Rogers Sugar Inc.: Interim Report for the 2nd Quarter 2015 Results
Despite Lower Volume, Adjusted EBIT and Adjusted Gross Margin Rate Higher Than Last Year for the Quarter and Year-to-Date
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Up)MONTREAL, QUEBEC -- (Marketwired) -- 04/30/15 -- Rogers Sugar Inc. (TSX: RSI)
Message to Shareholders: On behalf of the Board of Directors, I am pleased to present the unaudited condensed consolidated interim financial results of Rogers Sugar Inc. (the "Company") for the three and six months ended March 28, 2015.
Volume for the second quarter of fiscal 2015 was 152,579 metric tonnes, as opposed to 154,862 metric tonnes in the comparable quarter of last year, a decrease of approximately 2,300 metric tonnes. Year-to-date, volume of 305,187 metric tonnes was approximately 11,900 metric tonnes lower than last year. Industrial volume was higher for the quarter by approximately 1,400 metric tonnes but lower year-to-date by approximately 2,600 metric tonnes due to timing in deliveries. Consumer volume was lower in the second quarter of fiscal 2015 by approximately 3,800 metric tonnes due to the timing in agreements with major accounts whereby a new multi-year agreement started on January 1, 2014 and another agreement with a major account ended March 31, 2014. Year-to-date, consumer volume decreased by approximately 5,500 metric tonnes due to timing in agreements, as just mentioned, and timing in customers' retail promotions. Liquid volume decreased for the quarter and year-to-date by approximately 2,100 metric tonnes and 5,700 metric tonnes, respectively. In the first half of fiscal 2014, the Company benefited from additional volume under a one-year contract with a high fructose corn syrup ("HFCS") substitutable account in western Canada which ended in March 2014. Finally, export volume was approximately 2,200 metric tonnes and 1,900 metric tonnes higher for the quarter and year-to-date, respectively, due to timing in deliveries to export customers under the Canada-specific and U.S. global quotas.
With the mark-to-market of all derivative financial instruments and embedded derivatives in non-financial instruments at the end of each reporting period, our accounting income does not represent a complete understanding of factors and trends affecting the business. Consistent with previous reporting, we therefore prepared adjusted gross margin and adjusted earnings results to reflect the performance of the Company during the period without the impact of the mark-to-market of derivative financial instruments and embedded derivatives in non-financial instruments. Earnings before interest and income taxes ("EBIT") included a mark-to-market gain of $1.3 million for the second quarter and a mark-to-market loss of $0.6 million year-to-date, which were deducted and added, respectively, to calculate adjusted EBIT and gross margin results.
Adjusted gross margin, at $17.1 million, was approximately $0.7 million higher than the comparable quarter last year. For the second quarter in a row, a reduction in operating costs of approximately $2.7 million more than offset the decrease in adjusted gross margin as a result of lower sales volume. On a per metric tonne basis, adjusted gross margin was $111.88 compared to $105.78 for the second quarter of fiscal 2014, an increase of $6.10. The increase in the adjusted gross margin rate per metric tonne is due to lower operating costs. During the second quarter of fiscal 2015, the Company benefited from energy costs savings of approximately $2.5 million as a result of the decline in natural gas prices as well as the conversion from an interruptible gas contract in fiscal 2014 to a firm gas contract in the current year at the Montreal refinery. In addition, the 2014 workforce reduction at the Montreal refinery reduced labour costs in the second quarter by approximately $1.6 million versus the comparable quarter in fiscal 2014. These savings were somewhat offset by a reduction in adjusted gross margin due to lower sales volume and an increase in operating costs as a result of poor operating performances at the Vancouver refinery and the Taber beet factory due mostly to beet deterioration.
Despite lower volume, year-to-date adjusted gross margin amounted to $42.4 million and is approximately $1.2 million above the same period last year. The adjusted gross margin rate per tonne was $138.92 compared to $129.80, representing an increase of $9.12 per metric tonne. The increase in adjusted gross margin rate per tonne is due mainly to a reduction in energy and labour costs of approximately $3.3 million and $2.9 million, respectively, which was partially offset by lower adjusted gross margin as a result of lower sales volume and an increase in operating costs in Vancouver and Taber in the second quarter of the current year as mentioned above.
