Pantera Silver Corp. press release
Rothmans declares 16% increase to regular quarterly dividend and reports strong results for second quarter of fiscal 2008
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
Trading: TSX: ROC
TORONTO, Oct. 26 /CNW/ - Rothmans Inc. today announced strong results for the second quarter and first six months of fiscal 2008, which ended September 30, 2007. The Company also announced a 16% increase in its regular dividend to $1.40 on an annualized basis or $0.35 per quarter from the previous $1.20 annualized rate.
"This increase in our regular dividend reflects both the strength of the Company's balance sheet and the strong financial performance that has been generated by our 60%-owned subsidiary Rothmans, Benson & Hedges Inc. (RBH)," said John Barnett, President and Chief Executive Officer of Rothmans Inc. "Following our record first quarter, RBH continued to generate strong performance this quarter resulting in the improvement of all significant measures of financial performance including sales, earnings and cash flow when compared with the prior year."
Rothmans' earnings for the second quarter were $C33.3 million, or $0.49 basic earnings per share, compared with $28.3 million or $0.42 basic earnings per share in the same quarter of fiscal 2007. For the first six months of this fiscal year, Rothmans' earnings were $67.2 million or $0.99 per share, compared with $57.6 million or $0.85 per share in the first half of the prior year.
Sales at RBH, net of excise duty and taxes, increased to $179.7 million in the most recent quarter from $165.2 million in the second quarter of fiscal 2007. Sales for the first six months of this fiscal year were $357.1 million compared with $328.1 million for the same period a year earlier.
RBH's EBITDA margin for the second quarter was 53.3% compared with 50.6% in the second quarter a year ago, primarily as a result of price increases across all product categories. Price increases were partially offset by volume shifts to the lower priced tier of the cigarette price category and higher general and administrative costs including compensation related expenses. In the first quarter ended June 30, 2007, RBH's EBITDA margin was 55.5%.
RBH shipped a total of 2.8 billion equivalent sticks into the domestic market during the second quarter of fiscal 2008, unchanged from the same period in fiscal 2007. For the six months ended September 30, 2007, domestic shipments were 0.6% higher than in the comparable period of the prior year. Higher price category cigarette volumes continued to offset declines in premium cigarette and fine cut volumes.
Outlook
"The recently released study by the Canadian Tobacco Manufacturers Council detailing continued significant growth in illicit cigarettes within the Canadian marketplace demonstrates that our often expressed concerns relating to contraband product are justified," said Mr. Barnett. "While we remain confident in the ability of RBH's strong product offerings to compete within the tax paid industry, the growth in contraband continues to have a negative effect on all legitimate industry participants including RBH."
Increase to Regular Dividend
The Board of Directors of Rothmans Inc. declared an increase to the Company's regular quarterly dividend. Shareholders of record at the close of business on December 4, 2007 will receive $0.35 per common share payable on December 17, 2007. This represents an increase of 16% over the previous quarterly dividend rate of $0.30 per share.
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, Friday, October 26, 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 November 3, 2007 by calling (416) 695-5800 or 1-800-408-3053 and entering reservation number 3240219. 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 more than 750 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 quarter and six months ended September 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 and six months ended September 30, 2007 compared with the same periods in 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, 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 October 25, 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 Canadian 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 October 25, 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 September 30, 2007, and "prior quarter" refers to the three months ended June 30, 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. "CTMC" refers to the Canadian Tobacco Manufacturers Council.
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.
The following are the new accounting standards the Company plans to adopt effective fiscal year ending March 31, 2009. Management is evaluating the standards and their impact on the Company's consolidated financial statements.
The CICA Handbook Section 3031 "Inventories" prescribes the accounting treatment for inventories. Specifically, the section provides guidance on the determination of cost and its subsequent recognition as an expense. Section 3031 applies to interim and annual financial statements for fiscal years beginning on or after January 1, 2008.
CICA Handbook Section 1535 "Capital Disclosures" establishes standards for disclosing information about an entity's capital and how it is managed. This section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.
CICA Handbook Section 3862 "Financial Instruments Disclosures" deals with additional required disclosures related to financial instruments. The section provides guidance on what disclosure should be included in the financial statements related to items such as significance of financial instruments to the financial position and performance of the Company and the nature and extent of risks associated with financial instruments. Section 3862 applies to interim and annual financial statements for fiscal years beginning on or after October 1, 2007.
Industry Overview
Although it is not possible to provide an accurate estimate of the recent quarter and fiscal year-to-date tax paid industry volumes, RBH management believes that a number of factors continue to affect overall industry shipments, including:
Contraband - During the recent quarter the CTMC released a study on the illicit usage of cigarettes in the Canadian marketplace. This study indicated that 22% of the national cigarette volume being purchased was contraband product, up from 16.5% found in a similar study conducted a year earlier.
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 - The period between April and September has demonstrated stronger 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 - Swings in wholesaler purchasing patterns motivated by the timing of tax increases, price increases, manufacturer trade 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, 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 September 30, 2007, RBH shipped a total of 2.8 billion equivalent sticks into the domestic market, unchanged from the same period of the prior year and the prior quarter. Fiscal year to date shipments were 0.6% higher than the comparable period of the prior year. Higher price category cigarette volumes continue to offset lower volumes in premium cigarettes and fine cut.
As previously disclosed, the industry no longer shares industry volumetric data through the CTMC. Therefore, RBH no longer has access to information on total tax paid industry volumes and is unable to accurately estimate RBH's market share.
RBH's recent quarter EBITDA margin was 53.3% compared with 50.6% in the quarter ended September 30, 2006 and 55.5% in the quarter ended June 30, 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 to the lower priced tier of the cigarette price category and higher general and administrative costs including compensation related expenses. The recent quarter decrease in EBITDA margin compared with the prior quarter is predominantly due to higher general and administrative costs, including compensation related expenses, partially offset by price increases during the recent quarter and the timing of price increases taken in the prior quarter.
During the recent quarter, RBH increased the price on Mark Ten and Canadian Classics price category brands by $1.00 per carton in Quebec and Ontario, respectively. During the prior quarter, RBH 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 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.
Effective July 30 2007, RBH implemented changes to its wholesale distribution terms, moving from a 2% prompt payment discount to a fee-for-service model nationally with the exception of Newfoundland and Labrador where terms remain unchanged.
Rothmans Inc. Financial Results
Basic earnings per share were $0.49 in the recent quarter and $0.99 for the six months ended September 30, 2007 compared with $0.42 and $0.85 in the comparable periods of the prior year.
RBH's sales, net of excise duty and taxes, were $179.7 million in the recent quarter and $357.1 million for the six months ended September 30, 2007 representing an increase of $14.4 million and $29.0 million compared to comparable periods of the prior year. Volume declines in premium cigarettes and fine cut were more than offset by the impact of price increases and price category cigarette volume increases.
Investment income increased to $3.1 million in the recent quarter and $5.8 million in the fiscal year-to-date from $2.3 million and $4.3 million in the comparable periods of the prior year mainly due to the higher average cash and cash equivalents balances held during the quarter and six months ended September 30, 2007.
Operating costs increased to $85.2 million in the recent quarter and $165.2 million in the fiscal year-to-date from $82.6 million and $160.8 million in the comparable periods of the prior year. This is mainly attributable to higher general and administrative costs including compensation related expenses.
Income tax expense was $37.0 million in the recent quarter, resulting in an effective tax rate for the quarter and fiscal year-to-date of 40.0%. The Company expects its effective tax rate for fiscal 2008 to be 40.0%.