The following discussion and analysis should be read in conjunction with the FY 2015 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.
MONTRÉAL, Oct. 2, 2014 /CNW Telbec/ -
Consolidated Income And Comprehensive Income and Equity
Revenues for the period (last year) were $34,738,000 ($29,181,000) increasing by $5,557,000 (19.0%). As shown in the segmented information, sales and income from operating activities amounted to $34,497,000 ($29,127,000) being 99.3% (99.8%) of total revenues. Income from corporate totalled $241,000 ($54,000). Unrealized gains in fair market value of the portfolio amounted to $140,000 compared to unrealized loss of $40,000 last year. Operating Revenues increased by $5,370,000 (18.4%) compared to last year. Revenue from Corporate increased by $187,000; for details refer to Portfolio Income Summary under Corporate.
Costs and expenses for the period (last year) were $34,270,000 ($29,682,000), an increase of $4,588,000 (15.5%). Costs related to operating activities, before exchange and interest, increased by $4,410,000 (14.9%). Expenses related to corporate increased by $168,000.
Operating results are discussed later on in this report.
The impact of the fluctuating Canadian dollar resulted in a total currency exchange gain of $149,000 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 August 31, 2014, US$288,000 net assets and at August 31, 2013, US($1,034,000) net liabilities; 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 August 31, 2014, the Company had foreign exchange contracts outstanding allowing the Company to buy USD $5,000,000 at an average rate of 1.1181. The maturity dates of these contracts range from September 2014 to January 2015. The Company has recorded a current term liability on the condensed consolidated statements of financial position under the caption "derivative financial liabilities" in the amount of $142,000.
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 may affect profit by approximately $50,000 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 $45,000 for the period compared to $35,000 last year for an increase of $10,000.
Profit -loss before income taxes for the period (last year) was $468,000 (-$501,000), an increase of $969,000. Profit -loss from operating activities for the period (last year) was $480,000 (-$469,000), an increase of $949,000. Profit -loss from corporate for the period (last year) was -$12,000 (-$32,000), an improvement of $20,000.
Income taxes for the period (last year) were $75,000 (-$161,000). Details of the income tax components are presented in the Notes to the financial statements.
Profit -loss for the period (last year) was $393,000 (-$340,000) or $0.15 (-$0.13) 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, 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) |
Nov 30, |
| (Expressed in thousands, except for amounts per share - unaudited) |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
| Revenues |
17,502 |
17,236 |
15,955 |
16,481 |
14,864 |
14,317 |
14,671 |
14,778 |
| Profit -loss |
316 |
77 |
-42 |
193 |
-60 |
-280 |
367 |
86 |
| Profit -loss per share |
0.12 |
0.03 |
-0.01 |
0.07 |
-0.02 |
-0.11 |
0.15 |
0.03 |
| Dividends per share |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.80 |
Revenues for this quarter (last year) were $17,502,000 ($14,864,000), an increase of $2,638,000 (17.7%). Revenue from operating activities amounted to $17,384,000 ($14,847,000) being 99.3% (99.9%) of total revenues. Income from corporate totaled $118,000 ($17,000). Operating revenues for this quarter increased by $2,537,000 (17.1%) compared to this quarter last year. Revenue from Corporate increased by $101,000.
Costs and expenses for this quarter (last year) were $17,106,000 ($14,959,000), an increase of $2,147,000 (14.4%). Costs related to operating activities, before exchange and interest, increased by $2,027,000 (13.6%).
Interest expense for this quarter (last year) was $13,000 ($20,000).
Profit -loss before income taxes for this quarter (last year) was $396,000 (-$95,000), an increase of $491,000. Profit -loss from operating activities were $441,000 (-$74,000), an increase of $515,000 and corporate were -$45,000 (-$21,000), for a variation of -$24,000.
Income taxes for this quarter (last year) were $80,000 (-$35,000). The effective tax rates are presented in the Notes to the financial statements.
Profit -loss for this quarter (last year) was $316,000 (-$60,000) or $0.12 (-$0.02) per share.
Consolidated Cash Flows, Liquidity and Financial Position
In investing activities, the Company added $2,000 of net property, plant and equipment compared to $832,000 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 $535,000 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 $178,000 (-2.1%) and overall volumes of rice decreased by 4.6%.
Marketable securities – see table of Investment Mix in discussion of results.
Property, plant and equipment decreased by $892,000 comprised of additions of $2,000 and amortization of $894,000.
Bank indebtedness was $2,096,000 compared to $3,551,000 at last year-end.
Trade and other payables decreased by $608,000 mainly due to timing on rice purchases and partly offset by amounts related to the agency business.
Deferred taxes, net liability, decreased by $145,000.
Total equity increased by $65,000 to $17,724,000 from $17,659,000 and represents $6.99 ($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 $458,000 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 $178,000 (-2.1%) and overall volumes of rice decreased by 4.6%.
Property, plant and equipment decreased by $892,000 comprised of additions of $2,000 and amortization of $894,000.
Bank indebtedness was $3,709,000 compared to $3,886,000 at last year-end.
Trade and other payables decreased by $1,998,000 mainly due to timing on rice purchases.
Deferred taxes, net liability, decreased by $108,000.
Ship agency services
Trade receivables decreased by $77,000 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 $3,421,000 compared to $3,119,000 at previous fiscal year-end.
Trade and other payables increased by $1,428,000 due to the timing of payment of disbursements on behalf of ship owners.
Corporate
Bank indebtedness was $1,808,000 compared to $2,784,000 at last year-end.
Portfolio was $3,886,000 compared to $3,656,000 at last year-end.
Deferred taxes, net liability, decreased by $37,000.
Trade and other payables decreased by $38,000.
