VANCOUVER, May 5 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN)
announced today its earnings for the first quarter ending March 31, 2006.
Please see attached Report to Unitholders for details.
Westshore Terminals Income Fund
First Quarter Report
For the three months ended March 31, 2006
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Dear Unitholders:
Effective October 1, 2005, the cash inflows of Westshore Terminals Income
Fund (the "Fund") are based on the distributions received from the operations
of Westshore Terminals Limited Partnership ("Westshore LP"). Prior to
October 1, 2005, the Fund derived its cash inflows from its investment in
Westshore Terminals Ltd. In this Report "Westshore" refers to Westshore
Terminals Ltd. prior to September 30, 2005 and to Westshore LP thereafter.
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 rates charged by Westshore and Westshore's costs. Westshore's
throughput charges for approximately half of the coal it handles are
calculated at present by reference to coal prices. Higher prices for hard
coking coal resulted in Westshore's principal customer achieving much higher
average settlement prices for the 2005/06 coal year (ending March 31, 2006)
compared to the 2004/05 coal year. For the 2006/07 coal year, reference prices
that are publically available to date are approximately US$107 per tonne, down
from prices of approximately US$122 in the last coal year, but still up
approximately 100% compared to the 2004/05 coal year. As Westshore has some
exposure to fluctuations in exchange rates (as a result of pricing mechanisms
under its customer contracts), Westshore engages in periodic currency hedging
arrangements to provide some partial shielding from material short-term 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 Canadian 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
that they provide investors with valuable information in understanding the
results of the Fund's operations and financial position. The unaudited
financial results along with management's discussion and analysis contained in
this report should be read in conjunction with the consolidated audited
financial statements and notes thereto included in the Fund's Annual Report
for the year ended December 31, 2005. The date of this management's discussion
and analysis and results of operations is May 5, 2006.
The following table sets out selected consolidated financial information
for the Fund for the quarter ended March 31, 2006. As at May 5, 2006, the Fund
had 70,381,111 issued and outstanding trust units.
<<
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(In thousands of dollars Three Months Three Months
except per unit amounts) Ended Ended
March 31, March 31,
2006 2005
$ $
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REVENUE
Coal 38,463 31,692
Other 858 21
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39,321 31,713
EXPENSES
Operating 15,739 16,339
Administrative 1,739 1,392
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17,478 17,731
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Earnings before depreciation and income
taxes 21,843 13,982
Depreciation 5,405 5,728
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Earnings before income taxes 16,438 8,254
Recovery of income taxes - 2,222
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Net earnings for the period 16,438 10,476
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Net earnings per trust unit 0.234 0.149
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Adjusted EBITDA
Earnings before depreciation and income
taxes 21,843 13,982
Add:
Unrealized losses on forward exchange
contracts 1,725 1,343
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Adjusted EBITDA 23,568 15,325
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Distributions declared 20,411 14,076
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Distributions declared per trust unit 0.290 0.200
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The following tables set out selected consolidated financial information
for the Fund on a quarterly basis for the last eight quarters.
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(In thousands of dollars Three Months Ended
except per unit amounts) ------------------------------------------
Mar 31, Dec 31, Sep 30, Jun 30,
2006 2005 2005 2005
$ $ $ $
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Revenue
Coal 38,463 43,523 46,063 43,969
Other 858 1,898 4,190 (1,622)
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39,321 45,421 50,253 42,347
Expenses
Operating 15,739 16,436 16,762 17,237
Administration 1,739 2,077 4,109 1,562
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17,478 18,513 20,871 18,799
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Earnings before depreciation
and income taxes 21,843 26,908 29,382 23,548
Depreciation 5,405 6,224 5,728 5,728
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Earnings before income taxes 16,438 20,684 23,654 17,820
Recovery of (provision for)
income taxes - 42,267 (446) (1,239)
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Net earnings for the period 16,438 62,951 23,208 16,581
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Net earnings per trust unit 0.234 0.894 0.330 0.236
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Cash Distributions declared 20,411 27,097 26,745 14,076
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Cash Distributions per unit 0.290 0.385 0.380 0.200
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Distribution of units in lieu
of cash - 1,540 - -
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Distribution of units in lieu
of cash per unit - 0.022 - -
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(In thousands of dollars Three Months Ended
except per unit amounts) ------------------------------------------
Mar 31, Dec 31, Sep 30, Jun 30,
2005 2004 2004 2004
$ $ $ $
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Revenue
Coal 31,692 29,323 28,448 30,267
Other 21 5,547 4,985 3,110
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31,713 34,870 33,433 33,377
Expenses
Operating 16,339 17,390 17,146 15,469
Administration 1,392 1,725 1,405 1,403
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17,731 19,115 18,551 16,872
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Earnings before depreciation
and income taxes 13,982 15,755 14,882 16,505
Depreciation 5,728 5,850 5,790 5,791
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Earnings before income taxes 8,254 9,905 9,092 10,714
Recovery of income taxes 2,222 2,284 303 312
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Net earnings for the period 10,476 12,189 9,395 11,026
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Net earnings per trust unit 0.149 0.173 0.133 0.157
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Cash Distributions declared 14,076 16,891 9,853 9,853
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Cash Distributions per unit 0.200 0.240 0.140 0.140
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Results of Operations
In the first quarter of 2006, Westshore shipped approximately 4.4 million
tonnes of coal, compared with 5.7 million tonnes shipped during the same
period in 2005. Lower shipment levels during the first quarter of 2006 were
due to lower shipments from Westshore's primary customer Elk Valley Coal
Partnership (the "Coal Partnership").
