Aris Mining Corporation press release
Sun Gro Horticulture Income Fund Releases 2007 Third Quarter Results
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Fund Continues to Position Operations for Future Growth
TRADING SYMBOL: Toronto Stock Exchange - GRO.UN
Sun Gro Horticulture Income Fund will hold a conference call and webcast
to discuss 2007 third quarter and nine-month results on November 2, 2007
at 7:30 am Pacific Time (10:30 am Eastern). The call can be accessed by
dialing: 1-800-594-3790 or 416-644-3422. A replay will be available
through November 16, 2007 at: 1-877-289-8525 or 416-640-1917. (Passcode:
21250880 followed by the number sign)
To access the live and archived webcast, please go to:
http://www.vcall.com/IC/CEPage.asp?ID(equal sign)122413 or to the fund's
website at: www.sungro.com.
VANCOUVER, Nov. 1 /CNW/ - Sun Gro Horticulture Income Fund (the Fund) today reported financial results for the three and nine months ended September 30, 2007. The three-month period represents the third quarter of the Fund's 2007 fiscal year. The Fund's strategic focus this year has been to expand its manufacturing presence into key US horticultural markets. Its third quarter financial statements include the results of two California businesses acquired in January 2007.
Distributable Cash
In the three months ended September 30, 2007, the Fund generated distributable cash of $4.2 million, or $0.19 per unit. This compares to $7.1 million, or $0.32 per unit, in the third quarter of 2006. For the nine-month period, distributable cash totalled $17.1 million, or $0.78 per unit, compared to $19.8 million, or $0.90 per unit, in 2006. Distributable cash paid to unitholders was unchanged at $5.0 million, or $0.225 per unit, for the quarter and $14.9 million, or $0.675 per unit, for the nine months.
(in thousands of dollars For the For the For the For the except per-unit amounts) three three nine nine months months months months Statement of distributable ended ended ended ended cash September September September September 30, 2007 30, 2006 30, 2007 30, 2006
Cash flows from operating activities $ 4,436 $ 7,066 $ 16,699 $ 18,645 Adjustments: Change in non-cash operating working capital(1) 407 (742) 591 (865) Realized gain on foreign currency contracts(2) 1,263 1,538 2,569 4,074 Sustaining capital expenditures(3) (1,279) (300) (2,760) (1,986) Proceeds from government grants(4) - 60 - 60 Repayment of government loans(4) (56) (50) (166) (150) Current income taxes expected to seasonally reverse in the current fiscal year(5) (570) (482) 144 - Distributable cash $ 4,201 $ 7,090 $ 17,077 $ 19,778 Distributable cash per unit $ 0.19 $ 0.32 $ 0.78 $ 0.90
Distributions declared per unit $ 0.225 $ 0.225 $ 0.675 $ 0.675
(1) Non-cash working capital fluctuates significantly on a quarterly basis as a result of the seasonality of our business.
(2) The majority of our sales occur outside of Canada and the Fund uses foreign currency contracts to minimize the impact of exchange rate fluctuations. Excluding realized gains and losses arising from the foreign currency management program from distributable cash would not accurately represent Sun Gro's performance.
(3) Sustaining capital expenditures are defined as cash outlays, capital in nature, required to maintain the business at our current operating capacity and efficiency level. Investment capital expenditures are those that are for the purpose of business expansion and are not recorded as a reduction from distributable cash.
(4) These loans and grants were received to directly support certain capital projects. Proceeds and repayments are included in the calculation of distributable cash, as the related capital spending is presented on a gross basis.
(5) Each quarter, Sun Gro records the amount of current income tax expense or recovery based on the quarter's taxable income or loss. Due to the seasonal nature of our operations, we typically record current income tax expense in the first half of the year and current tax recoveries in the second half of the year. Accordingly, distributable cash is adjusted on a quarterly basis to eliminate this seasonality and recognize only the current income tax expense Sun Gro expects to incur for the full year.
Three-month Operating Results
During the third quarter, the Fund's wholly owned subsidiary, Sun Gro Horticulture Canada Ltd., and its wholly owned subsidiaries (collectively Sun Gro, or the company) generated revenues of $42.7 million, up by $1.7 million, or 4%, from $41.0 million in 2006. The revenue increase was driven by Sun Gro's new California operations. The four California plants purchased in January 2007 added about $4.2 million of revenue from retail co-packing business and sales of professional mixes and bulk bark landscape mixes. These revenues were offset by a $2.1 million year-over-year reduction in peat moss sales, due mainly to lower shipments under a peat supply agreement and some sales deferred to the fourth quarter.
