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Cinram expects strong year end

TORONTO (CP) Cinram International Income Fund (TSX:CRW.UN) said Wednesday that promising movie titles for the busy Christmas season and the company’s recent foray into the telecommunications industry bode well for the CD and DVD maker’s future despite disappointing second-quarter results.

"Based on what our customers are currently forecasting for the second half, we expect to see another strong fourth-quarter finish to the year, driven by a slate of titles that are performing well at the box office," CEO Dave Rubenstein said during a conference call with analysts.

"Excluding any new business, we expect a slight increase in DVD volumes for the year, the impact of which will be offset by lower average selling prices."

The company’s upcoming video titles include "300," "Die Hard 4," "The Simpsons Movie," "Ocean’s 13," "Hairspray" and "Harry Potter and the Order of the Phoenix."

But Rubenstein added that music CD sales are likely to continue their downward trend, after sagging 24 per cent in the second quarter from a year ago to US$46.2 million.

"While the outlook for DVDs is stable we are working on breathing new life into Cinram with the addition of business in the telecommunication sector to reduce our dependence on home video as DVDs approach maturity," he said.

"I believe we have tapped into a phenomenal opportunity with Motorola to showcase our talents in a new industry _ one that thrives on technological change."

In June, Cinram announced a multi-year supply agreement with cellphone provider Motorola Inc. to package and deliver phones and accessories to the North American market. Cinram will also test cellphones and parts, as well as program, assemble, package and ship the final products.

This deal was "an important first step of many we expect to take in the telecommunications industry," Rubenstein told analysts.

"With global handset shipments expected to rise 45 per cent to 1.4 billion units to 2010 . . . we are very bullish about the opportunities in this space."

Investors seemed less optimistic, sending Cinram units down 9.45 per cent or $2.15 to close at C$20.61 on the Toronto Stock Exchange.

The trust, which reports in U.S. dollars, announced a second-quarter loss of $27 million or 45 cents per unit late Tuesday, compared with a loss of $67 million or $1.17 per unit in the second quarter of 2006.

Revenues were down to $376 million from $399 million, due to lower prices and a decline in DVD and CD volumes.

RBC Dominion Securities analyst Steve Arthur said in a note that while the quarter was expected to be seasonally soft, results were "materially below" expectations.

But, he added, Cinram’s "relatively aggressive use of buyback implies confidence in management’s outlook for the seasonally strong second half of the year and Cinram’s ability to support distributions."

Cinram has plants in Canada, the U.S., Europe and Latin America that supply prerecorded videocassettes, CDs, audio cassettes, CD-ROMs and DVDs.

The fund disclosed that Randall Yasny has resigned after a year as a trustee because of "personal and work obligations.’