Administration and selling expenses were $0.4 million lower than the second quarter of fiscal 2014 due to timing of expenses. Year-to-date, administration and selling expenses were $0.4 million higher than last year due mainly to higher consultant fees incurred in the first quarter of fiscal 2015 for the process improvement review of the Montreal refinery.
Distribution expenses were $0.4 million lower for the current quarter and year-to-date when compared to last year due to higher storage costs and one-time demurrage costs incurred last year.
As a result, adjusted EBIT was $9.9 million for the second quarter of fiscal 2015 versus $8.4 million for the comparable quarter and $27.6 million year-to-date, versus $26.3 million for the comparable period last year.
Free cash flow was $2.2 million higher than the comparable quarter in fiscal 2014 and was $3.5 million higher than the first half of fiscal 2014. The increase in free cash flow for the quarter is due to lower pension contributions of $3.3 million, lower income taxes paid of $0.7 million and a cash inflow from the issuance of common shares as opposed to the repurchase of common shares in the comparable quarter of fiscal 2014. These positive variances were offset by higher net capital expenditures of $1.9 million. Year-to-date, pension contributions were $3.6 million lower than the comparable period last year. In addition, income taxes paid were lower by $2.7 million. This was partially offset by an increase of $2.4 million in net capital expenditures and higher interest paid of $0.3 million.
Following the Montreal workforce reduction in September 2014, the Company expects to achieve labour savings of approximately $5.0 million in fiscal 2015 compared to fiscal 2014.
These labour savings, as well as the year-to-date energy savings, are expected to be generally offset by a reduction in adjusted gross margin as a result of lower sales volume. Furthermore, the Company benefited in fiscal 2014 from a $1.9 million profit triggered by the receipt of a raw sugar vessel in advance, when compared to our needs, in order to capitalize on favourable spreads in the #11 world raw sugar futures at that time, a situation that is not expected to re-occur in fiscal 2015.
Administration and selling expenses for fiscal 2015 are expected to decrease due to one-time events that occurred in fiscal 2014. The process improvement analysis at the Montreal refinery resulted in incremental consulting fees and severance costs and additional non-cash pension expense was recorded in fiscal 2014 as a result of the termination of a defined benefit pension plan.
To date, an agreement has not yet been reached with the Alberta Sugar Beet Growers. Discussions are ongoing with the intent of reaching an agreement within the next 10 days. In the event that no agreement is reached for next year's crop, Taber's customers would be supplied from the inventory carryover from the current crop and from its available idle capacity at the Vancouver refinery.
FOR THE BOARD OF DIRECTORS,
(SIGNED)
Stuart Belkin, Chairman
Montreal, Quebec - April 30, 2015
MANAGEMENTS' DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") dated April 30, 2015 of Rogers Sugar Inc. ("Rogers") should be read in conjunction with the unaudited condensed consolidated interim financial statements and notes thereto for the period ended March 28, 2015, as well as the audited consolidated financial statements and MD&A for the year ended September 27, 2014. 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 March 28, 2015 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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For the three For the six
Consolidated Results months ended months ended
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(In thousands of dollars, March 28, March 29, March 28, March 29,
except for volume and per 2015 2014 2015 2014
share information) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Volume (metric tonnes) 152,579 154,862 305,187 317,120
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Revenues $ 127,120 $ 127,299 $ 255,846 $ 264,175
Gross margin 18,402 33,206 41,766 59,509
Administration and selling
expenses 5,087 5,482 10,575 10,214
Distribution expenses 2,106 2,498 4,222 4,644
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Earnings before interest
and provision for income
taxes (EBIT) $ 11,209 $ 25,226 $ 26,969 $ 44,651
Net finance costs 3,401 2,843 6,361 5,389
Provision for income taxes 2,041 5,658 5,426 10,021
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Net earnings $ 5,767 $ 16,725 $ 15,182 $ 29,241
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Net earnings per share -
basic $ 0.06 $ 0.18 $ 0.16 $ 0.31
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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 unaudited condensed consolidated interim statement of earnings with a corresponding offsetting amount charged to the unaudited condensed 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. These 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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For the three For the six
Income (loss) months ended months ended
March 28, March 29, March 28, March 29,
2015 2014 2015 2014
(In thousands) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Mark-to-market adjustment
(excluding interest swap) $ 80 $ 14,550 $ (1,919) $ 8,703
Cumulative timing
differences 1,251 2,274 1,289 9,645
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Total adjustment to cost of
sales $ 1,331 $ 16,824 $ (630) $ 18,348
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Natural gas prices have decreased since the beginning of the fiscal year and resulted in a mark-to-market loss of $4.2 million and $8.2 million for the quarter and the year-to-date, respectively. This compares to a mark-to-market gain of $2.0 million for the second quarter of fiscal 2014 and a gain of $1.8 million the first half of last year. The U.S. dollar has appreciated since the beginning of the fiscal year and foreign exchange forward contracts and embedded derivatives, on which foreign exchange movements have an impact, had a combined mark-to-market gain of $5.7 million for the quarter, versus a $1.7 million gain for the comparable quarter last year. Year-to-date, a mark-to-market gain of $7.5 million was recorded in fiscal 2015 versus a gain of $3.9 million last year. Finally, the movement in price of raw sugar resulted in a $1.5 million loss for the current quarter as opposed to a $10.8 million gain for the comparable quarter last year. Year-to-date, a mark-to-market loss of $1.2 million was recorded compared to a $3.0 million gain in fiscal 2014.
