TSX Symbol: SQP.UN                                                                             For Immediate Release

Strongco Reports 40% increase in Second Quarter

Profit to $0.49 per Unit and Announces August, September and October Distributions  

Mississauga , Ontario – July 28 th, 2005 : Strongco Income Fund today released its results for the second quarter of 2005.

For the three months ended June 30th, 2005 , Strongco Income Fund (“Strongco”) generated net income after tax of $4.8 million, ($0.49 per unit) on revenues of $116.1 million, versus $3.3 million, (0.35 per unit) on revenues of $94.9 million for the comparable quarter 2004. On a diluted basis the net income per unit was $0.49 versus $0.34 last year. The increase in revenues was across all geographic regions and all major manufacturer lines which we represent. Conversion to the Strongco Income Fund was completed May 6, 2005 and a monthly unitholder distribution of $0.15 per unit was declared for the months of May and June.

For the six months ended June 30th, 2005, Strongco Income Fund generated net income after tax of $6.5 million, ($0.68 per unit) on revenues of $205.3 million versus $3.2 million, ($0.34 per unit), on revenues of $160.1 million for the comparable period in 2004. On a diluted basis, the net income per unit was $0.68 versus $0.33 last year. During the first quarter of 2005, Strongco expensed $1.1 million ($0.08 per unit) of costs related to the ‘Plan of Arrangement’ with respect to Strongco’s conversion to an Income Trust.

Upon Larry Pirnak’s retirement July 31, 2005 , Robin MacLean will take over as President and CEO. Robin has been with Strongco since January 1, 2003 . Robin will also be appointed as a Trustee of Strongco Income Fund effective August 1 st, 2005.

Mr. Larry Pirnak, President commented, “We are pleased with our second quarter results, which were in line with our expectations and we expect this to continue for the balance of the year. For the quarter our revenues were up 22% and our pretax income was up 53%. For the six months revenues were up 28% and pretax income was up 132%.

Strongco Income Fund also announced today the following cash distributions: $0.15 per unit for August 2005 will be payable on September 20, 2005 to unitholders of record at the close of business on August 31, 2005; $0.15 per unit for September 2005 will be payable on October 20, 2005 to unitholders of record on September 30, 2005, and $0.15 per unit for October 2005 will be payable on November 21, 2005 to unitholders of record on October 31, 2005.

Strongco will host a conference call at 9:30 a.m. on Friday, July 29 th, 2005 , to further discuss its second quarter. To participate in the conference call, dial 416-620-8834 or 1-800-215-4603, reservation number is 21253055 a few minutes prior to 9:30 a.m. on the 29th. A taped version of the call will be available until August 12 th, 2005 . Dial 416-626-4100 or 1-800-558-5253 and enter the reservation number 21253055.

Strongco Income Fund is a trust established to hold the securities of Strongco Inc., a full-line equipment sales and service company. Its units are listed on the Toronto Stock Exchange and its website can be accessed at www.strongco.com.

For further information contact:

Len Phillips,
Vice President Administration
& Corporate Secretary
Telephone No.: 905-565-3840
Email: lphillips@strongco.com

Notes to Unaudited Interim Consolidated Financial Statements  

June 30, 2005 [in thousands of dollars, except per unit amounts or where otherwise noted]  

1. Organization

Strongco Income Fund (the “Fund” or “Strongco”) is an unincorporated, open-ended, limited purpose trust established under the laws of Ontario pursuant to a declaration of Trust dated March 21, 2005. The Fund was established to invest in the common shares and unsecured subordinated notes of Strongco Inc. (the “Company”) pursuant to a Plan of Arrangement (the “Plan”) effective May 6, 2005. In accordance with the Plan, each issued and outstanding share of the Company was transferred to the Fund in exchange for one unit of the Fund. The transfer of the common shares of the Company to the Fund was recorded at the carrying values of the Company’s assets and liabilities on May 6, 2005 in accordance with the continuity of interest method of accounting as the Fund is considered to be a continuation of the Company.

During the six months ended June 30, 2005, the Company incurred and expensed $1.1 million of costs with respect to the Company’s conversion to an Income Trust.

