TERRAVEST INCOME FUND
TSX : TI.UN

TERRAVEST INCOME FUND

March 14, 2008 08:00 ET

TerraVest Income Fund Releases 2007 Annual Financial Results

EDMONTON, ALBERTA--(Marketwire - March 14, 2008) - TerraVest Income Fund (TSX:TI.UN) today released its financial results for the fiscal year ended December 31, 2007.

For the fiscal year ended December 31, 2007, the Fund reported revenue of $229.2 million and a net loss of $19,917 or $1.13 per Unit, compared with revenue of $271.3 million and a net loss of $205 or $0.01 per Unit for the fiscal year ended December 31, 2006.

At the end of the fourth quarter of 2007, the Fund recorded non-cash write-downs of goodwill and indefinite life intangible assets of $36,949 and $5,416, respectively, attributable to RJV, Diamond, Stylus and Beco. The goodwill and indefinite life intangible asset write-downs were partially offset by a recovery from the retractable non-controlling interest. The write-downs were necessitated by weaker than expected financial performance of the portfolio business in 2007 and an expected future reduction in cash flows from these portfolio businesses given the economic conditions in which they operate. The reduction in the carrying values of goodwill and indefinite life intangible assets does not impact the calculation of standardized or adjusted distributable cash.

Excluding the impact of goodwill and intangible asset write-downs, net income for the year ended December 31, 2007 was $13,875, or $0.79 per Unit (basic), of which $6,249 ($0.35 per Unit (basic)) relatesprimarily to a future income tax recovery resulting from the adoption of the SIFT tax rules in 2007,compared to $17,518, or $1.13 per Unit (basic) for the same period in 2006;

For the year ended December 31, 2007, the Fund reported adjusted distributable cash of $16.0 million ($0.92 per Unit) compared to $23.5 million ($1.52 per Unit) in 2006. The reduction in adjusted distributable cash for the year reflects the reduced earnings from the Fund's energy related businesses due to the continuing weakness in the natural gas industry.

"The Fund's overall 2007 results were in line with our expectations for the year and reflect the significant pressures impacting activity in the oil and gas industry. 2007 saw lower average natural gas commodity prices, relatively higher natural gas storage levels and increased service costs for both oil and gas wells. These forces all combined to keep operating performance in 2007 below 2006 levels for our energy businesses." said Dale Laniuk, President and Chief Executive Officer. "While we are seeing some increases in natural gas prices in early 2008, it remains to be seen if drilling levels will be increased by producers in response."

"The Fund's non-energy businesses demonstrated continued improvement throughout the course of 2007, in the face of challenging operating conditions in building products, furniture and home furnishing industries. While the sales levels for these business were relatively flat or even slightly down as compared to 2006, profitability metrics showed improvement over the year. We look forward to ongoing improvement for the 2008 year and assisting these business with new business development initiatives, cost-cutting measures and working capital efficiencies." said Raffi Sethian, Chief Operating Officer.

The Fund's payout ratio, which is defined as the percentage of Adjusted Distributable Cash that is paid as distributions to Unitholders, was 87% for the fiscal year ended December 31, 2007, compared with 92% for the fiscal year ended December 31, 2006.



Highlights from the Fund's fiscal year ended December 31, 2007 are as
follows:
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thousands of dollars

