Pantera Silver Corp. press release
Rothmans Reports Stronger Results for Third Quarter of Fiscal 2007
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
3rd Quarter Report
Nine Months Ended
December 31, 2006
Trading: TSX: ROC
TORONTO, Feb. 2 /CNW/ - Rothmans Inc. today announced stronger results for the third quarter of fiscal 2007, which ended December 31, 2006.
Rothmans' earnings for the third quarter of fiscal 2007 were $C24.1 million, or $0.35 basic earnings per share. This compares with $23.3 million or $0.34 basic earnings per share in the third quarter of fiscal 2006. For the first nine months of this fiscal year, Rothmans' earnings were $81.7 million or $1.20 per share, compared with $83.1 million or $1.23 per share in the first nine months of the prior year.
Sales at 60%-owned subsidiary Rothmans, Benson & Hedges Inc., net of excise duty and taxes, increased to $153.6 million in the most recent quarter compared with $145.0 million in the third quarter of fiscal 2006. Sales for the first nine months of this fiscal year were $481.7 million versus $474.5 million for the same period a year earlier.
During the three months ended December 31, 2006, RBH's total domestic sales volumes for all tobacco products decreased by only 3.1% from a year earlier. This represents a significant departure from the industry trend which was reported as a decline of 10% in the quarter ended September 30, 2006. While the continuing presence of contraband is believed to be adversely impacting the industry, RBH management believe that the Company's performance this quarter benefited from volatility in the market caused by the implementation by Imperial Tobacco Canada Limited (ITL) of its direct-to-store distribution system (DSD). Warmer weather than normally experienced in Canada through to the end of December may also have offset the normal effects of seasonality. Concurrent with the implementation of DSD, ITL discontinued providing sales data information to the Canadian Tobacco Manufacturers Council, of which RBH is a member. Therefore, RBH's management is unable to provide a meaningful estimate of industry sales volumes and industry market shares for the recent quarter.
RBH's EBITDA margin for the third quarter was 46.4% compared with 50.6% in the prior quarter and 47.8% in the quarter ended December 31, 2005. The lower EBITDA margin was predominantly due to the effect of lower shipment volumes, volume shifts to the lower-priced tier of the cigarette price category and higher general administrative expenses, partially offset by price increases across all product categories.
"RBH's stronger financial performance and the lower rate of decline in volumes sold in the third quarter are encouraging considering the challenges that we continue to face from significant contraband and competitive activities," said John Barnett, President and Chief Executive Officer of Rothmans Inc. and RBH. "In the absence of action by government, illegal and untaxed products will continue to have a negative effect on the Canadian tobacco industry," commented Mr. Barnett.
Financial results reported in this release reflect the adoption of EIC156 "Accounting By A Vendor For Consideration Given To A Customer" and results for prior periods have been restated accordingly. More information is available in the section "New Accounting Pronouncements" in the accompanying MD&A.
Dividend declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.30 per share payable on March 17, 2007 to shareholders of record at the close of business on March 2, 2007. The dividend will constitute an "eligible dividend" for purposes of the enhanced dividend tax credit rules announced in the 2006 Federal Budget once such rules come into effect.
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 2, 2007. 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 February 9, 2007 by calling 1-800-408-3053 and entering reservation number 3211884. 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 approximately 760 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
for the nine months ended December 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 quarter and nine months ended December 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 period ended December 31, 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 February 1, 2007.
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 "Industry Overview" and "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 February 1, 2007.
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 excise 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, 2006, and "prior quarter" refers to the three months ended September 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). "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. "CTMC" refers to the Canadian Tobacco Manufacturers Council.