Cumulative timing differences are as a result that mark-to-market gains or losses are recognized by the Company only when sugar is sold to a customer and when natural gas is used. The gains or losses on the sugar and related foreign exchange paper transactions are largely offset by corresponding gains or losses from the physical transactions being the sale and purchase contracts with customers and suppliers. This adjustment is added to the mark-to-market results to arrive at the total adjustment to cost of sales. For the second quarter of the current year, the total cost of sales adjustment is a gain of $1.3 million to be deducted from the consolidated operating results versus a gain of $16.8 million for the comparable quarter last year. Year-to-date, the total cost of sales adjustment is a loss of $0.6 million to be added to the consolidated operating results compared to a gain of $18.3 million to be deducted from the consolidated operating results for the same period last year.
In addition, under short-term interest expense, the Company recorded a mark-to-market loss of $0.8 million and $1.0 million for the quarter and the year-to-date, respectively, on the mark-to-market of interest rate swaps, versus a loss of $0.3 million and $0.4 million for the comparable periods last year.
The following is a table showing the adjusted consolidated results (non-GAAP) without the above mark-to-market results:
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Consolidated Results For the three For the six
months ended months ended
(In thousands of dollars, March 28, March 29, March 28, March 29,
except per share 2015 2014 2015 2014
information) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Gross margin as per
financial statements $ 18,402 $ 33,206 $ 41,766 $ 59,509
Adjustment as per above (1,331) (16,824) 630 (18,348)
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Adjusted gross margin 17,071 16,382 42,396 41,161
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EBIT as per financial
statements 11,209 25,226 26,969 44,651
Adjustment as per above (1,331) (16,824) 630 (18,348)
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Adjusted EBIT 9,878 8,402 27,599 26,303
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Net earnings as per
financial statements 5,767 16,725 15,182 29,241
Adjustment to cost of sales
as per above (1,331) (16,824) 630 (18,348)
Adjustment for mark-to-
market of finance costs 836 338 1,042 404
Deferred taxes on above
adjustments 128 4,287 (650) 4,632
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Adjusted net earnings $ 5,400 $ 4,526 $ 16,204 $ 15,929
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Net earnings per share
basic, as per financial
statements $ 0.06 $ 0.18 $ 0.16 $ 0.31
Adjustment for the above - (0.13) 0.01 (0.14)
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Adjusted net earnings per
share basic $ 0.06 $ 0.05 $ 0.17 $ 0.17
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Volume for the second quarter of fiscal 2015 was 152,579 metric tonnes, as opposed to 154,862 metric tonnes in the comparable quarter of last year, a decrease of approximately 2,300 metric tonnes. Year-to-date, volume of 305,187 metric tonnes was approximately 11,900 metric tonnes lower than last year. Industrial volume was higher for the quarter by approximately 1,400 metric tonnes but lower year-to-date by approximately 2,600 metric tonnes due to timing in deliveries. Consumer volume was lower in the second quarter of fiscal 2015 by approximately 3,800 metric tonnes due to the timing in agreements with major accounts whereby a new multi-year agreement started on January 1, 2014 and another agreement with a major account ended March 31, 2014. Year-to-date, consumer volume decreased by approximately 5,500 metric tonnes due to timing in agreements, as just mentioned, and timing in customers' retail promotions. Liquid volume decreased for the quarter and year-to-date by approximately 2,100 metric tonnes and 5,700 metric tonnes, respectively. In the first half of fiscal 2014, the Company benefited from additional volume under a one-year contract with a high fructose corn syrup ("HFCS") substitutable account in western Canada which ended in March 2014. Finally, export volume was approximately 2,200 metric tonnes and 1,900 metric tonnes higher for the quarter and year-to-date, respectively, due to timing in deliveries to export customers under the Canada-specific and U.S. global quotas.
