MRRM Inc. - Directors' report and management discussion and analysis of the financial condition and results of operations - Interim 2013.Q1 May 31, 2012 (1st Quarter)

The following discussion and analysis should be read in conjunction with the FY 2013 first quarter statements filed with SEDAR. Included in these documents may be forward-looking statements with respect to the Company. These forward-looking statements by their nature necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements. The Company considers the assumptions on which these forward-looking statements are based to be reasonable at the time they were prepared but cautions the reader that these assumptions regarding future events, many of which are beyond the control of the Company, may ultimately prove to be incorrect.

The unaudited interim consolidated financial statements were prepared by the Company in accordance with IFRS and have not been reviewed by the Company's auditors. Certain comparative figures have been reclassified to conform with the presentation adopted in the financial statements.

Additional documents and information are available at the System for Electronic Document Analysis and Retrieval (SEDAR) and can be accessed through the internet: For MRRM's profile or for documents go to www.sedar.com Information is also available on the Corporate website at www.MRRM.ca.

MONTREAL, June 20, 2012 /CNW Telbec/ -

Consolidated Income And Comprehensive Income and Equity

Revenues for the period (last year) were $14,703,000 ($14,348,000) increasing by $355,000 (2.5%). As shown in the segmented information, sales and income from operating activities amounted to $14,790,000 ($14,247,000) being 100.6% (99.3%) of total revenues. Income from corporate totaled -$87,000 ($101,000). Unrealized losses in fair market value of the portfolio amounted to $124,000 (unrealized gains last year of $76,000). Operating Revenues increased by $543,000 (3.8%) compared to last year. Revenue from Corporate decreased by $188,000; for details refer to Portfolio Income Summary under Corporate Investments.

Costs and expenses for the period (last year) were $14,592,000 ($14,566,000), an increase of $26,000 (0.2%). Costs related to operating activities, before exchange and interest, increased by $45,000 (0.3%). Expenses related to corporate decreased by $10,000.

Operating results are discussed later on in this report.

The impact of the fluctuating Canadian dollar resulted in a total currency exchange gain of $170,000 compared to $61,000 last year all included under cost of sales. As disclosed in the Notes, the net exposures were as follows: at May 31, 2012, US$1,515,000; at May 31, 2011, US$972,000; at February 29, 2012, US$2,565,000; at February 28, 2011, US$4,487,000.

The company uses foreign exchange contracts to manage foreign exchange exposure. At May 31, 2012, the Company had foreign exchange contracts outstanding allowing the Company to buy USD$6,200,000 at an average rate of 1.0217. The maturity dates of these contracts range from June to December 2012. The Company has recorded a current and a short term asset on the balance sheet under the caption "derivative financial assets" in the amount of $84,000.

Interest expensed on bank indebtedness amounted to $31,000 for the period compared to interest expensed on bank indebtedness and reducing term loan of $46,000 last year for a decrease of $15,000. Interest related to the long-term debt was $10,000 last year.

Profit (loss) before income taxes for the period (last year) was $111,000 (-$218,000), an increase of $329,000. Profit (loss) from operating activities for the period (last year) was $257,000 (-$249,000), an increase of $506,000. Profit (loss) from corporate for the period (last year) was -$146,000 ($31,000), a decrease of $177,000.

Income taxes for the period (last year) were $35,000 (-$40,000). Details of the income tax components are presented in the Notes to the financial statements.

Profit (loss) for the period (last year) was $76,000 (-$178,000) or $0.03 (-$0.07) per share.

The declaration and payment of dividends is at the discretion of the Board of Directors.

Summary of Quarterly Results

The following financial summary is derived from the Company's financial statements for each of the eight most recently completed fiscal quarters.

