TRADING SYMBOL: Toronto Stock Exchange - GRO.UN
Sun Gro Horticulture Income Fund will hold a conference call and webcast
to discuss 2006 second quarter and first half results on August 9, 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 August 23, 2006 at: 1-877-289-8525 or 416-640-1917. (Passcode:
21196138 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)106795 or to the fund's
website at: www.sungro.com.
VANCOUVER, Aug. 8 /CNW/ - Sun Gro Horticulture Income Fund (the "Fund")
today reported financial results for the three and six-month periods ended
June 30, 2006. The three-month period represents the second quarter of its
2006 fiscal year.
The Fund generated record distributable cash for both the second quarter
and first half. In the three months to June 30, 2006, it earned $6.1 million,
or $0.28 per unit, of distributable cash, up from $5.6 million, or $0.26 per
unit, in the second quarter of 2005. Distributable cash for the six-month
period totalled $12.7 million, or $0.58 per unit, up from $11.1 million, or
$0.51 per unit, in 2005. Distributable cash paid to unitholders was unchanged
at $5.0 million, or $0.225 per unit, for the quarter and $9.9 million, or
$0.45 per unit, for the half in both years. This represents an annualized
distribution rate of $0.90 per unit.
"We are pleased with the significant year-over-year improvement in our
distributable cash generation during the seasonally stronger first half of the
year," said Mitch Weaver, Sun Gro's President and CEO and a Trustee of the
Fund. "We anticipate that we will continue to generate sufficient
distributable cash to meet the current rate of distributions for 2006."
<<
(in thousands of dollars
except per unit amounts) 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,
Statement of distributable cash 2006 2005 2006 2005
-------------------------------------------
Cash flows from operating
activities before change in
non-cash operating working
capital $ 4,792 $ 4,528 $ 11,456 $ 8,429
Adjustments
Realized gain on forward
currency contracts 2,045 1,386 2,536 2,782
Sustaining capital
expenditures (672) (546) (1,686) (1,223)
Repayment of government loan (50) (25) (100) (50)
Current income taxes expected
to seasonally reverse in
the current fiscal year 32 295 482 1,195
-------------------------------------------
-------------------------------------------
Distributable cash $ 6,147 $ 5,638 $ 12,688 $ 11,133
-------------------------------------------
-------------------------------------------
Distributable cash per unit $ 0.28 $ 0.26 $ 0.58 $ 0.51
-------------------------------------------
-------------------------------------------
>>
Three Month Operating Results
In the three months to June 30, 2006, Sun Gro Horticulture Canada ("Sun
Gro", or the "company"), the Fund's wholly owned subsidiary, continued the
trend of gross margin improvement it began in the first quarter. The positive
effect of the company's pricing strategy in offsetting the stronger Canadian
dollar, a reduction in cross-regional shipments, and an earlier start to this
year's peat harvest contributed to a 2% year-over-year increase in second
quarter gross margin, from 46% in 2005 to 48% in 2006. Gross margin was also
up from the 47% reported in the first quarter of this year.
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 June 2006. As a result, the company's average second quarter US
dollar prices for growing mixes were up by 10% and Canadian dollar revenue per
EB (10 cubic feet of peat) was 1% higher than in the same period of 2005. For
peat moss, pricing is impacted by sales under a supply agreement associated
with Sun Gro's 2004 acquisition of the Lameque Group. Sales under this
agreement exclude distribution and packaging costs, and thus provide
significantly lower price realizations. Excluding these sales, Sun Gro's US
dollar price for peat moss increased by 11% quarter-over-quarter, leading to a
2% increase in peat moss revenue per EB in Canadian dollars.
For the three months ended June 30, 2006, Sun Gro recorded revenue of
$52.1 million, down by $1.2 million, or 2% from the $53.3 million recorded in
the second quarter of 2005. While total sales volumes for the quarter were up
4% compared to a year ago, changes in Sun Gro's sales mix had a negative
impact on revenue. As in the first three months of the year, the company
continued to see year-over-year increases in sales of peat moss and a
proportionate decrease in sales of its higher-priced growing mixes. During the
second quarter, peat moss sales volumes were up 28% and growing mix volumes
were down by 15%, compared to the same period in 2005 when Sun Gro suffered
from unusual peat supply constraints. Sales of fertilizers and minerals, which
make up the balance of revenues, increased by $0.5 million, or 20%, compared
to the second quarter of 2005 as a result of the Multicote(R) distribution
agreement Sun Gro signed in mid-2005.