2. Basis of Presentation  

Management is required to make estimates and assumptions that affect the amounts reported in the unaudited interim consolidated financial statements. Management believes that the estimates are reasonable, however, actual results could differ from these estimates. The unaudited interim consolidated financial statements do not conform in all respects to the disclosure requirements of Canadian GAAP for annual financial statements and should, therefore, be read in conjunction with the Company’s 2004 Annual Report.

Certain items in the June 30, 2005 comparative unaudited interim consolidated financial statements have been reclassified to conform to the presentation adopted in the current period.

3.   Summary of Significant Accounting Policies

The unaudited interim consolidated financial statements of the Fund have been prepared by management in accordance with Canadian generally accepted accounting principles (“GAAP”), using the same accounting policies as outlined in Note 1 of the consolidated financial statements for the Company for the year ended December 31, 2004 except those as listed below. 

Basis of Consolidation  

The interim consolidated financial statements include the accounts of the Fund and its wholly-owned subsidiary companies. All material intercompany balances and transactions have been eliminated.

Income Taxes  

Under the terms of the Income Tax Act (Canada), the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to unitholders. Accordingly, no provision for current income taxes for the Fund is made. In addition, the Fund is not subject to the recommendations of CICA Handbook section 3465, as the Fund intends to distribute to its unitholders all or virtually all of its taxable income and taxable capital gains that would otherwise be taxable in the Fund. The Fund intends to continue to meet the requirements under the Income Tax Act (Canada) applicable to such trusts.  

The Company follows the liability method of tax allocation to account for income taxes. Under this method of tax allocation, future income tax assets and liabilities are determined based upon the differences between the financial reporting and tax bases of assets and liabilities and are measured using the substantively enacted tax rates and laws that will be in effect when differences are expected to reverse.

4. Bank Indebtedness  

Upon annual renewal, the Fund reduced it’s operating line of credit to a maximum of $20,000 under the same terms and conditions as outlined in the Company’s 2004 Annual Report.

5. Unitholders’ Equity and Contributed Surplus

[a]  Authorized

Unlimited number of units.

[b]  Issued

Pursuant to the Plan, the Fund acquired all of the issued and outstanding shares of the Company in exchange for units of the Fund on a one for one basis effective May 6, 2005.

Details of issued unitholders’ capital and share capital are as follows:  

[c]  Stock-based compensation plan

Under the terms of the Company’s stock based compensation plan, there were certain provisions intended to ensure that the rights of the holder’s of options were not adversely affected by certain events, such as the arrangement. In accordance with the provisions of this Plan, the Company permitted all holders of options to exercise their options during a twenty day period following April 13, 2005, after which, all rights of options holders to such options and to exercise same terminated and ceased to have further force and effect.

A summary of the status of the Company’s stock option plan and changes for the three and six months ended June 30, 2005 and 2004 are as follows:

6. Income Taxe

The provision for income taxes differs from that which would be obtained by applying the combined statutory tax rate as a result of the following:

7. Post Retirement Obligations

Net benefit plan expense for the three and six months ended June 30, 2005 and 2004 are as follows:

8. Segmented Information

Segmented information for the three and six months ended June 30, 2005 and 2004 are as follows:

[a]  The reconciling items to adjust segment profit (loss) represent common corporate costs not allocated
      to the segments and corporate head office costs incurred during the period.

[b]  The reconciling items to adjust segment total assets includes prepaid expenses and accrued benefit
      assets carried on the corporate head office ledger, offset by the elimination of the intercompany
      receivables at the corporate head office.

9. Long-Term Incentive Plan

Key senior management of the Company and its affiliates are eligible to participate in the Strongco Long-Term Incentive Plan (the “LTIP”). Pursuant to the LTIP, Strongco will set aside a pool of funds based upon the amount by which the Fund’s distributions per unit exceed cash distribution threshold amounts. A trustee will then purchase units in the market with such pool of funds and will hold such units until such time as ownership vests to each participant (generally over three years). The LTIP is expected to be administered by the Trustees of the Fund.

