COLABOR INCOME FUND
TSX : CLB.UN

COLABOR INCOME FUND

July 10, 2008 18:27 ET

Colabor Income Fund: Strong Growth!

BOUCHERVILLE, QUEBEC--(Marketwire - July 10, 2008) - FOR DISTRIBUTION IN CANADA ONLY. NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Colabor Income Fund (TSX:CLB.UN) reports its results for the second quarter of the year ending December 31, 2008.

Highlights of the second quarter ended June 14, 2008 compared with the 2007 second quarter:

- SALES UP 39%

- EBITDA UP 49%

- ORGANIC GROWTH OF WHOLESALE SEGMENT OF 8.9%

- BRUCE EDMEADES INTEGRATION AHEAD OF SCHEDULE

- BERTRAND CONTRIBUTION BETTER THAN ANTICIPATED

Highlights for the 166-day period ended June 14, 2008 compared with the 167-day period ended June 16, 2007:

- SALES UP 26%

- EBITDA UP 35%

- ORGANIC GROWTH OF WHOLESALE SEGMENT OF 9.3%

Results of Operations

The results of operations below should be read taking the following into account:

- Results subsequent to the Bruce Edmeades acquisition are included for the entire second quarter without a comparison to 2007;

- Results subsequent to the Bertrand, distributeur en alimentation acquisition are recognized, for the quarter, since April 28, 2008, also without a comparison to 2007;

- Integration costs and synergies from these acquisitions (see Integration and Synergies).



Consolidated Earnings
(in thousands of dollars,
except per unit amounts)
2008-06-14 2007-06-16
(84 days) (84 days)
(unaudited) (unaudited) Variance
--------------------------------------------------------------------------
$ $ $ %
Sales 278,721 100.00% 200,210 100.00% 78,511 39.21%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings before financial
expenses, amortization
and income taxes 9,428 3.38% 6,327 3.16% 3,101 49.01%

Financial expenses 1,628 0.58% 1,552 0.78% 76 4.90%
Amortization of property,
plant and equipment 875 0.31% 798 0.40% 77 9.65%
Amortization of intangible
assets 1,827 0.66% 1,655 0.83% 172 10.39%
--------------------------------------------------------------------------
4,330 1.55% 4,005 2.01% 325 8.11%
--------------------------------------------------------------------------
Earnings before income
taxes and non controlling
interest 5,098 1.83% 2,322 1.15% 2,776 119.55%
--------------------------------------------------------------------------

Income taxes Current 1,114 0.40% 0.00% 1,114 N/A
Future 934 0.34% 0.00% 934 N/A
--------------------------------------------------------------------------
2,048 0.74% 0.00% 2,048 N/A
--------------------------------------------------------------------------
Earnings before
non-controlling interest 3,050 1.09% 2,322 1.15% 728 31.35%
Non-controlling interest 1,903 0.68% 799 0.40% 1,104 138.17%
--------------------------------------------------------------------------

Net earnings 1,147 0.41% 1,523 0.75% (376) (24.69)%
--------------------------------------------------------------------------
--------------------------------------------------------------------------



2008-06-14 2007-06-16
(166 days) (167 days)
(unaudited) (unaudited) Variance
-------------------------------------------------------------------------
$ $ $ %
Sales 458,750 100.00% 362,877 100.00% 95,873 26.42%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings before financial
expenses, amortization
and income taxes 14,783 3.22% 10,974 3.02% 3,809 34.71%
-------------------------------------------------------------------------
Financial expenses 3,051 0.67% 3,090 0.85% (39) (1.26)%
Amortization of property,
plant and equipment 1,521 0.33% 1,443 0.40% 78 5.41%
Amortization of intangible
assets 3,460 0.75% 3,180 0.88% 280 8.81%
-------------------------------------------------------------------------
8,032 1.75% 7,713 2.13% 319 4.14%
-------------------------------------------------------------------------
Earnings before income
taxes and non
controlling
interest 6,751 1.47% 3,261 0.89% 3,490 107.02%
-------------------------------------------------------------------------

