Brixton Metals Corporation press release
Sun Gro Horticulture Income Fund Releases 2006 First Quarter Results, Achieving Record Operating Income and Distributable Cash Flow
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TRADING SYMBOL: Toronto Stock Exchange - GRO.UN
Sun Gro Horticulture Income Fund will hold a conference call and webcast to discuss its 2006 first quarter results on May 3, 2006 at 7:30 am Pacific Time (10:30 am Eastern). The call can be accessed by dialing: 1-866-249-2165 or 416-644-3416. A replay will be available through May 18, 2006 at: 1-877-289-8525 or 416-640-1917. (Passcode: 21187172 followed by the number sign) The live and archived webcast can be accessed at: http://www.vcall.com/IC/CEPage.asp?ID(equal sign)104350
VANCOUVER, May 2 /CNW/ - Sun Gro Horticulture Income Fund (the "Fund") today reported financial results for the three-month period ended March 31, 2006, which represents the first quarter of the Fund's 2006 fiscal year. Sun Gro also announced today the appointment of John Zaplatynsky to the board of directors of Sun Gro Horticulture Canada Ltd. ("Sun Gro", or the "company"), the Fund's wholly owned subsidiary. Mr. Zaplatynsky's appointment as a director of Sun Gro is effective May 2, 2006. He replaces Rod Senft, who resigned from the board effective April 24, 2006.
Operating Results For the three months ended March 31, 2006, Sun Gro recorded revenue of $58.3 million, down by 2% from the $59.6 million recorded in the first quarter of 2005. The $1.3 million revenue difference was primarily due to a reduction in professional growing mix sales volumes, offset by increased professional peat moss sales volumes and generally improved pricing performance. Sun Gro's first quarter growing mix volumes, as measured in equivalent bales (or EBs, the company's standard unit of volume measurement, referring to 10 cubic feet of peat), decreased by 10% while professional peat moss volumes were up by 4%. During the quarter, one of Sun Gro's larger professional growing mix customers purchased greater volumes of peat moss and less mix. In certain other large Sun Gro accounts, order patterns reduced the first quarter mix volume due to customers' inventory levels. At the same time, a few of the company's significant peat moss customers made large, additional peat purchases. Despite the lower volumes, Sun Gro recorded its highest ever quarterly operating income, due mainly to significantly lower distribution expenses. As in the final quarter of 2005, Sun Gro reduced its cross-regional shipments to customers normally served from its operations in Manitoba, where the company has experienced a harvest shortfall in each of the last two years. With certain volumes being shipped shorter distances, per-unit transportation costs were down by 7% year-over-year. Throughout the first three months of 2006, Sun Gro continued to experience the negative effects of the stronger Canadian dollar on its primarily US dollar-denominated sales. The value of the Canadian dollar averaged US$0.87, compared to US$0.82 in the first quarter of 2005. The difference in exchange rates effectively reduced first quarter revenue by 6% over 2005. To offset foreign exchange losses on the conversion of its US dollar sales to Canadian dollars, as well as steadily increasing distribution and production costs, Sun Gro has implemented multiple price increases since mid- 2004. The most recent of these took effect in January 2006. As a result, average first quarter US dollar prices for growing mixes and peat moss were up by 9% and 8%, respectively, year-over-year, while Canadian dollar revenue per EB increased by 2% in both product categories. This improved pricing performance helped to drive Sun Gro's first quarter gross margin up to 47% from 45% in 2005. Net earnings for the period were $4.1 million, generating basic and diluted earnings of $0.19 per unit. In 2005, the Fund generated basic and diluted earnings of $0.07 per unit on first quarter net earnings of $1.4 million. The increase was primarily due to the improved gross profit and lower operating expenses, offset by differences in future taxes, and differences in realized and unrealized gains on forward currency contracts.
Cash Distributions The Fund maintained its level of distributions to unitholders in the first quarter of 2006, declaring monthly cash distributions of $0.075 per unit for each of January, February and March. In total, the Fund earned $6.5 million of distributable cash, or $0.30 per unit, and distributed $5.0 million, or $0.225 per unit, to unitholders. By comparison, in the first quarter of 2005, the Fund earned $5.5 million of distributable cash, or $0.25 per unit, and distributed $5.0 million, or $0.225 per unit, to unitholders. "The year is off to a solid start, thanks in large part to our continued progress in implementing our pricing strategy and managing our distribution costs," said Mitch Weaver, Sun Gro's President and CEO, and a Trustee of the Fund. "In addition to our record operating income, we achieved our highest ever quarterly distributable cash flow, while supporting expanded capital expenditures. What's more, even with our lower sales volumes and a less favourable exchange rate, we were able to reverse the year-over-year gross margin erosion we experienced in each of the first three quarters of 2005."
