MONTRÉAL, QUÉBEC--(Marketwired - April 30, 2014) - Rogers Sugar Inc. (TSX:RSI)
Message to Shareholders: On behalf of the Board of Directors, I am pleased to present the unaudited condensed consolidated interim financial results of Rogers Sugar Inc. (the "Company") for the three and six months ended March 29, 2014.
Volume for the second quarter was 154,862 metric tonnes, as opposed to 150,914 metric tonnes in the comparable quarter of last year, an increase of approximately 3,900 metric tonnes. Year-to-date volume of 317,120 metric tonnes is approximately 9,800 metric tonnes higher than last year. For the quarter, industrial volume was higher by approximately 1,400 metric tonnes due to timing in deliveries. On a year-to-date basis, industrial volume is higher by approximately 6,100 metric tonnes due to additional volume with existing and new customers. Liquid volume was also higher by approximately 6,000 metric tonnes for the quarter and by approximately 9,700 metric tonnes year-to-date due mainly to a high fructose corn syrup ("HFCS") substitutable account in Western Canada. Consumer volume was higher by approximately 3,200 metric tonnes for the quarter and 4,500 metric tonnes year-to-date due to the additional volume contracted under a multi-year agreement with a major account that started in January 2014 and due to timing of customers' retail promotions. These increases were offset by lower export volume of approximately 6,700 metric tonnes for the quarter and of approximately 10,500 metric tonnes year-to-date due to a decrease in exports to Mexico.
With the mark-to-market of all derivative financial instruments and embedded derivatives in non-financial instruments at the end of each reporting period, our accounting income does not represent a complete understanding of factors and trends affecting the business. Consistent with previous reporting, we therefore prepared adjusted gross margin and adjusted earnings results to reflect the performance of the Company during the period without the impact of the mark-to-market of derivative financial instruments and embedded derivatives in non-financial instruments. Earnings before interest and income taxes ("EBIT") included a mark-to-market gain of $16.8 million for the second quarter and $18.3 million year-to-date, which were deducted to calculate adjusted EBIT and gross margin results.
For the second quarter, adjusted gross margin decreased by approximately $3.3 million when compared to the same quarter of last year. On a per metric tonne basis, adjusted gross margin was $105.78 compared to $130.43 for the second quarter of last year. The decrease in the adjusted gross margin and adjusted gross margin rate is due mainly to the unfavourable sales mix with higher industrial and liquid sales and lower export sales, as export sales traditionally have a higher margin rate. In addition, the increase in consumer volume was more than offset by lower margin rates in that segment due to an increase in competitive pressure from the domestic market. Revenues from by-products were lower by approximately $0.5 million compared to the second quarter of 2013, as a result of lower beet acreage harvested in fiscal 2014. Finally, as a result of unusually cold weather this winter, the Montreal refinery incurred approximately $1.0 million in additional energy costs due to the purchase of expensive auxiliary natural gas and oil when supply was interrupted as per the delivery terms of the natural gas provider. Year-to-date adjusted gross margin was $7.9 million lower than last year while the adjusted gross margin rate per tonne was $129.80, a decrease of $29.75 compared to last year's comparable period. In addition to the unfavourable sales mix and competitive environment, revenues generated from by-products were lower by approximately $1.3 million compared to last year. The interruptible gas contract resulted in additional energy costs in Montreal of approximately $1.4 million in the first half of fiscal 2014 when compared to last year. In total, the Montreal refinery was interrupted 49 days this fiscal year compared to 27 days in fiscal 2013 and approximately 15 days during a typical winter. The Company is currently reviewing various alternatives in order to mitigate the risk of high auxiliary energy costs as a result of interruptions from its natural gas provider. Finally, the unusual equipment breakdown that occurred at the end of fiscal 2013 at the Vancouver refinery added $1.0 million in maintenance cost and also contributed to higher refining costs as some additional labour costs were incurred in catching up on lost production volume during the first quarter of the current year.
Adjusted EBIT of $8.4 million was approximately $4.4 million lower compared to the same quarter last year due in large part to the decrease in the adjusted gross margin rate and higher energy costs, as explained above. In addition, distribution expenses were $0.9 million higher due to the timing of deliveries under the global and Canada specific quotas, one-time demurrage costs, as well as additional storage costs due to the large carryover of beet sugar inventories at the end of last fiscal year. In addition, administration and selling expenses were higher by approximately $0.2 million due mainly to timing of expenses. Year-to-date adjusted EBIT of $26.3 million was approximately $8.9 million lower than last year due mainly to lower adjusted gross margins of $7.9 million, higher distribution expenses of $0.7 million and higher administration and selling expenses of approximately $0.3 million.
Free cash flow was $4.4 million lower than the comparable quarter in fiscal 2013 and $8.9 million lower year-to-date, due mainly to lower adjusted results from operating activities.
In November 2013, the Company received approval from the Toronto Stock Exchange to proceed with a normal course issuer bid ("NCIB"). Under the NCIB, the Company may purchase up to 5,000,000 common shares. The NCIB commenced on November 27, 2013 and may continue to November 26, 2014. During the second quarter of fiscal 2014, the Company purchased 85,400 common shares for a total cash consideration of $0.4 million. All shares purchased were cancelled.