The company's primarily US dollar-denominated sales revenues were moderately affected by a year-over-year strengthening of the Canadian dollar during the quarter. The average Canadian dollar exchange rate increased to US$0.96 from US$0.90 in the third quarter of 2006. The difference effectively decreased Sun Gro's three-month revenue by about 5%. Some of the exchange rate impact was mitigated by price increases.
Overall sales volumes for the three months were nearly 3% higher than in the third quarter of last year. Sales volumes of both peat and bark growing mixes and bulk bark mixes increased during the third quarter, by 18% and 193%, respectively. Sales volumes of straight peat moss were down by 15% from the same period in 2006.
Peat harvest volumes during the three months were affected by unfavourable weather in Manitoba. To avoid costly cross-regional shipping of peat later in the year, and to support its growing mix sales, the company purchased peat from another producer in Manitoba.
As anticipated with its strategic expansion in California, Sun Gro saw an increased cost of goods sold during the third quarter of 2007. The incremental expense of purchasing external peat and production inefficiencies at some plants as a result of the reduced harvest volumes also contributed to the higher cost of goods sold, which exceeded the 2006 third quarter level by 16%.
Again as expected, Sun Gro's gross margin was reduced by the significant volumes of lower-margin products added in California. For the three months, gross margin declined to 47.5% from 52.8% in 2006. Excluding the California operations, the company's third quarter gross margin would have been 49.7%. The balance of the year-over-year difference was due to the combined impact of currency exchange and the reduced peat harvest. The third quarter gross margin was up from the level achieved in each of the three immediately preceding quarters.
"We are continuing to focus on adding higher-margin professional growing mixes to our California output, as well as on adjusting our prices to offset the impact of foreign exchange," said Mitch Weaver, President and CEO of Sun Gro and a Trustee of the Fund. "During the third quarter, as planned, we completed the installation of an automated mixing line at our Sacramento facility. This enhancement, together with the new growing mix production line we commissioned at our McFarland, California plant in the second quarter, will allow us to also target more profitable business within the California professional grower market."
Third quarter operating income of $1.8 million was down by $2.0 million from the $3.8 million reported for the same period of 2006. The decrease was primarily due to the lower gross margin coupled with higher operating expenses. Net earnings for the three months were $5.6 million, generating basic and diluted earnings of $0.25 per unit. In 2006, the company generated basic and diluted earnings of $0.15 per unit on third quarter net earnings of $3.4 million.
Nine-Month Operating Results
Revenue for the nine months ended September 30, 2007 was $172.5 million, up by $21.7 million, or 14%, from the $150.8 million reported in the first nine months of 2006. As with the quarterly result, the increase was primarily driven by Sun Gro's new California operations, which contributed about $15.3 million of sales. The company also saw a $5.9 million increase in its growing mix sales and a $1.6 million increase in controlled release fertilizer sales. As with the quarterly result, Sun Gro's nine-month revenue was moderately impacted by foreign exchange.
Overall sales volumes for the first three quarters of the year were 11% higher than in 2006. Due mainly to the increased volumes, cost of goods sold was up by 22% over the same nine months of 2006.
Sun Gro's year-to-date gross margin of 45% was down from 49% in the first nine months of 2006. The difference was due mainly to the significant lower-margin sales volumes added in California, production inefficiencies associated with the Manitoba harvest shortfall and the strengthening of the Canadian dollar. Excluding the California operations, Sun Gro's gross margin for the nine months would have been 47%.
Operating income for the first nine months was $12.7 million, down from $14.0 million in 2006. Net earnings of $15.2 million, or $0.69 per unit, were comparable to the $15.9 million, or $0.72 per unit, recorded in the first nine months of 2006.
