The following discussion and analysis should be read in
conjunction with the FY 2014 second 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,
Oct. 3, 2013 /CNW Telbec/ -
Consolidated Income And Comprehensive
Income and Equity
Revenues for the period (last year) were
$29,181,000 ($29,504,000) decreasing by $323,000 (-1.1%). As shown in the segmented
information, sales and income from operating activities amounted to
$29,127,000 ($29,484,000) being 99.8% (99.9%) of total
revenues. Income from corporate totaled $54,000 ($20,000).
Unrealized losses in fair market value of the portfolio amounted to
$40,000 compared to $87,000 last year. Operating Revenues decreased
by $357,000 (-1.2%) compared to last
year. Revenue from Corporate increased by $34,000; for details refer to Portfolio Income
Summary under Corporate.
Costs and expenses for the period (last
year) were $29,682,000 ($29,064,000), an increase of $618,000 (2.1%). Costs related to operating
activities, before exchange and interest, increased by $647,000 (2.2%). 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 loss of $75,000 compared to exchange gain of $70,000 last year, all included under cost of
sales. As disclosed in the Notes, the net exposures were as
follows: at August 31, 2013, US
($1,034,000); at August 31, 2012, US$3,664,000; at February
28, 2013, US ($312,000) and at
February 29, 2012, US$2,565,000.
The Company uses foreign exchange contracts to
manage foreign exchange exposure. At August 31, 2013, the Company had foreign exchange
contracts outstanding allowing the Company to buy USD $4,100,000 at an average rate of 1.0355. The
maturity dates of these contracts range from September 2013 to February
2014. The Company has recorded a current term asset on the
condensed consolidated statements of financial position under the
caption "derivative financial assets" in the amount of $83,000.
The Company is exposed to foreign currency risks
due to its import of bulk rice from the USA and overseas. These risks are partially
offset by sales in U.S. funds and by the purchase of forward
exchange contracts.
A 1% increase (decrease) in the U.S. exchange rate will increase
(decrease) profit by approximately $175,000 annually. The sensitivity analysis is
based on the Company's net foreign currency requirements and also
takes into account forward exchange contracts that offset effects
from changes in currency exchange rates.
Interest expensed on bank indebtedness amounted
to $35,000 for the period compared to
$45,000 last year for a decrease of
$10,000.
Profit (loss) before income taxes for the
period (last year) was -$501,000
($440,000), a decrease of
$941,000. Profit (loss) from
operating activities for the period (last year) was -$469,000 ($532,000), a decrease of $1,001,000. Loss from corporate for the period
(last year) was -$32,000
(-$92,000), an improvement of
$60,000.
Income taxes for the period (last year)
were -$161,000 ($93,000). Details of the income tax components
are presented in the Notes to the financial statements.
Profit (loss) for the period (last year)
was -$340,000 ($347,000) or -$0.13 ($0.14) 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 |
Aug 31,
2013
(2014.Q2) |
May 31,
2013
(2014.Q1) |
Feb 28,
2013
(2013.Q4) |
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) |
(Expressed in thousands, except
for amounts per share - unaudited) |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
Revenues |
14,864 |
14,317 |
14,671 |
14,778 |
14,801 |
14,703 |
16,014 |
16,522 |
Profit (loss) |
-60 |
-280 |
367 |
86 |
271 |
76 |
510 |
407 |
Profit (loss) per share |
-0.02 |
-0.11 |
0.15 |
0.03 |
0.11 |
0.03 |
0.20 |
0.16 |
Dividends per share |
0.00 |
0.00 |
0.00 |
0.80 |
0.00 |
0.00 |
0.00 |
0.50 |
Revenues for this quarter (last year)
were $14,864,000 ($14,801,000), an increase of $63,000 (0.4%). Revenue from operating activities
amounted to $14,847,000 ($14,694,000) being 99.9% (99.3%) of total
revenues. Income from corporate totaled $17,000 ($107,000).
Operating revenues for this quarter increased by $153,000 (1.0%) compared to this quarter last
year. Revenue from Corporate decreased by $90,000.
Costs and expenses for this quarter (last
year) were $14,959,000 ($14,472,000), an increase of $487,000 (3.4%). Costs related to operating
activities, before exchange and interest, increased by $492,000 (3.4%).
Included in the financial results for this
quarter (last year) are investment tax credits of $62,000 ($38,000).
Interest expense for this quarter (last year)
was $20,000 ($14,000) and was $15,000 in 2014.Q1.
