VANCOUVER, May 5 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN)
announced today its earnings for the first quarter ending March 31, 2005.
Please see attached Report to Unitholders for details.
Westshore Terminals Income Fund
First Quarter Report
For the three months ended March 31, 2005
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Dear Unitholders:
Westshore Terminals Income Fund (the "Fund") derives its cash inflows
from its investment in the $645 million subordinated notes and common shares
of Westshore Terminals Ltd. ("Westshore"). The earnings and distributable cash
of the Fund are wholly dependent on the results of Westshore. Westshore's
results are determined largely by the volume of coal shipped by its coal mine
customers for sale in the export market, the rate per tonne charged by
Westshore and Westshore's costs. Higher prices for hard coking coal have
resulted in much higher average settlement prices for the 2005/06 coal year
compared to 2004/05 coal year and higher settlement prices are expected to
take effect by June, 2005. As a result, Westshore's throughput charges for
some of the coal it handles are expected to increase significantly, which
would lead to materially higher anticipated distributions in the second half
of 2005 compared to 2004. As Westshore has some exposure to exchange rates (as
a result of the pricing mechanisms on most of its customer contracts),
Westshore has also undertaken a currency hedging program which is intended to
offer partial protection to Westshore from material swings in the CDN/US
dollar exchange rate.
Westshore Terminals Income Fund
- Management's Discussion and Analysis of Financial Condition
and Results of Operations
This management's discussion and analysis refers to certain measures
other than those prescribed by Generally Accepted Accounting Principles
("GAAP"). These measures do not have standardized meanings and may not be
comparable to similar measures presented by other trusts or corporations. They
are however determined by reference to the Fund's financial statements. These
non-GAAP measures are discussed because the Fund believes they provide
investors with valuable information in understanding the results of the Fund's
and Westshore's operations and financial position. The date of this
management's discussion and analysis and results of operations is May 3, 2005.
The following table sets out selected consolidated financial information
for the Fund for the quarter ended March 31, 2005. As at March 31, 2005, the
Fund had 70,381,111 issued and outstanding trust units.
<<
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Three Months Ended
(In thousands of dollars March 31, 2005
except per unit amounts) $
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REVENUE
Coal 31,692
Other 21
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31,713
EXPENSES
Operating 16,339
Administrative 1,392
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Earnings before depreciation, interest and income taxes 13,982
Depreciation 5,728
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Earnings before income taxes 8,254
Recovery of income taxes 2,222
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Net earnings for the period 10,476
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Earnings per trust unit 0.149
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Adjusted EBITDA
Earnings before depreciation, interest and income taxes 13,982
Add:
Unrealized losses on forward exchange contracts 1,343
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Adjusted EBITDA 15,325
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Distributions declared 14,076
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Distributions declared per trust unit 0.20
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Results of Operations
In the first quarter of 2005, Westshore shipped approximately 5.7 million
tonnes of coal, compared with 5.1 million tonnes shipped during the same
period in 2004. During the first quarter of 2005, Westshore continued to
experience lower than normal levels of inventories. While still permitting
loading at an acceptable rate, operating with low levels of inventories
negatively impacts the productivity of the terminal. During the winter of
2004/05, rail deliveries were not materially impacted by weather conditions,
as compared to the winter of 2003/04.
Based on current information available to it, Westshore currently
anticipates that total throughput for 2005 will be at least 22 million tonnes,
up from 2004 levels of 21.2 million tonnes. The ability to achieve these
tonnages will depend in part on the volumes delivered to and the resulting
level of inventories maintained at the coal terminal.
Coal loading revenue increased by 35.5% to $31.7 million in the first
quarter of 2005 from $23.4 million in the first quarter of 2004. The increase
was due to higher volumes (12.1% of the 35.5% increase) and higher average
loading rates (23.4% of the 35.5% increase).
The average loading rate in the first quarter of 2005 rose to $5.59 per
tonne compared to $4.63 per tonne for the same period in 2004. Higher rates in
Q1 2005 reflect the higher coal prices for the 2004/05 coal contract year,
which in US dollar denominated terms rose by approximately 30% compared to the
prior coal contract year, although the effect on Westshore's loading rates was
lessened by the rise in the Canadian dollar.
Other revenue decreased to $21,000 in the first quarter of 2005 compared
to $1.6 million in the first quarter of 2004. This decrease is primarily due
to $1.3 million of unrealized hedging losses being recorded in the first
quarter of 2005. (See "Currency Fluctuations"). Demurrage and train detention
costs were similar to the same period in 2004.
