CanWel Building Materials Group Ltd.

CanWel Building Materials Group Ltd.

November 09, 2006 08:04 ET

CanWel Building Materials Income Fund Reports its Third Quarter Results for the Three Months Ended September 30, 2006

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 9, 2006) - CanWel Building Materials Income Fund ("CanWel" or the "Fund"(1)) (TSX:CWX.UN) announced today its third quarter fiscal 2006 financial results for the period ended September 30, 2006.

Third Quarter Highlights(2):

- EBITDA(3) was $8.0 million

- Distributable Cash(4) was $6.0 million or $0.179 per unit

- Net earnings were $4.4 million

During the three-month period ended September 30, 2006, CanWel reported sales of $243.3 million compared to $265.4 million for the comparable period in 2005. The lower sales were affected by industry wide lower prices and downward price pressure on lumber and panel products during the third quarter of 2006 compared to the same period last year. For the quarter, the Fund reported gross margin of $24.2 million or 10.0 percent of sales, versus $27.1 million or 10.2 percent of sales in 2005.

EBITDA for the quarter amounted to $8.0 million compared to $8.5 million for the comparable period last year. For the quarter, distributable cash was $6.0 million or $0.179 cents per unit during the third quarter of 2006 compared to $6.9 million or $0.206 cents per unit in the same period of 2005. Net earnings during the third quarter were $4.4 million compared to net earnings of $5.3 million during the same period in 2005.

For the nine-month period ended September 30, 2006, CanWel reported sales of $719.2 million compared to $791.8 million for the comparable period in 2005. For the nine-month period, the Fund reported gross margin $74.4 million or 10.4 percent of sales, versus $76.8 million or 9.7 percent of sales in 2005. During the nine-month period, CanWel reported net earnings of $12.1 million compared to net earnings of $7.7 million during the same period in 2005. For the period, EBITDA increased to $22.4 million, compared to $20.8 million for the same period in 2005.

"Given the depressed pricing environment for lumber and panel products, we are pleased with our ability to post these financial results," noted Tom Donaldson, President and CEO of CanWel. "During the quarter we announced new specialty products distribution agreements which enhances our ability to increase our sales and margins on specialty products, in our ongoing effort to mitigate the negative impact of lower lumber and panel product prices."

"We are pleased that we have been able to increase our margins in 2006 in light of the weak pricing exhibited for lumber and panel products and continue to look for opportunities to add product margin. While management remains focused on our strategy of growing the specialty and hardware segment of the business, we are also constantly looking for further efficiencies to increase margins," stated Amar Doman, Chairman of CanWel.

The Fund will also be holding a conference call to discuss the third quarter financial results and respond to analyst questions today, November 9, 2006 at 4:00 p.m. EST. Participants should dial 416-695-5261 or 1-877-888-3490 at least 10 minutes prior to the conference time of 4:00 p.m. EST. For those unable to attend the call, a replay will be available after 7 p.m. at 416-695-5275 or 1-888-509-0081 pass code 634681 until midnight, Nov. 16, 2006.

The full text version of the unaudited interim financial statements is included in CanWel's third quarter report, which is available on or at

Recent Developments

On October 11, 2006, CanWel Holding Partnership ("CanWel LP"), a majority owned subsidiary of CanWel Building Materials Income Fund (the "Fund'), entered into a definitive agreement with Western Pacific Wood Preservers Ltd., Western Cleanwood Preservers Ltd., Alberta Wood Preservers Ltd., Quebec Wood Preservers Ltd. and Eastern Wood Preservers Ltd. (collectively, the "Vendors") pursuant to which it will acquire (the "Acquisition") the assets of five lumber pressure treating plants (the "Plants"), as previously disclosed on October 12, 2006.

The purchase price for the Plants will be satisfied as follows: the issuance to the Vendors of 3,111,111 exchangeable Class B CanWel LP units, the payment to the Vendors of approximately $21 million in cash and, pursuant to a vendor take back commitment, the net issuance to the Vendors of promissory notes in the aggregate maximum principal amount of $3.8 million. The promissory notes will be non-interest bearing and repayable in equal monthly installments over a period of three years.

As previously disclosed, the Acquisition constitutes a related party transaction for purposes of Ontario Securities Commission Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions and Regulation Q-27 Respecting Protection of Minority Securityholders in the Course of Certain Transactions of the Autorite des marches financiers. Amar S. Doman, Chairman of the Board of Trustees of the Fund, holds, directly or indirectly, approximately 33 percent of the issued and outstanding units of the Fund and also owns, directly or indirectly, the Vendors. The Acquisition remains subject to the approval by a majority of the votes cast by unitholders, excluding the votes attached to units held, directly or indirectly, by Mr. Doman.

An information circular has been mailed to unitholders providing unitholders with important information about the Acquisition, and all unitholders are encouraged to vote in connection therewith.

The Fund confirms that, neither the Fund, CanWel LP nor, to the knowledge of the Fund and CanWel LP after reasonable inquiry, the Vendors, have knowledge of any material information concerning the Fund, CanWel LP or their securities that has not been generally disclosed.