Profit (loss) before income taxes for
this quarter (last year) was -$95,000
($329,000), a decrease of
$424,000. Profit (loss) from
operating activities were -$74,000
($275,000), a decrease of
$349,000 and corporate were
-$21,000 ($54,000), a decrease of $75,000.
Income taxes for this quarter (last year)
were -$35,000 ($58,000). The effective tax rates are presented
in the Notes to the financial statements.
Profit (loss) for this quarter (last
year) was -$60,000 ($271,000) or -$0.02 ($0.11) per
share.
Consolidated Cash Flows, Liquidity and
Financial Position
In investing activities, the Company
added $832,000 of net property, plant
and equipment compared to $846,000
last year.
Available credit facilities
The credit facility available and reported at
last year-end remains unchanged. The facility is comprised of a
revolving line of credit for $7,000,000
CDN {or its US equivalent}. The Company may also take
advantage of Bankers Acceptances. The financial covenants and
arrangements relating to financing facility are detailed in the
Notes to the audited consolidated financial statements. These
covenants are being respected and have been met.
Trade receivables increased by
$1,011,000 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 increased by $1,072,000 (14.8%) and overall volumes of rice
increased by (13.6%).
Marketable securities - see table of
Investment Mix in discussion of results.
Property, plant and equipment increased
by $33,000 comprised of additions of
$832,000 and amortization of
$799,000.
Bank indebtedness was $2,377,000 compared to $804,000 at last year-end.
Trade and other payables increased by
$1,697,000 mainly due to amounts due
related to the agency business and timing on rice purchases.
Deferred taxes, net liability, decreased
by $109,000.
Total equity decreased by $283,000 to $17,348,000 from $17,631,000 and represents $6.84 ($6.96) 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
Cash Flows, Liquidity and Financial Position
by operating segment
Food processing and selling
Trade receivables increased by $824,000 compared to last fiscal year-end.
Account balances are substantially current, there are no
anticipated serious collection issues and any potential bad debts
have been provided for in the accounts.
Inventories increased by $1,072,000 (14.8%) and overall volumes of rice
increased by (13.6%).
Property, plant and equipment increased
by $33,000 comprised of additions of
$832,000 and amortization of
$799,000.
Bank indebtedness was $3,308,000 compared to $1,086,000 at last year-end.
Trade and other payables increased by
$540,000 mainly due to timing on rice
purchases.
Deferred taxes, net liability, decreased
by $96,000.
Ship agency services
Trade receivables increased by $187,000 compared to last fiscal year-end.
Account balances are substantially current, there are no
anticipated serious collection issues and any potential bad debts
have been provided for in the accounts.
Bank position was $3,586,000 compared to $3,672,000 at last year-end.
Trade and other payables increased by
$1,166,000 due to amounts due related
to the agency business.
Corporate
Bank indebtedness was $2,655,000 compared to $3,390,000 at last year-end.
Portfolio was $3,329,000 compared to $3,288,000 at last year-end.
Deferred taxes, net liability, decreased
by $13,000.
Trade and other payables decreased by
$9,000.
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 28, 2013. An extract of these
policies as well as new accounting policies adopted during the
period, is set out in the notes to the quarterly consolidated
financial statements.
Future Accounting Changes:
At the date of authorization of the Company's
consolidated 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 by the Company 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.
Discussion of Results:
In Food processing and selling, net sales
decreased by $247,000 (-0.9%) to
$26,905,000 for the period and
increased by $283,000 (2.1%) for the
quarter compared to last year while rice sales volumes
decreased by -4.7% for the period and by -.2% for the quarter
compared to last year. The net sales decrease compared to last year
is a result of decreased sales to industrial customers. Costs
and expenses increased by $619,000
(2.3%) to $27,371,000 for the period
compared to last year. Costs and expenses increased by
$512,000 (3.8%) to $13,845,000 for the quarter compared to last
year. Profit before income taxes for the period decreased by
$866,000 to -$466,000 compared to last year and by
$229,000 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. The Company installed packaging equipment during the
first quarter of this fiscal year to reduce the dependence on
outsourcing certain products. 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 retail market.
Rice harvest in the USA at September
15th is well behind last year with 35% of planted acres
harvested versus 61% one year ago. Arkansas has harvested 28% of planted acreage
versus 70% one year ago.
However quality ratings are above the previous
four years which bodes well for field and milling yields. Field
yields are projected to be a record 7,511 pounds per acre, less
than 1% higher than last year. Milling yields based on early
harvests are expected to be 5% better than last year and 4% better
than the average of the last three years.
