Pantera Silver Corp. press release
Rothmans Inc. Delivers steady results in fiscal 2007
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
Trading: TSE: ROC
TORONTO, May 18 /CNW/ - Rothmans Inc. today announced results for the fourth quarter and fiscal year ended March 31, 2007.
Rothmans' earnings for the year were $C99.8 million or $1.47 per basic share compared with $99.5 million or $1.47 per basic share in fiscal 2006.
Sales(1) at 60%-owned subsidiary Rothmans, Benson & Hedges Inc., net of excise duty and taxes, for the 2007 fiscal year were $618.6 million compared with $607.2 million in fiscal 2006.
Investment income of $9.0 million for fiscal 2007 was $3.7 million higher than fiscal 2006, due to the higher-than-average cash balance held and a higher rate of return experienced during the year.
RBH's EBITDA margin(1) was 47.6% for the year, compared with 48.1% in fiscal 2006. The decrease was principally due to the effect of lower shipment volumes, volume shifts into lower-priced tiers of the cigarette price category and higher general and administrative expenses, including incentive plan accruals, various benefit costs and the impact of foreign exchange. These expenses were partially offset by price increases across all product categories.
RBH shipped a total of 10.7 billion equivalent sticks into the domestic market during fiscal 2007, representing a 4.4% decrease compared to fiscal 2006. Increased shipments of RBH price category cigarettes in fiscal 2007 only partially offset declines in premium cigarette and fine cut shipments, leading to an overall decline in sales volumes compared to fiscal 2006. While RBH has continued to demonstrate strong volumetric and financial performance in the face of a declining market, the reduction in overall industry profitability and the apparent growing presence of contraband product in the Canadian market are expected to continue to present significant challenges for RBH for the foreseeable future.
During fiscal 2007, the Company paid dividends of $81.6 million, versus $182.7 million in fiscal 2006. The fiscal 2007 regular dividend was $1.20 compared to $1.20 in fiscal 2006. In fiscal 2006 a special dividend of $1.50 was also paid.
"RBH has continued to perform very well, having achieved earnings equivalent to fiscal 2006 and, we believe, growth in composite domestic market share," said John Barnett, President and Chief Executive Officer of Rothmans Inc. and RBH. "RBH experienced only a 4.4% decrease in domestic volumes in the face of declining industry volumes which we believe continued to decline at a rate moderately lower than the 8.1% decline experienced in fiscal 2006."
1. Fiscal results reported here 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 "The Adoption of Abstract 156" in the accompanying MD&A. The reclassification has no effect on net earnings.
Fourth Quarter
Rothmans' earnings for the fourth quarter of fiscal 2007 increased to $18.0 million or $0.27 basic earnings per share. This compares with earnings of $16.4 million or $0.24 basic earnings per share in the fourth quarter of fiscal 2006.
Sales(1), net of excise duty and taxes, at Rothmans, Benson & Hedges Inc. were $136.8 million in the fourth quarter compared with $132.6 million in the same period in fiscal 2006.
RBH's EBITDA margin(1) was 39.4% in the quarter compared with 36.9% in the same period of fiscal 2006, and compared to 46.4% in the third quarter of fiscal 2007, after reflecting the adoption of EIC 156. The year-over-year increase in EBITDA margin compared to the fourth quarter of fiscal 2006 is predominantly due to price increases across all product categories. The recent quarter EBITDA margin decrease compared to the third quarter of 2007 was principally due to the effect of lower shipment volumes.
Management believes that RBH's relatively strong volumetric performance in a declining market this quarter and year is partially due to challenges experienced by Imperial Tobacco Canada Limited during the implementation of its direct-to-store distribution system. Warmer than normal weather through the winter months may also have helped to offset the normal effects of seasonality.
Outlook
"The industry continues to be impacted by declining volumes overall and increased competition, particularly in the cigarette price category. In addition illegal and untaxed products continue to have a negative effect on all industry participants," said Mr. Barnett. "With our new entrants into the premium cigarette category and our well established price cigarette category brands, RBH will continue to compete vigorously in this changing market."