Financial Highlights
Comparative Statements of Earnings and Comprehensive Income (In thousands of dollars except For the three For the three per-unit amounts, number of months ended months ended units outstanding and EBs(1)) September 30, 2007 September 30, 2006 (unaudited) (unaudited) Revenue $ 42,683 100% $ 41,025 100% Cost of goods sold 22,415 53% 19,346 47% Gross profit 20,268 47% 21,679 53%
Distribution expenses 9,596 23% 9,469 23% Selling expenses 3,988 9% 3,971 10% General and administrative expenses 4,844 11% 4,402 11% Total operating expenses 18,428 43% 17,842 43% Operating income 1,840 5% 3,837 9%
Other income (expense), net 4,166 10% (274) -1% Interest expense (1,103) -3% (1,025) -2% Earnings before income taxes 4,903 11% 2,538 6% Income tax (provision) recovery Current 1,172 3% 640 2% Future (490) -1% 223 1% Income tax (provision) recovery, net 682 2% 863 2% Net earnings and comprehensive income for the period $ 5,585 13% $ 3,401 8%
Basic and diluted earnings per unit $ 0.25 $ 0.15 Weighted average number of units outstanding 22,023,000 22,023,000
Selected supplemental revenue information
Volume in thousands of EBs(1) Growing Mixes 1,317 1,118 Bulk Bark Mixes 220 75 Peat Moss 1,411 1,670 Fertilizer and Minerals 60 68 Total company sales 3,008 2,931
Average revenue per EB(1) (US $) Growing Mixes $ 18.18 $ 18.08 Bulk Bark Mixes 8.03 5.77 Peat Moss 9.02 8.22 Fertilizer and Minerals 34.00 29.77 Total company sales $ 13.45 $ 12.42
Average revenue per EB(1) (Canadian $) Growing Mixes $ 19.28 $ 20.16 Bulk Bark Mixes 8.52 6.48 Peat Moss 9.57 9.19 Fertilizer and Minerals 36.11 33.22 Total company sales $ 14.27 $ 13.86
(1) An EB, or equivalent bale, is Sun Gro's standard unit of measure, referring to 10 cubic feet of peat. Average revenue per EB calculation does not include transportation-related surcharges or the cost of early payment discounts.
Comparative Statements of Earnings and Comprehensive Income (In thousands of dollars except For the nine For the nine per-unit amounts, number of months ended months ended units outstanding and EBs(1)) September 30, 2007 September 30, 2006 (unaudited) (unaudited) Revenue $ 172,530 100% $ 150,848 100% Cost of goods sold 94,274 55% 77,132 51% Gross profit 78,256 45% 73,716 49%
Distribution expenses 37,988 22% 34,234 23% Selling expenses 12,424 7% 11,651 8% General and administrative expenses 15,192 9% 13,876 9% Total operating expenses 65,604 38% 59,761 40% Operating income 12,652 7% 13,955 9%
Other income, net 7,758 5% 3,309 2% Interest expense (3,516) -2% (3,250) -2% Earnings before income taxes 16,894 10% 14,014 9% Income tax (provision) recovery Current (721) -1% (1,312) -1% Future (924) -1% 3,178 2% Income tax (provision) recovery, net (1,645) -1% 1,866 1% Net earnings and comprehensive income for the period $ 15,249 9% $ 15,880 10%
Basic and diluted earnings per unit $ 0.69 $ 0.72 Weighted average number of units outstanding 22,023,000 22,023,000
Selected supplemental revenue information
Volume in thousands of EBs(1) Growing Mixes 5,252 4,410 Bulk Bark Mixes 610 155 Peat Moss 4,695 4,924 Fertilizer and Minerals 225 264 Total company sales 10,782 9,753
Average revenue per EB(1) (US $) Growing Mixes $ 18.48 $ 18.35 Bulk Bark Mixes 8.04 6.57 Peat Moss 9.24 8.32 Fertilizer and Minerals 36.80 28.80 Total company sales $ 14.25 $ 13.38
Average revenue per EB(1) (Canadian $) Growing Mixes $ 20.84 $ 20.84 Bulk Bark Mixes 8.87 7.43 Peat Moss 10.32 9.42 Fertilizer and Minerals 41.46 32.70 Total company sales $ 16.01 $ 15.18
(1) An EB, or equivalent bale, is Sun Gro's standard unit of measure, referring to 10 cubic feet of peat. Average revenue per EB calculation does not include transportation-related surcharges or the cost of early payment discounts.
Recent Acquisition Activity
On August 6, 2007, as previously announced, Sun Gro established a harvesting capability in Quebec and strengthened its long-term peat supply through the acquisition of peat moss producer Tourbiere Omer Belanger Inc. for $3.9 million. The purchase included 1,900 acres of largely undeveloped professional grade peat bogs, 140 acres of retail grade bogs and three adjacent production facilities. The transaction was funded through Sun Gro's existing acquisition line of credit and is expected to be accretive to the Fund's unitholders beginning in 2008.
