Pantera Silver Corp. press release
Rothmans reports results for first quarter of fiscal 2007
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Trading: TSX: ROC
TORONTO, July 25 /CNW/ -Rothmans Inc. today announced its results for the first quarter of fiscal 2007, which ended June 30, 2006. Rothmans' earnings for the first quarter were $29.3 million, or $0.43 basic earnings per share, compared with $29.7 million or $0.44 basic earnings per share in the same quarter of fiscal 2006. Sales at 60%-owned subsidiary Rothmans, Benson & Hedges Inc., net of excise duty and taxes, decreased to $162.9(1) million in the most recent quarter compared with $164.6(1) million in the first quarter of fiscal 2006. During the three months ended June 30, 2006, total reported industry domestic sales volumes for all tobacco products decreased 9.8% from a year earlier. It is believed that the increased presence of contraband product contributed to this decline, which continues to exceed the historical average rate experienced by the industry. Total reported industry domestic sales volumes of 8.8 billion equivalent sticks in the most recent quarter were 16.0% higher than in the prior quarter, reflecting normal industry seasonality. RBH's EBITDA margin for the first quarter was 52.6%(1) compared with 52.3%(1) in the first quarter a year ago, primarily as a result of price increases across all product categories and lower sales and marketing costs. This was partially offset by the effect of lower shipment volumes, higher product input costs and volume shifts from the mid-tier to the lower-priced tier of the cigarette price category. In the quarter ended March 31, 2006, RBH's EBITDA margin was 36.9%(1).
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RBH's share of the total domestic composite market was 31.8% for the quarter ended June 30, 2006, unchanged from the previous quarter but higher than the 31.1% reported for the same quarter of 2006. Premium cigarette share was 15.5%, up slightly from 15.3% in the prior quarter but the same as a year earlier. RBH's share of the domestic price cigarette category of 45.0% compared with 45.8% in the previous quarter and 44.4% in the quarter ended June 30, 2005. In the fine cut market, RBH's share was 58.2%, up from 57.9% in the prior quarter but lower than the 60.3% share in the year-earlier quarter. RBH's share of the total domestic price category was 47.2%, compared with 48.2% in the prior quarter and 47.8% in the quarter ended June 30, 2005. "Results for the first quarter of fiscal 2007 continue to be affected by the influx of contraband product. RBH, our employees and suppliers, as well as those of other industry participants - and ultimately, governments - are feeling the effects of unchecked illegal products in the market," said John Barnett, President and Chief Executive Officer of Rothmans Inc. and RBH. "RBH delivered strong results this quarter despite a significant decline in industry volumes compared with the first quarter of last year" commented Mr. Barnett. Subsequent to the end of the quarter, Rothmans, Benson & Hedges Inc. (RBH) and Philip Morris Products S.A. (PMPSA) entered into an exclusive licensing agreement to manufacture and sell a new cigarette brand in Canada under PMPSA's world famous ROOFTOP packaging design. This new brand of cigarettes will be unique in that no brand name will appear on the packages sold to consumers. Instead, the product will be identified by its package design, which contains the world famous ROOFTOP design, as well as the trade-mark COME TO WHERE THE FLAVOR IS, both of which are used by PMSPSA and its affiliates outside of Canada on the MARLBORO brand. However, because the MARLBORO trade-mark registration in Canada is not owned by PMPSA, RBH cannot use MARLBORO on its new brand in Canada. The ROOFTOP design, and COME TO WHERE THE FLAVOR IS are registered Canadian trade-marks of PMPSA. The new cigarette brand will be a U.S. style American blend cigarette, using premium international tobaccos similar to that used by PMPSA outside of Canada in its MARLBORO brand. The new brand will be available in Ontario as of today and elsewhere in Canada in the coming weeks.
Dividend declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.30 per share payable on September 17, 2006 to shareholders of record at the close of business on September 1, 2006.
