The following discussion and analysis should be read in
conjunction with the FY 2015 first 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,
June 18, 2014 /CNW Telbec/ -
Consolidated Income And Comprehensive Income and
Equity
Revenues for the period (last year) were
$17,236,000 ($14,317,000) increasing by $2,919,000 (20.4%). As shown in the segmented
information, sales and income from operating activities amounted to
$17,113,000 ($14,281,000) being 99.3% (99.7%) of total
revenues. Income from corporate totaled $123,000 ($36,000).
Unrealized gains in fair market value of the portfolio amounted to
$83,000 compared to $6,000 last year. Operating Revenues increased by
$2,832,000 (19.8%) compared to last
year. Revenue from Corporate increased by $87,000; for details refer to Portfolio Income
Summary under Corporate.
Costs and expenses for the period (last
year) were $17,164,000 ($14,723,000), an increase of $2,441,000 (16.6%). Costs related to
operating activities, before exchange and interest, increased by
$2,382,000 (16.3%). Expenses
related to corporate increased by $42,000.
Operating results are discussed later on in this
report.
The impact of the fluctuating Canadian dollar
resulted in a total currency exchange gain of $46,000 compared to a loss of $22,000 last year, all included under cost of
sales. As disclosed in the Notes, the net exposures were as
follows: at May 31, 2014, US($72,000)
net liabilities and at May 31, 2013,
US$900,000 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 May 31, 2014, the Company had foreign exchange
contracts outstanding allowing the Company to buy USD $8,000,000 at an average rate of 1.1047. The
maturity dates of these contracts range from June 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
$135,000.
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 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 expensed on bank indebtedness amounted
to $32,000 for the period compared to
$15,000 last year for an increase of
$17,000.
Profit -loss before income taxes for the
period (last year) was $72,000
(-$406,000), an increase of
$478,000. Profit -loss from operating
activities for the period (last year) was $39,000 (-$395,000), an increase of $434,000. Profit -loss from corporate for the
period (last year) was $33,000
(-$11,000), an increase of
$44,000.
Income taxes for the period (last year)
were -$5,000 (-$126,000). Details of the income tax components
are presented in the Notes to the financial statements.
Profit -loss for the period (last year)
was $77,000 (-$280,000) or $0.03
(-$0.11) 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 |
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,
2012
(2013.Q3) |
Aug 31,
2012
(2013.Q2) |
(Expressed in thousands, except
for
amounts per share - unaudited) |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
Revenues |
17,236 |
15,955 |
16,481 |
14,864 |
14,317 |
14,671 |
14,778 |
14,801 |
Profit -loss |
77 |
-42 |
193 |
-60 |
-280 |
367 |
86 |
271 |
Profit -loss per share |
0.03 |
-0.01 |
0.07 |
-0.02 |
-0.11 |
0.15 |
0.03 |
0,11 |
Dividends per
share |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.80 |
0.00 |
Consolidated Cash Flows, Liquidity and
Financial Position
In investing activities, the Company
added $2,000 of net property, plant
and equipment compared to $351,000
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 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 write-offs
have been provided for in the accounts.
Inventories increased by $474,000 (5.5%) and overall volumes of rice
decreased by 1.1%.
Marketable securities - see table of
Investment Mix in discussion of results.
Property, plant and equipment decreased
by $444,000 comprised of additions of
$2,000 and amortization of
$446,000.
Bank indebtedness was $3,755,000 compared to $3,551,000 at last year-end.
Trade and other payables decreased by
$18,000 mainly due to timing on rice
purchases and partly offset by amounts related to the agency
business.
Deferred taxes, net liability, decreased
by $86,000.
Total equity decreased by $172,000 to $17,487,000 from $17,659,000 and represents $6.90 ($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 increased by $251,000 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 $474,000 (5.5%) and overall volumes of rice
decreased by 1.1%.
Property, plant and equipment decreased
by $444,000 comprised of additions of
$2,000 and amortization of
$446,000.
Bank indebtedness was $4,005,000 compared to $3,886,000 at last year-end.
Trade and other payables decreased by
$79,000 mainly due to timing on rice
purchases.
Deferred taxes, net liability, decreased
by $77,000.
