Americas Gold and Silver Corporation press release
Sun Gro Horticulture Income Fund Releases 2010 Second Quarter and First-Half Results
TSX - Toronto Stock Exchange · Silver · Lead · Copper · Antimony · Zinc · Gold · Canada
Aug. 10, 2010 (Canada NewsWire Group) --
Fund continues to strengthen balance sheet; Sun Gro delivers stable operating performance and improved sales volumes of core growing mix products, experiences ongoing negative impact of stronger Canadian dollar
TRADING SYMBOL: Toronto Stock Exchange - GRO.UN
Sun Gro Horticulture Income Fund will hold a conference call and webcast to discuss 2010 second quarter and first-half financial results on Wednesday, August 11 at 7:30 am Pacific Time (10:30 am Eastern). The call can be accessed by dialing: 1-888-231-8191 or 647-427-7450 (Greater Toronto Area and International).
A replay will be available through August 24, 2010 at: 1-800-642-1687 or 416-849-0833. Passcode 91465710.
To access the live and archived webcast, please go to: http://www.investorcalendar.com/IC/CEPage.asp?ID=160847 or to the Fund's website at: www.sungro.com.
VANCOUVER, Aug. 10 /CNW/ - Sun Gro Horticulture Income Fund (the Fund or Sun Gro) today reported financial results for the three and six months ended June 30, 2010. For the three-month period, which represents the second quarter of the Fund's 2010 fiscal year, its primarily US dollar denominated sales revenues were level with the amount recorded in 2009 when reported in US dollars. In Canadian dollars, second quarter revenues were down by 13% year-over-year, due to the effect of a significantly stronger Canadian dollar.
Overall sales volumes, as measured in equivalent bales, or EBs (referring to 10 cubic feet of product), declined by 2% due to significant, ongoing weakness in Sun Gro's sales of sand-based mixes and a slowdown in orders for straight peat moss. However, the company continued to enjoy volume growth in sales of its core growing mix product lines.
This year's stronger Canadian dollar had an unfavourable impact on Sun Gro's gross margin and a favourable impact on its selling, general and administrative expenses. Distribution costs were down as a slight increase in per-EB costs on shipments from US facilities was more than offset by lower shipping costs in Canada, the positive effect of exchange rates on US freight costs and the lower sales volumes.
"In the second quarter, the sustained strength of the greenhouse segment of our business helped us to maintain the strong operating performance we delivered in the first three months of the year. We also continued to benefit from the plant efficiencies generated by our 2008 and 2009 productivity and infrastructure initiatives, especially at our Canadian locations," said Mitch Weaver, President and CEO of Sun Gro and a Trustee of the Fund.
"We are particularly pleased with our ongoing progress in reducing our debt obligations and interest expense," continued Weaver. "At quarter-end, we had improved our senior leverage ratio to 2.8, down significantly from 3.7 at June 30, 2009. Going forward, lower leverage will significantly reduce the future interest expense on both our term debt and our revolving operating facility."
Second Quarter Financial Results
Revenue for the second quarter of 2010 was $56.1 million, a decrease of $8.8 million from the $64.9 million reported in 2009, mainly due to the unfavourable foreign exchange impact. The average value of the Canadian dollar compared to the US dollar appreciated 14% year-over-year, effectively reducing revenue by approximately $7.0 million. While overall sales volumes declined by 2%, sales volumes of compressed professional growing mixes increased by 17%, and overall growing mix volumes increased by 3%, reflecting the continued strength of Sun Gro's core product offering.
The less favourable exchange rates reduced gross margin to 40% from 41% in 2009, which in turn brought operating income down to $2.0 million from $4.9 million in 2009. Had exchange rates remained constant year-over-year, gross margin would have been 43% and operating income would have been flat.
Earnings during the quarter were also affected significantly by the change in exchange rates and by the Fund's foreign currency management program. Maturing forward currency contracts resulted in realized gains of $2.3 million during the quarter, compared to losses of $2.4 million in Q2 2009, driving a $1.7 million, or 28%, increase in EBITDA. The marking to market of its forward foreign currency contract position resulted in an unrealized loss of $5.8 million, compared to an unrealized gain of $8.3 million last year. This drove a $5.5 million net loss for the three months, compared to net earnings of $9.0 million in 2009.
