COMPETITION WATCH: Canada Cartage under tentative sale following strong first quarter

Truck News

TORONTO, Ont. — Canada Cartage Diversified Income Fund, a national provider of dedicated trucking services, reported a first quarter revenue increase of 5.5% to $78.2 million compared to $74.1 million in the same period last year.

The growth was driven primarily by organic growth from existing customers in Western Canada.

“Given the seasonal demand fluctuations of our business, we are pleased that the year over year revenue growth in the first quarter was stronger than that of the fourth quarter of 2006,” said Jeff Lindsay, the funds president and CEO. “Organic growth in the West continues, fuelled by the strong regional economy.”

First quarter operating expenses were $64.8 million and represented 82.8% of revenue compared to $60.5 million and 81.5% of revenue in the same period last year. The fund continues to experience higher driver and owner/operator costs driven by competitive pressures in the west, particularly in Alberta.

Other contributors to the increase in operating expenses included preventative maintenance costs associated with lower equipment utilization, which is typical for the first quarter, higher occupancy costs related to the new warehouse facilities in Calgary and Edmonton, investment in sales and administrative support to support the fund’s growth, and corporate governance initiatives.

“Under our cost-plus pricing model, we will revisit our pricing on a case-by-case basis when our existing customers’ contractual rates come up for renewal,” said James Rudyk, the fund’s CFO. “We expect customer prices to be adjusted for the higher wage rates by the end of the year.”

On Feb. 2, Canada Cartage completed the acquisition of certain operating assets of MacCosham Inc. The Edmonton-based business provides warehouse, distribution and related transportation services to customers operating in various industries. The acquired business generated annual revenue of approximately $4 million in 2006 and will continue to operate its other transportation divisions independently.

On May 4, the fund announced it had entered into a definitive agreement with companies formed by Nautic Partners providing for the acquisition by the purchasers of the fund’s 67% interest in CCD Limited Partnership.

Nautic Partners is a middle-market private equity firm based in Providence, R.I. with more than $1.8 billion of equity capital under management.

A special committee of independent board members of CCD unanimously recommended the transaction to the board of directors of CCD and the trustees of the fund. The board and the trustees unanimously approved the transaction and resolved to recommend the fund’s unitholders approve the proposed transaction.

The transaction is subject to the approval of the fund’s unitholders, the receipt of regulatory approvals and other customary closing conditions. In connection with the transaction, the purchasers will assume the fund’s liabilities and the fund will be wound up on closing.

“Since its inception, the fund’s management team has delivered great value to investors. This offer, which represents the newest phase in Canada Cartage’s strategic evolution, will result in a total return of approximately 25%, including distributions, for those unitholders who purchased their units at the $10 IPO price,” said Lindsay. “To our valued customers, we want to reiterate that this transaction will not change Canada Cartage’s commitment to excellent customer service.”

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