MRRM Inc. - DIRECTORS' REPORT And MANAGEMENT DISCUSSION And ANALYSIS Of The FINANCIAL CONDITION And RESULTS Of OPERATIONS - Interim 2012.Q1 May 31, 2011 (1st Quarter)

The following discussion and analysis should be read in conjunction with the FY 2012 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.

MRRM Inc. (the "Company") is reporting its results for the first time in accordance with International Financial Reporting Standards ("IFRS") in the first quarter of FY 2012. A reconciliation of reported earnings to earnings that would have been reported under Canadian generally accepted accounting principles ("GAAP") is included on page 5 of this Management's  Discussion and Analysis.

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 22, 2011 /CNW Telbec/ -

Consolidated  Income And Comprehensive Income and Equity

Revenues for the period (last year) were $14,348,000 ($15,598,000) decreasing by $1,250,000 (-8.0%). As shown in the segmented information, sales and income from operating activities amounted to $14,247,000 ($15,650,000) being 99.3% (100.3%) of total revenues. Income from corporate totaled $101,000 (-$52,000). Unrealized gains in fair market value of the portfolio amounted to $76,000 (-$94,000). Operating Revenues decreased by $1,403,000 (-9.0%) compared to last year. Revenue from Corporate increased by $153,000; for details refer to Portfolio Income Summary under Corporate Investments.

Costs and expenses for the period (last year) were $14,566,000 ($15,164,000), a decrease of $598,000 (-3.9%). Costs related to operating activities, before exchange and interest, decreased by $616,000 (-4.1%). Expenses related to corporate decreased by $4,000.

Operating results are discussed later on in this report.

The impact of the fluctuating Canadian dollar resulted in a total currency exchange gain of $61,000 versus a gain of $28,000 last year all included under cost of sales. As disclosed in the Notes, the net exposures were as follows: at May 31, 2011, US$972,000; at May 31, 2010, US$(897,000); at February 28, 2011, US$4,487,000; at February 28, 2010, US($450,000).

The company uses foreign exchange contracts to manage foreign exchange exposure. At May 31, 2011, the Company had foreign exchange contracts outstanding allowing the Company to buy USD$15,600,000 at an average rate of 1.0191. The maturity dates of these contracts range from June 2011 to December 2012. The Company has recorded a current and a long term liability on the balance sheet under the caption "derivative financial liabilities" in the amount of $649,000.

Interest expensed on bank indebtedness and the reducing term loan amounted to $46,000 compared to $38,000 last year for an increase of $8,000. Interest related to the long-term debt was $10,000 compared to $21,000 last year.

Profit (loss) before income taxes for the period (last year) was -$218,000 ($434,000), a decrease of $652,000. Profit (loss) from operating activities for the period (last year) was -$249,000 ($559,000), a decrease of $808,000. Profit (loss) from corporate for the period (last year) was $31,000 (-$125,000), an increase of $156,000.

Income taxes for the period (last year) were -$40,000 ($120,000). Details of the income tax components are presented in the Notes to the financial statements.

Profit (loss) for the period (last year) were -$178,000 ($314,000) or -$0.07 ($0.12) 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,
2011
(2012.Q1)
IFRS
Feb 28,
2011
(2011.Q4)
IFRS
Nov 30,
2010
(2011.Q3)
IFRS
Aug 31,
2010
(2011.Q2)
IFRS
May 31,
2010
(2011.Q1)
IFRS
Feb 28,
2010
(2010.Q4)
GAAP
Nov 30,
2009
(2010.Q3)
GAAP
Aug 31,
2009
(2010.Q2)
GAAP
(Expressed in thousands, except for amounts per share - unaudited) $ $ $ $ $ $ $ $
Revenues 14,348 15,862 15,900 16,472 15,598 15,181 17,672 15,466
Profit (loss) -178 148 901 414 314 562 455 169
Profit (loss) per share -0.07 0.06 0.36 0.16 0.12 0.22 0.18 0.07
Dividends per share 0.00 0.15 0.00 0.00 0.00 0.10 0.00 0.00

Consolidated Cash Flows, Liquidity and Financial Position

In investing activities, the Company added $733,000 of net property, plant and equipment compared to $96,000 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} and a 5 year reducing term facility initially borrowed at fiscal year-end 2007 for $3,500,000. The revolving line of credit bears interest at the Canadian prime rate plus 0.125% for Canadian loans and U.S. base rate plus 0.125% for U.S. loans and, optionally, the Company may take advantage of Bankers Acceptances. The reducing term facility is at a combined fixed rate for interest and fees of 5.83% for the term of the loan. The financial covenants and arrangements relating to these facilities are detailed in the Notes to the audited consolidated financial statements. These covenants are being respected and have been met.