As in the first quarter of 2010, capital spending was up from the prior year level and continued to be limited to plant improvements to enhance efficiency and upgrade production capacity. Most notably, Sun Gro is acquiring a new $1.1 million, 110-cubic-foot baler for its Seba Beach, Alberta plant. The new baler will allow the company to package products more efficiently with reduced use of plastic. It will be operational by the end of this year.
Sun Gro's annual peat harvest began in late April and should proceed through October. Generally favourable peat harvesting conditions resulted in a 50% year-over-year increase in harvest volumes during the second quarter. Volumes were up in all regions, although virtually no peat was harvested in Manitoba during the month of June due to wet weather.
Six-Month Financial Results
Revenue for the six months ended June 30, 2010 was $120.4 million, down by 10% from the $133.9 million reported in the first half of 2009. As with the quarterly result, the difference was primarily due to the negative impact of currency exchange. The average value of the Canadian dollar compared to the US dollar for the six months appreciated by 17%. This change effectively reduced Sun Gro's 2010 revenue by approximately $17.0 million. In US dollar terms, six-month revenue increased 5% to $115.7 million from $110.3 million in 2009. The adverse effect of exchange rates was partially offset by a 3% increase in overall sales volumes and changes in Sun Gro's sales mix, as first-half sales volumes of higher-value professional mix products increased significantly and sales of lower value sand-based mixes decreased.
Sun Gro's first-half gross margin of 41% was down by 2% from the 43% recorded in the first six months of 2009. The gross margin reduction brought operating income down to $8.0 million from the $13.5 million recorded in the first six months of 2009. Had exchange rates remained constant, gross margin would have increased to 44% and operating income would have increased by approximately $2.3 million, or 17%, due both to the higher volumes and improved productivity. First-half EBITDA increased by $1.2 million, or 7%, to $18.1 million, primarily as a result of a realized gain on forward currency contracts of $3.0 million, versus a realized loss of $3.8 million in the prior year. Due to the impact of exchange rate fluctuations on the Fund's forward foreign currency contracts, net earnings decreased to $0.3 million from $12.4 million last year.
<< Reconciliation of net earnings to earnings before interest, taxes, depreciation and amortization (EBITDA)
Three Three Six Six months months months months (in thousands of dollars) ended ended ended ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009
Net earnings (loss) for the period $ (5,535) $ 9,028 $ 322 $ 12,353
Adjustments: Interest expense 1,885 2,593 3,791 5,037
Depreciation, depletion and accretion 3,111 3,209 6,235 6,475 Amortization of intangibles 558 612 1,140 1,238 Unrealized (gain) loss on foreign currency contracts 5,760 (8,260) 4,134 (8,687) Unrealized foreign exchange (gain) loss on US dollar assets and liabilities 2,114 (3,039) 791 (1,998) Gain on disposal of property, plant and equipment (46) (4) (15) (1,074) Income tax provision (recovery) (111) 1,912 1,671 3,494 EBITDA $ 7,736 $ 6,051 $ 18,069 $ 16,838 >>
Balance Sheet Improvements
In the second quarter, Sun Gro reduced its term-debt obligations by a total of $6.7 million, repaying principal of $3.4 million on term loans and other debt, and depositing $3.3 million (US$3.1 million) to a restricted cash account. Drawings on the Fund's revolving operating facility decreased seasonally to $24.5 million at June 30, 2010 from $35.8 million at March 31, 2010, and were also down from borrowings of $27.9 million at June 30, 2009. The Fund's improved balance sheet enabled it to reduce second quarter interest expense by $0.7 million year-over-year. At June 30, 2010, the Fund was in compliance with all of its debt covenants.
Distributable Cash
For the three months ended June 30, 2010, after the $6.7 million of debt repayments and restricted cash deposits, distributable cash was negative $3.0 million, or ($0.13) per unit. This compares to negative $3.2 million, or ($0.15) per unit, in the second quarter of 2009.
For the six months ended June 30, 2010, after deducting the $8.6 million of debt repayments and restricted cash deposits made during the first half, distributable cash was $1.0 million, or $0.05 per unit. This compares to distributable cash of $2.3 million, or $0.10 per unit, in the same period of 2009.
