtec unit will generally have the same after tax return under the dividend payout as compared to the current distributions. The Fund plans to maintain its current distributions of $0.18 per month, or $2.16 annualized for the remainder of 2010.
CONFERENCE CALL & WEBCAST
Management will host a conference call at 10:00 a.m. (EST) on Thursday, May 6, 2010 to discuss the results. Investors who wish to participate can access the call using the following numbers: 416-644-3421 or 1-877-974-0447. The call will be webcast live and archived on the Fund's website at www.armtecincomefund.com.
A taped rebroadcast will be available to listeners following the call until 12:00 a.m. on Friday, May 13, 2010. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4284725 followed by the number sign.
The Fund's full consolidated financial statements, notes to financial statements and management's discussion and analysis are available at www.sedar.com or at www.armtecincomefund.com.
ABOUT ARMTEC INFRASTRUCTURE INCOME FUND
Armtec Infrastructure Income Fund is a leading manufacturer and marketer of a comprehensive range of infrastructure products and engineered construction solutions for customers in a diverse cross-section of industries that are located in every region of Canada, as well as in selected markets globally. These markets include Canada's national and regional public infrastructure markets and private sector markets in residential construction, commercial building, agricultural drainage and natural resources. Operating through its network of regional offices and production facilities across the country, Armtec's broad range of engineered solutions include products for drainage, bridge applications, soil retention, rehabilitation and water management systems including corrugated high-density polyethylene, corrugated steel and concrete pipe; an array of architectural and structural precast and pre-stressed concrete products from steps, paving stones, slabs and wall panels to highly engineered structural components designed and installed for projects such as bridges, sports venues and parking garages; and, a full suite of noise barriers, acoustic enclosure and wall systems along with associated retaining wall and traffic barrier systems. Armtec Infrastructure Income Fund is listed on the TSX under the ARF.UN symbol. For more information, please visit www.armtecincomefund.com.
NON-GAAP MEASURES
Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")
References to EBITDA are to earnings before interest, taxes (other than capital taxes), depreciation and amortization, certain non-recurring expenses and certain non-cash amounts resulting from purchase accounting. Management believes that in addition to net earnings, EBITDA is a useful supplemental measure of cash available for distributions prior to debt service, changes in working capital, capital expenditures and income 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 and comprehensive earnings determined in accordance with GAAP as an indicator of the Fund's performance or as an alternative to cash flows from operating, investing and financing activities as a measure of the Fund's liquidity and cash flows. The Fund's method of calculating EBITDA may differ from the methods used by other issuers and, accordingly, the Fund's EBITDA may not be comparable to similarly named measures used by other issuers.
Distributable Cash
Distributable cash is not a defined term under Canadian GAAP but is determined by the Fund as cash flows provided by or used in operating activities adjusted for items not affecting cash, expenditures required to sustain the current state of operations, and the change in non-cash working capital. Management believes that distributable cash is a useful supplemental measure of performance as it provides investors with an indication of the amount of cash available for distribution to unitholders of the Fund by adjusting for the seasonality of the business via changes in non-cash working capital, adjusting for sustaining capital purchases and other items not affecting cash. Investors are cautioned, however, that distributable cash should not be construed as an alternative to using net earnings and comprehensive earnings as measures of profitability or the statement of cash flows. Furthermore, the Fund's method of calculating distributable cash may not be comparable to other similarly named calculations from 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; competition; acquisition and expansion risk; capital and liquidity risk; current global financial conditions; reduction in demand for products; information management; credit risk; relationships with suppliers; lack of long-term agreements; expiration of rights under license and distribution arrangements; availability and price volatility of raw materials; product liability; intellectual property; reliance on key personnel; labour markets; environmental; collective bargaining; currency fluctuations; interest rates; uninsured and underinsured losses; operating hazards; risk of future legal proceedings; securities laws compliance and corporate governance standards; geographical risk; seasonality and adverse weather; geopolitical; and certain risks related to the structure of the Fund including dependence on the Fund's subsidiaries; income tax matters; unitholder limited liability; leverage and restrictive covenants; credit facilities; nature of units; distribution of securities on redemption or termination of the Fund; restrictions on potential growth; effect of market interest rates on price of units; undiversified and illiquid holdings in Armtec Operating Trust; potential dilution. Cash distributions are not guaranteed. Further information about these and other risks and uncertainties can be found in the disclosure documents filed by Armtec Infrastructure Income Fund with the securities regulatory authorities, available at www.sedar.com.
FORWARD-LOOKING STATEMENTS
This news release may contain "forward-looking" statements within the meaning of applicable securities legislation which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund or industry results, to be materially different from any future results, events, expectations, performance or achievements expressed or implied by such forward-looking statements. All such forward-looking statements are made pursuant to the "safe harbour" provisions of applicable Canadian securities legislation. Forward-looking statements may include comments with respect to the Fund's objectives, strategies to achieve those objectives, expected financial results, and the outlook for the Fund's business. Forward-looking statements typically contain such words or phrases such as "may", "outlook", "objective", "intend", "estimate", "anticipate", "should", "could", "would", "will", "expect", "believe", "plan" and other similar terminology suggesting future outcomes or events. These statements reflect current expectations regarding future events and operating performance and are based on information currently available to the Fund's management.
Forward-looking statements involve numerous assumptions, and significant and inherent risks and uncertainties, should not be read as guarantees of future performance or results and will not necessarily be accurate indications of whether or not such results will be achieved. You should not unduly rely on forward-looking statements as a number of factors, many of which are beyond the control of the Fund, could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to the factors discussed under "Risks and Uncertainties" and in the Fund's materials filed with the Canadian securities regulatory authorities from time to time including the Annual Information Form. Although the forward-looking statements contained in this release are based upon what management of the Fund believes are reasonable assumptions, the Fund cannot assure investors that actual results will be consistent with these forward-looking statements. All forward-looking statements in this news release are qualified by these cautionary statements. These forward-looking statements and outlook are made as of the date of this news release and, except as required by applicable law, the Fund assumes no obligation to update or revise them to reflect new events or circumstances.
For further information: Charles M. Phillips, President & Chief Executive Officer, Armtec Limited Partnership, Tel: (519) 822-0210, Fax: (519) 822-8894; James R. Newell, Chief Financial Officer, Armtec Limited Partnership, Tel: (519) 822-0210, Fax: (519) 822-8894; Carrie Boutcher, Vice President, Investor Relations & Treasurer, Armtec Limited Partnership, Tel: (519) 822-0210, Fax: (519) 822-8894
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