GRANBY INDUSTRIES INCOME FUND
TSX : GBY.UN

GRANBY INDUSTRIES INCOME FUND

March 30, 2007 13:20 ET

Granby Industries Income Fund Announces Fourth Quarter and Annual 2006 Results

GRANBY, QUEBEC--(CCNMatthews - March 30, 2007) - Granby Industries Income Fund (TSX:GBY.UN) ("the Fund") announced today its results for the quarter and year ended December 31, 2006. The Fund holds an eighty percent (80%) interest in Granby Industries Limited Partnership ("Granby" or "Granby LP").

Overview

Our results for the year ended December 31, 2006 fell short of our expectations. The trend of difficult market conditions in the tank business first observed in the third quarter of 2005 continued into 2006. In the coated copper tubing business, competitive forces, a slowdown in the U.S. housing sector and a shift to substitute products eroded profitability beginning in the third quarter of 2006. Sales of $52.0 million for the year ended December 31, 2006 were down $6.1 million or 10.5% compared to $58.1 million for the same period a year ago. EBITDA(i) before restructuring costs of $0.7 million, was $6.7 million for fiscal 2006 as compared to $9.6 million for year ended December 31, 2005. The major factors which contributed to this decrease were lower volumes in both the tank and coated copper tubing businesses, the negative effect of the stronger Canadian dollar, and the unfavourable impact of competitive pricing pressures, particularly in the coated copper tubing business.

On November 9, 2006, in response to these difficult market conditions, the Fund suspended distributions on its units effective with the November distribution. The Fund regularly reviews its distribution policy in order to assess whether or not to resume the payment of monthly cash distributions. Given the prevailing market conditions in both businesses and the Fund's requirement to make term loan repayments of $3.6 million for the year ending December 31, 2007 under its credit facilities, the Fund does not currently expect that it will resume distributions in 2007, but will continue to monitor its distributable cash position and will update it as appropriate.

Pierre Fournier, COO of the Fund, stated that "while financial results for 2006 were disappointing, we believe Granby remains a viable, cash producing business with great brand equity, a strong customer network and quality products. Moreover, we continue to excel operationally. Looking ahead, we anticipate a continuation of challenging conditions through 2007. Granby will continue to enhance its position in current markets, expand into new product lines and grow the business by leveraging our production capacity".

Storage tank sales were $10.4 million in the fourth quarter of 2006, down 23% from the same quarter last year, and $39.1 million for the year ended December 31, 2006, a 14% decrease year over year. Sales in the United States decreased $2.7 million or 24.3% in the fourth quarter to $8.4 million compared to $11.1 million for the same quarter in 2005. The decrease resulted from lower unit volumes and the unfavourable impact of the stronger Canadian dollar, offset in part by higher selling prices. Canadian tank sales of $2.0 million in the fourth quarter of 2006 were 16% below sales from the same quarter last year. Management believes that the decline in storage tank sales reflects a soft storage tank market in North America and increased price competition from Canadian competitors offering 14 gauge storage tanks, which are lighter and less expensive than the 12 gauge steel storage tanks sold by the Fund. In December 2006, Granby re-introduced the 14 gauge steel tank to the Canadian market.

Management continues to believe the increased consumer spending on energy plays a significant role in negatively influencing consumers' decisions to replace their storage tanks. Compounding this situation is a slow down of the U.S. economy beginning late in 2006, with rising interest rates and a cooling housing sector contributing to softer consumer spending. In addition, management also believes that conversion from heating oil to alternative energy sources was not a factor in industry demand in its key U.S. markets.

Coated copper tubing sales for the quarter ended December 31, 2006 totalled $2.9 million compared with $3.7 million for the same period in 2005, representing a $0.8 million decrease. The decrease in sales was the result of lower unit volumes, offset partly by higher selling prices. The lower volumes were primarily due to lower market consumption, driven in part by the onset of the slowdown in the U.S. housing sector. Other contributing factors were competition gains in select markets and a shift to substitute products for the Aqua Shield tubing line ("AST"). AST is used primarily in potable water systems. The move to substitute products is occurring in Arkansas where the high cost of copper has resulted in contractors designing systems that use alternative products as a means of reducing their costs.