The year-over-year differences in distributable cash generated in both the three and six-month periods were primarily due to increased debt repayments and restricted cash deposits, higher sustaining capital expenditures in 2010 and an increase in current income tax expense. A portion of the tax expense increase is expected to reverse in the seasonally slower second half of the year. No cash distributions were declared to unitholders in either 2009 or 2010.
<< Statement of Distributable Cash
Three Three Six Six months months months months (in thousands of dollars ended ended ended ended except per-unit amounts) June 30, June 30, June 30, June 30, 2010 2009 2010 2009
Cash flows from operating activities $ 18,536 $ 23,777 $ 10,288 $ 11,812
Adjustments: Change in non-cash operating working capital(1) (13,779) (20,468) 1,420 (881)
Sustaining capital expenditures(2) (1,031) (472) (1,843) (836) Payments on capital leases and other loans(3) (130) (126) (220) (285) Restricted cash payments(4) (3,272) (2,960) (4,061) (2,960) Repayment of term loans(5) (3,307) (2,985) (4,554) (4,597) Distributable cash $ (2,983) $ (3,234) $ 1,030 $ 2,253 Distributable cash per unit $ (0.13) $ (0.15) $ 0.05 $ 0.10
Distributions declared per unit(6) $ - $ - $ - $ -
(1) Non-cash operating working capital fluctuates significantly on a quarterly basis as a result of the seasonality of Sun Gro's business.
(2) Sustaining capital expenditures are defined as cash outlays, capital in nature, required to maintain the business at its current operating capacity and efficiency level. Investment capital expenditures are those made for the purpose of business expansion and are not recorded as a reduction from distributable cash.
(3) Capital leases and equipment loans are used to finance certain harvesting and transportation equipment. Government loans were received to directly support certain capital projects. Payments on these capital-related loans and leases are included in the calculation of distributable cash.
(4) Payments were made to a restricted cash account related to the Fund's fixed-rate term debt.
(5) Repayments were made on a vendor note for a business acquisition and on the Fund's variable-rate term debt.
(6) Under our amended credit facilities, the Fund is prohibited from making distributions.
Operating Results for the three months ended June 30, 2010 and 2009
Comparative Statements of Earnings (Loss) and Comprehensive Income (Loss) (In thousands of dollars except Three months Three months per-unit amounts, and number ended ended of units outstanding) June 30, 2010 June 30, 2009
Revenue $ 56,141 100% $ 64,893 100% Cost of goods sold 33,834 60% 38,482 59% Gross profit 22,307 40% 26,411 41%
Distribution expenses 10,382 18% 11,028 17% Selling expenses 4,687 8% 4,920 8% General and administrative expenses 5,266 9% 5,556 8% Total operating expenses 20,335 36% 21,504 33% Operating income 1,972 4% 4,907 8%
Other income (expense), net (5,733) -11% 8,626 13% Interest expense (1,885) -3% (2,593) -4% Earnings (loss) before income taxes (5,646) -10% 10,940 17% Income tax (provision) recovery Current (1,094) -2% (149) 0% Future 1,205 2% (1,763) -3% Income tax (provision) recovery 111 0% (1,912) -3% Net earnings (loss) for the period $ (5,535) -10% $ 9,028 14% Other comprehensive income (loss): Unrealized gain (loss) on translating financial statements of self-sustaining foreign operations 2,545 5% (3,684) -6% Comprehensive income (loss) for the period $ (2,990) -5% $ 5,344 9%
Basic and diluted earnings (loss) per unit $ (0.25) $ 0.41 Weighted average number of units outstanding 22,284,681 22,284,681
Selected supplemental revenue information for the three months ended June 30 2010 2009 Increase (decrease)
Volume in thousands of EBs(1) Peat and Bark-based Growing Mixes 1,683 1,638 45 3% Peat Moss 910 1,002 (92) -9% Bulk Bark Mixes 804 695 109 16% Sand-based Mixes 130 256 (126) -49% Fertilizer and Minerals 75 76 (1) -1% Total 3,602 3,667 (65) -2%
Average revenue per EB(1) (US$) Peat and Bark-based Growing Mixes $ 20.41 $ 19.95 $ 0.46 2% Peat Moss 10.50 10.87 (0.37) -3% Bulk Bark Mixes 7.52 7.94 (0.42) -5% Sand-based Mixes 12.19 11.07 1.12 10% Fertilizer and Minerals 46.32 41.18 5.14 12% Total $ 15.27 $ 15.01 $ 0.26 2%
Average revenue per EB(1) (CDN$) Peat and Bark-based Growing Mixes $ 21.00 $ 23.69 $ (2.69) -11% Peat Moss 10.81 12.82 (2.01) -16% Bulk Bark Mixes 7.75 9.41 (1.66) -18% Sand-based Mixes 12.64 12.89 (0.25) -2% Fertilizer and Minerals 47.73 48.58 (0.85) -2% Total $ 15.72 $ 17.78 $ (2.06) -12%
(1) An EB, or equivalent bale, is Sun Gro's standard unit of measure, referring to 10 cubic feet of product. Calculation of average revenue per EB does not include transportation-related surcharges or the cost of early payment discounts.
