Pantera Silver Corp. press release
Rothmans Inc. Reports Third Quarter Results
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
3rd Quarter Report Nine Months Ended December 31, 2005
Trading: TSX: ROC
TORONTO, Feb. 3 /CNW/ - Rothmans Inc. today announced its results for the third quarter of fiscal 2006, ended December 31, 2005. Rothmans' earnings for the third quarter of fiscal 2006 were $23.3 million, or $0.34 basic earnings per share, compared with $25.4 million or $0.38 basic earnings per share in the third quarter of fiscal 2005. For the first nine months of this fiscal year, Rothmans' earnings were $83.1 million or $1.23 per share, compared with $75.7 million or $1.12 per share in the first nine months of the prior year. Sales, net of excise duty and taxes, at 60%-owned subsidiary Rothmans, Benson & Hedges Inc. decreased to $157.4 million in the most recent quarter compared with $164.1 million in the third quarter of fiscal 2005. Sales for the first nine months of this fiscal year were $508.2 million versus $492.6 million for the same period a year earlier. RBH's recent quarter EBITDA margin was 43.8% compared with 50.1% in the prior quarter and 45.7% in the quarter ended December 31, 2004. These EBITDA margin decreases were primarily the result of lower premium cigarette and fine cut volumes sold, only partially offset by increased volumes of price category cigarettes, higher prices across all product categories and reduced material costs. RBH's share of the total domestic composite market was 31.4% for the quarter ended December 31, 2005, compared with 31.1% in the previous quarter and 30.6% in the third quarter of fiscal 2005. Premium cigarette share was 15.9%, compared with 15.6% in the previous quarter and 15.8% during the third quarter of last year. RBH's share of the domestic price cigarette category of 43.5% compared with 44.1% and 42.8% in the prior quarter and third quarter of fiscal 2005. In the fine cut market, RBH's share was 58.6%, down from 59.2% in the prior quarter and 59.4% in the third quarter of fiscal 2005. RBH's share of the total domestic price category was 46.3%, compared with 47.0% in both the prior quarter and third quarter of fiscal 2005.
Outlook
"Variations in consumer consumption and wholesale buying patterns continue to result in quarter to quarter volatility. The presence of contraband product in the market caused by the high tax environment is expected to continue to adversely affect legitimate industry stakeholders including RBH," said John Barnett, President and Chief Executive Officer of Rothmans Inc. and RBH. "In addition, smoking bans appear to have introduced a higher degree of seasonality than previously experienced. Despite these factors and the moderation in growth of the cigarette price category, we believe that RBH continues to be well positioned in a challenging environment." The foregoing contains forward-looking statements about the Company's outlook. Reference should be made to "Forward Looking Statements" as set out in the Management's Discussion and Analysis section of this release.
Dividend declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.30 per share payable on March 17, 2006 to shareholders of record at the close of business on March 3, 2006.
Analyst Conference Call and Webcast
Rothmans Inc. management will hold a conference call with analysts to discuss the third quarter results at 8:30 a.m. Toronto time on Friday, February 3, 2006. 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 February 10, 2006 by calling 1-800-408-3053 and entering reservation number 3173652. The recording can also be accessed through the investor website.
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 December 31, 2005
Management's Discussion and Analysis of Financial Condition and Results of Operations "MD&A", provides shareholders with a review of significant developments in the Company's financial performance in the fiscal quarter and nine months ended December 31, 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 December 31, 2005, the MD&A and unaudited financial statements of the Company for the quarters ended June 30, 2005 and 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 in this MD&A and other sections of this release (in particular the sections entitled "outlook") constitute "forward- looking statements" and express views as to future events, circumstances and trends relating to RBH's business and the Company. Words such as "plans", "intends", "Outlook", "expects", "anticipates", "believes", "should" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on management's current expectations and assumptions and entail various risks and uncertainties. There is no assurance that any forward-looking statement will materialize. Actual results may differ materially from these expectations and forward-looking statements, if known and unknown risks or uncertainties affect RBH's business, or if management's expectations or assumptions prove to be inaccurate. 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. Unless otherwise indicated, forward-looking statements describe expectations as of February 3, 2006. Factors that could cause the Company's actual results to differ materially from the forward-looking statements contained herein include, but are not limited to: government taxation policy with respect to tobacco products, legal proceedings and claims against the Company and RBH, changes in consumer incidence and consumption of tobacco products, levels of contraband and counterfeit products in the market, fluctuations in wholesaler buying patterns, changes in market share for RBH's products, and other risks and uncertainties described in the Company's regulatory filings. Additional information concerning risks and uncertainties affecting RBH's business and the Company and other factors that could cause financial results to fluctuate is set forth below under "Risks and Uncertainties" and is contained in the Company's filings with Canadian securities regulatory authorities, including the Company's 2005 Annual Information Form (in particular under "Legal Proceedings" and "Risk Factors") and 2005 Annual Report available on SEDAR at www.sedar.com or on the Company's website at 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 December 31, 2005, and "prior quarter" refers to the three months ended September 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 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 Company estimates and includes information reported by the three major manufacturers and by other manufacturers.
