Coast Wholesale Appliances Income Fund
TSX : CWA.UN

Coast Wholesale Appliances Income Fund

March 07, 2007 16:20 ET

Coast Wholesale Appliances Income Fund Reports 2006 Fourth Quarter and Year-End Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 18, 2007) -

Coast Wholesale Appliances Income Fund (TSX: CWA.UN) will host a conference call and webcast to discuss its fourth quarter and year-end financial results on Thursday, March 8, 2007 at 8:00 a.m. Pacific Time (11:00 a.m. Eastern). The call can be accessed by dialing: 1-800-814-3911 or 416-644-3419.

A replay will be available through March 22, 2007 at: 1-877-289-8525 or 416-640-1917 Passcode: 21218116 followed by the number sign.

The live and archived webcast can be accessed at http://www.vcall.com/IC/CEPage.asp?ID=113384 or on the Fund's website at www.coastincomefund.com.

Coast Wholesale Appliances Income Fund (the Fund) today reported financial results for the three and 12 months ended December 31, 2006. The 12-month period represents the Fund's first full fiscal year of operation.

For information purposes, the Fund also provided selected unaudited financial results for its predecessor business, Coast Wholesale Appliances Ltd. (Coast Ltd.). Directly comparable information is not available for the 12-month period as Coast Ltd. was privately held and had a February 28 year-end.

The Fund holds a 65% indirect interest in Coast Wholesale Appliances LP (Coast), a leading independent supplier of major household appliances, and its results are entirely dependent upon Coast's operating results. The remaining 35% interest has been retained by the previous ownership. Distributions to the retained interest are subordinated to distributions to public unitholders for a minimum of two years from the Fund's inception, subject to it meeting certain EBITA and cash distribution targets, as set out in its June 15, 2005 prospectus.

Three and 12-month operating results

In the three months ended December 31, 2006, Coast generated sales of $32.8 million, up by $2.0 million, or 6.3%, from the $30.8 million recorded for the same period of 2005, with same store sales growth of 4.3%. Fourth quarter retail sales grew by 4.5% year-over-year, while contract sales to developers and builders increased by 8.6%. In Coast's Prairie region, where the company added a second Calgary store in August 2006, sales for the three months increased by 17.9% year-over-year, with same store sales growth of 12.8%. In BC, sales decreased by 1.1%, primarily due to the impact of construction delays on Coast's contract sales. Business with developers of large multi-family properties in Vancouver continued to lag as a result of project delays caused by ongoing labour shortages in some construction trades. The Fund expects to realize the delayed sales in the second and third quarters of 2007.

For the year ended December 31, 2006, overall sales grew by 8.1% to $126.0 million from the $116.5 million generated by Coast and Coast Ltd. in 2005, with same store sales growth of 7.3%. Contract sales were up by 10.6% year-over-year, while retail sales grew by 5.8%. Annual revenues remained approximately evenly split between the two business sectors, with a slight proportionate increase in contract sales. Overall sales in Coast's Prairie region for the 12 months were up by 16.9% year-over-year, with same store sales growth of 14.9%, and BC sales grew by 2.5%.

"The annual sales growth was largely driven by the continued strong housing market in Western Canada, and particularly in our Prairie Region," said Blain Lawson, who assumed the role of president and CEO of Coast on January 2, 2007 following the retirement of Harlow Burrows at the end of 2006. Lawson noted that Coast's revenues and gross margin both benefited from the new, higher-margin product lines that the company added to its core offerings in early 2006 in order to increase sales to the higher end of the multi-family sector.

Cost of sales for the fourth quarter of 2006 was $24.2 million, or 73.8% of sales, which resulted in a gross profit of $8.6 million, or 26.2% of sales. This gross margin was down from 27.9% in the same three months of 2005 due to a year-over-year variation in the allocation of on-going volume-dependent supplier rebates. In 2005, a greater than normal proportion of the rebates was recorded in the fourth quarter, rather than the third, which resulted in a comparatively higher gross margin for the final three months of that year. Coast's gross margin for the second half of both 2005 and 2006 was consistent at 25.6%.

