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 nine months ended June 28, 2014.
Volume for the third quarter was 158,489 metric tonnes, as opposed to 165,304
metric tonnes in the comparable quarter of last year, a decrease of
approximately 6,800 metric tonnes. Year-to-date volume of 475,609 metric tonnes
was approximately 3,000 metric tonnes higher than last year. Industrial volume
was higher by approximately 1,300 metric tonnes for the quarter and 7,400 metric
tonnes year-to-date due to additional volume with existing and new customers. As
expected, liquid volume for the quarter was lower by approximately 6,600 metric
tonnes when compared to the third quarter of 2013 as a one-year contract with a
high fructose corn syrup ("HFCS") substitutable account in Western Canada ended
at the end of the second quarter. Year-to-date, liquid volume is higher by
approximately 3,100 metric tonnes due to timing in deliveries in this one-year
contract. The Company entered into a new multi-year national agreement with a
major consumer account that took effect in January 2014 but has not reached its
full distribution yet, which combined with a general weakness in the consumer
market contributed to the decrease of 3,300 metric tonnes for the quarter. We
expect the volume gained with this multi-year agreement to ultimately more than
offset the fact that we did not re-sign another important Eastern consumer
account. On a year-to-date basis, volume was higher by approximately 1,200
metric tonnes due to the timing in the start of the multi-year agreement and the
termination of the Eastern consumer account. Export volume for the quarter was
higher by approximately 1,800 metric tonnes due to timing in shipments under the
Canada-specific quota to the U.S. versus last year's comparable quarter.
Year-to-date, export volume is lower than last year by approximately 8,700
metric tonnes 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 loss of $8.4 million for the third quarter and a gain
of $9.9 million year-to-date, which were added or deducted to calculate adjusted
EBIT and gross margin results.
For the third quarter, adjusted gross margin increased by approximately $1.2
million when compared to the same quarter of last year. Included in the prior
year's third quarter adjusted gross margin is a $1.9 million cost for future
pension plan updates following the signing of a three-year labour agreement in
Montreal. Excluding this charge for 2013, adjusted gross margin for the current
quarter decreased by $0.7 million. On a per metric tonne basis, adjusted gross
margin for the quarter was $105.91 as opposed to $94.01 but comparable to the
previous year's quarter of $105.51, when we exclude the additional fiscal 2013
pension plan charge. The slight increase is due mainly to the sales mix with a
decrease in lower margin liquid volume partially offset by lower consumer
volume. Included in the adjusted gross margin for the current quarter is a $0.5
million reduction in maintenance costs for a claim submitted against the
Company's insurance carrier relating to the unusual equipment breakdown that
occurred in September 2013 in Vancouver. Year-to-date adjusted gross margin was
$57.9 million compared to $64.6 million in fiscal 2013 while the adjusted gross
margin rate per tonne was $121.84, a decrease of $14.79 compared to last year's
comparable period. The decrease is explained by the unfavourable sales mix,
lower by-product revenues of $1.5 million and additional energy costs of
approximately $1.4 million incurred in the first half of the current year for
auxiliary natural gas. Finally, the unusual equipment breakdown that occurred at
the end of fiscal 2013 at the Vancouver refinery added $0.5 million in
maintenance cost, after taking into consideration the $0.5 million insurance
claim, 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 $9.9 million was approximately $1.2 million higher than the
same quarter last year due to the variation in adjusted gross margin, as
explained above. Administration and selling expenses were comparable to the
prior year third quarter but include offsetting items. During the quarter, the
Company recorded a non-cash administrative expense of $1.0 million resulting
from a decision to terminate the only remaining salaried defined benefit pension
plan, for which years of service had been frozen since 2008. In addition, the
Company incurred additional consulting fees. These two items were offset by a
reduction in employee benefits provisions. Year-to-date adjusted EBIT of $36.2
million was approximately $7.7 million lower than last year due mainly to lower
adjusted gross margins of $6.6 million, higher distribution expenses of $0.7
million, due to one-time demurrage costs as well as additional storage costs
incurred in the second quarter as a result to the large carryover of beet sugar
inventories at the end of last fiscal year, and higher administration and
selling expenses of approximately $0.3 million due to timing of expenses.
Free cash flow was $1.6 million lower than the comparable quarter in fiscal
2013, mainly explained by higher capital expenditure spending, due to timing,
somewhat offset by lower deferred financing charges of $0.5 million.