With approximately 85% of its sales denominated in US dollars, foreign
exchange continued to exert a strong impact on Sun Gro's revenue during the
second quarter. The value of the Canadian dollar averaged US$0.89, compared to
US$0.81 in the second quarter of 2005. The difference in exchange rates
effectively reduced revenue for the period by 8%, compared to 2005.
As in the first quarter, operating income was up significantly year-over-
year. For the three months to June 30, 2006, Sun Gro recorded operating income
of $4.1 million, up from $2.9 million in the same period in 2005. The
improvement was largely the result of Sun Gro's price increases, improved
operating efficiencies, and its fourth quarter 2005 decision to restrict
cross- regional shipments to customers normally served from its operations in
Manitoba in response to last year's peat harvest shortfall. The earlier start
to this year's harvest also contributed. With certain volumes being shipped
shorter distances, per-EB distribution costs during the second quarter were
down by 3% from 2005.
Second quarter net earnings were $8.4 million, generating basic and
diluted earnings of $0.38 per unit. In the corresponding period of 2005, Sun
Gro generated basic and diluted earnings of $0.07 per unit on second quarter
net earnings of $1.6 million. The increase was primarily due to the improved
gross profit and lower operating expenses for the quarter, as well as gains on
forward currency contracts and decreases in Canadian statutory tax rates.
Six-Month Operating Results
For the six months ended June 30, 2006, revenue totalled $110.3 million,
compared to $112.9 million in the same period of 2005, a decrease of $2.6
million, or 2%. As with the quarterly result, the decrease was primarily due
to a year-over-year reduction in sales of higher-priced professional growing
mixes. Revenue was also affected by the continued strengthening of the
Canadian dollar. In the first six months of 2006, the average US dollar
exchange rate was $0.87, compared to $0.81 in 2005.
Net earnings for the six months rose to $12.5 million, or $0.57 per unit,
compared to $3.0 million, or $0.14 per unit for the six months of 2005. As
with the quarterly result, the increase was mainly due to lower operating
expenses and strong gains related to the Fund's forward currency contracts.
<<
Financial Highlights
Comparative Statements of Earnings
(In thousands of dollars For the three For the three
except per unit amounts and months ended months ended
number of units outstanding) June 30, 2006 June 30, 2005
(unaudited) (unaudited)
-------------------------------------------
Revenue $ 52,090 100% $ 53,311 100%
Cost of goods sold 27,006 52% 28,938 54%
-------------- --------------
Gross profit 25,084 48% 24,373 46%
Distribution expenses 12,045 23% 12,333 23%
Selling expenses 3,900 7% 4,269 8%
General and administrative
expenses 4,991 10% 4,841 9%
-------------- --------------
Total operating expenses 20,936 40% 21,443 40%
-------------- --------------
Operating income 4,148 8% 2,930 6%
Other income (expense), net 3,875 7% (1,997) -4%
Interest expense (1,176) -2% (768) -2%
-------------- --------------
Earnings before income taxes 6,847 13% 165 0%
Income tax recovery (provision)
Current (867) -2% (612) -1%
Future 2,400 5% 2,006 4%
-------------- --------------
Income tax recovery
(provision), net 1,533 3% 1,394 3%
-------------- --------------
Net earnings for the period $ 8,380 16% $ 1,559 3%
-------------- --------------
-------------- --------------
Basic and diluted earnings
per unit $ 0.38 $ 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 1,528 1,796
Peat Moss 1,794 1,402
Fertilizer and Minerals 93 87
-------------- --------------
Total company sales 3,415 3,285
-------------- --------------
-------------- --------------
Average revenue per EB(1)
(US $)
Growing Mixes $ 17.99 $ 16.38
Peat Moss 8.23 7.71
Fertilizer and Minerals 28.49 23.43
-------------- --------------
Total company sales $ 13.16 $ 12.87
-------------- --------------
-------------- --------------
Average revenue per EB(1)
(Canadian $)
Growing Mixes $ 20.38 $ 20.21
Peat Moss 9.30 9.52
Fertilizer and Minerals 32.30 28.91
-------------- --------------
Total company sales $ 14.89 $ 15.88
-------------- --------------
-------------- --------------
(1) An EB, or equivalent bale, is Sun Gro's standard unit of measure
referring to 10 cubic feet of peat.
