GoGold Resources Inc. press release
Sun Gro Horticulture Income Fund Releases First Quarter 2005 Results
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Sun Gro Horticulture Income Fund will hold a conference call to discuss 2005 first quarter results on May 5, 2005 at 7:30 am Pacific Time (10:30 am Eastern). The call can be accessed by dialing: 1-877-461-2814 or 416-695-9757. A replay will be available through May 18, 2005 at: 1-888-509-0081 or 416-695-5275.
TRADING SYMBOL: Toronto Stock Exchange - GRO.UN
VANCOUVER, May 4 /CNW/ - Sun Gro Horticulture Income Fund (the "Fund") today reported financial results for the three months ended March 31, 2005. This period represents the first quarter of the Fund's 2005 fiscal year.
Operating Results For the first three months of 2005, Sun Gro Horticulture Canada Ltd. ("Sun Gro", or the "company"), the Fund's wholly owned subsidiary, recorded revenue of $59.6 million, up 17% from the $51.0 million recorded in the first quarter of 2004. The $8.6 million revenue increase was driven by higher sales volumes and improved pricing. First quarter sales volumes were up by 9% year-over-year, due mainly to new sales of the US-based Metro-Mix(R) and Redi-Earth(R) brands acquired by Sun Gro in September 2004. The two brands generated $5.6 million in sales during the quarter. At the same time, average US dollar prices for growing mixes and peat moss were up by more than 8% and 11% respectively over the first 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) improved slightly for growing mixes and increased by 3% for peat moss. The revenue impact of Sun Gro's sales volume and pricing gains was partially offset by the strengthening of the Canadian dollar. During the first quarter of 2005, the average value of the Canadian dollar increased to US $0.82, compared to US$0.76 in the first three months of 2004. With approximately 85% of the company's sales denominated in US dollars, the difference in exchange rates reduced first quarter revenue by 7% over 2004. Operating results were also negatively impacted by much higher transportation costs, due both to rising freight rates and incremental expenses associated with increased cross-regional shipments. Combined, these two factors increased Sun Gro's per unit transportation costs during the period by 14% year-over- year. Net earnings for the first three months of 2005 totaled $1.4 million, generating basic and diluted earnings of $0.07 per unit. This compares to $7.5 million, or $0.34 per unit, in 2004. The $6.1 million decrease was due primarily to the difference in 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.
Cash Distributions The Fund maintained its level of distributions to unitholders in the first quarter of 2005, declaring monthly cash distributions of $0.075 per unit for each of January, February and March. In total, 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. By comparison, in the first quarter of 2004, the Fund earned $5.64 million of distributable cash, or $0.256 per unit, and distributed $5.58 million, or $0.253 per unit to unitholders. "We are pleased with our first quarter revenue growth, which can be linked directly to the progress we have made over the past 12 months with our pricing strategy and the successful implementation of our acquisition growth strategy," said Mitch Weaver, Sun Gro's President and CEO, and a Trustee of the Fund. "In particular, last year's acquisition of the Metro-Mix(R) and Redi-Earth(R) brands has enabled us to significantly increase sales in our core, higher-margin professional mix category while reducing our relative reliance on peat moss. Since the primary raw material of these new brands is composted bark, rather than peat moss, they give us additional sales without pressuring our peat resources." "Unfortunately, this quarter we continued to be challenged by the stronger Canadian dollar and, as we did in the fourth quarter of 2004, incurred higher than normal transportation and production costs to meet our commitments to customers," continued Weaver. In 2004, Sun Gro harvested about half of its expected volume in Manitoba due to persistent wet summer weather. The company subsequently fulfilled orders to long-term customers normally supplied from its Central Region by shipping product from its plants in New Brunswick and Alberta. Industry-wide, lower than normal peat harvest volumes in 2004 resulted in a lack of carry-over supply for 2005. "In January, we introduced another price increase to offset the appreciation of the Canadian dollar and increased our freight surcharge on deliveries to help mitigate the impact of the higher transportation costs," said Weaver. "We have continued to meet the needs of our customers and supported the growth of our professional mix business. As our 2005 harvest gets fully underway in Alberta, and soon elsewhere, we expect to see a return to more normal manufacturing and shipping patterns."
Strategic Acquisition On January 27, 2005, Sun Gro completed its third acquisition in eight months, purchasing the operating assets of New Brunswick peat moss producer, Pigeon Hill Peat Ltd. for $3.25 million. Through this transaction, Sun Gro increased its eastern Canadian harvest capacity by 7%, adding a 325 acre professional grade peat bog and a modern processing plant to its holdings. The purchase was funded through Sun Gro's existing acquisition line of credit and is expected to add approximately $2 million in sales annually, beginning in the third quarter of 2005.
