Pollard Banknote announces 3rd quarter financial results
Pollard Banknote Income Fund (TSX Symbol PBL.UN) (the "Fund") today released the financial results of the Fund and Pollard Holdings Limited Partnership ("Pollard LP") for the three months and six months ended September 30, 2006.
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HIGHLIGHTS
Three months
ended
September 30,
-------------
2006
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Sales(1) $ 42.9 million
Adjusted EBITDA(1) $ 7.6 million
Net Income(1) $ 3.5 million
Distributable Cash(1) $ 6.1 million
Distributions(1) $ 5.6 million
Distributable cash per unit(1) $ 0.2575
Distributions per unit(2) $ 0.2376
Payout ratio(3) 92.3%
(1) Sales, Adjusted EBITDA, net income, distributable cash,
distributions and distributable cash per unit are for Pollard LP
for the three months ended September 30, 2006.
(2) Distributions per unit are for the Fund for the three months
ended September 30, 2006.
(3) Payout ratio is calculated as distributions per unit divided by
distributable cash per unit.
"We are very pleased with our financial performance in the third quarter of 2006," remarked Co-Chief Executive Officer John Pollard. "The third quarter of this year marked an important milestone for Pollard, as we began our second year as a public trust. The positive financial results delivered in this quarter, and indeed since we went public 15 months ago, reflect the strong continuing growth in our main product line, instant lottery tickets. Distributable cash continues to exceed our established targets. We continue to build our portfolio of licensed properties, as witnessed by a number of exciting announcements made during the quarter. We are already seeing a number of these new properties translating into confirmed sales. As we look forward to the fourth quarter and beyond we remain focused on meeting our key financial objective: delivering stable and growing distributable cash flow."
THE FUND
Consolidated Statement of Net Income and Unitholders' Equity
Three months ended September 30, 2006
(in thousands of dollars, except for unit amounts)
Share of income of Pollard Holdings Limited Partnership $472
Administrative expenses (37)
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Net income for the period 435
Opening unitholders' equity 61,566
Distributions (1,494)
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Closing unitholders' equity $60,507
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Basic and diluted earnings per unit $0.0694
Distributable cash available per unit $0.2575
Number of Fund Units outstanding September 30, 2006 6,285,700
The Fund commenced business operations on August 5, 2005, and earnings from the Fund's investment in Pollard LP have been accounted for using the equity method of accounting. Under this method, the Fund's share of earnings of Pollard LP, adjusted for the amortization of certain intangible assets arising from the use of purchase accounting and certain administrative expenses, is reflected in the statement of income of the Fund. The results of operations of the Fund are dependent on the performance of Pollard LP.
The Fund has declared the following distributions totaling $0.2376 per unit during the three months ended September 30, 2006.
Period covered Date of record Payment Date Per unit amount
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July July 31 August 15 $0.0792
August August 31 September 15 $0.0792
September September 29 October 16 $0.0792
POLLARD LP
Pollard LP is one of the leading providers of products and services to the lottery industry throughout the world and the charitable gaming industry in North America. Pollard LP is the largest provider of instant-win scratch tickets based in Canada and one of only three major producers of instant tickets in the world.
SELECTED FINANCIAL INFORMATION
(millions of dollars)
Three Nine Nine
months August 5, months months
ended 2005 to ended ended
September October September October
30, 2006 31, 2005 30, 2006 31, 2005
-----------------------------------------------
Sales $42.9 $45.1 $134.4 $133.8
Cost of Sales 33.2 35.1 102.8 102.9
-----------------------------------------------
Gross Profit 9.7 10.0 31.6 30.9
Gross Profit as
a % of sales 22.7% 22.1% 23.5% 23.1%
Selling and
Administration Expenses 4.7 4.8 14.4 14.4
Expenses as a % of sales 10.9% 10.6% 10.7% 10.7%
Adjusted EBITDA 7.6 6.0 23.8 21.1
Adjusted EBITDA as
a % of sales 17.7% 13.3% 17.7% 15.8%
September 30, December 31,
2006 2005
-----------------------------
Total Assets 105.7 99.8
Total Long Term Liabilities 48.7 50.2
The above selected financial and operating information has been derived from, and should be read in conjunction with, the interim consolidated financial statements of Pollard LP.
Notes:
(1) As a result of the year end change from October 31 to December 31
and the transfer of the Amalco business on August 5, 2005, the
comparative periods end on October 31, 2005.
(2) EBITDA is defined as earnings before interest, taxes,
amortization and unrealized foreign exchange gains or losses.
(3) Adjusted EBITDA includes adjustments in the comparative prior
period numbers to reflect the operating structure currently in
existence and primarily involves adding back the pre-acquisition
discretionary management bonuses. Adjusted EBITDA is not a
recognized measure under GAAP and does not have a standardized
meaning prescribed by GAAP. Therefore Adjusted EBITDA may not be
comparable to similar measures presented by other issuers.
