Newport Partners Income Fund
TSX : NPF.UN

March 29, 2006 19:28 ET

Newport Partners Income Fund Announces 2005 Year-End Results

TORONTO, ONTARIO--(CCNMatthews - March 29, 2006) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Newport Partners Income Fund ("Newport")(TSX:NPF.UN) today announced its results for Newport for the 146-day period from August 8, 2005 (date of commencement of operations) to December 31, 2005 and Newport Private Yield LP ("NPY") from January 1, 2005 to December 31, 2005 in which Newport holds a 40% indirect interest. The financial statements of Newport are prepared on a consolidated basis in accordance with generally accepted accounting principles.

Performance Highlights for 2005

- Generated revenue of $205.2 million and EBITDA of $23.4 million;

- Produced distributable cash flow of $23.7 million or $0.37 per Unit;

- Distributed $24.2 million or $0.37 per unit;

- Invested $35.4 million of new capital to add more than $6 million of estimated annual distributable cash flow from five roll-up investments by existing operating partnerships and one new operating partnership, Kenna Group;

- Announced a 2.7% increase in annual distributions from $0.925 per Unit to $0.95;

- Completed the initial public offering (IPO) of Newport units on August 8, 2005, for $226.5 million;

- Completed a private placement of $85 million of convertible debentures;

- Increased authorized credit facility to $70 million to provide for working capital and short-term financing of Newport's investment program.

Objectives for 2006

- Invest $100 - $150 million of capital to support acquisitions by existing operating partnerships and to add new partnerships;

- Maintain target 5-6 times distributable cash flow multiple on new investments;

- Target 10% growth in per unit distributions;

- Maintain strong balance sheet with low leverage.



Summary Financial Table - Newport ($000s)

For the period August 8, 2005 (date of commencement of operations) to
December 31, 2005

Financial Industrial Distribu-
Services Marketing Services tion Total
----------------------------------------------------
Revenue $23,621 $21,947 $43,290 $116,382 $205,240
Gross Margin 14,629 9,107 6,787 17,157 47,680
Net Income 2,659 1,188 1,154 4,956 9,957

EBITDA 9,184 3,662 3,282 7,284 23,412
Interest expense 356 32 612 390 1,390
Income taxes - - - - -
Maintenance capital
expenditures and
reserves 548 337 766 98 1,749
Expense funded by
operating partner 1,029 - - - 1,029
Priority income per
partnership
agreements 720 473 - 1,246 2,439
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Distributable Cash $10,029 $3,766 $1,904 $8,042 $23,741
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Distributions/Unit ($000's except per Unit amounts)

No. of Units
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NPY 39,003
Newport 25,766
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Total units 64,769
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Total Distributions $24,195
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Distributions per unit $0.37

Cash used in operating activities (8,523)
Add: Changes in non cash working capital 28,701
Add: Distributions on equity investment net of reserves 1,611
Add: Expenses funded by operating partner 1,029
Add: Priority income per partnership agreements 2,439
-------------
25,257
Less: Maintenance capital expenditures (1,516)
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Distributable cash 23,741
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Distributable cash per unit $0.37

Balance Sheet ($000s)

Total Assets $ 715,104

Total Long Term Debt $2,035

Convertible Debt $84,339

Unitholders' Equity
Newport and NPY $ 497,830


Operating results in line with expectations

The financial services segment, comprised of Elliott Special Risks (ESR), Newport Partners LP (NP LP), Morrison Williams, Brompton Funds (Brompton), EZEE ATM (EZEE) and the public and operating costs of Newport, contributed $23.6 million of revenue and $9.2 million of EBITDA during the period. This resulted in $10.0 million of distributable cash -- in line with our expectations. ESR stayed on track in a soft insurance market. Better than expected earnings were delivered by Morrison Williams, NP LP and Brompton as a result of higher assets under management. Revenues and earnings at EZEE were negatively impacted in the third quarter primarily by a targeted competitive effort against the company's locations in Quebec. EZEE responded with legal action that has yielded two court judgments in its favour and simultaneously pursued an early contract renewal program with existing locations. During the fourth quarter, EZEE experienced a recovery of some of its locations that improved its results for the period.