During the quarter, the Company exercised its option to extend its revolving credit facility under the same terms and conditions of the credit agreement entered into on June 28, 2013. The maturity date of the revolving credit facility was therefore extended to June 28, 2019.
Overall volume for fiscal 2014 is expected to be slightly below fiscal 2013 with lower export volume partially offset with higher consumer and industrial volume. Adjusted gross margin rate is expected to be lower in fiscal 2014 due to an increasingly competitive environment in all domestic segments as well as additional operating costs incurred in the current year as discussed above. In addition, U.S. export sales margins will be lower than fiscal 2013 as surplus inventory in the U.S. exacerbated downward pressure on U.S. selling prices.
The Company hired a process improvement consulting firm to review the Montreal refinery cost structure. Their analysis will start during the third quarter and will last for most of the remainder of the calendar year.
The Taber sugar beet slicing campaign was completed at the end of January. We are estimating total beet sugar production at approximately 95,000 metric tonnes, once the thick juice campaign is completed in the spring of 2014, a decrease of approximately 25,000 metric tonnes compared to fiscal 2013 in line with the lower acreage requested.
A total of 22,000 acres is targeted for planting this season in Taber which is lower than last year due to the large carry-over of beet sugar inventories estimated for this year and sales outlook for fiscal year 2015.
The Company is currently updating its actuarial evaluations for all of its pension plans. As a result of favourable returns on its pension plan assets, combined with an increase in discount rate, deficits in all plans are forecast to be significantly reduced. The Company expects total pension plan cash contributions to be comparable to last year as opposed to an increase of $4.5 million as previously reported. In addition, with the increase in the discount rate at the end of fiscal 2013, defined benefit pension expense is expected to be approximately $1.0 million lower than last year's reported pension expense. When taking into account the change in accounting policy for IAS 19, Employee benefits, pension expense should be approximately $2.1 million lower than the 2013 restated pension expense.
| FOR THE BOARD OF DIRECTORS, |
| (SIGNED) |
| Stuart Belkin, Chairman |
| Vancouver, British Columbia - April 30, 2014 |
MANAGEMENTS' DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") dated April 30, 2014 of Rogers Sugar Inc. ("Rogers") should be read in conjunction with the unaudited condensed consolidated interim financial statements and notes thereto for the period ended March 29, 2014, as well as the audited consolidated financial statements and MD&A for the year ended September 28, 2013. The quarterly condensed consolidated interim financial statements and any amounts shown in this MD&A were not reviewed nor audited by our external auditors.
Management is responsible for preparing the MD&A. This MD&A has been reviewed and approved by the Audit Committee of Rogers and its Board of Directors.
Non-GAAP measures
In analyzing our results, we supplement our use of financial measures that are calculated and presented in accordance with GAAP, with a number of non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's historical performance, financial position or cash flow that excludes (includes) amounts, or is subject to adjustments that have the effect of excluding (including) amounts, that are included (excluded) in most directly comparable measures calculated and presented in accordance with GAAP. Non-GAAP financial measures are not standardized; therefore, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar businesses. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
We use these non-GAAP financial measures in addition to, and in conjunction with, results presented in accordance with GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of factors and trends affecting our business.
In the MD&A, we discuss the non-GAAP financial measures, including the reasons that we believe that these measures provide useful information regarding our financial condition, results of operations, cash flows and financial position, as applicable and, to the extent material, the additional purposes, if any, for which these measures are used. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in the MD&A.
Forward-looking statements
This report contains certain forward-looking statements, which reflect the current expectations of Rogers and Lantic Inc. (together referred to as "the Company") with respect to future events and performance. Wherever used, the words "may", "will," "anticipate," "intend," "expect," "plan," "believe," and similar expressions identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although this is not an exhaustive list, the Company cautions investors that statements concerning the following subjects are, or are likely to be, forward-looking statements: future prices of raw sugar, natural gas costs, the opening of special refined sugar quotas in the United States, beet production forecasts, cost saving initiatives, the status of labour contracts and negotiations, the level of future dividends and the status of government regulations and investigations. Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. This could cause actual performance or results to differ materially from those reflected in the forward-looking statements, historical results or current expectations.
Additional information relating to the Company, including the Annual Information Form, Quarterly and Annual reports and supplementary information is available on SEDAR at www.sedar.com.
Internal disclosure controls
In accordance with Regulation 52-109 respecting certification of disclosure in issuers' interim filings, the Chief Executive Officer and Vice-President Finance have designed or caused it to be designed under their supervision, disclosure controls and procedures.
In addition, the Chief Executive Officer and Vice-President Finance have designed or caused it to be designed under their supervision internal controls over financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.
The Chief Executive Officer and the Vice-President Finance have evaluated whether or not there were any changes to the Company's ICFR during the three month period ended March 29, 2014 that have materially affected, or are reasonably likely to materially affect, the Company's ICFR. No such changes were identified through their evaluation.