Income taxes Current 1,319 0.29% 0.00% 1,319 N/A
Future 1,193 0.26% 0.00% 1,193 N/A
-------------------------------------------------------------------------
2,512 0.55% 0.00% 2,512 N/A
-------------------------------------------------------------------------
Earnings before non-
controlling interest 4,239 0.92% 3,261 0.89% 978 29.99%
Non-controlling
interest 2,501 0.55% 1,192 0.33% 1,309 109.82%
-------------------------------------------------------------------------
Net earnings 1,738 0.37% 2,069 0.56% (331) (16.00)%
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Sales

Sales consist of:

For the Wholesale Segment: Gross sales to customers from the Boucherville warehouse and direct sales to affiliated wholesalers, less rebates of about 3% of the affiliated-wholesalers' sales, as provided in the agreement between Colabor LP and the affiliated-wholesalers.

For the Distribution Segment: Gross sales to customers from the London, Mississauga, Ottawa, Cambridge, Levis and Saguenay warehouses less rebates, as provided in individual agreements with these customers.

Inter-segment sales are then eliminated.



Sales (in thousands of dollars,
unaudited)
2008-06-14 2007-06-16
(84 days) (84 days)
-------------------------------------------------------------------------

(Post-
(Comparable acquisition (Comparable
sales) sales) (Total sales) sales)
-------------------------------------------------------------------------
$ $ $ $
Wholesale Segment
Retail 31,341 31,341 29,573
Foodservice 80,977 80,977 73,609
-------------------------------------------------------------------------
112,318 112,318 103,182
Distribution Segment
Foodservice 100,370 76,727 177,097 97,028
-------------------------------------------------------------------------
212,688 76,727 289,415 200,210
Inter-segment
elimination (654) (10,040) (10,694)
-------------------------------------------------------------------------
212,034 66,687 278,721 200,210
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Variance Variance

(Comparable sales) (Total sales)
------------------------------------------------------
$ % $ %
Wholesale Segment
Retail 1,768 6.0% 1,768 6.0%
Foodservice 7,368 10.0% 7,368 10.0%
------------------------------------------------------
9,136 8.9% 9,136 8.9%
Distribution Segment
Foodservice 3,342 3.4% 80,069 82.5%
------------------------------------------------------
12,478 6.2% 89,205 44.6%
Inter-segment
elimination (654) N/A (10,694) N/A
------------------------------------------------------
11,824 5.9% 78,511 39.2%
------------------------------------------------------
------------------------------------------------------




2008-06-14 2007-06-16
(166 days) (167 days)
-------------------------------------------------------------------------

(Post-
(Comparable acquisition (Comparable
sales) sales) (Total sales) sales)
-------------------------------------------------------------------------
$ $ $ $
Wholesale Segment
Retail 56,819 56,819 52,069
Foodservice 139,678 139,678 127,674
-------------------------------------------------------------------------
196,497 196,497 179,743
Distribution Segment
Foodservice 185,587 87,697 273,284 183,199
-------------------------------------------------------------------------
382,084 87,697 469,781 362,942
Inter-segment
elimination (991) (10,040) (11,031) (65)
-------------------------------------------------------------------------
381,093 77,657 458,750 362,877
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Variance Variance

(Comparable sales) (Total sales)
------------------------------------------------------
$ % $ %
Wholesale Segment
Retail 4,750 9.1% 4,750 9.1%
Foodservice 12,004 9.4% 12,004 9.4%
------------------------------------------------------
16,754 9.3% 16,754 9.3%
Distribution Segment
Foodservice 2,388 1.3% 90,085 49.2%
------------------------------------------------------
19,142 5.3% 106,839 29.4%
Inter-segment
elimination (926) N/A (10 966) N/A
------------------------------------------------------
18,216 5.0% 95,873 26.4%
------------------------------------------------------
------------------------------------------------------



Wholesale Segment

The Wholesale Segment continues to experience significant sustained organic growth of 8.9% for the quarter and 9.3% for the cumulative period, at a faster pace than in the 2007 fiscal period, which was about 6.6% .

Retail

Sales of products for the retail market increased by 6% for the quarter and 9.1% for the cumulative 166-day period compared to the prior-year periods, primarily as a result of the recruitment of two new major customers by one of the affiliated-wholesalers during the third quarter of 2007 and the acquisition of a competitor by an affiliated-wholesaler in the Maritimes.