Dividend declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.30 per share payable on June 17, 2007 to shareholders of record at the close of business on June 1, 2007.
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 18, 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 May 25, 2007 by calling 1-800-408-3053 and entering reservation number 3222436. 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 751 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
Fiscal 2007 was one of the most challenging years for our Company in recent memory. Increases in contraband activity, regulation and competition within the price cigarette category continued to put pressure on both tax paid volumes and industry profitability. Despite these challenges, the Company's 60% owned subsidiary Rothmans, Benson & Hedges Inc. (RBH) was able to increase net sales and maintain profit when compared to fiscal 2006. This exceptional performance within the Canadian tobacco industry allowed the Company to pay $1.20 per share in dividends while continuing to build cash reserves.
Contraband activity continues to be a growing concern to industry stakeholders including provincial and federal governments, manufacturers, retailers, wholesalers, tobacco growers and other parties operating in the tax paid industry. During the past fiscal year, one industry participant released a study that concluded contraband represented 16% of the total tobacco volume sold nationally and approximately 23% in the two most populous provinces of Ontario and Quebec. The conclusions of this report are consistent with the views expressed during the year in other media reports from a variety of interested parties. Common sense would indicate that this problem will only worsen if not addressed. As we have stated before, a resolution to this issue is complex, requiring changes in the structure of tobacco regulation and taxation and increased enforcement. The current approach taken by governments is exacerbating the problem and is at odds with governments' revenue and health objectives. Management at RBH has been active this year in proposing a range of possible solutions to a variety of government officials. RBH remains keenly interested in supporting government initiatives that will return us to a Canadian tobacco market solely comprised of regulated tax paid product.
Regulatory restrictions continue to limit the industry and RBH's ability to communicate with adult smokers. Provincial dark markets, where the display of tobacco products at retail is banned, currently exist in Saskatchewan, Manitoba, Nova Scotia, Prince Edward Island, Nunavut and the Northwest Territories. Ontario, Quebec and British Columbia are also scheduled to become dark markets in 2008. In addition, the Federal Government has introduced a proposal that would mandate dark markets nationally. While these regulatory requirements are clearly aimed at reducing tobacco consumption by removing the consumer's ability to see tobacco products at the point of sale, we are concerned that their implementation could further accelerate the sale of contraband products.
As tax-paid industry volumes have declined, competitive activities have increased. During this past fiscal year, Imperial Tobacco Canada Limited (ITL) substantially completed the move of its manufacturing operations to Mexico. Mid-year ITL also withdrew from its long standing support for the wholesale distribution channel and implemented a Direct-to-Store Distribution strategy. RBH management continues to reassess its efficiency targets and sales and distribution strategies in the face of these competitive initiatives.
You will note this year that we have been unable to report market share trends within the industry as has been our custom. For many years, the three major Canadian tobacco companies had provided the Canadian Tobacco Manufacturers Council (CTMC) information on tobacco volumes sold. During this past fiscal year, ITL ceased participating in this arrangement and as a result, we no longer have access to this industry and category volume data. RBH management has a variety of information sources available to manage and evaluate the operation of its business and is continuing to evaluate other sources of volumetric and market share performance data.
Strong results
RBH increased net sales in fiscal 2007 by $11.4 million or 1.9% to $618.6 million, as a result of increased volumes in the cigarette price category and higher prices, which more than offset the impact of volume declines in premium cigarette and fine cut products. Investment income of $9.0 million increased by 70.6% reflecting a higher rate of return during the year and higher average cash balances held.
Operating costs of $327.7 million were $9.2 million higher compared with the prior year as a result of higher general and administrative expenditures including incentive plan accruals, various benefit costs, and the impact of foreign exchange.
Net earnings of $99.8 million were up slightly from the $99.5 million generated in the prior fiscal year. Basic earnings per share of $1.47 in the year was consistent with fiscal 2006. On a fully diluted basis, earnings per share increased to $1.46 from $1.45.