Year-to-date, free cash flow was $21.9 million compared to $32.5 million for
fiscal 2013. The decrease is mainly due to lower adjusted EBIT of $8.5 million,
excluding the additional pension charges of both fiscal years, additional
capital expenditure spending due to timing and additional cash pension
contributions of $1.6 million.
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 program 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 entered into a $10.0 million five-year interest
rate swap agreement at a rate of 2.09%, effective June 30, 2014. During the
second quarter of fiscal 2014, 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. In the third quarter of
fiscal 2013, the Company entered into a five-year interest swap agreement with a
starting date of June 28, 2013, at a rate of 2.09% for an initial amount of
$50.0 million, declining to $30.0 million by the end of the agreement.
Overall volume for fiscal 2014 is expected to be slightly below fiscal 2013 with
lower export volume partially offset by higher industrial volume and modest
consumer volume increase. Adjusted gross margin rate is expected to be lower in
fiscal 2014 due to an unfavourable sales mix as well as additional operating
costs incurred in the current year as discussed above.
The Company hired a process improvement consulting firm to review the Montreal
refinery cost structure. Their analysis started during the third quarter and
will continue until the end of the calendar year. More significant
administrative costs will be incurred in the fourth quarter related to this
project and for which, meaningful savings are expected in fiscal 2015 through
process improvement and labour reductions.
The Company performed actuarial evaluations for its four pension plans as of
December 31, 2013. As a result of favourable returns on its pension plan assets,
combined with an increase in the discount rate as of December 31, 2013, deficits
in all plans were significantly reduced or eliminated. Consequently, the Company
approved the termination of the Pension Plan for Salaried Employees in B.C. and
Alberta (the "Salaried Plan") as of December 31, 2014. Years of service for the
Salaried Plan had been frozen since 2008. Year-to-date, the Company contributed
$6.7 million for all of its defined benefit plans, of which $0.8 million was
specific to the Salaried Plan. In fiscal 2013, defined benefit contributions
amounted to $8.4 million, of which, $3.4 million was attributable to the
Salaried Plan. Total defined benefit pension plan contributions for the year are
expected to be slightly less than fiscal 2013. A further reduction in defined
benefit pension plan contribution of approximately $3.0 million is expected in
fiscal 2015.
FOR THE BOARD OF DIRECTORS,
(SIGNED)
Stuart Belkin, Chairman
Vancouver, British Columbia - July 30, 2014
MANAGEMENTS' DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") dated July 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
June 28, 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, 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 June 28, 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
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Consolidated Results For the three months For the nine months
ended ended
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(In thousands of dollars, June 28, June 29, June 28, June 29,
except for volume 2014 2013 (1) 2014 2013 (1)
and per share information) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Volume (metric tonnes) 158,489 165,304 475,609 472,633
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Revenues $ 128,432 $ 138,403 $ 392,607 $ 412,598
Gross margin 8,353 14,402 67,862 67,461
Administration and selling
expenses 4,852 4,842 15,066 14,762
Distribution expenses 2,024 2,002 6,668 5,944
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Earnings before net finance
costs and provision for
income taxes (EBIT) $ 1,477 $ 7,558 $ 46,128 $ 46,755
Net finance costs 2,675 2,457 8,064 6,500
Provision for income taxes (312) 1,299 9,709 10,272
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Net (loss) earnings $ (886) $ 3,802 $ 28,355 $ 29,983
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Net (loss) earnings per
share - basic $ (0.01) $ 0.04 $ 0.30 $ 0.32
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(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
June 28, 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:
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Income (loss) For the three months For the nine months
ended ended
(In thousands) June 28, June 29, June 28, June 29,
2014 2013 2014 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Mark-to-market adjustment
(excluding interest
swap) $ (3,987) $ (2,411) $ 4,716 $ (6,216)
Cumulative timing
differences (4,446) 1,273 5,199 9,102
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Total adjustment to cost
of sales $ (8,433) $ (1,138) $ 9,915 $ 2,886
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Price movements in raw sugar and natural gas as well as the movement in value
of the U.S. dollar resulted in a mark-to-market loss during the quarter and a
mark-to-market gain for the year-to-date. For raw sugar, a mark-to-market loss
of $0.9 million was recorded as compared to a mark-to-market loss of $1.7
million in the comparable quarter of last year. Year-to-date, a mark-to-market
gain of $2.1 million was recorded as compared to a mark-to-market loss of $7.9
million in fiscal 2013. With the slight decrease in natural gas prices during
the quarter, a mark-to-market loss of $0.4 million was recorded versus a
mark-to-market loss of $1.3 million for the comparable quarter. On a
year-to-date basis, a mark-to-market gain of $1.5 million was recorded following
the increase in natural gas prices for the year compared to a mark-to-market
loss of $1.2 million in fiscal 2013. Foreign exchange forward contracts and
embedded derivatives, on which foreign exchange movements have an impact,
resulted in a combined mark-to-market loss of $2.7 million for the quarter and a
mark-to-market gain of $1.1 million year-to-date. For the comparable periods in
fiscal 2013, the combined mark-to-market adjustment was a gain of $0.6 million
for the quarter and $2.9 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 third quarter, the total cost of sales adjustment, to be added to the
consolidated operating results, is a loss of $8.4 million compared to a loss of
$1.1 million in the third quarter of 2013,. Year-to-date, the total cost of
sales adjustment, to be deducted from the consolidated operating results, is a
gain of $9.9 million compared to a gain of $2.9 million in 2013.
