The following discussion and analysis should be read in
conjunction with the FY 2014 fourth 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,
May 1, 2014 /CNW Telbec/ -
Consolidated Income And Comprehensive Income and
Equity
Revenues for the year (last year) were
$61,617,000 ($58,953,000) increasing by $2,664,000 (4.5%). As shown in the segmented
information, sales and income from operating activities amounted to
$61,177,000 ($58,588,000) being 99.3% (99.4%) of total
revenues. Income from corporate totaled $440,000 ($365,000). Unrealized gains in fair market value
of the portfolio amounted to $252,000
compared to unrealized losses of $153,000 last year. Operating Revenues increased
by $2,589,000 (4.4%) compared to last
year. Revenue from Corporate increased by $75,000; for details refer to Portfolio Income
Summary under Corporate.
Costs and expenses for the year (last
year) were $62,077,000 ($57,981,000), an increase of $4,096,000
(7.1%). Costs related to operating activities, before exchange and
interest, increased by $4,140,000
(7.2%). Expenses related to corporate decreased by $40,000.
Operating results are discussed later on in this
report.
The impact of the fluctuating Canadian dollar
resulted in a total currency exchange loss of $27,000 compared to a loss of $30,000 last year, all included under cost of
sales. As disclosed in the Notes, the net exposures were as
follows: 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 February 28, 2014, the Company had foreign
exchange contracts outstanding allowing the Company to buy USD
$11,000,000 at an average rate of
1.0935. The maturity dates of these contracts range from
March 2014 to 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 $203,000.
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 in the upcoming
fiscal year 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 $87,000 for the year compared to
$79,000 last year for an increase of
$8,000.
Profit -loss before income taxes for the
year (last year) was -$460,000
($972,000), a decrease of
$1,432,000. Profit -loss from
operating activities for the year (last year) was -$723,000 ($824,000), a decrease of $1,547,000. Profit from corporate for the year
(last year) was $263,000 ($148,000), an increase of $115,000.
Income taxes for the year (last year)
were -$271,000 ($172,000). Details of the income tax components
are presented in the Notes to the financial statements.
Profit -loss for the year (last year) was
-$189,000 ($800,000) or -$0.07 ($0.32) per
share.
The declaration and payment of dividends is at
the discretion of the Board of Directors.
ANNUAL RESULTS
(Expressed in thousands, except for amounts per share -
unaudited) |
2014
IFRS
$ |
2013
IFRS
$ |
2012
IFRS
$ |
2011
IFRS
$ |
Revenues |
61,617 |
58,953 |
59,456 |
63,803 |
Profit -loss |
-189 |
800 |
620 |
1,777 |
Profit -loss per share |
-0.07 |
0.32 |
0.24 |
0.70 |
Total Assets |
36,338 |
33,028 |
36,946 |
38,052 |
Total non-current Financial
Liabilities |
0 |
0 |
0 |
290 |
Dividends Per share |
0.00 |
0.80 |
0.50 |
0.15 |
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 |
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) |
May 31,
2012
(2013.Q1) |
(Expressed in thousands, except
for amounts per share - unaudited) |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
Revenues |
15,955 |
16,481 |
14,864 |
14,317 |
14,671 |
14,778 |
14,801 |
14,703 |
Profit -loss |
-42 |
193 |
-60 |
-280 |
367 |
86 |
271 |
76 |
Profit -loss per share |
-0.01 |
0.07 |
-0.02 |
-0.11 |
0.15 |
0.03 |
0.11 |
0.03 |
Dividends per share |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.80 |
0.00 |
0.00 |
Revenues for this quarter (last year)
were $15,955,000 ($14,671,000), an increase of $1,284,000 (8.8%). Revenue from operating
activities amounted to $15,776,000
($14,424,000) being 98.9% (98.3%) of
total revenues. Income from corporate totaled $179,000 ($247,000). Operating revenues for this quarter
increased by $1,352,000 (9.4%)
compared to this quarter last year. Revenue from Corporate
decreased by $68,000.
Costs and expenses for this quarter (last
year) were $16,128,000 ($14,240,000), an increase of $1,888,000 (13.3%). Costs related to operating
activities, before exchange and interest, increased by $1,936,000 (13.7%).
Interest expense for this quarter (last
year) was $28,000 ($18,000) and was $24,000 in 2014Q3, $20,000 in 2014Q2 and $15,000 in 2014.Q1.
Profit -loss before income taxes for this
quarter (last year) was -$173,000
($431,000), a decrease of
$604,000. Profit -loss from operating
activities were -$326,000
($246,000), a decrease of
$572,000 and corporate was
$153,000 ($185,000), a decrease of $32,000.
Income taxes for this quarter (last year)
were -$131,000 ($64,000). The effective tax rates are presented
in the Notes to the financial statements.
Profit -loss for this quarter (last year)
was -$42,000 ($367,000) or -$0.01 ($0.15) per
share.
