The following discussion and analysis should be read in
conjunction with the FY 2014 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. 9, 2014 /CNW Telbec/ -
Consolidated Income And Comprehensive Income and Equity
Revenues for the period (last year) were
$45,662,000 ($44,282,000) increasing by $1,380,000 (3.1%). As shown in the segmented
information, sales and income from operating activities amounted to
$45,401,000 ($44,164,000) being 99.4% (99.7%) of total
revenues. Income from corporate totaled $261,000 ($118,000). Unrealized gains in fair market value
of the portfolio amounted to $149,000
compared to unrealized losses of $355,000 last year. Operating Revenues increased
by $1,237,000 (2.8%) compared to last
year. Revenue from Corporate increased by $143,000; for details refer to Portfolio Income
Summary under Corporate.
Costs and expenses for the period (last
year) were $45,949,000 ($43,741,000), an increase of $2,208,000 (5.0%). Costs related to
operating activities, before exchange and interest, increased by
$2,204,000 (5.1%). Expenses related
to corporate decreased by $3,000.
Operating results are discussed later on in this
report.
The impact of the fluctuating Canadian dollar
resulted in a total currency exchange loss of $43,000 compared to exchange gain of $40,000 last year, all included under cost of
sales. As disclosed in the Notes, the net exposures were as
follows: at November 30, 2013,
US$2,317,000; at November 30, 2012, US ($179,000); 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 November 30, 2013, the Company had foreign
exchange contracts outstanding allowing the Company to buy USD
$1,800,000 at an average rate of
1.0365. The maturity dates of these contracts range from
December 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 $49,000.
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 $59,000 for the period compared to
$61,000 last year for a decrease of
$2,000.
Profit (loss) before income taxes for the
period (last year) was -$287,000
($541,000), a decrease of
$828,000. Profit (loss) from
operating activities for the period (last year) was -$397,000 ($578,000), a decrease of $975,000. Profit (loss) from corporate for the
period (last year) was $110,000
(-$37,000), an increase of
$147,000.
Income taxes for the period (last year)
were -$140,000 ($108,000). Details of the income tax components
are presented in the Notes to the financial statements.
Profit (loss) for the period (last year)
was -$147,000 ($433,000) or -$0.06 ($0.17) 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,
2013
(2014.Q3) |
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) |
(Expressed in thousands,
except
for amounts per share - unaudited) |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
Revenues |
16,481 |
14,864 |
14,317 |
14,671 |
14,778 |
14,801 |
14,703 |
16,014 |
Profit (loss) |
193 |
-60 |
-280 |
367 |
86 |
271 |
76 |
510 |
Profit (loss) per share |
0.07 |
-0.02 |
-0.11 |
0.15 |
0.03 |
0.11 |
0.03 |
0.20 |
Dividends per share |
0.00 |
0.00 |
0.00 |
0.00 |
0.80 |
0.00 |
0.00 |
0.00 |
Revenues for this quarter (last year)
were $16,481,000 ($14,778,000), an increase of $1,703,000 (11.5%). Revenue from operating
activities amounted to $16,274,000
($14,680,000) being 98.7% (99.3%) of
total revenues. Income from corporate totaled $207,000 ($98,000).
Operating revenues for this quarter increased by $1,594,000 (10.9%) compared to this quarter last
year. Revenue from Corporate increased by $109,000.
Costs and expenses for this quarter (last
year) were $16,267,000 ($14,677,000), an increase of $1,590,000 (10.8%). Costs related to operating
activities, before exchange and interest, increased by $1,557,000 (10.7%).
Interest expense for this quarter (last
year) was $24,000 ($16,000) and was $20,000 in 2014Q2 and $15,000 in 2014.Q1.
Profit before income taxes for this
quarter (last year) was $214,000
($101,000), an increase of
$113,000. Profit from operating
activities were $72,000 ($46,000), an increase of $26,000 and corporate was $142,000 ($55,000),
an increase of $87,000.
Income taxes for this quarter (last year)
were $21,000 ($15,000). The effective tax rates are presented
in the Notes to the financial statements.
Profit for this quarter (last year) was
$193,000 ($86,000) or $0.07
($0.03) per share.
Consolidated Cash Flows, Liquidity and
Financial Position
In investing activities, the Company
added $1,300,000 of net property,
plant and equipment compared to $2,932,000 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
$903,000 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 $962,000 (13.3%) and overall volumes of rice
increased by 17.7%.
Marketable securities - see table of
Investment Mix in discussion of results.