Results of operations
| Consolidated Results | For the three months ended | For the six months ended | ||||||
| (In thousands of dollars, except for volume and per share information) |
March 29, 2014 (Unaudited) |
March 30, 2013 (1) (Unaudited) |
March 29, 2014 (Unaudited) |
March 30, 2013 (1) (Unaudited) |
||||
| Volume (metric tonnes) | 154,862 | 150,914 | 317,120 | 307,329 | ||||
| Revenues | $ | 127,299 | $ | 131,819 | $ | 264,175 | $ | 274,195 |
| Gross margin | 33,206 | 22,636 | 59,509 | 53,059 | ||||
| Administration and selling expenses | 5,482 | 5,263 | 10,214 | 9,920 | ||||
| Distribution expenses | 2,498 | 1,613 | 4,644 | 3,942 | ||||
| Earnings before net finance costs and provision for income taxes (EBIT) | $ | 25,226 | $ | 15,760 | $ | 44,651 | $ | 39,197 |
| Net finance costs | 2,843 | 1,841 | 5,389 | 4,043 | ||||
| Provision for income taxes | 5,658 | 3,678 | 10,021 | 8,973 | ||||
| Net earnings | $ | 16,725 | $ | 10,241 | $ | 29,241 | $ | 26,181 |
| Net earnings per share - basic | $ | 0.18 | $ | 0.11 | $ | 0.31 | $ | 0.28 |
| (1) | Adjusted to reflect the impact relating to the implementation of the amendments to IAS 19, Employee benefits, which can be found in Note 3 a) of the March 29, 2014 unaudited condensed consolidated interim financial statements. |
In the normal course of business, the Company uses derivative financial instruments consisting of sugar futures, foreign exchange forward contracts, natural gas futures and interest rate swaps. The Company sells refined sugar to some clients in U.S. dollars. These sales contracts are viewed as having an embedded derivative if the functional currency of the customer is not U.S. dollars, the embedded derivative being the source currency of the transaction, U.S. dollars. Derivative financial instruments and embedded derivatives are marked-to-market at each reporting date, with the unrealized gains/losses charged to the consolidated statement of earnings with a corresponding offsetting amount charged to the consolidated statement of financial position.
Management believes that the Company's financial results are more meaningful to management, investors, analysts and any other interested parties when financial results are adjusted by the gains/losses from financial derivative instruments and from embedded derivatives for which adjusted financial results provide a more complete understanding of factors and trends affecting our business. This measurement is a non-GAAP measurement.
Management uses the non-GAAP adjusted results of the operating company to measure and to evaluate the performance of the business through its adjusted gross margin, adjusted EBIT and adjusted net earnings. In addition, management believes that these measures are important to our investors and parties evaluating our performance and comparing such performance to past results. Management also uses adjusted gross margin, adjusted EBIT and adjusted net earnings when discussing results with the Board of Directors, analysts, investors, banks and other interested parties.
The results of operations would therefore need to be adjusted by the following:
| Income (loss) | For the three months ended | For the six months ended | ||||||||
| (In thousands) | March 29, 2014 (Unaudited) |
March 30, 2013 (Unaudited) |
March 29, 2014 (Unaudited) |
March 30, 2013 (Unaudited) |
||||||
| Mark-to-market adjustment (excluding interest swap) | $ | 14,550 | $ | (543 | ) | $ | 8,703 | $ | (3,805 | ) |
| Cumulative timing differences | 2,274 | 3,495 | 9,645 | 7,829 | ||||||
| Total adjustment to cost of sales | $ | 16,824 | $ | 2,952 | $ | 18,348 | $ | 4,024 | ||
Price movement in raw sugar and natural gas as well as the increase in value of the U.S. dollar resulted in a mark-to-market gains during the quarter and the year-to-date. For raw sugar, a mark-to-market gain of $10.8 million was recorded as compared to a mark-to-market loss of $2.3 million in the comparable quarter of last year. Year-to-date, a mark-to-market gain of $3.0 million was recorded as compared to a mark-to-market loss of $6.3 million in fiscal 2013. With the increase in natural gas prices, a mark-to-market gain of $2.0 million and $1.8 million was recorded in the second quarter and year-to-date respectively, versus a mark-to-market gain for the quarter of $0.4 million and a mark-to-market gain of $0.1 million year-to-date in fiscal 2013. Foreign exchange forward contracts and embedded derivatives, on which foreign exchange movements have an impact, had a combined mark-to-market gain of $1.7 million for the quarter and $3.9 million year-to-date. For the comparable periods in fiscal 2013, the combined mark-to-market adjustment was a gain of $1.4 million for the quarter and $2.3 million year-to-date.
The cumulative timing differences are a result of the fact that mark-to-market gains or losses are recognized by the Company only when sugar is sold to a customer and when natural gas is used. The gains or losses on the sugar and related foreign exchange paper transactions are largely offset by corresponding gains or losses from the physical transactions being the sale and purchase contracts with customers and suppliers. This adjustment is added to the mark-to-market results to arrive at the total adjustment to cost of sales. For the second quarter and the year-to-date, the total cost of sales adjustment is a gain of $16.8 million and $18.3 million, respectively, to be deducted from the consolidated operating results compared to a total cost of sales gain of $3.0 million and $4.0 million in last year's comparable periods, respectively.
In addition, under short-term interest expense, the Company recorded a mark-to-market loss of $0.3 million for the quarter and $0.4 million year-to-date as opposed to a mark-to-market gain of $1.0 million for the quarter and $1.4 million year-to-date for the comparable periods last year, on the mark-to-market of an interest rate swap. The mark-to-market loss in fiscal 2014 relates to a new five-year 2.09% interest rate swap of $50.0 million, decreasing to $40.0 million in June 2015 and to $30.0 million in June 2016. Last year's gain is a result of losses recorded in previous quarters that were reversed with the passage of time of the previous 4.005% interest rate swap of $70.0 million.
