Pantera Silver Corp. press release
Rothmans Inc. - Fourth Quarter and Year Ended March 31, 2006
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
Rothmans Inc. Delivers Higher Sales, Earnings and Cash Flow in Fiscal 2006
Trading: TSX: ROC
TORONTO, May 19 /CNW/ - Rothmans Inc. today announced results for the fourth quarter and full fiscal year ended March 31, 2006. Rothmans' earnings for the year ended March 31, 2006 were $99.5 million, or $1.47 basic earnings per share compared with $93.0 million, or $1.38 basic earnings per share in fiscal 2005. Sales at 60%-owned Rothmans, Benson & Hedges Inc., net of excise duty and taxes, were $652.3 million compared with $636.8 million last year. The $15.5 million increase in sales is a result of increased volumes of price category cigarettes together with price increases across all product categories, which more than compensated for volume declines in premium cigarettes and fine cut products. Investment income was $3.4 million compared with $4.2 million a year earlier as a result of lower average cash balances following the payout of a special dividend in the first quarter of fiscal 2006. RBH's EBITDA margin was 44.8% for the year compared with 43.8% in the prior year. The increase was due to a variety of factors, including increased volumes of price category cigarettes, higher prices across all product categories and reduced product input costs. These elements more than offset reduced volumes in premium cigarettes and fine cut products and higher manufacturing, sales, marketing and general administrative costs. During the last three quarters of the fiscal year, the rate of decline in reported industry sales volumes has accelerated. We believe this was caused by increased sales of non-taxed or partially taxed contraband product. For fiscal 2006, RBH's share of the total domestic composite market was 31.3%, up from 29.5% in 2005. Premium cigarette market share was 15.6% compared with 15.5% a year earlier. In the price category, RBH's total share increased to 47.4% compared with 46.3% in 2005. The cigarette price category segment was 44.4% compared with 41.5% in 2005. Share of the domestic fine cut market was 59.1% compared with 59.6% a year earlier. Including the $1.50 per share special dividend, Rothmans Inc. paid dividends of $182.7 million, or $2.70 per share, in fiscal 2006. This compares with dividends of $70.9 million, or $1.05 per share, in 2005. "Once again, Rothmans delivered improved financial results for the fiscal year," said John Barnett, President and Chief Executive Officer of Rothmans Inc. "The Company remains the leader in the growing price cigarette category and maintains a solid financial position despite reduced industry profitability. As a result of our strong performance and solid cash flow, Rothmans paid a special dividend of $1.50 per share during the year, in addition to the regular $1.20 per share dividend."
Fourth Quarter
Rothmans' earnings for the fourth quarter of fiscal 2006 were $16.4 million, or $0.24 basic earnings per share, compared with $17.3 million, or $0.26 basic earnings per share, in fiscal 2005. Sales, net of excise duty and taxes, at Rothmans, Benson & Hedges, were $144.1 million compared with $144.2 million a year earlier. Investment income was $0.8 million compared with $1.3 million last year. Seasonal trends in consumer purchasing patterns, with smoking restrictions and weather causing variations between the summer and winter, combined with accelerated declines in reported industry sales volumes are believed to have reduced both earnings and sales volumes in the fourth quarter of fiscal 2006. RBH's EBITDA margin was 33.9% compared with 37.4% for the same period last year. The decrease was due to reduced sales volumes affecting both RBH and the reported industry and increases in various general and administrative costs, partially offset by price increases across all product categories.
Outlook
"We anticipate continued growth in the cigarette price category in fiscal 2007, although at a slower rate than we have seen in recent years as the category approaches maturity," said Mr. Barnett. "While we expect increasing competitive challenges in the coming fiscal year, we are confident in our ability to react quickly and effectively to ongoing changes in the tobacco marketplace"
Dividend declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.30 per share payable on June 17, 2006 to shareholders of record at the close of business on June 2, 2006.
Analyst Conference Call and Webcast
Rothmans Inc. management will hold a conference call with analysts to discuss the fourth quarter and full year results at 8:30 a.m. Toronto time on Friday, May 19, 2006. In order 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 May 26 by calling 1-800-408-3053 and entering reservation number 3185651. 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 745 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.