For the 12 months of 2006, Coast's cost of sales was $94.3 million, or 74.9% of sales, resulting in a gross margin of 25.1%. This was down from the 25.6% recorded during the period from June 23 to December 31, 2005, due mainly to the enhanced positive impact of annual volume-dependent supplier rebates in the Fund's short 2005 fiscal year. Coast's 2006 margin was also impacted by the year's slight business mix shift in favour of contract sales, which generate lower margins than its retail business, as well as higher credit-card fees following its elimination of "cash on delivery" terms on January 1, 2006.

Net income before non-controlling interest was $10.4 million for the year, or 8.2% of sales. While directly comparable information is not available, when results for the first half of 2006 are combined with results for the last half of 2005, net income before non-controlling interest as a percentage of sales equals the 8.2% recorded in Coast's 2006 fiscal year.

Cash distributions

The Fund declared monthly cash distributions of $0.10 per unit for each of October, November and December 2006. By the end of 2006, the Fund had paid a total of 18 consecutive monthly cash distributions to its public unitholders, as well as six consecutive quarterly cash distributions to the subordinated non-controlling interest held by the previous owners of the business. Subsequent monthly distributions of $0.10 per unit to public unitholders have been declared for each of January and February 2007.

In the fourth quarter of 2006, the Fund earned $3.5 million in distributable cash (before the non-controlling interest), or $0.35 per unit, compared to $3.4 million, or $0.34 per unit, in the same period of 2005. In both quarters, the Fund distributed and accrued for payment $3.0 million, or $0.30 per unit, to unitholders and the non-controlling interest. The Fund's fourth quarter payout ratio decreased to 85.6% in 2006 from 87.7% in 2005.

Distributable cash for the 12 months of 2006 was $12.8 million, or $1.27 per unit. During the year, the Fund distributed and accrued for payment $12.0 million, or $1.20 per unit, to unitholders and the non-controlling interest, resulting in a payout ratio of 94.2%.

Outlook

Moving into 2007, Coast expects continued, steady sales growth from its existing stores, as well as incremental sales gains as a result of its ongoing expansion in Alberta. The company held the grand opening of its second Edmonton store on February 17, 2007 and will mark the official opening of its first Red Deer, Alberta store on March 31, 2007, bringing Coast's total store count to 15. Both openings were several months later than planned due to delays caused by the current high level of construction activity in Alberta. The new stores are expected to be profitable within six months of opening.

As previously announced, Coast is also developing a new location to replace its original Edmonton store, now targeted to open in early 2008, and is continuing to seek additional locations in both BC and Alberta. "We intend to capitalize on the buoyant western Canadian economy by continuing to increase our geographic coverage, and expect to open two to three stores a year," said Lawson. "At the same time, we are still actively looking at the longer-term potential for entering the eastern Canadian marketplace, most likely through an acquisition."

Lawson added that the Fund continues to evaluate the potential impact the proposed new tax on income trusts announced by the federal government on October 31, 2007. If passed into legislation, the proposed changes would result in taxation of distributions at the trust level starting in 2011. "We will determine the most appropriate course of action for our Fund as more information becomes available," said Lawson.

A more detailed discussion of the Fund's financial results can be found in its year-end Management's Discussion and Analysis, which will be posted with financial statements at the Fund's website (www.coastincomefund.com) and at SEDAR (www.sedar.com) on or before March 8, 2007.

Company profile

Coast Wholesale Appliances is a leading independent supplier of major household appliances to developers and builders of multi-family and single-family housing and to retail customers in Western Canada. Founded in 1978, Coast currently operates 14 locations and four warehouse distribution centres across the four western provinces.

Forward-looking statements

This news release may contain forward-looking statements relating to expected future events and financial and operating results of Coast that involve risks and uncertainties. The actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons. These include market and general economic conditions and the risks and uncertainties detailed from time to time in Coast's continuous disclosure materials filed with Canadian securities regulatory authorities, including the year-end Management's Discussion and Analysis filed at SEDAR (www.sedar.com). These forward-looking statements are based on assumptions that management considered reasonable at the time they were prepared. Due to the potential impact of these factors, Coast disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

Non-GAAP Financial Measures

Distributable cash and distributable cash per unit are non-GAAP financial measures that are defined in the year-end Management's Discussion and Analysis posted on the Fund's website and SEDAR.

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