The following is a table showing the adjusted interim consolidated results (non-GAAP) without the above-noted mark-to-market results:
| Consolidated Results | For the three months ended | For the six months ended | ||||||||||
| March 29, 2014 (Unaudited) |
March 30, 2013 (1) (Unaudited) |
March 29, 2014 (Unaudited) |
March 30, 2013 (1) (Unaudited) |
|||||||||
| Gross margin as per financial statements | $ | 33,206 | $ | 22,636 | $ | 59,509 | $ | 53,059 | ||||
| Adjustment as per above | (16,824 | ) | (2,952 | ) | (18,348 | ) | (4,024 | ) | ||||
| Adjusted gross margin | 16,382 | 19,684 | 41,161 | 49,035 | ||||||||
| EBIT as per financial statements | 25,226 | 15,760 | 44,651 | 39,197 | ||||||||
| Adjustment as per above | (16,824 | ) | (2,952 | ) | (18,348 | ) | (4,024 | ) | ||||
| Adjusted EBIT | 8,402 | 12,808 | 26,303 | 35,173 | ||||||||
| Net earnings as per financial statements | 16,725 | 10,241 | 29,241 | 26,181 | ||||||||
| Adjustment to cost of sales as per above | (16,824 | ) | (2,952 | ) | (18,348 | ) | (4,024 | ) | ||||
| Adjustment for mark-to-market of finance costs | 338 | (951 | ) | 404 | (1,429 | ) | ||||||
| Deferred taxes on above adjustments | 4,287 | 1,021 | 4,632 | 1,325 | ||||||||
| Adjusted net earnings | $ | 4,526 | $ | 7,359 | $ | 15,929 | $ | 22,053 | ||||
| Net earnings per share basic, as per financial statements | $ | 0.18 | $ | 0.11 | $ | 0.31 | $ | 0.28 | ||||
| Adjustment for the above | (0.13 | ) | (0.03 | ) | (0.14 | ) | (0.05 | ) | ||||
| Adjusted net earnings per share basic | $ | 0.05 | $ | 0.08 | $ | 0.17 | $ | 0.23 | ||||
| (1) | Adjusted to reflect the impact relating to the implementation of the amendments to IAS 19, Employee benefits, which can be found in Note 3 a) of the March 29, 2014 unaudited condensed consolidated interim financial statements. |
Volume for the second quarter was 154,862 metric tonnes, as opposed to 150,914 metric tonnes in the comparable quarter of last year, an increase of approximately 3,900 metric tonnes. Year-to-date volume of 317,120 metric tonnes is approximately 9,800 metric tonnes higher than last year. For the quarter industrial volume was higher by approximately 1,400 metric tonnes due to timing in deliveries. On a year-to-date basis, industrial volume is higher by approximately 6,100 metric tonnes due to additional volume with existing and new customers. Liquid volume was also higher by approximately 6,000 metric tonnes for the quarter and by approximately 9,700 metric tonnes year-to-date due mainly to a high fructose corn syrup ("HFCS") substitutable account in Western Canada. Consumer volume was higher by approximately 3,200 metric tonnes for the quarter and 4,500 metric tonnes year-to-date due to additional volume contracted under a multi-year agreement with a major account that started in January 2014 and to timing of customers' retail promotions. These increases were offset by lower export volume of approximately 6,700 metric tonnes for the quarter and of approximately 10,500 metric tonnes year-to-date due to a decrease in exports to Mexico.
Revenues for the quarter were $4.5 million lower than the previous year while the year-to-date revenues were $10.0 million lower. The reason for the decrease is lower raw sugar values during the current year as compared to fiscal 2013.
As previously mentioned, gross margin of $33.2 million for the quarter and $59.5 million year-to-date does not reflect the economic margin of the Company, as it includes a gain of $16.8 million for the quarter and a gain of $18.3 million year-to-date for the mark-to-market of derivative financial instruments explained earlier. We will therefore comment on adjusted gross margin results.
For the second quarter, adjusted gross margin decreased by approximately $3.3 million when compared to the same quarter of last year. On a per metric tonne basis, adjusted gross margin was $105.78 compared to $130.43 for the second quarter of last year. The decrease in the adjusted gross margin and adjusted gross margin rate is due mainly to the unfavourable sales mix with higher industrial and liquid sales and lower export sales, as export sales traditionally have a higher margin rate. In addition, the increase in consumer volume was more than offset by lower margin rates in that segment due to an increase in competitive pressure from the domestic market. Revenues from by-products were lower by approximately $0.5 million compared to the second quarter of 2013, as a result of lower beet acreage harvested in fiscal 2014. Finally, as a result of unusually cold weather this winter, the Montreal refinery incurred approximately $1.0 million in additional energy costs due to the purchase of expensive auxiliary natural gas and oil when supply was interrupted as per the delivery terms of the natural gas provider. Year-to-date adjusted gross margin was $7.9 million lower than last year while the adjusted gross margin rate per tonne was $129.80, a decrease of $29.75 compared to last year's comparable period. In addition to the unfavourable sales mix, revenues generated from by-products were lower by approximately $1.3 million compared to last year. The interruptible gas contract resulted in additional energy costs in Montreal of approximately $1.4 million in the first half of fiscal 2014 when compared to last year. In total, the Montreal refinery was interrupted 49 days this fiscal year compared to 27 days in fiscal 2013 and approximately 15 days during a typical winter. The Company is currently reviewing various alternatives in order to mitigate the risk of high auxiliary energy costs as a result of interruptions from its natural gas provider. Finally, the unusual breakdown that occurred at the end of fiscal 2013 at the Vancouver refinery added $1.0 million in maintenance cost and also contributed to higher refining costs as some additional labour costs were incurred in catching up on lost production volume during the first quarter of the current year.