Operating Results for the six months ended June 30, 2010 and 2009
Comparative Statements of Earnings and Comprehensive Income (In thousands of dollars except Six months Six months per-unit amounts, and number of ended ended units outstanding) June 30, 2010 June 30, 2009
Revenue $ 120,358 100% $ 133,854 100% Cost of goods sold 70,926 59% 75,946 57% Gross profit 49,432 41% 57,908 43%
Distribution expenses 21,440 18% 21,499 16% Selling expenses 9,484 8% 10,165 8% General and administrative expenses 10,470 8% 12,757 9% Total operating expenses 41,394 34% 44,421 33% Operating income 8,038 7% 13,487 10%
Other income (expense), net (2,254) -2% 7,397 6% Interest expense (3,791) -3% (5,037) -4% Earnings before income taxes 1,993 2% 15,847 12% Income tax (provision) recovery Current (2,570) -2% (870) -1% Future 899 1% (2,624) -2% Income tax provision (1,671) -1% (3,494) -3% Net earnings for the period $ 322 0% $ 12,353 9% Other comprehensive income: Unrealized gain (loss) on translating financial statements of self-sustaining foreign operations 822 1% (2,903) -2% Comprehensive income for the period $ 1,144 1% $ 9,450 7%
Basic and diluted earnings per unit $ 0.01 $ 0.55 Weighted average number of units outstanding 22,284,681 22,284,681
Selected supplemental revenue information for the six months ended June 30 2010 2009 Increase (decrease)
Volume in thousands of EBs(1) Peat and Bark-based Growing Mixes 3,648 3,388 260 8% Peat Moss 1,852 1,803 49 3% Bulk Bark Mixes 1,423 1,311 112 9% Sand-based Mixes 205 425 (220) -52% Fertilizer and Minerals 192 162 30 19% Total 7,320 7,089 231 3%
Average revenue per EB(1) (US$) Peat and Bark-based Growing Mixes $ 20.75 $ 20.27 $ 0.48 2% Peat Moss 10.67 10.89 (0.22) -2% Bulk Bark Mixes 7.66 8.19 (0.53) -6% Sand-based Mixes 11.40 11.14 0.26 2% Fertilizer and Minerals 41.60 43.75 (2.15) -5% Total $ 15.94 $ 15.64 $ 0.30 2%
Average revenue per EB(1) (CDN$) Peat and Bark-based Growing Mixes $ 21.59 $ 24.55 $ (2.96) -12% Peat Moss 11.09 13.11 (2.02) -15% Bulk Bark Mixes 7.96 9.89 (1.93) -20% Sand-based Mixes 11.86 13.28 (1.42) -11% Fertilizer and Minerals 43.32 52.81 (9.49) -18% Total $ 16.58 $ 18.90 $ (2.32) -12%
(1) An EB, or equivalent bale, is Sun Gro's standard unit of measure, referring to 10 cubic feet of product. Calculation of average revenue per EB does not include transportation-related surcharges or the cost of early payment discounts. >>
Conversion to Corporation
As previously announced, at the Fund's annual and special meeting on May 27, 2010, unitholders approved the plan of arrangement (the arrangement) for the Fund's reorganization into a corporate structure by a near unanimous vote of 99.91%. A final order of the Supreme Court of British Columbia approving the arrangement was granted on May 31, 2010. The arrangement is expected to become effective on or before December 31, 2010, at which time all of the units of the Fund will be exchanged on a one-for-one basis for common shares of the new public corporation, Sun Gro Horticulture Inc.
