Royal Utilities Income Fund

Royal Utilities Income Fund

May 01, 2007 16:15 ET

Royal Utilities Income Fund Reports 2007 Q1 Earnings

TORONTO, ONTARIO--(CCNMatthews - May 1, 2007) - Royal Utilities Income Fund (TSX:RU.UN) -

- Quarterly revenue from continuing operations increased to $128.0 million from $119.7 million in the first quarter of 2006

- Distributable cash from operations of $25.1 million

- Boundary Dam and Bienfait achieved three years or 2.3 million exposure hours without a recordable lost-time incident

Financial Highlights (unaudited) (1)
Three months ended
March 31,
(millions of Canadian dollars) 2007 2006
Mine-mouth revenues
Owned Mines (2) $ 66.7 $ 66.7
Contract and Genesee Mines (2) 50.1 44.2
Royalty revenues
Coal Royalties 9.2 8.0
Potash Royalties 2.0 0.8
Total Revenue 128.0 119.7
Cost of Sales 85.3 75.1
Operating Margin (3) $ 42.7 $ 44.6

EBITDA (3) $ 38.8 $ 40.9
Net earnings 16.6 (4.6)
Cash flow from operating activities 28.7 36.4
Productive capacity maintenance (3) (4) 3.6 2.9
Distributable cash from operations (3) 25.1
Distributions declared 23.5

(1) Revenues, cost of sales, operating margin, EBITDA, cash flow from operating activities, productive capacity maintenance, and distributable cash from operations all relate to continuing operations. These amounts exclude discontinued operations as described in Note 4 to the March 31, 2007 interim consolidated financial statements.

(2) Owned mines refer to mine-mouth operations in which the price of coal sold is adjusted annually using inflation-based indices. Contract and Genesee mines refer to mine-mouth operations where the price of coal sold comprises a direct pass-through of operating costs plus a management fee.

(3) Royal Utilities Income Fund discloses operating margin, EBITDA, productive capacity maintenance and distributable cash from operations which are non-GAAP measures, in order to provide an indication of financial performance on an ongoing basis. These measures do not have any standardized meaning prescribed by Canadian generally accepted accounting principles and are, therefore, unlikely to be comparable with similar measures presented by other issuers. Reference should be made to Royal Utilities Income Fund's Management's Discussion and Analysis for the quarter ended March 31, 2007 for descriptions of these measures and for reconciliation to GAAP measures.

(4) Comprises cash capital expenditures and capital lease payments, excluding interest, to sustain operations.

Royal Utilities Income Fund ("the Fund") today announced 2007 first quarter net earnings of $16.6 million, or $0.17 per basic and fully diluted unit, up from a net loss of $4.6 million or ($0.14) per basic and fully diluted unit for the first quarter of 2006.

Total revenue for the first quarter was $128.0 million compared with $119.7 million for the prior year quarter. Pass-through of higher operating and capital costs at the contract and Genesee mines contributed to $5.9 million of this increase, while $2.4 million was generated by higher royalty revenue. Coal royalties for the quarter were higher as a result of price escalations and higher volumes. Potash royalties increased from the prior year due to the decision by potash producers to have maintenance shutdowns in the first half of 2006 while negotiations with Asian customers were being held. Overall revenue at the owned mines was consistent with the prior year quarter. Higher selling prices from inflation adjustments and higher volumes at Sheerness and Poplar River were offset by an unplanned unit outage at Boundary Dam, lower volume requirements at Paintearth and the impact of the CN Rail strike at Bienfait.

Operating margin for the first quarter was $42.7 million, down slightly from the first quarter of 2006. The lower margin largely reflected decreased revenue at Paintearth, Boundary Dam and Bienfait and the timing of major component repairs and replacements at certain mines.

EBITDA was $38.8 million for the quarter and $40.9 million in the prior year quarter. Lower margins were the main cause of the decrease in EBITDA. General and administrative costs were down from the prior year quarter due to one-time restructuring costs in 2006.

Operating cash flow from continuing operations decreased to $28.7 million from $36.4 million for the same period in 2006. This decrease resulted from the timing of collection of higher accounts receivable in 2006.

Productive capacity maintenance expenditures for the current quarter increased by $0.7 million to $3.6 million compared to the prior year quarter due to higher capital lease payments.

Trustees approved a 1% increase in monthly distributions to $7.8 million ($0.07997 per unit) commencing with the January 2007 distribution. This resulted in a 94% payout ratio for the quarter.

Operating Highlights
Three months ended
March 31,
2007 2006
Coal sales (mm of tonnes)
Owned mines (1) 4.6 4.6
Contract and Genesee mines (2) 4.8 5.2
9.4 9.8
Coal production (mm of tonnes)
Owned mines (1) 4.7 4.7
Contract and Genesee mines (2) 4.8 5.3
9.5 10.0
Average realized prices ($ per tonne) (3) $ 12.41 $ 11.31

(1) Owned mines refer to mine-mouth operations in which the price of coal sold is adjusted annually using inflation-based indices.