In addition, under short-term interest expense, the Company recorded a
mark-to-market loss of $0.1 million for the quarter and $0.5 million
year-to-date as opposed to a mark-to-market gain of $0.4 million for the quarter
and $1.9 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 the 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 and
the new five-year 2.09% interest rate swap of $10.0 million entered into in the
third quarter of 2014. 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:
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Consolidated Results For the three months For the nine months
ended ended
June 28, June 29, June 28, June 29,
2014 2013(1) 2014 2013(1)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Gross margin as per
financial statements $ 8,353 $ 14,402 $ 67,862 $ 67,461
Adjustment as per above 8,433 1,138 (9,915) (2,886)
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Adjusted gross margin 16,786 15,540 57,947 64,575
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EBIT as per financial
statements 1,477 7,558 46,128 46,755
Adjustment as per above 8,433 1,138 (9,915) (2,886)
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Adjusted EBIT 9,910 8,696 36,213 43,869
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Net (loss) earnings as
per financial
statements (886) 3,802 28,355 29,983
Adjustment to cost of
sales as per above 8,433 1,138 (9,915) (2,886)
Adjustment for mark-to-
market of finance costs 137 (438) 541 (1,867)
Deferred taxes on above
adjustments (2,228) (323) 2,404 1,002
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Adjusted net earnings $ 5,456 $ 4,179 $ 21,385 $ 26,232
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Net (loss) earnings per
share basic, as per
financial statements $ (0.01) $ 0.04 $ 0.30 $ 0.32
Adjustment for the above 0.07 - (0.07) (0.04)
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Adjusted net earnings
per share basic $ 0.06 $ 0.04 $ 0.23 $ 0.28
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(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
June 28, 2014 unaudited condensed consolidated interim financial statements.
Volume for the third quarter was 158,489 metric tonnes, as opposed to 165,304
metric tonnes in the comparable quarter of last year, a decrease of
approximately 6,800 metric tonnes. Year-to-date volume of 475,609 metric tonnes
was approximately 3,000 metric tonnes higher than last year. Industrial volume
was higher by approximately 1,300 metric tonnes for the quarter and 7,400 metric
tonnes year-to-date due to additional volume with existing and new customers. As
expected, liquid volume for the quarter was lower by approximately 6,600 metric
tonnes when compared to the third quarter of 2013 as a one-year contract with a
high fructose corn syrup ("HFCS") substitutable account in Western Canada ended
at the end of the second quarter. Year-to-date, liquid volume is higher by
approximately 3,100 metric tonnes due to timing in deliveries in this one-year
contract. The Company entered into a new multi-year national agreement with a
major consumer account that took effect in January 2014 but has not reached its
full distribution yet, which combined with a general weakness in the consumer
market contributed to the decrease of 3,300 metric tonnes for the quarter. We
expect the volume gained with this multi-year agreement to ultimately more than
offset the fact that we did not re-sign another important Eastern consumer
account. On a year-to-date basis, volume was higher by approximately 1,200
metric tonnes due to the timing in the start of the multi-year agreement and the
termination of the Eastern consumer account. Export volume for the quarter was
higher by approximately 1,800 metric tonnes due to timing in shipments under the
Canada-specific quota to the U.S. versus last year's comparable quarter.
Year-to-date, export volume is lower than last year by approximately 8,700
metric tonnes due to a decrease in exports to Mexico.