It is more than usually difficult to assess the level and timing of
throughput volumes for 2006. The uncertainty is reflected in the April 24,
2006 news release issued by Fording Canadian Coal Trust, the owner of 60% of
the Coal Partnership which is Westshore's largest customer and accounted for
92% of the terminal's throughput by volume in 2005. Fording has indicated that
the uncertainties are such that it can only provide a range of sale tonnages
of between 22 and 25 million tonnes for the 2006 calendar year. That range of
tonnages suggests that Westshore's throughput for 2006 would be in the range
of 18 to 21 million tonnes.
Coal loading revenue increased by 21.4% to $38.5 million in the first
quarter of 2006 from $31.7 million in the first quarter of 2005. The increased
revenue was entirely due to an increase in the average loading rate, offset by
a decline in volumes.
The average loading rate in the first quarter of 2006 rose by 58% to
$8.83 per tonne compared to $5.59 per tonne for the same period in 2005.
Higher rates in Q1 2006 reflect the higher coal prices for the 2005/06 coal
contract year, which more than doubled in US dollar denominated terms compared
to the prior coal contract year.
Other revenue increased from $21,000 in the first quarter of 2005 to
$858,000 in the first quarter of 2006. $1.7 million of unrealized hedging
losses were recorded for the three months ended March 31, 2006, compared to
losses of $1.3 million in the first quarter of 2005. Realized hedging gains
increased by $0.4 million. (See "Currency Fluctuations"). Train detention
costs improved by approximately $0.5 million over 2005, and demurrange costs
were similar to the same period in 2005.
Operating expenses decreased by approximately $0.6 million from 2005. A
significant reduction in lease costs due to the lower throughput was offset by
an approximately 5.5% increase in other expenses. This increase was due in
part to a general increase in wage rates in accordance with the collective
agreements. Administrative expenses rose from $1.4 million in 2005 to
$1.7 million in 2006. The difference is represented by an earlier accrual of
management incentive fees in 2006 than was the case in 2005.
As a result of the foregoing, Westshore's earnings before depreciation
and income taxes increased to $21.8 million for the first quarter of 2006
compared to $14.0 million for the same period in 2005.
The fund has not provided for income taxes in 2006 as the income of the
Fund is distributed to and taxed in the hands of unitholders.
Contract Rate Review
Under the contract that covers coal from the Elkview mine (the "Elkview
Contract"), the Coal Partnership gave notice on September 30, 2004 that it was
requesting a review of the loading rate, with a view to changing the rate
effective April 1, 2005. Any revised rate would apply for the balance of the
contract to 2010. The rate charged by Westshore for coal loaded under the
Elkview Contract is at present a function of the Canadian dollar price
received for such coal. The Contract covers production from only the Elkview
Mine, and is separate from the contract that covers the Fording, Greenhills
and Coal Mountain mines. Westshore considers that the rate structure under the
Elkview Contract has operated in accordance with the original intentions of
the parties. The parties attempted mediation concerning this matter but with
no result. The matter was heard before an arbitrator, as provided in the
Elkview Contract, during the last week of April, 2006 and we await the
decision.
Westshore Lease Extension and Capital Project
Westshore has negotiated a conditional lease extension with the Vancouver
Port Authority which would extend the lease term to December 31, 2026 and give
Westshore the further right to extend the lease term to December 31, 2046. The
outstanding condition to be satisfied is receipt from the Vancouver Port
Authority of project permit approvals for a capital upgrade to Westshore's
existing equipment. The cost of the upgrade is anticipated to be approximately
$42 million. The upgrade would take approximately two years to complete from
the permit date and would increase Westshore's annual throughput capacity to
approximately 29 million tonnes.
