Tree Island Wire Income Fund
TSX : TIL.UN
TSX : TIL.DB

Tree Island Wire Income Fund

August 09, 2011 17:51 ET

Tree Island Announces Second Quarter 2011 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 9, 2011) - Tree Island Wire Income Fund ("Tree Island" or the "Fund" (1)) (TSX:TIL.UN)(TSX:TIL.DB) announced today its second quarter fiscal 2011 financial results for the period ended June 30, 2011 (2),(3).

For the three months ended June 30, 2011(2), the Fund reported revenues of $38.0 million, similar to the $38.7 million achieved during the Fund's second quarter last year. Revenue results reflect stable sales volumes and higher product prices, offset by the negative impact of a stronger Canadian dollar on US-generated sales. The stable revenue results were achieved despite continued weakness in the US residential construction market and unfavourable weather conditions, which delayed construction starts and agricultural activity in many regions.

Bottom-line results felt more of the impact of the higher raw material costs, reflecting the typical lag that occurs as the Fund works to align finished product prices with rising input costs. Much of this impact was minimized with a continued focus on more profitable products and tight cost control. The Fund also benefited from the positive influence of a stronger Canadian dollar on its US operating costs and by a decrease in depreciation expense of $0.4 million as a result of a comprehensive review of our property, plant and equipment in the first quarter 2011 and resulting extension of the remaining useful lives of certain of our manufacturing equipment and building. Accordingly, second quarter gross profit was $3.6 million compared to $3.8 million in Q2 2010, gross profit per ton declined by a modest $9 to $129 per ton, and second quarter EBITDA(4) before foreign exchange of $1.7 million was down just $0.5 million from last year, despite the significantly higher steel costs.

Net income improved during the second quarter and amounted to $29,000, or $0.00 per unit, versus a net loss of $0.2 million, or $0.01 loss per unit during the second quarter of 2010. Adjusted for non-cash charges, the Fund's Adjusted Net Income (Loss) (4) was a net loss of $0.5 million for Q2 2011, compared to a net loss of $1.5 million in the second quarter of 2010.

For the six months ended June 30, 2011(2), the Fund's revenues increased to $76.9 million from $73.3 million during the corresponding period in 2010. Gross profit increased to $7.9 million compared to $6.2 million during the six-month period in 2010. EBITDA (4) also increased to $3.7 million, from $2.5 million during the six-month period in 2010. The Fund generated a net loss amounting to $4.0 million or $0.18 per share during the first half of 2011, mainly due to a $3.2 million non-cash charge on renegotiated debt during the first quarter. Removing the effect of significant non-cash charges, first-half Adjusted Net Income (Loss) (4) increased to $1 million, from a loss of $2.8 million during the same period last year.

"We came close to matching our performance from Q2 last year, even while facing the added challenges of adverse weather conditions and higher raw material costs," said Dale MacLean, President and CEO of Tree Island Industries. "I am encouraged with our ability to selectively gain traction with certain customers while maintaining focus on our cost controls and pricing discipline. Despite increasing input costs, we have been able to maintain the improvements to our financial strength and operations, and we remain well positioned to capitalize on any market recovery in our key end markets."

Amar Doman, Chairman of the Fund noted, "I am pleased with the Fund's success in managing increasing steel costs and protecting gross margin. Given the economic environment we are operating under, these results are a testament to the Fund's strong focus and commitment to tight cost control, profitability and cash generation."