Comparative Statements of Earnings
(In thousands of dollars For the six For the six
except per unit amounts and months ended months ended
number of units outstanding) June 30, 2006 June 30, 2005
(unaudited) (unaudited)
-------------------------------------------
Revenue $ 110,345 100% $ 112,943 100%
Cost of goods sold 57,786 52% 61,737 55%
-------------- --------------
Gross profit 52,559 48% 51,206 45%
Distribution expenses 24,765 22% 26,564 24%
Selling expenses 7,680 7% 8,489 7%
General and administrative
expenses 9,996 9% 10,258 9%
-------------- --------------
Total operating expenses 42,441 38% 45,311 40%
-------------- --------------
Operating income 10,118 10% 5,895 5%
Other income (expense), net 3,583 3% (3,310) -3%
Interest expense (2,225) -2% (1,422) -1%
-------------- --------------
Earnings before income taxes 11,476 11% 1,163 1%
Income tax (provision) recovery
Current (1,952) -2% (1,751) -1%
Future 2,955 3% 3,584 3%
-------------- --------------
Income tax (provision)
recovery, net 1,003 1% 1,833 2%
-------------- --------------
Net earnings for the period $ 12,479 12% $ 2,996 3%
-------------- --------------
-------------- --------------
Basic and diluted earnings
per unit $ 0.57 $ 0.14
-------------- --------------
-------------- --------------
Weighted average number of
units outstanding 22,023,000 22,023,000
-------------- --------------
-------------- --------------
Selected supplemental revenue
information
Volume in thousands of EBs(1)
Growing Mixes 3,372 3,838
Peat Moss 3,254 2,806
Fertilizer and Minerals 196 203
-------------- --------------
Total company sales 6,822 6,847
-------------- --------------
-------------- --------------
Average revenue per EB(1)
(US $)
Growing Mixes $ 18.18 $ 16.60
Peat Moss 8.37 7.79
Fertilizer and Minerals 28.47 21.47
-------------- --------------
Total company sales $ 13.80 $ 13.14
-------------- --------------
-------------- --------------
Average revenue per EB(1)
(Canadian $)
Growing Mixes $ 20.77 $ 20.42
Peat Moss 9.53 9.59
Fertilizer and Minerals 32.53 26.39
-------------- --------------
Total company sales $ 15.75 $ 16.16
-------------- --------------
-------------- --------------
(1) An EB, or equivalent bale, is Sun Gro's standard unit of measure
referring to 10 cubic feet of peat.
>>
Outlook
For the first six months of 2006, Sun Gro's combined growing mix and peat
moss sales volumes were level with the first half of 2005, with a higher
proportion of peat moss shipped this year. The company is now implementing a
number of sales and production initiatives designed to increase sales of its
growing mixes and expects that mix volumes will benefit from these over the
coming months.
The improved conditions and earlier start to this year's peat harvest
should support Sun Gro's efforts to grow sales of all its products. So far
this year, it has had sufficient peat on hand to meet all of its growing mix
demand, as well as the increased demand from peat-only customers. The harvest
season began in April and should last into October. By the end of June, the
company's year-over-year peat harvest volumes were in line with long-term
historical experience. Subsequent to the end of the quarter, wet conditions in
New Brunswick have reduced harvest volumes in that region. At this point, it
is too early to predict the overall 2006 harvest, however, the company expects
that tight supply conditions will persist until the 2007 harvest season.
Sun Gro's decision to reduce cross-regional shipments to customers in the
central US contributed to a 5% year-over-year reduction in its per-EB
distribution costs in the first half of 2006. With the Manitoba peat harvest
progressing in line with historical experience, it does not foresee as much
need to ship peat moss from one region to another to meet its sales
commitments this year.
Foreign exchange continues to present a challenge. So far, Sun Gro has
been able to offset most of the currency movement with price increases and
gains from its forward currency contracts.
The company continues to hold forward currency contracts to manage the
impact of the ongoing strengthening of the Canadian dollar. For the remainder
of 2006, it has entered into forward currency contracts with a blended rate of
$1.22 (US$ 0.82) 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.
"With the peat harvest and a number of initiatives to enhance our sales
volumes underway, we remain cautiously optimistic about the prospects for the
balance of the year and confident in the sustainability of our current cash
distribution level," said Weaver.