Operating expenses increased from $14.2 million in the first quarter of
2004 to $16.3 million in the first quarter of 2005. The increase was primarily
due to higher wage and lease costs as a result of higher shipment volumes and
higher maintenance costs. Administrative costs declined, having increased in
the first quarter of 2004 by reason of a non-recurring GST issue relating to
payments received from Fording Trust.
As a result of the foregoing, Westshore's earnings before depreciation,
interest and income taxes increased to $14.0 million for the first quarter of
2005 compared to $9.0 million for the same period in 2004 (before taking into
account the Fund's gain on the sale of the Fording Canadian Coal Trust units
in Q1 2004).
Currency Fluctuations
Since April 1, 2003, the loading rates under most of Westshore's
long-term handling contracts have depended in whole or in part on the Canadian
dollar price realized for coal handled by Westshore. To mitigate the resulting
risk, Westshore engaged in periodic hedging activities in 2003 and the early
part of 2004. In view of the continuing changes in the value of the Canadian
dollar relative to the US dollar, and the exposure of Westshore's revenues to
such uncertainty, in mid 2004 Westshore adopted a formal hedging policy with
respect to the portion of Westshore's revenue that it anticipates receiving
based on the Canadian dollar equivalent of the US dollar price of coal
(referred to as "Exposed Revenue"). The intent is to put in place hedging
strategies so that, prior to the beginning of any calendar year, between 50%
and 100% of Exposed Revenue is hedged for that calendar year. In addition, at
least 25% of Exposed Revenue for the next two years should be hedged at any
quarter end subject to a declining maximum percentage.
In the financial statements, the effect of currency fluctuations is shown
as impacting coal loading revenues before taking into account the effect of
hedging activities, the financial effect of which is accounted for as other
revenue. As stated in the audited Financial Statements of the Fund for the
year end of December 31, 2004, because Westshore's hedging transactions do not
qualify for "hedge accounting", the value of Westshore's forward exchange
contracts must be "marked to market" at each period end. On this basis, other
revenue for the twelve months ended December 31, 2004 included an unrealized
gain on forward exchange contracts of $11.7 million. By reason of changes in
the value of the Canadian dollar in the first three months of 2005, other
revenue for Q1 2005 was reduced by $1.3 million of unrealized hedging losses
(essentially reducing the $11.7 million of revenue previously recorded). The
unrealized gains and losses are non-cash items. The cash effect of the hedging
program is recognized in other revenue as the forward exchange contracts
mature. For the first quarter of 2005, the inclusion in other revenue on
account of settled contracts was $1.2 million, as compared to $0.9 million in
2004.
Liquidity and Capital Resources
Effective January 5, 2005, and following a recapitalization of Westshore
with the Fund, Westshore issued to the Fund an additional $175 million
principal amount of senior subordinated notes bearing a rate of interest of
8.5% per annum ("New Notes"). These New Notes, together with the existing
$470 million original notes (collectively, the "Notes") provide for quarterly
interest payments by Westshore to the Fund.
During the quarter ended March 31, 2005, the Fund's operating cash
inflows were based on the interest income on the Notes. Interest on
$175 million of New Notes is at 8.5% per annum and the interest on the
$470 million of notes is at a variable rate and fluctuates in proportion to
Westshore's earnings before depreciation, interest, income taxes and
extraordinary gain, subject to a floor and a ceiling.
The Fund is obliged to distribute to Unitholders its cash inflows, less
administrative costs of the Fund and amounts required for the operation of the
Fund and any amounts which may be paid in connection with any cash redemption
of units. The Fund has no fixed distribution requirements, distributions being
solely a function of amounts received by the Fund. Because the Fund's
investment in Westshore is of a passive nature, it is not anticipated that the
Fund will require significant capital resources to maintain its investment in
Westshore on an ongoing basis.
Westshore has in place with a Canadian chartered bank a $1 million
secured operating facility which, if required, can be utilized to meet working
capital requirements. This facility was not used during the first quarter and
remained undrawn at March 31, 2005. Westshore's distribution policy leaves
approximately 10% of earnings before depreciation, interest, income taxes, and
unrealized gains or losses on forward exchange contracts to cover cash
requirements such as capital expenditures and special pension contributions.
The Fund does not have any long-term debt, capital lease obligations, or
other long-term obligations.
