Pantera Silver Corp. press release
Rothmans delivers strong performance during the third quarter of fiscal 2008
TSXV - TSX Venture Exchange · Silver · Gold · Oil · Natural Gas · Natural Gas Liquids · Canada
Trading: TSX: ROC
TORONTO, Feb. 6 /CNW/ - Rothmans Inc. today announced strong results for the third quarter and first nine months of fiscal 2008, which ended December 31, 2007.
Rothmans' earnings for the third quarter of fiscal 2008 were $C29.4 million, or $0.43 basic earnings per share, compared with $24.1 million or $0.35 basic earnings per share in the third quarter of fiscal 2007. For the first nine months of this fiscal year, Rothmans' earnings were $96.6 million or $1.42 basic earnings per share, compared with $81.7 million or $1.20 per share for the first nine months of the prior fiscal year.
Sales at 60%-owned subsidiary Rothmans, Benson & Hedges Inc., net of excise duty and taxes, increased to $170.8 million in the most recent quarter compared with $153.6 million in the third quarter of fiscal 2007. Sales in the first nine months of this fiscal year were $527.9 million compared with $481.7 million for the same period a year earlier.
RBH's EBITDA margin for the third quarter was 49.8% compared with 53.3% in the prior quarter and 46.4% in the quarter ended December 31, 2006. The reduction in EBITDA margin from the prior quarter was mainly due to lower shipment volumes and higher general and administrative expenses. The increase in EBITDA margin over the prior year was predominantly due to the effect of price increases across all product categories, partially offset by volume shifts into the lowest priced tier of the cigarette price category and higher general and administrative expenses.
RBH shipped a total of 2.7 billion equivalent sticks into the domestic market during the third quarter of fiscal 2008, unchanged from the same period in fiscal 2007. For the nine months ended December 31, 2007, domestic shipments were 8.4 billion equivalent sticks, compared with 8.3 billion equivalent sticks in the comparable period of the prior year. Higher price category cigarette volumes continued to offset declines in premium cigarette and fine cut volumes.
"RBH continued to deliver strong performance in the third quarter compared to the prior year with increases in volumes shipped and strong results in all significant financial measures," said John Barnett, President and Chief Executive Officer of Rothmans Inc. and RBH. "This has been accomplished despite variability in the growth rate of the cigarette price category and an increase in contraband product which has significantly reduced legitimate tax paid industry volumes."
Outlook
"RBH continues to have strong product offerings and we feel confident in our ability to compete within the tax paid industry," said Mr. Barnett. "Contraband however has not gone away and continues to weigh heavily on all legitimate industry participants including RBH. Without concerted efforts by governments to enforce existing laws, contraband tobacco products will likely continue to be a significant problem in our country."
Dividend declared
The Board of Directors of Rothmans Inc. declared a quarterly dividend of $0.35 per share payable on March 17, 2008 to shareholders of record at the close of business on March 4, 2008.
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 Wednesday, February 6, 2008. In order to listen to the conference call, shareholders are invited to call 1-866-226-1792 or 416-340-8010.
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 14, 2008 by calling 1-800-408-3053 or 416-695-5800 and entering reservation number 3250341. 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 fiscal quarter and nine months ended December 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 quarter and nine months ended December 31, 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 December 31, 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 February 5, 2008.
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 February 5, 2008.
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; the variability in the 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 December 31, 2007, and "prior quarter" refers to the three months ended September 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. "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".
Sections 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. These sections also specify 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 relating to the accounting for inventories and revises and enhances the requirements for assigning costs to inventories. 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" requires that an entity disclose information that enables users of its financial statements to evaluate an entity's objectives, policies and processes for managing capital, including disclosures of any externally imposed capital requirements and the consequences of non-compliance. This section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.
The new Sections 3862 and 3863 replace Handbook Section 3861 "Financial Instruments - Disclosure and Presentation," revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. Sections 3862 and 3863 apply to interim and annual financial statements for fiscal years beginning on or after October 1, 2007.
Industry Overview
In the absence of industry volumetric data previously shared through the CTMC, RBH is unable to provide an accurate estimate of the recent quarter and fiscal year-to-date tax paid industry volume. However, RBH management believes that a number of factors continue to affect overall industry shipments, including:
Contraband - During the previous 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. 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 of the current fiscal year, the Province of Alberta raised its Provincial Tobacco Tax on cigarettes and fine cut products by $5.00 per carton, or equivalent stick basis.
Subsequent to the recent quarter end, on January 1, 2008, the federal excise duty applicable to cigarettes, tobacco sticks and fine cut products was raised by $0.59, $0.55 and $0.39 respectively, on a per carton or equivalent stick basis, in order to offset the effect of the 1% GST reduction.
Results at Rothmans, Benson & Hedges Inc.
In the quarter ended December 31, 2007, RBH shipped a total of 2.7 billion equivalent sticks into the domestic market, unchanged from the comparable period of the prior year, with increases in price category cigarette volumes offsetting declines in premium cigarette and fine cut volumes. In comparison to the prior quarter, third quarter volumes declined to 2.7 billion equivalent sticks from 2.8 billion equivalent sticks due to lower volumes in the premium cigarette and price cigarette categories. Fiscal year to date shipments were 8.4 billion equivalent sticks, compared to 8.3 billion equivalent sticks in the nine months ended December 31, 2006. The higher volume is attributable to increased price cigarette volumes mostly offset by declines in premium cigarette and fine cut volumes. While in previous reporting periods the rate of growth of the cigarette price category appeared to moderate, more recently there has been variability in the rate of growth of this category which management believes is attributable to competition within the tax-paid industry at the lowest cigarette price tier.
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 49.8% compared with 46.4% in the quarter ended December 31, 2006 and 53.3% in the quarter ended September 30, 2007. The lower recent quarter EBITDA margin compared with the prior quarter was mainly due to lower shipment volumes and higher general and administrative expenses. The increase in EBITDA margin over the prior year was predominantly due to the effect of price increases across all product categories, partially offset by volume shifts into the lowest priced tier of the cigarette price category and higher general and administrative expenses.
In the nine months ended December 31, 2007, RBH implemented various price changes for its products. Most recently, in December 2007, RBH decreased the price charged to wholesalers for its Accord brand price category cigarettes by $1.98 per carton in Quebec and Ontario. This price reduction, in response to competitive activity in the market, maintains RBH's commitment to remaining competitive in the lowest cigarette price tier, where price sensitivity is most prevalent.
During the previous 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 quarter ended June 30, 2007, 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.
During the recent quarter, RBH launched the internationally recognized brand Parliament into the premium cigarette category in selected provinces.
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. This change in distribution terms has had no material impact on distribution costs incurred since the change in terms was implemented.