Administration and selling expenses were higher by approximately $0.2 million for the quarter and $0.3 million year-to-date than the comparable periods of fiscal 2013. The variance in the quarter and year-to-date is due mainly to timing of expenses.
Distribution costs for the quarter and year-to-date were $0.9 million and $0.7 million higher than last year due to the timing in deliveries under the global and Canada specific quotas, one-time demurrage costs, as well as additional storage costs due to the large carryover of beet sugar inventories at the end of last fiscal year.
Finance costs include a mark-to-market loss on the interest swap of $0.3 million for the quarter and $0.4 million year-to-date while last year's comparable periods resulted in a mark-to-market gain of $1.0 million and $1.4 million, respectively. Without the above mark-to-market adjustment, interest expense for the quarter was lower by approximately $0.3 million due mainly to a lower interest rate on the interest rate swap. Year-to-date interest expense is lower by approximately $0.5 million for the same reason.
The provision for income taxes includes a deferred tax expense of $4.3 million for the quarter and a deferred tax expense of $4.6 million year-to-date for the mark-to-market adjustment as compared to an expense of $1.0 million for the quarter and $1.3 million year-to-date for the comparable periods of last year. On an adjusted basis, the provision for income taxes was approximately $1.4 million for the quarter and $5.4 million year-to date as compared to a provision of $2.7 million for the quarter and $7.6 million year-to-date for the comparable periods of last year. The decrease for the quarter and year-to-date is due mainly to the decrease in adjusted earnings before income taxes as a result of the lower adjusted gross margins.
Statement of quarterly results
The following is a summary of selected financial information of the consolidated financial statements and non-GAAP measures of the Company for the last eight quarters.
| 2014 (Unaudited) |
2013 (1)
(Unaudited) |
2012 (Unaudited) |
|||||||
| (In thousands of dollars, except for volume, margin rate and per share information) | 2-Q |
1-Q | 4-Q | 3-Q | 2-Q | 1-Q | 4-Q | 3-Q | |
| Volume (MT) | 154,862 | 162,258 | 176,641 | 165,304 | 150,914 | 156,415 | 164,539 | 157,786 | |
| Revenues | 127,299 | 136,876 | 145,840 | 138,403 | 131,819 | 142,376 | 150,469 | 147,687 | |
| Gross margin | 33,206 | 26,303 | 17,329 | 14,402 | 22,636 | 30,423 | 18,077 | 18,207 | |
| EBIT | 25,226 | 19,425 | 11,739 | 7,558 | 15,760 | 23,437 | 11,072 | 11,180 | |
| Net earnings | 16,725 | 12,516 | 6,510 | 3,802 | 10,241 | 15,940 | 6,944 | 6,909 | |
| Gross margin rate per MT | 214.42 | 162.11 | 98.10 | 87.12 | 149.99 | 194.50 | 109.86 | 115.39 | |
| Per share | |||||||||
| Net earnings | |||||||||
| Basic | 0.18 | 0.13 | 0.07 | 0.04 | 0.11 | 0.17 | 0.07 | 0.07 | |
| Diluted | 0.16 | 0.13 | 0.07 | 0.04 | 0.11 | 0.16 | 0.07 | 0.07 | |
| Non-GAAP Measures | |||||||||
| Adjusted gross margin | 16,382 | 24,779 | 17,541 | 15,540 | 19,684 | 29,351 | 21,696 | 19,642 | |
| Adjusted EBIT | 8,402 | 17,901 | 11,951 | 8,696 | 12,808 | 22,365 | 14,691 | 12,615 | |
| Adjusted net earnings | 4,526 | 11,403 | 6,818 | 4,179 | 7,359 | 14,694 | 9,782 | 7,641 | |
| Adjusted gross margin rate per MT | 105.78 | 152.71 | 99.30 | 94.01 | 130.43 | 187.65 | 131.86 | 124.49 | |
| Adjusted net earnings per share | |||||||||
| Basic | 0.05 | 0.12 | 0.07 | 0.04 | 0.08 | 0.16 | 0.10 | 0.08 | |
| Diluted | 0.05 | 0.12 | 0.07 | 0.04 | 0.08 | 0.15 | 0.10 | 0.08 | |
| (1) | Adjusted to reflect the impact relating to the implementation of the amendments to IAS 19, Employee benefits, which can be found in Note 3 a) of the March 29, 2014 unaudited condensed consolidated interim financial statements. |
Historically the first quarter (October to December) of the fiscal year is the best quarter for adjusted gross margins and adjusted net earnings due to a favourable sales mix of products sold. This is due to increased sales of baked goods during that period of the year. At the same time, the second quarter (January to March) is historically the lowest volume quarter, resulting in lower revenues, adjusted gross margins and adjusted net earnings.
