Richards Packaging Income Fund Q3 earnings down C$0.50M year-over-year to C$0.90M due to C$0.40M of additional patent defense legal costs, C$0.30M market-to-market loss on exchangeable shares resulting from a C$0.78/unit price increase
November 1, 2013
– Richards Packaging Income Fund (TSX: RPI.UN) (the “Fund”) announced today results for the quarter ended September 30, 2013.
Strong third quarter performance recovered the remaining first quarter shortfall, with total revenue up 6.8% mainly from 4.4% organic revenue growth and a U.S./Cdn.4¢ weakening of the dollar. EBITDA1 was up $0.3 million, or 5.2%, due to higher sales. Gross profit and EBITDA as a percent of sales were consistent with last year at 15.2% and 10.9% respectively. Net income was down $0.5 million at $0.9 million, or 8.1¢ per Unit, mainly due to the $0.4 million of additional patent defense legal costs and a $0.3 million mark-to-market loss on the exchangeable shares resulting from a 78¢ per unit price increase.
Nine month total revenue was up 2.9% with organic revenue growth of 1.8% and a U.S./Cdn.2¢ weakening of the dollar. EBITDA1 was flat as gains in the second and third quarters offset a soft first quarter. Net income was down $0.4 million, or 3.7¢ per Unit, mainly due to $1.1 million in higher patent defense legal costs and $0.4 million in higher income taxes offset by lower financial expenses of $0.4 million and a lower mark-to-market loss on the exchangeable shares of $0.5 million.
The $1.0 million of free cash flow2 generated in the third quarter, combined with cash on hand, was utilized to pay down $1.5 million of debt. A further $1.8 million from inventory reduction was offset by $1.0 million of additional receivables on higher sales and $0.7 million of lower payables. Although the cash on hand at September 30th appears to be unusually high, $0.7 million has been set aside to pay Canadian taxes.
The Fund paid monthly distributions of 6.55¢ per Unit during the nine months, which represented an annualized yield of 8% on the September 30th closing price of $9.88 per Unit. The payout ratio3 for the third quarter was 70%. During the third quarter no purchases were made under the normal course issuer bid as prices increased rapidly from the opening position of $9.10 per Unit.
Details of the Fund’s results are currently available on Richards Packaging’s website at www.richardspackaging.com and on SEDAR at www.sedar.com.
About Richards Packaging Income Fund
The Fund owns Richards Packaging Inc. (“Richards Packaging”), the leading packaging distributor in Canada, and third largest in North America. Richards Packaging is a full-service packaging distributor targeting small- and medium-sized North American businesses. Richards Packaging has operated since 1912 and currently serves over 11,000 regional food, wine and spirits, cosmetic, specialty chemical, pharmaceutical and other companies from 18 locations throughout North America.
1 Management defines EBITDA as earnings before amortization, financial expenses, patent defense costs, unrealized losses (gains) and dividends on exchangeable shares, share of loss (income) – Vision and taxes. EBITDA is the same as profit from operations as outlined in the interim financial statements after adding back amortization and patent defense costs. Management believes that in addition to net income, EBITDA is a useful supplemental measure for investors of earnings available for distribution prior to debt service, capital expenditures and taxes. Management uses this measure as a starting point in the determination of earnings available for distribution to unitholders and exchangeable shareholders. In addition, EBITDA is intended to provide additional information on the operating performance. This earnings measure should not be construed as an alternative to net income or as an alternative to cash flows from operating, investing and financing activities as a measure of liquidity and cash flows. EBITDA does not have a standardized meaning prescribed by GAAP and therefore method of calculating EBITDA may not be comparable to similar measures presented by other companies or income trusts.
2 Management defines distributable cash flow, in accordance with Richards Packaging’s credit agreement, as EBITDA less extraordinary items, interest, cash income tax expense, maintenance capital expenditures. Free cash flow is distributable cash flow less distributions. The objective of presenting these measures is to calculate the amount which is available for distribution to unitholders or exchangeable shareholders and to determine the amount available to fund increases in working capital or expansion capital. Investors are cautioned that distributable cash flow should not be construed as an alternative to cash flow from operating, investing and financing activities as a measure of the liquidity and cash flows. Distributable cash flow does not have a standardized meaning prescribed by GAAP and therefore the method of calculating distributable cash flow may not be comparable to similar measures presented by other income trusts.
3 Management defines payout ratio as distributions and dividends declared over distributable cash flow2. The objective of presenting this measure is to calculate the percentage of actual distributions in comparison to the amount available for distribution. Payout ratio does not have a standardized meaning prescribed by GAAP. The Fund’s method of calculating the payout ratio may not be comparable to similar measures presented by other income trusts.
4 This release contains certain forward looking information and statements within the meaning of applicable securities laws (collectively “Statements”) regarding future growth potential, results of operations, performance and business prospects and opportunities of the Fund. The Statements are frequently identified by the use of such words as “will”, “may”, “could”, “expect”, “plan”, “anticipate”, “believe” and other similar terminology. Specifically this release contains Statements with respect to compliance with certain financial covenants and the recommencement of distributions. These Statements reflect management’s current beliefs and are based on information currently available to the management of Richards Packaging. A number of factors could cause actual events or results to differ materially from those predicted, expressed or implied in the Statements. Factors that could cause such differences include, among other things, changes in customer and supplier relationships, the extent and duration of the worldwide recession and the impact on order volumes and pricing, competition in the industry, inventory obsolescence, trade risks in respect to foreign suppliers and fluctuations in foreign exchange and interest rates. Although the Statements contained in this release are based upon what management believes to be reasonable assumptions, there can be no assurance that actual results will be consistent with these Statements. These Statements are made as of the date of this release and the Fund assumes no obligation to update or revise them to reflect new events or circumstances.