Pantera Silver Corp. press release
Rothmans Inc. Reports Increased Sales and Earnings for the First Quarter
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
1st Quarter Report Three Months Ended June 30, 2005
Trading: TSX: ROC
TORONTO, July 26 /CNW/ - Rothmans Inc. today announced increased earnings for the first quarter of fiscal 2006, ended June 30, 2005. Rothmans' earnings for the first quarter of fiscal 2006 were $29.7 million or $0.44 basic earnings per share compared with $23.8 million or $0.35 basic earnings per share in the first quarter of fiscal 2005. Sales at 60%-owned Rothmans Benson & Hedges Inc., net of excise duty and taxes, increased to $176.0 million in the first quarter of fiscal 2006 compared with $161.8 million in the first quarter of fiscal 2005. The increase was primarily due to higher volumes in the cigarette price category and increased prices across all product categories which more than offset declines in both premium cigarettes and fine cut volumes. RBH's EBITDA margin increased to 48.7% in the recent quarter compared with 45.1% in the same period of prior year. The increase in margin was due to increased volumes of price category cigarettes, higher prices across all product categories and reduced materials costs, which more than offset reduced premium cigarette and fine cut volumes. RBH's share of the total domestic composite market increased to 31.3% for the quarter ended June 30, 2005, from 30.6% and 27.9% for the fourth and first quarters of fiscal 2005. Its premium cigarette share was 15.5%, compared with 15.2% in the previous quarter and 15.5% during the same period last year. RBH's share of the domestic price cigarette category of 44.8% was up from the 42.9% and 39.8% in the fourth and first quarters of fiscal 2005. RBH's share of the fine cut market was 60.1%, up from 59.5% and 59.7% in the fourth and first quarters of fiscal 2005, respectively. RBH's share of the total price category of 48.2%, increased compared with 47.1% and 45.8% in the fourth and first quarters of fiscal 2005. In the first quarter the Company paid dividends of $121.6 million, or $1.80 per share, comprising $0.30 per share regular dividend and $1.50 per share special dividend, compared with $16.8 million, or $0.25 per share, the previous year. "Rothmans Benson & Hedges Inc. has grown its business in the face of reduced industry volumes," said John Barnett, President and Chief Executive Officer of Rothmans Inc. "RBH's strategic focus has resulted in the higher sales, earnings and market share in the first the quarter. This continues to translate into increased cash flow and value for the Company's shareholders."
Outlook
"We expect continued quarter-to-quarter volatility in the market as a result of variations in consumer consumption and wholesale buying patterns due to seasonality influences and other factors, high taxes and the presence of contraband product in the Canadian tobacco market," said Mr. Barnett. "We also expect that the contraband market will continue to adversely impact legitimate industry stakeholders including RBH. Despite this, we have demonstrated our ability to deliver solid results in a challenging environment and RBH remains well positioned to capitalize on the shift toward the price category of cigarettes."
Dividends declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.30 per share payable on September 17, 2005 to shareholders of record at the close of business on September 2, 2005.
Analyst Conference Call and Webcast
Rothmans Inc. management will hold a conference call with analysts to discuss the first quarter results at 3:00 p.m. Toronto time on July 26, 2005, following its annual shareholders meeting that morning. In order to listen to the conference call, shareholders are invited to call 1-866-898-9626. The call will also be webcast through the Company's investor website, www.rothmansinc.ca. At the completion of the conference call, a recording will be available until August 3, 2005 by calling 1-800-408-3053 and entering the reservation number 3159096. The recording can also be accessed through the investor website. Media are invited to listen to the call and to contact John McDonald (416) 442-3660 for further information.
About Rothmans Inc.
Rothmans Inc. is a widely held, publicly traded Canadian company that participates in the Canadian tobacco industry through 60%-owned Rothmans, Benson & Hedges Inc., Canada's second largest tobacco company. RBH currently employs approximately 790 people at its head office in Toronto, its sales offices across Canada and its manufacturing facilities in Brampton, Ontario and Quebec City, Quebec where it has been operating for over 100 years. Rothmans is Canada's only publicly traded company with interests exclusively in the tobacco industry and is listed on the Toronto Stock Exchange under the symbol ROC.