Consolidated Cash Flows, Liquidity and
Financial Position
In investing activities, the Company
added $1,365,000 of net property,
plant and equipment compared to $2,102,000 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
$1,426,000 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 $1,383,000 (19.2%) and overall volumes of rice
increased by 8.7%.
Marketable securities - see table of
Investment Mix in discussion of results.
Property, plant and equipment decreased
by $294,000 comprised of additions of
$1,365,000 and amortization of
$1,659,000.
Bank indebtedness was $3,551,000 compared to $804,000 at last year-end.
Trade and other payables increased by
$1,286,000 mainly due to amounts
related to the agency business and timing on rice purchases.
Deferred taxes, net liability, decreased
by $445,000.
Total equity increased by $28,000 to $17,659,000 from $17,631,000 and represents $6.97 ($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 $1,136,000 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 $1,383,000 (19.2%) and overall volumes of rice
increased by 8.7%.
Property, plant and equipment decreased
by $294,000 comprised of additions of
$1,365,000 and amortization of
$1,659,000.
Bank indebtedness was $3,886,000 compared to $1,086,000 at last year-end.
Trade and other payables increased by
$647,000 mainly due to timing on rice
purchases.
Deferred taxes, net liability, decreased
by $455,000.
Ship agency services
Trade receivables increased by $290,000 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 $3,119,000 compared to $3,672,000 at last year-end.
Trade and other payables increased by
$620,000 due to the timing of payment
of disbursements on behalf of ship owners.
Corporate
Bank indebtedness was $2,784,000 compared to $3,390,000 at last year-end.
Portfolio was $3,656,000 compared to $3,288,000 at last year-end.
Deferred taxes, net liability, increased
by $10,000.
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, 2014. An extract of these
policies as well as new accounting policies adopted during the
year, 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.
NEW ACCOUNTING STANDARDS:
A number of new and revised standards are
effective for annual periods beginning on or after March 1, 2013. Information on these new standards
is presented below.
IFRS 10 Consolidated Financial
Statements
IFRS 10 supersedes IAS 27 'Consolidated and
Separate Financial Statements' (IAS 27) and SIC 12
'Consolidation-Special Purpose Entities'. IFRS 10 revises the
definition of control and provides extensive new guidance on its
application. These new requirements have the potential to affect
which of the Company's investees are considered to be subsidiaries
and therefore to change the scope of consolidation. The
requirements on consolidation procedures, accounting for changes in
non-controlling interests and accounting for loss of control of a
subsidiary are unchanged.
Management has reviewed its control assessments
in accordance with IFRS 10 and has concluded that there is no
effect on the classification (as subsidiaries or otherwise) of any
of the Company's investees held during the period or comparative
periods covered by these consolidated financial statements.
IFRS 12 Disclosure of Interests of Other
Entities
IFRS 12 integrates and makes consistent the
disclosure requirements for various types of investments, including
unconsolidated structured entities. It introduces new disclosure
requirements about the risks to which an entity is exposed from its
involvement with structured entities. IFRS 12 did not have an
impact on the Company's consolidated financial statements.
IFRS 13 Fair Value Measurement
IFRS 13 clarifies the definition of fair value
and provides related guidance and enhanced disclosures about fair
value measurements. It does not affect which items are required to
be fair-valued. The scope of IFRS 13 is broad and it applies for
both financial and non-financial items for which other IFRSs
require or permit fair value measurements or disclosures about fair
value measurements except in certain circumstances.
IFRS 13 applies prospectively for annual periods
beginning on or after 1 January 2013.
Its disclosure requirements need not be applied to comparative
information in the first year of application. The Company has
however included as comparative information the IFRS 13 disclosures
that were required previously by IFRS 7 'Financial Instruments:
Disclosures'. The Company has applied IFRS 13 for the first time in
the current year.
IAS 1 Presentation of Financial
Statements
In June 2011, the
IASB published amendments to IAS 1, Presentation of Financial
Statements which are effective for annual periods beginning on
or after July 1, 2012 and are to be
applied retrospectively. The amendments require that a company
present separately the items of Other Comprehensive Income that may
be reclassified to profit or loss in the future from those that
would never be reclassified to profit or loss. The changes as a
result of the adoption of the amendments to IAS 1 have been
reflected in the Company's consolidated statement of Comprehensive
Income.
Amendments to IAS 19 Employee
Benefits
In June 2011, the
IASB published an amended version of IAS 19, Employee
Benefits. Adoption of the amendment is required for annual
periods beginning on or after January 1,
2013. The amendment is generally applied retrospectively
with certain exceptions. The amendment will require actuarial gains
and losses to be recognized immediately in other comprehensive
income, past service costs to be fully recognized immediately in
profit or loss and the recognition of expected return on plan
assets in profit or loss to be calculated based on the rate used to
discount the defined benefit obligation.
