Sabre Gold Mines Corp. press release
Sun Gro Horticulture Income Fund Releases 2006 Third Quarter Results - Fund Generates Strong Distributable Cash and Operating Income
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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 2006 third quarter and nine-month results on November 7, 2006 at 7:30 am Pacific Time (10:30 am Eastern). The call can be accessed by dialing: 1-800-814-4860 or 416-644-3417. A replay will be available through November 21, 2006 at: 1-877-289-8525 or 416-640-1917. (Passcode: 21205830 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)109992 or to the fund's website at: www.sungro.com.
VANCOUVER, Nov. 6 /CNW/ - Sun Gro Horticulture Income Fund (the "Fund") today reported financial results for the three and nine-month periods ended September 30, 2006. The three-month period represents the third quarter of its 2006 fiscal year. For the third consecutive quarter, the Fund generated record year-over-year distributable cash. In the three months ended September 30, 2006, it earned $7.1 million, or $0.32 per unit, of distributable cash, up from $5.2 million, or $0.24 per unit, in the third quarter of 2005. Distributable cash for the nine-month period totalled $19.8 million, or $0.90 per unit, up from $16.3 million, or $0.74 per unit, in 2005. 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 both years. This represents an annualized distribution rate of $0.90 per unit. "The sustained improvement in our distributable cash generation is enabling us to reduce the Fund's payout ratio, which is one of our primary goals," said Mitch Weaver, Sun Gro's President and CEO and a Trustee of the Fund. "We are extremely pleased with our performance in this area and remain confident of our ability to maintain distributions at the current rate."
<< (in thousands of dollars For the For the For the For the except per unit amounts) three three nine nine months months months months ended ended ended ended Statement of distributable September September September September cash 30, 2006 30, 2005 30, 2006 30, 2005 Cash flows from operating activities before change in non-cash operating working capital $ 6,324 $ 4,911 $ 17,780 $ 13,340 Adjustments Realized gain on forward currency contracts 1,538 1,382 4,074 4,164 Sustaining capital expenditures (300) (984) (1,986) (2,207) Proceeds from government grant and loan 60 688 60 688 Repayment of government loan (50) (25) (150) (75) Current income taxes expected to seasonally reverse in the current fiscal year (482) (779) - 416 Distributable cash $ 7,090 $ 5,193 $ 19,778 $ 16,326 Distributable cash per unit $ 0.32 $ 0.24 $ 0.90 $ 0.74
(1) Distributable cash is not an earnings measure recognized by Canadian generally accepted accounting principles (GAAP) and does not have a standardized meaning prescribed by GAAP. Refer to Management's Discussion and Analysis of distributable cash for a description of the calculation method used by the Fund. >>
Three-Month Operating Results
In the third quarter of 2006, the Fund's wholly owned subsidiary, Sun Gro Horticulture Canada ("Sun Gro", or the "company"), continued the trend of gross margin improvement it began early in the year. For the three months, gross margin improved by 3% year-over-year, from 50% in 2005 to 53% in 2006. The gain was primarily due to the positive effect of Sun Gro's price increases in offsetting the stronger Canadian dollar and improved peat harvest volumes this year. The company's third quarter revenues of $41.2 million were down by $2.8 million, or 6%, from $44.0 million in the third quarter of 2005. Total sales volumes for the quarter were down by 13% compared to a year ago, due in part to wet weather during peat harvesting in New Brunswick, which reduced the overall yield and limited the volumes of peat moss sold under a significant supply agreement. The reduced contractual volumes accounted for over half of the quarter's volume decrease. To offset foreign exchange losses on the conversion of its US dollar sales to Canadian dollars, and to help offset rising costs, Sun Gro has implemented multiple price increases since mid-2004, the most recent taking effect in this quarter. As a result, the company's average third quarter US dollar prices for growing mixes were up by 9% and Canadian dollar revenue per equivalent bale, or EB (10 cubic feet of peat), was unchanged from the same period of 2005. Peat moss prices were up by 24% in US dollars and by 14% in Canadian dollars, reflecting the lower share of contractual volumes. Foreign exchange continued to exert a strong impact on Sun Gro's primarily US dollar-denominated revenue during the third quarter. The value of the Canadian dollar averaged US$0.90, compared to US$0.82 in the third quarter of 2005. The difference in exchange rates effectively reduced revenue for the period by 7%, compared to 2005. Three-month operating income of $3.8 million increased by $1.6 million from the $2.2 million recorded in the same period of 2005. The increase was due mainly to improved pricing performance and the production efficiencies that resulted from this year's larger peat harvest. The company also realized truck loading efficiencies in its West and Central regions as dryer harvest conditions enabled a greater number of pallets to be shipped per truck. Per-EB distribution costs during the quarter were down by 8% from 2005. Third quarter net earnings were $3.4 million, generating basic and diluted earnings of $0.15 per unit. In the corresponding period of 2005, Sun Gro generated basic and diluted earnings of $0.24 per unit on third quarter net earnings of $5.3 million. The decrease was primarily due to differences in unrealized gains on forward currency contracts.