The decline in consolidated sales in the fourth quarter and year ended December 31, 2006 resulted in a reduction in EBITDA to $1.5 million in the fourth quarter of 2006 from $3.4 million in the same quarter last year, and to $6.7 million for 2006 from $9.6 million in 2005, respectively. The net loss for the fourth quarter of 2006 was $20.2 million compared with a net loss of $18.8 million in the same quarter of 2005. The Fund recorded a $25.8 million non-cash goodwill and intangible assets impairment charge in the fourth quarter of 2006. In the previous year, the goodwill impairment charge was $24.7 million. Net loss for the year ended December 31, 2006 was $18.9 million compared to a net loss of $16.1 million in the prior year.

Selected Financial and Operating Information

The following table sets forth selected financial information regarding the Fund's operating performance and should be read in conjunction with the audited consolidated financial statements of the Fund for the year ended December 31, 2006 and the related notes thereto.



Quarter Quarter Year Year
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
(in thousands of dollars) 2006 2005 2006 2005
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(unaudited) (unaudited) (audited) (audited)

Sales $13,320 $17,171 $52,002 $58,075
Cost of sales 10,448 12,501 39,351 42,250
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Gross margin 2,872 4,670 12,651 15,825
Selling, general &
administrative expenses 1,568 1,436 5,978 5,593
(Gain) loss on foreign
exchange (224) (113) (167) 812
Loss (gain) on interest
rate swaps 58 (96) 155 (146)
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EBITDA (1) 1,470 3,443 6,685 9,566
EBITDA margin (1) 11.0% 20.1% 12.9% 16.5%
Goodwill and intangible
assets impairment charges 25,768 24,742 25,768 24,742
Restructuring costs 254 - 744 -
Amortization 825 813 3,269 2,820
Interest 425 337 1,412 1,086
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Loss before non-
controlling interest (25,802) (22,449) (24,508) (19,082)

Non-controlling interest 5,568 3,678 5,568 2,945
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Net loss $(20,234) $(18,771) $(18,940) $(16,137)
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(1) EBITDA and EBITDA margin are not recognized measures under GAAP and do
not have standardized meanings prescribed by GAAP. The Fund's method
for calculating this information may differ from that used by other
issuers and, accordingly, this information may not be comparable to
measures used by other issuers. EBITDA shown in this press release
represents earnings before non-controlling interest, amortization,
interest expense, goodwill and intangible assets impairment charges and
restructuring costs. EBITDA margin refers to the ratio of EBITDA for
any period to sales for that period. See "Non-GAAP Measures".


Distributions and Distributable Cash(i)

During the fourth quarter of 2006, the Fund revised retroactively its distributable cash calculations after giving consideration to the recommendations of the CICA contained in the publication "Distributable Cash in Income Trusts and Other Flow-Through Entities -- Guidance on Preparation and Disclosure in Management's Discussion and Analysis -- Draft Interpretive Release." On a comparative basis, this resulted in the inclusion of non-cash working capital items in the calculation of distributable cash. For the Fund, this represented an increase in the reported distributable cash of $8.6 million and $8.8 million for the quarters ended December 31, 2006 and 2005, respectively. Further, it also represented increases of $2.1 million and $1.3 million for the years ended December 31, 2006 and December 31, 2005, respectively in the reported distributable cash.

The table below reconciles cash provided by operating activities to distributable cash from operations(i):



Since
Inception
Quarter Quarter Year Year December
(in thousand Ended Ended Ended Ended 16, 2004
of dollars, December December December December to December
unaudited) 31, 2006 31, 2005 31, 2006 31, 2005 31, 2006
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Cash provided by
operating activities $9,473 $11,793 $6,943 $10,274 $14,725

Maintenance capital
expenditures (1) (33) (29) (363) (192) (565)
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Distributable cash
from operations(2) $9,440 $11,764 $6,580 $10,082 $14,160
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Cash distributed to
Fund unitholders $1,106 $2,076 $7,328 $7,964 $15,292
Cash distributed to
non controlling
interest $- $518 $- $1,646 $1,646
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$1,106 $2,594 $7,328 $9,610 $16,938
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Distributable cash
from operations
per Fund unit $1.2799 $1.5950 $0.8921 $1.3669 $1.9198
Cash distributed
per Fund unit $0.1500 $0.2815 $0.9935 $1.0798 $2.0733
Cash distributed to
non-controlling
interest per unit $- $0.2809 $- $0.8927 $0.8927

Units outstanding
- Fund 7,375,644 7,375,644 7,375,644 7,375,644 7,375,644
- Granby LP
Class B 1,843,911 1,843,911 1,843,911 1,843,911 1,843,911
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(1) Maintenance capital expenditures refer to capital expenditures
necessary to sustain current sales levels.