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Three months ended Year ended
December 31, December 31,
2007 2006 2007 2006
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Sales
RJV $ 7,271 $ 16,681 $ 38,628 $ 74,136
Ezee-On 1,782 1,021 8,830 9,244
Stylus 8,127 8,439 32,663 33,493
Don Park 21,308 22,089 82,615 85,338
Diamond 5,732 6,891 23,466 27,296
Beco 15,420 12,220 43,036 41,840
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59,640 67,341 229,238 271,347
Cost of sales 44,257 48,923 170,661 195,610
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Gross profit $ 15,383 $ 18,418 $ 58,577 $ 75,737
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Net loss for the period $ (23,140) $ (12,874) $ (19,917) $ (205)
Goodwill write-down 36,949 24,586 36,949 24,586
Intangible asset write-down 5,416 - 5,416 -
Retractable non-controlling
interest recovery (4,397) (4,917) (4,397) -
Non-controlling interest
recovery (4,176) (1,946) (4,176) (1,946)
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Earnings before goodwill and
intangible asset write-down $ 10,652 $ 4,849 $ 13,875 $ 17,518
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Earnings per Unit/Share
Basic and diluted $ (1.31) $ (0.84) $ (1.13) $ (0.01)
Earnings per Unit/Share before
goodwill and intangible asset
write-downs
Basic $ 0.60 $ 0.30 $ 0.79 $ 1.13
Diluted $ 0.60 $ 0.28 $ 0.79 $ 1.11
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STANDARDIZED DISTRIBUTABLE CASH AND ADJUSTED DISTRIBUTABLE CASH
Standardized Distributable Cash
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Three months ended Year ended Cumulative
December 31, December 31, Since
2007 2006 2007 2006 Inception
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Cash flows from
operating activities $ 5,534 $ 13,910 $ 24,272 $ 24,640 $ 58,206
Adjustments:
Net capital
expenditures (555) (1,759) (2,250) (7,061) (12,174)
Cash portion of
retractable
non-controlling
interest (85) 5 (95) (804) (1,183)
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Standardized
distributable cash 4,894 12,156 21,927 16,775 44,849
Distributions
declared 2,202 6,079 13,953 21,584 54,005
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Standardized
distributable cash
surplus (deficit) $ 2,692 6,077 7,974 (4,809) (9,156)
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Standardized
distributable cash
per Unit $ 0.28 $ 0.79 $ 1.25 $ 1.09 $ 2.65
Proforma
standardized
distributable
cash per Unit $ 0.25 $ 0.71 $ 1.13 $ 0.96 $ 2.38
Distributions
declared per Unit $ 0.13 $ 0.35 $ 0.79 $ 1.38 $ 3.95
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Standardized payout
ratio - basic 45% 50% 64% 129% 120%
Proforma
standardized payout
ratio 50% 50% 71% 138% 145%
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ADJUSTED DISTRIBUTABLE CASH
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Standardized
distributable cash $ 4,894 $ 12,156 $ 21,927 $ 16,775 $ 44,849
Change in non-cash
working capital (695) (8,666) (8,320) 2,790 10,744
Net capital
expenditures 555 1,759 2,250 7,061 12,174
Maintenance capital
expenditures (473) (439) (1,752) (3,113) (7,075)
MSA termination fee - - 1,943 - 1,943
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Adjusted
distributable cash 4,281 4,810 16,048 23,513 62,635
Distributions
declared 2,202 6,079 13,953 21,584 54,005
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Adjusted
distributable cash
surplus (deficit) $ 2,079 $ (1,269) $ 2,095 $ 1,929 $ 8,630
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Adjusted
distributable cash
per Unit $ 0.24 $ 0.27 $ 0.92 $ 1.52 $ 4.87
Pro-forma adjusted
distributable cash
per Unit $ 0.22 $ 0.25 $ 0.83 $ 1.29 $ 3.99
Distributions
declared per Unit $ 0.13 $ 0.35 $ 0.79 $ 1.38 $ 3.95
Adjusted payout
ratio - basic 51% 126% 87% 92% 86%
Pro-forma adjusted
payout ratio 58% 140% 97% 108% 104%
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As of March 14, 2008, there are 17,626,498 Units and 1,410,642 Exchangeable Shares issued and outstanding. The Exchangeable Shares are not listed on an exchange, but are exchangeable at the option of the holder for Units or are callable by the Fund at any time.

The Fund's interim financial statements and MD&A are available on SEDAR at www.sedar.com and on the Fund's website at www.terravestincomefund.com.

