MRRM Inc. - Directors' Report and Management Discussion and
Analysis of the financial condition and results of operations -
Interim 2013. Q3 November 30, 2012 (3rd Quarter)
The following discussion and analysis should be read in
conjunction with the FY 2013 third quarter statements filed with
SEDAR. Included in these documents may be forward-looking
statements with respect to the Company. These forward-looking
statements by their nature necessarily involve risks and
uncertainties that could cause actual results to differ materially
from those contemplated by such statements. The Company
considers the assumptions on which these forward-looking statements
are based to be reasonable at the time they were prepared but
cautions the reader that these assumptions regarding future events,
many of which are beyond the control of the Company, may ultimately
prove to be incorrect.
The unaudited interim consolidated financial statements were
prepared by the Company in accordance with IFRS and have not been
reviewed by the Company's auditors. Certain comparative figures
have been reclassified to conform with the presentation adopted in
the financial statements.
Additional documents and information are available at the
System for Electronic Document Analysis and Retrieval (SEDAR)
and can be accessed through the internet: For MRRM's profile or for
documents go to www.sedar.com Information is also
available on the Corporate website at
www.MRRM.ca.
MONTREAL,
Jan. 10, 2013 /CNW Telbec/ -
Consolidated Income And Comprehensive
Income and Equity
Revenues for the period (last year) were
$44,282,000 ($43,443,000) increasing by $839,000 (1.9%). As shown in the segmented
information, sales and income from operating activities amounted to
$44,164,000 ($43,463,000) being 99.7% (100.0%) of total
revenues. Income from corporate totaled $118,000 (-$20,000). Unrealized losses in fair market value
of the portfolio amounted to $355,000
compared to $195,000 last year.
Operating Revenues increased by $701,000 (1.6%) compared to last year. Revenue
from Corporate increased by $138,000;
for details refer to Portfolio Income Summary under Corporate
Investments.
Costs and expenses for the period (last
year) were $43,741,000 ($43,223,000), an increase of $518,000 (1.2%). Costs related to operating
activities, before exchange and interest, increased by $582,000 (1.4%). Expenses related to corporate
decreased by $25,000.
Operating results are discussed later on in this
report.
The impact of the fluctuating Canadian dollar
resulted in a total currency exchange gain of $40,000 compared to a loss of $75,000 last year, all included under cost of
sales. As disclosed in the Notes, the net exposures were as
follows: at November 30, 2012,
US($179,000); at November 30, 2011,
US$1,575,000; at February 29, 2012, US$2,565,000; at February
28, 2011, US$4,487,000.
The Company uses foreign exchange contracts to
manage foreign exchange exposure. At November 30, 2012, the Company had foreign
exchange contracts outstanding allowing the Company to buy
USD$1,200,000 at an average rate of
1.0238. The maturity date of these contracts is December 2012. The Company has recorded a current
liability on the financial position statement under the caption
"derivative financial liabilities" in the amount of $36,000.
Interest expensed on bank indebtedness amounted
to $61,000 for the period compared to
interest expensed on bank indebtedness and reducing term loan of
$113,000 last year for a decrease of
$52,000. Interest related to the
long-term debt was $22,000 last
year.
Profit before income taxes for the period
(last year) was $541,000 ($220,000), an increase of $321,000. Profit from operating activities for
the period (last year) was $578,000
($419,000), an increase of
$159,000. (Loss) from corporate for
the period (last year) was -$37,000
(-$199,000), an increase of
$162,000.
Income taxes for the period (last year)
were $108,000 ($110,000). Details of the income tax components
are presented in the Notes to the financial statements.
Profit for the period (last year) was
$433,000 ($110,000) or $0.17
($0.04) per share.
Dividends paid during the period amounted
to $2,028,000. This represents a
special dividend of $0.80 per share.
The declaration and payment of dividends is at the discretion of
the Board of Directors.
