Pantera Silver Corp. press release
Rothmans reports record results for first quarter of fiscal 2008
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
TORONTO, July 24 /CNW/ - Rothmans Inc. today announced record results for the first quarter of fiscal 2008, which ended June 30, 2007.
Rothmans' earnings for the first quarter were $33.8 million, or $0.50 basic earnings per share, compared with $29.3 million or $0.43 basic earnings per share in the same quarter of fiscal 2007.
Sales at 60%-owned subsidiary Rothmans, Benson & Hedges Inc., net of excise duty and taxes, increased to $177.4 million in the most recent quarter compared with $162.9 million in the first quarter of fiscal 2007.
RBH's EBITDA margin for the first quarter was 55.5% compared with 52.6% in the first quarter a year ago, primarily as a result of price increases across all product categories, partially offset by volume shifts from the mid-tier to the lower priced tier of the cigarette price category and higher general and administrative costs. In the quarter ended March 31, 2007, RBH's EBITDA margin was 39.4%.
RBH shipped a total of 2.8 billion equivalent sticks into the domestic market during the first quarter of fiscal 2008, representing a 1.2% increase compared to fiscal 2007. The increase was driven by higher price category cigarette volumes offsetting declines in premium cigarette and fine cut volumes.
"Rothmans shareholders benefited from the improvement in all significant measures of financial performance at RBH including sales, earnings and cash flow" said John Barnett, President and Chief Executive Officer of Rothmans Inc. and RBH.
Outlook
"Even with these good results, we need to recognize that factors such as illegal and untaxed products and competition have not disappeared" said Mr. Barnett. "With our strong product offerings we feel RBH is well positioned to compete within the tax paid industry, but remain highly concerned about the continuing impact of contraband product."
Dividend Declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.30 per share payable on September 17, 2007 to shareholders of record at the close of business on September 3, 2007.
Analyst Conference Call and Webcast
Because the Company's annual meeting of shareholders is being held this morning, Rothmans Inc. management will hold a conference call with analysts to discuss the first quarter results at 3:00 p.m. Toronto time today, Tuesday, July 24, 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 via 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 3230065. 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 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 three months ended June 30, 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 quarter ended June 30, 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 period ended June 30, 2007, the annual MD&A contained in the 2007 Annual Report and the audited annual consolidated financial statements of the Company 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 July 23, 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 Controls and Procedures and Internal Controls over Financial
Reporting
The Chief Executive Officer and Chief Financial Officer have designed disclosure controls and procedures, or caused them to be designed under their supervision, 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.
With respect to internal controls over financial reporting, the Chief Executive Officer and Chief Financial Officer have designed them, or caused them to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with Generally Accepted Accounting Principles.
During the Company's most recent interim period, there were no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls 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 July 23, 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.
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 RBH's operating performance, refers to RBH's "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, interest, taxes and capital spending and does not include income from investments earned by the Company or the expenses related to operating Rothmans Inc. as a public company. 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, 2007. "Fiscal 2008" or "recent fiscal year" refers to the fiscal year ending March 31, 2008 and other similar references to a fiscal year (e.g., fiscal 2007) refer to the fiscal year then ended on March 31 (e.g., March 31, 2007).
"The three major suppliers of tobacco products" or "three majors" refers to RBH, Imperial Tobacco Canada Limited (ITL) and JTI-MacDonald Corp. (JTI). "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-portioned 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 supplier ships directly to retail accounts instead of through a wholesale network.
New Accounting Pronouncements
As required by the Canadian Institute of Chartered Accountants ("CICA"), on April 1, 2007, the Company adopted CICA Handbook Section 3855 "Financial Instruments - Recognition and Measurement", Section 3861 "Financial Instruments - Disclosure and Presentation" and Section 1530" Comprehensive Income."
Section 3855 and 3861 prescribe when a financial asset, financial liability, or non-financial derivative is to be recognized on the balance sheet, and at what amount. It also specifies how financial instrument gains and losses are to be presented. The prospective adoption of this new standard resulted in changes in the accounting and presentation for financial instruments as well as the recognition of certain transitional adjustments that have been recorded in opening retained earnings as described in note 2. As required by the implementation of the new standard, the comparative Interim Consolidated Financial Statements have not been restated.
CICA Handbook Section 1530, "Comprehensive Income," introduces a new requirement to temporarily present certain gains and losses outside net income in other comprehensive income or loss. Refer to note 2 for more details.
The implementation of these Handbook requirements did not have a material impact on the financial results of the Company.
Industry Overview
Although it is not possible to provide a meaningful estimate of the recent quarter tax paid industry volumes, RBH management believes that a number of factors continue to affect 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 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.
During the first quarter, in April 2007, the Province of Alberta raised its Provincial Tobacco Tax on cigarettes and fine cut products by $5.00 per carton, or equivalent stick basis.
Results at Rothmans, Benson & Hedges Inc.