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 Tuesday, July 25, 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 August 1st by calling 1-800-408-3053 and entering reservation number 3192214. The recording can also be accessed through the investor website. Media are invited to listen to the call and to contact Karen Bodirsky 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 741 people at its head office in Toronto, its sales offices across Canada and its manufacturing facilities in Brampton, Ontario and QuDebec City, QuDebec 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 for the three months ended June 30, 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 quarter ended June 30, 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 period ended June 30, 2006, the annual MD&A contained in the 2006 Annual Report and the audited annual consolidated financial statements of the Company 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 July 24, 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.
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 July 24, 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; increases in the levels of contraband and counterfeit products in the market; competition; price category pressure on overall cigarette margins and changes in market share for RBH's products; declining consumer consumption and dependence on price increases; fluctuating wholesaler and consumer purchasing patterns; changes in government taxation policy; changes in legislation and regulation; new product standards; and dependence on the domestic tobacco market. 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 "Outlook" 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.
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 RBH'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, 2007, and "prior quarter" refers to the three months ended March 31, 2006. "Fiscal 2006" or "recent fiscal year" refers to the fiscal year ended March 31, 2007 and other similar references to a fiscal year (e.g., fiscal 2006) refer to the fiscal year then ended on March 31 (e.g., March 31, 2006). "The three major manufacturers" or "three majors" refers to RBH, Imperial Tobacco Canada Limited (ITL) and JTI-MacDonald Corp. (JTI). "BAT" refers to British American Tobacco p.l.c., the parent company of ITL. "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. "Domestic composite market" refers to all fully tax-paid cigarettes and fine cut tobacco products sold into the Canadian market.
New Accounting Pronouncements
In September 2005, the Emerging Issues Committee of the Canadian Institute of Chartered Accountants issued Abstract 156 "Accounting By A Vendor For Consideration Given To A Customer (Including a Reseller of the Vendor's Products)". This abstract applies to fiscal years beginning on or after January 1, 2006. The abstract addresses the issue of whether consideration provided by a vendor to a customer is an adjustment to the selling prices of the vendor's products and therefore a reduction of revenue or is a cost incurred by the vendor and therefore classified as cost or expense. The implementation of this pronouncement has resulted in a Consolidated Statement of Earnings reclassification which reduces operating costs excluding amortization and sales, net of excise duty and taxes, by $10.9 million and $11.4 million in quarters ended June 30, 2006 and June 30, 2005, respectively. This reclassification impacts EBITDA margin but has no impact on the earnings or cash flows of either period. Comparative prior period amounts have been reclassified to reflect the adoption of this pronouncement. Additional information regarding this change can be found in Note 2 "Change in Accounting Policy" in the June 30, 2006 Notes to the Interim Consolidated Financial Statements which accompany this MD&A.
Industry Overview
Total reported industry domestic sales volumes for all tobacco products decreased 9.8% in the three months ended June 30, 2006 versus the comparable period in the prior fiscal year. The presence of contraband product, along with historical declines in consumer incidence and consumption, are believed to have contributed to this decline which continues to exceed the historical average rate experienced by the industry. Recent quarter total reported industry domestic sales volumes of 8.8 billion equivalent sticks were 16.0% higher than in the prior quarter reflecting normal industry seasonality. 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.
Fluctuations in wholesaler buying patterns as a result of anticipated tax and manufacturer 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 sales volumes.
Continued declines in consumer consumption of tobacco products. >>
Total reported domestic premium cigarette volumes declined by 15.5% in the recent quarter compared with the same period of the prior year. Total reported domestic price category volumes declined 3.7% compared with the same period of the prior year, as lower fine cut volumes were only partially offset by higher price category cigarette volumes.
