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General Donlee Income Fund Reports Steady Earnings for First Quarter 2008
Toronto, Canada, May 12, 2008 - General Donlee Income Fund (the "Fund" or
"General Donlee") (TSX: GDI.UN) today announced results for the first quarter
ended March 31, 2008, reporting continued solid performance.
General Donlee's first quarter 2008 results reflected its ability to
increase margins despite pressure on revenues from currency fluctuations:
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- Sales were $12.4 million, down from the Q1 2007 sales level of
$13.3 million, due to the timing of shipments and the weaker
U.S. dollar
- The sales order backlog set its sixth consecutive quarterly record
high, at $62.5 million
- Net income was $1.8 million or $0.234 per Unit
- Gross profit margin grew by 2.4%, to 29.6%
- Distributable cash was $2.3 million or $0.295 per Unit
- Distributions of $0.27 per Unit were paid to Unitholders during the
quarter, an increase of 17% compared to the first quarter of 2007
- The Fund maintained a strong balance sheet, with $25.7 million of
cash and marketable securities
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In February 2008, drawing on its strong cash position, the Fund announced
a substantial issuer bid for cancellation of up to 1,171,253 of its
outstanding Units at a price of $8.75 per Unit, as a means of enhancing value
for its Unitholders by increasing their proportionate interest. The process
was completed on April 2, 2008, and the number of outstanding Units has now
been reduced to 6,637,101.
Leveraging its solid operations and continued growth in demand for its
services, General Donlee was able to deliver net income of $1.8 million in the
first quarter of 2008 despite the impact of the strengthening Canadian dollar.
The Fund's continuing performance allows it to maintain distributions to
Unitholders at the current monthly distribution level of $0.09 per Unit.
Financial Highlights
The following summary of financial data presents the consolidated results
of operations of the Fund for the three-month period ended March 31, 2008,
including comparative results for the same period in 2007.
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Three Months Ended
($ millions, except Unit and ------------------
per Unit amounts, unaudited) Mar. 31/08 Mar. 31/07
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Operations
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Sales 12.4 13.3
Gross profit 3.7 3.6
Net income 1.8 2.5
Basic income per Unit $ 0.234(b) $ 0.285(a)
Distributions
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Distributable cash(1) 2.3 2.5
Distributable cash per Unit(1) $ 0.295(b) $ 0.291(a)
Cash distributions paid 2.1 2.0
Cash distributions paid per Unit $ 0.270(b) $ 0.230(a)
(1) Distributable cash is not a defined term under Canadian generally
accepted accounting principles ("GAAP"), but is determined by the
Fund as cash flow provided by operating activities (adjusted to
remove changes in non-cash working capital items), less the reserve
for maintenance capital expenditures, for which Management included
$1.25 million for each of 2008 and 2007. See reconciliation of
distributable cash below. Management believes that this liquidity
measure is a useful supplemental measure of performance, as it
provides investors with an indication of the amount of cash available
for distribution to Unitholders. Investors are cautioned, however,
that distributable cash should not be construed as an alternative to
using net earnings as a measure of profitability, or to using the
statements of cash flows. Further, the Fund's method of calculating
distributable cash may not be comparable to measures used by other
companies or trusts. For details of distributable cash, see the table
below.
(a) Based on weighted average of 8,650,260 Units outstanding for the
first quarter of 2007.
(b) Based on weighted average of 7,808,354 Units outstanding for the
first quarter of 2008.
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Overall Financial Performance for First Quarter 2008
General Donlee delivered a solid performance in the first quarter of
2008, taking advantage of the momentum of the previous quarters and the
continuing strength of the aerospace industry.
In the first quarter, sales were $12.4 million, down from the
$13.3 million achieved in the first quarter of 2007, as a result of the timing
of shipments to its customers and the 14% decline in the value of the
U.S. dollar, in which a significant portion of its sales are denominated. The
aerospace and power generation division delivered sales of $8.1 million,
reflecting a decrease of $0.3 million, or 4%, over 2007; this decrease was
chiefly caused by lower shipments of military products following the
completion of a Navy contract in late 2007. General Donlee's industrial
products division produced first quarter 2008 sales worth $4.3 million, down
from $4.9 million the prior year as a result of the soft market conditions in
its customers' industries.
Despite lower sales revenues, however, on the whole, General Donlee was
able to deliver increases in gross profit and margin percentage in the first
quarter of 2008 as compared to the same period in 2007, as a result of
operational improvements and sales mix.
The advances General Donlee has made in its offerings to customers since
2005 have translated into consistently increasing demand, leading to a sales
order backlog that has increased in each of the last six quarters. At March
31, 2008 General Donlee's sales order backlog was valued at $62.5 million, as
compared to $57.4 million at the end of 2007. This backlog, which is largely
the result of the long-term nature of many of General Donlee's projects,
points to continued strong demand for its services in the year ahead.
The Fund achieved net income of $1.8 million for the three months ended
March 31, 2008, compared to the same period in 2007, when its net income was
$2.5 million, largely due to the interest expense incurred on its
$50.0 million convertible debenture, which was not outstanding at March 31,
2007. The net income in the first quarter of 2008 generated distributable
cash(1) of $2.3 million or $0.295 per Unit, compared to $2.5 million or $0.291
per Unit in distributable cash(1) in the comparable period in 2007. In the
first quarter of 2008, the Fund paid cash distributions of $0.27 per Unit - an
increase of 17% over the $0.230 paid per Unit in the first of quarter 2007.
