E.D. Smith Income Fund reports financial results for first quarter fiscal 200616 May 2006
E.D. Smith Income Fund (TSX: JAM.UN) today reported its financial results for the first quarter ended April 1, 2006. All comparative figures for 2005 are from the predecessor company, EDS Holdings Inc.
All figures are reported in Canadian dollars. Several key events impacted financial results of E.D. Smith & Sons, Limited ("E.D. Smith" or the "Company" and its subsidiaries) during the first quarters of 2006 and 2005. In the first quarter of 2006, the early termination of a distribution agreement with HP Foods Limited provided a settlement payment that is included in direct margin for that period. The Company incurred costs in the first quarter of 2006 in connection with the restructuring of certain selling, general and administrative functions. During the first quarter of 2005, the Company acquired the business of North Coast Processing Group ("North Coast"), realizing revenues and EBITDA(i) for only part of the quarter, from February 11, 2005 to April 2, 2005. Additionally, on the acquisition of North Coast, the Company revalued the acquired finished goods inventory to include manufacturing profits, which resulted in a corresponding reduction in direct margin and EBITDA(i). In addition, during the first quarter of 2005, North Coast completed final production for a co-packing customer that chose to self manufacture.
Financial and operational highlights for the first quarter include:
- Revenue from foodservice products increased 8.5% over the first
quarter of 2005, excluding the impact of the HP Foods agreement;
- Revenue from U.S. retail products increased 13.7% on a comparative
basis over the first quarter of 2005;
- E.D. Smith USA commenced shipments to five new customers;
- EBITDA(i) increased 4.2% to $3.4 million compared to the first
quarter of 2005. Excluding the impact of the HP Foods settlement
payment, restructuring costs and the impact of the North Coast
acquisition in the first quarter of last year, EBITDA(i) increased
9.8% over the same period in 2005;
- Distributable cash(ii) was $2.7 million and distributions to
unitholders were $3.8 million for the quarter, resulting in a
payout ratio of 107.1% when excluding restructuring costs of
$0.8 million;
- Purchase and sale agreements have been signed for two strategic
acquisitions (one of which was recently completed) that are
expected to contribute $120 million annually to revenue and be
immediately accretive to unitholders.
"Strong contributions from our foodservice operations and from E.D. Smith USA resulted in a solid start to our fiscal 2006," said Michael Burrows, President and Chief Executive Officer, E.D. Smith. "Our foodservice operations benefited from the launch of custom sauces for new customers in the fourth quarter of 2005, while E.D. Smith USA benefited from expanded distribution of our private label salad dressings, as we commenced initial shipments to five new customers. We expect our revenue and EBITDA(i) to improve through the balance of the year as a result of seasonal demand attributable to some of our product categories and as a result of new business secured during the first quarter of 2006. Our payout ratio for the quarter was in line with our expectations, and we feel that we are well-positioned to achieve a payout ratio for the year that will be below our target of 95%. Subsequent to the end of the quarter, we signed purchase and sale agreements for two strategic acquisitions, both of which are expected to be immediately accretive to distributable cash(ii) per unit."
Financial Results for the Quarter
Revenue for the first quarter decreased 3.1% to $42.8 million compared with $44.2 million for the first quarter of 2005. When excluding the impact of the HP Foods agreement and adjusting to include revenue of North Coast for a full quarter for the first quarter of 2005, revenue decreased 4.8%.
Direct margins for the first quarter increased to $8.8 million, or 20.1% of revenue, compared with approximately $8.0 million, or 18.0% of revenue in the first quarter of 2005. The early termination of the HP Foods agreement provided for a settlement payment during the first quarter of 2006 which has been reported as direct margin in the first quarter of 2006, net of certain costs. Excluding this direct margin, the 2006 first quarter direct margin rate was 18.3%. The direct margin, adjusted for the elimination of the HP Foods direct margin in the first quarter of 2006 and the same period a year ago, and the North Coast inventory revaluation in the first quarter of 2005, has declined slightly from 18.5% to 18.3% due to higher packaging and energy costs somewhat offset by selected price increases implemented with retail food customers in the U.S. The direct margin in the first quarter of 2006 of 18.3% has improved from the third and fourth quarter in 2005 of 17.1% and 16.9% respectively.
EBITDA(i) for the first quarter increased 4.0% to $3.4 million compared with $3.3 million for the same quarter last year. Excluding restructuring costs of $0.8 million, the impact of the HP Foods settlement payment, and the impact of the acquisition of North Coast in the first quarter of last year, EBITDA(i) increased by 9.5% for the quarter. The restructuring costs were incurred as a result of implementing further initiatives under Project PEACH, the Company's continuous improvement program, and are expected to result in a cost recovery over the balance of the year. Net income for the quarter was $1.5 million. Net income comparisons are not available due to the differences in corporate structure prior to the public offering of the Fund on June 3, 2005.