Sales in this sector are mainly to convenience stores and small-sized grocery stores, located mostly outside the greater Montreal area.
This Segment's trend is expected to continue to the end of the year since, shortly after the end of the quarter, one of the affiliated-wholesalers concluded a major distribution agreement with an integrated oil company.

Foodservice

For several quarters, organic growth in the affiliated wholesalers' foodservice sales has outpaced industry levels, anticipated to be 3.3% in 2008 according to the Canadian Restaurant and Foodservices Association (CRFA), an indication that affiliated wholesalers are continuing to increase their market share compared with their competitors. The increase was about 10% for the quarter and 9.4% for the cumulative 166-day period. This Segment's trend is also expected to continue to the end of the year. An affiliated-wholesaler serving the Gaspe and Lower St. Lawrence region in Quebec, acquired the activities of its main competitor after the end of the second quarter.

Distribution Segment

2007 comparable sales:

Only sales in the Summit Division are comparable. Sales for the first week of January 2008, of approximately $7.5 million are not included in the comparison since the acquisition occurred on January 8, 2007. The 3.4% increase in sales during the second quarter over the prior year's sales is comparable with the CFRA's expected growth of 3.3% . For the cumulative 166-day period, sales grew by only 1.3%, primarily because of a difficult first quarter which is attributable to the economic situation in Ontario and a severe winter.




Sales attributable to acquisitions:
2nd Quarter Cumulative
Bruce Edmeades $50.6M $54.1M
Bertrand $26.1M $26.1M
Summit (1st week of January 2008) $ 7.5M


Bertrand is currently experiencing strong sales growth due to the festivities surrounding the 400th anniversary of the founding of Quebec City.

Inter-segment eliminations

Eliminated sales are sales by the Wholesale Segment to the Summit and Bertrand divisions of the Distribution Segment.

Earnings before Financial Expenses, Amortization and Income Taxes (EBITDA)

The Fund posted solid results in the second quarter, with an approximate 49% increase in EBITDA over the same quarter of the 2007 fiscal year and 34.7% for the 166-day period. The increase in earnings is higher than the 39.2% improvement in sales for the quarter and 26.4% for the cumulative period.

Gross Profit and Synergies

Gross profit:

Gross profit is composed of the following items:

- Wholesale Segment: Profit on gross warehouse sales only, which consists primarily of a profit margin on private brand-name products and profit on inventory held. No profit margin is recognized on direct sales. Income is attributed on such sales for purposes of rebates from suppliers only.

Distribution Segment: Product acquisition cost with a percentage mark-up that is market- driven or negotiated in current agreements.

- Rebates from suppliers

A significant portion of Colabor's gross profit is derived from rebates from suppliers. These rebates consist of: (i) agreements with suppliers relating principally to distribution agreements, central billing, truck load allowance and other incentives, (ii) rebates received from suppliers based on buying volumes, (iii) cash discounts on purchases based on terms of sale, and (iv) net advertising funds received in connection with promotional activities.

EBITDA is $9.4M in 2008, up from $6.3M in 2007, primarily as a result of:

- Significant organic growth in the Wholesale Segment which generated better agreements with suppliers. Moreover, its cost structure includes a number of fixed costs, such as rent, which represents a significant percentage of operating expenses and which contributes to improving EBITDA when sales volumes are on the increase.

- The Bertrand acquisition, which has already made it possible to generate a number of sales synergies (see Integration and Synergies).

These factors helped to offset the negative effect of the following on EBITDA:

- Bruce Edmeades' $150,000 operating loss since its acquisition (see Integration and Synergies).

- Skyrocketing fuel prices.

While the Summit division is able to recover fuel costs from its clients, additional net costs attributable to rising fuel costs were $250,000 for the 166-day period ended June 14, 2008 compared to the same period in 2007.

Income Taxes

The acquisition of the assets of Summit Food Service Distributors Inc. was finalized and carried out on January 8, 2007. Under the new tax regime for "specified investment flowthrough" ("SIFT") entities, also called listed income trusts and partnerships, SIFTs are now subject to a similar tax treatment as corporations. This new tax treatment is applicable as of fiscal year 2007. However, existing SIFTs on October 31, 2006 could benefit from certain transitional rules and would not be taxable under the new rules until 2011, provided they had not undergone an "undue expansion". As indicated in its decision rendered at the end of 2007, the Department of Finance considered the Summit acquisition transaction as an undue expansion. Accordingly, the Fund does not benefit from the transitional rules and is therefore subject to the new SIFT tax regime as of the 2007 taxation year. Since the total amount of these taxes for the entire the year was recognized only in the fourth quarter of 2007, there is no comparative amount with the second quarter and cumulative period of 2007.