The total USA
rice crop is projected to be 185.1 million cwt, 7% less than last
year. A 12% reduction in long grain production is offset by a 6%
increase in medium grain production. This is the second smallest
long grain crop since the 1997/98 crop year.
Total planted acreage is 2.49 million acres, 8%
less than last year and the smallest planted acreage since 1987/88.
Arkansas, the largest rice growing
state, bore the brunt of grower conversions to more profitable corn
and soybeans, with a planted acreage decline of 17% versus last
year, the lowest since the 1987/88 crop year.
Meanwhile the two year rice cost differential
between the Western Hemisphere and Asia continues. The cost of long grain milled
rice in Vietnam and Pakistan is 55% of that in the USA and South
America, while the cost of Thai long grain milled rice has
dropped to 67% of that in the Western Hemisphere as the
government's grower price support plan crumbles in the face of high
inventories.
The USA is
likely to lose market share in the Middle
East and Sub-Saharan Africa to the lower priced Asian
suppliers in 2013/14. Total USA
exports are forecasted to be down 8.5% versus last year.
Approximately 40% of Dainty's rice puchases are
for long grain rice. The sum of the market factors place
upward pressure on this rice segment. We expect long grain
prices to stay firm throughout the 2013/14 crop year. Given
good milling yields in the industry the cost of broken rices for
flour is expected to rise.
Dainty Foods will continue to monitor the rice
market daily and make purchase commitments as appropriate. The CDN
dollar has weakened during the first half of the year and has
negatively impacted margins. Market predictions indicate that
this trend will continue through the fiscal year.
In Ship agency services, revenue
decreased by $110,000 (-4.7%) to
$2,222,000 for the period and by
$130,000 for the quarter compared to
last year.
Profit before income taxes for the period
decreased by $135,000 to
-$3,000 and by $120,000 compared to this quarter last year.
The first half of the year was below
expectations due to reduced wheat exports from Vancouver versus last year and reduced exports
from the Great Lakes. The industry in general is under
pressure due to excess capacity as a result of decreased cargo
volume. We do not expect any improvement through the balance of the
year compared to last year.
Corporate, portfolio income is
summarized as follows:
|
For the period |
For the quarter |
|
2014 |
2013 |
2014 |
2013 |
Dividend and interest income |
$39,000 |
$75,000 |
$19,000 |
$41,000 |
Capital gains |
$55,000 |
$32,000 |
$44,000 |
$29,000 |
Unrealized change in Fair Value |
-$40,000 |
-$87,000 |
-$46,000 |
$37,000 |
Totals: |
$54,000 |
$20,000 |
$17,000 |
$107,000 |
During this quarter, global financial markets
declined, the loss in Fair Market Value is $40,000 for the period compared to $87,000 last year. The portfolio remains
conservatively invested and no significant policy changes are
foreseen.
Investment
Mix |
Aug 31,
2013
(2014.Q2) |
May 31,
2013
(2014.Q1) |
Feb 28,
2013
(2013.Q4) |
Nov 30,
2012
(2013.Q3) |
Aug 31,
2012
(2013.Q2) |
Cash & Equivalents |
4.2% |
2.8% |
1.0% |
0.2% |
2.2% |
Fixed income & Preferred Shares |
31.7% |
33.3% |
35.3% |
37.4% |
44.9% |
Equities |
64.1% |
63.9% |
63.7% |
62.4% |
52.9% |
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 are 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.
The consolidation of the Canadian retail market
and competition for finite retail shelf space continues to
challenge profitability in the food processing segment.
Increased rice cost as well as the weakening CDN
dollar have negatively impacted margins. Market forecasts
indicate that these trends will continue through the fiscal
year.
In the Shipping Agency services, our joint
operating agreement with Norton
Lilly and Montship continues to be beneficial, however,
weaknesses in the U.S. Exports and European and Mediterranean
economies will 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) acceptance of new products (iii) the
ability within the marketplace to manage price increases to cover
increased costs (iv) the yield and quality of rice supply (v)
foreign exchange fluctuations and (vi) 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:
Significant construction activities are expected
to continue on the property sites adjacent to the Dainty Foods
facility in Windsor, Ontario.
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. The Canadian federal government reimbursed
1.6 million dollars of the
2.9 million dollar investment.
The company has initiated discussions with the
Ontario Ministry of Transport to recover the balance of the capital
costs, however the outcome of these discussions is uncertain at
this time.
Other
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)
Nikola M. Reford
Chairman |
|
(Signed)
Terry Henderson
President & Chief Executive Officer |
Dated at Montreal (Westmount), Quebec, October
3, 2013.
SOURCE MRRM Inc.