The Consumers' Waterheater Income Fund
TSX : CWI.UN

The Consumers' Waterheater Income Fund

October 29, 2009 07:00 ET

The Consumers' Waterheater Income Fund Reports Results for the Third Quarter of 2009

Restart of Sub-metering business in Ontario

TORONTO, ONTARIO--(Marketwire - Oct. 29, 2009) - The Consumers' Waterheater Income Fund ("Fund") (TSX:CWI.UN) today reported its financial results for the three and nine months ended September 30, 2009.

"In our water heater Rentals business, we are working closely with Direct Energy Marketing Limited to develop and launch a series of marketing programs to protect our customer base and reduce the attrition level we experienced in the third quarter", said John Macdonald, President & CEO of the Fund. "In Sub-metering, we have developed detailed re-start programs with our customers in support of the re-consent requirements of the August 13, 2009 Ontario Energy Board order."

Financial and Operating Highlights

The highlights below compare results for the third quarter of 2009 versus the third quarter of 2008.

- Total revenues increased by 1.5% or $0.7 million to $46.1 million.

- EBITDA(1) declined by $12.9 million or 35.0% to $24.0 million and net earnings dropped by $14.3 million to a $6.0 million loss in the 2009 quarter. Adjusted EBITDA(1) decreased by 3.8% or $1.5 million to $38.4 million. EBITDA and net earnings were impacted in 2009 by an $8.0 million increase in the loss on disposal of Rentals assets and an asset impairment charge of $3.4 million for Sub-metering, both of which are non-cash and excluded from Adjusted EBITDA.

- The attrition rate of 3.5% increased significantly from 0.9% in the prior year due to intense competition. Adjusting for a processing backlog, the attrition rate for the third quarter of 2009 would have been approximately 2.2%. The Fund and Direct Energy Marketing Limited ("DE") have initiated a range of marketing programs aimed at informing our customer base and reducing future attrition levels. Attrition in the months of August and September improved from that of June and July.

- The Payout Ratio(2) increased to 107.4% from 92.1%, and distributions were reduced from $0.1075 to $0.054 per unit in September 2009. The Payout Ratio decreased from 116.9% in the second quarter of 2009, and will reduce further in the fourth quarter with the full impact of the reduction in distributions, all other factors remaining the same. The Fund will use the cash to fund its capital investments, including Sub-metering, support DE in marketing programs and strengthen its financial position.

- Substantial progress is being made with our Sub-metering "re-start" program. Landlords representing 84% of the billing units affected by the Ontario Energy Board ("OEB") decision in August 2009 have agreed to begin the re-consent process, although no assurance can be given that tenants will re-consent.



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Consolidated Financial Three months ended Nine months ended
Highlights Sept. 30, Sept. 30,
(in millions of dollars) 2009 2008 2009 2008
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Total revenues $ 46.1 $ 45.4 $ 143.5 $ 134.0
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EBITDA 24.0 36.9 94.0 110.9
Adjusted EBITDA 38.4 40.0 116.9 118.7
Earnings before tax (17.2) 4.6 (18.4) 15.2
Income tax recovery (11.2) (3.7) (24.2) (0.2)
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Net earnings (6.0) 8.3 5.8 15.4
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Cash flow from operating
activities 32.6 31.0 99.7 93.5
Distributable Cash(2) $ 12.4 $ 17.3 $ 40.8 $ 53.7
Payout Ratio 107.4% 92.1% 111.0% 89.2%
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Third Quarter 2009 Financial Results

Total revenues in the third quarter of 2009 were $46.1 million, an increase of $0.7 million compared to the same period last year. Rentals revenues declined slightly due to the impact of attrition on the number of billing Rentals assets offset by the higher rental rates. Sub-metering revenues were $2.3 million, of which $1.6 million were commodity charges billed to customers at cost. Sub-metering revenues included two months of operations in 2008.

EBITDA declined by $12.9 million to $24.0 million in the third quarter of 2009 compared to the same period last year. This decrease primarily reflects higher losses on disposal of equipment in 2009 and a third quarter impairment charge of $3.4 million. Adjusted EBITDA was $38.4 million for the quarter, compared to $40.0 million during the same quarter of last year. The small fluctuations in Adjusted EBITDA on a quarterly basis reflect the profile of cost of sales and general & administrative ("G&A") expenses, including customer claims.

Net earnings for the third quarter decreased by $14.3 million compared to the third quarter of 2008. The decrease reflected an $8.0 million higher loss on disposal of equipment, a $5.4 million increase in amortization, an impairment charge of $3.4 million, an increase of $3.3 million in interest expense, a $2.4 million increase in cost of sales and G&A expenses, offset by a tax recovery of $7.5 million and $0.7 million in increased revenues.

Operating Cash Flow(1) was $29.5 million in the third quarter of 2009, representing a decrease of 13.9% or $4.7 million compared to the corresponding quarter of 2008. The increased cash interest expenses of approximately $3.0 million and the net impact of higher revenues and the greater cost of sales and G&A expenses accounted for most of the change.