Integration and Synergies

Acquisition of Bruce Edmeades and integration within Summit Division

On March 17, 2008, Colabor acquired substantially all of the net assets of Bruce Edmeades, which had sustained a loss before financial expenses, amortization and income taxes of about $2.5M during the twelve-month period prior to its acquisition.

At the time of the acquisition, management had already prepared an integration plan to achieve the operational breakeven point by the end of the 2008 fiscal year and full operating integration in 2009, equivalent to about 2.5% of sales to be realized.

The plan is summarized as follows:

a) Closure of the Kitchener warehouse and transfer of the Bruce Edmeades administrative functions to the Summit head office in London;

b) Improved efficiency and productivity at the Cambridge warehouse, by, among others:

- Relocating restaurant clientele to the London warehouse, which already specializes in this field;

- Relocating industrial clientele to a new industrial products warehouse (acquired at the time of the Cara acquisition);

- Concentration of main clients such as Wendy's, Mr. Sub and Zehrs in Cambridge;

c) Review of the sales territories and improvement in delivery routes;

d) Optimisation of supplier agreements.

At the end of the second quarter, measures a) and b) have been completed and measures c) and d) are in process.

EBITDA for the quarter includes $150,000 which represents the operating loss attributable to the Bruce Edmeades acquisition, which leads management to conclude that the breakeven point will be achieved more quickly than anticipated.

Bertrand Acquisition

The integration risk is very low, since the company's management remained after its acquisition. Additionally, a new Vice-President and General Manager was hired upon the closing of the acquisition.

At the time of the acquisition, management had mentioned that estimated procurement-related synergies of $1M would be achieved during the twelve-month period following the acquisition. A number of synergies have already been achieved and are included in the quarterly results. Upon conclusion of ongoing negotiations with suppliers, management is confident it will attain the promised synergies within the expected time period.



Cash Flow
Consolidated Cash Flows
(in thousands of dollars)
2008-06-14 2007-06-16 2008-06-14 2007-06-16
(84 days) (84 days) (166 days) (167 days)
(unaudited) (unaudited) (unaudited) (unaudited)
--------------------------------------------------------------------------
$ $ $ $
OPERATING ACTIVITIES
Net earnings 1,147 1,523 1,738 2,069
Non-cash items
Amortization of property,
plant and equipment 875 798 1,521 1,443
Amortization of intangible
assets 1,827 1,655 3,460 3,180
Amortization of deferred
financing costs 24 19 43 38
Non-controlling interest 1,903 799 2,501 1,192
Future income taxes 934 1,193
Compensation cost from
long-term incentive plan 96 53 162 91
Amortization of debenture
transaction costs 208 192 414 379
--------------------------------------------------------------------------
7,014 5,039 11,032 8,392
--------------------------------------------------------------------------
Changes in operating assets
and liabilities
Accounts receivable (14,151) (5,372) (15,741) (11,766)
Withholding taxes recoverable (868) (122) (868) (247)
Inventory (5,942) (4,419) (3,727) 5 140
Prepaid expenses (330) (266) (1,171) (575)
Accounts payable and
accrued liabilities 10,074 9,251 18,183 6,445
Income taxes payable (692) (605)
Rebates payable 1,844 1,823 2,932 3,681
Deferred revenue 388 240 360 205
--------------------------------------------------------------------------
(9,677) 1,135 (637) 2,883
--------------------------------------------------------------------------
Cash flows from operating
activities (2,663) 6,174 10,395 11,275
--------------------------------------------------------------------------
INVESTING ACTIVITIES
Business acquisition (57,640) (70,424) (109,048)
Property, plant and
equipment (308) (100) (450) (450)
--------------------------------------------------------------------------
Cash flows from investing
activities (57,948) (100) (70,874) (109,498)
--------------------------------------------------------------------------
FINANCING ACTIVITIES
Bank loans 24,291 (2,965) 33,984 35,577
Financing expenses (225) (225)
Distributions paid to
unitholders (2,199) (2,655) (4,862) (4,940)
Distributions paid on
exchangeable Colabor LP units (913) (1,369) (2,282) (2,738)
Repayment of long-term debt (143) (117) (260) (234)
Purchase of units held by the
Fund for long-term incentive
plan (575) (238)
Issue of debentures 48,000
Issue of trust units 38,022 38,022 24,761
Units and debentures issue
costs (1,150) (1,150) (1,404)
--------------------------------------------------------------------------
Cash flows from financing
activities 57,683 (7,106) 62,652 98,784
--------------------------------------------------------------------------
Net change in bank overdraft (2,928) (1,032) 2,173 561
Bank overdraft, beginning
of period (4,672) (1,744) (9,773) (3,337)
--------------------------------------------------------------------------
Bank overdraft, end of
period (7,600) (2,776) (7,600) (2,776)
--------------------------------------------------------------------------
--------------------------------------------------------------------------



