The following discussion and analysis should be read in
conjunction with the FY 2015 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. 8, 2015 /CNW Telbec/ -
Consolidated Income And Comprehensive Income and
Equity
Revenues for the period (last year) were $48,317,000 ($45,662,000) increasing by $2,655,000 (5.8%). As shown in the segmented
information, sales and income from operating activities amounted to
$48,005,000 ($45,401,000) being 99.4% (99.4%) of total
revenues. Income from corporate totalled $312,000 ($261,000). Unrealized gains in fair market value
of the portfolio amounted to $224,000
and $149,000 last year. Operating
Revenues increased by $2,604,000
(5.7%) compared to last year. Revenue from Corporate increased by
$51,000; for details refer to
Portfolio Income Summary under Corporate.
Costs and expenses for the period (last year) were
$47,904,000 ($45,949,000), an increase of $1,955,000 (4.3%). Costs related to operating
activities, before exchange and interest, increased by $1,724,000 (3.8%). Expenses related to corporate
increased by $224,000.
Operating results are discussed later on in this report.
The impact of the fluctuating Canadian dollar resulted in a
total currency exchange gain of $91,000 compared to a loss of $43,000 last year, all included under cost of
sales. As disclosed in the Notes, the net exposures were as
follows: at November 30, 2014,
US$4,385,000 net assets and at
November 30, 2013, US$2,317,000 net assets; at February 28, 2014, US$507,000 net assets and at February 28, 2013, US($312,000) net
liabilities.
The Company uses foreign exchange contracts to manage foreign
exchange exposure. At November 30,
2014, the Company had foreign exchange contracts outstanding
allowing the Company to buy USD $2,000,000 at an average rate of 1.1192. The
maturity dates of these contracts are December 2014 and January
2015. 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 $52,000.
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. 1%
increase (decrease) in the U.S. exchange rate may affect profit by
approximately $150,000 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 expense on bank indebtedness amounted to $65,000 for the period compared to $59,000 last year for an increase of $6,000.
Profit -loss before income taxes for the period (last
year) was $413,000 (-$287,000), an increase of $700,000. Profit -loss from operating activities
for the period (last year) was $476,000 (-$397,000), an increase of $873,000. Profit -loss from corporate for the
period (last year) was -$63,000
($110,000), a decrease of
$173,000.
Income taxes (recovery) for the period (last year)
were $55,000 (-$140,000). Details of the income tax components
are presented in the Notes to the financial statements.
Profit -loss for the period (last year) was $358,000 (-$147,000) or $0.14
(-$0.06) 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,
2014(2015.Q3)
|
Aug 31,
2014(2015.Q2)
|
May 31,
2014(2015.Q1)
|
Feb 28,
2014(2014.Q4)
|
Nov 30,
2013(2014.Q3)
|
Aug 31,
2013 (2014.Q2)
|
May 31,
2013 (2014.Q1)
|
Feb 28,
2013 2013.Q4)
|
(Expressed in
thousands, except for amounts per share - unaudited)
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
$
|
Revenues
|
13,579
|
17,502
|
17,236
|
15,955
|
16,481
|
14,864
|
14,317
|
14,671
|
Profit -loss
|
-35
|
316
|
77
|
-42
|
193
|
-60
|
-280
|
367
|
Profit -loss per
share
|
-0.01
|
0.12
|
0.03
|
-0.01
|
0.07
|
-0.02
|
-0.11
|
0.15
|
Dividends per
share
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
Revenues for this quarter (last year) were $13,579,000 ($16,481,000), a decrease of $2,902,000 (-17.6%). Revenue from operating
activities amounted to $13,508,000
($16,274,000) being 99.5% (98.7%) of
total revenues. Income from corporate totaled $71,000 ($207,000). Operating revenues for
this quarter decreased by $2,766,000 (-17.0%) compared to this quarter last
year. Revenue from Corporate decreased by $136,000.
Costs and expenses for this quarter (last year) were
$13,634,000 ($16,267,000), a decrease of $2,633,000 (-16.2%). Costs related to operating
activities, before exchange and interest, decreased by $2,686,000 (-16.6%).
Interest expense for this quarter (last year) was
$20,000 ($24,000).
Profit -loss before income taxes for this quarter (last
year) was -$55,000 ($214,000), a decrease of $269,000. Profit -loss from operating activities
were -$5,000 ($72,000), a decrease of $77,000 and corporate was -$50,000 ($142,000),
a decrease of $192,000.