(2) See discussion on Non-GAAP Measures.


Non-controlling Interest -- Subordination

The Class B LP units of Granby LP are held indirectly by Torquest Partners and represent a 20% indirect interest in the Fund. In connection with the Fund's acquisition of Granby LP, the former shareholders of the Business retained a 20% economic interest in Granby LP through 1,843,911 Class B LP units of Granby LP. The previously announced suspension of the quarterly distribution on the subordinated Class B LP units of Granby LP remains in effect. A description of the non-controlling interest and subordination may be found in the Fund's Annual Information Form for the year ended December 31, 2006.

About Granby Industries Income Fund

Granby Industries is a leading North American manufacturer of high quality tanks for the residential and light commercial storage of heating oil and other petroleum-based products and is also a leading manufacturer of coated copper tubing. Granby has been operating in the heating oil storage tank industry for more than 50 years and its primary business is manufacturing replacement residential tanks. Granby Industries has operations in Granby, Quebec and Oakville, Ontario.

(i) Non-GAAP Measures

Distributable cash, distributable cash from operations, distributable cash per unit and maintenance capital expenditures are not measures recognized by GAAP, do not have standardized meanings prescribed by GAAP and therefore, may not be comparable to similar measures presented by other issuers. Distributable cash from operations is determined by the Fund as cash flow from operating activities for the period less maintenance capital expenditures. The Fund believes that distributable cash as a cash flow measure is a useful supplemental measure as it helps the readers to evaluate the ability of the Fund to generate cash that could be used for distributions and provides an indication of the amount of cash available for distribution 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 as a measure of the Fund's liquidity and cash flows.

References in this press release to the term "EBITDA" are to earnings before non-controlling interest, amortization, interest expense, goodwill and intangible assets impairment charges and restructuring costs and to "EBITDA margin" are to the ratio of EBITDA for any period to sales for that period. EBITDA is not a recognized measure under GAAP in Canada and may not be comparable to similar measures used by other companies. The Fund believes that EBITDA is a useful supplementary measure of operating performance as it provides investors with an indication of cash available for distributions prior to debt service and capital expenditures. Investors are cautioned, however, that EBITDA should not replace net earnings or loss as an indicator of the Fund's performance, or cash flows from operating, investing and financing activities as a measure of the Fund's liquidity and cash flows. It is not intended to be representative of cash flow from operating activities or results from operations determined in accordance with GAAP or cash available for distribution.

Conference Call

Management will host a conference call at 10 a.m. ET on Tuesday, April 3, 2007 to discuss the results. The call can be accessed by dialing 1-800-732-6179. A replay of the session will be available until midnight on Tuesday, April 10, 2007. It can be accessed by dialing 1-877-289-8525 or 416-640-1917 and entering the passcode 21225544#.

The Fund's publicly filed documents, including its audited financial statements, Management's Discussion and Analysis, and Annual Information Form for the year ended December 31, 2006, are available at www.sedar.com.

Forward-Looking Statements

Certain information included in this press release may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding the future growth, financial position, business strategy, goals, prospects and opportunities, results of operations, sales targets, budgets, projected costs, working capital requirements, capital expenditures, financial results, taxes and plans and objectives of or involving the Fund and Granby. Particularly, information regarding cash distributions is forward-looking information. Forward-looking statements reflect management's current beliefs and are based on information currently available to management.

Forward-looking information is based on certain factors and assumptions regarding, among other things, expected storage tank unit volumes, the price of raw materials and the average U.S./Canadian dollar exchange rate during the year. While Granby considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. Forward looking-information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what we currently expect. These factors include, among other things, economic conditions, the seasonality of demand for Granby's products, the risk of increased heating oil costs, which could depress demand for heating oil storage tanks, commodity pricing volatility and foreign exchange risk, regulatory change, interest rate fluctuation, a decline in the housing and major consumer products markets, dependence on key suppliers, reliance on major customers and the risk of increased competition in the coated copper tubing market and the storage tank market.

You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While Granby may elect to, it is under no obligation and does not undertake to update this information at any particular time, except as required by law.

Contact Information

  • Granby Industries Income Fund
    Mr. Paul Antoniadis, CA
    Vice President, Finance & CFO
    450-378-2334 ext. 225