Cash and cash equivalents position was $2,000 compared to $2,742,000 at last year-end.

Trade and other receivables decreased by $1,528,000 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 $322,000 (-4.1%) and overall volumes of rice decreased by (-12.5%).

Marketable securities - see table below for financial summary and investment mix.

Property, plant and equipment increased by $388,000 comprised of additions of $733,000 and amortization of $345,000.

Trade and other payables decreased by $3,289,000 mainly due to timing on rice purchases and in amounts due related to the agency business.

Loan is being repaid in accordance with the arrangements of the five year reducing term facility agreement as described under credit facilities.

Deferred taxes, net liability, increased by $28,000.

Total equity decreased by $214,000 to $18,809,000 from $19,023,000 and represents $7.42 ($7.49) 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 audited consolidated financial statements for the year ending February 28, 2012 will be the first audited annual consolidated financial statements that comply with IFRS. Accordingly, the Company will make an unreserved statement of compliance with IFRS beginning with its 2012 annual consolidated financial statements.  This quarter represents the first time that the Company has reported its earnings under IFRS.

The accounting policies set out in Note 4 of the Unaudited Consolidated Interim Financial Statements have been applied in preparing the financial results for the quarter ended May 31, 2011.  The comparative information presented in these consolidated financial statements for the quarter ended May 31, 2010, and the consolidated financial positions at February 28, 2011 and March 1, 2010 ("transition date") have all been revised to reflect earnings and the financial position presented in accordance with IFRS.

First-time adopters of IFRS must apply the provisions of IFRS 1, which requires adopters to retrospectively apply all effective IFRS standards as of the annual reporting date (February 28, 2012) with certain optional and mandatory exemptions.  Outlined below are the IFRS 1 optional and mandatory exemptions applied in the conversion from previous Canadian GAAP to IFRS. To the extent possible, management has attempted to ensure that elections made provide shareholders with consistently prepared financial statements, however certain elections have been made on a prospective basis that have resulted in some inconsistencies between the Company's financial statements and the corresponding comparative amounts. These elections are outlined below.

2012 FIRST QUARTER REPORT

IFRS 1 Optional Exemptions

Borrowing Costs

IAS 23, Borrowing Costs, requires an entity to capitalize the borrowing costs related to all qualifying assets.  The Company elected not to apply this policy retroactively as it is not practical. Therefore, borrowing costs prior to the transition date, if any, are expensed with the exception of one major project that was initiated in 2005 and was commissioned in 2007. Total interest capitalized for this project amounted to $156,000.

Employee Benefits

IFRS 1 provides the option to retrospectively apply the corridor approach under IAS 19, Employee Benefits, for the recognition of actuarial gains and losses, or recognize all cumulative gains and losses deferred under Canadian GAAP in opening retained earnings at the transition date. The Company elected to recognize all cumulative actuarial gains and losses that existed at its transition date in opening retained earnings for all of its employee benefit plans.

Business Combinations

IFRS 1 provides an exemption that allows an entity to elect not to retrospectively restate business combinations prior to the transition date in accordance with IFRS 3, Business Combinations. The retrospective basis would require restatement of all business combinations that occurred prior to the transition date. The Company elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to the transition date and such business combinations have not been restated.

Property Plant and Equipment

In lieu of full retrospective application of IAS 16, Property, Plant and Equipment, on transition, IFRS 1 permits that a first-time adopter, at the date of transition, can either record its property, plant and equipment at fair value or its carrying value. The option can be applied separately to each asset or class of assets. The Company elected a combination of both. The approach taken resulted in our:

  • Continuing to recognize our plant, machinery and equipment, software, computers and furniture and fixtures on a historical cost basis with an adjustment to revise the accumulated amortization in accordance with IFRS compliant estimated useful lives; and
  • The deemed cost recorded for the land will be its fair value determined by the latest Ontario Municipal Property Assessment Corporation as at the transition date.

IFRS 1 Mandatory Exceptions

Financial Assets and Liabilities

Financial assets and liabilities that had been de-recognized before the transition under previous GAAP have not been recognized under IFRS.

Estimates

The Company has used estimates under IFRS that are consistent with those applied under previous GAAP (with adjustment for accounting policy differences) unless there is objective evidence those estimates were in error.

Hedge Accounting

Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in IAS 39 at that date. Hedging relationships cannot be designated retrospectively and the supporting documentation cannot be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as of the transition date are reflected as hedges in the Company's results under IFRS.  Each of the Company's hedging relationships was assessed to conclude that all hedges recorded under Canadian GAAP qualified for hedge accounting under IFRS at the transition date.