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(in thousands of dollars For the three For the three except per unit amounts) months ended months ended March 31, March 31, Statement of distributable cash 2006 2005
Cash flows from operating activities before change in non-cash working capital $ 7,155 $ 5,297 Adjustments Sustaining capital expenditures (1,014) (677) Repayment of government loan (50) (25) Current income taxes expected to seasonally reverse in the current fiscal year 450 900 Distributable cash $ 6,541 $ 5,495 Distributable cash per unit $ 0.30 $ 0.25
Financial Highlights
Comparative Statements of Earnings For the three For the three (In thousands of dollars except months ended months ended per unit amounts and number March 31, March 31, of units outstanding) 2006 2005 (unaudited) (unaudited)
Revenue $ 58,255 100% $ 59,632 100% Cost of goods sold 30,780 53% 32,799 55% Gross profit 27,475 47% 26,833 45%
Distribution expenses 12,720 22% 14,231 24% Selling expenses 3,780 6% 4,220 7% General and administrative expenses 5,005 9% 5,417 9% Total operating expenses 21,505 37% 23,868 40% Operating income 5,970 10% 2,965 5%
Other income, net (292) 0% (1,313) -2% Interest expense (1,049) -2% (654) -1% Earnings (loss) before income taxes 4,629 8% 998 2% Income tax recovery (provision) Current (1,085) -2% (1,139) -2% Future 555 1% 1,578 ------------- ------------- 2% Net earnings (loss) for the year $ 4,099 7% $ 1,437 2% Basic and diluted earnings (loss) per unit $ 0.19 $ 0.07 Weighted average number of units outstanding 22,023,000 22,023,000
Selected supplemental revenue information
Volume in thousands of EBs(1) Growing Mixes 1,844 2,042 Peat Moss 1,460 1,404 Fertilizer and Minerals 103 116 Total company sales 3,407 3,562
Average revenue per EB(1) (US $) Growing Mixes $ 18.34 $ 16.80 Peat Moss 8.54 7.88 Fertilizer and Minerals 28.44 20.01 Total company sales $ 14.44 $ 13.39
Average revenue per EB(1) (Canadian $) Growing Mixes $ 21.09 $ 20.61 Peat Moss 9.82 9.66 Fertilizer and Minerals 32.73 24.51 Total company sales $ 16.61 $ 16.42
(1) An EB, or equivalent bale, is Sun Gro's standard unit of measure, referring to 10 cubic feet of peat.
Outlook Sun Gro anticipates that its sales volumes for the second quarter of the year will remain relatively flat compared to 2005, assuming the 2006 harvest commences in line with historical experience, but expects to see an improvement in US dollar sales revenues as a result of its recent price increases. In the second half of the year, assuming normal harvest levels are achieved, the company anticipates a return to more normal, historical sales volume growth. With approximately 40% of its operating expenses incurred in US dollars, Sun Gro enjoys a natural hedge against some of the impact of foreign exchange. To manage its remaining US dollar exposure, the company continues to hold forward exchange contracts to offset a portion of the impact of any further strengthening of the Canadian dollar. For the remainder of 2006, Sun Gro has entered into forward exchange contracts with a blended rate of $1.22 that will hedge approximately 80% of its expected Canadian dollar purchases. For 2007, Sun Gro has now entered into forward exchange contracts with a blended rate of $1.15 that will hedge approximately 60% of its expected net US dollar cash flows. "We remain optimistic about the outlook for our business, and confident in our ability to continue to manage our foreign exchange exposure through pricing adjustments and currency hedging," said Weaver. "We believe that our current cash distribution level is sustainable, and we will continue to seek new ways of enhancing the value we deliver to our unitholders over the long term."
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, the impact of adverse weather conditions on harvesting operations, an increase in freight rates, and the impact of an increase in fuel costs. Readers 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, 2005. 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.
Income Fund Profile Sun Gro Horticulture Income Fund was launched with the completion of an Initial Public Offering of 22,023,000 trust units on March 27, 2002. The Fund is dependent on Sun Gro's operations, with monthly distributions to its unitholders based entirely on Sun Gro's performance.