Industry Overview
Total reported domestic sales volumes for all tobacco products decreased 9.3% and 7.3% in the quarter and nine months ended December 31, 2005 versus the comparable periods in the prior fiscal year. Recent and prior quarter industry volume declines have been greater than the 6.6% decline experienced in fiscal 2005 and the 4.3% average annual decline rate experienced over the preceding five years. At present, it is unclear whether this represents a change in the long-term decline trend. Continued declines in consumer incidence and consumption of tobacco products and the presence of contraband and counterfeit products, likely due to the high tax environment, are impacting sales volumes. The relative contributions of these factors to the declines being experienced are, by their nature, not determinable. A number of other factors have been affecting overall industry shipments including: high taxes and the potential for future taxation increases. High taxes reflected in the selling price to the consumer 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; and fluctuations in wholesaler buying patterns as a result of anticipated tax and wholesale price increases, manufacturer sales programs and trade terms. Swings in wholesaler purchasing patterns motivated by the timing of tax increases, price increases, manufacturer sales programs, manufacturer trade terms and other factors are anticipated to have a significant effect on quarter-to-quarter comparisons in the future.
Total reported domestic premium cigarette volumes declined by 15.4% in both the quarter and nine months ended December 31, 2005 versus the same periods of the prior year. In the recent quarter, total reported domestic price category volumes declined 2.6% compared with the same period of the prior year, as lower fine cut volumes were only partially offset by higher price category cigarette volumes. For the nine months ended December 31, 2005, the total domestic price category volumes were 2.8% higher versus the same period of the prior year. RBH estimates that premium cigarettes represented 48.9% of total domestic industry shipments in the recent quarter versus 50.8% in the quarter ended September 30, 2005 and 52.4% in the quarter ended December 31, 2004. The price category is estimated to have represented 51.1% of total domestic industry shipments in the recent quarter, versus 49.2% in the quarter ended September 30, 2005 and 47.6% in the quarter ended December 31, 2004. Fine cut products are estimated to have represented 9.7% of the total domestic tobacco market in the recent quarter versus 9.5% in the prior quarter and 12.0% in the third quarter of last year. Price category cigarettes are estimated to have represented 41.4% of the total domestic tobacco market in the recent quarter versus 39.7% in the prior quarter and 35.6% in the third quarter of last year. The high tax environment continues to influence the relative contribution of the premium cigarette, price category cigarette and fine cut components of total industry volumes. Duty-free and export shipments of price category cigarettes shipped almost exclusively by regional manufacturers were 1.2 billion and 2.8 billion equivalent sticks in the recent quarter and nine months ended December 31, 2005, compared with 0.8 billion and 2.0 billion equivalent sticks in the same periods of the prior year. By their nature, the impact of these sales on the domestic tobacco market is not estimable. Effective February 1, 2006, the Province of Ontario increased tobacco taxes on tobacco products by $1.25 on a per carton or equivalent basis. Below is a comparative summary of domestic shipments of tobacco products for the nine months ended December 31, 2005.
<< Canadian Domestic Tobacco Shipments (in billions of sticks and equivalents) For the nine months ended December 31 2005 2004 Three Reported Three Reported RBH Majors Industry RBH Majors Industry Premium cigarettes 2.2 14.2 14.2 2.6 16.8 16.8
Price category cigarettes 4.9 9.6 11.2 4.1 8.2 10.0 Fine cut 1.7 2.8 2.8 2.2 3.6 3.6
Total Price Category 6.6 12.4 14.0 6.3 11.8 13.6
Total 8.8 26.6 28.2 8.9 28.6 30.4
RBH Market Share Premium cigarettes 15.7% 15.7% 15.6% 15.6% Price category 53.2% 47.1% 53.2% 46.0% Composite markets 33.1% 31.2% 31.1% 29.2%
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 nine month period were: premium cigarettes - 0.4 billion sticks in fiscal 2006, and 0.4 billion sticks in fiscal 2005; price category cigarettes - 2.8 billion sticks in fiscal 2006 and 2.0 billion sticks in fiscal 2005.