As previously mentioned, gross margin of $8.4 million for the quarter and $67.9
million year-to-date does not reflect the economic margin of the Company, as it
includes a loss of $8.4 million for the quarter and a gain of $9.9 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 third quarter, adjusted gross margin increased by approximately $1.2
million when compared to the same quarter of last year. Included in the prior
year's third quarter adjusted gross margin is a $1.9 million cost for future
pension plan updates following the signing of a three-year labour agreement in
Montreal. Excluding this charge for 2013, adjusted gross margin for the current
quarter decreased by $0.7 million. On a per metric tonne basis, adjusted gross
margin for the quarter was $105.91 as opposed to $94.01 but comparable to the
previous year's quarter of $105.51, when we exclude the additional fiscal 2013
pension plan charge. The slight increase is due mainly to the sales mix with a
decrease in lower margin liquid volume partially offset by lower consumer
volume. Included in the adjusted gross margin for the current quarter is a $0.5
million reduction in maintenance costs for a claim submitted against the
Company's insurance carrier relating to the unusual equipment breakdown that
occurred in September 2013 in Vancouver. Year-to-date adjusted gross margin was
$57.9 million compared to $64.6 million in fiscal 2013 while the adjusted gross
margin rate per tonne was $121.84, a decrease of $14.79 compared to last year's
comparable period. The decrease is explained by the unfavourable sales mix,
lower by-product revenues of $1.5 million and additional energy costs of
approximately $1.4 million incurred in the first half of the current year for
auxiliary natural gas. Finally, the unusual equipment breakdown that occurred at
the end of fiscal 2013 at the Vancouver refinery added $0.5 million in
maintenance cost, after taking into consideration the $0.5 million insurance
claim, 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 comparable to the prior year third
quarter but include offsetting items. During the quarter, the Company recorded a
non-cash administrative expense of $1.0 million resulting from a decision to
terminate the only remaining salaried defined benefit pension plan, for which
years of service had been frozen since 2008. In addition, the Company incurred
additional consulting fees. These two items were offset by a reduction in
provision for employee benefits. Year-to-date, administration and selling
expenses were approximately $0.3 million higher due to timing of expenses.
Distribution costs for the quarter were in line with the comparable quarter of
last year. On a year-to-date basis, distribution costs were $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 $0.1 million
for the quarter and $0.5 million year-to-date while last year's comparable
periods resulted in a mark-to-market gain of $0.4 million and $1.9 million,
respectively. Without the above mark-to-market adjustment, interest expense for
the quarter was lower by approximately $0.4 million due mainly to a lower
interest rate on the interest rate swap. Year-to-date interest expense is lower
by approximately $0.8 million for the same reason.
The provision for income taxes includes a deferred tax recovery of $2.2 million
for the quarter and a deferred tax expense of $2.4 million year-to-date for the
mark-to-market adjustment as compared to a recovery of $0.3 million for the
quarter and an expense of $1.0 million year-to-date for the comparable periods
of last year. On an adjusted basis, the provision for income taxes was
approximately $1.9 million for the quarter and $7.3 million year-to date as
compared to a provision of $1.6 million for the quarter and $9.3 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.
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2014
(Unaudited)
(In thousands of
dollars, except for
volume, margin rate and
per share information) 3-Q 2-Q 1-Q
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Volume (MT) 158,489 154,862 162,258
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Revenues 128,432 127,299 136,876
Gross margin 8,353 33,206 26,303
EBIT 1,477 25,226 19,425
Net (loss) earnings (886) 16,725 12,516
Gross margin rate per MT 52.70 214.42 162.11
Per share
Net (loss) earnings
Basic (0.01) 0.18 0.13
Diluted (0.01) 0.16 0.13
Non-GAAP Measures
Adjusted gross margin 16,786 16,382 24,779
Adjusted EBIT 9,910 8,402 17,901
Adjusted net earnings 5,456 4,526 11,403
Adjusted gross margin
rate per MT 105.91 105.78 152.71
Adjusted net earnings
per share
Basic 0.06 0.05 0.12
Diluted 0.06 0.05 0.12
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2013 (1) 2012
(Unaudited) (Unaudited)
(In thousands of
dollars, except for
volume, margin rate and
per share information) 4-Q 3-Q 2-Q 1-Q 4-Q
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Volume (MT) 176,641 165,304 150,914 156,415 164,539
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Revenues 145,840 138,403 131,819 142,376 150,469
Gross margin 17,329 14,402 22,636 30,423 18,077
EBIT 11,739 7,558 15,760 23,437 11,072
Net (loss) earnings 6,510 3,802 10,241 15,940 6,944
Gross margin rate per MT 98.10 87.12 149.99 194.50 109.86
Per share
Net (loss) earnings
Basic 0.07 0.04 0.11 0.17 0.07
Diluted 0.07 0.04 0.11 0.16 0.07
Non-GAAP Measures
Adjusted gross margin 17,541 15,540 19,684 29,351 21,696
Adjusted EBIT 11,951 8,696 12,808 22,365 14,691
Adjusted net earnings 6,818 4,179 7,359 14,694 9,782
Adjusted gross margin
rate per MT 99.30 94.01 130.43 187.65 131.86
Adjusted net earnings
per share
Basic 0.07 0.04 0.08 0.16 0.10
Diluted 0.07 0.04 0.08 0.15 0.10
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(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
June 28, 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 $20.0 million for the quarter, versus $22.0
million in the comparable quarter of fiscal 2013, a decrease of $2.0 million.