Revenues for the quarter were comparable to last year. Year-to-date, revenues were lower than the same period last year due to a lower level of sales achieved during the first half of the year, combined with an average lower value of raw sugar in fiscal 2015.
As previously mentioned, gross margin of $18.4 million for the quarter and $41.8 million year-to-date does not reflect the economic margin of the Company, as it includes a gain of $1.3 million for the current quarter for the mark-to-market of derivative financial instruments explained earlier and a loss of $0.6 million for the first half of fiscal 2015. We will therefore comment on adjusted gross margin results.
Adjusted gross margin, at $17.1 million, was approximately $0.7 million higher than the comparable quarter last year. For the second quarter in a row, a reduction in operating costs of approximately $2.7 million more than offset the decrease in adjusted gross margin as a result of lower sales volume. On a per metric tonne basis, adjusted gross margin was $111.88 compared to $105.78 for the second quarter of fiscal 2014, an increase of $6.10. The increase in the adjusted gross margin rate per metric tonne is due to lower operating costs. During the second quarter of fiscal 2015, the Company benefited from energy costs savings of approximately $2.5 million as a result of the decline in natural gas prices as well as the conversion from an interruptible gas contract in fiscal 2014 to a firm gas contract in the current year at the Montreal refinery. In addition, the 2014 workforce reduction at the Montreal refinery reduced labour costs in the second quarter by approximately $1.6 million versus the comparable quarter in fiscal 2014. These savings were somewhat offset by a reduction in adjusted gross margin due to lower sales volume and an increase in operating costs as a result of poor operating performances at the Vancouver refinery and the Taber beet factory due mostly to beet deterioration.
Despite lower volume, year-to-date adjusted gross margin amounted to $42.4 million and is approximately $1.2 million above the same period last year. The adjusted gross margin rate per tonne was $138.92 compared to $129.80, representing an increase of $9.12 per metric tonne. The increase in adjusted gross margin rate per tonne is due mainly to a reduction in energy and labour costs of approximately $3.3 million and $2.9 million, respectively, which was partially offset by lower adjusted gross margin as a result of lower sales volume and an increase in operating costs in Vancouver and Taber in the second quarter of the current year as mentioned above.
Administration and selling expenses were $0.4 million lower than the second quarter of fiscal 2014 due to timing of expenses. Year-to-date, administration and selling expenses were $0.4 million higher than last year due mainly to higher consultant fees incurred in the first quarter of fiscal 2015 for the process improvement review of the Montreal refinery.
Distribution expenses were $0.4 million lower for the current quarter and year-to-date when compared to last year due to higher storage costs and one-time demurrage costs incurred last year.
As a result, adjusted EBIT was $9.9 million for the second quarter of fiscal 2015 versus $8.4 million for the comparable quarter and $27.6 million year-to-date, versus $26.3 million for the comparable period last year.
Finance costs for the quarter include a mark-to-market loss on the interest rate swaps of $0.8 million for the quarter and $1.0 million year-to-date while last year's comparable periods resulted in a loss of $0.3 million and $0.4 million, respectively. Without the above mark-to-market adjustments, finance expenses for the quarter were $0.1 million and $0.3 million higher than the comparable quarter and first half of fiscal 2014 explained by a higher level of borrowings as a result of higher inventories, due to timing.