Summary of Quarterly Financial Results for the eight most recent fiscal quarters May 31,
2012
(2013.Q1)
Feb 29,
2012
(2012.Q4)
Nov 30,
2011
(2012.Q3)
Aug 31,
2011
(2012.Q2)
May 31,
2011
(2012.Q1)
Feb 28,
2011
(2011.Q4)
Nov 30,
2010
(2011.Q3)
Aug 31,
2010
(2011.Q2)
(Expressed in thousands, except for amounts per share - unaudited) $ $ $ $ $ $ $ $
Revenues 14,703 16,014 16,522 12,572 14,348 15,864 15,870 16,471
Profit (loss) 76 510 407 -119 -178 150 900 413
Profit (loss) per share 0.03 0.20 0.16 -0.05 -0.07 0.06 0.35 0.17
Dividends per share 0.00 0.00 0.50 0.00 0.00 0.15 0.00 0.00

Consolidated Cash Flows, Liquidity and Financial Position

In investing activities, the Company added $200,000 of net property, plant and equipment compared to $733,000 last year.

Available credit facilities

The credit facilities available and reported at last year-end remain substantially unchanged. The facilities are comprised of a revolving line of credit for $7,000,000 CDN {or its US equivalent} which bears interest at the Canadian prime rate for Canadian loans and U.S. base rate for U.S. loans and, optionally, the Company may take advantage of Bankers Acceptances. The financial covenants and arrangements relating to financing facilities are detailed in the Notes to the audited consolidated financial statements. These covenants are being respected and have been met.

Trade receivables decreased by $1,630,000 compared to last fiscal year-end. Account balances are substantially current, there are no anticipated serious collection issues and any potential write-offs have been provided for in the accounts.

Inventories decreased by $503,000 (5.8%) and overall volumes of rice decreased by 11.4%.

Marketable securities - see table of Investment Mix in discussion of results.

Property, plant and equipment decreased by $168,000 comprised of additions of $200,000 and amortization of $368,000.

Bank indebtedness was $1,427,000 compared to $3,044,000 at last year-end.

Trade and other payables decreased by $661,000 mainly due to timing on rice purchases.

Deferred taxes, net liability, increased by $23,000.

Total equity increased by $265,000 to $18,965,000 from $18,700,000 and represents $7.48 ($7.38) per share.

Capital stock remained unchanged at $539,000 and represents 2,535,000 issued common shares.

The MRRM Inc. shares have a very limited distribution and are infrequently traded on the TSX-Venture Exchange under the symbol MRR. www.TSX-Venture Exchange

Critical Accounting Policies:

The Company's critical accounting policies are those that it believes are the most important in determining its financial condition and results. A summary of the Company's significant accounting policies, including the critical accounting policies, is set out in the notes to the consolidated financial statements in the annual report for the year ended February 29, 2012. An extract of these policies is set out in the notes to the quarterly consolidated financial statements.

Future Accounting Changes:

At the date of authorization of the Company's financial statements, certain new standards, amendments, and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Company.

Management anticipates that all of the relevant pronouncements will be adopted in the Company's accounting policy for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Company's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company's financial statements.

IFRS 9 Financial Instruments

The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. The replacement standard (IFRS 9) is being issued in phases. To date, the chapters dealing with recognition, classification, measurement and de-recognition of financial assets and liabilities have been issued. These chapters are effective for annual periods beginning on or after January 1, 2015. Further chapters dealing with impairment methodology and hedge accounting are still being developed.

Management has yet to assess the impact that this amendment is likely to have on the consolidated financial statements of the Company. However, they do not expect to implement the amendments until all chapters of IFRS 9 have been published and they comprehensively assess the impact of all changes.

IFRS 10 Consolidated Financial Statements

In May 2011, the IASB issued IFRS 10 Consolidated Financial Statements, which is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. IFRS 10 provides a single model to be applied in the control analysis for all investees. The Company intends to adopt IFRS 10 for the annual period beginning on March 1, 2013. The extent of the impact of adoption of IFRS 10 is not expected to be material.

IFRS 12 Disclosure of Interests in Other Entities

In May 2011, the IASB issued IFRS 12 Disclosure of Interest in Other Entities, which is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. IFRS 12 contains disclosure requirements for companies that have interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company intends to adopt IFRS 12 for the annual period beginning on March 1, 2013. The extent of the impact of adoption of IFRS 12 is not expected to be material.