The amendment to IAS 19 did not have a material
impact on the comparative periods and, thus, the Company did not
restate its reported results throughout the comparative
periods.
Discussion of Results:
In Food processing and selling, net sales
increased by $2,768,000 (5.2%) to
$56,431,000 for the year and by
$1,424,000 (10.8%) 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 $4,040,000 (7.6%) to $57,340,000 for the year compared to last
year. Costs and expenses increased by $1,881,000 (14.4%) to $14,918,000 for the quarter compared to last
year. Profit before income taxes for the year decreased by
$1,272,000 to -$909,000 compared to last year and by
$458,000 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 CDN dollar weakened during this fiscal year
and negatively impacted margins. Market predictions indicate that
this trend will continue.
Rice Market
The rice price gap between the United States / South America and Asian countries continued
into its third year during our last fiscal. American and South
American prices are 40% to 50% higher than Thai, Vietnamese and
Pakistani prices and 30% to 40% higher than Indian prices for long
grain milled rice.
The Thai government removed the grower price
support scheme launched during October of 2011 and are selling the
large stocks of rice accumulated during the plan into the world
market.
Notwithstanding American exports have shown some
improvement during the last year. The wide price differential
allows Asian exporters to become more competitive in the attraction
of North American customers. The quantity of shelf-ready
packaged rices entering North
America is on the increase.
The 2013 / 2014 southern United States rice acreage was the smallest in
27 years and 11% less than the previous year. The low world prices
have had a moderating effect on the upward movement of the American
prices. The price of long grain rice has remained flat to
last year.
Industry long grain milling yields, the best
experienced during the last four years, are attributed to a longer,
cooler growing season. The production of broken rice by-products is
reduced by one-third as a result of the improved milling yields
resulting in both price and supply issues in the market. The
by-products have many uses including the milling to rice flour.
January 17, 2014
California declared a State of Emergency regarding its low water
supply situation. Water rationing for agricultural crops will be
defined later in the spring.
The announcement had an immediate upward impact
on the cost of Californian grown rices. USDA estimates that 20%
fewer rice acres will be planted in California, while industry participants
predict far higher declines.
The Californian decline in acreage has a
spin-off effect in the southern United
States. Long grain planted acres are expected to increase to
the highest level since 2010 which should have a downward impact on
new crop pricing. However the inventory carry-in stocks are
estimated to be low. It remains to be seen how much of the
available acreage in the southern United
States will be dedicated to medium grain rice to take
advantage of the lost medium grain acres in
California.
Dainty continues to monitor the rice market
daily and makes conservative decisions regarding purchases at the
appropriate times to minimize risk to the business.
In Ship agency services, revenue
decreased by $179,000 (-3.6%) to
$4,746,000 for the year and by
$72,000 for the quarter compared to
last year.
Profit before income taxes for the year
decreased by $275,000 to $186,000 and by $115,000 compared to this quarter last year.
This fiscal year's results were below
expectations due to reduced cargo shipments in many areas.
The west coast continues to remain strong due to
an increase in trade with the far east, however the east coast and
Great Lakes are expected to continue with low volumes through
2014.
The Great Lakes are off to a slow start due to
heavy ice cover. A surge in grain exports in the second quarter is
expected due to a record harvest last year.
Corporate, portfolio income is
summarized as follows:
|
For the
year |
For the
quarter |
|
2014 |
2013 |
2014 |
2013 |
Dividend and interest income |
$91,000 |
$159,000 |
$27,000 |
$45,000 |
Capital gains |
$48,000 |
$359,000 |
$0 |
$0 |
Unrealized change in Fair
Value |
$252,000 |
-$153,000 |
$103,000 |
$202,000 |
Increase in cash surrender value
of life insurance policies, net of premiums |
$49,000 |
$0 |
$49,000 |
$0 |
Totals: |
$440,000 |
$365,000 |
$179,000 |
$247,000 |
During this quarter, global financial markets
improved, the gain in Fair Market Value is $252,000 for the year compared to a loss of
$153,000 last year. The portfolio
remains conservatively invested and no significant policy changes
are foreseen.
Investment Mix |
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) |
Cash & Equivalents |
3.2% |
2.7% |
4.2% |
2.8% |
1.0% |
Fixed income & Preferred
Shares |
28.7% |
30.2% |
31.7% |
33.3% |
35.3% |
Equities |
68.1% |
67.1% |
64.1% |
63.9% |
63.7% |
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 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 negatively impacted margins during fiscal 2014. 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.
While the Company is striving to improve margins
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.
In this context, the Company's board of
directors has set up a Strategic Review Committee. The principal
duty of the committee is to oversee a strategic review of the
Company's business conducted by outside advisers.
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
Chairman |
|
Terry Henderson
President & Chief Executive Officer |
|
|
|
Dated at Montreal (Westmount), Quebec, May 1,
2014. |
SOURCE MRRM Inc.