Nine-Month Operating Results
For the nine months ended September 30, 2006, revenue of $151.5 million was down by $5.4 million, or 3.6% from $156.9 million in the same period of 2005. As with the quarterly result, the decrease was mainly due to a year-over-year reduction in sales volumes of Sun Gro's higher-priced professional growing mix volumes. This was partially offset by increased sales in other product categories and generally improved pricing performance. Revenue was also affected by the continued strengthening of the Canadian dollar. In the first nine months of 2006, the average US dollar exchange rate was $0.88, compared to $0.82 in 2005. Gross profit margin for the nine months increased to 49% from 47% in the same period of 2005. Operating income rose to $14.0 million from $8.0 million in the 2005 nine-month period. Net earnings increased to $15.4 million, or $0.70 per unit, from $8.3 million, or $0.38 per unit, in the first nine months of last year.
Recent Acquisition
On August 15, 2006, Sun Gro strengthened its long-term peat supply by acquiring substantially all of the operating assets of Fort Frances, Ontario peat moss producer Normiska Peat Inc. Funded through the company's existing acquisition line of credit, the $3.4 million transaction gives Sun Gro an expanded presence in Central Canada. The acquired assets included a peat processing plant and related harvesting equipment, inventory on hand, and 1,440 acres of largely undeveloped professional grade peat bogs. The acquisition will have only a modest effect on the company's sales in the coming months. With planned expansion of the acquired bog over the coming winter, it should begin to contribute to sales growth in the summer of 2007.
<< FINANCIAL HIGHLIGHTS
Comparative Statements of Earnings (In thousands of dollars except For the three For the three per unit amounts and number months ended months ended of units outstanding) September 30, 2006 September 30, 2005 (unaudited) (unaudited) Revenue $ 41,182 100% $ 43,987 100% Cost of goods sold 19,346 47% 22,132 50% Gross profit 21,836 53% 21,855 50%
Distribution expenses 9,469 23% 10,876 25% Selling expenses 3,971 10% 3,969 9% General and administrative expenses 4,559 11% 4,856 11% Total operating expenses 17,999 44% 19,701 45% Operating income 3,837 9% 2,154 5%
Other income (expense), net (274) -1% 4,409 10% Interest expense (1,025) -2% (662) -2% Earnings before income taxes 2,538 6% 5,901 13% Income tax (provision) recovery Current 640 2% 633 1% Future 223 1% (1,213) -2% Income tax (provision) recovery, net 863 2% (580) -1% Net earnings for the period $ 3,401 8% $ 5,321 12% Basic and diluted earnings per unit $ 0.15 $ 0.24 Weighted average number of units outstanding 22,023,000 22,023,000
Selected supplemental revenue information
Volume in thousands of EBs(1) Growing Mixes 1,193 1,270 Peat Moss 1,670 2,023 Fertilizer and Minerals 68 76 Total company sales 2,931 3,369 Average revenue per EB(1) (US $) Growing Mixes $ 17.31 $ 15.91 Peat Moss 8.22 6.63 Fertilizer and Minerals 29.77 25.15 Total company sales $ 12.42 $ 10.55 Average revenue per EB(1) (Canadian $) Growing Mixes $ 19.29 $ 19.31 Peat Moss 9.19 8.05 Fertilizer and Minerals 33.22 30.58 Total company sales $ 13.86 $ 12.81
(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.
