Pantera Silver Corp. press release
Rothmans Inc. Reports Increased Sales and Earnings in the Second Quarter
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
2nd Quarter Report Six Months Ended September 30, 2005
Trading: TSX: ROC
TORONTO, Oct. 28 /CNW/ - Rothmans Inc. today announced increased earnings for the second quarter of fiscal 2006, ended September 30, 2005. Rothmans earnings for the second quarter of fiscal 2006 were $30.1 million, or $0.44 basic earnings per share, compared with $26.4 million or $0.39 basic earnings per share in the second quarter of fiscal 2005. For the first six months of this fiscal year, Rothmans' earnings were $59.8 million or $0.88 per share, compared with $50.2 million or $0.75 per share in the first half of the prior year. Sales, net of excise duty and taxes, at 60%-owned subsidiary Rothmans, Benson & Hedges Inc. increased to $174.8 million in the most recent quarter compared with $166.7 million in the second quarter of fiscal 2005. Sales for the first six months of this fiscal year were $350.8 million versus $328.5 million for the same period a year earlier. RBH's EBITDA margin increased to 50.1% compared with 48.7% in the prior quarter and 46.3% in the quarter ended September 30, 2004. This increase was principally due to increased volumes of price category cigarettes, higher prices across all product categories, and reduced materials costs, which more than offset lower premium cigarette and fine cut volumes. RBH's share of the total domestic composite market was 31.0% for the quarter ended September 30, 2005, compared with 31.1% in the previous quarter and 29.1% in the second quarter of fiscal 2005. Its premium cigarette share was 15.6%, compared with 15.5% in the previous quarter and 15.6% during the second quarter of last year. RBH's share of the domestic price cigarette category of 43.8% compared with 44.4% and 40.4% in the prior quarter and second quarter of fiscal 2005. In the fine cut market, RBH's share was 59.2%, down from 60.3% in the prior quarter and 59.9% in the second quarter of fiscal 2005. RBH's share of the total domestic price category was 46.8%, compared with 47.8% and 45.4% in the prior quarter and second quarter of fiscal 2005. "Rothmans, Benson & Hedges Inc.'s strategic focus has continued to result in solid sales, earnings and an improved EBITDA margin," said John Barnett, President and Chief Executive Officer of Rothmans Inc. "While the market remains volatile, we believe the latest quarter demonstrates that RBH is well positioned to continue to respond to a challenging environment." During the quarter, the Supreme Court of Canada released a ruling upholding the constitutional validity of the Tobacco Damages and Health Care Costs Recovery Act (British Columbia). Although disappointed in the results of the Supreme Court decision, RBH believes that it continues to have good defenses to the Province's claim. To date, no substantive court hearings have been held regarding the merits of the Province's claim as the action had been stayed pending the outcome of the constitutional challenge. The Supreme Court decision lifted the stay of the Province's action. In its decision, the Supreme Court expressly stated that "tobacco manufacturers sued pursuant to the Act will receive a fair civil trial, in the sense that the concept is traditionally understood; they are entitled to a public hearing, before an independent and impartial court, in which they may contest the claims of the plaintiff and adduce evidence in their defense." The Supreme Court decision also left open novel and complex legal issues which all but ensure many years of complex litigation. Shortly after the end of the second quarter, Rothmans was rated as one of the top 10 most respected Corporate Cultures in a survey of 107 senior Canadian executives conducted by Canadian Business magazine. "We appreciate this endorsement of the efforts of all our people to build and maintain a truly effective company," said Mr. Barnett. "Our culture and values are built upon priorities that reflect teamwork, leadership and a commitment to win. We have long believed that these values are key components driving how our organization functions and are critical to our success." Rothmans Inc. was once again highly ranked in The Globe and Mail's annual report on corporate governance practices. Rothmans received the third highest rating awarded, improving on its 2004 ranking.
Outlook
"We expect continued quarter-to-quarter volatility in the market because of variations in consumer consumption and wholesale buying patterns. Those variations are due to seasonal influences, competitive brand positioning, 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 affect legitimate industry stakeholders including RBH. Despite these market forces, 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."