During the first quarter of 2006, the Fund generated distributable cash(ii) of $2.7 million, or $0.19 per unit, and declared distributions totaling $3.8 million, or $0.27 per unit. Excluding restructuring costs associated with Project PEACH initiatives, the Fund had a distributable cash(ii) payout ratio of 107.1%, which was consistent with management's expectations for the quarter.
<<
Distributable Cash Flow ($000's except per unit amounts)
Three months ended
April 1, 2006
-------------------------------------------------------------------------
Cash provided by operating activities 1,188
Management believes that the distributable cash
flow should be adjusted by the following:
Change in working capital balances 2,344
Non-cash current income tax recovery (616)
Cash income taxes recovered 54
Maintenance capital expenditures (229)
-------------------------------------------------------------------------
Distributable cash flow 2,741
-------------------------------------------------------------------------
Per unit on outstanding units and exchangeable units $ 0.1924
-------------------------------------------------------------------------
Distributions and distributions declared 3,780
-------------------------------------------------------------------------
Per unit on outstanding units and exchangeable units $ 0.2655
Payout Ratio 137.9%
Outstanding Units and Exchangeable LP Units 14,243,902
As at April 1, 2006, the Fund had working capital of $27.7 million, down marginally from the working capital balance as at December 31, 2005. The existing revolving term credit facility had an outstanding balance of $38.7 million as at April 1, 2006, with approximately $8.3 million available for acquisitions and general working capital purposes. Management anticipates that the funds available under the revolving term credit facility and cash flow from operations will be adequate to fund anticipated capital expenditures, working capital and cash distributions.
Operational Highlights
Canadian retail products revenue for the first quarter was $22.6 million. Excluding revenue from the HP Foods agreement during the first quarter of 2005, revenue was down 6.7% from the same period a year ago. Revenue from Canadian retail branded products decreased 6.4% compared to the first quarter of 2005. The decrease was primarily attributable to softness in branded jam products. In response, the Company plans to release an improved package design during the second quarter. Revenue from Canadian retail private label products decreased by 6.8% compared to the same period last year. The decrease was attributable to aggressive competition from national branded products, especially in the ketchup category.
U.S. retail products revenue for the first quarter was $14.0 million, an increase of 49.0% compared to the same period last year. The increase is mainly attributable to the acquisition in February of last year of North Coast, now called E.D. Smith USA. During the quarter, E.D. Smith USA expanded distribution of its private label pourable salad dressings, commencing shipments to five new customers. Including revenue for the 2005 full first quarter of North Coast, and excluding the impact of a lost co-packing account (that chose to self manufacture) in the first quarter of 2005, comparable revenues grew 13.7% from the same period a year ago.
Foodservice products revenue for the quarter was $5.7 million, an increase of 8.5% compared to the first quarter of 2005, excluding revenue from HP Foods. The increase was attributable to the successful expansion of an in-store deli program by a major customer, as well as growth in both the E.D. Smith Saucemaker and custom label sauces.
Subsequent Events
Subsequent to quarter end, on May 12, 2006, the Fund signed a purchase and sale agreement, and thereby indirectly acquired substantially all of the assets of the Grocery Products division of Golden Valley, a B.C.-based privately owned Canadian manufacturer of private label and branded jams and salsa sauce. Management believes that this acquisition is consistent with the Fund's objective to grow and generate sustainable distributable cash(ii) and will provide E.D. Smith with a manufacturing and distribution facility located in western Canada, thereby enabling E.D. Smith to reduce transportation costs associated with supplying customers in western Canada and the U.S. The acquisition was funded through the Fund's existing revolving term credit facility.
The Fund also entered into an agreement to indirectly acquire substantially all of the assets of Seaforth Creamery Inc., a privately owned Ontario-based company. Seaforth is the largest producer of private label pourable and spoonable salad dressings in Canada, and has a significant presence in both categories in the United States. With little customer overlap in the U.S., the acquisition will provide cross-selling opportunities in addition to further broadening E.D. Smith's customer base, and adding the spoonable dressings category to E.D. Smith's product portfolio.
Under the terms of the agreement, the Fund has agreed to pay $95.2 million, consisting of $76.6 million in cash and $18.6 million in securities exchangeable for units of the Fund on a one-for-one basis, subject to certain terms and conditions. The Fund has agreed to make an additional cash payment, for a maximum purchase price of $153.1 million, with the additional payment only payable upon the achievement of pre-determined thresholds of 2006 Adjusted EBITDA(i). The transaction is expected to close by the end of May 2006, and is subject to customary closing conditions. The Fund expects to finance the cash portion of the acquisition price through a combination of debt and equity.