The amount of the excess which forms the LTIP incentive pool will be determined based upon a range of 10% to 20% of the aggregate gross distributions per unit in excess of base distribution payments.

Report to Shareholders

For the three months ended June 30th, 2005, Strongco Income Fund (the “Fund” or “Strongco”) generated earnings of $0.49 per unit ($0.49 per unit on a diluted basis) versus earnings of $0.35 per unit ($0.34 per unit on a diluted basis) in the comparable quarter last year. Revenues for the second quarter of 2005 were $116.1 million versus $94.9 million for the comparable quarter in 2004. The increase in revenues occurred in all geographic regions and in all major manufacturers lines. 

For the six months ended June 30th, 2005, Strongco generated earnings of $0.68 per unit ($0.68 per unit on a diluted basis) versus earnings of $0.34 per unit ($0.33 per unit on a diluted basis) in the comparable period last year. Revenues for the first half of 2005 were $205.3 million versus $160.1 million for the comparable period in 2004. The increased revenues were mainly a result of increased equipment sales and strong sales in our engineered systems group. During the first quarter of 2005, the Company expensed $1.1 million ($0.08 per unit) of costs related to the ‘Plan of Arrangement’ with respect to the Company’s conversion to an Income Trust.

Upon my retirement July 31, 2005, Robin MacLean will take over as President and CEO. Robin has been with Strongco since January 1, 2003.

Management’s Discussion and Analysis

The following management discussion and analysis (“MD&A”) provides a review of the consolidated financial condition and results of operations of Strongco Income Fund (the “Fund” or “Strongco”) and Strongco Inc. (the “Company”), for the three and six months ended June 30, 2005. This discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and with the audited consolidated financial statements related to the Company and management’s discussion and analysis contained in the Company’s annual report. For additional information and details, readers are referred to the Company’s quarterly financial statements and quarterly MD&A for fiscal 2004 and 2005, as well as the Company’s Annual Information Form (“AIF”) and the Management Information Circular (“MIC”) dated March 24, 2005, all of which are published separately and are available on SEDAR at www.sedar.com.

Unless otherwise indicated, all financial information within this discussion and analysis is in Canadian dollars millions except per unit amounts.

Strongco Income Fund

Strongco Income Fund is an unincorporated open-ended limited purpose trust established under the laws of the Province of Ontario pursuant to the declaration of Trust dated March 21, 2005.

On February 24, 2005, the Company announced that it had engaged BMO Nesbitt Burns Inc. as its financial advisor in connection with the review of a proposal to transform the Company into a new publicly traded income fund that will carry on the existing Strongco business. The Board of Directors approved a Plan of Arrangement (the “Plan”) to proceed with such transformation and an announcement to that effect was made by the Company on March 16, 2005. At the Annual and Special Meeting of shareholders held April 28, 2005, the Plan was approved.

Pursuant to the Plan which became effective on May 6, 2005, the Fund acquired all of the issued and outstanding shares of Strongco Inc. in exchange for units of the Fund on a one for one basis. As a result of which, Strongco Inc. continues to carry on business as a wholly owned subsidiary of Strongco Income Fund.

Distributions

The Fund’s policy is to make distributions of it’s available cash to the maximum extent possible to unitholders. The Fund makes monthly distributions to unitholders of record on the last business day of each month payable on or about the 20 th of the following month.

Financial Results – Three Months Ended June 30, 2005

Consolidated revenues for the three months ended June 30, 2005 increased by $21.2 million (22.3%) to $116.1 million from $94.9 million for the three months ended June 30, 2004. As indicated in the chart below, Equipment Distribution revenues increased 22.9% representing a $20.0 million improvement over the second quarter of 2004 which included $4.6 million of revenues from operations in Manitoba which were disposed of in the fourth quarter of 2004. Revenues in the Engineered Systems segment increased by $2.5 million (47.2%) on a comparative quarter basis due to continued strength in project work in agricultural and mining applications. Revenues in the Equipment Rentals segment declined by $1.3 million from $2.1 million for the second quarter of 2004 to $0.8 million for the second quarter of 2005. Rental revenues in the second quarter of 2004 included $1.2 million of revenues from operations in Saskatchewan which were disposed of in the fourth quarter of 2004.