Management's Discussion and Analysis of Financial Results for June 30, 2005
Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, provides shareholders with a review of significant developments in the Company's financial performance in the fiscal quarter ended June 30, 2005 compared with the same period in the prior year. It also discusses factors that could affect future performance. This MD&A should be read in conjunction with the attached unaudited financial statements for the period ended June 30, 2005, the annual MD&A contained in the 2005 Annual Report and the audited annual consolidated financial statements of the Company for the year ended March 31, 2005.
Responsibility of Management and the Board of Directors
Management is responsible for the information disclosed in this MD&A and has in place the appropriate information systems, procedures and controls to ensure that information used internally by management and disclosed externally is materially complete and reliable. Based on their knowledge, the Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of the Company's disclosure controls and procedures were effective as of June 30, 2005 to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities. In addition, the Company's Audit Committee and Board of Directors provide an oversight role with respect to all public financial disclosures by the Company, and have reviewed this MD&A and the accompanying financial statements.
Forward Looking Statements
Certain statements contained herein, including MD&A, constitute "forward-looking statements". Words such as "plans" "intends", "outlook" "expects", "anticipates", "estimates", "believes", "should" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on current expectations and entail various risks and uncertainties as more fully described in the "Risks and Uncertainties" and the "Outlook" sections of this MD&A when read in conjunction with the annual MD&A. These risks and uncertainties could cause or contribute to actual results that are materially different from those expressed or implied. The Company disclaims any obligation or intention to update or revise any forward-looking statement, whether the result of new information, future events or otherwise. Additional information regarding the Company and RBH is contained in the Company's filings with securities regulatory authorities including the Company's 2005 Annual Report and 2005 Annual Information Form, which can be accessed at www.sedar.com or on the Company's website www.rothmansinc.ca.
Terminology used in this MD&A
Throughout this MD&A, "GAAP" refers to Canadian Generally Accepted Accounting Principles, "Rothmans" and "the Company" refer to Rothmans Inc., "RBH" refers to Rothmans, Benson & Hedges Inc., which is 60%-owned by Rothmans Inc., and "EBITDA margin", a key measure of the Company's operating performance, refers to "earnings before interest, taxes, depreciation and amortization" as a percentage of "sales, net of duty and taxes". EBITDA margin provides a metric allowing period-to-period comparisons of the core RBH operating performance before the impact of changes in capital structure, taxes and capital spending. EBITDA margin is a non-GAAP financial measure that does not have any standardized meaning prescribed by GAAP. It is therefore unlikely to be comparable to similar measures presented by other companies. The "recent quarter" refers to the three months ended June 30, 2005, and "prior quarter" refers to the three months ended March 31, 2005. "Fiscal 2006" refers to the fiscal year ending March 31, 2006 and other similar references to a fiscal year (e.g., fiscal 2005) refers to the fiscal year then ended on March 31 (e.g., March 31, 2005). "The three major manufacturers" or "three majors" refers to RBH, Imperial Tobacco Canada Limited (ITL) and JTI-MacDonald Corp. (JTI). "Premium cigarettes" refers to tailor-made cigarettes sold at premium retail prices, "cigarette price category" refers to cigarettes sold at less-than-premium prices and "price category" refers to the combination of the cigarette price category and the fine cut category (loose tobacco and pre-proportioned tobacco sticks). "Reported industry" is based on information reported by Statistics Canada and RBH estimates and includes, in addition to the information reported by the three major manufacturers, information reported by smaller regional manufacturers.