(2) Contract and Genesee mines refer to mine-mouth operations where the price of coal sold comprises a direct pass-through of operating costs plus a management fee.

(3) Excludes royalty revenue.

Coal sales and production for the quarter were down slightly compared to the prior year quarter. With regards to the owned mines, increased sales and production at the Poplar River mine were offset by the unplanned shutdown of a generator at the Boundary Dam generating station. Sales and production at the contract and Genesee mines were lower due to power plant shutdowns and the timing of mining in areas with higher strip ratios.

The average realized price per tonne in the current quarter increased by $1.10 to $12.41. The increase reflects higher cost and capital recoveries at the contract and Genesee mines as well as inflation adjustments to coal prices at certain owned mines.

OUTLOOK FOR 2007 (see Forward Looking Statements)

The main goal of the Fund is to maintain and increase distributable cash. This is accomplished through a focus on productivity improvements, pursuing opportunities related to new or expanding power plants, and new business development initiatives.

Discussions continue at Boundary Dam related to SaskPower's proposed clean coal unit which may generate an additional 300 megawatts of power for Saskatchewan and could result in sales of up to 2.5 million additional tonnes of coal from the Boundary Dam mine. The Fund also has the right of first offer to provide mining services for new coal mines owned or controlled by Sherritt International Corporation ("Sherritt") and Ontario Teachers' Pension Plan Board ("OTPP"). Accordingly, the Fund continues to review the feasibility of providing contract mining services to Sherritt and OTPP proposed Dodds-Roundhill coal gasification project.

The Fund is committed to leadership in health and safety practices. The Fund continues to focus, maintain and target zero lost-time incidents. On January 10, 2007, Boundary Dam and Bienfait mines achieved 3 years or 2.3 million exposure hours without a recordable lost-time incident.

Maintenance capital expenditures are projected to be $36.2 million in 2007 with $23.7 million of this amount financed through capital leases. Productive capacity maintenance is projected to be $24.7 million for the year, slightly lower than anticipated due to changes in mine plans at the owned mines.

Distributions declared in the first quarter were $23.5 million. Consistent with previous guidance, Royal Utilities intends to declare distributions of $93.8 million ($0.07997 per unit) in 2007.

Royal Utilities Income Fund

The Fund is an unincorporated, open-ended, limited purpose trust established under the laws of Alberta. As at March 31, 2007, subsidiaries of Sherritt and OTPP each directly or indirectly owned approximately 41.2% of the issued and outstanding units of the Fund.

The Fund indirectly holds all of the common shares of Prairie Mines & Royalty Ltd. (the "Company"), which is the largest thermal coal producer in Canada. The Company owns and operates the Paintearth, Sheerness, Poplar River, Boundary Dam and Bienfait mines. The Company also owns 50% of the Genesee mine, which it operates under contract, along with the Highvale and Whitewood mines, both of which are owned by TransAlta. A total of 36.2 million tonnes of coal was produced by the Company in 2006. The Company also holds a portfolio of mineral rights located in Alberta and Saskatchewan on which it earns royalties from the production of coal and potash.

A leader in employee safety, the Fund is also dedicated to ensuring that its operations meet the highest standards in environmental stewardship.

The Fund's approximately 97.8 million trust units trade on the Toronto Stock Exchange under the symbol RU.UN. The Fund's annual Management's Discussion and Analysis and consolidated financial statements can be found on the Fund's web site at

Forward-looking Statements

This news release contains forward-looking statements. Forward-looking statements generally can be identified by the use of statements that include words such as "believe", "expect", "anticipate", "intend", "plan", "forecast", "likely", "may" or other similar words or phrases. Similarly, statements contained in the "Outlook for 2007" section of this news release including those with respect to expectations concerning assets, prices, revenues, costs, distributions, earnings, production, market conditions, capital expenditures, commodity demand, risks, corporate objectives and plans or goals, are or may be forward-looking statements. These forward-looking statements are not based on historic facts, but rather on current expectations, assumptions and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that are beyond the Fund's ability to control or predict. Actual results and developments may differ materially from those contemplated by this news release depending on, among others, such key factors as business and economic conditions in Canada.

Key factors that may result in material differences between actual results and developments and those contemplated by this news release also include the supply, demand and prices for the Fund's products; dependence on significant customers; deliveries; production levels, production and other anticipated and unanticipated costs and expenses; energy costs; interest rates; foreign exchange rates; rates of inflation; changes in tax legislation; the timing, capital costs and financing arrangements associated with development projects; the timing of the receipt of government and other approvals; risks related to collecting accounts receivable; risks associated with mining, processing and exploration activities; potential imprecision of reserve estimates; market competition; developments affecting labour relations and the market for skilled workers ; environmental and utility industry regulation ; and other risk factors listed in the Fund's prospectus dated June 16, 2006, and from time to time in the Fund's continuous disclosure documents such as its annual report, annual information form and management information circular.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and except as required by applicable law, the Fund undertakes no obligation, to update any forward-looking statements.

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