IFRS 13 Fair Value Measurement

In May 2011, the IASB published IFRS 13 Fair Value Measurement, which is effective prospectively for annual periods beginning on or after January 1, 2013. IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. The Company intends to adopt IFRS 13 prospectively for the annual period beginning on March 1, 2013. The extent of the impact of adoption of IFRS 13 is not expected to be material.

IAS 1 Presentation of Financial Statements

In June 2011, the IASB published amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income, which are effective for annual periods beginning on or after July 1, 2012 and are to be applied retrospectively. Early adoption is permitted. The amendments require that a company present separately the items of Other Comprehensive Income that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. The Company intends to adopt the amendments for the annual period beginning on March 1, 2013. The extent of the impact of adoption of the amendments is not expected to be material.

IAS 19 Employee Benefits

In June 2011, the IASB published an amended version of IAS 19 Employee Benefits. Adoption of the amendment is required for annual periods beginning on or after January 1, 2013, with early adoption permitted. The amendment is generally applied retrospectively with certain exceptions. The amendment will require actuarial gains and losses to be recognized immediately in other comprehensive income, past service costs to be fully recognized immediately in profit or loss and the recognition of expected return on plan assets in profit or loss to be calculated based on the rate used to discount the defined benefit obligation. The amendment also requires other additional disclosures. The Company intends to adopt the amendment in its financial statements for the annual period beginning on March 1, 2013. Management has yet to assess the impact of this amended standard.

Discussion of Results:

In Dainty Foods, net sales increased by $836,000 (6.5%) to $13,728,000 for the period compared to last year while rice sales volumes increased by 6.6% compared to last year. The net sales increase compared to last year is a result of increased sales to industrial customers. Costs and expenses increased by $202,000 (1.5%) to $13,419,000 for the period compared to last year. Profit before income taxes for the period increased by $633,000 to $309,000 compared to last year.

The Company continues to pursue new value-added retail products some of which will be outsourced. This outsourcing will minimize capital investment while enhancing Dainty Foods' offerings in the retail marketplace for both branded and private label items. New selling relationships continue to be developed and are intended to add strength to our retail sales efforts. Dainty Foods International (DFI) continues to make inroads into the US private label retail market.

Acres planted in rice dropped substantially in the United States in the 2011-2012 crop year due to the prediction of a very large old crop carry over and the expectation that corn and soybeans would command a higher price to the grower than rice. However to date, the United States suffered major reductions in world rice exports which resulted in a softening of rice prices.

Planted acres have again fallen during the season in progress at this time. Prices have firmed and are on a slow incline. Dainty will continue to watch the market carefully and make commitments to rice at the appropriate times.

Competitive pricing by American rice mills and the weak US dollar have negatively impacted margins for rice flour and bulk bagged food service products.

In Robert Reford, revenue decreased by $293,000 (-21.6%) to $1,062,000 for the period compared to last year.

Profit before income taxes for the period decreased by $128,000 to -$52,000 compared to last year.

FY 2013 port calls were off to a slow start. Industry volume on the west coast is stable. Industry volume on the east coast is down approximately 20% versus the same period last year due in part to weakness in the European and Mediterranean economies. Canadian grain exports have decreased and are not expected to return to normal levels until the third quarter.

As of March 1st, 2012, substantially all of the assets of MRRM (Canada) Inc. related to the ship agency's business were transferred to Robert Reford Agency Inc., a corporation incorporated under the Canada Business Corporations Act on February 25, 2011, the shares of which are wholly-owned by MRRM Inc.

Corporate Investments, portfolio income is summarized as follows:

  For the quarter
  2013 2012
Dividend and interest income $34,000 $42,000
Capital gains (losses) $3,000 -$17,000
Unrealized change in Fair Value -$124,000 $76,000
Totals: -$87,000 $101,000

During this quarter, global financial markets declined, contributing to a loss in Fair Market Value of $124,000 for the period compared to a gain of $76,000 last year. The portfolio remains conservatively invested and no significant policy changes are foreseen. The Corporate Investments continue to be held with a long term view.