Standardized Distributable Cash
(in thousands of dollars)
Since the
2008-06-14 2007-06-16 2008-06-14 2007-06-16 Creation of
(84 days) (84 days) (166 days) (167 days) the Fund
(unaudited) (unaudited) (unaudited) (unaudited) 2005-06-28
---------------------------------------------------------------------------
$ $ $ $ $
Cash flows from
operating
activities (2,663) 6,174 10,395 11,275 81,516
Acquisition of
property, plant
and equipment: (308) (100) (450) (450) (2,985)
---------------------------------------------------------------------------
Standardized
distributable
cash (2,971) 6,074 9,945 10,825 78,531
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Distributions
paid on units 2,199 2,655 4,862 4,940 23,683
Distributions
paid on
exchangeable
Colabor LP units 913 1,369 2,282 2,738 15,391
---------------------------------------------------------------------------
Distributed
cash 3,112 4,024 7,144 7,678 39,074
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted average
number of units
Units 12,504,722 9,862,341 11,187,959 9,672,465 8,605,479
Exchangeable
Colabor
LP units 5,087,439 5,087,439 5,087,439 5,087,439 5,087,439
---------------------------------------------------------------------------
17,592,161 14,949,780 16,275,398 14,759,904 13,692,918
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Standardized
distributable
cash per unit $(0.17) $0.41 $0.61 $0.73 $5.74
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Cash
distributed
per unit $0.18 $0.27 $0.44 $0.52 $2,85
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Ratio of
distributed
cash to
standardized
distributable
cash (104.7)% 66.2% 71.8% 70.9% 49.8%
---------------------------------------------------------------------------
---------------------------------------------------------------------------



Negative standardized distributable cash for the quarter is primarily attributable to variations in operating assets and liabilities (see Cash Flow). This negative variation results essentially from the increase in accounts receivable and inventories in the wake of a significant increase in sales and payment, during the quarter, of current taxes mentioned in the December 31, 2007 financial statements. Distributable cash for the 166-day period ended June 14, 2008 is however $9.9 M, or $0.61 per unit.

Additional Information

The Fund's MD&A, financial statements and Annual Information Form will also be available on SEDAR (www.sedar.com) following publication of this News Release. Additional information about Colabor Income Fund may also be found on SEDAR as well as on the Income Fund' s Internet site at www.colaborincomefund.com.

About Colabor

Colabor is a wholesaler and distributor of food and non-food products serving the retail (grocery stores, convenience stores, etc.) and food-service (cafeterias, restaurants, hotels, restaurant chains, etc.) markets.

Caution

This News Release may contain forward-looking statements reflecting the opinions or present expectations of Colabor Income Fund or Colabor Limited Partnership concerning their performance as well as their respective business activities and future events. These statements are subject to a number of risks, uncertainties and assumptions. Actual results or events may differ.

Contact Information

  • Colabor Income Fund
    Gilles C. Lachance
    President and Chief Executive Officer
    450-449-0026, ext. 265
    450-449-2098 (FAX)
    glachance@colabor.com
    or
    Colabor Income Fund
    Michel Loignon CA
    Vice President and Chief Financial Officer
    450-449-0026, ext. 235
    450-449-2098 (FAX)
    mloignon@colabor.com