The main reason for the decrease is due to a decrease in net earnings of $4.7
million (before any mark-to-market adjustment) offset by lower interest paid and
pension contributions of $1.0 million and $0.5 million, respectively, both due
to timing.
Year-to-date cash flow from operations is positive $20.5 million as opposed to
$7.0 million for the comparable period of last year, an improvement of $13.5
million. The improvement is due mainly to a decrease in total working capital
variance of $12.8 million versus last year's year-to-date variance, due mainly
to a lower increase in inventories as well as a positive variation in accounts
payable versus a negative variation in fiscal 2013. In addition, interest and
income taxes paid resulted in a positive variation of $1.3 million and $0.5
million, respectively, and gross margin (before any mark-to-market adjustment)
increased by $0.4 million. These positive variations were slightly offset with
an increase in pension contributions of $1.6 million.
Total capital expenditures were $2.2 million and $0.9 million higher for the
quarter and year-to-date, respectively, than the previous year, due mainly to
timing of projects when compared to fiscal 2013.
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 For the nine months
ended ended
----------------------------------------------------------------------------
(In thousands of June 28, June 29, June 28, June 29,
dollars) 2014 2013 2014 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------------------------------
Cash flow from
operations $ 19,975 $ 21,983 $ 20,546 $ 7,018
Adjustments:
Changes in non-cash
working capital (16,415) (17,185) 10,809 23,639
Changes in non-cash
income taxes payable 15 523 1,193 1,922
Changes in non-cash
interest payable 1,474 2,075 1,549 2,036
Mark-to-market and
derivative timing
adjustments 8,570 700 (9,374) (4,753)
Financial instruments
non-cash amount (5,256) 366 2,705 7,335
Capital expenditures (3,464) (1,307) (5,881) (4,916)
Investment capital
expenditures 623 460 852 580
Net issue (repurchase)
of shares - 20 (372) 92
Deferred financing
charges - (450) (90) (450)
----------------------------------------------------------------------------
Free cash flow $ 5,522 $ 7,185 $ 21,937 $ 32,503
----------------------------------------------------------------------------
Declared dividends $ 8,462 $ 8,470 $ 25,395 $ 59,281
----------------------------------------------------------------------------
Free cash flow was $1.6 million lower than the comparable quarter in fiscal
2013, mainly explained by higher capital expenditure spending, due to timing,
somewhat offset by lower deferred financing charges of $0.5 million.
Year-to-date, free cash flow was $21.9 million compared to $32.5 million for
fiscal 2013. The decrease is mainly due to lower adjusted EBIT of $8.5 million,
excluding the additional pension charges of both fiscal years, additional
capital expenditure spending due to timing and additional cash pension
contributions of $1.6 million.
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 $3.3 million for the quarter and of negative $6.7 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 higher than last year by
approximately $2.0 million for the quarter and by approximately $0.7 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, the Company approved the purchase
and installation of a new specialty packaging equipment at the Vancouver
refinery for a total amount of $4.2 million, of which, approximately half will
be spent in the fourth quarter of this fiscal year. Although this project is not
considered an investment capital expenditure due to its longer payback, it will
nonetheless generate modest labour savings in fiscal 2016 as well as improved
packaging efficiency. With the approval of this project, the Company expects
capital expenditures for the year, excluding investment capital expenditures, to
be between $8.5 million and $9.5 million for the year.
During the second 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 and third quarter of 2013, a total amount of $0.1 million was
received following the exercise of share options by an executive of the Company.