Liquidity
The cash flow generated by the operating company, Lantic, is paid to Rogers by way of dividends and return of capital on the common shares of Lantic, and by the payment of interest on the subordinated notes of Lantic held by Rogers, after having taken reasonable reserves for capital expenditures and working capital. The cash received by Rogers is used to pay dividends to its shareholders.
Cash flow from operations was negative $2.9 million for the quarter, versus negative $9.3 million in the comparable quarter of fiscal 2013, an improvement of $6.4 million. The improvement is due mainly to an increase in EBIT of $9.5 million (before any mark-to-market adjustment) and a positive variation of working capital of $3.4 million against last year's comparable quarter due mainly to a decrease in total inventories of $5.1 million. This positive variance was slightly offset with additional interest cash payment of $1.6 million and of income taxes of $0.4 million in the quarter, due to timing in payments. Furthermore, net cash pension contributions had a negative impact of $2.9 million for the current quarter, mostly explained by the funding of a withdrawal of a Senior Executive Retirement Plan ("SERP").
Year-to-date cash flow from operations is positive $0.6 million as opposed to negative $15.0 million for the comparable period of last year, an improvement of $15.5 million. The improvement is due mainly to a decrease in total working capital variance of $13.6 million versus last year's year-to-date variance, due mainly to a lower increase in inventories from the comparable period of $13.1 million. In addition, an increase of $5.5 million in EBIT (before any mark-to-market adjustment) and lower income tax payment of $1.0 million contributed to the improvement in cash flow. This was partially offset by an increase of $2.1 million in net cash pension contributions and higher non-adjusted finance costs of $1.3 million due to mark-to-market adjustment.
Total capital expenditures were $1.2 million lower for the quarter and year-to-date than the previous year, due mainly to timing of projects when compared to fiscal 2013. The Company continues to expect capital expenditures of approximately $10.0 million this year.
In order to provide additional information the Company believes it is appropriate to measure free cash flow, a non-GAAP measure, which is generated by the operations of the Company and can be compared to the level of dividends paid by Rogers. Free cash flow is defined as cash flow from operations excluding changes in non-cash working capital, mark-to-market and derivative timing adjustments, financial instruments non-cash amount and including capital expenditures.
Free cash flow is as follows:
| For the three months ended | For the six months ended | ||||||||||||
| (In thousands of dollars) | March 29, 2014 (Unaudited) |
March 30, 2013 (Unaudited) |
March 29, 2014 (Unaudited) |
March 30, 2013 (Unaudited) |
|||||||||
| Cash flow from operations | $ | (2,883 | ) | $ | (9,296 | ) | $ | 571 | $ | (14,965 | ) | ||
| Adjustments: | |||||||||||||
| Changes in non-cash working capital | 18,484 | 21,919 | 27,225 | 40,824 | |||||||||
| Changes in non-cash income taxes payable | 1,539 | (1,021 | ) | 1,178 | 1,399 | ||||||||
| Changes in non-cash interest payable | 260 | (1,617 | ) | 75 | (39 | ) | |||||||
| Mark-to-market and derivative timing adjustments | (16,486 | ) | (3,903 | ) | (17,944 | ) | (5,453 | ) | |||||
| Financial instruments non-cash amount | 3,839 | 3,570 | 7,961 | 6,969 | |||||||||
| Capital expenditures | (1,469 | ) | (2,642 | ) | (2,417 | ) | (3,609 | ) | |||||
| Investment capital expenditures | - | 120 | 229 | 120 | |||||||||
| Net (repurchase) issue of shares | (372 | ) | 72 | (372 | ) | 72 | |||||||
| Deferred financing charges | (90 | ) | - | (90 | ) | - | |||||||
| Free cash flow | $ | 2,822 | $ | 7,202 | $ | 16,416 | $ | 25,318 | |||||
| Declared dividends | $ | 8,463 | $ | 42,343 | $ | 16,933 | $ | 50,811 | |||||
Free cash flow was lower by approximately $4.4 million than the comparable quarter in fiscal 2013 and lower by $8.9 million year-to-date, mostly explained by lower adjusted results from operating activities.
Changes in non-cash working capital represent quarter-over-quarter movement in current assets such as accounts receivables and inventories, and current liabilities like accounts payable. Movements in these accounts are due mainly to timing in the collection of receivables, receipts of raw sugar and payment of liabilities. Increases or decreases in such accounts do not therefore constitute available cash for distribution. Such increases or decreases are financed from available cash or from the Company's available credit facilities of $150.0 million. Increases or decreases in short-term bank indebtedness are also due to timing issues from the above, and therefore do not constitute available cash for distribution.
The combined impact of the mark-to-market and financial instruments non-cash amount of $12.6 million for the quarter and of $10.0 million year-to-date does not represent cash items as these contracts will be settled when the physical transactions occur, which is the reason for the adjustment to free cash flow.