Dividend declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.30 per share payable on December 17, 2005 to shareholders of record at the close of business on December 2, 2005.
Analyst Conference Call and Webcast
Rothmans Inc. management will hold a conference call with analysts to discuss the second quarter results at 8:30 a.m. Toronto time on Friday, October 28, 2005. To listen to the conference call, shareholders are invited to call 1-866-898-9626 or (416) 340-2216. 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 November 4, 2005 by calling 1-800-408-3053 and entering reservation number 3164719. The recording can also be accessed through the investor website. Media are invited to listen to the call and to contact John McDonald at (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 780 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 September 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 and six months ended September 30, 2005, compared with 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 September 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. 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 and approved 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 security 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 September 30, 2005, and "prior quarter" refers to the three months ended June 30, 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" refer to RBH, Imperial Tobacco Canada Limited (ITL), and JTI-MacDonald Corp. (JTI). "Premium cigarettes" refers to tailor-made cigarettes sold at premium retail price, "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 Company estimates and includes, in addition to the information reported by the three major manufacturers, information supplied by smaller regional manufacturers.
Industry Overview
Total reported domestic sales volumes for all tobacco products decreased 8.1% and 6.2% in the quarter and six months ended September 30, 2005 versus the comparable periods in the prior fiscal year. Total reported domestic premium cigarette volumes declined by 14.7% and 15.4% in the quarter and six months ended September 30, 2005 versus the same periods of the prior year. In the recent quarter, total reported domestic price category volumes remained essentially unchanged compared with the same period of the prior year, as lower fine cut volumes offset higher price category cigarette volumes. For the six months ended September 30, 2005, the total domestic price category volumes were 5.9% higher versus the same period of the prior year. RBH estimates that premium cigarettes represented 50.6% of total domestic industry shipments in the recent quarter versus 51.7% in the quarter ended June 30, 2005 and 54.5% in the quarter ended September 30, 2004. The price category is estimated to have represented 49.4% of the Canadian domestic tobacco market in the recent quarter, versus 48.3% in the quarter ended June 30, 2005 and 45.5% in the quarter ended September 30, 2004. Fine cut products are estimated to have represented 9.5% of the total domestic tobacco market in the recent quarter versus 10.6% in the prior quarter and 11.5% in the second quarter of last year. Price category cigarettes are estimated to have represented 39.9% of the total domestic tobacco market in the recent quarter versus 37.8% in the prior quarter and 33.9% in the second quarter of last year. Shown below is a comparative summary of domestic shipments of tobacco products for the six months ended September 30, 2005.
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Canadian Domestic Tobacco Shipments (in billions of sticks and equivalents) For the six months ended September 30 2005 2004 Three Reported Three Reported RBH Majors Industry RBH Majors Industry Premium cigarettes 1.5 10.0 10.0 1.8 11.8 11.8
Price category cigarettes 3.3 6.4 7.6 2.6 5.3 6.5 Fine cut 1.2 1.9 1.9 1.5 2.4 2.5 Total Price Category 4.5 8.3 9.5 4.1 7.7 9.0
Total 6.0 18.3 19.5 5.9 19.5 20.8
RBH Market Share Premium cigarettes 15.6% 15.6% 15.5% 15.5% Price category 53.9% 47.3% 53.0% 45.6% Composite markets 33.0% 31.1% 30.4% 28.5%