Property, plant and equipment increased
by $89,000 comprised of additions of
$1,300,000 and amortization of
$1,211,000.
Bank indebtedness was $1,931,000 compared to $804,000 at last year-end.
Trade and other payables increased by
$2,147,000 mainly due to amounts
related to the agency business and partly offset by timing on rice
purchases.
Deferred taxes, net liability, decreased
by $123,000.
Total equity decreased by $121,000 to $17,510,000 from $17,631,000 and represents $6.90 ($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 $897,000 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 $962,000 (13.3%) and overall volumes of rice
increased by 17.7%.
Property, plant and equipment increased
by $89,000 comprised of additions of
$1,300,000 and amortization of
$1,211,000.
Bank indebtedness was $4,312,000 compared to $1,086,000 at last year-end.
Trade and other payables decreased by
$140,000 mainly due to timing on rice
purchases.
Deferred taxes, net liability, decreased
by $121,000.
Ship agency services
Trade receivables increased by $6,000 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 $5,111,000 compared to $3,672,000 at last year-end.
Trade and other payables increased by
$2,295,000 due to the timing of
payment of disbursements on behalf of ship owners.
Corporate
Bank indebtedness was $2,730,000 compared to $3,390,000 at last year-end.
Portfolio was $3,532,000 compared to $3,288,000 at last year-end.
Deferred taxes, net liability, decreased
by $2,000.
Trade and other payables decreased by
$8,000.
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
increased by $1,344,000 (3.3%) to
$41,873,000 for the period and by
$1,591,000 (11.9%) 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 $2,159,000 (5.4%) to $42,421,000 for the period compared to last year.
Costs and expenses increased by $1,540,000 (11.4%) to $15,051,000 for the quarter compared to last
year. Profit before income taxes for the period decreased by
$815,000 to -$548,000 compared to last year and increased by
$51,000 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 this fiscal year to reduce the dependence on
outsourcing certain products. Dainty Foods International
(DFI) continues to make inroads into the US retail market.
The American long grain rice cash market is
expected to remain firm throughout the current crop year. The
2013/2014 southern USA rice
acreage is the smallest in 27 years, 11% smaller than last year and
14% smaller than the 5 year average. Further price increases are
tempered by a soft export market and continuing low Asian
prices.
An increase in planted rice acreage is
anticipated for the 2014 season which may be conducive to price
reduction in the new crop to be harvested during the fall of
2014.
The broken rice market is rising sharply due to
good milling yields experienced to date, less demand for milled
head rice and a greater demand for broken rice for the processing
of rice flour.
Dainty has commitments in place for the various
rices we purchase which will soften potential market firmness in
the coming months and which we believe will be favourable to the
cash market prices. Dainty will continue to monitor the market
conditions daily and purchase rice at appropriate times.
The CDN dollar has weakened during this fiscal
year and has negatively impacted margins. Market predictions
indicate that this trend will continue.
In Ship agency services, revenue
decreased by $107,000 (-2.9%) to
$3,528,000 for the period and
increased by $3,000 for the quarter
compared to last year.
Profit before income taxes for the period
decreased by $160,000 to $151,000 and by $25,000 compared to this quarter last year.
This fiscal year's results have been 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 |
$64,000 |
$114,000 |
$25,000 |
$39,000 |
Capital gains (losses) |
$48,000 |
$359,000 |
-$7,000 |
$326,000 |
Unrealized change in Fair
Value |
$149,000 |
-$355,000 |
$189,000 |
-$267,000 |
Totals: |
$261,000 |
$118,000 |
$207,000 |
$98,000 |
During this quarter, global financial markets
improved, the gain in Fair Market Value is $149,000 for the period compared to a loss of
$355,000 last year. The portfolio
remains conservatively invested and no significant policy changes
are foreseen.
Investment
Mix |
Nov 30,
2013
(2014.Q3) |
Aug 31,
2013
(2014.Q2) |
May 31,
2013
(2014.Q1) |
Feb 28,
2013
(2013.Q4) |
Nov 30,
2012
(2013.Q3) |
Cash &
Equivalents |
2.7% |
4.2% |
2.8% |
1.0% |
0.2% |
Fixed income &
Preferred
Shares |
30.2% |
31.7% |
33.3% |
35.3% |
37.4% |
Equities |
67.1% |
64.1% |
63.9% |
63.7% |
62.4% |
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.
A major industrial milled rice customer
announced December 2013 the closure
of their Ontario facility by the
end of 2014. The company plans to offset the lost contribution of
$800,000 with cost reduction
measures.
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, January 9,
2014.
SOURCE MRRM Inc.