Three Months Ended June 30 Six Months Ended June 30
Summary of Results
($000's except for tonnage and per unit amounts)
2011 2010 2011 2010
Sales Volumes – Tons 27,676 27,732 57,624 55,619
Revenue $ 38,000 $ 38,742 $ 76,944 $ 73,274
Cost of Goods Sold (33,474) (33,489) (67,361) (64,197)
Depreciation (962) (1,414) (1,639) (2,834)
Gross Profit $ 3,564 $ 3,839 $ 7,944 $ 6,243
Selling, General and Administrative Expenses (2,801) (2,971) (5,886) (6,534)
Operating Income (Loss) $ 763 $ 868 $ 2,058 $ (291)
Foreign Exchange Gain (Loss) 160 (758) 578 (1,315)
Financing Expenses (2,040) (2,452) (4,106) (6,286)
Changes in fair value on convertible instruments 1,779 3,114 887 3,750
Loss on renegotiated debt - - (3,234) -
Income (Loss) before income taxes 662 772 (3,817) (4,142)
Income Tax (Expense) Recovery (633) (962) (193) 1,415
Net Income (Loss) $ 29 $ (190) $ (4,010) $ (2,727)
EBITDA(4)
Operating Income (Loss) 763 868 2,058 (291)
Add back Depreciation 962 1,414 1,639 2,834
EBITDA 1,725 2,282 3,697 2,543
Foreign Exchange Gain (loss) 160 (758) 578 (1,315)
Adjusted EBITDA 1,885 1,524 4,275 1,228
Net Income (Loss) 29 (190) (4,010) (2,727)
Adjustment for significant non-cash items
Non-cash financing expenses 1,297 1,786 2,623 3,723
Non-cash loss on renegotiated debt - - 3,234 -
Changes in fair value of convertible instruments (1,779) (3,114) (887) (3,750)
Adjusted Net Income (Loss) (4) (453) (1,518) 960 (2,754)
Per Unit
Net income (loss) per unit - basic and fully diluted $ 0.00 $ (0.01) $ (0.18) $ (0.12)
Standardized Distributable Cash per Unit - Basic and Fully Diluted (5) $ (0.20) $ (0.09) $ (0.37) $ (0.51)
Adjusted Distributable Cash per Unit - Basic and Fully Diluted (5) $ 0.05 $ 0.07 $ 0.08 $ 0.07
Per Ton
Gross Profit per Ton $ 129 $ 138 $ 138 $ 112
EBITDA per Ton (4) $ 62 $ 82 $ 64 $ 46
Adjusted EBITDA per Ton (4) $ 68 $ 55 $ 74 $ 22
Financial Position As at
June 30,
2011
As at
December 31,
2010
Total Assets $ 94,861 $ 87,450
Total non-current financial liabilities $ 41,439 $ 36,321

About Tree Island Wire Income Fund

The Fund has a 100% ownership interest in Tree Island Industries Ltd. and its performance depends on the performance of Tree Island Industries Ltd. Headquartered in Richmond, British Columbia, Tree Island Industries Ltd. produces wire products for a diverse range of construction, agricultural, manufacturing and industrial applications. Its products include bright wire, stainless steel wire and galvanized wire; a broad array of fasteners, including packaged, collated and bulk nails; stucco reinforcing products, engineered structural mesh, fencing and other fabricated wire products. The company markets these products under the Tree Island, Halsteel, K-Lath, Industrial Alloys, Tough Strand, and TI Select brand names. Tree Island also owns and operates a Hong Kong-based company that provides internationally sourced products to the Company and its customers.

Forward-Looking Statements

This press release includes forward-looking information with respect to the Fund and the company, including their business, operations and strategies, as well as financial performance and conditions. The use of forward-looking words such as, "may," "will," "expect" or similar variations generally identify such statements. Any statements that are contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Although management believes that expectations reflected in forward-looking statements are reasonable, such statements involve risks and uncertainties including the risks and uncertainties discussed under the heading "Risk Factors" in the Fund's annual information form and management discussion and analysis for updated information.

Forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the statements. Such risks and uncertainties include, but are not limited to: general economic conditions and markets and, in particular, the impact of the current economic uncertainties, impact of recent trade cases, risks associated with operations such as competition, dependence on the construction industry, market conditions for our products, supplies of and costs for our raw materials, dependence on key personnel, labour relations, regulatory matters, environmental risks, the successful execution of acquisition and integration strategies and other strategic initiatives, foreign exchange fluctuations, the effect of leverage and restrictive covenants in financing arrangements, the cost and availability of capital, the possibility of deterioration in our working capital position, the impact on liquidity if we were to go offside of covenants in our debt facilities, the impact that changes in supplier payment terms or slow payment of accounts receivable could have on our liquidity, product liability, the ability to obtain insurance, energy cost increases, changes in tax legislation, other legislation and governmental regulation, changes in accounting policies and practices, operations in a foreign country, unit price volatility and interest rate risk related to the fair value of convertible instruments, and other risks and uncertainties set forth in our publicly filed materials.

