GoGold Resources Inc. press release
Sun Gro Horticulture Income Fund Releases Second Quarter 2005 Results
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TRADING SYMBOL: Toronto Stock Exchange - GRO.UN
Sun Gro Horticulture Income Fund will hold a conference call to discuss 2005 second quarter results on August 5, 2005 at 7:30 am Pacific Time (10:30 am Eastern). The call can be accessed by dialing: 1-888-789-0150 or 416-695-9757. A replay will be available through August 22, 2005 at: 1-888-509-0081 or 416-695-5275.
VANCOUVER, Aug. 4 /CNW/ - Sun Gro Horticulture Income Fund (the "Fund") today reported financial results for the three and six-month periods ended June 30, 2005. The three-month period represents the second quarter of the Fund's 2005 fiscal year.
Operating Results
For the three months ended June 30, 2005, Sun Gro Horticulture Canada Ltd. ("Sun Gro", or the "company"), the Fund's wholly owned subsidiary, recorded revenue of $53.3 million, up by 3% from the $51.6 million recorded in the second quarter of 2004. The $1.7 million revenue increase was due to improved pricing and new sales of the Metro-Mix(R) and Redi-Earth(R) professional growing mix brands acquired by Sun Gro in September 2004. Average US dollar prices for growing mixes and peat moss were up by 8% and 13%, respectively, over the second quarter of 2004. In Canadian dollars, revenue per equivalent bale (Sun Gro's standard unit of volume measurement, referring to 10 cubic feet of peat) decreased slightly for growing mixes and increased by 4% for peat moss. The positive impact of the company's pricing performance was offset by a 5% year-over-year decrease in overall sales volume for the quarter. The decrease resulted from Sun Gro's decision to limit peat moss sales to the retail market and to selected professional accounts during the quarter to counterbalance a lack of carry-over supply from the 2004 peat harvest, which yielded lower than normal volumes industry-wide. Last year, Sun Gro harvested only about half of its expected volume in Manitoba. Supply was further constrained by a slow start to the 2005 harvest due to unfavourable weather conditions. With available peat moss channeled to production of higher-value, higher- margin professional growing mixes, Sun Gro saw a 22% decrease in its peat moss volumes, partially offset by a 14% increase in growing mix volumes. The bark-based Metro-Mix(R) and Redi-Earth(R) brands accounted for approximately 80% of the increased mix volume, generating $4.9 million in revenue during the quarter. Sun Gro again experienced the negative effects of the stronger Canadian dollar on its primarily US dollar-denominated sales. During the second quarter, the value of the Canadian dollar averaged US$0.81, compared to US$0.74 in the second quarter of 2004. The difference in exchange rates effectively reduced second quarter revenue by 8% over 2004. Operating results also continued to be negatively impacted by higher transportation costs, due both to rising freight rates and incremental expenses associated with increased cross-regional shipments early in the quarter. These longer shipments were necessary to meet commitments to customers normally supplied by Sun Gro's Manitoba operations. Although lower than in the first quarter, these two factors pushed second quarter per unit transportation costs up by 5% year-over-year. Net earnings for the second quarter totaled $1.6 million, generating basic and diluted earnings of $0.07 per unit, compared to net earnings of $3.9 million, or $0.18 per unit, in 2004. The $2.3 million decrease was due primarily to the differences in current and future taxes, and unrealized gains and losses on forward currency contracts. Non-cash unrealized gains or losses are created by the valuation of Sun Gro's open hedge position at the end of each quarter. For the six months ended June 30, 2005, revenue was $112.9 million, up by $10.3 million from the $102.6 million generated in the first half of 2004. The revenue increase was driven by Sun Gro's improved pricing performance, a 2% increase in sales volume and a proportionate shift in sales volumes toward higher-value growing mixes. As with the quarterly result, the positive impact of Sun Gro's higher sales volumes and improved pricing was partially offset by the stronger Canadian dollar. During the first six months of 2005, the average exchange rate valued the Canadian dollar at US$0.81, compared to US$0.75 in 2004. Net earnings for the six-month period were $3.0 million, or $0.14 per unit, down by $8.4 million from $11.4 million, or $0.52 per unit, in 2004. As with the quarterly result, the decrease was mainly due to the differences in current and future taxes and unrealized gains and losses on forward currency contracts between the two periods.