Summary of Quarterly Results
The following financial summary is derived from
the Company's financial statements for each of the eight most
recently completed fiscal quarters.
Summary of
Quarterly Financial Results for the eight most recent fiscal
quarters |
Nov 30,
2012
(2013.Q3) |
Aug 31,
2012
(2013.Q2) |
May 31,
2012
(2013.Q1) |
Feb 29,
2012
(2012.Q4) |
Nov 30,
2011
(2012.Q3) |
Aug 31,
2011
(2012.Q2) |
May 31,
2011
(2012.Q1) |
Feb 28,
2011
(2011.Q4) |
(Expressed in thousands, except for
amounts per share - unaudited) |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
Revenues |
14,778 |
14,801 |
14,703 |
16,014 |
16,523 |
12,572 |
14,348 |
15,864 |
Profit (loss) |
86 |
271 |
76 |
510 |
407 |
-119 |
-178 |
150 |
Profit (loss) per share |
0.03 |
0.11 |
0.03 |
0.20 |
0.16 |
-0.05 |
-0.07 |
0.06 |
Dividends per share |
0.80 |
0.00 |
0.00 |
0.00 |
0.50 |
0.00 |
0.00 |
0.15 |
Revenues for this quarter (last year)
were $14,778,000 ($16,523,000), a decrease of $1,745,000 (-10.6%). Revenue from operating
activities amounted to $14,680,000
($16,471,000) being 99.3% (99.7%) of
total revenues. Income from corporate totaled $98,000 ($52,000).
Operating revenues for this quarter decreased by $1,791,000 (-10.9%) compared to this quarter last
year. Revenue from Corporate increased by $46,000.
Costs and expenses for this quarter (last
year) were $14,677,000 ($15,953,000), a decrease of $1,276,000 (-8.0%). Costs related to operating
activities, before exchange and interest, decreased by $1,253,000 (-7.9%).
Included in the financial results for this
quarter (last year) are investment tax credits of $4,000 ($16,000).
Interest expense for this quarter (last year)
was $16,000 ($30,000) and was $14,000 in 2013Q2 and $31,000 in 2013.Q1.
Profit before income taxes for this
quarter (last year) was $101,000
($570,000), a decrease of
$469,000. Profit from operating
activities was $46,000 ($574,000), a decrease of $528,000 and corporate was $55,000 (-$4,000),
an increase of $59,000.
Income taxes for this quarter (last year)
were $15,000 ($163,000). The effective tax rates are presented
in the Notes to the financial statements.
Profit for this quarter (last year) was
$86,000 ($407,000) or $0.03
($0.16) per share.
Consolidated Cash Flows, Liquidity and
Financial Position
In investing activities, the Company
added $2,932,000 of net property,
plant and equipment compared to $1,761,000 last year.
Available credit facilities
The credit facilities available and reported at last year-end
remain substantially unchanged. The facilities are comprised of a
revolving line of credit for $7,000,000
CDN {or its US equivalent} which bears interest at the
Canadian prime rate for Canadian loans and U.S. base rate for U.S.
loans and, optionally, the Company may take advantage of Bankers
Acceptances. The financial covenants and arrangements relating to
financing facilities are detailed in the Notes to the audited
consolidated financial statements. These covenants are being
respected and have been met.
Trade receivables decreased by
$1,669,000 compared to last fiscal
year-end. Account balances are substantially current, there are no
anticipated serious collection issues and any potential write-offs
have been provided for in the accounts.
Inventories decreased by $2,348,000 (-27.1%) and overall volumes of rice
decreased by (-33.7%).
Marketable securities - see table of
Investment Mix in discussion of results.
Property, plant and equipment increased
by $1,818,000 comprised of additions
of $2,932,000 and amortization of
$1,114,000.
Bank indebtedness was $808,000 compared to $3,044,000 at last year-end.
Trade and other payables decreased by
$51,000.
Deferred taxes, net liability, decreased
by $24,000.