Currency Fluctuations
Since sale prices for coal are set in US dollars, Westshore is exposed to
variations in its loading rate within a coal year by reason of change in the
Canadian-US dollar exchange rate. 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 by Westshore's customer for coal
handled by Westshore. To mitigate its risk, Westshore has engaged in periodic
hedging activities pursuant to a flexible policy under which Westshore may
hedge at each year-end a portion of its anticipated US dollar related revenues
for the coming year, based on its annual budget.
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 ending December 31, 2005, 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 March 31, 2006 included an unrealized loss
on forward exchange contracts of $1.7 million, whereas other revenue for the
first three months of 2005 was reduced by $1.3 million of unrealized hedging
losses. 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 2006, the inclusion in other
revenue on account of settled contracts was a gain of $1.6 million, whereas in
the first quarter of 2005 the gain was $1.2 million.
Liquidity and Capital Resources
The Fund is obliged to distribute to Unitholders its cash inflows less
administrative costs of the Fund (and amounts, if any, 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, 2006. Westshore's distribution policy involves
leaving sufficient earnings before depreciation and unrealized gains or losses
on forward exchange contracts to cover cash requirements such as capital
expenditures and special pension contributions. Any major capital expenditures
may need to be financed, with repayment of any debt financing coming from
undistributed earnings. If Westshore receives the required permits from VPA
and proceeds with the planned capital expansion, the anticipated cost of the
upgrades of approximately $42 million would be funded through a combination of
cash on hand and debt financing on terms and conditions acceptable to
Westshore.
Quarterly Distributions
On April 15, 2006, the Fund distributed $20,410,522 ($0.29 per unit) in
cash for the first quarter of 2006 to Unitholders of record on March 31, 2006
as compared with $14,076,222 (representing $0.20 per unit) in cash for the
first quarter of 2005. The Q1 2006 distribution for unitholder income tax
purposes was comprised entirely of income. This may vary when calculated for
the year as a whole.
Outlook
The Fund's cash inflows are entirely dependent on Westshore's operating
results and are significantly influenced by four variables: the volume of coal
shipped through the Terminal; the US dollar denominated price received by
Westshore's customers for that coal; the Canadian-US dollar exchange rate; and
Westshore's operating and administrative costs.
Critical to Westshore's ongoing success will be the ability of the Coal
Partnership to maintain and increase its export volumes while competing with
other suppliers for sales worldwide. It is more than usually difficult to
assess the level and timing of throughput volumes for 2006. The uncertainty is
reflected in the April 24, 2006 news release issued by Fording Canadian Coal
Trust, the owner of 60% of the Coal Partnership which is Westshore's largest
customer and accounted for 92% of the terminal's throughput by volume in 2005.
Fording has indicated that the uncertainties are such that it can only provide
a range of sale tonnages of between 22 million and 25 million tonnes for the
2006 calendar year. That range of tonnages suggests that Westshore's
throughput for 2006 would be in the range of 18 million to 21 million tonnes.
As also announced in the Fording Canadian Coal Trust news release, the
Coal Partnership has achieved sufficient settlements to indicate that its
average price for coal sales in the period April 1, 2006 to March 31, 2007 is
expected to be approximately US$107 per tonne. This represents a reduction of
approximately 11% from the US dollar prices realized by the Coal Partnership
for the coal year ending March 31, 2006, but would still be approximately
double the average US dollar price realized in the coal year ending March 31,
2005. These prices represent sales for all products, not only those exported
through Westshore. Coupled with the recent further rise in the value of the
Canadian dollar relative to the US dollar, these prices indicate that
Westshore's loading rate for tonnage shipped at a variable rate, and hence its
average loading rate, for the 2006/07 coal year will be lower than for the
2005/06 coal year.
For 2006 and based on current tonnage estimates, tonnages shipped at
fixed rates are expected to account for approximately 20% of the Terminal's
throughput; tonnages shipped at variable rates but subject to a cap, in effect
for this year, are expected to account for approximately 30% of throughput;
and finally, tonnages shipped at full variable rates are expected to account
for approximately 50% of throughput at the Terminal.
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 2006. However, based on
the most current information available to it, the Fund is budgeting for
distributions for the 2006 calendar year to be at approximately the same level
as for the 2005 calendar year as a whole. On that basis, the first quarter
distribution was $0.29 per unit. Results in subsequent quarters will determine
the level of distributions, either positively or negatively. If distributions
for the calendar year 2006 exceed $1.035 per unit, incentive fees will be
payable by Westshore to the Manager under the Management Agreement, as was the
case in 2005.