Capital expenditures, net of investment capital, were lower than last year by approximately $1.1 million for the quarter and by approximately $1.3 million year-to-date due mainly to timing of capital projects. Investment capital expenditures are added back as these capital projects are not required for the operation of the refineries but are undertaken due to their substantial operational savings to be realized when these projects are completed. Investment capital expenditures in fiscal 2014 mostly relate to the acquisition and installation of a new palletizing station at the Vancouver refinery which will start generating labour savings at the beginning of fiscal 2015. An amount of $2.2 million was committed by the Company for this project, of which $0.6 million was spent in the fourth quarter of fiscal 2013. In total, the Company expects to spend between $2.5 million and $3.0 million in fiscal 2014 on return on investment projects.
During the quarter, Rogers repurchased 85,400 shares under the Normal course issuer bid ("NCIB") for a total cash consideration of $0.4 million. In the second quarter of 2013, an amount of $0.1 million was received following the exercise of share options by an executive of the Company.
During the quarter, Lantic exercised its option to extend its revolving credit facility under the same terms and conditions of the credit agreement entered into on June 28, 2013. The maturity date of the revolving credit facility was therefore extended to June 28, 2019. As a result, the Company paid $0.1 million in deferred financing costs during the current quarter.
The Company declared a quarterly dividend of 9.0 cents per common share for a total amount of approximately $8.5 million during the quarter. During the second quarter of fiscal 2013, the Company declared and paid an additional dividend of $33.9 million based on previously earned but undistributed free cash flow of approximately $64.7 million generated in the five fiscal years ended September 29, 2012.
Contractual obligations
There are no significant changes in the contractual obligations table disclosed in the Management's Discussion and Analysis of the September 28, 2013 Annual Report.
At March 29, 2014, the operating company had commitments to purchase a total of 1,380,000 metric tonnes of raw sugar, of which 122,000 metric tonnes had been priced for a total commitment of $58.8 million.
Capital resources
Lantic has $150.0 million as an authorized line of credit available to finance its operations. As discussed above, this line of credit expires in June 2019 following the recent extension of the maturity by one year. At quarter-end, $90.0 million had been drawn from the working capital line of credit. In addition, Lantic had $1.0 million in bank overdrafts as the amount of outstanding cheques at the end of the quarter exceeded available cash balances.
At quarter-end, inventories were higher compared to year-end due mainly to the harvest of the Taber beet crop in the first quarter of the fiscal year. Inventories are lower in fiscal 2014 than the comparable quarter of 2013 due to a lower beet acreage planted in 2013 and harvested in fiscal 2014 combined with lower raw sugar inventories in Montreal due to timing in raw sugar vessel arrivals.
Cash requirements for working capital and other capital expenditures are expected to be paid from available credit resources and from funds generated from operations.
Outstanding securities
In November 2013, the Company received approval from the Toronto Stock Exchange to proceed with a normal course issuer bid. Under the NCIB, the Company may purchase up to 5,000,000 common shares. The NCIB commenced on November 27, 2013 and may continue to November 26, 2014. During the second quarter of 2014, the Company purchased 85,400 common shares, for a total cash consideration of $0.4 million. All shares purchased were cancelled.
During the second quarter of 2013, 20,000 common shares were issued following the exercise of share options by an executive under the share option plan. As at April 30, 2014, there were 94,028,860 common shares outstanding.
Critical accounting estimate and accounting policies
There are no significant changes in the critical estimate and accounting policies disclosed in the Management's Discussion and Analysis of the September 28, 2013 Annual Report.
Significant accounting policies
The significant accounting policies as disclosed in the Company's audited annual consolidated financial statements for the year ended September 28, 2013 have been applied consistently in the preparation of these unaudited condensed consolidated interim financial statements except as noted below:
- IAS 19, Employee benefits - Amendments to IAS 19 include the elimination of the option to defer the recognition of gains and losses, enhancing the guidance around measurement of plan assets and defined benefit obligations, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans and the introduction of enhanced disclosures for defined benefit plans. The amendments are effective for annual periods beginning on or after January 1, 2013. The Company implemented this standard retrospectively in the first quarter of the year ended September 27, 2014. The impact from the implementation of the amendments to IAS 19, Employee benefits can be found in Note 3 a) of the March 29, 2014 unaudited condensed consolidated interim financial statements.
- IFRS 10, Consolidated financial statements - This standard provides additional guidance to determine whether an entity should be included within the consolidated financial statements of the Company. IFRS 10 replaces SIC 12, Consolidation - special purpose entities, and parts of IAS 27, Consolidated and separate financial statements. This standard is required to be adopted for annual periods beginning January 1, 2013. The adoption of the amendments had no impact on the unaudited condensed consolidated interim financial statements.
- IFRS 13, Fair value measurement - This standard replaces the fair value measurement guidance contained in individual IFRS with a single source of fair value measurement guidance. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, i.e. an exit price. The application of IFRS 13 did not have a material impact on the condensed consolidated interim financial statements other than added disclosure requirements which have been presented in notes 7, 8 and 9 of the March 29, 2014 unaudited condensed consolidated interim financial statements.
Future accounting changes
A number of new standards, and amendments to standards and interpretations, are not yet effective and have not been applied in preparing these unaudited condensed consolidated interim financial statements.