General Donlee's balance sheet showed an increase in working capital to
$44.1 million at March 31, 2008, up from $43.7 million at December 31, 2007,
and provides ample working capital to support its ongoing business operations
and the current level of distributions. The consolidated net debt to equity
ratio of the Fund at March 31, 2008 is conservative at 1.25:1.
The Trustees and Management believe that the Fund has the means to fund
future growth. The continued growth projected for the aerospace industry is
expected to provide an attractive operating environment for the Fund.
Distributable Cash(1)
For the three months ended March 31, 2008, distributable cash(1) was
$2.3 million, or $0.295 per Unit, as compared to the three months ended
March 31, 2007, when distributable cash(1) was $2.5 million, or $0.291 per
Unit.
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The following table shows the calculation of distributable cash(1).
Three Months Ended
Mar. 31 Mar. 31
($000, except per Unit amounts) 2008 2007
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Cash provided by operating activities $2,017 $1,508
Adjust for net changes in non-cash working
capital balances related to operations 603 1,319
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Cash provided by operating activities before
changes in non-cash working capital balances 2,620 2,827
Prorated reserve for maintenance capital
expenditures (313) (313)
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Distributable cash(1) $2,307 $2,514
Cash distributions paid to Unitholders $2,108 $1,990
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Basic income per Unit $0.234 $0.285
Distributable cash(1) per Unit $0.295 $0.291
Cash distributions paid per Unit $0.270 $0.230
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Outlook
The Fund's outlook for the quarters ahead is positive, given the
combination of its own improved operational efficiency and the expected
continued strength of the aerospace sector. General Donlee's sales order
backlog, which was $62.5 million as of the end of the first quarter of 2008,
has continued to grow quarter after quarter, indicating consistent strong
demand for its services.
The solid performance General Donlee has been able to deliver over the
last quarters is the result of both its leadership and expertise in the
industry, and of its prudent management strategies: the decisions of
Management to invest in capacity-building equipment over the last number of
years have allowed it to participate to a greater extent in the growth of the
aerospace sector.
General Donlee is planning additional investment in equipment to meet its
current production demands and further augment its capacity to accommodate
anticipated future demand. As a result of recent operational improvements,
General Donlee is performing at near capacity, delivering increased gross
margin despite decreases in sales that were caused, in part, by currency
fluctuations. Drawing on its strong balance sheet cash position, General
Donlee now looks forward to growing production capacity, so as to capture even
more of the upside perceived in the current aerospace market.
Company Profile
The Fund is a trust established to hold the securities of General Donlee
Limited, a leading diversified manufacturer of precision-machined products for
the military, commercial and general aerospace industries, and a specialist in
the manufacture of precision-machined products for the industrial products and
power generation industries. General Donlee's operating strategy focuses on
targeting niche markets for products that are aligned with its sophisticated
manufacturing capabilities and skilled workforce.
SEDAR Filings
Today the Fund filed its interim Consolidated Financial Statements
(including the notes thereto) and Management's Discussion and Analysis for the
three months ended March 31, 2008 with SEDAR at www.sedar.com. These documents
are also available on the Fund's website at www.generaldonlee.com on the
Financial Reports page.
In addition to these documents, the Fund also files its Annual Report,
Annual Information Form, its Notice of Annual Meeting and Management
Information Circular, and its interim financial statements with SEDAR.
Forward-Looking Information
As with all forward-looking statements, caution must be exercised to
ensure that appropriate interpretation is made. Certain forward-looking
statements are based on information currently available to Management, but are
subject to a number of uncertainties and risks that could cause actual results
to differ materially from the results discussed in the forward-looking
statements. These uncertainties and risks include, but are not limited to:
dependence on commercial aircraft sales and defence procurement; dependence on
power generation sales and sales to the industrial sector; production rates;
shipping schedules and timing of deliveries; dependence on key customers;
dependence on third party suppliers and manufacturers; raw material costs;
competition; satisfying product specifications; product liability and warranty
claims; environmental and other government regulation; quality certification
requirements; hedging effects; interest and foreign exchange rates; leverage
and restrictive debt covenants; continued availability of credit facilities;
regulatory requirements; reliance on key personnel and our skilled workforce;
changes in accounting policies; the ability to obtain orders, contract awards
and terminations; input costs; possible changes to the tax laws affecting
income trusts; and domestic and international economic conditions. In
addition, these forward-looking statements relate to the date on which they
are made. Although the forward-looking statements contained herein are based
upon what Management believes to be reasonable assumptions, the Fund cannot
assure Unitholders that actual results will be consistent with these
forward-looking statements, and the Fund disclaims any intention or obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In formulating the forward-looking
statements herein, Management has assumed that business and economic
conditions affecting it will continue substantially in the ordinary course,
including without limitation with respect to industry conditions, general
levels of economic activity, regulation, taxes, foreign exchange rates and
interest rates, that there will be no material changes in its facilities,
equipment, customer and employee relations, credit arrangements or credit and
collections experience, and that the integration of new equipment will proceed
relatively smoothly. Further information can be found in the disclosure
documents filed by General Donlee Income Fund with the securities regulatory
authorities, available at www.sedar.com or through the Fund's website at
www.generaldonlee.com.
For further information:
Ralph Barnes
Director, Investor Relations,
tel: 416.743.4417
email: rbarnes@generaldonlee.com
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