The marketing segment, comprised of Gemma, Capital C, Sports & Entertainment (S&E), and Kenna Group (Kenna) contributed $21.9 million of revenues and $3.7 million of EBITDA and $3.8 million of distributable cash during the period. These results were above expectations. Gemma continued its pattern of strong organic growth while Capital C achieved a new higher baseline level of business with the addition of a significant new long-term client contract. S&E's earnings are beginning to return to levels experienced prior to the NHL strike. Kenna, in which Newport invested a 50% interest on September 14th, is already benefiting from new strategic leadership and cross-selling opportunities with Capital C.

The industrial services segment (formerly oil and gas services), comprised of NPC contributed $43.3 million of revenue and $3.3 million of EBITDA and $1.9 million of distributable cash flow for the period. This was slightly above expectations. During the period, NPC completed three accretive acquisitions in the oil and gas services sector and added geographic breadth to its service offering that contributed to these results.

The distribution segment, comprised of Jutan, contributed $116.4 million of revenues and $7.3 million of EBITDA and $8.0 million of distributable cash flow during the period. Jutan's results were below our expectations. Revenues were positively impacted by the acquisition of Sonigem on September 30, 2005, and the addition of new customers and product lines. However during the period, Jutan faced shortages of one of its key products; a third quarter labour disruption at the Vancouver port that delayed deliveries and impacted revenues; increased freight costs due to fuel surcharges and carrier premiums driven by the impact of hurricane Katrina and locked-in currency contracts entered into by previous AVS management that negatively impacted gross margin during the period. The currency contracts were revalued at December 31, 2005. The total realized loss in the period on these contracts was $1.4 million. The contracts all expire by August 2006. Entering 2006, production capacity of the key product has been added in the first quarter and Jutan's management team has begun its integration process of the Toronto-based businesses (Jutan and Sonigem), which will move to a single location in May of this year. It is anticipated that efficiencies will begin to be realized in 2006 with greater impact in 2007. The fundamentals of Jutan's business today are stronger as a result of having eliminated two competitors and added product lines and scale to its operations.

Overall, Newport's operating results were generally in line with our expectations for the period. For the most part the operating partnerships performed as anticipated with a few positive and negative variances balancing each other out.

Continued program of accretive investments

During the period, $35.4 million was invested to acquire $6 million of estimated annualized distributable cash flow from six investments: one new operating partnership and five 'tuck-in' investments made by our operating partners that have been integrated into their operations. At an aggregate multiple of approximately 5-6 times historical annualized distributable cash flow, the prices we paid for these businesses are consistent with our target purchase valuations and are accretive to unitholders.

Distributable cash of $23.7 million

In aggregate, Newport's distributable cash flow for the period was $23.7 million or $0.37 per unit. Distributions during the period were $24.2 million or $0.37 per unit - representing a difference of less than $500,000. Although several of our businesses delivered stronger than expected performance, distributable cash flow from our distribution segment was approximately $1 - $1.5 million lower than expected for the period. Newport maintains a conservative balance sheet and a priority allocation of income in most of the operating partnerships to deal with shortfalls over a 24-month period.

Strong balance sheet

We continued to strengthen our balance sheet during the period. Our total assets have increased by over $100 million since the IPO to $715 million. This reflects our business growth as well as additional investments during the period. Our policy of utilizing our short term credit facility to fund investments, and subsequently retire the facility with more permanent financing was well demonstrated in the period. We successfully raised $85 million in convertible debentures, only four months after the IPO, and used part of the proceeds to reduce Newport's credit facility to zero at year end. We finished 2005 with consolidated cash reserves of $25 million.

Positive outlook for 2006

We are positive as we review the outlook for our business in 2006. We believe that we have a diverse portfolio of excellent operating partnerships capably run by managers who are focused on creating value for all unitholders. Our outlook for each operating partnership and business segment is described in Management's Discussion and Analysis in our 2005 Annual Report which is filed on SEDAR at www.sedar.com.

We continue to focus our efforts on monitoring the results of our operating partnerships - weekly, monthly and quarterly and managing our cash flows and new capital allocation accordingly. As many of our businesses are seasonal in nature, investors should understand that the first quarter may reflect only 10-15% of our annual performance.

For 2006, we will continue to diversify our cash flows by seeking out new operating partnerships, including those outside our currently services-oriented portfolio, as well as opportunities to put more capital behind our existing businesses. It is our goal to make $100 - $150 million of new investments in 2006 at valuation multiples of approximately five to six times distributable cash flow. By way of examples with a cost of capital of 8 -10%, the investment program should add annualized net distributable cash flow of $10 -15 million. The quantity and quality of increasingly larger opportunities we are currently reviewing gives us a high level of confidence that we will accomplish this objective.