Cash Distributions
The Fund maintained its level of distributions to unitholders in the second quarter of 2005, declaring monthly cash distributions of $0.075 per unit for each of April, May and June. In total, the Fund earned $5.64 million of distributable cash, or $0.256 per unit, and distributed $4.96 million, or $0.225 per unit, to unitholders. By comparison, in the second quarter of 2004, the Fund earned $5.62 million of distributable cash, or $0.255 per unit, and distributed $5.58 million, or $0.253 per unit, to unitholders. For the six months ended June 30, 2005, the Fund generated distributable cash of $11.1 million, or $0.51 per unit, and distributed $9.9 million, or $0.45 per unit. In the same period of 2004, the Fund generated distributable cash of $11.3 million, or $0.51 per unit, and distributed $11.2 million, or $0.51 per unit. "Our revenue growth, although more modest than expected due to volume constraints, continues to be directly attributable to the successful implementation of our pricing and acquisition growth strategies," said Mitch Weaver, Sun Gro's President and CEO, and a Trustee of the Fund. "Until this year's harvest got underway, we continued to be challenged by higher than normal transportation and production costs, as well as the stronger Canadian dollar."
New Distributor Agreement
During the second quarter, Sun Gro signed an agreement to become the North American Master Distributor of Haifa Chemicals' Multicote controlled release fertilizer product line. Effective May 20, 2005, the agreement provides for Sun Gro to sell existing Multicote formulations and new formulations jointly developed by Sun Gro and Haifa. "The addition of this quality brand to our product offerings is directly in line with our strategic focus on the professional grower market," said Weaver. "The Multicote brand will strengthen our position in the fertilizer segment of the professional market and expand our sales into the container nursery industry. It builds on the strength of our well-regarded field sales and technical groups."
<< Financial Highlights Operating Results for the three months ended June 30, 2005 and 2004
Comparative Statements of Earnings (In thousands of dollars except per unit amounts and number For the three For the three of units outstanding) months ended months ended (unaudited) June 30, 2005 June 30, 2004 Revenue $ 53,311 100% $ 51,634 100% Cost of goods sold 28,938 54% 25,970 50% Gross profit 24,373 46% 25,664 50%
Distribution expenses 12,333 23% 12,423 24% Selling expenses 4,269 8% 4,114 8% General and administrative expenses 4,841 9% 4,965 10% Total operating expenses 21,443 40% 21,502 42% Operating income 2,930 6% 4,162 8%
Other expense, net (1,997) -4% (938) -2% Interest expense (768) -2% (320) -1% Earnings before income taxes 165 0% 2,904 5% Income tax (provision) recovery Current (612) -1% (170) 0% Future 2,006 4% 1,124 2% Net earnings for the period $ 1,559 3% $ 3,858 7% Basic and diluted earnings per unit $ 0.07 $ 0.18 Weighted average number of units outstanding 22,023,000 22,023,000 Selected supplemental revenue information
Volume in thousands of EB's(1) Growing Mixes 1,796 1,573 Peat Moss 1,402 1,802 Fertilizer and Minerals 87 98 Total company sales 3,285 3,473 Average revenue per EB(1) (U.S. $) Growing Mixes $ 16.38 $ 15.21 Peat Moss 7.71 6.81 Fertilizer and Minerals 23.43 19.20 Total company sales $ 12.87 $ 10.96 Average revenue per EB(1) (Canadian $) Growing Mixes $ 20.21 $ 20.45 Peat Moss 9.52 9.17 Fertilizer and Minerals 28.91 25.80 Total company sales $ 15.88 $ 14.74 (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.
Operating Results for the six months ended June 30, 2005 and 2004
Comparative Statements of Earnings (In thousands of dollars except per unit amounts and number For the six For the six of units outstanding) months ended months ended (unaudited) June 30, 2005 June 30, 2004 Revenue $ 112,943 100% $ 102,644 100% Cost of goods sold 61,737 55% 53,189 52% Gross profit 51,206 45% 49,455 48%
Distribution expenses 26,564 24% 23,770 23% Selling expenses 8,489 8% 7,933 7% General and administrative expenses 10,258 9% 9,991 10% Total operating expenses 45,311 40% 41,694 40% Operating income 5,895 5% 7,761 8%
Other (expense) income, net (3,310) -3% 3,087 3% Interest expense (1,422) -1% (605) -1% Earnings before income taxes 1,163 1% 10,243 10% Income tax (provision) recovery Current (1,751) -1% (270) 0% Future 3,584 3% 1,415 1% Net earnings for the period $ 2,996 3% $ 11,388 11% Basic and diluted earnings per unit $ 0.14 $ 0.52 Weighted average number of units outstanding 22,023,000 22,023,000 Selected supplemental revenue information
Volume in thousands of EB's(1) Growing Mixes 3,838 3,285 Peat Moss 2,806 3,216 Fertilizer and Minerals 203 225 Total company sales 6,847 6,726 Average revenue per EB(1) (U.S. $) Growing Mixes $ 16.60 $ 15.25 Peat Moss 7.79 6.93 Fertilizer and Minerals 21.47 18.48 Total company sales $ 13.14 $ 11.38 Average revenue per EB(1) (Canadian $) Growing Mixes $ 20.42 $ 20.34 Peat Moss 9.59 9.26 Fertilizer and Minerals 26.39 24.62 Total company sales $ 16.16 $ 15.19 (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.
