Results for the first quarter ended March 31, 2009
TORONTO, May 5 /CNW/ - Labrador Iron Ore Royalty Income Fund (TSX: LIF.UN) announced its results for the first quarter ended March 31, 2009.
Royalty income for the first quarter of 2009 amounted to $16.27 million as compared to $16.36 million for the first quarter of 2008. The Fund's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $11.11 million or $0.35 per unit as compared to $10.36 million or $0.32 per unit for the same period in 2008. Net income was $16.53 million or $0.52 per unit compared to $10.78 million or $0.34 per unit for the same period in 2008.
The first quarter sales of Iron Ore Company of Canada (IOC) are traditionally adversely affected by the closing of the St. Lawrence Seaway and general winter shipping conditions and are not indicative of the full year's sales.
The current world recession which resulted in a sharply reduced demand for iron ore in the fourth quarter of 2008 continues to cause reduced iron ore demand and as a result pellet sales in the quarter were substantially lower than last year with the decreased volume partially offset by increased sales of concentrates. Royalty revenue for the quarter was approximately the same as 2008 with the lower volume being offset by the lower value of the Canadian dollar against its U.S. counterpart and prices that were higher than those received in last year's first quarter. Last year's first quarter prices were at 2007 levels as the 2008 price increases were not settled until the second quarter. Last year's price increase which occurred in the second quarter resulted in retroactive income relating to the 2008 first quarter of approximately $0.20 per unit which would have increased adjusted cash flow to $0.52 per unit. Prices for 2009 are still under negotiation and when settled they are expected to be significantly lower than 2008. Royalties for the first quarter are not expected to be materially affected when 2009 benchmark pricing is settled.
Equity earnings from IOC amounted to $6.8 million ($0.21 per unit) as compared to $1.3 million ($0.04 per unit) in 2008. If the retroactive price increase had been included in the first quarter of 2008 IOC equity earnings would have been increased by $16 million or $0.50 per unit to $0.54 per unit.
Results for the three months ended March 31 are summarized below:
2009 2008
--------------------
(Unaudited)
Revenue (in millions) $16.59 $16.64
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Adjusted cash flow (in millions) $11.11 $10.36
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Adjusted cash flow per unit $ 0.35 $ 0.32
------ ------
Net income (in millions) $16.53 $10.78
------ ------
Net income per unit $ 0.52 $ 0.34
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"Adjusted cash flow" (defined as cash flow from operating activities as
shown on the attached financial statements less changes in amounts receivable,
accounts payable and income taxes payable) is not a recognized measure under
Canadian GAAP. The Trustees believe that adjusted cash flow is a useful
analytical measure as it better reflects cash available for distributions to
Unitholders.
A summary of IOC's sales in millions of tonnes is as follows:
3 Months 3 Months
Ended Ended Year
Mar. 31, Mar. 31, Ended Dec.
2009 2008 31, 2008
---------- --------- ----------
Pellets 1.21 2.55 12.30
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Concentrates 0.92 0.26 2.76
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Total 2.13 2.81 15.06
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Respectfully submitted on behalf of the Trustees of Labrador Iron Ore
Royalty Income Fund,
Bruce C. Bone
Chairman and Chief Executive Officer
May 5, 2009
Management's Discussion and Analysis
The following discussion and analysis should be read in conjunction with the Management's Discussion and Analysis section of the Fund's 2008 Annual Report and the interim financial statements and notes contained in this report. Although management believes that expectations reflected in forward-looking statements are reasonable, such statements involve risk and uncertainties including the factors discussed in the Fund's 2008 Annual Report.
The Fund's revenues are entirely dependent on the operations of Iron Ore Company of Canada (IOC) as its principal assets relate to the operations of IOC and its principal source of revenue is the 7% royalty it receives on all sales of iron ore products by IOC. In addition to the volume of iron ore sold, the Fund's royalty revenue is affected by the price of iron ore and the Canadian - U.S. dollar exchange rate.
The sales of IOC are usually 15% - 20% of the annual volume in the first quarter, with the balance spread fairly evenly throughout the other three quarters. Because of the size of individual shipments some quarters may be affected by the timing of the loading of ships that can be delayed from one quarter to the next. The current state of the market may cause 2009 sales to deviate from this pattern.
Royalty income for the first quarter of 2009 amounted to $16.27 million as compared to $16.36 million for the first quarter of 2008. The Fund's cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the first quarter was $11.11 million or $0.35 per unit as compared to $10.36 million or $0.32 per unit for the same period in 2008. Net income was $16.53 million or $0.52 per unit compared to $10.78 million or $0.34 per unit for the same period in 2008.