The provision for income taxes includes a deferred tax expense of $0.1 million for the quarter and a deferred tax revenue of $0.7 million year-to-date for the mark-to-market adjustment as compared to an expense of $4.3 million for the quarter and $4.6 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 $6.1 million year-to date as compared to a provision of $1.4 million for the quarter and $5.4 million year-to-date for the comparable periods of last year. The increase for the quarter and year-to-date is due mainly to an increase in adjusted earnings before income taxes.
Statement of quarterly results
The following is a summary of selected financial information of the unaudited condensed consolidated interim financial statements and non-GAAP measures of the Company for the last eight quarters.
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2015 2014
(Unaudited) (Unaudited)
(In thousands of
dollars, except for
volume, margin rate
and per share
information) 2-Q 1-Q 4-Q 3-Q 2-Q 1-Q
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Volume (MT) 152,579 152,608 170,767 158,489 154,862 162,258
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Revenues 127,120 128,726 139,688 128,432 127,299 136,876
Gross margin 18,402 23,364 15,077 8,353 33,206 26,303
EBIT 11,209 15,760 3,706 1,477 25,226 19,425
Net earnings (loss) 5,767 9,415 874 (886) 16,725 12,516
Gross margin rate per
MT 120.61 153.10 88.29 52.70 214.42 162.11
Per share
Net earnings (loss)
Basic 0.06 0.10 0.01 (0.01) 0.18 0.13
Diluted 0.06 0.10 0.01 (0.01) 0.16 0.13
Non-GAAP Measures
Adjusted gross margin 17,071 25,325 23,988 16,786 16,382 24,779
Adjusted EBIT 9,878 17,721 12,617 9,910 8,402 17,901
Adjusted net earnings 5,400 10,804 7,386 5,456 4,526 11,403
Adjusted gross margin
rate per MT 111.88 165.95 140.47 105.91 105.78 152.71
Adjusted net earnings
per share
Basic 0.06 0.11 0.08 0.06 0.05 0.12
Diluted 0.06 0.11 0.08 0.06 0.05 0.12
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2013
(Unaudited)
(In thousands of
dollars, except for
volume, margin rate
and per share
information) 4-Q 3-Q
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Volume (MT) 176,641 165,304
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Revenues 145,840 138,403
Gross margin 17,330 14,402
EBIT 11,739 7,558
Net earnings (loss) 6,509 3,802
Gross margin rate per
MT 98.11 87.12
Per share
Net earnings (loss)
Basic 0.07 0.04
Diluted 0.07 0.04
Non-GAAP Measures
Adjusted gross margin 17,542 15,540
Adjusted EBIT 11,951 8,696
Adjusted net earnings 6,817 4,179
Adjusted gross margin
rate per MT 99.31 94.01
Adjusted net earnings
per share
Basic 0.07 0.04
Diluted 0.07 0.04
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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 the favourable sales mix of products sold. This is due to the 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
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.
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For the three For the six
months ended months ended
March 28, March 29, March 28, March 29,
2015 2014 2015 2014
(In thousands of dollars) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Cash flow from operating
activities $ 20,962 $ (2,883) $ 12,993 $ 571
Cash flow from financing
activities (15,961) (773) (6,650) (1,243)
Cash flow from investing
activities (3,572) (1,469) (4,938) (2,417)
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Net increase (decrease) in
cash and cash equivalents $ 1,429 $ (5,125) $ 1,405 $ (3,089)
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Cash flow from operations was positive $21.0 million in the second quarter of 2015, as opposed to negative $2.9 million in the comparable quarter of fiscal 2014. The positive variation of $23.8 million is mostly explained by a higher positive non-cash working capital variation of $13.8 million compared to negative $18.5 million in fiscal 2014, due mainly to a significant year-over-year variation in inventories, lower pension contributions of $3.3 million and lower income taxes paid of $0.7 million as well as lower non-cash changes in fair value of derivative financial instruments of $1.7 million. This was somewhat offset by lower EBIT of $14.0 million. Year-to-date, cash flow from operations was positive $13.0 million compared to $0.6 million last year, a variation of $12.4 million. The year-to-date variation is also explained by a positive non-cash working capital variation of $15.6 million, a positive non-cash variation in fair value of financial instruments of $8.6 million, lower pension contributions of $3.6 million and lower income taxes paid of $2.7 million. These positive variances were somewhat offset by a reduction in EBIT of $17.7 million and higher interest paid of $0.3 million.