RBH estimates that premium cigarettes represented 48.4% of the reported Canadian domestic tobacco market in the recent quarter versus 50.0% in the quarter ended March 31, 2006 and 51.7% in the quarter ended June 30, 2005. The price category is estimated to have represented 51.6% of the reported Canadian domestic tobacco market in the recent quarter, versus 50.0% in the quarter ended March 31, 2006 and 48.3% in the quarter ended June 30, 2005. Fine cut products are estimated to have represented 8.8% of the total reported domestic tobacco market in the recent quarter versus 9.9% in the prior quarter and 10.5% in the first quarter of last year. Price category cigarettes are estimated to have represented 42.8% of the total reported domestic composite tobacco market in the recent quarter versus 40.1% in the prior quarter and 37.8% in the first 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. The federal government has announced that effective July 1, 2006 it would be raising the federal excise duty applicable to cigarettes, tobacco sticks and fine cut products by $0.56, $0.50 and $0.38 on a per carton or equivalent stick basis, in order to offset the effect of the 1% GST reduction. Shown below is a comparative summary of domestic shipments of tobacco products for the three months ended June 30, 2006 and June 30, 2005.
<< Canadian Domestic Tobacco Shipments (in billions of sticks and equivalents) For the three months Ended June 30 2006 2005 Three Reported Three Reported RBH Majors Industry RBH Majors Industry
Premium cigarettes 0.7 4.3 4.3 0.8 5.1 5.1
Price category Cigarettes 1.7 3.4 3.7 1.6 3.1 3.7 Fine cut 0.4 0.8 0.8 0.6 1.0 1.0 Total Price Category 2.1 4.2 4.5 2.2 4.1 4.7
Total 2.8 8.5 8.8 3.0 9.2 9.8
RBH Market Share Premium cigarettes 15.5% 15.5% 15.5% 15.5% Price category 51.4% 47.2% 54.5% 47.8% Composite markets 33.2% 31.8% 33.1% 31.1%
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 2007 and in fiscal 2006; price category cigarettes - 0.6 billion sticks in fiscal 2007 and 0.7 billion sticks in fiscal 2006. >>
Results at Rothmans, Benson & Hedges Inc.
In the quarter ended June 30, 2006, RBH shipped a total of 2.8 billion equivalent sticks into the domestic market, a 7.8% decrease from the comparable period of the prior year, with increases in price category cigarette volumes only partially offsetting declines in premium and fine cut volumes. An increase in shipment volumes of 16.2% over the prior quarter is consistent with the normal seasonality experienced by the domestic industry. RBH's share of the total domestic composite market was 31.8% for the quarter ended June 30, 2006 compared with 31.8% and 31.1% for the three months ended March 31, 2006 and June 30, 2005, respectively. RBH's premium cigarette volumes declined 16.0% in the recent quarter compared to the same period in the prior year. RBH's domestic market share of premium cigarettes was 15.5% in the recent quarter compared with 15.3% and 15.5% in the prior quarter and three months ended June 30, 2005, respectively. RBH sold 1.7 billion price category cigarettes in the recent quarter representing an increase of 3.5% compared with the same period in the prior year. The recent quarter share of the domestic cigarette price category was 45.0% versus 45.8% in the prior quarter, and 44.4% in the quarter ended June 30, 2005. 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 and the availability and price of contraband products. Shipments of RBH fine cut products declined 27.4% in the recent quarter compared with the same period in the prior fiscal year. This decline was a result of consumers switching to cigarettes from both pre-portioned stick products and high-yield products. RBH's share of the domestic fine cut market was 58.2% in the recent quarter, up from 57.9% in the quarter ended March 31, 2006, but down from 60.3% in the quarter ended June 30, 2005. Combining the cigarette price category with the fine cut segment, RBH's share of the total price category was 47.2% in the recent quarter, down from 48.2% and 47.8% in the quarters ended March 31, 2006 and June 30, 2005, respectively. Reflecting the adoption of EIC156, RBH's recent quarter EBITDA margin was 52.6% compared with 52.3% in the quarter ended June 30, 2005 and 36.9% in the quarter ended March 31, 2006. The recent quarter increase in EBITDA margin over the comparable period of the prior year is predominantly due to price increases across all product categories and lower sales and marketing costs, partially offset by the impacts of lower shipment volumes, higher product input costs and volume shifts from the mid-tier to the lower priced tier of the cigarette price category.