There are many variables that will affect Westshore's EBITDA and the
Fund's distributions in 2006, most of which are outside the control of
Westshore or the Fund. The Fund has assessed the likely sensitivity of its
distributions, in respect of the nine months from April 1, 2006 to
December 31, 2006, to changes in tonnage shipped, the US dollar coal price and
the US/Canadian dollar exchange rate. The sensitivities described below are
expected to be applicable only for the nine months from April 1, 2006 to
December 31, 2006 and are based on Westshore's current assumptions.
Sensitivities for any other period would depend upon assumptions that are
considered appropriate and relevant at such time(s).
Based on existing contract provisions, assumed aggregate tonnage for 2006
of 19 million tonnes (approximately 15 million tonnes for the nine months
ending December 31, 2006), Westshore's current assumptions of volume per
specific customer, US dollar coal price assumption of US$107 per tonne and
exchange rates of US$0.87 per CDN$1.00:
- for every 1,000,000 tonnes difference in throughput, the effect on
distributions by the Fund is expected to be approximately 5 cents
per unit;
- for every US$5.00 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 0.6 cents per unit.
The foregoing sensitivities factor in the anticipated effects of
Westshore's hedges currently in place.
Forward-looking Statements
The foregoing statements concerning tonnages, coal prices, exchange
rates, loading rates 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 and on Westshore's website at www.westshore.com.
On behalf of the Trustees,
(signed)
William W. Stinson
Chairman
May 5, 2006
The enclosed financial statements have not been reviewed by the Fund's or
Westshore's auditors.
Consolidated Statements of Earnings and Cumulative Earnings
(in thousands of dollars, except per unit amounts)
Three months ended
March 31
$
2006 2005
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(Unaudited) (Unaudited)
REVENUE
Coal 38,463 31,692
Other 858 21
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39,321 31,713
EXPENSES
Operating 15,739 16,339
Administrative 1,739 1,392
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Earnings before depreciation and income
taxes 21,843 13,982
Depreciation 5,405 5,728
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Earnings before income taxes 16,438 8,254
Recovery of income taxes - 2,222
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Net earnings for the period 16,438 10,476
Cumulative earnings - Beginning of period 370,356 257,140
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Cumulative earnings - End of period 386,794 267,616
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Basic and diluted earnings per trust unit 0.234 0.149
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Weighted average number of trust units
outstanding 70,381,111 70,381,111
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Consolidated Statements of Cash Flows
(in thousands of dollars)
Three months ended
March 31
$
2006 2005
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(Unaudited) (Unaudited)
Cash flows from operating activities
Net earnings for the period 16,438 10,476
Items not affecting cash
Unrealized losses on forward exchange
contracts 1,725 1,343
Depreciation 5,405 5,728
Future income tax recovery - (1,978)
Increase in deferred employee future
benefits costs 309 7
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23,577 15,576
Decrease in non-cash working capital (3,074) (7,226)
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20,803 8,350
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Cash flows from financing activities
Distributions paid to unitholders (27,097) (16,891)
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(27,097) (16,891)
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Cash flows from investing activities
Additions to plant and equipment (1,227) (187)
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(1,227) (187)
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Decrease in cash and cash equivalents (7,521) (8,728)
Cash and cash equivalents - Beginning of
period 39,904 36,000
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Cash and cash equivalents - End of period 32,383 27,272
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Supplemental cash flow information
Cash received for interest 233 71
Income taxes paid 570 115
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Consolidated Balance Sheets
(in thousands of dollars) March 31, December 31,
2006 2005
$ $
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(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents 32,383 39,904
Accounts receivable 8,865 10,633
Inventories 5,936 6,012
Prepaid expenses 2,042 2,844
Income taxes receivable 2,370 1,800
Other assets 6,053 6,202
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57,649 67,395
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Plant and equipment
At cost 464,627 463,780
Accumulated depreciation (326,480) (321,455)
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138,147 142,325
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Employee future benefits 1,445 1,754
Goodwill 365,541 365,541
Other assets 516 2,092
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563,298 579,107
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LIABILITIES & UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 14,737 19,887
Distribution payable to unitholders 20,411 27,097
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35,148 46,984
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Unitholders' equity
Capital contributions 663,602 663,602
Cumulative earnings 386,794 370,356
Cumulative distributions declared (522,246) (501,835)
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528,150 532,123
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563,298 579,107
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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, 2005. 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, 2005.
3. Employee future benefits
Three months ended
March 31
2006 2005
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(Unaudited) (Unaudited)
Pension plan benefits $ (255) $ (267)
Other retirement and post-employment benefits 564 274
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Employee future benefits expense $ 309 $ 7
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