Company Profile Sun Gro was founded in 1929 in Vancouver, BC and has grown to become North America's largest producer of sphagnum peat, and the largest distributor of peat moss and peat and bark-based growing media to professional plant growers in the US and Canada. Sun Gro sells its professional products primarily to greenhouse, nursery and specialty crop growers, as well as to golf course developers and landscapers. Sun Gro also sells peat moss and peat- based growing mixes to retail customers, either by way of private label partnerships or under its own brand names. Approximately 80% of the company's sales volume goes to the US.
Sun Gro Horticulture Income Fund Consolidated Balance Sheets (in thousands of dollars) (unaudited) As at As at March 31, December 31, Assets 2006 2005
Current assets Accounts receivable $ 64,517 $ 46,310 Inventories 25,690 29,856 Unrealized gain on foreign currency contracts 2,300 3,041 Prepaid expenses and other assets 2,816 3,844 95,323 83,051
Property, plant and equipment 125,680 126,727 Intangible assets 35,125 35,616 Goodwill 11,202 11,202 $ 267,330 $ 256,596 Liabilities and Unitholders' Equity
Current liabilities Bank indebtedness $ 72 $ 1,053 Operating line 49,740 38,329 Accounts payable and accrued liabilities 17,107 16,059 Current portion of long-term debt 200 200 Distribution payable to unitholders 1,652 1,652 68,771 57,293
Other liabilities 4,257 4,175 Long-term debt 24,253 24,261 Future income taxes 18,541 19,051 115,822 104,780 Unitholders' equity Capital contributions 209,733 209,733 Cumulative translation account (14,696) (15,245) Cumulative earnings 45,547 41,448 Cumulative distributions declared (89,076) (84,120) 151,508 151,816 $ 267,330 $ 256,596
Sun Gro Horticulture Income Fund Consolidated Statements of Earnings (Loss) and Cumulative Earnings (in thousands of dollars except per unit amounts and number of units outstanding) (unaudited)
For the three For the three months ended months ended March 31, March 31, 2006 2005
Revenue $ 58,255 $ 59,632 Cost of goods sold 30,780 32,799 Gross profit 27,475 26,833
Distribution expenses 12,720 14,231 Selling expenses 3,780 4,220 General and administrative expenses 5,005 5,417 Total operating expenses 21,505 23,868 Operating income 5,970 2,965
Other expense, net (292) (1,313) Interest expense (1,049) (654) Earnings before income taxes 4,629 998 Income tax (provision) recovery Current (1,085) (1,139) Future 555 1,578 Earnings for the period 4,099 1,437 Cumulative earnings - beginning of period 41,448 44,908 Cumulative earnings - end of period $ 45,547 $ 46,345 Basic and diluted earnings per unit $ 0.19 $ 0.07 Weighted average number of units outstanding 22,023,000 22,023,000
Sun Gro Horticulture Income Fund Consolidated Statements of Cash Flows (in thousands of dollars) (unaudited)
For the three For the three months ended months ended March 31, March 31, 2006 2005
Cash flows from operating activities Net earnings (loss) for the year $ 4,099 $ 1,437 Items not affecting cash Depreciation, depletion and accretion 2,381 2,342 Amortization of intangible assets 491 605 Unrealized (gain) loss on foreign exchange contracts 741 2,508 Loss (gain) on disposal of property, plant and equipment (2) (17) Future income taxes (555) (1,578) 7,155 5,297
Change in non-cash operating working capital (11,690) (11,181) (4,535) (5,884)
Cash flows for investing activities Acquisitions - (3,250) Additions to property, plant and equipment (1,014) (677) Proceeds from disposal of property, plant and equipment 2 17 (1,012) (3,910)
Cash flows for financing activities Distributions paid to unitholders (4,956) (4,956) Proceeds from term loan - 3,250 Increase in operating line 11,411 11,383 Repayment of government loan (50) (25) 6,405 9,652
Effect of exchange rate changes on cash 123 112
Decrease (increase) in bank indebtedness 981 (30) Bank indebtedness - beginning of the period (1,053) (162) Bank indebtedness - end of the period $ (72) $ (192)
Supplemental cash flow information Interest paid $ 759 $ 520 Income taxes paid $ 292 $ 96
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