<< Financial Highlights
Comparative Statements of Earnings (In thousands of dollars except per unit amounts and number For the period For the period of units outstanding) ended ended (unaudited) March 31, 2005 March 31, 2004 Revenue $ 59,632 100% $ 51,010 100% Cost of goods sold 32,799 55% 27,219 53% Gross profit 26,833 45% 23,791 47%
Distribution expenses 14,231 24% 11,347 22% Selling expenses 4,220 7% 3,819 8% General and administrative expenses 5,417 9% 5,026 10% Total operating expenses 23,868 40% 20,192 40% Operating income 2,965 5% 3,599 7%
Other (expense) income, net (1,313) -2% 4,025 8% Interest expense (654) -1% (285) -1% Earnings before income taxes 998 2% 7,339 14% Income tax (provision) recovery Current (1,139) -2% (100) 0% Future 1,578 3% 291 1% Net earnings for the period $ 1,437 2% $ 7,530 15% Basic and diluted earnings per unit $ 0.07 $ 0.34 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 2,042 1,712 Peat Moss 1,404 1,414 Fertilizer and Minerals 116 127 Total company sales 3,562 3,253 Average revenue per EB(1) (U.S. $) Growing Mixes $ 16.80 $ 15.48 Peat Moss 7.88 7.08 Fertilizer and Minerals 20.01 17.92 Total company sales $ 13.39 $ 11.82 Average revenue per EB(1) (Canadian $) Growing Mixes $ 20.61 $ 20.50 Peat Moss 9.66 9.38 Fertilizer and Minerals 24.51 23.72 Total company sales $ 16.42 $ 15.66
(1) Average revenue per EB calculation does not include other transportation related surcharges. An EB, or equivalent bale, is Sun Gro's standard unit of measure referring to 10 cubic feet of peat.
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 capital expenditures, government grants and loans, current income taxes expected to reverse in the current fiscal year, proceeds from the sale of assets, 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.
Statement of distributable cash For the period For the period (in thousands of dollars except ended ended per unit amounts) March 31, 2005 March 31, 2004 Cash flows from operating activities before change in non-cash working capital $ 5,297 $ 6,019 Adjustments Purchase of property, plant and equipment (677) (383) Repayment of government loan (25) - Current income taxes expected to seasonally reverse in the current fiscal year 900 Distributable cash $ 5,495 $ 5,636 Distributable cash per unit $ 0.25 $ 0.26
Outlook Moving into the second quarter, Sun Gro will continue to focus on improving its distributable cash generation through its ongoing pricing and cost management initiatives. "We remain committed to finding new ways of becoming more efficient, reducing our production and distribution costs, and achieving greater value from our production facilities," said Weaver. Sun Gro anticipates that, outside of the growing incremental sales volume gains from its recent acquisitions, sales volumes for the second quarter will be consistent with 2004 levels, with modest growth from existing customers. With its 2005 peat harvest now in the early stages, the company anticipates that the production constraints created by its 2004 harvest shortfall in Manitoba will soon be alleviated. With approximately 40% of its operating expenses incurred in US dollars, Sun Gro continues to enjoy a natural hedge against some of the impact of foreign exchange. In addition, the company holds currency exchange contracts acquired in 2003 and 2004 for 2005 that cover approximately 90% of its estimated net US dollar cash flows for the remaining three quarters of the year at a blended rate of $1.30. Given the relative stability of the US dollar during the first quarter, the company expects that these factors, together with pricing increases, will help offset most of the effect of the stronger dollar on cash flows.
