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Press release from CNW Group

Vicwest Income Fund Reports Third Quarter 2010 Results

Wednesday, November 03, 2010

Vicwest Income Fund Reports Third Quarter 2010 Results18:26 EDT Wednesday, November 03, 2010Toronto Stock Exchange: VIC.UN, VIC.DBOAKVILLE, ON, Nov. 3, 2010 /CNW/ - Vicwest Income Fund (the "Fund" or "Vicwest") today reported financial results for the three and nine months ended September 30, 2010.The Fund remained profitable in both reporting periods despite the continuation of abnormal economic and market conditions. During the third quarter, economic volatility significantly dampened demand in certain markets for building products. In addition, the after effects of flooding in western Canada reduced revenue for both business segments. Margins were affected by higher steel costs that could not be fully absorbed by end markets within traditional timeframes. The Fund responded to these challenges by remaining focused on expanding its products and markets and driving efficiencies.Results for the Three Months Ended September 30 << - Revenue for the third quarter was $99.2 million compared to $110.4 million a year ago. - Gross profit was $15.7 million (15.8% gross margin) compared to $27.5 million (24.9% gross margin) in 2009. - EBITDA(1) was $6.2 million (6.3% EBITDA(1) margin) compared to $16.7 million (15.2% EBITDA(1) margin) a year ago. - Net income per unit was $0.22 compared to $0.83 a year ago. - The ratio of the last 12 months' EBITDA(1) to senior net debt (excluding convertible debt) was 0.2 to 1. - Declared cash distributions were $0.39 per unit, consistent with last year's third quarter payout. >>Despite improvements in insulated metal product sales, a $1.1 million increase in export sales, and modest price increases, third quarter revenue at Vicwest Building Products division was $69.7 million, down $8.8 million or 11.2% on a year-over-year basis. Net income for Vicwest Building Products was $4.1 million in the quarter. Third quarter revenue at Westeel Storage Solutions division was $29.5 million, $2.4 million or 7.5% lower than a year ago, primarily due to weather-related impacts on agricultural product sales. International grain storage sales were in line with last year for the quarter, and on a year-to-date basis were 18% above 2009. Net income at Westeel in the quarter was $0.2 million.Results for the Nine Months Ended September 30 << - Revenue was $269.3 million compared to $297.1 million a year ago. - Gross profit was $45.6 million (16.9% gross margin) compared to $65.8 million (22.1% gross margin) in 2009. - EBITDA(1) was $16.8 million (6.2% EBITDA(1) margin) compared to $35.6 million (12.0% EBITDA(1) margin) a year ago. - Net income per unit was $0.59 compared to $1.64 a year ago. - Declared cash distributions were $1.17 per unit, unchanged from 2009. >>As expected, consolidated revenue and income in the first nine months of 2010 were lower compared to the same period a year ago when significant backlog at Westeel was converted to revenue.Management Commentary"In the context of very difficult conditions, including record flooding in the Prairie provinces, and the fact that key industrial, commercial and institutional markets have yet to recover from their cyclical lows, the Fund performed as well as could be expected in the third quarter," said Colin Osborne, President and Chief Executive Officer. "Our two divisions responded to these shortterm challenges by focusing on their strengths, including product and market diversification, and overall, we continued to drive initiatives designed to increase efficiency and cost effectiveness over time. During the quarter, we increased our financial flexibility to better support growth and shortly thereafter, we also made substantial headway with our growth strategy by signing the Buhler Industries Inc. global alliance on agricultural products, and by entering into an agreement to acquire a majority interest in All Weather Insulated Panels, a state-of-the-art insulated metal panel manufacturer based in California. These are both very positive developments for our business."Financial FlexibilityTo increase financial flexibility, on September 30, 2010, the Fund issued 50,000 6.00% convertible unsecured subordinated debentures at a price of $1,000 per debenture, for total gross proceeds of $50 million. At the holder's option, the debentures may be converted into trust units of the Fund at any time prior to the earlier of the maturity date and the date of redemption specified by the Fund at a conversion price of $19.25 per unit, subject to adjustment in certain circumstances. The debentures are direct, unsecured obligations of the Fund and mature on December 31, 2015.Westeel-Buhler Industries Global AllianceIn the first phase of the global strategic alliance with Buhler Industries Inc. ("Buhler Industries") (announced October 5, 2010), Westeel will market, under the Westeel brand, Buhler Industries-manufactured grain handling equipment through its Canadian distribution chain. The products will include portable grain augers, grain cleaners and grain vacs, all manufactured to the exacting standards and quality associated with the Westeel brand. Through this alliance, Westeel now provides a wide range of new grain handling products that are the perfect complement to its storage solutions.In the second phase (announced