The following discussion and analysis should be read in
conjunction with the FY 2014 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 19, 2013 /CNW Telbec/ -
Consolidated Income And Comprehensive Income and
Equity
Revenues for the period (last year) were
$14,317,000 ($14,703,000) decreasing by $386,000 (-2.6%). As shown in the segmented
information, sales and income from operating activities amounted to
$14,281,000 ($14,790,000) being 99.7% (100.6%) of total
revenues. Income from corporate totaled $36,000 (-$87,000).
Unrealized gains in fair market value of the portfolio amounted to
$6,000 compared to unrealized losses
of $124,000 last year. Operating
Revenues decreased by $509,000
(-3.4%) compared to last year. Revenue from Corporate increased by
$123,000; for details refer to
Portfolio Income Summary under Corporate.
Costs and expenses for the period (last
year) were $14,723,000 ($14,592,000), an increase of $131,000 (0.9%). Costs related to operating
activities, before exchange and interest, increased by $155,000 (1.1%). Expenses related to corporate
decreased by $11,000.
Operating results are discussed later on in this
report.
The impact of the fluctuating Canadian dollar
resulted in a total currency exchange loss of $22,000 compared to exchange gain of $170,000 last year, all included under cost of
sales. As disclosed in the Notes, the net exposures were as
follows: at May 31, 2013,
US$900,000; at May 31, 2012, US$1,515,000; 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 May 31,
2013, the Company had foreign exchange contracts outstanding
allowing the Company to buy USD$6,500,000 at an average rate of 1.0341. The
maturity dates of these contracts range from June 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 $40,000.
Interest expensed on bank indebtedness amounted
to $15,000 for the period compared to
$31,000 last year for a decrease of
$16,000.
Profit (loss) before income taxes for the
period (last year) was -$406,000
($111,000), a decrease of
$517,000. Profit (loss) from
operating activities for the period (last year) was -$395,000 ($257,000), a decrease of $652,000. Loss from corporate for the period
(last year) was -$11,000
(-$146,000), an increase of
$135,000.
Income taxes for the period (last year)
were -$126,000 ($35,000). Details of the income tax components
are presented in the Notes to the financial statements.
Profit (loss) for the period (last year)
was -$280,000 ($76,000) or -$0.11
($0.03) 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,
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) |
Nov 30,
2011
(2012.Q3) |
Aug 31,
2011
(2012.Q2) |
(Expressed in thousands,
except
for amounts per share -
unaudited) |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
Revenues |
14,317 |
14,671 |
14,778 |
14,801 |
14,703 |
16,014 |
16,522 |
12,572 |
Profit (loss) |
-280 |
367 |
86 |
271 |
76 |
510 |
407 |
-119 |
Profit (loss) per
share |
-0.11 |
0.15 |
0.03 |
0.11 |
0.03 |
0.20 |
0.16 |
-0.05 |
Dividends per
share |
0.00 |
0.00 |
0.80 |
0.00 |
0.00 |
0.00 |
0.50 |
0.00 |
Consolidated Cash Flows, Liquidity and
Financial Position
In investing activities, the Company
added $351,000 of net property, plant
and equipment compared to $200,000
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 decreased by
$98,000 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 $429,000 (5.9%) and overall volumes of rice
decreased by (-5.5%).
Marketable securities - see table of
Investment Mix in discussion of results.
Property, plant and equipment decreased
by $49,000 comprised of additions of
$351,000 and amortization of
$400,000.
Bank indebtedness was $1,365,000 compared to $804,000 at last year-end.
Trade and other payables increased by
$620,000 mainly due to amounts due
related to the agency business and partly offset by timing on rice
purchases.
Deferred taxes, net liability, decreased
by $44,000.
Total equity decreased by $260,000 to $17,371,000 from $17,631,000 and represents $6.85 ($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 decreased by $156,000 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 $429,000 (5.9%) and overall volumes of rice
decreased by (-5.5%).
Property, plant and equipment decreased
by $49,000 comprised of additions of
$351,000 and amortization of
$400,000.
Bank indebtedness was $2,681,000 compared to $1,086,000 at last year-end.