Income taxes expense/-recovery for this quarter (last
year) were -$20,000 ($21,000). The effective tax rates are presented
in the Notes to the financial statements.
Profit -loss for this quarter (last year) was
-$35,000 ($193,000) or -$0.01 ($0.07) per
share.
Consolidated Cash Flows, Liquidity and Financial
Position
In investing activities, the Company added $138,000 of net property, plant and equipment
compared to $1,300,000 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 of up to $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 decreased by $782,000 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 $1,180,000 (-13.6%) and overall volumes of rice
decreased by 34.1%.
Marketable securities – see table of Investment Mix in
discussion of results.
Property, plant and equipment decreased by $1,202,000 comprised of additions of $138,000 and amortization of $1,340,000.
Bank indebtedness was $1,984,000 compared to
$3,551,000 at last
year-end.
Trade and other payables decreased by $1,351,000 mainly due to timing on rice purchases
and by amounts related to the agency business.
Deferred taxes, net liability, decreased by $167,000.
Total equity increased by $171,000 to $17,830,000 from $17,659,000 and represents $7.03 ($6.97) 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
decreased by $1,648,000 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 decreased by $1,180,000 (-13.6%) and overall volumes of rice
decreased by 34.1%.
Property, plant and equipment decreased by $1,202,000 comprised of additions of $138,000 and amortization of $1,340,000.
Bank indebtedness was $2,601,000 compared to
$3,886,000 at last
year-end.
Trade and other payables decreased by $2,651,000 mainly due to timing on rice
purchases.
Deferred taxes, net liability, decreased by $106,000.
Ship agency services
Trade receivables
increased by $866,000 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 $2,557,000 compared to
$3,119,000 at previous fiscal
year-end.
Trade and other payables increased by $1,318,000 due to the timing of payment of
disbursements on behalf of ship owners.
Corporate
Bank indebtedness
was $1,940,000 compared to $2,784,000 at last year-end.
Portfolio was $3,951,000 compared to $3,656,000 at last year-end.
Deferred taxes, net liability, decreased by $61,000.
Trade and other payables decreased by $18,000.
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, 2014. 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.
Accounting Standards
Standards, amendments and interpretations to existing
standards that are not yet effective and have not been adopted
early by the Company
At the date of authorization of these 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 in the Company's accounting policies 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 consolidated financial statements.
IFRS 9 Financial Instruments (2014)
The IASB recently released IFRS 9 'Financial Instruments'
(2014), representing the completion of its project to replace IAS
39 'Financial Instruments: Recognition and Measurement'. The new
standard introduces extensive changes to IAS 39's guidance on the
classification and measurement of financial assets and introduces a
new 'expected credit loss' model for the impairment of financial
assets. IFRS 9 also provides new guidance on the application of
hedge accounting.
The Company's management have yet to assess the impact of IFRS 9
on these consolidated financial statements. The new standard is
required to be applied for annual reporting periods beginning on or
after January 1, 2018.
Discussion of Results:
In Food processing and selling, net sales increased by
$2,184,000 (5.2%) to $44,057,000 for the period and decreased by
$2,959,000 (-19.8%) for the quarter
compared to last year. The net sales increase compared to last year
is a result of increased sales to industrial and retail
customers. Costs and expenses increased by $1,376,000 (3.2%) to $43,797,000 for the period compared to last year.
Costs and expenses decreased by $2,874,000 (-19.1%) to $12,177,000 for the quarter compared to last
year. Profit before income taxes for the period increased by
$808,000 to $260,000 compared to last year and decreased by
$85,000 for the quarter compared to
last year.
Rice Market
The American export market received a boost during late November
from a significant sale to the Iraqi Grain Board. This will keep
many mills busy into late January. However there is still an uphill
battle to recover the export markets to historical levels.
The lack of consistent success in the export market has an
effect on Dainty's costs. The short term outlook for the cost of
by-product into the new year is not promising as key American long
grain export tenders have not been successful to date other than
the Iraqi Grain Board tender.
Dainty had long term favourable contracts for by-products which
exhausted in October, 2014 so our cost will rise at a time when
other flour mills are reducing their pricing. Increased milling
tonnage in the United States
driven by improvement in the export market is required to force a
reduction in by-product cost. Demand for a rice flour component for
gluten-free diets continues to rise, increasing the demand for rice
by-products.
Meanwhile the cost of long grain rice has softened, due to the
low milling volumes and higher planted acres in this new marketing
year. Dainty will benefit from lower costs as we proceed into
FY2016.