Within the Equipment Distribution segment, the increase in revenues was primarily the result of higher equipment sales, particularly in Ontario and Alberta.

Gross Margin

Strongco’s gross margin for the three months ended June 30, 2005 increased by $1.7 million (9.7%) to $19.2 million from $17.5 million for the three months ended June 30, 2004 due to the higher revenue base.

Within the Equipment Distribution segment, business activities include the sale of machinery, customer support (parts and service) and equipment rentals. Equipment sales generate a significantly lower margin than customer support activities, accounting for 71.9 % of revenues and 40.6% of gross margin for this segment in the second quarter of 2005 (65.8% of revenues and 33.4% of gross margin in the second quarter of 2004). In the second quarter of 2005, gross margin (%) improved over the second quarter of 2004 in both equipment sales and customer support activities, however, overall gross margins (%) declined slightly due to the relative volume of equipment sales.

Within the Equipment Rental segment, gross margins (%) continued to improve despite the lower revenue base as a result of the continuing disposition of the company’s underutilized rental fleet.

Gross margins for the Fund’s’s Engineered Systems segment improved by $0.7 million from $1.3 million in the second quarter of 2004 to $2.0 million in the second quarter of 2005 through a combination of higher revenues and a slight improvement in gross margin (%).

Administrative, Distribution and Selling Expense

Administrative, distribution and selling expenses were flat at $13.2 million for the three months ended June 30, 2005 and the three months ended June 30, 2004 as increases in expenses of $1.0 million were offset by the elimination of $1.0 million of expenses associated with the equipment operations in Manitoba and the rental operations in Saskatchewan which were disposed of in the fourth quarter of 2004.

Interest Expense

Strongco’s interest expense for the three months ended June 30, 2005 declined to $0.4 million from $0.7 million for the three months ended June 30, 2004. This was primarily a result of the reduction in the Fund’s level of interest bearing debt offset by higher interest rates in the second quarter of 2005 versus the second quarter of 2004.

Net Income (loss)

The following summarizes Strongco’s pre-tax income (loss) by segment:

On an after tax basis, Strongco earned $4.8 million ($0.49 per unit) for the three months ended June 30, 2005 compared to net income of $3.3 million ($0.35 per unit) during the second quarter of 2004.

A discussion of the Company’s previous quarterly results can be found in the Company’s quarterly Management’s Discussion and Analysis reports available on SEDAR at www.sedar.com.

Financial Condition and Liquidity

Despite the significantly higher earnings base, cash used in operating activities was $3.9 million in the second quarter of 2005 compared to cash generated from operating activities of $0.4 million in the second quarter of 2004. This was primarily due to an increase in working capital requirements of $9.2 million during the quarter compared to an increase of $5.0 million during the second quarter of 2004 as inventory levels increased by $5.0 million from March 31, 2005 levels. In addition, the income tax provision for the three months ended June 30, 2004 included $1.2 million for future income taxes, while the income tax provision for the three months ended June 30, 2005 was for current taxes, with a slight drawdown of future taxes. In 2004, the Fund was able to utilize tax loss carry forwards resulting in an increase in the future income tax provision. 

Significant components of the change in working capital requirements are as follows:

Financial Results – Six Months Ended June 30, 2005

Consolidated revenues for the six months ended June 30, 2005 increased by $45.2 million (28.2%) to $205.3 million from $160.1 million for the six months ended June 30, 2004.

Within the Equipment Distribution segment, the increase in revenues was primarily the result of significantly higher equipment sales.

Within the Engineered Systems segment booking levels remain strong with the return to more normal capital spending levels across the country.

Gross Margin

Strongco’s gross margin for the six months ended June 30, 2005 increased by $4.7 million (15.0%) to $35.6 million from $30.9 million for the six months ended June 30, 2004 as a result of the higher revenue base.

The Fund’s gross margin percentage declined by 2.0% from 19.3% in the six months ended June 30, 2004 to 17.3% in the six months ended June 30, 2005. This was mainly due to a significantly higher mix of lower margin equipment sales in the first half of 2005 (68.0% of total revenue) versus the first half of 2004 (60.9% of total revenue).