October 26, 2010), Buhler Industries became the sole distributor of Westeel products in the US and assumed responsibility for marketing both Westeel-built product sold under Buhler Industries' Farm King division and all Westeel-branded products sold in the U.S., including grain bins, storage accessories, grain augers, grain vacs and grain cleaners. Management believes the alliance will prove to be a powerful combination for customers in new and existing markets and expects revenue contribution from this alliance, while modest in the fourth quarter, will increase in 2011.All Weather Insulated Panels ("All Weather")Headquartered in Vacaville, California, All Weather provides customers with a comprehensive line of wall and roof panels, produced in a state-of-the-art facility, and a full range of complementary trims and accessories. Since the plant was commissioned in 2007, All Weather has generated annual sales ranging from $USD 15-20 million, with an overall manufacturing capacity of $USD 40-50 million.The Fund's investment will be in the form of a convertible debenture, which is exercisable at the Fund's direction to 56% of the company's common shares, and will include rights to intellectual property and patents and a five year call option to purchase the remaining minority ownership interest based upon an agreed earnings formula. The Fund will pay $USD 5 million from its existing cash balances to acquire its interest in All Weather. The investment remains subject to All Weather's satisfaction of a limited number of conditions in favour of the Fund, including certain third party consents.The acquisition will provide a number of important benefits, including: the establishment of a manufacturing presence in the United States and the resulting creation of multiplant capabilities with excellent geographic coverage across North America; technology transfer; product and IP enhancement; and, procurement synergies. All Weather will be a perfect fit with Fund's current IMP facility in Hamilton, Ontario, as both plants operate the same IMP technology and can share best practices.Outlook"While difficult, current conditions in our markets do not reflect any structural change in our longterm opportunity, which remains very significant," said Mr. Osborne. "We believe domestic markets will recover from cyclical lows in 2011 and our business will be very well positioned to take advantage of higher demand."Looking at the fourth quarter of 2010, the Fund expects challenging conditions to prevail due to economic volatility and, to a lesser extent, the impact of seasonality. Modest relief in steel prices compared to earlier quarters of 2010 is also expected. The anticipated addition of All Weather and the new global alliance with Buhler are not expected to have a material impact on the fourth quarter.CONFERENCE CALL AND WEBCASTManagement will hold a conference call and live audio webcast on Thursday, November 4, 2010, at 11:00 a.m. (ET) to discuss the Fund's third quarter results. The call will be hosted by Colin Osborne, President and Chief Executive Officer and John Slattery, Executive Vice President and Chief Financial Officer. Following management's presentation, there will be a question and answer session for analysts and investors.The teleconference can be accessed at 416-644-3419 or 1-866-250-4877. A taped rebroadcast will be available to listeners following the call until midnight on November 11, 2010. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 4377244 followed by the number sign.To participate in the live audio webcast, please visit the Fund's website at www.vicwestfund.com. Both the Fund and CNW will archive the webcast.ABOUT VICWEST INCOME FUNDThe Fund is a leading manufacturer and distributor of building construction products, and steel containment products for agricultural grain, fertilizer and liquid storage. Through its Vicwest Building Products division, the Fund fabricates and markets metal roofing, siding and other metal building products under the trade names Vicwest, Mercury Metals, Valley Truss & Metal, RCA Metal and upon completion of the investment, will add the AWIP-Vicwest USA trade name. The Fund's Westeel Storage Solutions division manufactures storage solutions for agricultural grain and fertilizer, as well as liquid storage tanks and accessories. These products are manufactured and distributed under the trade names Westeel, Northern Steel Industries and NSI. Through a global alliance, Westeel also distributes Buhler Industries-manufactured grain handling equipment in Canada under the Westeel brand. With approximately 1,200 dedicated employees and strategically located manufacturing facilities, the Fund delivers superior quality products and excellent service to customers in chosen markets. Vicwest Income Fund has traded on the Toronto Stock Exchange since 2005 and is a member of the S&P/TSX SmallCap Index. For more information, visit www.vicwestfund.com.The Fund's Consolidated Interim Financial Statements and Management's Discussion and Analysis for the period ended September 30, 2010 will be filed with applicable regulatory authorities and will be available on www.sedar.com and on the Fund's website at www.vicwestfund.com.NON-GAAP MEASURES"Distributable cash" is not a defined term under Canadian generally accepted accounting principles ("GAAP") but is determined by the Fund as net income for the period adjusted to