A State of Emergency due to drought was declared in California during January, 2014. Rice acreage
for the 2014/15 crop is estimated to be 25% lower than the previous
year. Prices for milled rice and by-products for flour production
will remain high in California. We
also experienced significant increases in wild rice pricing due to
the Californian drought conditions.
Asian sources of Basmati and Jasmine rices have softened as
shipments of their new crop began in December, 2014. This will also
be a benefit to Dainty as we enter the new fiscal year.
This is anticipated to be a market that will require shorter
term buying patterns going forward into FY2016.
In Ship agency services, revenue increased by
$420,000 (11.9%) to $3,948,000 for the period and by $193,000 for the quarter compared to last
year.
Profit -loss before income taxes for the period was $216,000 compared to $151,000 last year and was $163,000 for the quarter compared to $155,000 last year.
The Ship Agency services had a strong 3rd quarter based mainly
on increased volumes in grain shipments as well as unexpected surge
in traffic on The Great Lakes. However, as excess capacity of cargo
ships remains, ships owners continue to exert pressure on agents to
reduce rates on certain cargo.
Corporate, portfolio income is summarized as
follows:
|
For the
period
|
For the
quarter
|
|
2015
|
2014
|
2015
|
2014
|
Dividend and interest
income
|
$79,000
|
$64,000
|
$25,000
|
$25,000
|
Capital
gains
|
$9,000
|
$48,000
|
-$38,000
|
-$7,000
|
Unrealized change in
Fair Value
|
$224,000
|
$149,000
|
$84,000
|
$189,000
|
Totals:
|
$312,000
|
$261,000
|
$71,000
|
$207,000
|
During this quarter, global financial markets improved, the gain
in Fair Market Value is $224,000 for
the period and $149,000 last year.
The portfolio remains conservatively invested and no significant
policy changes are foreseen.
Investment
Mix
|
Nov 30,
2014 (2015.Q3)
|
Aug
31, 2014 (2015.Q2)
|
May
31, 2014 (2015.Q1)
|
Feb
28, 2014 (2014.Q4)
|
Nov
30, 2013 (2014.Q3)
|
Cash &
Equivalents
|
4.5%
|
1.4%
|
1.7%
|
3.2%
|
2.7%
|
Fixed income &
Preferred Shares
|
30.6%
|
30.7%
|
30.5%
|
28.7%
|
30.2%
|
Equities
|
64.9%
|
67.9%
|
67.8%
|
68.1%
|
67.1%
|
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
The consolidation of the Canadian retail market and competition
for finite retail shelf space continues to challenge profitability
in the food processing segment.
Dainty Foods expects to continue to increase retail volumes of
value-added products to existing and new customers in Canada and the USA.
The CDN dollar continues to weaken and negatively impacts
margins. Market forecasts indicate that the CDN dollar will
continue to trade below par.
A major industrial milled rice customer closed their
Ontario facility in December
2014. Dainty Foods' shipments to this location ceased in
September 2014. The company has largely offset the lost
contribution with cost reduction measures. A large industrial
flour customer has not renewed its contract with the company past
December 2014 for the coming
year. This will challenge the ability to return to
profitability until new business is obtained.
In the Shipping Agency services, our joint operating agreement
with Norton Lilly and Montship
continues to be beneficial.
While the Company is striving to improve margins in the food
processing and selling segment 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.
Strategic Review Update
As previously reported a Strategic Review committee of the Board
engaged outside advisors to do some analysis of the Company's
business operations focused on identifying opportunities for
enhanced profitability or new profitable growth within the
business, in order to ultimately enhance long-term shareholder
value, and to provide the business operations with additional
strategic insights. The final phases explored the Dainty operations
exclusively and the mandate has now concluded with final
conclusions recently shared with the Board. The process was
positive in terms of perspectives gained through analysis of
internal and external data, and due to its interactive nature with
management, implementation of a number of recommendations commenced
prior to conclusion of the mandate. The outcome of this process
will help shape the evolving strategic plan for the Company.
The Board of Directors maintains that the most effective method
of enhancing shareholder value at the Company is to commit the
Company's management and financial resources to improving the
long-term profitability and sustainability of the Dainty
business.
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.
Discussions with the Ontario Government to directly recover the
balance of these capital costs have not been successful. The
company is currently in discussion with the Ontario Ministry of
Agriculture and Foods to explore other avenues of funding through
the normal course of business.
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
Nikola M.
Reford
|
Terry
Henderson
|
Chairman
|
President
& Chief Executive Officer
|
Dated at Montreal
(Westmount), Quebec, January 8, 2015.
|
SOURCE MRRM Inc.