Results at Rothmans, Benson & Hedges Inc.
In the quarter ended December 31, 2005, RBH shipped a total of 2.8 billion equivalent sticks into the domestic market, a 6.9% decrease from the comparable period of the prior year. For the nine months ended December 31, 2005, RBH shipped a total of 8.8 billion equivalent sticks, a 0.9% decrease from the comparable period of the prior year. In contrast with the first two quarters of this fiscal year, RBH's recent quarter cigarette price category shipment growth only partially offset the factors driving overall industry decline trends in the premium cigarette and fine cut categories. RBH's share of the total domestic composite market of 31.4% for the quarter ended December 31, 2005 was up from the 31.1% and 30.6% for the three months ended September 30, 2005 and December 31, 2004 respectively. RBH's premium cigarette volumes declined 14.9% in the recent quarter and 15.2% 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 15.9% in the recent quarter ended December 31, 2005, a marginal improvement from 15.6% in the quarter ended September 30, 2005, and 15.8% in the quarter ended December 31, 2004. Sales of RBH's price category cigarettes totaled 1.6 billion sticks in the recent quarter and 4.9 billion sticks for the year to date, which represented increases of 7.4% and 20.3% from shipments in the comparable periods of fiscal 2005. The recent quarter share of the domestic cigarette price category was 43.5% versus 44.1% in the prior quarter, and 42.8% in the quarter ended December 31, 2004. RBH continues to experience solid performance in the cigarette price category. 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 28.0% in the recent quarter and 23.5% in the fiscal year to date compared to the same periods in the prior year. This decline primarily resulted from reduced consumer purchases of high yield tobacco and pre-portioned stick products. RBH's share of the domestic fine cut market was 58.6% in the recent quarter, down from 59.2% in the quarter ended September 30, 2005, and 59.4% in the quarter ended December 31, 2004. During the recent quarter, RBH initiated a program of stock keeping unit "SKU" rationalization within the fine cut category. When completed, RBH's fine cut consumers will continue to be offered a wide range of products. Combining the cigarette price category with the fine cut segment, RBH's share of the total price category was 46.3% in the recent quarter, down from 47.0% in the quarters ended September 30, 2005 and December 31, 2004. RBH's recent quarter EBITDA margin was 43.8% compared with 50.1% in the prior quarter and 45.7% in the quarter ended December 31, 2004. These EBITDA margin decreases were primarily the result of lower premium cigarette and fine cut volumes sold, only partially offset by increased volumes of price category cigarettes, higher prices across all product categories and reduced material costs. During the quarter ended December 31, 2004, RBH increased wholesale selling prices on its Number 7 products by $2.00 per carton of 200 cigarettes and its Canadian Classics and Mark Ten products by $0.50 per carton. In addition, the price on cigars and fine cut products were increased by varying amounts depending on format. Early in the quarter ended June 30, 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 and prices on fine cut products were increased by varying amounts depending on format.
Rothmans Inc. Financial Results
Basic earnings per share were $0.34 in the recent quarter and $1.23 for the nine months ended December 31, 2005, compared with $0.38 and $1.12 in the comparable periods of the prior year. Sales, net of excise duty and taxes, were $6.7 million lower for the quarter, and $15.6 million higher for the nine months, ended December 31, 2005 versus the comparable periods 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 only partially offset decreases in sales resulting from declines in both premium cigarette and fine cut volumes. Investment income declined to $0.8 million in the recent quarter from $1.2 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 $0.7 million and $2.4 million lower in the recent quarter and nine months ended December 31, 2005 versus the comparable periods of the prior year. These operating cost reductions resulted from lower product variable costs, reflecting lower shipment volumes, lower component costs of materials used to manufacture finished goods and lower general administrative costs, partially offset by higher sales and marketing costs. Income tax expense was $25.7 million in the quarter and $91.2 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%.