Industry Overview
Total reported industry domestic sales volumes for all tobacco products decreased 4.7% in the three months ended June 30, 2005 versus the comparable period in the prior fiscal year. In large part due to the continued growth of the cigarette price category, total reported domestic premium cigarette volumes declined by 16.2% in the quarter ended June 30, 2005 versus the same period of the prior year. RBH estimates that premium cigarettes represented 51.9% of total domestic industry shipments in the recent quarter which is stable with the prior quarter while decreasing from 59.0% in the quarter ended June 30, 2004. The total price category is estimated to have represented 48.1% of the Canadian domestic tobacco market in the recent quarter which is also stable with the prior quarter while increased from 41.0% in the quarter ended June 30, 2004. Fine cut products are estimated to have represented 10.6% of the total domestic tobacco market in the recent quarter versus 12.1% in the prior quarter and 12.3% in the first quarter of last year. Price category cigarettes are estimated to have represented 37.5% of the total domestic tobacco market in the recent quarter versus 36.0% in the prior quarter and 28.7% in the first quarter of last year. The growth of the cigarette price category in the recent quarter over the first quarter of last year is attributable to products launched into the cigarette price category by the three major manufacturers. In the recent quarter JTI MacDonald launched additional brands into the price category at prices lower than those charged by RBH for its price category cigarettes. The potential impact of this initiative on future performance is, at this time, uncertain. Shown below is a comparative summary of domestic shipments of tobacco products for the three months ended June 30, 2005.
<< Canadian Domestic Tobacco Shipments
(in billions of sticks and equivalents) For the three months Ended June 30 2005 2004 Three Reported Three Reported RBH Majors Industry RBH Majors Industry Premium cigarettes 0.8 5.1 5.1 0.9 6.0 6.0
Price category Cigarettes 1.6 3.1 3.6 1.2 2.3 2.9 Fine cut 0.6 1.0 1.0 0.7 1.3 1.3 Total Price Category 2.2 4.1 4.6 1.9 3.6 4.2
Total 3.0 9.2 9.7 2.8 9.6 10.2
RBH Market Share Premium cigarettes 15.5% 15.5% 15.5% 15.5% Price category 54.5% 48.2% 53.8% 45.8% Composite markets 33.1% 31.3% 29.7% 27.9%
Notes: 1. This table includes information relating to domestic shipments only (i.e., excluding duty-free and export sales). Reported industry export and duty free shipments for the three month period were: premium cigarettes - 0.1 billion sticks in fiscal 2006, and 0.1 billion sticks in fiscal 2005; price category cigarettes - 0.6 billion sticks in fiscal 2006 and 0.6 billion sticks in fiscal 2005.
Reported industry volumes continue to be influenced by the evolution of the cigarette price category which is affecting the relative contributions of premium versus price category cigarettes and fine cut products. Other factors affecting industry shipments include:
continued declines in consumer incidence and consumption of tobacco products; the presence of contraband and counterfeit products. High taxes and the potential for future taxation increases contribute to probable increases in the presence of contraband product in the domestic market; seasonal trends in consumer purchasing patterns. Over the past two fiscal years, the period between April and September has demonstrated significantly stronger industry shipments than the period between October and March. RBH management believes that smoking restrictions are causing consumer consumption variations between summer and winter seasons; fluctuations in wholesaler buying patterns as a result of anticipated tax and wholesale price increases. Swings in wholesaler purchasing patterns motivated by the timing of tax and price increases, and other factors are anticipated to continue to have a significant effect on quarter-to-quarter comparisons in the future; and continuing changes in the cigarette price category particularly as a result of changes in brands and pricing within the category.
Results at Rothmans, Benson & Hedges Inc.