Cash flow from financing activities was negative $16.0 million for the current quarter versus negative $0.8 million for the comparable quarter last year. The variation is attributable to the reduction in borrowings and bank overdraft for the current quarter as opposed to an increase in the comparable quarter. Year-to-date, cash flow from financing activities was negative $6.7 million compared to negative $1.2 million, a variation year-over-year of $5.4 million as a result of lower drawdown of borrowings compared to the prior year.
Capital expenditures were higher by $2.1 million and $2.5 million in the second quarter of fiscal 2015 and year-to-date, respectively, due to timing in spending on capital projects.
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:
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For the three months For the six months
ended ended
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March 28, March 29, March 28, March 29,
2015 2014 2015 2014
(In thousands of dollars) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
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Cash flow from operations $ 20,962 $ (2,883) $ 12,993 $ 571
Adjustments:
Changes in non-cash
working capital (13,799) 18,484 11,595 27,225
Changes in non-cash
income taxes payable (138) 1,539 (617) 1,178
Changes in non-cash
interest payable 189 260 7 75
Mark-to-market and
derivative timing
adjustments (495) (16,486) 1,672 (17,944)
Financial instruments
non-cash amount 1,629 3,839 (1,307) 7,961
Capital expenditures (3,572) (1,469) (4,938) (2,417)
Investment capital
expenditures 171 - 377 229
Net issue (repurchase) of
shares 108 (372) 108 (372)
Deferred financing
charges - (90) - (90)
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Free cash flow $ 5,055 $ 2,822 $ 19,890 $ 16,416
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Declared dividends $ 8,465 $ 8,463 $ 16,928 $ 16,933
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Free cash flow was $2.2 million higher than the comparable quarter in fiscal 2014 and was $3.5 million higher than the first half of fiscal 2014. The increase in free cash flow for the quarter is due to lower pension contributions of $3.3 million, lower income taxes paid of $0.7 million and a cash inflow from the issuance of common shares as opposed to the repurchase of common shares in the comparable quarter of fiscal 2014. These positive variances were offset by higher net capital expenditures of $1.9 million. Year-to-date, pension contributions were $3.6 million lower than the comparable period last year. In addition, income taxes paid were lower by $2.7 million. This was partially offset by an increase of $2.4 million in net capital expenditures and higher interest paid of $0.3 million.
Changes in non-cash operating working capital, income taxes payable and interest payable 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 $1.1 million for the quarter and of $0.4 million year-to-date does not represent cash items as these contracts will be settled when the physical transactions occur and is therefore adjusted to free cash flow.
Capital expenditures, net of investment capital, were higher than last year by approximately $1.9 million for the quarter and by approximately $2.4 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 operational savings to be realized when these projects are completed.
During the current quarter, an amount of $0.1 million was received following the exercise of share options by an executive of the Company. In the second quarter of fiscal 2014, Rogers repurchased 85,400 shares under the Normal course issuer bid ("NCIB") for a total cash consideration of $0.4 million.
During the second quarter of the prior year, Lantic exercised its option to extend its revolving credit facility under the same terms and conditions of the credit agreement entered into on June 28, 2013. The maturity date of the revolving credit facility was therefore extended to June 28, 2019. As a result, the Company paid $0.1 million in deferred financing costs during the current quarter.
The Company declared a quarterly dividend of 9.0 cents per common share for a total amount of approximately $8.5 million during the quarter.
Contractual obligations
There are no significant changes in the contractual obligations table disclosed in the Management's Discussion and Analysis of the September 27, 2014 Annual Report.
At March 28, 2015, the operating companies had commitments to purchase a total of 1,007,000 metric tonnes of raw sugar, of which 216,745 metric tonnes had been priced for a total dollar commitment of $100.1 million.
Capital resources
Lantic has $150.0 million as an authorized line of credit available to finance its operation. This line of credit expires in June 2019. At quarter-end, $96.0 million had been drawn from the working capital line of credit and $1.5 million in cash 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
During the second quarter of the current year, 30,000 common shares were issued following the exercise of share options by an executive under the share option plan. As at April 30, 2015, there were 94,058,860 common shares outstanding.