The current world recession which resulted in a sharply reduced demand for iron ore in the fourth quarter of 2008 continues to cause reduced iron ore demand and as a result pellet sales in the quarter were substantially lower than last year with the decreased volume partially offset by increased sales of concentrates. Royalty revenue for the quarter was approximately the same as 2008 with the lower volume being offset by the lower value of the Canadian dollar against its U.S. counterpart and prices that were higher than those received in last year's first quarter. Last year's first quarter prices were at 2007 levels as the 2008 price increases were not settled until the second quarter. Last year's price increase which occurred in the second quarter resulted in retroactive income relating to the 2008 first quarter of approximately $0.20 per unit which would have increased adjusted cash flow to $0.52 per unit. Prices for 2009 are still under negotiation and when settled they are expected to be significantly lower than 2008. Royalties for the first quarter are not expected to be materially affected when 2009 benchmark pricing is settled.
Equity earnings from IOC amounted to $6.8 million ($0.21 per unit) as compared to $1.3 million ($0.04 per unit) in 2008. If the retroactive price increase had been included in the first quarter of 2008 IOC equity earnings would have been increased by $16 million or $0.50 per unit to $0.54 per unit.
Net income for the first quarter was $16.53 million or $0.52 per unit as compared to $10.78 million or $0.34 per unit in 2008. Had the price increase been recorded in the first quarter the net income would have increased by $22.6 million ($0.70 per unit).
Cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes payable (adjusted cash flow) for the quarter was $11.11 million or $0.35 per unit as compared to $10.36 million or $0.32 per unit for the same period in 2008.
The following table sets out quarterly revenue, net income and cash flow data for 2009, 2008 and 2007.
Adjusted Distri-
Cash butions
Net Adjusted Flow Declared
Net Income Cash per per
Revenue Income per Unit Flow(1) Unit(1) Unit
------- ------ -------- ------- ------- ----
(in millions except per Unit information)
2009
----
First Quarter $16.6 $16.5 $0.52 $11.11 $0.35 $0.50
2008
----
First Quarter $16.6 $10.8 $0.34 $10.4 $0.32 $0.35
Second Quarter $58.1 $73.9 $2.31 $32.9 $1.03 $1.00
Third Quarter $43.7 $65.6 $2.05 $104.1(2) $3.25 $3.00
Fourth Quarter $45.0 $26.2 $0.82 $27.5 $0.86 $0.50
2007
----
First Quarter $13.1 $10.7 $0.34 $8.7 $0.27 $0.35
Second Quarter $15.7 $15.2 $0.47 $9.5 $0.30 $0.35
Third Quarter $20.1 $23.0 $0.72 $30.8(3) $0.96 $0.70
Fourth Quarter $18.7 $32.0 $1.00 $11.5 $0.36 $0.55
Notes: (1) "Adjusted cash flow" (see below)
(2) Includes a $77.9 million IOC dividend
(3) Includes a $18.8 million IOC dividend
Standardized Cash Flow and Adjusted Cash Flow
For this Fund, standardized cash flow is the same as cash flow from operating activities as recorded in the Fund's cash flow statements as the Fund does not incur capital expenditures or have any restrictions on distributions. Standardized cash flow (after making a $25.2 million payment re: 2008 income taxes) per unit was $0.08 for the quarter (2008 - $0.46). Cumulative standardized cash flow from inception of the trust is $22.32 per unit and total cash distributions since inception are $21.43 per unit, for a payout ratio of 96%.
"Adjusted cash flow" is defined as cash flow from operating activities as shown on the attached financial statements less changes in amounts receivable, accounts payable and income taxes payable. It is not a recognized measure under Canadian GAAP. The Trustees believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for distributions to Unitholders.
The following reconciles cash flow from operating activities to adjusted cash flow.
3 Months Ended 3 Months Ended
Mar. 31, 2009 Mar. 31, 2008
---------------- ---------------
Standardized cash flow from operating
activities $ 2,521,897 $14,787,921
---------------- ---------------
Excluding: changes in amounts receivable,
accounts payable and income taxes
payable/recoverable 8,592,557 (4,432,449)
---------------- ---------------
Adjusted cash flow $11,114,454 $10,355,472
---------------- ---------------
Adjusted cash flow per unit $0.35 $0.32
---------------- ---------------
Liquidity
---------
The Fund has a $50 million revolving credit facility to September 18, 2011
with provision for annual one-year extensions. No amounts are currently drawn
under this facility ($3.9 million at March 31, 2008) leaving $50 million
available to provide for any capital required by IOC or other Fund
requirements.