During the second quarter of fiscal 2014, 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. As a result,
the Company paid $0.1 million in deferred financing costs during the second
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 June 28, 2014, the operating company had commitments to purchase a total of
1,257,000 metric tonnes of raw sugar, of which 174,000 metric tonnes had been
priced for a total commitment of $79.1 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. During the quarter,
the Company entered into a $10.0 million five-year interest rate swap agreement
at a rate of 2.09%, effective June 30, 2014. In the third quarter of fiscal
2013, the Company entered into a five-year interest swap agreement with a
starting date of June 28, 2013, at a rate of 2.09% for an initial amount of
$50.0 million, declining to $30.0 million by the end of the agreement.
At quarter-end, $84.0 million had been drawn from the working capital line of
credit. In addition, an amount of $1.0 million in cash and cash equivalent was
also available.
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 program, the Company
may purchase up to 5,000,000 common shares. The NCIB program 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 and third quarter of 2013, 20,000 common shares and 3,500
common shares, respectively, were issued following the exercise of share options
by an executive under the share option plan. As at July 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 June 28, 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 10 of the June 28, 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 and proposes additional
changes relating to financial liabilities. In addition, it includes a
new general hedge accounting standard which will align hedge accounting
more closely with risk management. The extent of the impact of adoption
of IFRS 9, Financial Instruments on the consolidated financial
statements of the Company has not yet been determined.
-- IAS 19, Employee benefits - In November 2013, the IASB issued amendments
to pension accounting under IAS 19, Employee Benefits. The amendments
introduce a relief (practical expedient) that will reduce the complexity
and burden of accounting for certain contributions from employees or
third parties. The Company intends to adopt these amendments in its
financial statements for the annual period beginning on October 4, 2015.
The extent of the impact of adoption of IAS 19, Employee Benefits 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
The Company entered into a new multi-year national agreement with a major
consumer account that took effect in January 2014 but did not re-sign an
important Eastern consumer account in April 2014. We therefore anticipate that
consumer volume will be slightly higher in fiscal 2014 compared to 2013.
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 fiscal 2013 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 terminated at
the end of the second quarter. With the completion of the contract, as expected,
liquid volume was lower in the third quarter. We expect volume to be lower in
the fourth quarter of fiscal 2014 as well but for the year to be comparable to
last year's total liquid volume.
Overall volume for fiscal 2014 is expected to be slightly below fiscal 2013 with
lower export volume partially offset by higher industrial volume and modest
consumer volume increase. Adjusted gross margin rate is expected to be lower in
fiscal 2014 due to an unfavourable sales mix as well as additional operating
costs incurred in the current year as discussed above.
The Company hired a process improvement consulting firm to review the Montreal
refinery cost structure. Their analysis started during the third quarter and
will continue until the end of the calendar year. More significant
administrative costs will be incurred in the fourth quarter related to this
project and for which, meaningful savings are expected in fiscal 2015 through
process improvement and labour reductions.
As a consequence of the large inventory carry-over and a reduction in export
volume, a total of 22,000 acres was planted this season, which should derive
approximately 80,000 metric tonnes of beet sugar under normal growing,
harvesting and processing conditions.
The Company performed actuarial evaluations for its four pension plans as of
December 31, 2013. As a result of favourable returns on its pension plan assets,
combined with an increase in the discount rate as of December 31, 2013, deficits
in all plans were significantly reduced or erased. Consequently, the Company
approved the termination of the Pension Plan for Salaried Employees in B.C. and
Alberta (the "Salaried Plan") as of December 31, 2014. Years of service for the
Salaried Plan had been frozen since 2008. Year-to-date, the Company contributed
$6.7 million for all of its defined benefit plans, of which, $0.8 million was
specific to the Salaried Plan. In fiscal 2013, defined benefit contributions
amounted to $8.4 million, of which, $3.4 million was attributable to the
Salaried Plan. Total defined benefit pension plan contributions for the year are
expected to be slightly less than fiscal 2013. A further reduction in defined
benefit pension plan contribution of approximately $3.0 million is expected in
fiscal 2015.
Approximately 75% of fiscal 2015's natural gas requirements have been hedged at
average prices comparable to those that will be realized in fiscal 2014. In
addition, futures positions for fiscal 2016 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 its negotiations under the Trans
Pacific Partnership ("TPP") which has the potential to address market access
barriers for sugar and sugar-containing products amongst TPP members. The CETA
and the potential TPP trade agreement are not expected to have any impact on 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.
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/RSI_FS_Q3_F2014_ENG.pdf
FOR FURTHER INFORMATION PLEASE CONTACT:
Ms. Manon Lacroix
VP Finance and Secretary
(514) 940-4350
(514) 527-1610 (FAX)
investors@lantic.ca
www.rogerssugar.com or www.Lantic.ca
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