On March 16, 2006, we made an investment of $30.5 million for an 80% interest in the business of Murray Demolition that we expect will add approximately $6.4 million of annual sustainable distributable cash flow over the next twelve months.

Based on current cash flows, our capital investment goal and the outlook for our existing operating partnerships, we will target a 10% growth in distributions for unitholders.

ABOUT NEWPORT

Newport is an unincorporated, open-ended, limited purpose trust created to hold an indirect interest in NPY, a limited partnership established to invest in securities of private businesses and distribute available cash flows to the limited partners. Newport began trading on the TSX on August 8, 2005 under the symbol NPF.UN.

Newport is an asset manager that uniquely partners with leading entrepreneurs of well-established, cash-flowing private businesses that represent a diverse cross-section of the Canadian economy. Newport unitholders participate in the cash flows, growth and diversification of the underlying businesses through monthly distributions. Newport provides access to growth capital and strategic and financial advice for its operating partnerships, and investment oversight and management for unitholders. Newport has indirect ownership interests in 12 operating partnerships in four business segments. Newport management and the operating partners have a long track record in the entrepreneurial market in Canada and own approximately 40% of all outstanding units.

Investor Conference Call

Management will hold a conference call at 10:00 am (Eastern Standard Time) on Thursday March 30, 2006 to discuss the period-end results. The call may be accessed by dialing 416-695-6120 within the Toronto area or 877-888-7019 (toll free). This conference call will be recorded and available for replay until Thursday, April 13, 2006. To listen to the replay, please dial 416-695-5275 or 888-509-0081.

Annual General Meeting

The Annual General Meeting of Newport Partners Income Fund's unitholders will be held on Wednesday May 10, 2006. The meeting will take place at 3 p.m. (Eastern Standard Time) at The National Club, 303 Bay Street, Toronto, Ontario Canada.

Non-Gaap Measures

The terms "EBITDA", "Distributable Cash Flow" and "Distributable Cash Flow per Unit" (collectively the "Non-GAAP Measures") are financial measures used in this report that are not standard measures under Canadian GAAP. Newport's method of calculating Non-GAAP Measures may differ from the methods used by other issuers. Therefore, Newport's Non-GAAP Measures, as presented in its MD&A, may not be comparable to similar measures presented by other issuers.

EBITDA refers to net earnings of Newport and NPY determined in accordance with generally accepted accounting principles, before depreciation and amortization, net of gain or loss on disposal of capital assets, interest expense and income tax expense. Management believes that EBITDA is a useful supplemental measure of performance and is the primary basis on which management assesses financial performance and cash available for debt service, working capital, capital expenditures, income taxes and distribution.

Distributable Cash Flow is not a standard measure under GAAP and is generally used by Canadian income funds as an indicator of financial performance. The method of calculating Newport's Distributable Cash Flow may differ from similar computations as reported by other similar entities and, accordingly, may not be comparable to distributable cash flow as reported by such entities. Newport's method of calculating Distributable Cash Flow is disclosed in the Summary Financial Table. Management believes that Distributable Cash Flow and Distributable Cash Flow Per Unit are useful supplemental measures that provide investors with information on cash available for distribution. Newport has a policy of paying a set monthly distribution that is based on historical, current and prospective performance. The operating partnerships of Newport experience seasonality and, as a result, there is variability in the generation of distributable cash and the distribution of cash in certain individual quarters.

Investors are cautioned that the Non-GAAP Measures are not alternatives to measures under GAAP and should not, on their own, be construed as an indicator of Newport's or NPY's performance or cash flows, a measure of liquidity or as a measure of actual return on the Units. These Non-GAAP Measures should only be used in conjunction with the financial statements of Newport and NPY as at December 31, 2005.