Total equity decreased by $1,476,000 to $17,224,000 from $18,700,000 and represents $6.79 ($7.38) per
share.
Capital stock remained unchanged at
$539,000 and represents 2,535,000
issued common shares.
The MRRM Inc. shares have a very limited
distribution and are infrequently traded on the TSX-Venture
Exchange under the symbol MRR. www.TSX-Venture Exchange
Critical Accounting Policies:
The Company's critical accounting policies are
those that it believes are the most important in determining its
financial condition and results. A summary of the Company's
significant accounting policies, including the critical accounting
policies, is set out in the notes to the consolidated financial
statements in the annual report for the year ended February 29, 2012. An extract of these
policies is set out in the notes to the quarterly consolidated
financial statements.
Future Accounting Changes:
At the date of authorization of the Company's
financial statements, certain new standards, amendments, and
interpretations to existing standards have been published but are
not yet effective, and have not been adopted early by the
Company.
Management anticipates that all of the relevant
pronouncements will be adopted in the Company's accounting policy
for the first period beginning after the effective date of the
pronouncement. Information on new standards, amendments and
interpretations that are expected to be relevant to the Company's
financial statements is provided below. Certain other new
standards and interpretations have been issued but are not expected
to have a material impact on the Company's financial
statements.
IFRS 9 Financial Instruments
The IASB aims to replace IAS 39 Financial
Instruments: Recognition and Measurement in its entirety. The
replacement standard (IFRS 9) is being issued in phases. To
date, the chapters dealing with recognition, classification,
measurement and de-recognition of financial assets and liabilities
have been issued. These chapters are effective for annual
periods beginning on or after January 1,
2015. Further chapters dealing with impairment methodology
and hedge accounting are still being developed.
Management has yet to assess the impact that
this amendment is likely to have on the consolidated financial
statements of the Company. However, they do not expect to implement
the amendments until all chapters of IFRS 9 have been published and
they comprehensively assess the impact of all changes.
IFRS 10 Consolidated Financial
Statements
In May 2011, the
IASB issued IFRS 10 Consolidated Financial Statements, which
is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted.
IFRS 10 provides a single model to be applied in the control
analysis for all investees. The Company intends to adopt IFRS 10
for the annual period beginning on March 1,
2013. The extent of the impact of adoption of IFRS 10 is not
expected to be material.
IFRS 12 Disclosure of Interests in Other
Entities
In May 2011, the
IASB issued IFRS 12 Disclosure of Interest in Other
Entities, which is effective for annual periods beginning on or
after January 1, 2013, with early
adoption permitted. IFRS 12 contains disclosure requirements for
companies that have interests in subsidiaries, joint arrangements,
associates and unconsolidated structured entities. The Company
intends to adopt IFRS 12 for the annual period beginning on
March 1, 2013. The extent of the
impact of adoption of IFRS 12 is not expected to be material.
IFRS 13 Fair Value Measurement
In May 2011, the
IASB published IFRS 13 Fair Value Measurement, which is
effective prospectively for annual periods beginning on or after
January 1, 2013. IFRS 13 replaces the
fair value measurement guidance contained in individual IFRSs with
a single source of fair value measurement guidance. The standard
also establishes a framework for measuring fair value and sets out
disclosure requirements for fair value measurements. The Company
intends to adopt IFRS 13 prospectively for the annual period
beginning on March 1, 2013. The
extent of the impact of adoption of IFRS 13 is not expected to be
material.
IAS 1 Presentation of Financial
Statements
In June 2011, the
IASB published amendments to IAS 1 Presentation of Financial
Statements: Presentation of Items of Other Comprehensive
Income, which are effective for annual periods beginning on or
after July 1, 2012 and are to be
applied retrospectively. Early adoption is permitted. The
amendments require that a company present separately the items of
Other Comprehensive Income that may be reclassified to profit or
loss in the future from those that would never be reclassified to
profit or loss. The Company intends to adopt the amendments for the
annual period beginning on March 1,
2013. The extent of the impact of adoption of the amendments
is not expected to be material.