On October 31, 2006 the Department of Finance (Canada) announced the "Tax Fairness Plan" whereby the income tax rules applicable to publicly traded trusts and partnerships will be significantly modified. In particular, certain income of (and distributions made by) these entities will be taxed in a manner similar to income earned by (and distributions made by) a corporation. These proposals will be effective for the 2007 taxation year with respect to trusts which commence public trading after October 31, 2006, but the application of the rules will be delayed to the 2011 taxation year with respect to trusts which were publicly traded prior to November 1, 2006 (although the announcement suggested that this grandfathering could be lost in certain circumstances). The Fund is considering this announcement and the possible impact of the proposed rules to the Fund. The proposed rules may adversely affect the marketability of the Fund's units and the ability of the Fund to undertake financings and acquisitions, and, at such time as the proposed rules apply to the Fund, the distributable cash of the Fund may be materially reduced.

CanWel continues to emphasize its commitment to be a value-based organization. CanWel's values of being customer and supplier centric are being driven throughout the organization using an in-house marketing program. Through these internal initiatives, CanWel ensures that sales and purchasing actions each day are focused on developing value added products and services for its customers and suppliers, thereby focusing on creating value for our unitholders.

About CanWel

The Fund trades on the Toronto Stock Exchange under the symbol CWX.UN and is one of Canada's largest national distributors in the building materials and related products sector, with 17 distribution centres across Canada. The Fund distributes a wide range of hardware, building materials, lumber, and renovation products.

Further information can be found in the disclosure documents filed by CanWel Building Materials Income Fund with the securities regulatory authorities, available at

Certain statements in this press release may constitute "forward-looking" statements. When used in this press release, such statements use words, including but not limited to, "may", "will", "expect", "believe", "plan", "intend", "anticipate" and other similar terminology. These forward-looking statements reflect the current expectations of the Fund's management regarding future events and operating performance, but involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund, including the performance of, and distributable cash generated by the Fund, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual events could differ materially from those projected herein and depend on a number of factors. These factors include (i) the risk that the integration of the Acquisition may result in significant challenges, and management of CanWel may be unable to accomplish the integration smoothly or successfully or without spending significant amounts of money; any inability of management to successfully integrate the operations of the combined business, including, but not limited to, information technology and financial reporting systems, any of which could have a material adverse effect on the business, financial condition and results of operations of CanWel; (ii) the risk that Plant revenues, profits and margins may not remain consistent with historical levels, (iii) the risk that competing firms which manufacture or distribute competitive product lines will aggressively defend or seek market share, or that existing customers of the Plants (some of whom are competitors of CanWel) cease doing business with the Plants or CanWel, in each case reducing, eliminating or reversing any potential positive economic impact on the Fund of the Acquisition; (iv) the risk that any increased sales, margin, profit or
distributable cash resulting from the Acquisition may not be fully realized, realized at all or may take longer to realize than expected; (v) the risk of disruption from the introduction and implementation of the Acquisition making it more difficult to maintain relationships with customers, employees or suppliers, (vi) risks related to the operation of pressure treatment facilities, including but not limited to environmental risks, labour risks, risks related to maintenance capital expenditures for manufacturing facilities and risks related to capital expenditures for environmental risks, and (vii) the risk that the Acquisition is not completed or completed on terms that are different than as indicated herein. As indicated above, completion of the transactions described herein are subject to various conditions, including (among others) receipt of all necessary regulatory approvals and third party consents. There can be no assurance that each of these conditions will be satisfied to the satisfaction of CanWel and that these transactions will be concluded. Additional risks and uncertainties affecting the Fund, which could cause results to differ materially from those described in these forward-looking statements, include, among others: increased debt and interest costs, general economic and business conditions, product selling prices, product performance, design and liability risk, software and software design risk, commodity price fluctuations, information systems risk, interest rate changes, operating costs, and competitive conditions. A further description of these additional factors can be found in the periodic and other reports filed by the Fund with Canadian securities commissions and available on Sedar ( These forward-looking statements speak only as of the date of this press release. The Fund does not undertake, and specifically disclaims, any obligation to update or revise any forward looking information, whether as a result of new information, future developments or otherwise, except as required by applicable law.

The Government of Canada has also recently announced significant changes impacting income trusts. It is unclear what the impact of these announcements may be on the Fund at this time. Readers are urged to consult with their professional financial, legal or accounting advisors to consider the potential impact of such measures.

Although the forward looking statements contained in this press release are based upon what CanWel believes to be reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward looking statements, and differences may be material. The Fund undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.

(1) References to the Fund or CanWel include references to CanWel Building Materials Ltd. as the context may require.

(2) Please refer to our Q3, 2006 MD&A for further information.

(3) EBITDA is defined to mean earnings before interest, income taxes, gain or loss on sale of fixed assets, depreciation and amortization and stock based compensation.

EBITDA is a key measure used by management to evaluate the Fund's profitability. EBITDA is not considered a measure of financial performance under generally accepted accounting principles. Items excluded from EBITDA are significant to understanding and assessing financial performance. EBITDA should not be considered in isolation or as an alternative to net income, cash flows generated by operations or other financial statement data presented in the Consolidated Financial Statements as indicators of financial performance or liquidity. Because EBITDA is not a measurement determined in accordance with generally accepted accounting principles, as presented, it may not be comparable to other similarly titled measures of other companies.

(4) Reference is also made to Distributable Cash of the Fund. This is a non-GAAP measure generally used by Canadian open-ended income funds as an indicator of financial performance. Management believes that this measure provides investors with an indication of the cash available for distribution to unitholders. Distributable cash has been defined in previous reports as the Fund's net earnings before depreciation, amortization, stock-based compensation, gain or loss on sale of fixed assets, provision for future income taxes and after maintenance of business capital expenditure and contributions to any reserves the Board of Trustees deem to be reasonable and necessary for the operations of the Fund.

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