Pantera Silver Corp. press release
Rothmans reports results for second quarter of fiscal 2007
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Trading: TSX: ROC
TORONTO, Oct. 27 /CNW/ - Rothmans Inc. today announced its results for the second quarter of fiscal 2007, which ended September 30, 2006. Rothmans' earnings for the second quarter of fiscal 2007 were $C28.3 million, or $0.42 basic earnings per share, compared with $30.1 million or $0.44 basic earnings per share in the second quarter of fiscal 2006. For the first six months of this fiscal year, Rothmans' earnings were $57.6 million or $0.85 per share, compared with $59.8 million or $0.88 per share in the first half of the prior year. Sales at 60%-owned subsidiary Rothmans, Benson & Hedges Inc., net of excise duty and taxes, increased to $165.2(1) million in the most recent quarter compared with $164.9(1) million in the second quarter of fiscal 2006. Sales for the first six months of this fiscal year were $328.1(1) million versus $329.5(1) million for the same period a year earlier. During the three months ended September 30, 2006, total reported industry domestic sales volumes for all tobacco products decreased 10.0% from a year earlier. It is believed that the 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 8.7 billion equivalent sticks in the most recent quarter were 2.1% lower than in the prior quarter, but 14.9% higher than in the quarter ended March 31, 2006, reflecting normal industry seasonality. RBH's EBITDA margin for the second quarter was 50.6%(1) compared with 52.6%(1) in the prior quarter and 53.1%(1) in the quarter ended September 30, 2005. Lower EBITDA margin was primarily due to the effect of lower shipment volumes, higher product input, manufacturing, sales and marketing and general administrative costs and volume shifts from mid-tier to the lower-priced tier of the cigarette price category partially offset by price increases across all product categories.
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RBH's share of the total domestic composite market was 32.6% for the quarter ended September 30, 2006 compared with 31.5% and 31.1% for the three months ended June 30, 2006 and September 30, 2005, respectively. Premium cigarette share was 16.2%, up from 15.5% and 15.6% in the prior quarter and year-earlier quarter. RBH's share of the domestic price cigarette category of 45.8% compared with 43.7% in the previous quarter and 44.1% in the quarter ended September 30, 2005. In the fine cut market, RBH's share was 58.6%, up from 58.2% in the prior quarter but lower than the 59.2% share in the year-earlier quarter. RBH's share of the total domestic price category was 47.8%, compared with 46.1% in the prior quarter and 47.0% in the quarter ended September 30, 2005. "The success of RBH in building its share of the legitimate market in the second quarter is unfortunately overshadowed by the continuing growth of contraband product," said John Barnett, President and Chief Executive Officer of Rothmans Inc. and RBH. "Illegal and untaxed products entering the market are clearly having a negative effect on the Canadian tobacco industry," commented Mr. Barnett.
Dividend declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.30 per share payable on December 17, 2006 to shareholders of record at the close of business on December 1, 2006.
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 27, 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 November 3rd by calling 1-800-408-3053 and entering reservation number 3201396. 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 761 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 six months ended September 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 and six months ended September 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 September 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 October 26, 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 unaudited consolidated financial statements.
Forward Looking Statements
Certain statements contained in this MD&A and other sections of this release (in particular the sections entitled "Outlook" and "Industry Overview") 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 October 26, 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 product in the market; increased competition and competitor initiatives; 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 September 30, 2006, and "prior quarter" refers to the three months ended June 30, 2006. "Fiscal 2007" or "recent fiscal year" refers to the fiscal year ending 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. "Direct-to-Store Distribution" or "DSD" refers to a distribution model where a tobacco manufacturer ships directly to retail accounts instead of through a wholesale network.
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)" ("EIC 156"). 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 $21.6 million in the quarter and six months ended September 30, 2006. For comparative purposes, the reclassification reducing operating costs excluding amortization and sales, net of excise duty and taxes was $11.4 million, $9.9 million, $12.4 million and $11.4 million in the first through fourth quarters of fiscal 2006 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 September 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 10.0% and 9.4% in the quarter and six months ended September 30, 2006 versus the comparable periods in the prior fiscal year. The continuing growth 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 8.7 million equivalent sticks were 2.1% lower than in the prior quarter, but 14.9% higher than the quarter ended March 31, 2006, reflecting normal industry seasonality. A number of other factors have been affecting overall industry shipments including:
<< Taxes - 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 and retailer buying patterns as a result of ITL's implementation of a DSD strategy - Late in the quarter, ITL began their implementation of a Direct-to-Store distribution model which resulted in fluctuating buying patterns by both wholesalers and retailers. Buying patterns by wholesalers and retailers are expected to be erratic through the quarter ending December 31, 2006 as ITL's new distribution model evolves. The effect of this change on the Canadian tobacco industry and RBH's competitive positioning can not be presently determined.