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
In November 2009, the IASB published the new standard IFRS 9 which will replace IAS 39 Financial Instruments: Recognition and Measurement. The standard provides guidance on the classification and measurement of financial instruments. In October 2010, the IASB amended IFRS 9 to add guidance on the classification and measurement of financial liabilities and requirements about the derecognition of financial assets and financial liabilities. In November 2013, the IASB published the section dealing with hedge accounting.
In November 2011, the IASB decided to consider making limited amendments to the financial asset classification model of IFRS 9 to address application issues. Additionally, in November 2013, the IASB decided to postpone application of IFRS 9 to an undetermined date. The Company's management has not yet determined the impact this new standard will have on its combined financial statements. Management does not plan on adopting IFRS 9 before the standard has been finalized and it can determine all of the impacts of these changes.
Discussion of Results:
In Food processing and selling, net sales increased by $5,144,000 (19.1%) to $32,049,000 for the period and increased by $2,403,000 (17.5%) 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 $4,251,000 (15.5%) to $31,621,000 for the period compared to last year. Costs and expenses increased by $1,889,000 (13.6%) to $15,734,000 for the quarter compared to last year. Profit before income taxes for the period increased by $893,000 to $427,000 compared to last year and by $514,000 for the quarter compared to last year.
The Company continues to pursue new value-added retail products. The Company installed packaging equipment during the first quarter of last fiscal year to reduce the dependence on outsourcing certain products. Dainty Foods International (DFI) continues to make inroads into the US retail market.
The CDN dollar weakened during FY 2014 and negatively impacted margins. Market forecasts indicate that the CDN dollar will continue to trade below par.
Rice Market
A number of conflicting variables are at work in the USA rice market. The annual rice harvest is underway in the United States. Harvest is largely complete in Texas and Louisiana. Arkansas, which has the largest rice acreage of the six rice-producing states, has fallen well below the five year average for harvested acres at September 14th due to wet weather. Harvest will not be complete until approximately November 10th. This prompted the University of Arkansas to express concern that the late harvest may affect field yields and the quality of the crop.
The 2014/15 long grain crop is expected to be the largest since 2010. However the latest USDA Supply Report states that long grain production is down 6.6% compared to earlier reports. Beginning rice inventories have also been revised downward.
The American rice export market has experienced decline during the last few years. A drop of 16.6% in export tonnage occurred during the last one year period ending July, 2014 versus the prior year. Exports are predicted to increase but the United States will have to be price competitive with the world market.
The picture is unfolding month by month. The net result of all variables leads to a conclusion that long grain prices will soften through the fall period compared to the last several months. By-product for flour production continues at a high cost, due to lower milling volumes in the United States.
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 24% lower than the previous year. Prices for milled rice and by-products for flour production will remain high in California.
Dainty monitors the rice market daily and will continue to commit to purchases at appropriate times.
In Ship agency services, revenue increased by $226,000 (10.2%) to $2,448,000 for the period and by $134,000 for the quarter compared to last year.
Profit -loss before income taxes for the period was $53,000 compared to -$3,000 last year and was $65,000 for the quarter compared to $64,000 last year.
Volumes on the East Coast have improved however the Great Lakes have not reached expectations due to lower cargo volumes. Excess capacity of cargo ships is exerting pressure on agents to reduce rates.
Corporate, portfolio income is summarized as follows:
| For the period |
For the quarter |
|||
| 2015 |
2014 |
2015 |
2014 |
|
| Dividend and interest income |
$54,000 |
$39,000 |
$29,000 |
$19,000 |
| Capital gains |
$47,000 |
$55,000 |
$31,000 |
$44,000 |
| Unrealized change in Fair Value |
$140,000 |
-$40,000 |
$58,000 |
-$46,000 |
| Totals: |
$241,000 |
$54,000 |
$118,000 |
$17,000 |
During this quarter, global financial markets improved, the gain in Fair Market Value is $140,000 for the period compared to a loss of $40,000 last year. The portfolio remains conservatively invested and no significant policy changes are foreseen.
| Investment Mix |
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) |
| Cash & Equivalents |
1.4% |
1.7% |
3.2% |
2.7% |
4.2% |
| Fixed income & Preferred Shares |
30.7% |
30.5% |
28.7% |
30.2% |
31.7% |
| Equities |
67.9% |
67.8% |
68.1% |
67.1% |
64.1% |
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
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.
The CDN dollar weakened during FY 2014 and negatively impacted margins. Market forecasts indicate that the CDN dollar will continue to trade below par.
A major industrial milled rice customer announced December 2013 the closure of their Ontario facility by the end of 2014. Dainty Foods' shipments to this location ceased in September 2014. The company plans to offset the lost contribution of $1,000,000 with cost reduction measures.
In the Shipping Agency services, our joint operating agreement with Norton Lilly and Montship continues to be beneficial.
The past year has been fraught with significant challenges and a number of these challenges will persist throughout the current fiscal year. We are anticipating improvement in net earnings for both Robert Reford and Dainty Foods versus FY2014.
While the Company is striving to improve margins in 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
Further to the Board appointing a Strategic Review committee to oversee a strategic review by outside advisers of the Company's business late last year, a second firm was engaged for an deeper analysis into the business operations. A second phase of deeper analysis embarked upon in July 2014, remains ongoing at this time. The deeper analysis into the business operations remains 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 Board of Directors concludes 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.
The company continues its discussions with the Ontario Government 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
| Nikola M. Reford |
Terry Henderson |
| Chairman |
President & Chief Executive Officer |
Dated at Montreal (Westmount), Quebec, October 2, 2014.
SOURCE: MRRM Inc.
Lou Younan, Vice-President Finance & CFO, MRRM Inc., (514) 908-7777, Fax: (514) 906-0220, [email protected]
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