Tree Island Wire Income Fund

Tree Island Wire Income Fund

November 08, 2011 20:09 ET

Tree Island Announces Third Quarter 2011 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 8, 2011) - Tree Island Wire Income Fund ("Tree Island" or the "Fund"(1)) (TSX:TIL.UN)(TSX:TIL.DB) announced today its third quarter fiscal 2011 financial results(2) for the period ended September 30, 2011.

For the three months ended September 30, 2011, the Fund reported revenues of $38.0 million, representing a 21 percent increase compared to the $31.3 million achieved during the Fund's third quarter last year. The year-over-year increase in revenues was due to increased sales volumes and price increases implemented to address rising raw material costs.

Third quarter gross profit increased to $1.4 million, an increase of $1.9 million over the prior year while gross profit per ton also increased to $51 per ton compared to a gross loss per ton of $21 in the same period in 2010. The increase in gross profit and gross profit per ton primarily reflects increased capacity utilization, higher selling prices and the net benefit of a stronger Canadian dollar on US dollar denominated costs incurred by Canadian operations. As a result, EBITDA(4) loss decreased during the quarter to a loss of $1.3 million versus an EBITDA loss of $2.2 million during the third quarter of 2010.

Net loss also decreased to $4.6 million, or $0.20 per unit during the third quarter of 2011, versus $5.3 million, or $0.23 per unit during the corresponding period in 2010. Adjusted for non-cash gains and expenses associated with financing, and changes in fair value of convertible instruments, the Fund's Adjusted Net Loss amounted to $4.7 million during the third quarter of 2011 versus an Adjusted Net Loss(4) of $3.3 million during the same period in 2010 the increased loss resulting from a foreign exchange loss in the quarter of $1.8 million compared to a foreign exchange gain of $0.7 million in 2010. Excluding the impact of the foreign exchange, Adjusted Net Loss would have improved year-over-year by $1.1 million.

For the nine months ended September 30, 2011, the Fund's revenues increased to $114.9 million, representing a 9.8 percent increase from the corresponding period in 2010. Gross profit increased to $9.4 million compared to $5.8 million during the nine-month period in 2010. EBITDA also increased to $2.4 million, from $0.4 million during the nine-month period in 2010. The Fund generated a net loss amounting to $8.6 million or $0.38 per unit during the nine-month period in 2011, which compares to a net loss of $8.0 million, or $0.35 per unit during the same period in 2010. With the improvements in gross profit and EBITDA, Adjusted Net Loss, which excludes the impact of non-cash gains and expenses associated with financing, debt renegotiation and changes in fair value of convertible instruments, decreased to $3.7 million during the first nine months of 2011, compared to an Adjusted Net Loss of $6.1 million during the corresponding period in 2010.

"While our current environment remains challenging, I am encouraged with our progress on a year-over-year basis. A significant amount of work has gone into the Fund's success in growing volumes and achieving profitable sales. All of this has been accomplished in the face of high raw material costs and a market where there is latent capacity coupled with a highly competitive and aggressive pricing environment," said Dale R. MacLean, President and CEO of Tree Island Industries. "As we enter the fourth quarter, we expect lower demand in construction and agricultural markets due to a seasonal slowdown of activity in the winter months. Our objective is to heighten our concentration on strong operational execution and rigorous cost controls on an ongoing basis and to be selective in our alignment to key markets that enable us to maintain profitability and cash generation. This is in keeping with a determined strategy that has allowed us to realize steady improvements in the past number of quarters, which in turn is expected to protect and strengthen Tree Island's gross margin and earning profile. We are confident that this same plan will position the Fund to be capable of favorably responding to improvements in the current economic environment."

Amar S. Doman, Chairman of the Fund noted, "It is clear that all the steps we took last year to address the Fund's balance sheet, along with management's efforts to operate and grow the business soundly, are demonstrating underlying strength in the business and a solid foundation for profitable growth once we see strength return in our key end markets."

Three Months Ended Nine Months Ended
September 30 September 30
Summary of Results ($000's except for tonnage and per unit amounts) 2011 2010 2011 2010
Sales Volumes – Tons 27,408 23,192 85,032 78,810
Revenue $ 38,005 $ 31,391 $ 114,949 $ 104,665
Cost of Goods Sold (35,774 ) (30,465 ) (103,135 ) (94,662 )
Depreciation (820 ) (1,412 ) (2,459 ) (4,246 )
Gross Profit $ 1,411 $ (486 ) $ 9,355 $ 5,757
Selling, General and Administrative Expenses (3,507 ) (3,100 ) (9,393 ) (9,634 )
Operating Loss $ (2,096 ) $ (3,586 ) $ (38 ) $ (3,877 )
Foreign Exchange Gain (Loss) (1,817 ) 709 (1,239 ) (606 )
Financing Expenses (2,153 ) (2,576 ) (6,259 ) (8,862 )
Changes in fair value on convertible instruments 1,414 (156 ) 2,301 3,594
Gain on sale of property, plant and equipment 11 80 11 80
Loss on renegotiated debt - - (3,234 ) -
Loss before income taxes (4,641 ) (5,529 ) (8,458 ) (9,671 )
Income Tax (Expense) Recovery 47 256 (146 ) 1,671
Net Loss $ (4,594 ) $ (5,273 ) $ (8,604 ) $ (8,000 )
Operating Loss (2,096 ) (3,586 ) (38 ) (3,877 )
Add back Depreciation 820 1,412 2,459 4,246
EBITDA (1,276 ) (2,174 ) 2,421 369
Foreign Exchange Gain (loss) (1,817 ) 709 (1,239 ) (606 )
Adjusted EBITDA (3,093 ) (1,465 ) 1,182 (237 )
Net Loss (4,594 ) (5,273 ) (8,604 ) (8,000 )
Adjustment for significant non-cash items
Non-cash financing expenses 1,339 1,783 3,962 5,506
Non-cash loss on renegotiated debt - - 3,234 -
Changes in fair value of convertible instruments (1,414 ) 156 (2,301 ) (3,594 )
Adjusted Net Loss (4) (4,669 ) (3,334 ) (3,709 ) (6,088 )
Per Unit
Net income (loss) per unit - basic and fully diluted $ (0.20 ) $ (0.23 ) $ (0.38 ) $ (0.35 )
Standardized Distributable Cash per Unit - Basic and Fully Diluted (5) $ (0.12 ) $ 0.13 $ (0.49 ) $ (0.38 )
Adjusted Distributable Cash per Unit - Basic and Fully Diluted (5) $ (0.05 ) $ (0.13 ) $ 0.03 $ (0.06 )
Per Ton
Gross Profit per Ton $ 51 $ (21 ) $ 110 $ 73
EBITDA per Ton (4) $ (47 ) $ (94 ) $ 28 $ 5
Adjusted EBITDA per Ton (4) $ (113 ) $ (63 ) $ 14 $ (3 )
As at As at
September 30 December 31
Financial Position 2011 2010
Total Assets $ 99,174 $ 87,450
Total non-current financial liabilities $ 43,586 $ 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 Q3 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 September 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 Q3 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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