IAS 19 Employee Benefits
In June 2011, the
IASB published an amended version of IAS 19 Employee
Benefits. Adoption of the amendment is required for annual
periods beginning on or after January 1,
2013, with early adoption permitted. The amendment is
generally applied retrospectively with certain exceptions. The
amendment will require actuarial gains and losses to be recognized
immediately in other comprehensive income, past service costs to be
fully recognized immediately in profit or loss and the recognition
of expected return on plan assets in profit or loss to be
calculated based on the rate used to discount the defined benefit
obligation. The amendment also requires other additional
disclosures. The Company intends to adopt the amendment in its
financial statements for the annual period beginning on
March 1, 2013. Management has yet to
assess the impact of this amended standard.
Discussion of Results:
In Dainty Foods, net sales increased by
$1,318,000 (3.4%) to $40,529,000 for the period and decreased by
$1,580,000 (-10.6%) for
the quarter compared to last year while rice sales volumes
decreased by 0.1% for the period and by 14.5% for the quarter
compared to last year. The net sales increase compared to last year
is a result of increased sales to industrial customers. Costs
and expenses increased by $996,000
(2.5%) to $40,262,000 for the period
compared to last year. Costs and expenses decreased by
$1,116,000 (-7.6%) to $13,510,000 for the quarter compared to last
year. Profit before income taxes for the period increased by
$322,000 to $267,000 compared to last year and decreased by
$464,000 for the quarter compared to
last year.
The Company continues to pursue new value-added
retail products some of which will be outsourced. This outsourcing
will minimize capital investment while enhancing Dainty Foods'
offerings in the retail marketplace for both branded and private
label items. New selling relationships continue to be developed and
are intended to add strength to our retail sales efforts.
Dainty Foods International (DFI) continues to make inroads into the
US private label retail market.
Rice prices in the
United States have been stable during the last several
months due to weak export market performance notwithstanding an
overall reduction in planted acres for the 2012-2013 crop
year. The 2012 rice harvest exhibited average field yields
while milling yields are average to lower than average in some
areas. Generally, growers are not satisfied with current cash
market prices. More profitable corn, soybean and wheat crops may
lead growers to reduce rice acreage again next year. Dainty
will continue to watch the market carefully and make commitments to
rice at the appropriate times.
Aggressive pricing by American rice mills and
the weak US dollar have negatively impacted margins for rice flour
and bulk bagged food service products.
In Robert Reford, revenue decreased by
$617,000 (-14.5%) to $3,635,000 for the period and by $210,000 for the quarter compared to last
year.
Profit before income taxes for the period
decreased by $164,000 to $312,000 and by $64,000 compared to this quarter last year.
FY 2013 number of port calls were down compared
to last year. Industry volume on the west coast is
stable. Industry volume on the east coast is down
approximately 15% versus the same period last year due in part to
weakness in the European and Mediterranean economies.
Canadian grain exports and oil tanker imports have decreased.
As of March 1st,
2012, substantially all of the assets of MRRM (Canada) Inc. related to the ship agency's
business were transferred to Robert Reford Agency Inc., a
corporation incorporated under the Canada Business Corporations
Act on February 25, 2011, the
shares of which are wholly-owned by MRRM Inc.
Corporate Investments, portfolio
income is summarized as follows:
|
For the
period |
For the quarter |
|
2013 |
2012 |
2013 |
2012 |
Dividend and interest income |
$114,000 |
$117,000 |
$39,000 |
$39,000 |
Capital gains |
$359,000 |
$58,000 |
$326,000 |
$27,000 |
Unrealized change in Fair Value |
-$355,000 |
-$195,000 |
-$267,000 |
-$14,000 |
Totals: |
$118,000 |
-$20,000 |
$98,000 |
$52,000 |
During this quarter, global financial markets
declined, the loss in Fair Market Value is $355,000 for the period compared to $195,000 last year. The portfolio remains
conservatively invested and no significant policy changes are
foreseen. The Corporate Investments continue to be held with a long
term view.