Reconciliations of Canadian GAAP to IFRS

In preparing its opening IFRS consolidated financial statements, the Company has adjusted amounts reported previously in financial statements prepared in accordance with Canadian GAAP. A summary of how the transition from Canadian GAAP to IFRS has affected the Company's financial position and financial performance is set out below. For further detail on the transitional adjustments from Canadian GAAP to IFRS see Note 13 of the Unaudited Condensed Interim Financial Statements for the three months ended May 31, 2011.

Reconciliation of Shareholders' Equity as Reported Under Canadian GAAP to IFRS

Reconciliation of Equity for the period ending
(thousands of CAD dollars)  
March 1,
2010
May 31,
2010
February 28,
2011
           
Equity under GAAP     $17,924 $18,368 $19,054
           
Changes due to:          
Property, Plant and Equipment 263 210 52
Actuarial gains/losses on employee future benefits (7) (7) (158)
Deferred taxes as a result of the above (65) (52) 5
Income taxes payable     0 8 70
Inventory absorption     0 26 0
      191 185 (31)
Equity under IFRS     $18,115 $18,553 $19,023

Reconciliation of Net Earnings as Reported Under Canadian GAAP to IFRS
Reconciliation of Income Statement for the quarter ending May 31, 2010
(thousands of CAD dollars)

Canadian
GAAP accounts
 
 
Canadian
GAAP
balance
IFRS
 adjustments
IFRS
 reclassifications
IFRS
 balance
 
 
IFRS
accounts
Revenues              
Sales   $15,650 $0 $0 $15,650   Sales
Decrease in fair value of marketable securities held for trading (52) 0 0 (52)   Finance income
    $15,598 $0 $0 $15,598    
Expenses             Costs and expenses
Cost of sales, selling and administrative $14,829 ($27) $336 $15,138   Cost of sales, distribution and administrative
Amortization   289 54 (343) 0   Included in cost of sales, distribution and administrative
              Finance cost
Interest on Long-term debt 21 0 0 21   Interest on Long-term debt
Other interest   17 0 0 17   Interest on line of credit
    0 0 7 7   Interest on defined benefit plan
Change in fair value of Swap contract   (19) 0 0 (19)   Change in fair value of swap contract
    $15,137 $27 $0 $15,164    
Earnings before income taxes   $461     $434   Profit (loss) before income taxes
Income taxes   141 (21) 0 120   Income taxes
Net result for the period   $320 ($6) $0 $314 Profit (loss)
Total adjustment to equity ($6) $0    

Reconciliation of Income Statement for the year ending February 28, 2011
(thousands of CAD dollars)

Canadian
GAAP accounts
 
 
 
Canadian
GAAP
balance
 
IFRS
 adjustments
 
IFRS
 reclassifications
 
IFRS
 balance
 
 
 
 
IFRS
accounts
Revenues              
Sales   $63,270 $0 $30 $63,300   Sales
Decrease in fair value of marketable securities held for trading 533 0 0 533   Finance income
    $63,803 $0 $30 $63,833    
Expenses             Costs and expenses
Cost of sales, selling and administrative   $60,023 $68 $1,360 $61,451   Cost of sales, distribution and administrative
               
Amortization   1,156 207 (1,363) 0   Included in cost of sales, distribution and administrative
              Finance cost
Interest on Long-term debt   68 0 0 68   Interest on Long-term debt
Other interest   45 0 0 45   Interest on line of credit
    0 87 33 120   Interest on defined benefit plan
Change in fair value of Swap contract   (45) 0 0 (45)   Change in fair value of swap contract
    $61,247 $362 $30 $61,639    
Earnings before income taxes   $2,556     $2,194   Profit (loss) before income taxes
Income taxes   557 (116) 0 417   Income taxes
Net result for the year   $1,999 ($246) $0 $1,777 Profit (loss)
Total adjustment to equity     ($246) $0      

Reconciliation of Comprehensive Income (Loss) as Reported Under Canadian GAAP to IFRS

Reconciliation of Comprehensive Income for the period ending
(thousands of CAD dollars)
  March 1,
2010
  May 31,
2010
  February 28,
2011
             
Total Comprehensive Income under GAAP   $0 $444 $1,510
             
Changes in net earnings per above   0 (6) (246)
Total Comprehensive Income under IFRS   $0 $438 $1,264

The following table reflects Earnings per Share as reported under IFRS in the Unaudited Consolidated Interim Statements of Earnings for the three-month periods ended as indicated below.

 
 
 
 
 
 
 
 
May 31
2011
May 31
2010
Net earnings (loss) attributable to the owners of the parent Company        ($178,000) $314,000
Weighted average number of shares in circulation 2,535,000      2,535,000
Basic and diluted earnings (loss) per share ($0.07) $0.12

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 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 (effective from January 1, 2013)

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, 2013.  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 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.