RBH's EBITDA margin was 47.6% in fiscal 2007 compared with 48.1% in fiscal 2006. This decrease was principally due to the effect of lower shipment volumes, volume shifts into lower-priced tiers of the cigarette category and higher general and administrative expenses, partially offset by price increases across all product categories.
Even with a high dividend payout ratio, the Company's financial position is strong with Rothmans Inc. holding cash and short term investments of $120.8 million at March 31, 2007 compared with $85.0 million held at March 31, 2006.
Overall, Rothmans Inc. maintained 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 5.14%.
We continue to be interested in opportunities for growth through an international tobacco acquisition. We are monitoring current and potential mergers and acquisitions activity and will assess whether they could result in opportunities to increase Rothmans Inc. shareholder value.
Activities at RBH
During the year, RBH continued to build and defend its significant position within the price cigarette category. Price competition within the lowest price tier of this category was intense during the year as our competitors executed a variety of tactical merchandising programs aimed at generating increased market share. RBH currently has brands in this category that are well positioned across the pricing spectrum. In fiscal 2007, RBH introduced new updated packaging for the established Number 7 and Canadian Classics brands and repositioned the Accord brand as a new entrant into the lowest price tier of the price cigarette category.
Premium cigarettes represent about 50% of the Canadian tobacco market's tax-paid sales by volume and the dominant portion of the industry margin pool. RBH continues to focus on supporting its existing brand portfolio within this category. Recognizing the importance of this category in driving enhanced profitability, RBH launched the Carreras and ROOFTOP brands into the category during the fiscal year. Subsequent to year-end, RBH launched the Benson & Hedges Superslims and Davidoff brands into the premium category.
The fine cut category continued to experience significant volumetric erosion during the year as both the price cigarette and contraband markets grew. RBH continued to support its participation in this category by updating the packaging of its fine cut offerings and introducing a new "Premium Long Cut" product innovation taking advantage of proprietary technology that produces fine cut products with enhanced tobacco strand length.
Regulation that works
The health risks associated with smoking have been recognized and acknowledged by RBH for a considerable period of time. 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 requires rational laws and regulations, sound tax policy and proper enforcement. Policies that fail to recognize consumer demand, political realities, and the mechanics of contraband markets will leave enforcement as the only option and that may be unrealistic in today's society. 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, RBH often 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.
Stewardship of your Company
The exceptional results delivered this year could not have been accomplished without a team effort by all involved with Rothmans Inc. and RBH. The RBH TLC values: Teamwork, Leadership and Commitment to Win were established a number of years ago as the key rallying points that were critical to delivering superior results. Employees and management live these values every day and continue to generate strong results in a very difficult and competitive market.
We thank our employees for their efforts and focus over the last year. We'd also like to thank the management team for their leadership in designing and executing competitive strategies that have fuelled RBH's success.
We appreciate the knowledge and guidance of our Board of Directors. Rothmans Inc. shareholders have the benefit of a Board that is focused on good governance practices, shareholder interests and shareholder value.
Finally, we thank you, our shareholders, for your continuing interest and support. We can assure you that we remain focused on 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, 2007
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, 2007 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, 2007. 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 17, 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.
Disclosure and Internal Controls
With respect to disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2007. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures were effective as of March 31, 2007 in providing reasonable assurance that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.
During the Company's most recent interim period, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Forward Looking Statements
Certain statements contained in this MD&A and other sections of this document (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 May 17, 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, including the results of ongoing investigations; product liability claims; increases in the levels of contraband product in the market; increased competition and competitor initiatives; a lower rate of growth in the cigarette price category; continued declines in consumption of tobacco products; RBH's ability to continue to implement price increases; fluctuating wholesaler and consumer purchasing patterns; changes in government taxation policy; changes in government legislation and regulation including legislation banning the display of tobacco products in retail stores; new product standards; and dependence on the domestic tobacco market.