Outlook
-------
At the present time markets remain unsettled and it is difficult to
predict sales volumes and thus royalty revenue. Also, price negotiations are
progressing slowly and until they are settled it is difficult to predict
royalty revenue. The weakness of the Canadian dollar against its U.S.
counterpart is a positive factor somewhat offsetting volume and price
weakness. Steel markets remain very weak in Europe and North America and
although Asian demand has weakened somewhat it remains relatively strong. 2009
is expected to be disappointing when compared to last year's results.
Bruce C. Bone
Chairman and Chief Executive Officer
Toronto, Ontario
May 5, 2009
LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
As at
-------------------------------------
March 31 December 31
2009 2008
-------------------------------------
(Unaudited)
Assets
Current
Cash and cash equivalents $ 14,317,467 $ 27,795,570
Amounts receivable 15,459,327 36,476,337
----------------- -----------------
29,776,794 64,271,907
Deferred charges 371,999 392,666
Iron Ore Company of Canada ("IOC"),
royalty and commission interests 301,515,962 302,198,099
Investment in IOC 194,247,708 187,452,133
----------------- -----------------
$ 525,912,463 $ 554,314,805
----------------- -----------------
----------------- -----------------
Liabilities and Unitholders' Equity
Current
Accounts payable $ 3,354,811 $ 7,484,614
Income taxes payable 162,128 25,641,892
Distributions payable to
unitholders 16,000,000 16,000,000
----------------- -----------------
19,516,939 49,126,506
Future income tax liability 103,790,000 103,110,000
----------------- -----------------
123,306,939 152,236,506
Unitholders' equity
Trust units 317,708,147 317,708,147
Undistributed income 84,897,377 84,370,152
----------------- -----------------
$ 525,912,463 $ 554,314,805
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LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME AND UNDISTRIBUTED INCOME
-------------------------------------------------------------------------
For the Three Months
Ended March 31,
2009 2008
-------------------------------------
(Unaudited)
Revenue
IOC royalties $ 16,265,101 $ 16,361,263
IOC commissions 209,529 276,336
Interest and other income 118,970 1,767
----------------- -----------------
16,593,600 16,639,366
----------------- -----------------
Expenses
Newfoundland royalty taxes 3,253,020 3,272,253
Amortization of royalty and
commission interests 682,137 905,415
Administrative expenses (note 2) 318,278 1,005,185
Interest expense 113,132 172,433
----------------- -----------------
4,366,567 5,355,286
----------------- -----------------
Income before equity earnings and
income taxes 12,227,033 11,284,080
Equity earnings in IOC 6,795,575 1,327,271
----------------- -----------------
Income before income taxes 19,022,608 12,611,351
----------------- -----------------
Provision for (recovery of) income
taxes
Current 1,815,383 1,865,274
Future 680,000 (30,000)
----------------- -----------------
2,495,383 1,835,274
Net income and comprehensive income
for the period 16,527,225 10,776,077
Undistributed income, beginning of
period 84,370,152 63,053,439
Distributions to unitholders (16,000,000) (11,200,000)
----------------- -----------------
Undistributed income, end of period $ 84,897,377 $ 62,629,516
----------------- -----------------
----------------- -----------------
Net income per unit $ 0.52 $ 0.34
----------------- -----------------
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LABRADOR IRON ORE ROYALTY INCOME FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
For the Three Months
Ended March 31,
2009 2008
-------------------------------------
(Unaudited)
Net inflow (outflow) of cash related
to the following activities
Operating
Net income for the period $ 16,527,225 $ 10,776,077
Items not affecting cash:
Equity earnings in IOC (6,795,575) (1,327,271)
Future income taxes 680,000 (30,000)
Amortization of royalty and
commission interests 682,137 905,415
Amortization of deferred charges 20,667 31,251
Change in amounts receivable,
accounts payable and income taxes
payable/recoverable (8,592,557) 4,432,449
----------------- -----------------
Cash flow from operating activities 2,521,897 14,787,921
----------------- -----------------
Financing
Distributions paid to unitholders (16,000,000) (17,600,000)
Proceeds from long-term debt - 2,848,480
----------------- -----------------
(16,000,000) (14,751,520)
----------------- -----------------
Increase (decrease) in cash and cash
equivalents during the period (13,478,103) 36,401
Cash and cash equivalents, beginning
of period 27,795,570 151,256
----------------- -----------------
Cash and cash equivalents, end of
period $ 14,317,467 $ 187,657
----------------- -----------------
----------------- -----------------
Cash and cash equivalents are
comprised of:
Cash in bank $ 865,534 $ 187,657
Term deposits 13,451,933 -
----------------- -----------------
$ 14,317,467 $ 187,657
----------------- -----------------
----------------- -----------------
Cash income taxes paid $ 27,295,147 $ 260,000
----------------- -----------------
----------------- -----------------
Cash interest paid $ 94,521 $ 97,915
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%SEDAR: 00002722E