In the quarter ended June 30, 2007, RBH shipped a total of 2.8 billion equivalent sticks into the domestic market, a 1.2% increase over the comparable period of the prior year. The increase was driven by higher price category cigarette volumes offsetting declines in premium cigarettes and fine cut volumes. Compared to the prior quarter, shipment volumes increased 17.8%. In addition to normal seasonality within the domestic industry, volumes in the recent quarter were also likely positively affected by wholesaler purchasing patterns prior to manufacturer price increases which occurred during the recent quarter. As previously disclosed, the industry no longer shares industry volumetric data through the Canadian Tobacco Manufacturers Council. Therefore, RBH no longer has access to information on total tax paid industry volumes, and is unable to determine the impact of the volume increase experienced in the recent quarter on RBH's market share.
RBH's recent quarter EBITDA margin was 55.5% compared with 52.6% in the quarter ended June 30, 2006 and 39.4% in the quarter ended March 31, 2007. 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, partially offset by volume shifts from the mid-tier to the lower priced tier of the cigarette price category and higher general and administrative costs.
During the recent quarter, RBH launched the Davidoff and Benson & Hedges Superslims brands into the premium category. RBH also increased the prices charged to wholesalers by $1.00 per carton for the Carreras, Davidoff and ROOFTOP premium brands, $1.50 per carton for all other premium cigarette brands and $1.00 per carton for all price category cigarettes other than the Accord brand. Prices on fine cut products, cigars and pipe tobacco were increased by varying amounts depending on format.
During the recent quarter RBH announced changes to its wholesale distribution terms, moving from a 2% prompt payment discount to a fee-for-service model. These changes are effective July 30, 2007 except in Newfoundland and Labrador where terms have not changed.
Subsequent to quarter-end, there was an additional price increase of $1.00 per carton on Mark Ten and Canadian Classics price category brands in Quebec and Ontario respectively.
Rothmans Inc. Financial Results
Basic earnings per share were $0.50 in the recent quarter versus $0.43 in the comparable period of the prior year. RBH's sales, net of excise duty and taxes, of $177.4 million in the recent quarter were $14.5 million higher than in the comparable period of the prior year. Increased volumes of RBH price category cigarettes, together with price increases, compensated for volume declines in premium cigarettes and fine cut products during the quarter.
Investment income increased to $2.7 million in the recent quarter from $2.0 million in the comparable period of the prior year mainly due to the higher average cash and cash equivalents balances held during the quarter ended June 30, 2007.
Operating costs increased to $80.1 million in the recent quarter versus $78.1 million in the comparable period of the prior year, mainly due to higher general and administrative costs.
Income tax expense was $37.5 million in the recent quarter, resulting in an effective tax rate for the fiscal year to date of 40.0%. The Company expects its effective tax rate for fiscal 2008 to be 40.0%.
Capability to Deliver Results
Cash Flow
RBH's operations generate significant cash resources. These are currently sufficient to fund interest payments on RBH's long-term debt, capital expenditures and dividends to its shareholders. Based on RBH's historical earnings levels, the dividends received by Rothmans from RBH are expected to be sufficient to fund its operations, pay dividends to its public shareholders and continue to accumulate cash reserves.
RBH's cash flow from operations before changes in working capital was $55.5 million in the recent quarter compared with $50.5 million in the comparable quarter of the prior year. RBH's ability to generate cash from operations is generally sufficient to fund the day-to-day financing needs of RBH's business. It is anticipated that additional funds, should they be required, would be obtained through short-term bank borrowings.
During the recent quarter, the Company paid dividends of $20.4 million, representing a dividend of $0.30 per share.
Cash Resources
Cash and short-term investments of $169.5 million at June 30, 2007 represented the consolidated cash resources of the Company versus $172.2 million at March 31, 2007. The decrease in cash and short-term investments is predominantly due to earnings from RBH's operations and normal quarterly fluctuations in RBH's working capital requirements. On a non-consolidated basis, Rothmans held cash and cash equivalents of $135.1 million at June 30, 2007, an increase from $120.8 million at March 31, 2007. This increase results from dividends paid by the Company which are more than offset by dividends received by the Company from RBH.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Although these estimates are based on management's best knowledge of current events and actions that the Company and RBH may undertake in the future, actual results could differ from these estimates. Other than as discussed below, there are no critical accounting estimates that require disclosure or discussion in this report.
Employee Future Benefits
The actuarial assumptions used to determine the benefit obligation and associated expense of RBH's various defined benefit pension plans were not adjusted in the recent quarter. Therefore, the discount rate, or the expected return on plan assets remain as described in the annual MD&A for the year ended March 31, 2007.
Litigation Contingent Liabilities
As discussed in the annual MD&A for the year ended March 31, 2007, the Company and RBH have been the subjects of various legal actions, proceedings, investigations and claims. Based on the stage of those proceedings, management is unable to meaningfully estimate the liability, if any, that might result from claims or investigations and neither the Company nor RBH has accrued for potential liabilities. However, the outcome of any contingency is uncertain. If successful, these claims, potential claims or outcome of investigations either individually or in the aggregate, could involve significant damages which would have a significant adverse effect on the financial condition of the Company, and the Company and RBH may not have the resources to satisfy such claims.