To Our Shareholders
We are pleased to once again report another outstanding year at Rothmans Inc. The Company's 60%-owned subsidiary Rothmans, Benson & Hedges Inc. (RBH) delivered increased net sales, earnings and cash flow despite significant declines in profitability and tobacco volumes experienced by the Canadian tobacco industry. RBH's performance has resulted in a sizable increase in cash paid to shareholders through dividends of $2.70 per share in fiscal 2006, including a $1.50 per share special dividend paid in the first quarter, compared with a regular annual dividend of $1.05 per share paid in fiscal 2005. Maintenance of RBH's market share in the premium cigarette and fine cut categories and manufacturer's price increases across all product categories contributed to its superior performance during the year. However, the most significant factor was that RBH remains the leader in the price cigarette category which continued to grow this year at the expense of the premium and fine cut market categories. While the growth in price category cigarette volumes has slowed, and competition in this category has increased, we continued to be pleased with the performance of RBH's Number 7, Canadian Classics and Mark Ten brands. During the last three quarters of the fiscal year, the rate of decline in reported industry sales volumes accelerated. We believe that this was caused by increased sales of non-taxed or partially taxed contraband product. While the nature of the contraband market means it cannot be measured, recent media reports appear to show a heightened level of audacity by contraband profiteers as they flout the law in the practice of their trade. The establishment of a growing and seemingly accepted contraband infrastructure is a cause for concern. Wholesalers, retailers, governments and the public, as well as RBH, are all negatively affected by the sale of contraband tobacco products. A resolution to this growing issue is no doubt complex, requiring adjustments in the structure of tobacco regulation and taxation. However, any changes made in an effort to resolve the problem will be ineffective without increased enforcement. The federal and provincial governments can control the outcome - either a worsening problem or a fundamental solution. We believe that disregard for the unfettered expansion of contraband has adverse consequences for governments' revenue and health objectives. Rothmans and RBH are keenly interested in supporting government initiatives that will lead back to a Canadian tobacco market served by regulated tax-paid product.
Another Year of Strong Results
RBH increased net sales in fiscal 2006 by $15.5 million or 2.4% to $652.3 million, as a result of increased volumes in the cigarette price category and higher prices, which more than offset volume declines in premium cigarette and fine cut products. The payment of a special dividend of $1.50 per share during the first quarter of the fiscal year led to lower average balances of cash and short-term investments and a decrease in investment income to $3.4 million. Operating costs of $363.5 million were consistent with the prior year as increases in certain general and administrative expenses were offset by lower variable costs resulting from slightly lower volumes shipped. Net earnings increased by 7.0% to $99.5 million from $93.0 million in the prior year. Basic earnings per share rose to $1.47 in the year from $1.38 in fiscal 2005. On a fully diluted basis, earnings per share increased to $1.45 from $1.37. As in fiscal 2005, the first six months of fiscal 2006 were stronger than the last six months. Seasonality and accelerating declines in reported industry sales volumes, during the second half of the year, are believed to have caused these results. Overall, Rothmans Inc. has once again increased its level of profitability, which translates to solid cash flow that is ultimately paid out to the Company's shareholders through dividends. As this report was being completed, our regular annualized dividend of $1.20 per share represented a dividend yield of approximately 5.4%. The Company's financial position continues to be strong. Even with a high level of earnings returned to shareholders through regular dividend distributions, Rothmans Inc. continues to hold cash and short-term investments equivalent to approximately $1.25 per share as at March 31, 2006. We continue to believe that further consolidation in the worldwide tobacco industry is likely, and that further consolidation, should it occur, may result in acquisition opportunities that would be attractive to Rothmans Inc. We monitor these trends and opportunities and regularly assess our position with the ultimate goal of securing an accretive opportunity that will increase shareholder value.
RBH Continues to Increase Market Share and Profitability
Rothmans Inc.'s increased profitability is directly attributable to the solid performance of Rothmans Benson & Hedges, which increased its share of the total reported domestic tobacco market to 31.3% versus 29.5% in the previous year. This increase in share reflects RBH's success in the cigarette price category, through its Number 7, Canadian Classics and Mark Ten trade-marks which continued to have leading performance. Statistics Canada data indicates that the decline in total reported domestic sales volume accelerated to 8.1% year over year from an average annual decline rate of 5.3% for the five previous years. We believe unreported sales of contraband product are contributing to the increased rate of decline. Within this decline in industry volumes, the product mix has continued to shift with many consumers leaving their traditional premium brands for contraband or cigarette price category products. From a 33% share of the total tobacco market in fiscal 2005, price category cigarettes increased to almost 40% this past year. Premium cigarette shipments were 50% of the total market in fiscal 2006, down from about 55% the previous year. Shipments of fine cut products declined to 10% from nearly 12% in fiscal 2005. EBITDA margin in the fourth quarter of 2006 was 33.9% compared with 37.4% in the same period of fiscal 2005. This reflects reduced unit volumes affecting both RBH and the industry and increases in various general and administrative costs, partially offset by price increases across all product categories. Despite the challenging market, RBH continued to successfully pursue its strategies and increased its EBITDA margin to 44.8% in fiscal 2006 from 43.8% in the previous year.