Industry Volumes & Market Share Measurement
Historically the three major manufacturers shared volumetric shipment information which was compiled through the CTMC. This information, combined with Statistics Canada information and other company estimates permitted the Company and RBH to assess overall industry volumes and category market shares on a quarterly basis. As of October 2006, concurrent with the implementation of DSD, ITL has discontinued providing sales data information to the CTMC. Therefore, RBH is unable to provide meaningful estimates on total tax paid industry volumes and category market share information. For the purpose of managing its ongoing business, RBH continues to use various information sources, not all of which are nationally representative, including a proprietary wholesale volumetric reporting system, selected retail data, consumer survey data, and information reported by Statistics Canada. RBH is assessing these, and other data sources for ongoing reporting purposes.
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 $13.6 million and $35.2 million in the quarter and nine months ended December 31, 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 December 31, 2006 Notes to the Interim Consolidated Financial Statements (unaudited) which accompany this MD&A.
Industry Overview
As previously reported, 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, were believed to have contributed to this decline which exceeded the historical average rate experienced by the industry.
A number of other factors have also been affecting overall industry shipments. Although a meaningful estimate of the recent quarter tax paid industry decline rate was not possible, RBH management believes that these factors remain in place. They include:
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. The impact of warmer than normal weather in a large part of Canada during the period from October to December 2006 and its impact on seasonal purchasing patterns from the tax paid industry are not determinable in the context of other factors listed here.
Fluctuations in wholesaler and retailer buying patterns as a result of ITL's implementation of a DSD system - Late in the second quarter, ITL began their implementation of a Direct-to-Store distribution model which resulted in fluctuating buying patterns by both wholesalers and retailers which appeared to continue through the recent quarter. Volatility in the market caused by ITL's implementation of this model appears to have had a positive impact on RBH's volumes sold during the recent quarter. However, the long-term effects of this change on the Canadian tobacco industry and RBH's competitive positioning are still uncertain.
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.
As previously reported, for the quarter ended September 30, 2006, RBH estimated that the premium cigarettes, price category cigarettes, and fine cut represented 48%, 44% and 8% respectively of the Canadian domestic tax paid industry. 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. RBH believes that during the recent quarter, the industry continued to trend towards a higher contribution from the price cigarette category at the expense of the premium cigarette and fine cut categories.
To date there have been various changes in tobacco taxes. During the quarter ended September 30, 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. During the recent quarter the Province of Saskatchewan announced an increase in its provincial tobacco rates in order to offset a 2% reduction in its provincial sales tax rate and the Nunavut government announced a 34.6% increase in PTT on cigarettes and a 62.8% increase on fine cut products.
Results at Rothmans, Benson & Hedges Inc.
In the quarter ended December 31, 2006, RBH shipped a total of 2.7 billion equivalent sticks into the domestic market, a 3.1% 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 nine months ended December 31, 2006, RBH shipped a total of 8.3 billion equivalent sticks, a 5.6% decrease from the comparable period of the prior year. RBH experienced a lower percentage volume decline in shipments than would be indicated by the industry decline rates experienced during the first two fiscal quarters of this year. This performance is believed to be due in part to the market disruption caused by ITL's implementation of its DSD program late in the second quarter. Moderation in the seasonality effect, due to warmer than normal weather experienced in the majority of Canada during the recent quarter, may also have contributed to a moderation in RBH's volumetric decline rate.
RBH's recent quarter EBITDA margin was 46.4% compared with 50.6% in the prior quarter after reflecting the adoption of EIC156. For comparative purposes the adoption 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 lower recent quarter EBITDA margin compared with the prior quarter and the same period of the prior year was predominantly due to the effect of lower shipment volumes, volume shifts into the lower-priced tier of the cigarette price category and higher general administrative expenses, including incentive plan accruals, various benefit costs and the impact of foreign exchange, partially offset by price increases across all product categories.
In November 2006, RBH increased the price charged to wholesalers for its premium and price category cigarettes by $1.00 per carton. Prices on fine cut products, cigars and pipe tobacco were increased by varying amounts depending on format.
Subsequent to the end of the recent quarter, RBH launched its Accord brand nationally into the price cigarette category. The brand is anticipated to compete at a retail price below RBH's two existing price tiers within the cigarette price category.