Administrative, Distribution and Selling Expense

Administrative, distribution and selling expenses decreased slightly from $26.4 million for the six months ended June 30, 2004 to $25.9 million for the six months ended June 30, 2005 as increases in expenses of $1.5 million were offset by the elimination of $2.0 million of expenses associated with the Equipment operations in Manitoba and the Rental operations in Saskatchewan which were disposed of in the fourth quarter of 2004.

During the first quarter of 2005, the Company expensed $1.1 million comprised of advisory fees, legal and audit costs related to the ‘Plan of Arrangement’ with respect to the Company’s conversion to an Income Trust.

Interest Expense

Strongco’s interest expense for the six months ended June 30 declined to $0.8 million in 2005 from $1.6 million in 2004. This was primarily a result of the reduction in the Fund’s level of interest bearing debt offset by higher interest rates in the second half of 2005 versus the second half of 2004.

Net Income

The following summarizes Strongco’s pre-tax income by segment:

On an after tax basis, Strongco earned $6.6 million ($0.68 per unit) for the six months ended June 30, 2005 compared to income of $3.2 million ($0.34 per share) during the first half of 2004. This improvement was through a combination of higher margins and lower interest expense.

Financial Condition and Liquidity

Despite the significantly higher earnings base, cash used in operating activities was $4.5 million in the first half of 2005 compared to cash generated from operating activities of $4.4 million in the first half of 2004. This was primarily due to an increase in working capital requirements of $11.8 million during the six months ended June 30, 2005 compared to an increase in working capital requirements of $1.8 million in the six months ended June 30, 2004.

Significant components of the change in working capital requirements are as follows:

The increase in working capital requirements in the first half of 2005 were primarily comprised of a higher level of receivables related to increased sales and higher inventory levels, offset by related equipment financing.

Distributable Cash

Distributable Cash is presented as a measure of the extent to which the Fund is able to generate cash sufficient to fund unitholder distributions. Distributable Cash is a non-GAAP measure, and therefore has no standardized meaning prescribed by GAAP and may not be comparable to similar terms and measures presented by other similar issuers. Distributable Cash is intended to provide additional information on the Fund’s performance and should not be considered in isolation, seen as a measure of liquidity or as a substitute for measures of performance prepared in accordance with GAAP.

Contractual Obligations

The Fund has contractual obligations for operating lease commitments, long term debt and contingent contractual obligations where the Fund has agreed to buy back equipment from customers at the option of the customer for a specified price at future dates [‘buy back contracts’] which are more fully explained in the Company’s Management’s Discussion and Analysis included with it’s Annual Report which is available on SEDAR at www.sedar.com.

There have been no material changes to operating lease and long term debt obligations during the first half of 2005. 

Contingent obligations at June 30, 2005 are as follows:

Outstanding Units

The Fund is authorized to issue an unlimited number of Units pursuant to the Declaration of Trust. Each unit will be transferable and will represent an equal beneficial interest in any distributions from the Fund and in the net assets of the Fund. All units are of the same class with equal rights and privileges.

Risk Factors

The Fund’s financial performance is subject to certain risk factors which may affect any or all of its business sectors. These are more fully detailed in Management’s Discussion and Analysis for the year ended December 31, 2004 included in the Company’s 2004 Annual Report.

Outlook

Strongco’s financial performance in the six months ended June 30, 2005 met our expectations and we are optimistic for the balance of 2005.

Forward-Looking Statements

This Management’s Discussion and Analysis contains forward-looking statements that involve assumptions and estimates that may not be realized and other risks and uncertainties. The inclusion of this information should not be regarded as a representation of the Fund or any other person that the anticipated results will be achieved and investors are cautioned not to place undue reliance on such information. Such statements reflect management’s current beliefs and are based on information available to them. Management is under no obligation (and expressly disclaims any such obligation) to update or revise the forward looking information, whether as a result of new information, future events or otherwise.

Larry Pirnak
President & Chief Executive Officer
July 28, 2005