Outlook
"We remain focused on our cornerstones of growth, diversification, innovation, and sustainability," said Mr. Burrows. "In keeping with these cornerstones, our recently announced acquisitions fully support our long-term growth objectives. Our acquisition of Golden Valley's Grocery Products division is expected to result in sustainable cost savings related to inbound and outbound distribution. Our acquisition of Seaforth will enable us to become the dominant producer of private label pourable salad dressings in North America, while providing further diversification of our product line to include spoonable dressings. During the balance of this year we will focus on successfully integrating our recently announced acquisitions and leveraging the potential of the combined business to maximize future growth."
Notice of Conference Call
E.D. Smith Income Fund will host a conference call on Monday, May 15, 2006 at 8:30 a.m. (ET). To access the conference call by telephone, dial 416-644-3425 or 1-866-249-2157. Please connect approximately fifteen minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until May, 22, 2006 at midnight. To access the archived conference call, dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 21189313 followed by the number sign.
A live audio webcast of the conference call will be available at www.edsmith.com by clicking on the Investor's link. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above web site for 30 days.
Financial Statements
For convenience, this press release includes the Company's Fiscal 2005
Period Balance Sheets, Statements of Income and Statements of Cash Flows.
E. D. SMITH INCOME FUND
CONSOLIDATED BALANCE SHEETS
(Unaudited)
As at As at
(stated in thousands of dollars) April 1, December 31,
2006 2005
----------------------------------------------- -------------------------
$ $
ASSETS
Current assets
Cash and cash equivalents 538 2,066
Accounts receivable - trade 14,174 17,440
Inventories 28,034 24,572
Prepaid expenses 852 650
Income taxes recoverable 2,898 2,437
----------------------------------------------- -------------------------
Total current assets 46,496 47,165
Future income taxes 4,431 4,584
Capital assets, net 34,756 34,915
Deferred costs, net 1,906 496
Intangible assets 47,605 48,437
Goodwill 58,826 58,805
----------------------------------------------- -------------------------
194,020 194,402
----------------------------------------------- -------------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 17,431 17,861
Distributions payable to unitholders 1,311 1,179
Distributions payable to exchangeable LP
unitholders 37 37
----------------------------------------------- -------------------------
Total current liabilities 18,779 19,077
Bank credit facility 38,747 36,717
Future income taxes 16,443 16,732
----------------------------------------------- -------------------------
Total liabilities 73,969 72,526
----------------------------------------------- -------------------------
Non-controlling interest 3,326 3,851
----------------------------------------------- -------------------------
Commitments and contingency
Unitholders' equity
Trust units issued 125,353 124,571
Deficit (6,367) (4,173)
Cumulative translation adjustment (2,261) (2,373)
----------------------------------------------- -------------------------
Total unitholders' equity 116,725 118,025
----------------------------------------------- -------------------------
194,020 194,402
----------------------------------------------- -------------------------
(signed) (signed)
On behalf of the Board: R. J. Nobes Jack H. Scott
Trustee Trustee
See accompanying notes to consolidated financial statements
E. D. SMITH INCOME FUND
CONSOLIDATED STATEMENT OF EARNINGS AND DEFICIT
(Unaudited)
(stated in thousands of dollars except per unit and unit amounts)
Three months ended
April 1, 2006
----------------------------------------------- -------------------------
$
Revenue 42,844
----------------------------------------------- -------------------------
Direct margin 8,843
Selling, general and administrative costs 4,625
Restructuring costs 790
----------------------------------------------- -------------------------
Earnings before interest, income taxes,
amortization and non-controlling interest 3,428
Amortization of capital assets, intangibles and
deferred costs 2,141
Interest 512
----------------------------------------------- -------------------------
Earnings before income taxes and non-controlling interest 775
----------------------------------------------- -------------------------
Income tax provision
Current (616)
Future (134)
----------------------------------------------- -------------------------
(750)
----------------------------------------------- -------------------------
Earnings before non-controlling interest 1,525
Non-controlling interest 42
----------------------------------------------- -------------------------
Net earnings for the period 1,483
Deficit, beginning of period (4,173)
Distributions declared to unitholders 3,677
----------------------------------------------- -------------------------
Deficit, end of period (6,367)
----------------------------------------------- -------------------------
Earnings per unit - basic $ 0.11
----------------------------------------------- -------------------------
Earnings per unit - diluted $ 0.11
----------------------------------------------- -------------------------
Weighted average number of Units outstanding - basic 13,569,545
----------------------------------------------- -------------------------
Weighted average number of Units outstanding - diluted 13,973,560
----------------------------------------------- -------------------------
E. D. SMITH INCOME FUND
CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------------------------------------------
(Unaudited)
-------------------------------------------------------------------------
Three months ended
(stated in thousands of dollars)
April 1, 2006
----------------------------------------------- -------------------------
$
OPERATING ACTIVITIES
Net earnings for the period 1,483
Add (deduct) items not involving cash
Non-controlling interest 42
Amortization 2,141
Future income taxes (134)
----------------------------------------------- -------------------------
3,532
Net change in non-cash operating working capital
balances (2,344)
----------------------------------------------- -------------------------
Cash provided by operating activities 1,188
----------------------------------------------- -------------------------
INVESTING ACTIVITIES
Purchase of capital assets (704)
Increase in deferred costs (342)
----------------------------------------------- -------------------------
Cash used in investing activities (1,046)
----------------------------------------------- -------------------------
FINANCING ACTIVITIES
Increase in bank credit facility 2,017
Distributions to unitholders (3,545)
Distributions to exchangeable LP unitholders (104)
----------------------------------------------- -------------------------
Cash used in financing activities (1,632)
----------------------------------------------- -------------------------
Effect of exchange rate changes on cash and cash
equivalents (38)
----------------------------------------------- -------------------------
Net decrease in cash and cash equivalents during
the period (1,528)
Cash and cash equivalents, beginning of period 2,066
----------------------------------------------- -------------------------
Cash and cash equivalents, end of period 538
----------------------------------------------- -------------------------
Supplemental cash flow information
Interest paid 542
Income taxes paid 196
See accompanying notes to consolidated financial statements
About E.D. Smith Income Fund
E.D. Smith Income Fund is an unincorporated, open-ended, limited purpose trust that owns E.D. Smith & Sons, Limited and its subsidiaries. E.D. Smith Income Fund is an unincorporated, open-ended, limited purpose trust that owns E.D. Smith & Sons, Limited and its subsidiaries. E.D. Smith is a leading manufacturer of a broadly diverse portfolio of high quality branded and private label food products. E.D. Smith, founded in 1882, markets and distributes its products to the food retail and foodservice markets in Canada and the U.S. The Company's products range from fruit-based products, which include jams (including preserves, jellies, marmalades and spreads), pie fillings, and ketchup, to sauces, which include pasta sauces, salsa, barbeque sauces, specialty sauces and syrups, to oil-based products, which include pourable salad dressings and marinades.
For further information about the Company, please visit our Internet site at www.edsmith.com.
Forward Looking Statements
This press release contains "forward-looking information". Forward- looking information includes, but is not limited to, statements with respect to the products offered by E.D. Smith, Seaforth Creamery Inc. and the combined business, their respective business strengths and relations with suppliers and expected future EBITDA(i) and Adjusted EBITDA(i). In certain cases, forward- looking information can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Such factors include, among others, the successful integration of acquisitions, the financial performance of the combined business, competitive forces, the absence or non-renewal of long-term customer contacts, the absence of guaranteed supply agreements, factors affecting the supply and price of raw materials, changes to its product offerings and the market in which they are sold, government regulation, and other operating hazards. Although the Fund has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, investors should not place undue reliance on forward-looking information. Forward-looking information is provided as of the date of this press release, and the Fund assumes no obligation to update or revise them to reflect new events or circumstances.
---------------------------------------------------
(i) Earnings before interest, taxes, depreciation and amortization, as
disclosed on the consolidated statements of income. EBITDA is not a
recognized measure under Canadian generally accepted accounting
principles ("GAAP"), however, management believes that it is a useful
performance measure as it approximates cash generated from operations,
before capital expenditures and changes in working capital and excludes
unusual items. EBITDA also assists comparison among companies as it
eliminates the differences in earnings due to how a company is financed.
(ii) Distributable Cash is not a recognized measure under Canadian GAAP;
however, the Fund believes that distributable cash is a useful measure as
it provides investors with an indication of cash available for
distribution. The Fund's method of calculating distributable cash may
differ from that of other issuers and, accordingly, distributable cash
may not be comparable to measures used by other issuers. Investors are
cautioned that distributable cash should not be construed as an
alternative to the statement of cash flows as a measure of liquidity and
cash flows of the Fund.
>>
%SEDAR: 00022102E
For further information: please contact: David Smith, Vice President, Finance, E. D. Smith Income Fund, Tel: (905) 643-1211 ext. 5476, dsmith@edsmith.com; Trevor Heisler, Investor Relations, The Equicom Group Inc., Tel: (416) 815-0700 ext. 270, theisler@equicomgroup.com
Source: newswire
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