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. >>
The foregoing contains forward looking statements about the industry outlook. Reference should be made to "Forward Looking Statements" set out at the beginning of this MD&A. Total reported domestic premium cigarette volumes declined by 14.8% and 15.2% in the recent quarter and six months ended September 30, 2006 compared with the same period of the prior year. Total reported domestic price category volumes declined 5.0% and 3.2% in the quarter and six months ended September 30, 2006 compared with the same period of the prior year, due to lower fine cut volumes. RBH estimates that premium cigarettes represented 48.0% of the reported Canadian domestic tobacco market in the recent quarter versus 47.8% in the quarter ended June 30, 2006 and 50.8% in the quarter ended September 30, 2005. The price category is estimated to have represented 52.0% of the reported Canadian domestic tobacco market in the recent quarter, versus 52.2% in the quarter ended June 30, 2006 and 49.2% in the quarter ended September 30, 2005. Fine cut products are estimated to have represented 8.0% of the total reported domestic tobacco market in the recent quarter versus 8.7% in the prior quarter and 9.5% in the second quarter of last year. Price category cigarettes are estimated to have represented 44.0% of the total reported domestic composite tobacco market in the recent quarter versus 43.5% in the prior quarter and 39.7% in the second 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. Effective July 1, 2006 the federal excise duty applicable to cigarettes, tobacco sticks and fine cut products was raised by $0.56, $0.50 and $0.38 respectively 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 six months ended September 30, 2006 and September 30, 2005.
<< Canadian Domestic Tobacco Shipments (in billions of sticks and equivalents) For the six months ended September 30 2006 2005 Three Reported Three Reported RBH Majors Industry RBH Majors Industry Premium cigarettes 1.3 8.4 8.4 1.5 10.0 10.0
Price category Cigarettes 3.4 6.9 7.7 3.3 6.4 7.5 Fine cut 0.9 1.5 1.5 1.2 1.9 1.9 Total Price Category 4.3 8.4 9.2 4.5 8.3 9.4
Total 5.6 16.8 17.6 6.0 18.3 19.4
RBH Market Share Premium cigarettes 15.8% 15.8% 15.6% 15.6% Price category 51.4% 46.9% 53.9% 47.4% Composite markets 33.5% 32.0% 33.0% 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 six month period were: premium cigarettes - 0.2 billion sticks in fiscal 2007 and in fiscal 2006; price category cigarettes - 1.4 billion sticks in fiscal 2007 and 1.6 billion sticks in fiscal 2006. >>
Results at Rothmans, Benson & Hedges Inc.
In the quarter ended September 30, 2006, RBH shipped a total of 2.8 billion equivalent sticks into the domestic market, a 5.6% 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. For the six months ended September 30, 2006, RBH shipped a total of 5.6 billion equivalent sticks, a 6.7% decrease from the comparable period of the prior year. RBH experienced a lower percentage volume decline in shipments compared with the industry in both the quarter and six months ended September 30, 2006. This relatively stronger performance is believed to be due in part to the market disruption caused by ITL's implementation of its DSD program which was announced in May and implemented late in the recent quarter. RBH's share of the total domestic composite market was 32.6% for the quarter ended September 30, 2006 compared with 31.5% and 31.1% for the three months ended June 30, 2006 and September 30, 2005, respectively. RBH's premium cigarette volumes declined 11.6% in the recent quarter and 13.8% in the fiscal year to date as compared to the same period in the prior year. RBH's domestic market share of premium cigarettes was 16.2% in the recent quarter compared with 15.5% and 15.6% in the prior quarter and the three months ended September 30, 2005, respectively. Sales of RBH's price category cigarettes totaled 1.8 billion in the recent quarter and 3.4 billion for the year to date, which represented an increase of 3.3% and 3.4% compared with the same periods in the prior year. The recent quarter share of the domestic cigarette price category was 45.8% versus 43.7% in the prior quarter, and 44.1% in the quarter ended September 30, 2005. RBH continues to experience solid performance in the cigarette price category. A number of factors continue to influence this product category including the brands being offered to consumers, their availability and price, and the availability and price of contraband product. Shipments of RBH fine cut products declined 24.8% in the recent quarter and 26.2% in the fiscal year to date compared with the same periods 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 58.6% in the recent quarter, up from 58.2% in the quarter ended June 30, 2006, but down from 59.2% in the quarter ended September 30, 2005. Combining the cigarette price category with the fine cut segment, RBH's share of the total price category was 47.8% in the recent quarter, up from 46.1% and 47.0% in the quarters ended June 30, 2006 and September 30, 2005, respectively. After reflecting the adoption of EIC156, RBH's recent quarter EBITDA margin was 50.6% compared with 52.6% in the quarter ended June 30, 2006. For comparative purposes the reflection of EIC156 has resulted in restated EBITDA margins of 52.3%, 53.1%, 47.8% and 36.9% for quarters one through four of fiscal 2006. The restated EBITDA margin for the fiscal year ended March 31, 2006 was 48.1%. The recent quarter ended September 30, 2006 EBITDA margin performance compared with the same period of the prior year was predominantly due to lower shipment volumes, higher product input, manufacturing, sales and marketing and general and administrative costs and volume shifts from the mid-tier to the lower priced tier of the cigarette price category partially offset by the impact of price increases across all product categories.