Towards Effective Regulation
The health risks associated with smoking have been recognized and acknowledged for a considerable period of time. It is clear that governments have an important leadership role to play in continuing to make the public aware of those risks as well as ensuring that youth do not have access to tobacco products. Effective tobacco policy can be achieved through a combination of rational laws, regulation, tax policy and enforcement. Policies in any of these areas that fail to recognize consumer demand, political realities, and the mechanics of contraband markets will leave enforcement as the only option. Enforcement can only be achieved with the support of society, the political will to use that support, and the allocation of significant resources. Current tobacco policies restrict the marketplace, while providing powerful economic incentives to ignore those restrictions. Constructive dialogue among all market participants including governments, manufacturers, distributors, retailers and consumers provides the best chance of identifying and managing policy issues related to tobacco. RBH has been a long-time proponent of dialogue and continues to seek opportunities to work co-operatively with governments. However, governments appear to view the landscape of reasonable regulation differently and RBH has had only limited success in its continued efforts to create a rational and inclusive dialogue with governments. Often it faces governments that do not want and will not allow the type of dialogue needed to create and maintain effective regulation. The result is regulation which does not meet the legislative mandate, does not respect the rights of those affected, and therefore often has unintended and counterproductive consequences. Areas of continuing concern for RBH are tobacco taxation policy and the lack of consistent enforcement of the laws and regulations set by governments. Tobacco tax increases moderated during this last fiscal year, but with the current high level of tax per carton there is a powerful economic incentive to contraband profiteers. In Canada and in other parts of the world, high taxes have been shown to create turmoil in the market, turmoil characterized by smuggling, counterfeiting, illegal manufacturing, increased theft and other criminal activities. While these activities add to enforcement costs and the risks faced by the employees of manufacturers, wholesalers and retailers, they also do nothing to further governments' stated policy objectives of reducing consumption, enhancing tax revenues and restricting youth access to tobacco. High taxes, in the absence of the ability and political will to enforce laws and regulations, are a recipe for an escalating problem.
A Team Effort
Rothmans and RBH are fortunate to have a dedicated Board, a skilled management team and a group of unionized and non-unionized employees all working in concert to increase shareholder value. A unique culture has evolved at RBH which has been crystallized within our TLC values: Teamwork, Leadership and Commitment to Win. These simple yet powerful values demonstrate the collective collegiality and drive that are brought by employees to build the business in a very challenging and competitive market. RBH was recognized this year as one of the 10 most respected corporate cultures in Canada in a survey conducted by Canadian Business Magazine. This recognition is a testament to the values the employees bring to RBH every day. We thank our employees for their outstanding efforts over the last year in once again producing strong results for the Company's shareholders. We'd also like to thank the management team whose strategic and tactical leadership has driven higher revenues and earnings in a difficult and changing environment. As always, we appreciate the knowledge and guidance of our Board of Directors. Rothmans shareholders are well-served by a Board whose concern for shareholder interests is reflected in the Company's continued high standing in The Globe and Mail's annual ranking of corporate governance practices. Finally, but most importantly, we thank you, our shareholders, for your continuing support and we assure you of our dedication to continuing to deliver strong financial performance and returns on your investment in Rothmans Inc.
Joe Heffernan Chairman of the Board
John Barnett President and Chief Executive Officer
Management's Discussion and Analysis for the fiscal year and three months ended March 31, 2006
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 year and fiscal quarter ended March 31, 2006 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 consolidated financial statements for the year ended March 31, 2006. The results reported herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP) and are presented in Canadian dollars. This MD&A is current as of May 18, 2006.
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 consolidated financial statements.
Report on Disclosure Controls and Procedures
For the financial year ended March 31, 2006, an evaluation of the effectiveness of the Company's disclosure controls and procedures was carried out under the supervision of, and with the participation of, the Company's management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2006 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.
Forward Looking Statements
Certain statements contained in this MD&A and other sections of this release (in particular the section 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", "estimates", "believes", "should" and similar expressions may 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 the Company, or if management's expectations or assumptions prove to be inaccurate. Unless otherwise indicated, forward-looking statements describe expectations as of May 18, 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 claims and potential claims; product liability claims; price category pressure on overall cigarette margins and changes in market share for RBH's products; declining consumer consumption and dependence on price increases; increases in the levels of contraband and counterfeit products in the market; changes in legislation and regulation; changes in government taxation policy; new product standards; dependence on the domestic tobacco market; fluctuating wholesaler and consumer purchasing patterns; and competition. 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 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 Annual Information Form (in particular under "Legal Proceedings" and "Risk Factors") available on SEDAR at www.sedar.com or on the Company's website at www.rothmansinc.ca.