Reconciliation of non-GAAP financial measures to Sun Gro's GAAP financial results
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 is unlikely to 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 we believe that distributable cash is a useful supplemental measure that may assist in assessing the potential return on an investment in our units. The calculation of distributable cash of the Fund is based on cash flows from operating activities before changes in non-cash operating working capital, adjusted for sustaining capital expenditures, government grants and loans, current income taxes expected to reverse in the current fiscal year, and such reserves as the Board of Directors and Trustees of the Fund consider appropriate. Certain expenditures that are incurred as part of earnings- enhancing capital projects and acquisitions may be excluded from the determination of distributable cash flow if the project or acquisition is funded by term debt or equity financing.
(in thousands of For the For the dollars except three three For the six For the six per unit amounts) months months months months ended ended ended ended Statement of June 30, June 30, June 30, June 30, distributable cash 2005 2004 2005 2004 Cash flows from operating activities before change in non- cash operating working capital $ 5,914 $ 6,294 $ 11,211 $ 12,313 Adjustments Sustaining capital expenditures (546) (648) (1,223) (1,031) Repayment of Government loan (25) (25) (50) (25) Current income taxes expected to reverse in the current fiscal year 295 1,195 - Distributable cash $ 5,638 $ 5,621 $ 11,133 $ 11,257 Distributable cash per unit $ 0.26 $ 0.26 $ 0.51 $ 0.51
Outlook
Moving into the third quarter, Sun Gro remains focused on improving its distributable cash generation. "We continue to keep a close watch on our pricing and will be working diligently to reduce our costs and achieve greater value from our production facilities," said Weaver. "We are now meeting our harvest goals in Alberta and New Brunswick on a year-to-date basis," continued Weaver. "Harvest volumes in Manitoba are currently lower than planned due to unusually wet weather, though we may recover a portion of this shortfall by the end of the harvest season." Sun Gro anticipates that, outside of the growing incremental sales volume gains from its recent acquisitions, sales volumes for the third quarter will be consistent with 2004 levels, with modest growth from existing customers. With approximately 40% of its operating expenses incurred in US dollars, the company continues to enjoy a natural hedge against some of the impact of foreign exchange. In addition, Sun Gro holds currency exchange contracts acquired in 2003 and 2004 for 2005 that cover approximately 85% of its estimated net US dollar cash flows for the remaining two quarters of the year at a blended rate of $1.30. Sun Gro has also hedged approximately 60% of its expected 2006 net US dollar cash flows at a blended rate of $1.23. Given the relative stability of the US dollar during the second quarter, the company expects that these factors, together with pricing increases, will help offset most of the effect of the stronger Canadian dollar.
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.
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. Readers should specifically consider these factors, including the risks and uncertainties described in the Fund's most recent annual report. 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.
Sun Gro Horticulture Income Fund Consolidated Balance Sheets (in thousands of dollars) (unaudited) As at As at June 30, December 31, Assets 2005 2004 Current assets Accounts receivable $ 47,726 $ 37,743 Inventories 21,377 28,825 Unrealized gain on foreign currency contracts 1,617 6,669 Prepaid expenses and other assets 3,274 3,325 73,994 76,562
Property, plant and equipment 129,886 130,239
Unrealized gain on foreign currency contracts 202 1,006 Note receivable - 1,064 Intangible assets 36,483 37,693 Goodwill 24,774 24,774 $ 265,339 $ 271,338 Liabilities and Unitholders' Equity
Current liabilities Bank indebtedness $ 1,006 $ 162 Operating line (note 4) 28,712 31,789 Accounts payable and accrued liabilities 15,932 14,340 Current portion of long-term debt 24,263 10,600 Distribution payable to unitholders (note 3) 1,652 1,652 71,565 58,543
Other liabilities 4,361 3,696 Long-term debt 275 10,542 Future income taxes 18,913 22,476 95,114 95,257
Unitholders' equity Capital contributions 209,733 209,733 Cumulative translation account (13,204) (14,264) Cumulative earnings 47,904 44,908 Cumulative distributions declared (74,208) (64,296) 170,225 176,081 $ 265,339 $ 271,338 Subsequent Event (note 6) Approved by the Trustees
(Signed) (Signed) W. John Dawson, FCA Mitchell J. Weaver Chairman of the Trustee; President and CEO Board of Trustees
The accompanying notes are an integral part of these consolidated financial statements.