Quarterly Distributions
On April 15, 2005, the Fund distributed $14,076,222 ($0.20 per unit) in
cash for the first quarter of 2005 to Unitholders of record on March 31, 2005
as compared with $21,114,701 ($0.30 per unit) in cash for the first quarter of
2004. The Q1 2004 distribution included a $0.167 payment per unit realized
from the sale proceeds of the Fording Trust units previously held by the Fund.
The Q1 2005 distribution was solely derived from the operations of Westshore.
For unitholder income tax purposes, the Q1 2005 distribution was comprised of
100% income.
Outlook
For the second half of 2005, after the increased coal prices are expected
to become effective, tonnages shipped at fixed rates are expected to account
for approximately 25% of Westshore's throughput; tonnages shipped at variable
rates but subject to a cap, are expected to account for approximately 30% of
throughput; and finally, tonnages shipped at full variable rates are expected
to account for approximately 45% of throughput at Westshore. Under Westshore's
contracts, the rate of change in the loading rates is reduced when the
Canadian dollar price received by Westshore's customers for the coal shipped
is greater than approximately CDN$67.00 per tonne.
Because of a combination of possible variations in tonnage, the US dollar
denominated coal price and exchange rates, it is not possible for the Fund to
predict accurately the level of its distributions for 2005. However, based on
the most current information available to it, the Fund expects distributions
in the first six months of 2005 to continue at levels closer to those of the
last six months of 2004. For the last six months of 2005, when the higher coal
prices will be in effect for the new coal year, Westshore expects to enjoy
materially higher throughput rates for approximately half of the coal shipped,
with a resulting increase in the Fund's distributions. That increase would
result in incentive fees becoming payable by Westshore to Westar under the
Management Agreement. Also to the extent that EBITDA exceeds $78 million,
Westshore's tax liability could increase significantly.
Based on Westshore's current assumptions of volume per specific customer,
US dollar coal price and exchange rates and throughput rates anticipated to be
charged in the last six month of the year:
- for every 1,000,000 tonnes difference in throughput, the effect on
distributions by the Fund is expected to be approximately 4 cents
per unit;
- for every US$10.00 change in the US dollar denominated coal price
received by the Elk Valley Coal Partnership, the effect on
distributions by the Fund is expected to be approximately 4 cents
per unit; and
- for every US$0.01 change in the value of the Canadian dollar, the
effect on distributions by the Fund is expected to be
approximately 0.3 cents per unit.
The above sensitivities factor in the anticipated effects of Westshore's
hedges currently in place. These sensitivities are expected to be applicable
only for the last six months of 2005 and are based on Westshore's current
assumptions. Sensitivities for any other period would depend upon the
appropriate assumptions at the relevant time.
As a result of anticipated higher throughput charges for the second half
of 2005, as explained above, and somewhat higher anticipated throughput
volumes, the Fund anticipates that distributions for 2005 in total will be
materially higher than distributions paid in 2004.
Annual General Meeting - Special Business
At the Fund's Annual General Meeting, to be held on June 14, 2005, it is
anticipated that unitholders will be asked for conditional approval for a
restructuring of the Fund and Westshore which will result in the creation of a
flow-through structure which would effectively see distributions from the
Westshore operations taxed at the unitholder level.
In addition to unitholder approval, completion of the restructuring is
subject to receipt of certain regulatory and other approvals including a tax
ruling. A more detailed description of the restructuring and the required
approvals will be contained in the Notice of Meeting and Management
Information Circular that will be mailed to unitholders in early May in
advance of the Annual General Meeting.
Forward-looking Statements
The foregoing statements concerning tonnages, coal prices, loading rates,
taxation and variability of distributions are forward-looking statements but
reflect the current expectations of the Fund and Westshore with respect to
future events and performance. Wherever used, the words "may," "will,"
"anticipate," "intend," "expect," "plan," "believe," and similar expressions
identify forward-looking statements. Forward-looking statements should not be
read as guarantees of future performance or results, and will not necessarily
be accurate indications of whether, or the times at which, such performance or
results will be achieved.
Forward-looking statements are based on information available at the time
they are made, assumptions made by management, and management's good faith
belief with respect to future events, and are subject to the risks and
uncertainties outlined in the Fund's annual information form that could cause
actual performance or results to differ materially from those reflected in the
forward-looking statements, historical results or current expectations.
All forward-looking statements will be impacted by and are subject to the
risks set out under Risk Factors in the Fund's annual information form.
Additional Information
Additional information relating to the Fund, including the Fund's latest
Annual Report and Annual Information Form, are available on SEDAR at
www.sedar.com.