Investment
Mix |
Nov 30,
2012
(2013.Q3) |
Aug 31,
2012
(2013.Q2) |
May 31,
2012
(2013.Q1) |
Feb 29,
2012
(2012.Q4) |
Nov 30,
2011
(2012.Q3) |
Cash &
Equivalents |
0.2% |
2.2% |
0.6% |
0.9% |
0.9% |
Bonds |
3.5% |
25.1% |
25.5% |
25.3% |
24.0% |
Preferred
Shares |
33.9% |
19.8% |
20.2% |
20.0% |
20.2% |
Canadian
Equities |
35.4% |
33.6% |
34.4% |
35.4% |
38.9% |
U.S. & Foreign
Equities |
27.0% |
19.3% |
19.3% |
18.4% |
16.0% |
The change in mix is a result of liquidating
part of the portfolio to fund the dividend declared and paid during
the quarter.
Certification
The Company's management, under the direction
and supervision of the Chief Executive Officer and Chief Financial
Officer, continually evaluates the effectiveness of the Company's
disclosure controls and procedures and has concluded that such
disclosure controls and procedures are effective.
The Company's management is also responsible for
establishing and maintaining internal controls over financial
reporting. These controls were designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with IFRS.
There have been no changes in the Company's
internal controls over financial reporting during this quarter that
have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting.
Outlook
Dainty Foods expects to continue to increase
retail volumes of value-added products to existing and new
customers in Canada and the
USA.
Increased competitive pressure in the flour
segment will continue to impact margins. New flour accounts are
partially offsetting the volume reductions incurred year to
date.
Loss of rice flour volume as well as continued
aggressive competitive pricing of bagged rice for the food service
market coupled with the weak American dollar will continue to
impact profitability this fiscal year.
In the Robert Reford business our joint
operating agreement with Norton
Lilly and Montship continues to be beneficial, however, the
weakness in the European and Mediterranean economies will continue
to negatively impact profit compared to last year.
While the Company is anticipating growth in food
processing and selling and maintaining a strong position within the
ship agency services business, growth will be impacted by several
factors including (i) the ability of the Company to secure rice at
competitive prices (ii) the rate of acceptance of new private label
products (iii) the ability within the marketplace to manage price
increases to cover increased costs (iv) the yield and quality of
rice supply and (v) general economic conditions.
Risks and Uncertainties
Overview
Management of risk includes properly
identifying, communicating and controlling the risks which may
cause a serious impact to the business. Management is confident
that the Company employs effective procedures to address all
material risks.
Detroit River International Crossing
Construction Impact:
June 15th, 2012,
Prime Minister Stephen Harper and
Michigan Governor Rick Snyder jointly announced the approval to
proceed with the construction of the Detroit River International
Crossing between Windsor and
Detroit.
Significant construction activities are expected
to continue on the property sites adjacent to the Dainty Foods
facility. Dainty Foods has completed infrastructure changes to the
facility to protect our food products from the possibility of
airborne contamination. These changes primarily include fine
particle filtration units and enclosing dock loading areas.
The company is continuing a negotiation process
with Transport Canada to recover the project costs. Capital costs
have been funded from the company's line of credit.
The following items were discussed in the
MD&A in the last Annual Report and remain principally
unchanged. Please refer to these documents for this
information.
|
Ability to Sustain Revenue
Ability to Address Cost and Expense Concerns
Economic Conditions
Environment |
For further information regarding financial risk
management, please refer to the Notes to the interim financial
statements.
On behalf of the Board
(signed) |
(signed) |
Nikola M. Reford |
Terry Henderson |
Chairman |
President & Chief Executive Officer |
Dated at Montreal (Westmount), Quebec, January 10, 2013
SOURCE MRRM Inc.