Sun Gro Horticulture Income Fund Consolidated Statements of Earnings and Cumulative Earnings (in thousands of dollars except per unit amounts and number of units outstanding) (unaudited) For the For the For the For the three three six six months months months months ended ended ended ended June 30, June 30, June 30, June 30, 2005 2004 2005 2004 Revenue $ 53,311 $ 51,634 $ 112,943 $ 102,644 Cost of goods sold 28,938 25,970 61,737 53,189 Gross profit 24,373 25,664 51,206 49,455
Distribution expenses 12,333 12,423 26,564 23,770 Selling expenses 4,269 4,114 8,489 7,933 General and administrative expenses 4,841 4,965 10,258 9,991 Total operating expenses 21,443 21,502 45,311 41,694 Operating income 2,930 4,162 5,895 7,761 Other (expense) income, net (1,997) (938) (3,310) 3,087 Interest expense (768) (320) (1,422) (605) Earnings before income taxes 165 2,904 1,163 10,243 Income tax (provision) recovery Current (612) (170) (1,751) (270) Future 2,006 1,124 3,584 1,415 Net (loss) earnings for the period 1,559 3,858 2,996 11,388 Cumulative earnings - beginning of period 46,345 33,656 44,908 26,126 Cumulative earnings - end of period $ 47,904 $ 37,514 $ 47,904 $ 37,514 Basic and diluted earnings per unit $ 0.07 $ 0.18 $ 0.14 $ 0.52 Weighted average number of units outstanding 22,023,000 22,023,000 22,023,000 22,023,000 The accompanying notes are an integral part of these consolidated financial statements.
Sun Gro Horticulture Income Fund Consolidated Statements of Cash Flows (in thousands of dollars) (unaudited)
For the For the For the For the three three six six months months months months ended ended ended ended June 30, June 30, June 30, June 30, 2005 2004 2005 2004 Cash flows from operating activities Net earnings (loss) for the period $ 1,559 $ 3,858 $ 2,996 $ 11,388 Items not affecting cash Depreciation, depletion and accretion 2,429 1,862 4,771 3,725 Amortization of intangible assets 605 430 1,210 860 Change in fair value of foreign currency contracts 3,348 912 5,856 (2,603) Loss (gain) on disposal of property, plant and equipment (21) 356 (38) 358 Future income taxes (2,006) (1,124) (3,584) (1,415) 5,914 6,294 11,211 12,313
Change in non-cash operating working capital 12,569 11,387 1,388 (2,213) 18,483 17,681 12,599 10,100
Cash flows from investing activities Acquisitions (note 2) - (11,574) (3,250) (11,574) Additions to property, plant and equipment (546) (1,306) (1,223) (1,689) Proceeds from disposal of property, plant and equipment 404 40 421 98 (142) (12,840) (4,052) (13,165)
Cash flows from financing activities Distributions paid to unitholders (note 3) (4,956) (5,577) (9,912) (11,154) Proceeds from term loans - 10,500 3,250 10,500 (Decrease) increase in operating line (14,460) (8,676) (3,077) 3,291 Repayment of government loan (25) (25) (50) (25) (19,441) (3,778) (9,789) 2,612 Effect of exchange rate changes on cash 286 (214) 398 117 Increase in bank indebtedness (814) 849 (844) (336) Bank indebtedness - beginning of period (192) (2,125) (162) (940) Bank indebtedness - end of period $ (1,006) $ (1,276) $ (1,006) $ (1,276) Supplemental cash flow information Interest paid $ 958 $ 415 $ 1,478 $ 720 Income taxes paid $ 82 $ 175 $ 178 $ 271 The accompanying notes are an integral part of these consolidated financial statements.