On behalf of the Trustees,
(signed)
William W. Stinson
Chairman
May 5, 2005
Westshore Terminals Income Fund
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Consolidated Statements of Earnings and Cumulative Earnings
(in thousands of dollars, except per unit amounts)
Three months ended
March 31
$
2005 2004
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(Unaudited) (Unaudited)
REVENUE
Coal 31,692 23,382
Other 21 1,561
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31,713 24,943
EXPENSES
Operating 16,339 14,228
Administrative 1,392 1,752
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Earnings before depreciation, interest,
income taxes and gain on sale of
Fording Canadian Coal Trust units 13,982 8,963
Depreciation 5,728 5,791
Interest expense - 1,202
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Earnings before income taxes and gain on
sale of Fording Canadian Coal Trust units 8,254 1,970
Gain on sale of Fording Canadian Coal Trust units - 11,986
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Earnings before income taxes 8,254 13,956
Recovery of income taxes 2,222 1,801
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Net earnings for the period 10,476 15,757
Cumulative earnings - Beginning of period 257,140 208,774
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Cumulative earnings - End of period 267,616 224,531
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Earnings per trust unit 0.149 0.224
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Basic and diluted earnings per trust unit 0.149 0.224
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Weighted average number of trust
units outstanding 70,381,111 70,381,111
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Westshore Terminals Income Fund
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Consolidated Statements of Cash Flows
(in thousands of dollars)
Three months ended
March 31
$
2005 2004
$ $
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(Unaudited) (Unaudited)
Cash flows from operating activities
Net earnings for the period 10,476 15,757
Items not affecting cash
Unrealized losses on forward exchange contracts 1,343 -
Depreciation 5,728 5,791
Future income tax recovery (1,978) (1,660)
Gain on sale of Fording Canadian
Coal Trust units - (11,986)
Increase in deferred employee future
benefits costs 7 108
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15,576 8,010
Decrease in non-cash working capital (7,226) 1,575
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8,350 9,585
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Cash flows from financing activities
Repayment of long-term debt - (29,374)
Distributions paid to unitholders (16,891) (18,811)
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(16,891) (48,185)
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Cash flows from investing activities
Additions to plant and equipment (187) (126)
Proceeds on sale of Fording Canadian
Coal Trust units - 41,234
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(187) 41,108
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Increase (decrease) in cash and cash equivalents (8,728) 2,508
Cash and cash equivalents - Beginning of period 36,000 27,645
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Cash and cash equivalents - End of period 27,272 30,153
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Supplemental cash flow information
Cash paid for interest - 1,186
Cash received for interest 71 -
Income taxes paid 115 436
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Westshore Terminals Income Fund
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Consolidated Balance Sheets
(in thousands of dollars)
March 31, December 31,
2005 2004
$ $
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(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents 27,272 36,000
Accounts receivable 8,233 3,764
Inventories 5,765 5,148
Prepaid expenses 1,977 2,791
Income taxes receivable 2,769 2,648
Other assets 4,953 5,013
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50,969 55,364
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Plant and equipment
At cost 458,982 458,932
Accumulated depreciation (303,760) (298,170)
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155,222 160,762
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Employee future benefits 2,229 2,236
Goodwill 365,541 365,541
Other assets 5,395 6,678
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579,356 590,581
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LIABILITIES & UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 18,464 21,296
Distribution payable to unitholders 14,076 16,891
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32,540 38,187
Future income taxes 49,515 51,493
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82,055 89,680
Unitholders' equity
Capital contributions 663,602 663,602
Cumulative earnings 267,616 257,140
Cumulative distributions declared (433,917) (419,841)
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497,301 500,901
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579,356 590,581
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Notes to Financial Statements
1. Basis of presentation
These interim financial statements do not contain all the information
required for annual financial statements and should be read in
conjunction with the financial statements and notes included in the
Fund's Annual Report for the year ended December 31, 2004. These interim
financial statements have not been audited or reviewed by external
auditors.
2. Significant accounting policies
These interim financial statements have been prepared in accordance
with Canadian generally accepted accounting principles and follow the
same accounting principles and methods of application as set out in
Note 2 of the Fund's annual financial statements for the year ended
December 31, 2004.
Corporate Office
Westshore Terminals Income Fund
1600 - 1055 West Hastings Street, Vancouver,
British Columbia V6E 2H2
Telephone: 604.488.5295 Facsimile: 604.687.2601
www.westshore.com
Effective May 20, 2005, the Corporate Office is moving to:
1800 - 1067 West Cordova Street
Vancouver, British Columbia V6C 1C7
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