Comparative Statements of Earnings (In thousands of dollars except For the nine For the nine per unit amounts and number months ended months ended of units outstanding) September 30, 2006 September 30, 2005 (unaudited) (unaudited) Revenue $ 151,527 100% $ 156,930 100% Cost of goods sold 77,132 51% 83,869 53% Gross profit 74,395 49% 73,061 47%
Distribution expenses 34,234 23% 37,440 24% Selling expenses 11,651 8% 12,458 8% General and administrative expenses 14,555 9% 15,114 10% Total operating expenses 60,440 40% 65,012 42% Operating income 13,955 9% 8,049 5%
Other income (expense), net 3,309 2% 1,099 1% Interest expense (3,250) -2% (2,084) -2% Earnings before income taxes 14,014 9% 7,064 4% Income tax (provision) recovery Current (1,312) -1% (1,118) -1% Future 3,178 2% 2,371 2% Income tax (provision) recovery, net 1,866 1% 1,253 1% Net earnings for the period $ 15,880 10% $ 8,317 5% Basic and diluted earnings per unit $ 0.72 $ 0.38 Weighted average number of units outstanding 22,023,000 22,023,000 Selected supplemental revenue information Volume in thousands of EBs(1) Growing Mixes 4,565 5,108 Peat Moss 4,924 4,829 Fertilizer and Minerals 264 279 Total company sales 9,753 10,216 Average revenue per EB(1) (US $) Growing Mixes $ 17.95 $ 16.43 Peat Moss 8.32 7.31 Fertilizer and Minerals 28.80 22.47 Total company sales $ 13.38 $ 12.28 Average revenue per EB(1) (Canadian $) Growing Mixes $ 20.38 $ 20.15 Peat Moss 9.42 8.94 Fertilizer and Minerals 32.70 27.53 Total company sales $ 15.18 $ 15.05
(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. >>
Outlook
The information contained in "Outlook" is forward-looking information. Please see "Forward-Looking Statements" below for a discussion of the risks and uncertainties in connection with forward-looking information. For the fourth quarter, Sun Gro expects that overall sales volumes should be consistent with 2005 levels. The company is proceeding with a number of initiatives designed to increase sales of its growing mixes, including the introduction of a new line of lighter-weight Metro-Mix(R) products to support sales growth in the bark-based segment of the professional growing mix market. Sun Gro's efforts to grow sales of all its products over the balance of the year will continue to be supported by its successful 2006 peat moss harvest, which started earlier than the 2005 harvest and yielded 9% more volume overall. Although the company's eastern Canadian harvest was below historical levels due to wetter than normal weather, its harvest volumes in Manitoba were better than historical averages. Across the industry, supply is expected to be tight until the 2007 harvest begins. "We are continuing to see the benefit of our acquisitions of the last several years. These strategic transactions have both strengthened the geographic diversity of our peat resources and allowed us to expand our product offerings to our core professional grower market," said Weaver. "As a result, we are better equipped to sustain and enhance the value we deliver to our unitholders over the long term." Sun Gro holds forward currency contracts to manage the near-term impact of any further strengthening of the Canadian dollar. For the remainder of 2006, it has entered into forward currency contracts with a blended rate of $1.21 (US$0.83) that will offset approximately 80% of its expected net US dollar cash flows. For 2007, Sun Gro has thus far entered into forward currency contracts with a blended rate of $1.14 (US$0.87) that will offset approximately 70% of its expected net US dollar cash flows.
