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, |
Aug 31, |
May 31, |
Feb 28, |
Nov 30, |
Aug 31, |
May 31, |
Feb 28, |
| (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 |
Nov 30, |
Aug 31, |
May 31, |
Feb 28, |
Nov 30, |
| 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.
Lou Younan, Vice-President Finance & CFO, MRRM Inc., (514) 908-7777, Fax: (514) 906-0220, [email protected]
Share this article