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. 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 we believe 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
June 30, December 31,
Assets 2006 2005
------------ ------------
Current assets
Accounts receivable $ 48,710 $ 46,310
Inventories 25,488 29,856
Unrealized gain on forward currency contracts 3,718 3,041
Prepaid expenses and other assets 3,555 3,844
------------ ------------
81,471 83,051
Property, plant and equipment 123,525 126,727
Unrealized gain on forward currency contracts 609 -
Intangible assets 34,634 35,616
Goodwill 11,202 11,202
------------ ------------
$ 251,441 $ 256,596
------------ ------------
------------ ------------
Liabilities and Unitholders' Equity
Current liabilities
Bank indebtedness $ 1,152 $ 1,053
Operating line 36,292 38,329
Accounts payable and accrued liabilities 15,635 16,059
Current portion of long-term debt 200 200
Distribution payable to unitholders 1,652 1,652
------------ ------------
54,931 57,293
Other liabilities 4,289 4,175
Long-term debt 23,761 24,261
Future income taxes 16,120 19,051
------------ ------------
99,101 104,780
Unitholders' equity
Capital contributions 209,733 209,733
Cumulative translation account (17,288) (15,245)
Cumulative earnings 53,927 41,448
Cumulative distributions declared (94,032) (84,120)
------------ ------------
152,340 151,816
------------ ------------
$ 251,441 $ 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 six six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
----------------------------------------------------
Revenue $ 52,090 $ 53,311 $ 110,345 $ 112,943
Cost of goods sold 27,006 28,938 57,786 61,737
----------------------------------------------------
Gross profit 25,084 24,373 52,559 51,206
Distribution expenses 12,045 12,333 24,765 26,564
Selling expenses 3,900 4,269 7,680 8,489
General and
administrative expenses 4,991 4,841 9,996 10,258
----------------------------------------------------
Total operating expenses 20,936 21,443 42,441 45,311
----------------------------------------------------
Operating income 4,148 2,930 10,118 5,895
Other income (expense),
net 3,875 (1,997) 3,583 (3,310)
Interest expense (1,176) (768) (2,225) (1,422)
----------------------------------------------------
Earnings before income
taxes 6,847 165 11,476 1,163
Income tax (provision)
recovery
Current (867) (612) (1,952) (1,751)
Future 2,400 2,006 2,955 3,584
----------------------------------------------------
Income tax (provision)
recovery, net 1,533 1,394 1,003 2,162
----------------------------------------------------
Net earnings for the
period 8,380 1,559 12,479 2,996
Cumulative earnings -
beginning of period 45,547 46,345 41,448 44,908
----------------------------------------------------
Cumulative earnings -
end of period $ 53,927 $ 47,904 $ 53,927 $ 47,904
----------------------------------------------------
----------------------------------------------------
Basic and diluted
earnings per unit $ 0.38 $ 0.07 $ 0.57 $ 0.14
----------------------------------------------------
----------------------------------------------------
Weighted average
number of units
outstanding 22,023,000 22,023,000 22,023,000 22,023,000
----------------------------------------------------
----------------------------------------------------
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,
2006 2005 2006 2005
----------------------------------------------------
Cash flows from
operating activities
Net earnings for the
period $ 8,380 $ 1,559 $ 12,479 $ 2,996
Items not affecting
cash
Depreciation,
depletion and
accretion 2,389 2,429 4,770 4,771
Amortization of
intangible assets 491 605 982 1,210
Loss (gain) on
forward currency
contracts (4,072) 1,962 (3,822) 3,074
Loss (gain) on
disposal of
property, plant
and equipment 4 (21) 2 (38)
Future income tax
recovery (2,400) (2,006) (2,955) (3,584)
----------------------------------------------------
4,792 4,528 11,456 8,429
Change in non-cash
operating working
capital 11,813 12,569 123 1,388
----------------------------------------------------
16,605 17,097 11,579 9,817
Cash flows from
investing activities
Acquisitions - - - (3,250)
Realized gain on
forward currency
contracts 2,045 1,386 2,536 2,782
Additions to property,
plant and equipment (672) (546) (1,686) (1,223)
Proceeds from disposal
of property, plant
and equipment - 404 2 421
----------------------------------------------------
1,373 1,244 852 (1,270)
Cash flows from financing
activities
Distributions paid
to unitholders (4,956) (4,956) (9,912) (9,912)
Proceeds from term loans - - - 3,250
Decrease in operating
line (13,448) (14,460) (2,037) (3,077)
Repayment of government
loan (50) (25) (100) (50)
----------------------------------------------------
(18,454) (19,441) (12,049) (9,789)
Effect of exchange rate
changes on cash (604) 286 (481) 398
----------------------------------------------------
Increase in bank
indebtedness (1,080) (814) (99) (844)
Bank indebtedness -
beginning of period (72) (192) (1,053) (162)
----------------------------------------------------
Bank indebtedness -
end of period $ (1,152) $ (1,006) $ (1,152) $ (1,006)
----------------------------------------------------
----------------------------------------------------
Supplemental cash flow
information
Interest paid $ 1,541 $ 958 $ 2,300 $ 1,478
Income taxes paid $ 91 $ 82 $ 383 $ 178
>>
%SEDAR: 00017490E