Subsequent Proposed Tax Change
On October 31, 2006, the federal Minister of Finance announced a proposal that, if enacted, would tax publicly-traded income trusts on distributions of income to their unitholders. Existing publicly-traded income trusts would not be subject to the proposed tax until their 2011 taxation years. The rate of the proposed tax on distributions of income would approximate the combined federal and provincial tax rate applicable to income earned by Canadian public corporations. The applicable rate in 2011 would be based on tax rates at that time. Currently, based on information released by the federal Department of Finance in conjunction with the announcement of the proposed tax, the rate in 2011 would be 31.5%, but this is subject to changes in tax rates between now and 2011. Draft legislation implementing this proposal has not yet been released. It is not possible at this time for the Fund to determine whether the proposal will be enacted as proposed, or at all, and, if enacted, what impact this proposal would have on the Fund or its unitholders. The Fund is continuing to assess the strategic and economic issues arising from this proposal.
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, changes in tax laws, the impact of adverse weather conditions on harvesting operations, an increase in freight rates, and the impact of an increase in fuel costs. 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, 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.
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. The calculation of distributable cash is based on cash flows from operating activities before changes in non-cash operating working capital, adjusted for sustaining capital expenditures, realized gains from forward currency contracts, government grants and loans, and such reserves as the Board of Directors and Trustees of the Fund may consider appropriate. Certain expenditures that are incurred as part of earnings-enhancing capital projects and acquisitions are excluded from the determination of distributable cash flow if the project or acquisition is funded by term debt or equity financing.
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 Sheet (in thousands of dollars) (unaudited) As at As at September 30, December 31, Assets 2006 2005
Current assets Cash and cash equivlents $ 487 $ - Accounts receivable 41,098 46,310 Inventories 34,069 29,856 Unrealized gain on forward currency contracts 2,589 3,041 Prepaid expenses and other assets 2,319 3,844 80,562 83,051
Property, plant and equipment 124,211 126,727 Intangible assets 34,144 35,616 Goodwill 11,202 11,202 $ 250,119 $ 256,596 Liabilities and Unitholders' Equity
Current liabilities Bank indebtedness $ - $ 1,053 Operating line (note 4) 34,721 38,329 Accounts payable and accrued liabilities 15,338 16,059 Current portion of long-term debt (note 4) 216 200 Distribution payable to unitholders (note 3) 1,652 1,652 51,927 57,293
Other liabilities 4,396 4,175 Long-term debt (note 4) 27,167 24,261 Future income taxes 15,896 19,051 99,386 104,780 Unitholders' equity Capital contributions 209,733 209,733 Cumulative translation account (17,340) (15,245) Cumulative earnings 57,328 41,448 Cumulative distributions declared (98,988) (84,120) 150,733 151,816 $ 250,119 $ 256,596
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 nine nine months months months months ended ended ended ended September September September September 30, 2006 30, 2005 30, 2006 30, 2005
Revenue $ 41,182 $ 43,987 $ 151,527 $ 156,930 Cost of goods sold 19,346 22,132 77,132 83,869 Gross profit 21,836 21,855 74,395 73,061
Distribution expenses 9,469 10,876 34,234 37,440 Selling expenses 3,971 3,969 11,651 12,458 General and administrative expenses 4,559 4,856 14,555 15,114 Total operating expenses 17,999 19,701 60,440 65,012 Operating income 3,837 2,154 13,955 8,049
Other income (expense), net (274) 4,409 3,309 1,099 Interest expense (1,025) (662) (3,250) (2,084) Earnings before income taxes 2,538 5,901 14,014 7,064 Income tax (provision) recovery Current 640 633 (1,312) (1,118) Future 223 (1,213) 3,178 2,371 Income tax recovery, net 863 (580) 1,866 1,253 Net earnings for the period 3,401 5,321 15,880 8,317 Cumulative earnings - beginning of period 53,927 47,904 41,448 44,908 Cumulative earnings - end of period $ 57,328 $ 53,225 $ 57,328 $ 53,225 Basic and diluted earnings per unit $ 0.15 $ 0.24 $ 0.72 $ 0.38 Weighted average number of units outstanding 22,023,000 22,023,000 22,023,000 22,023,000