About TerraVest Income Fund

The Fund has invested in six businesses:

- RJV is one of the largest providers of wellhead processing equipment for the natural gas industry in western Canada.

- Diamond is a market leader in providing well servicing to the oil and natural gas sector in southwestern Saskatchewan, with a growing presence in Alberta.

- Don Park is one of Canada's largest manufacturers and suppliers of heating, ventilation and air conditioning (HVAC) products.

- Stylus is one of Canada's leading made-to-order upholstered furniture manufacturers.

- Beco is the largest Canadian designer, manufacturer and importer of home textile products.

- Ezee-On manufactures heavy-duty equipment for large acreage grain farms and livestock operations.

Caution Regarding Forward-Looking Statements

All statements other than statements of historical fact contained in this press release are forward-looking statements, including, without limitation, statements regarding the future financial position and operations, business strategy, proposed acquisitions, budgets, distributions, projected costs and plans and objectives of or involving the Fund. Readers can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" and similar words or the negative thereof. Although Management believes that the expectations represented in such forward looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. Assumptions and analysis about the performance of the Fund, as a whole, and the Fund's portfolio businesses and the markets in which they compete are considered in setting the business plan for the Fund, in forecasting the Fund's expected financial results and the Fund's ability to pay distributions, in setting financial targets for the Fund and in making related forward-looking statements. The key assumption in respect of the Fund's level of distributions is that the cumulative distributable cash will be able to support the Fund's current level of distributions. The Fund receives distributable cash from its portfolio businesses. In respect of the portfolio businesses, key assumptions include those relating to the demand for products and services of the portfolio businesses and in respect of the Canadian and other markets in which the Fund's businesses are active (and in particular, the Canadian oil and natural gas industry in western Canada and the markets for household materials and household goods). Should any of these factors or assumptions vary, actual results may differ materially from the forward-looking statements.

The information set forth in the MD&A of the Fund for the year ended December 31, 2006 and the annual information form of the Fund dated March 15, 2007, identifies additional factors that could affect the operating results and performance of the Fund and its portfolio businesses. We caution that these discussions of factors are not exhaustive and that, when relying on forward-looking statements to make decisions with respect to the Fund, investors and others should carefully consider the factors discussed, as well as other uncertainties and potential events.

Standardized and Adjusted Distributable Cash

The calculation of standardized distributable cash is, in all material respects, in accordance with the recommendations provided in the CICA publication Standardized Distributable Cash in Income Trusts and Other Flow-Through Entities: Guidance on Preparation and Disclosure. Standardized distributable cash is not a defined term under Canadian generally accepted accounting principles ("GAAP") and does not have a standardized meaning prescribed by GAAP. Standardized distributable cash is defined as cash flow from operations after non-cash working capital items, less: gross capital expenditures; restrictions on distributions arising from compliance with financial covenants restrictive at the time of reporting; and limitations arising from the existence of a minority interest. Gross capital expenditures represent all capital expenditures incurred during the reporting period.

Adjusted distributable cash is not a defined term under GAAP and does not have a standardized meaning. Adjusted distributable cash is defined as standardized distributable cash adjusted for changes in non-cash working capital, items that may be of a non-recurring nature and reflecting only maintenance capital expenditures and not growth-related capital expenditures.

Management believes that adjusted distributable cash as a liquidity measure is a useful supplemental measure as it provides the independent Trustees with an indication of the amount of cash available for distribution to Unitholders before the effects of seasonal fluctuations in working capital. Investors are cautioned, however, that adjusted distributable cash should not be construed as an alternative to using net earnings as a measure of profitability or to using information contained in the unaudited interim Consolidated Statements of Cash Flows as a measure of liquidity. Further, the Fund's method of calculating adjusted distributable cash may not be comparable to measures used by other entities.

Standardized distributable cash and adjusted distributable cash are discussed in the Fund's MD&A.

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