Note: 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 six month period were: premium cigarettes - 0.2 billion sticks in fiscal 2006, and 0.3 billion sticks in fiscal 2005; price category cigarettes - 1.5 billion sticks in fiscal 2006 and 1.2 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 stronger industry shipments than the period between October and March. RBH management believes that smoking restrictions are causing consumer consumption variations between the 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 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 September 30, 2005, RBH shipped a total of 3.0 billion equivalent sticks into the domestic market, a 2.1% decrease from the comparable period of the prior year. For the six months ended September 30, 2005, RBH shipped a total of 6.0 billion equivalent sticks, a 2.1% increase from the comparable period of the prior year. The impact of increased shipments of RBH price category cigarettes essentially offset volume declines in both premium cigarette and fine cut shipments, in both the quarter and six months ended September 30, 2005. RBH's share of the total domestic composite market of 31.0% for the quarter ended September 30, 2005 was comparable with the 31.1% for the three months ended June 30, 2005 and was up from 29.1% for the three months ended September 30, 2004. RBH's premium cigarette volumes declined 14.6% in the recent quarter and 15.3% in the fiscal year to date as compared to the same periods in the prior year. RBH's domestic market share of premium cigarettes was 15.6% in the recent quarter ended September 30, 2005, essentially unchanged from 15.5% in the quarter ended June 30, 2005, and 15.6% in the quarter ended September 30, 2004. Sales of RBH's price category cigarettes totaled 1.7 billion sticks in the recent quarter and 3.3 billion sticks for the year to date, which represented increases of 17.4% and 27.7% as compared with shipments in the comparable periods of fiscal 2005. The recent quarter share of the domestic cigarette price category was 43.8% versus 44.4% in the prior quarter, and 40.4% in the quarter ended September 30, 2004. RBH continues to experience solid performance from its Number 7, Canadian Classics and Mark Ten trade-marks. A number of factors continue to influence the overall growth of this product category including the brands being offered to consumers, their availability and price. Shipments of RBH fine cut products declined 25.5% in the recent quarter and 21.3% in the fiscal year to date compared to the same periods in the prior year. This decline primarily resulted from consumers switching from high yield tobacco and Presto Pak pre-portioned stick products to price category cigarettes. RBH's share of the domestic fine cut market was 59.2% in the recent quarter, down from 60.3% in the quarter ended June 30, 2005, and 59.9% in the quarter ended September 30, 2004. Combining the cigarette price category with the fine cut segment, RBH's share of the total price category was 46.8% in the recent quarter, down from 47.8% in the quarter ended June 30, 2005, but up from 45.4% in the quarter ended September 30, 2004. RBH's recent quarter EBITDA margin was 50.1% compared with 48.7% in the prior quarter and 46.3% in the quarter ended September 30, 2004. The EBITDA margin increase was principally 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.
Rothmans Inc. Financial Results
Basic earnings per share were $0.44 in the recent quarter and $0.88 for the six months ended September 30, 2005 compared with $0.39 and $0.75 in the comparable period of the prior year. Sales, net of excise duty and taxes, were $8.1 million higher for the quarter ended September 30, 2005 and $22.3 million higher for the six months ended September 30, 2005 versus the comparable periods in the prior year. Increased prices across all product categories and increased volumes of price category cigarettes 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 declined to $0.7 million in the recent quarter from $0.9 million in the comparable period of the prior year. A special dividend of $1.50 per share paid during the first quarter of fiscal 2006 reduced the average cash balance held by the Company during the recent quarter versus the comparable period of the prior year. Operating costs were $2.4 million and $1.7 million lower in the recent quarter and six months ended September 30, 2005 versus the comparable periods of the prior year. Product variable costs were lower in the recent quarter but higher during the six months ended September 30, 2005 than in the comparable periods of the prior year, reflecting the comparative change in shipment volumes in these periods. Total component costs of materials used to manufacture finished goods were lower in both the recent quarter and six months ended September 30, 2005 than in the comparable periods of the prior year. Income tax expense was $33.0 million in the quarter and $65.6 million in the fiscal year to date, 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. RBH's cash flow from operations before changes in working capital was $54.7 million in the recent quarter and $104.4 million in the fiscal year to date versus $47.9 million and $90.2 million in the comparable periods of the prior year. The Company expects that cash generated from RBH's operations will continue to be sufficient to meet the financing needs of RBH's business. During the quarter, the Company paid dividends of $20.3 million, representing a dividend of $0.30 per share.