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. 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 March 31, December 31, Assets 2005 2004
Current assets Accounts receivable $ 58,093 $ 37,743 Inventories 23,688 28,825 Unrealized gain on foreign currency contracts 4,552 6,669 Prepaid expenses and other assets 2,052 3,325 88,385 76,562
Property, plant and equipment 132,586 130,239
Unrealized gain on foreign currency contracts 615 1,006 Note receivable 1,076 1,064 Intangible assets 37,089 37,693 Goodwill 24,774 24,774 $ 284,525 $ 271,338
Liabilities and Unitholders' Equity
Current liabilities Bank indebtedness $ 192 $ 162 Operating line (note 4) 43,171 31,789 Accounts payable and accrued liabilities 17,273 14,340 Current portion of long-term debt (note 4) 24,178 10,600 Distribution payable to unitholders (note 3) 1,652 1,652 86,466 58,543
Other liabilities 4,095 3,696 Long-term debt (note 4) 300 10,542 Future income taxes 20,904 22,476 111,765 95,257
Unitholders' equity Capital contributions 209,733 209,733 Cumulative translation account (14,066) (14,264) Cumulative earnings 46,345 44,908 Cumulative distributions declared (69,252) (64,296) 172,760 176,081 $ 284,525 $ 271,338
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 period ended period ended March 31, March 31, 2005 2004
Revenue $ 59,632 $ 51,010 Cost of goods sold 32,799 27,219 Gross profit 26,833 23,791
Distribution expenses 14,231 11,347 Selling expenses 4,220 3,819 General and administrative expenses 5,417 5,026 Total operating expenses 23,868 20,192 Operating income 2,965 3,599
Other (expense) income, net (1,313) 4,025 Interest expense (654) (285) Earnings before income taxes 998 7,339 Income tax (provision) recovery Current (1,139) (100) Future 1,578 291 Net earnings for the period 1,437 7,530 Cumulative earnings - beginning of period 44,908 26,126 Cumulative earnings - end of period $ 46,345 $ 33,656
Basic and diluted earnings per unit $ 0.07 $ 0.34 Weighted average number of units outstanding 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 period ended period ended March 31, March 31, 2005 2004 Cash flows from operating activities Net earnings for the period $ 1,437 $ 7,530 Items not affecting cash Depreciation, depletion and accretion 2,342 1,863 Amortization of intangible assets 605 430 Change in fair value of foreign currency contracts 2,508 (3,515) Loss (gain) on disposal of property, plant and equipment (17) 2 Future income taxes (1,578) (291) 5,297 6,019
Change in non-cash operating working capital (11,181) (13,600) (5,884) (7,581)
Cash flows from investing activities Acquisition (note 2) (3,250) - Additions to property, plant and equipment (677) (383) Proceeds from disposal of property, plant and equipment 17 58 (3,910) (325)
Cash flows from financing activities Distributions paid to unitholders (note 3) (4,956) (5,577) Proceeds from term loans 3,250 - Increase in operating line 11,383 11,967 Repayment of government loan (25) - 9,652 6,390
Effect of exchange rate changes on cash 112 331
Increase in bank indebtedness (30) (1,185) Bank indebtedness - beginning of period (162) (940) Bank indebtedness - end of period $ (192) $ (2,125)
Supplemental cash flow information Interest paid $ 520 $ 305 Income taxes paid $ 96 $ 96
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
(tabular amounts in thousands of dollars, except per unit amounts)
1. Nature of operations and basis of presentation
Nature of operations
Sun Gro Horticulture Income Fund (the "Fund") is a limited purpose, open-ended trust established under the laws of the Province of British Columbia on February 12, 2002. The Fund was created to acquire and hold, directly and indirectly, the securities of Sun Gro Horticulture Canada Ltd. and its wholly owned subsidiaries (collectively "Sun Gro" or the "company"). Sun Gro, founded in 1929 in Vancouver, British Columbia, is a producer and distributor of horticultural-grade peat moss and peat-based growing media with customers throughout North America.
Basis of presentation
These unaudited interim consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada. These interim consolidated financial statements follow the same accounting policies and method of application as the most recent annual consolidated financial statements, except as discussed in Note 2. These statements should be read in conjunction with the Fund's most recent annual report.
The preparation of these unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates and the operating results for the interim period are not necessarily indicative of the results expected for the full year.
In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly the Fund's financial position as at March 31, 2005, as well as its results of operations and cash flows for the three months then ended March 31, 2005.
The fiscal year end of the Fund is December 31. The fiscal year of the Fund's subsidiaries is a 52 week or 53 week period ending on the Sunday nearest to December 31. The financial statements of the Fund for the three months ended March 31, 2005 include the results of Sun Gro for the period from January 3, 2005 to April 3, 2005. The financial statements of the Fund for the three months ended March 31, 2004 include the results of Sun Gro for the period from December 29, 2003 to March 28, 2004.
2. Acquisition
On January 27, 2005, Sun Gro acquired substantially all of the assets of Pigeon Hill Peat Ltd., a peat producer in New Brunswick, for $3.25 million. The acquired assets include leased peat bogs, inventories and related assets at a production facility. The acquisition was funded through additional borrowings under Sun Gro's credit facility.
The acquisition has been accounted for by the purchase method and the results of the acquired business have been included in the Fund's consolidated financial statements from the date of acquisition. These consolidated financial statements reflect the assets and liabilities acquired from Pigeon Hill Peat Ltd. at assigned fair values as follows:
(in thousands of dollars)
Inventories $ 90 Property, plant and equipment 3,287 Other liabilities (127)
Total acquisition cost $ 3,250
Management has based the preliminary purchase price allocation on information available at the time of preparing these consolidated financial statements, but has not yet finalized the allocation, and it is subject to further adjustment.