Certain statements in this news release may include "forward-looking" statements that relate to future events or future performance and reflect management's expectations and assumptions regarding the growth, results of operations, performance and business prospects and opportunities of Newport and the operating partnerships in which it holds an ownership interest (the "Operating Partnerships"). Such forward-looking statements reflect management's current beliefs and are based on information currently available to management of the Newport and the Operating Partnerships. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other similar expressions concerning matters that are not historical facts. In particular, statements regarding the future operating results and economic performance of Newport and the Operating Partnerships are forward-looking statements. A number of factors could cause actual events or results to differ materially from the events and results discussed in the forward-looking statements. In evaluating these statements, prospective purchasers should specifically consider various factors, including the risks outlined under "Risk Factors" in Management's Discussion and Analysis, which may cause actual events or results to differ materially from any forward-looking statement. Although the forward-looking statements are based on what management of Newport and the Operating Partnerships consider to be reasonable assumptions based on information currently available to it, there can be no assurance that actual events or results will be consistent with these forward-looking statements, and management's assumptions may prove to be incorrect. These forward-looking statements are made as of the date of this news release, and Newport does not assume any obligation to update or revise them to reflect new events or circumstances.



NEWPORT PARTNERS INCOME FUND
Consolidated Balance Sheet
(In thousands of dollars)
---------------------------------------------------------------------
---------------------------------------------------------------------
December 31, 2005
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Assets

Current assets:
Cash and cash equivalents $ 25,278
Accounts receivable 117,867
Inventory 31,164
Prepaid expenses 2,359
Other current assets 6,587
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183,255

Property, plant and equipment 16,445

Long-term investments 42,154

Goodwill 258,102

Intangible assets 210,177

Other assets 4,971

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$ 715,104
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Liabilities and Partners' Equity

Current liabilities:
Bank indebtedness $ 19,436
Accounts payable and accrued liabilities 98,252
Deferred revenue 5,357
Current portion of capital lease obligation 2,729
Current portion of long-term debt 2,018
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127,792

Capital lease obligation 3,082

Long-term debt 17

Future tax liability 2,044

Non-controlling interest 259,090

Convertible debenture 84,339

Unitholders' Equity 238,740

Commitments and contingencies

Subsequent events
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$ 715,104
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NEWPORT PARTNERS INCOME FUND
Consolidated Statement of Income
(In thousands of dollars, except per unit amounts)
---------------------------------------------------------------------
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For the period from August 8, 2005
(date of commencement of operations)
to December 31, 2005
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Revenues $ 205,240
Cost of revenues 157,560
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47,680

Expenses
Selling, general and administrative 26,258
Amortization of deferred financing charges 123
Amortization of intangible assets 10,357
Depreciation 1,585
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38,323
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Income before the undernoted 9,357
Income from equity investments 1,844
Interest expense 1,390
Other income 146
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Income before non-controlling interest 9,957
Non-controlling interest (6,905)

Income $ 3,052
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Income per unit
Basic and diluted $ 0.12


NEWPORT PARTNERS INCOME FUND
Consolidated Statement of Changes in Financial Position
(In thousands of dollars)
---------------------------------------------------------------------
---------------------------------------------------------------------
Period from August 8, 2005
(date of commencement of operations)
to December 31, 2005
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Cash provided by (used in):
Operating activities:
Income for the period $ 3,052
Items not affecting cash:
Amortization of deferred financing charges 123
Amortization of intangible assets 10,357
Depreciation 1,585
Income from equity investment (1,844)
Non-controlling interest 6,905
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20,178
Changes in non-cash working capital (28,701)
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Cash (used in) operating activities (8,523)

Financing activities:
Issuance of units 213,476
Issue of convertible debentures, net of costs 81,298
Distributions to unitholders (7,506)
Distributions to non-controlling interest by NPY (11,201)
Decrease in long-term debt (3,181)
Decrease in bank indebtedness (4,855)
Increase in capital lease obligations (649)
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267,382
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Investing activities:
Acquisition of interest in Newport Private
Yield LP, net of cash acquired (196,832)
Other acquisitions, net of cash acquired (34,409)
Increase in other assets (1,455)
Purchase of intangible assets (705)
Purchase of property, plant and equipment (1,454)
Distributions received on equity investment 1,274
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(233,581)
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Increase in cash and cash equivalents 25,278
Cash and cash equivalents, beginning of period -
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Cash and cash equivalents, end of period $ 25,278
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Supplemental cash flow information:
Interest paid $ 1,058
Cash acquired upon acquisitions 17,072


Newport's 2005 Consolidated Financial Statements and Management's Discussion and Analysis are available on the investor relations section of www.newportpartners.ca and on SEDAR at www.sedar.com.

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