- IAS 36, Impairment of assets - The IASB has issued amendments to IAS 36, Impairment of assets, to reverse the unintended requirements in IFRS 13, Fair value measurements, to disclose the recoverable amount of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the amendments, recoverable amount is required to be disclosed only when an impairment loss has been recognized or reversed. The amendments apply retrospectively for annual periods beginning on or after January 1, 2014. The Company intends to adopt the amendment in its consolidated financial statements for the annual period beginning September 28, 2014. The extent of the impact of the adoption of IAS 36, Impairment of assets, on the consolidated financial statements of the Company has not yet been determined.
- IFRS 9, Financial instruments - IFRS 9 is a new standard which will ultimately replace IAS 39, Financial instruments: recognition and measurement, with a proposed single model for only two classification categories: amortized cost and fair value. The extent of the impact of the adoption of IFRS 9, Financial instruments on the consolidated financial statements of the Company has not yet been determined.
Risk factors
Risk factors in the Company's business and operations are discussed in the Management's Discussion and Analysis of our Annual Report for the year ended September 28, 2013. This document is available on SEDAR at www.sedar.com or on one of our websites at www.lantic.ca or www.rogerssugar.com.
Outlook
We anticipate that consumer volume will be approximately 8,000 metric tonnes higher in fiscal 2014 compared to 2013, largely as a result of a new multi-year national agreement with a major consumer account that took effect in January 2014. The consolidation of certain large retail accounts has intensified the competitiveness in this already highly competitive segment.
The Company was able to enter approximately 5,600 metric tonnes under the U.S. global quota that opened and closed on October 1, 2013. Combining both the global quota and our Canada specific quota of 12,000 metric tonnes, we still anticipate export volume to be lower than last year as volume sold in Mexico will be negligible. Large crops in Mexico and the U.S. in fiscal 2013 resulted in significant surplus inventories and will therefore limit export opportunities in these countries in fiscal 2014. In addition, surplus inventory in the U.S. exacerbated downward pressure on selling prices in the U.S. However, the U.S. has recently launched a dumping case against Mexico which could have an impact on sugar marketing and margins in the U.S. and Mexico if successful. The Company will continue to investigate other export opportunities similar to those developed several years ago in Mexico, in order to secure additional export sales.
The one year contract obtained from an HFCS substitutable business is now terminated. With the completion of the contract, we expect liquid volume to be lower in the next two quarters but to be comparable for the year to last year's total volume.
Overall volume for fiscal 2014 is expected to be slightly lower than fiscal 2013. Adjusted gross margin rate is expected to be lower in fiscal 2014 due to an increasingly competitive environment in all domestic segments as well as additional operating costs incurred in the current year discussed above. In addition, as mentioned above, export sales margins will be lower than fiscal 2013 due to a change in U.S. market conditions.
The Company hired a process improvement consulting firm to review the Montreal refinery cost structure. Their analysis will start during the third quarter and will last for most of the remainder of the calendar year.
The Taber sugar beet slicing campaign was completed at the end of January. We are estimating total beet sugar production at approximately 95,000 metric tonnes, once the thick juice campaign is completed in the spring of 2014, a decrease of approximately 25,000 metric tonnes compared to fiscal 2013 as a result of the lower beet acreage requested.
A total of 22,000 acres is targeted for planting this season in Taber which is lower than last year due to the large carry-over of beet sugar inventories estimated for this year and sales outlook for fiscal year 2015.
More than 85% of fiscal 2014's natural gas requirements and related foreign currency have been hedged at average prices comparable to those realized in fiscal 2013. In addition, limited futures positions for fiscal 2015 to 2018 have also been taken. We will continue to monitor natural gas market dynamics with the objective of minimizing natural gas costs.
As mentioned previously, the Government of Canada has reached an agreement in principle on the Canada-European Union Comprehensive Economic and Trade Agreement ("CETA"). Under the agreement, Canada is expected to have significant financial benefits from exports of sugar-containing products. It is expected that it may take up to two years for the CETA to be ratified by all parties. In addition, the Canadian Government continues their negotiations under the Trans Pacific Partnership ("TPP") which has the potential to address market access barriers for sugar and sugar-containing products among TPP members. The CETA and the potential TPP trade agreement are not expected to have any impact for the Company for another two years. However, the Company will be able to react quickly should the CETA ratification process happen earlier as discussions have already started with potential customers in Europe.
The Company is currently updating its actuarial evaluations for all of its pension plans. As a result of favourable returns on its pension plan assets, combined with an increase in discount rate, deficits in all plans are forecast to be significantly reduced. The Company expects total pension plan cash contributions to be comparable to last year as opposed to an increase of $4.5 million as previously reported. In addition, with the increase in the discount rate at the end of fiscal 2013, defined benefit pension expense is expected to be approximately $1.0 million lower than last year's reported pension expense. When taking into account the change in accounting policy for IAS 19, Employee benefits, pension expense should be approximately $2.1 million lower than the 2013 restated pension expense.
Labour negotiations continue for the last remaining smaller unit of the Montreal refinery with the intent of reaching a satisfactory agreement in the near future. However, there can be no assurance that a new agreement will be reached with the remaining union, or that the terms of such agreement will be similar to the terms of the current agreements.
The complete financial statements are available at the following address: http://media3.marketwire.com/docs/Rogers_Sugar_FS_Q2_2014_ENG.pdf
Contact Information:
VP Finance and Secretary
(514) 940-4350
(514) 527-1610 (FAX)
investors@lantic.ca
www.rogerssugar.com or www.Lantic.ca