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, 2012
(2013.Q3)
|
(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.