Subsequent to the end of the quarter, as announced on October 1, 2007, Sun Gro continued to execute its strategy to increase its bulk bark growing mix business and solidified its leadership in the large and growing Florida horticultural market by acquiring all of the outstanding shares of GrowBest Holdings, LLC. The US$20.3 million transaction gave Sun Gro ownership of bulk bark mix producer Florida Potting Soils, Inc., as well as, Sunshine Peat, Inc., which supplies organic material to Florida Potting Soils for use in custom mixes. Both companies are based in Orlando, Florida. In addition to the outstanding shares, Sun Gro acquired real estate for US$1.2 million. The purchase was funded through the issuance of US$2.0 million of trust units of the Fund and borrowings under a new acquisition line of credit established for the transaction, which matures in June 2008. This acquisition is expected to be modestly accretive to the Fund's unitholders in the fourth quarter, adding an estimated US$32.0 million in annual sales beginning in 2008.
"Through the four acquisitions we have completed since the beginning of this year, we have strengthened the geographic diversity of our peat resources, expanded our product offerings, and positioned our plant capacity to respond to market demands," said Weaver. "We are particularly pleased with our progress in increasing our market share in the bark-based segment of the professional market and enhancing our production network. In addition to holding significant bog resources in all commercially viable harvest regions of North America, Sun Gro now has manufacturing facilities in each of the four largest professional markets in the US."
Outlook
The information contained in "Outlook" is forward-looking statements. Please see "Forward-Looking Statements" below for a discussion of the risks and uncertainties in connection with forward-looking statements.
In the seasonally slower final quarter of 2007, Sun Gro anticipates that its overall sales volumes will continue to be higher than in 2006, due to the contribution of its recent acquisitions in California, Quebec and Florida.
The company's 2007 peat harvest was substantially complete by the end of the third quarter and Sun Gro expects that its total harvest will equal approximately 94% of the 2006 yield. "While somewhat disappointing, we do not anticipate that this year's harvest results will have a negative impact our production of growing mixes, and we expect to continue to increase our growing mix sales in 2008. However, we do anticipate that peat supplies will be tight until the 2008 harvest season commences," said Weaver.
"We also expect that our gross margin will continue to track below the 2006 level due to our strategic expansion in the US," Weaver continued. "The acquired businesses in California and Florida have lower transportation costs than our Canadian processing operations, and this is reflected in the delivered selling price. The US net margins after transportation costs are comparable to those generated in Canada for similar products."
Sun Gro continues to hold foreign currency contracts to manage the impact of any further strengthening of the Canadian dollar. For the remainder of 2007, it has entered into foreign currency contracts with a blended rate of $1.09 (US$0.92) that will offset approximately 85% of its expected net US dollar cash flows. For 2008, Sun Gro has thus far entered into foreign currency contracts with a blended rate of $1.07 (US$0.93) that will offset approximately 70% of its expected US dollar cash flows through December 2008. Of the contracts outstanding, $16.1 million relates to contracts that mature in 2007. Unrealized gains on these contracts were $1.3 million at September 30, 2007.
Weaver said the company will continue to closely monitor and actively manage its foreign exchange exposure through both its product pricing and its currency management program.
Forward-Looking Statements
This news release contains forward-looking statements. These statements relate to future events or future performance and reflect Sun Gro's expectations regarding its growth, results of operations, performance, business prospects, opportunities or industry performance or trends. These forward-looking statements reflect management's current internal projections, expectations or beliefs and are based on information currently available. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "intend", "plan", "anticipate", "believe", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. A number of factors could cause actual events or results to differ materially from those discussed in the forward-looking statements. Important factors that could cause actual results to differ materially from Sun Gro's expectations include, among other things, fluctuations in currency exchange rates and interest rates, changes in tax laws, the impact of adverse weather conditions on harvesting operations, an increase in freight rates, the impact of an increase in fuel rates, failure to successfully implement its strategies of adding mix products and targeting the professional grower market, failure of acquisitions to be accretive to unitholders or to be accretive within its anticipated timeframes, inability to refinance acquisition debt, the impact of an increase in fuel costs, reduced consumer demand from natural disasters and economic factors and competitive activity. You should specifically consider these factors, including the risks and uncertainties described in the Fund's most recent annual information form for the year ended December 31, 2006. In addition, the Fund's ability to make distributions to unitholders is entirely dependent on Sun Gro's performance. Although management believes that the forward-looking statements contained in this news release are based on reasonable assumptions, readers cannot be assured that actual results will be consistent with such statements. Forward- looking statements are made as of the date of this news release and Sun Gro assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law.
Non-GAAP Measures
Distributable cash is not an earnings measure recognized by GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, the distributable cash of the Fund may not be comparable to the distributable cash measures presented by other issuers. However, distributable cash is commonly used by Canadian open-ended trusts as an indicator of financial performance and the Fund believes that distributable cash is a useful supplemental measure that may assist in assessing the potential return on an investment in the Fund.