Discussion of Results:

In Dainty Foods, net sales decreased by $1,534,000 (-10.6%) to $12,892,000 for the period compared to last year while rice sales volumes remained stable for the period compared to last year. The net sales reduction is a result of a temporary halt in purchases by a major industrial customer combined with lower selling prices of flour due to increased competitive pressure and the weaker US Dollar.  The loss of volume due to the temporary halt is offset by increased volume of other products. Costs and expenses decreased by $827,000 (-5.9%) to $13,216,000 for the period compared to last year as commodity prices continue to fluctuate. Profit before income taxes for the period decreased by $720,000 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.

The 2010 rice harvest volume in the United States is the largest on record. Notwithstanding, industry milling yields for the 2010-2011 North American rice crop have widely been characterized as the worst in fifty years due to climatic conditions during the growing season. Low yields force milling costs upward with the exception of California where a normal year is experienced.

Dainty Foods did not escape the low yield issue. Costs of milling and by-product levels for long grain and medium grain rices have increased dramatically and are not expected to normalize until the receipt of new crop during the fall of 2011.

Dainty Foods has partially offset the increased costs through negotiated price increases to certain customers. However the negotiation process is only moderately successful due to strong competition from American mills who benefit from the weak US dollar.

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 increased by $131,000 (10.7%) to $1,355,000 for the period compared to last year reflecting  the addition of Montship Inc. as well as increased growth in both Robert Reford and Norton Lilly.

Profit before income taxes for the period decreased by $88,000 to $75,000 due to increased operating costs to support the business generated by the partnerships.  This will normalize as the fiscal year progresses.

Corporate Investments,  portfolio income is summarized as follows:

  For the quarter
  2012 2011
Dividend and interest income $42,000 $37,000
Capital gains (losses) - $17,000 $5,000
Unrealized change in Fair Value $76,000 - $94,000
Totals: $101,000 - $52,000

During this quarter, global financial markets continued to improve, contributing to a gain in Fair Market Value of $76,000 for the period compared to a loss of $94,000 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,
2011
(2012.Q1)
Feb 28,
2011
(2011.Q4)
Nov 30,
2010
(2011.Q3)
Aug 31,
2010
(2011.Q2)
May 31,
2010
(2011.Q1)
Cash & Equivalents 2.6% 5.6% 5.7% 3.7% 1.1%
Bonds 24.5% 24.6% 26.5% 28.4% 27.2%
Preferred Shares 15.8% 13.0% 13.7% 15.8% 17.5%
Canadian Equities 40.9% 40.8% 38.2% 36.5% 37.9%
U.S. & Foreign Equities 16.2% 16.0% 15.9% 15.6% 16.3%

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 increase retail volumes of value-added products in Canada and the USA. Private Label launches are taking place in Canada. Two large American retail chains will launch several new Private Label products in the coming weeks. Retail price increases for selected products will assist in partially offsetting increased costs.

Profit for the year will be lower than last year primarily due to higher costs associated with low milling yields of the North American rice crop. This trend is expected to normalize during the fall of 2011 as the milling of new crop commences. Aggressive competitive pricing for rice flour products and bulk bagged rice for the food service market coupled with the weak American dollar will continue to challenge profitability throughout this fiscal year.

In the Robert Reford business our joint operating agreement with Norton Lilly and Montship continues to be beneficial. We expect continued growth in this fiscal year in our base business coupled with additional incremental opportunities.

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.

The negative impact on profit this fiscal year due to higher costs associated with the low milling yields of the American rice crop is uncertain at this time.  This impact on profitability is expected to continue into the third quarter.

Strong competition within the rice flour segment will continue to negatively impact margins vs last year.

Detroit River International Crossing Construction Impact:

Significant construction activities will commence on the Transport Canada property site adjacent to the Dainty Foods facility approximately twelve 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.

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 these 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 through negotiations or if necessary, through appropriate legal action.

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      
Chairman       
Terry Henderson
President & Chief Executive Officer
Dated at Montreal (Westmount), Quebec,  June 22, 2011.

 

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.

Renseignements sur cet organisme


FORFAITS PERSONNALISÉS

Jetez un coup d’œil sur nos forfaits personnalisés ou créez le vôtre selon vos besoins de communication particuliers.

Commencez dès aujourd'hui .

ADHÉSION À CNW

Remplissez un formulaire d'adhésion à CNW ou communiquez avec nous au 1-877-269-7890.

RENSEIGNEZ-VOUS SUR LES SERVICES DE CNW

Demandez plus d'informations sur les produits et services de CNW ou communiquez avec nous au 1‑877-269-7890.