remove non-cash items, including amortization, and is reduced by capital expenditures for the maintenance of productive capacity, cash taxes and interest. The Fund's management believes that distributable cash is a useful measure of performance as it provides investors with an indication of the cash available for distribution to Unitholders. Investors are cautioned however that distributable cash should not be construed as an alternate to using net income or the statement of cash flows as measures of profitability and cash usage respectively. Furthermore, the Fund's definition of distributable cash may differ from that of other issuers."EBITDA" is earnings before interest, taxes (other than capital taxes), depreciation and amortization. The Fund's management believes that in addition to net earnings or loss, EBITDA is a useful supplemental measure of cash available for distribution prior to debt service, changes in working capital, capital expenditures and taxes. However EBITDA is not a recognized measure under GAAP. Investors are cautioned that EBITDA should not be construed as an alternative to net earnings or loss determined in accordance with GAAP or as an indicator of the Fund's performance or as an alternative to cash flows from operating, investing and financing activities which measure the Fund's liquidity and cash flows. The Fund's method of calculating EBITDA may differ from the method used by other issuers and, accordingly, the Fund's EBITDA calculation may not be comparable to similarly titled measures used by other issuers.RISKS AND UNCERTAINTIESThe Fund is subject to certain risks and uncertainties that could have a material adverse effect on the Fund's results of operations, business prospects, financial condition, cash distributions to Unitholders and the trading price of the Fund's units. These uncertainties and risks include, but are not limited to: industry cyclicality, steel supply and pricing, reductions in demand for the Fund's products, seasonality and weather, competition, management of the Fund's information, foreign exchange, labour availability and collective bargaining agreements, income tax matters, customer concentration, relationship with suppliers, product liability, capital and liquidity, collections from customers, operating hazards, uninsured risks, supply and install contracts, interest rates, distribution arrangements, lack of long-term agreements, pension funding, future legal proceedings, dependence on key personnel, limitations on growth, environment, climate change, risk of securities laws compliance and corporate governance changes, tax law changes, dependence of the Fund on Vicwest Operating Limited Partnership and certain risks associated with the structure of the Fund including: leverage and restrictive covenants, credit facility, nature of units, effect of market interest rates on the price of units, restrictions on potential growth, and cash distributions not being guaranteed and will fluctuate with the performance of the business. Further information about these and other risks and uncertainties can be found in the disclosure documents filed by the Fund with the securities regulatory authorities, available at www.sedar.com.FORWARD-LOOKING STATEMENTSCertain statements in this press release constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements include, but are not limited to, statements made under the heading "Outlook and Capital Structure" and other statements concerning the Fund's 2010 and 2011 objectives, strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements. Factors that could cause such differences include the cyclical nature of the construction and agriculture industries, changes in general economic conditions and interest rates, adverse weather, cost and availability of materials used to manufacture the Fund's products, competitive developments, as well as other risk factors included in the most recently filed Management's Discussion and Analysis under the heading "Risks and Uncertainties" and as described from time to time in the reports and disclosure documents filed by the Fund with Canadian securities regulatory agencies and commissions. This list is not exhaustive of the factors that may impact the Fund's forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on the Fund's forward-looking statements. As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and neither the Fund nor any other person assumes responsibility for the accuracy and completeness of these forward looking statements. The factors underlying current expectations are dynamic and subject to change. Although the forward-looking information contained in this press release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain statements included in this press release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this press release. All forward-looking statements in this press release are qualified by these cautionary statements. The forward-looking statements contained herein are made as of the date of this press release and except as required by applicable law, the Fund undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.For further information: Colin Osborne, President & Chief Executive Officer, Vicwest Income Fund, Tel: (905) 469-5700, Fax: (905) 825-1090; John Slattery, Executive Vice President & Chief Financial Officer, Vicwest Income Fund, Tel: (905) 469-5706, ir@vicwestfund.com