Ship agency services
Trade receivables decreased by $64,000 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 $3,136,000 compared to $3,119,000 at last year-end.
Trade and other payables increased by
$48,000 due to the timing of payment
of disbursements on behalf of ship owners.
Corporate
Bank indebtedness was $2,886,000 compared to $2,784,000 at last year-end.
Portfolio was $3,774,000 compared to $3,656,000 at last year-end.
Deferred taxes, net liability, decreased
by $9,000.
Trade and other payables increased by
$13,000.
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 $2,740,000 (20.8%) to
$15,938,000 for the period
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 $2,361,000
(17.5%) to $15,887,000 for the period
compared to last year. Profit before income taxes for the period
increased by $379,000 to $51,000 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
The 2013/14 southern United States long grain rice acreage was the
smallest in twenty-seven years and 11% less than the previous year.
Industry milling yields are better than the last three years.
Normal weather patterns (warmer nights) going forward toward
harvest of this year are anticipated to depress milling yields to
the average. The 2014/15 long grain crop is expected to be the
largest since 2010.
American milled rice exports faltered and are 4%
lower than the five year average. The Unites States continues to be
uncompetitive in price to Vietnam,
Thailand and India while on par with South America.
Current long grain inventory stocks are
estimated to be at the lowest level since at least 2007. Demand for
rice flour driven by gluten-free diets continues to rise,
increasing the demand for rice by-products.
The anticipated larger 2014/15 long grain crop
has lowered price expectations for the Fall. Lower prices may
assist in the improvement of US sales to the export market. This in
turn would result in increased levels of available by-products for
flour production which would temper the current high prices.
Increased demand for flour will offset the price softening to some
degree.
A State of Emergency due to drought was declared
in California in 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-product for flour
production will remain high in California.
Dainty is well positioned to minimize the
impacts of these variables with current rice ownership.
In Ship agency services, revenue
increased by $92,000 (8.5%) to
$1,175,000 for the period compared to
last year.
Profit -loss before income taxes for the period
was -$12,000 compared to
-$67,000 last year.
Revenue for the first quarter is higher than the same period
last year, but is affected by ice coverage on the Great Lakes which
lasted well into May. A shortage of pilots in areas controlled by
the U.S. Coast Guard also had an impact.
However overall volumes are increasing in the East and
Vancouver remains steady as we
look forward to increased ship calls in that area.
Corporate, portfolio income is
summarized as follows:
For the period
|
2015 |
2014 |
Dividend and interest
income |
$24,000 |
$20,000 |
Capital gains |
$16,000 |
$10,000 |
Unrealized change in
Fair Value |
$83,000 |
$6,000 |
Totals: |
$123,000 |
$36,000 |
During this quarter, global financial markets
improved, the gain in Fair Market Value is $83,000 for the period compared to $6,000 last year. The portfolio remains
conservatively invested and no significant policy changes are
foreseen.
Investment
Mix |
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) |
Cash & Equivalents |
1.7% |
3.2% |
2.7% |
4.2% |
2.8% |
Fixed income & Preferred Shares |
30.5% |
28.7% |
30.2% |
31.7% |
33.3% |
Equities |
67.8% |
68.1% |
67.1% |
64.1% |
63.9% |
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.
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. 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.
There is no question that the past year has been
fraught with significant challenges. There is also no doubt that a
number of these challenges will persist throughout this new fiscal
year. We are hoping for 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 process of analysis was
begun and remains ongoing at this time. CCC Investment
Banking was engaged as a third-party advisor to the independent
committee and to support it in developing and assessing a number of
strategic options to maximize shareholder value. The strategic
options evaluated include potential corporate and operating
initiatives.
The third-party detailed assessment concluded
that at this time, the cash flow and health of the business cannot
support instituting a regular dividend, a share buy-back program,
or a going private transaction.
In order to further explore opportunities to
enhance shareholder value, the independent committee and CCC
Investment Banking recommended that an additional process of deeper
analysis into the business operations be undertaken. The Board of
Directors has concluded 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. The
Board has therefore initiated a deep-dive review of the Company's
operations. This step, which is now underway, is aimed at finding
ways to identify 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.
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 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, June
18, 2014. |
SOURCE MRRM Inc.