Management believes the Adjusted EBITDA is a useful complementary
measure of cash available for distribution.
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Results of Operations - Three months ended September 30, 2006
During the third quarter of 2006, Pollard LP achieved sales of $42.9 million, compared to $45.2 million in the comparable period of 2005. Sales were reduced by $2.3 million due to the strengthening Canadian dollar relative to the U.S. dollar. Overall sales volumes were consistent with the comparable period.
Gross profit margin of 22.7% was a slight increase over the comparable period of 2005 due to a more profitable mix of product sales.
Selling and administration expenses as a percent of sales increased to 10.9% compared to 10.6% in the comparable period of 2005 but remained consistent in absolute dollars.
Adjusted EBITDA of $7.6 million exceeded the Adjusted EBITDA of the comparable period of 2005 of $6.0 million due primarily to an increased gross margin and higher gains on foreign exchange.
Pollard LP generated $6.1 million in distributable cash, or $0.2575 per unit for the third quarter of 2006. This exceeds the target of $0.2376 as established in the final prospectus of the Fund dated July 27, 2005. The payout ratio for the third quarter of 2006 after provision for Long Term Incentive Plan ("LTIP") was 92.3%.
Outlook
Pollard Banknote's outlook for the fourth quarter of 2006 and beyond continues to be positive. Sales, production and distributable cash levels are expected to continue to meet or exceed the levels targeted in the final prospectus of the Fund dated July 27, 2005.
The instant ticket market continues to follow its strong growth pattern, especially in the United States. While no new lotteries are planned to start-up over the next year in North America, it is expected that the growth trends witnessed historically will continue, as lotteries continue to offer more and varied instant ticket products. The market for instant tickets continues to grow and develop in Europe and Asia as well.
On September 15, 2006, Pollard was identified as the preferred vendor of instant lottery ticket printing services for the Ontario Lottery and Gaming Corporation ("OLG"). The new ten-year contract is expected to commence in the new year and provides renewable options for OLG to extend the contract up to five additional years.
The New Jersey Lottery recently exercised a one-year option prolonging the original five-year pact signed with Pollard until October 2007. The value of the extension is approximately $18 million US and there remains an additional one-year option still available for renewal.
As discussed in the previous quarter, Pollard Banknote was named primary supplier and distributor of instant tickets for the Maryland Lottery. This new contract began near the conclusion of the third quarter and therefore its impact on the financial results was minimal. The fourth Quarter of 2006 will see the contract fully operational, with its resulting impact on increased product volumes and financial results.
In addition to these new contract wins, Pollard Banknote has no major contracts scheduled to expire during the remainder of 2006 or in all of 2007.
The charitable gaming market continues to be competitive and Pollard Banknote has achieved a number of important milestones during the quarter. The new contract to provide bingo paper for the Manitoba Lottery Corporation became fully operational in the quarter. In the Pull-tab product line two significant contract wins were announced during the quarter. The Hoosier (Indiana) Lottery awarded Pollard a four-year contract (plus two one-year renewal options) to provide pull-tab tickets. The Manitoba Lottery Corporation awarded Pollard its contract to produce pull-tabs for a three-year period, with two one-year renewal options. These two significant pull-tab contract wins are important drivers in growing Pollard's pull-tab business.
Proprietary products, including licensed products, will continue to play an increasingly important growth role for Pollard. A patented Pollard product, Lucky 7 Double Play, was recently named Lottery Product of the Year and the portfolio of licensed properties continues to expand with the addition of Laurel & Hardy and Cadillac(R).
On October 31, 2006 the Federal Government announced their intention to introduce certain changes to the taxation of Income Trusts and related Partnerships. At this time it appears existing trusts, including Pollard Banknote Income Fund, will not be subject to new taxation until 2011, however currently no details or legislation have been proposed. Therefore, any possible impact on the financial results and distributable cash of the Fund or Pollard LP is not determinable.
Forward-Looking Statements
Certain statements in this news release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this news release, such statements include such words as "may", "will", "expect", "believe", "plan", and other similar terminology. This news release reflects management's current expectations regarding future events and operating performance and speaks only as of the date of this news release. There should not be an expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.
For further information: John Pollard, Co-Chief Executive Officer, Telephone: (204) 474-2323 ext 204, Facsimile: (204) 453-1375; Gordon Pollard, Co-Chief Executive Officer, Telephone: (204) 474-2323 ext 211, Facsimile: (204) 453-1375; Rob Rose, Chief Financial Officer, Telephone: (204) 474-2323 ext 250, Facsimile: (204) 453-1375
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