This press release has been reviewed by the Fund's Board of Trustees and its Audit Committee, and contains information that is current as of the date of this press release, unless otherwise noted. Events occurring after that date could render the information contained herein inaccurate or misleading in a material respect. Readers are cautioned not to place undue reliance on this forward-looking information and management of the Fund undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise except as required by applicable securities laws.

(1) References to the Fund or Tree Island include references to Tree Island Industries Ltd. as the context may require.

(2) Please refer to our Q2 2011 MD&A for further information.

(3) The Fund notes that its financial results are reported under IFRS. The conversion did not have a significant impact on the Fund's EBITDA, however it did have a significant impact on net income as well as the statement of financial position. The 2010 comparatives, have been restated and reclassified within the financial statements to reflect the conversion. These reclassifications and adjustments are described in the MD&A as well as in the notes to the condensed interim financial statements for June 30, 2011.

(4) Reference is made above to Adjusted Net Income (Loss). Adjusted Net Income (Loss) is net income (loss) in accordance with IFRS adjusted for certain non-cash items including non-cash financing expenses, changes in fair value of convertible instruments and loss on renegotiated debt. Please refer to our Q2 2011 MD&A for further information. References to "EBITDA" are to operating profit plus depreciation and references to "Adjusted Net Income (Loss)" are to net income (loss) per IFRS adjusted for certain non-cash items including non-cash financing expenses, changes in fair value of convertible instruments and loss on renegotiated debt. EBITDA is a measure used by many investors to compare issuers on the basis of ability to generate cash flows from operations. Adjusted Net Income (Loss) is a measure for investors to understand the impact of significant non-cash items that affect our results from operations. Neither EBITDA nor Adjusted Net Income (Loss) are earnings measures recognized by IFRS and do not have a standardized meaning prescribed by IFRS. We believe that EBITDA and Adjusted Net Income (Loss) are an important supplemental measure in evaluating the Fund's performance. You are cautioned that EBITDA and Adjusted Net Income (Loss) should not be construed as an alternative to net income or loss, determined in accordance with IFRS, as indicators of performance or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows. Our method of calculating EBITDA and Adjusted Net Income (Loss) may differ from methods used by other issuers and, accordingly, our EBITDA or Adjusted Net Income (Loss) may not be comparable to similar measures presented by other issuers.

(5) References made to "Standardized Distributable Cash" and "Adjusted Distributable Cash" which are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS. Canadian open-ended income trusts, such as this Fund, use Standardized Distributable Cash and Adjusted Distributable Cash as indicators of financial performance and ability to fund distributions. We define Standardized Distributable Cash as net cash from operating activities less all capital expenditures. We define Adjusted Distributable Cash as Standardized Distributable Cash plus the change in non-cash operating assets and liabilities, plus Non-maintenance Capital expenditures. Changes in non-cash operating assets and liabilities and Non-maintenance Capital expenditures are added back in the calculation of Adjusted Distributable Cash because they are funded through the Fund's committed credit facilities. We define Maintenance Capital expenditures as cash outlays required to maintain our plant and equipment at current operating capacity and efficiency levels. Non-maintenance Capital expenditures are defined as cash outlays required to increase business operating capacity or improve operating efficiency, and are also referred to as profit improvement capital. Our Adjusted Distributable Cash may differ from similar computations as reported by other entities and, accordingly, may not be comparable to distributable cash as reported by such entities. We believe that in addition to net income, Adjusted Distributable Cash is a useful supplemental measure that may assist investors in assessing the return on their investment in Units.

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