Trade and other payables decreased by
$820,000 mainly due to timing on rice
purchases.
Deferred taxes, net liability, decreased
by $37,000.
Ship agency services
Trade receivables increased by $58,000 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 $4,740,000 compared to $3,672,000 at last year-end.
Trade and other payables increased by
$1,421,000 due to amounts due related
to the agency business.
Corporate
Bank indebtedness was $3,424,000 compared to $3,390,000 at last year-end.
Portfolio was $3,318,000 compared to $3,288,000 at last year-end.
Deferred taxes, net liability, decreased
by $7,000.
Trade and other payables increased by
$19,000.
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
decreased by $530,000 (-3.9%) to
$13,198,000 for the period
compared to last year while rice sales volumes decreased by 9.0%
for the period compared to last year. The net sales decrease
compared to last year is a result of decreased sales to industrial
customers. Costs and expenses increased by $107,000 (0.8%) to $13,526,000 for the period compared to last year.
Profit before income taxes for the period decreased by $637,000 to -$328,000 compared to last year.
The Company continues to pursue new value-added
retail products some of which will be outsourced. This outsourcing
will minimize capital investment while enhancing Dainty Foods'
offerings in the retail marketplace for both branded and private
label items. The Company installed packaging equipment during the
first quarter of this fiscal year to reduce the dependence on
outsourcing certain products. New selling relationships continue to
be developed and are intended to add strength to our retail sales
efforts. Dainty Foods International (DFI) continues to make
inroads into the US retail market.
Higher pricing and better profitability for
soybeans, wheat and corn during the last year prompted some
American rice growers to increase the share of their land devoted
to those crops. USDA surveys predict a 3% drop in acreage in
the 2013 plantings in the United
States for long grain rice and for all rice types in
total.
The world rice market experienced a price split
during the last 18 months. The United
States, South America and
Thailand prices for long grain
milled rice have typically been 30% to 40% higher than the market
price in Vietnam, India and Pakistan.
The Company is now consuming rice harvested
during the fall of 2012. The long grain crop this year
is showing below average yields which impacts cost this fiscal
year.
Dainty has secured rice coverage going forward
through the current crop year to protect against cost increases due
to planted acreage reduction and the higher production costs in the
American mills due to the lower milling yields experienced this
crop year.
The CDN dollar has weakened during the first
quarter and has negatively impacted margins. Market predictions
indicate that this trend will continue through the fiscal year.
In Ship agency services, revenue
increased by $21,000 (2.0%) to
$1,083,000 for the period compared to
last year.
Profit before income taxes for the period
decreased by $15,000 to -$67,000 compared to last year.
The first quarter was 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 major improvements
through the summer months.
Corporate, portfolio income is summarized as
follows:
For the
quarter
|
2014 |
2013 |
Dividend and interest income |
$20,000 |
$34,000 |
Capital gains / losses |
$10,000 |
$3,000 |
Unrealized change in Fair
Value |
$6,000 |
-$124,000 |
Totals: |
$36,000 |
-$87,000
|
During this quarter, global financial markets
improved, the gain in Fair Market Value is $6,000 for the period compared to a loss of
$124,000 last year. The portfolio
remains conservatively invested and no significant policy changes
are foreseen.
Investment
Mix |
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) |
Cash &
Equivalents |
2.8% |
1.0% |
0.2% |
2.2% |
0.6% |
Fixed income &
Preferred
Shares |
33.3% |
35.3% |
37.4% |
44.9% |
45.7% |
Equities |
63.9% |
63.7% |
62.4% |
52.9% |
53.7%
|
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 were 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 Company continues to replace flour volume
lost over the last two fiscal years due to business changes
implemented by three of our larger customers.
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 has weakened during the first
quarter and has negatively impacted margins. Market forecasts
indicate that this trend will continue through the fiscal year.
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:
April 11, 2013,
the US Department of State issued a US Presidential permit as the
final political step before property acquisition and construction
can get underway for the Detroit River International Crossing.
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.
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, June 19,
2013.
SOURCE MRRM Inc.