Outlook
Over the near term, although economic conditions remain unsettled, Sun Gro expects that its sales volumes will be consistent with 2009 levels. "Half of our top 10 professional peat mix customers increased their volumes with us in the second quarter. This bodes well for the future growth of our business," said Weaver, adding that, "After two historically low annual peat harvests, we are also encouraged by the marked improvement in our harvest volumes so far this year."
"We remain focused on reducing debt in order to continue strengthening our balance sheet in the second half. We expect to make principal repayments over the balance of 2010 similar to those we made last year," said Weaver.
Foreign currency contracts for the remainder of 2010 total US$26.5 million at an average rate of CDN$1.11 (US$0.90), representing substantially all of Sun Gro's anticipated purchases of Canadian dollars for the balance of the year. For 2011, the Fund has entered into foreign currency contracts totalling US$41.0 million at an average rate of CDN$1.05 (US$0.95).
Copies of management's discussion and analysis (MD&A) and the Fund's unaudited financial statements for the three and six months ended June 30, 2010 will be available at www.sedar.com and at www.sungro.com on or about August 11, 2010.
Forward-Looking Information
This news release contains certain forward-looking statements within the meaning of applicable Canadian provincial securities laws. All statements, other than statements of historical fact, are forward-looking statements or information. When used in this news release, the words "anticipate", "will", "believe", "estimate", "expect", "intend", "target", "plan", "goals", "objectives", "pro forma", "forecast", "schedule", "may" and other similar words and expressions, identify forward-looking statements or information.
This forward-looking information relates to, among other things: compliance with Sun Gro's debt covenants; the completion of the new baler installation at Sun Gro's Seba Beach facility; expected sales volumes; the impact of increased volumes among Sun Gro's professional peat mix customers; expected principal payments on Sun Gro's debt facilities; and the completion of the Fund's conversion to a corporation prior to year-end. These statements reflect the current views of the Fund with respect to future events and are necessarily based upon a number of assumptions and estimates that, while considered reasonable by the Fund, are inherently subject to significant business, economic, political and social uncertainties and contingencies. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements contained in this news release and the Fund has made assumptions based on or related to many of these factors. Such factors include, without limitation, risks relating to: currency fluctuations; interest rate fluctuations; Sun Gro's ability to meet its financial obligations as they fall due; financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations; Sun Gro's resource supply; competition in the growing media industry; the effect of seasonality, weather and other related factors on Sun Gro's production and sales; environmental regulations and related requirements; climate and its ability to affect the cost and quality of Sun Gro's harvest; potential product liabilities, regulatory requirements and labour relations connected with Sun Gro's operations; Sun Gro's ability to retain key personnel; potential litigation; unitholder distributions; the Fund's reliance on Sun Gro's operations; unitholder limited liability; income tax matters; the eligibility of the Fund's units under registered retirement savings plans, deferred profit sharing plans, registered retirement income funds and registered education savings plans; the nature of and statutory rights associated with units; distributions to unitholders upon redemption of units or termination of the Fund; dilution of existing unitholder interests on the issuance of additional units; restrictions on Sun Gro's potential growth under its current income trust structure; the inability to obtain required consents, permits or approvals including unitholder and court approval of the proposed conversion into a corporation; the completion of the proposed conversion; and those factors that have been identified under the caption "Risk Factors" in the Fund's Annual Information Form filed on SEDAR at www.sedar.com. Although the Fund has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated, described or intended. The Fund does not intend and does not assume any obligation, to update the forward-looking statements or information to reflect changes in assumptions or changes in circumstances where any other events affecting such statements or information, other than as required by applicable securities laws. Unitholders are cautioned against attributing undue reliance on forward-looking statements or information.