Distributable Cash decreased by $4.9 million or 28.4% to $12.4 million during the third quarter of 2009 compared to $17.3 million in the corresponding quarter of 2008. The decrease was due to $3.0 million in higher cash interest expenses after refinancing and higher cost of sales and G&A expenses of $2.4 million. The Payout Ratio was 107.4% for the third quarter of 2009 compared to 92.1% for the same quarter of 2008.

Financial Results for the Nine Months Ended September 30, 2009

Year-to-date revenue results reflect an increase of $9.5 million or 7.1% due to increased Sub-metering revenues of $7.4 million, higher Rentals revenues of $2.7 million and lower investment income of $0.6 million. Water heater Rentals revenue increases were driven by the average rental rate increase of 3.9% effective January 2009, offset by the impact of attrition throughout the year.

EBITDA for the nine-months ended September 30, 2009 was $94.0 million compared to $110.9 million in the same period last year. The decrease reflects higher losses on disposal of equipment and impairment charges in 2009.

Net earnings for the nine-months ended September 30, 2009 was $5.8 million compared to $15.4 million from the same period last year. The decrease was due to increases in cost of sales and G&A expenses, loss on disposal of equipment, interest expense, amortization and impairment charges of $11.9, $11.7, $8.7, $7.3 and $3.4 million, respectively, offset by higher tax recoveries of $24.0 million and revenues of $9.5 million.

Operating Cash Flow for nine-months ended September 30, 2009 was $92.1 million compared to $101.1 million in the same period of last year. The increased cash interest expense of approximately $8.7 million and the net impact of higher revenues and the greater cost of sales and G&A expenses accounted for the change.

Distributable Cash for the nine-months ended September 30, 2009 was $40.8 million compared to $53.7 million for the nine-months ended September 30, 2008. The decrease of $12.9 million during the nine months ended September 2009 compared to the same period last year was a result of increased cash interest expenses of $6.6 million, net capital expenditures of $3.9 million and net revenue and cost of sales and G&A expenses of $2.6 million.

Financial Statements and MD&A

The Fund's financial statements and management's discussion and analysis for the third quarter 2009 are available at www.sedar.com or on the Fund's investor relations website at www.consumerswaterheaters.com.

Conference Call and Webcast

Management will host a conference call and live audio webcast to discuss the Fund's performance for the third quarter of 2009 on Thursday, October 29, 2009 at 10:00 a.m. (ET). John Macdonald, President & CEO and Steve Bower, CFO, will be on the call.



Call can be accessed as follows:
Toll free: +1.800.814.4861
Local: +1.416.644.3419
Joining by webcast: www.consumerswaterheaters.com


The audio webcast will be archived at www.consumerswaterheaters.com. A taped rebroadcast will be available until midnight on November 5, 2009. The rebroadcast can be accessed by dialing +1.877.289.8525 or +1.416.640.1917 and entering the pass code 4173021#.

About The Consumers' Waterheater Income Fund

The Fund owns a portfolio of approximately 1.4 million installed water heaters and other assets, rented primarily to residential customers in Ontario. The Fund also owns Stratacon Inc., a leading "smart" Sub-metering company, with metering contracts for condominium and apartment suites in Alberta, Ontario and elsewhere in Canada.

Additional information regarding the Fund, including its current Annual Information Form is available on SEDAR at www.sedar.com. Additional information on the Sub-metering business is available at www.stratacon.ca.

Forward-looking Information

Certain statements in this news release are forward-looking statements, which reflect management's expectation regarding the Fund's growth, results of operations, performance, business prospects and opportunities. Such forward-looking information reflects management's current beliefs and is based on information available to them and/or assumptions management believes are reasonable. Many factors could cause results to differ materially from the results discussed in the forward-looking information. Although the forward-looking information is based on what management believes to be reasonable assumptions, the Fund cannot assure investors that actual results will be consistent with this forward-looking information. Except as required by applicable securities laws, the Fund does not intend and does not assume and obligation to update or revise the forward-looking information, whether as a result of new information, future events or otherwise.

(1) EBITDA, Adjusted EBITDA and Operating Cash Flow are Non-GAAP measures, do not have standardized meanings prescribed by GAAP and may not be comparable to similar terms and measures presented by other issuers. EBITDA comprises net earnings plus income taxes, interest expenses and amortization expense, less interest income. Adjusted EBITDA comprises EBITDA excluding the non-cash loss on disposal of equipment and charges for impaired assets. Operating Cash Flow comprises net earnings adjusted for non-cash credits and charges, and is equal to cash flow from operating activities excluding changes in non-cash working capital.

(2) Distributable Cash and Payout Ratio are Non-GAAP measures, do not have standardized meanings prescribed by GAAP and may not be comparable to similar terms and measures presented by other issuers. The Fund believes that Distributable Cash and Payout Ratio as cash flow measures are useful supplemental measures that help readers evaluate the ability of the Fund to generate cash that could be, and is, used for distributions and provides an indication of the amount of cash available for distribution and paid to the Fund's Unitholders. Investors are cautioned, however, that Distributable Cash is not meant to be an alternative to using cash flows from operating, investing and financing activities measures of the Fund's liquidity and cash flows.

Contact Information