Investment
Mix
May 31,
2012
(2013.Q1)
Feb 29,
2012
(2012.Q4)
Nov 30,
2011
(2012.Q3)
Aug 31,
2011
(2012.Q2)
May 31,
2011
(2012.Q1)
Cash & Equivalents 0.6% 0.9% 0.9% 4.7% 2.6%
Bonds 25.5% 25.3% 24.0% 24.6% 24.5%
Preferred Shares 20.2% 20.0% 20.2% 16.4% 15.8%
Canadian Equities 34.4% 35.4% 38.9% 38.7% 40.9%
U.S. & Foreign Equities 19.3% 18.4% 16.0% 15.6% 16.2%

Certification

The Company's management, under the direction and supervision of the Chief Executive Officer and Chief Financial Officer, continually evaluates the effectiveness of the Company's disclosure controls and procedures and has concluded that such disclosure controls and procedures are effective.

The Company's management is also responsible for establishing and maintaining internal controls over financial reporting. These controls were designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

There have been no changes in the Company's internal controls over financial reporting during this quarter that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Outlook

Dainty Foods expects to continue to increase retail volumes of value-added products to existing and new customers in Canada and the USA.

Increased competitive pressure in the flour segment will impact margins in the second half of the year. Three major rice flour customers changed their business structure over the last twelve months. Two of the three changed their location of processing to plants located closer to the American rice fields and two of the three changed the flour type to that which can be considered commodity based which decreased Dainty's ability to offer successful bids for their business.

Loss of rice flour volume as well as continued aggressive competitive pricing of bagged rice for the food service market coupled with the weak American dollar will impact profitability in the second half of this fiscal year.

In the Robert Reford business our joint operating agreement with Norton Lilly and Montship continues to be beneficial, however, the weakness in the European and Mediterranean economies may negatively impact profit compared to last year.

While the Company is anticipating continued growth in food processing and selling and maintaining a strong position within the ship agency services business, growth will be impacted by several factors including (i) the ability of the Company to secure rice at competitive prices (ii) the rate of acceptance of new private label products (iii) the ability within the marketplace to manage price increases to cover increased costs (iv) the yield and quality of rice supply and (v) general economic conditions.

Risks and Uncertainties

Overview

Management of risk includes properly identifying, communicating and controlling the risks which may cause a serious impact to the business. Management is confident that the Company employs effective procedures to address all material risks.

Detroit River International Crossing Construction Impact:

June 15th , 2012, Prime Minister Stephen Harper and Michigan Governor Rick Snyder jointly announced the approval to proceed with the construction of the Detroit River International Crossing between Windsor and Detroit.

Significant construction activities are expected to commence on the Transport Canada property site adjacent to the Dainty Foods facility approximately three months from now. Dainty Foods is proceeding with infrastructure changes to the facility to protect our food products from the possibility of airborne contamination. These changes primarily include fine particle filtration units and enclosing dock loading areas to protect our food products from the possibility of airborne contamination.

The capital cost of the protective measures is approximately 3.2 million dollars and the ongoing costs of the operation and maintenance of the new equipment are approximately $350,000 per year.

The company is continuing a negotiation process with Transport Canada to recover the project costs but the outcome of these negotiations is uncertain at this time. Capital costs will be funded from the company's line of credit until a resolution with Transport Canada is reached.

The following items were discussed in the MD&A in the last Annual Report and remain principally unchanged. Please refer to these documents for this information.

    Ability to Sustain Revenue
Ability to Address Cost and Expense Concerns
Economic Conditions
Environment        

For further information regarding financial risk management, please refer to the Notes to the interim financial statements.

On behalf of the Board  
   
(Signed) (Signed)
Nikola M. Reford       Terry Henderson
Chairman        President & Chief Executive Officer
   
Dated at Montreal (Westmount), Quebec, June 20, 2012.

 

 

SOURCE MRRM Inc.

For further information:

Lou Younan, Vice-President Finance & CFO, MRRM Inc., (514) 908-7777, Fax: (514) 906-0220, mr@mrrm.ca

Profil de l'entreprise

MRRM Inc.

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