In the quarter ended June 30, 2005, RBH shipped a total of 3.0 billion equivalent sticks into the domestic market, a 6.7% increase from the comparable period of the prior year. RBH's share of the domestic composite tobacco market increased to 31.3% for the quarter ended June 30, 2005 versus 30.6% for the three months ended March 31, 2005 and 27.9% for the three months ended June 30, 2004. This increase is attributable to increased shipments of RBH price category cigarettes, which more than offset declines in premium cigarette and fine cut shipments. RBH's premium cigarette volumes declined 16.0% in the recent quarter compared to the same period in the prior year, reasonably in keeping with reported industry decline rates. RBH's domestic market share of premium cigarettes was 15.5% in the recent quarter ended June 30, 2005, compared with 15.2% in the quarter ended March 31, 2005, and 15.5% in the quarter ended June 30, 2004. RBH sold 1.6 billion price category cigarettes in the recent quarter representing an increase of 40.5% compared with the same period in fiscal 2005. This resulted in a market share within the domestic cigarette price category of 44.8% in the recent quarter versus 42.9% in the quarter ended March 31, 2005 and 39.8% in the quarter ended June 30, 2004. RBH continues to experience solid performance from its Number 7, Canadian Classics and Mark Ten trade-marks. During the recent quarter RBH launched 20's format line extensions in certain provinces under the Canadian Classics trade-mark. These launches continue RBH's strategy of offering the price category cigarette consumer a wide variety of choice in brand attributes. A number of factors continue to influence the overall growth of this product category including the brands being offered to consumers, their availability and changes in pricing within the category. Shipments of RBH fine cut products declined 17.3% in the recent quarter compared to the same period in the prior year. This decline primarily resulted from consumers switching from Presto Pak pre-portioned stick and high yield products to price category cigarettes. RBH's share of the domestic fine cut market was 60.1% in the recent quarter versus 59.5% in the quarter ended March 31, 2005 and 59.7% in the quarter ended June 30, 2004. During the recent quarter, in certain provinces, RBH launched "Rolls 100% More" high yield products in a variety of formats under the Number 7 and Belvedere trade-marks. Combining the cigarette price category with the fine cut segment, RBH's share of the total price category was 48.2% in the recent quarter representing an increase from 47.1% in the quarter ended March 31, 2005 and 45.8% in the quarter ended June 30, 2004. RBH's recent quarter EBITDA margin was 48.7% compared with 37.4% in the prior quarter and 45.1% in the quarter ended June 30, 2004. The EBITDA margin increase over the prior quarter was principally due to higher shipments and prices across all categories of tobacco products, lower leaf and material input costs and lower sales and marketing expenditures. The EBITDA margin increase in the recent quarter versus the comparable period of the prior year was principally due to increased volumes of cigarette price category shipments, higher prices on all categories of tobacco products and lower materials costs. Effective April 11, 2005, RBH increased the price charged to wholesalers for its premium cigarettes and Number 7 cigarettes by $0.80 per carton. Prices on Canadian Classics and Mark Ten were increased by $0.40 per carton. The prices on fine cut products were increased by varying amounts depending on format.
Rothmans Inc. Financial Results
Basic earnings per share were $0.44 in the recent quarter compared with $0.35 in the comparable period of the prior year. Sales, net of excise duty and taxes, were $14.2 million higher for the quarter ended June 30, 2005 versus the comparable period in the prior year. Increased prices across all product categories and increased volumes of price category cigarette shipments in the recent quarter versus the comparable period of the prior year more than offset decreases in sales resulting from declines in both premium cigarette and fine cut volumes. Investment income was $1.1 million in the recent quarter versus $0.9 million in the comparable period of the prior year reflecting the higher average cash balance during the quarter. Operating costs were $0.7 million higher in the recent quarter versus the comparable period of the prior year. Product variable costs were higher than the comparable period of the prior year due to higher shipment volumes. These were partially offset by reduced materials costs. Income tax expense was $32.5 million in the recent quarter resulting in an effective tax rate for the fiscal year to date of 39.7%. The Company expects its effective tax rate for the fiscal year to approximate 39.7%.
Liquidity and Capital Resources
Cash flow
RBH's operations generate significant cash resources. These are sufficient to fund interest payments on RBH's long-term debt, capital expenditures and dividends to shareholders. The dividends received by Rothmans Inc. are sufficient to fund its operations, pay dividends to its public shareholders and continue to accumulate cash reserves. The Company's consolidated cash flow from operations before changes in working capital was $49.4 million in the recent quarter versus $42.3 million in the comparable period of the prior year. During the quarter, the Company paid dividends of $121.6 million, representing a regular quarterly dividend of $0.30 per share and a special dividend of $1.50 per share.
Cash resources
Cash and short-term investments of $99.1 million represented the balances at Rothmans Inc. compared with $192.0 million held at March 31, 2005. This reduction was a result of the special dividend paid in the quarter by Rothmans Inc. At June 30, 2005, RBH had notes payable of $13.5 million issued through its commercial paper program to cover short term cash requirements primarily related to the timing of the payment of federal excise taxes. RBH's working capital requirements were higher in the recent quarter versus the comparable period of the prior year. Increasing sales have resulted in higher accounts receivable and inventory balances and increased capital spending. RBH continues to actively manage its inventory levels and has sufficient resources through its existing commercial paper program and bank lines to fund its working capital requirements.