During the second quarter of 2014, the Company purchased 85,400 common shares under the NCIB in place at the time, for a total cash consideration of $0.4 million. All shares purchased were cancelled.
In November 2014, the Company received approval from the Toronto Stock Exchange to proceed with a NCIB whereby the Company may purchase up to 1,000,000 common shares. The NCIB commenced on November 27, 2014 and may continue to November 26, 2015.
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 27, 2014 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 27, 2014 have been applied consistently in the preparation of these unaudited condensed consolidated interim financial statements except as noted below:
-- 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
years beginning on or after January 1, 2014. The Company adopted the
amendment in the first quarter of the year ending October 3, 2015. The
adoption of IAS 36, Impairment of assets, did not have an impact on the
unaudited condensed consolidated interim financial statements.
-- IFRIC 21, Levies - In May 2013, the IASB issued IFRIC 21, Levies. The
IFRIC provides guidance on accounting for levies in accordance with the
requirements of IAS 37, Provisions, contingent liabilities and
contingent assets. The interpretation defines a levy as an outflow from
an entity imposed by a government in accordance with legislation. It
also notes that levies do not arise from executory contracts or other
contractual arrangements. The interpretation also confirms that an
entity recognizes a liability for a levy only when the triggering event
specified in the legislation occurs. The Company adopted the amendment
in the first quarter of the year ending October 3, 2015. The adoption of
IFRIC 21, Levies, did not have an impact on the 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.
-- IFRS 9, Financial instruments - IFRS 9 (2009) introduces new
requirements for the classification and measurement of financial assets.
Under IFRS 9 (2009), financial assets are classified and measured based
on the business model in which they are held and the characteristics of
their contractual cash flows.
IFRS 9 (2010) introduces additional changes relating to financial
liabilities.
IFRS 9 (2013) includes a new general hedge accounting standard which
will align hedge accounting more closely with risk management. This new
standard does not fundamentally change the types of hedging
relationships or the requirement to measure and recognize
ineffectiveness. However, it will provide more hedging strategies that
are used for risk management to qualify for hedge accounting and
introduce more judgement to assess the effectiveness of a hedging
relationship.
Special transitional requirements have been set for the application of
the new general hedging model.
IFRS 9 (2014) includes finalized guidance on the classification and
measurement of financial assets. The final standard also amends the
impairment model by introducing a new "expected credit loss" model for
calculating impairment, and new general hedge accounting requirements.
The Company does not intend to early adopt IFRS 9 (2009), IFRS 9 (2010),
IFRS 9 (2013) and/or IFRS 9 (2014) in its consolidated financial
statements for the annual period ending on October 3, 2015. 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
consolidated 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.
-- IFRS 15, Revenue from contracts with customers - The standard contains a
single model that applies to contracts with customers and two approaches
to recognising revenue: at a point in time or over time. The model
features a contract-based five-step analysis of transactions to
determine whether, how much and when revenue is recognized. New
estimates and judgemental thresholds have been introduced, which may
affect the amount and/or timing of revenue recognized. The new standard
applies to contracts with customers. It does not apply to insurance
contracts, financial instruments or lease contracts, which fall in the
scope of other IFRSs. The Company intends to adopt IFRS 15 in its
consolidated financial statements for the annual period beginning on
October 1, 2017. The extent of the impact of adoption of IFRS 15,
Revenue from contracts with customers 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 27, 2014. This document is available on SEDAR at www.sedar.com or on one of our websites at www.lantic.ca or www.rogerssugarinc.com.
Outlook
The industrial segment is expected to be slightly below last year.
The 2013 one-year contract for an HFCS substitutable business was not renewed in fiscal 2014. As such, liquid volume is anticipated to decrease by approximately 8,000 metric tonnes in fiscal 2015. There are limited opportunities in that segment due to continued low pricing of high fructose corn syrup.
Total export volume is expected to be at least comparable to fiscal 2014 as the Company was able to contract 5,000 metric tonnes of export volume to Mexico despite current sugar surpluses in that country. This unexpected tonnage will help offset the reduction in the Canada-specific quota from 12,050 metric tonnes to 10,300 metric tonnes. In addition, the Company's share of the volume entered under the U.S. global quota of 7,090 metric tonnes, that opened and closed on October 1, 2014, was lower than in fiscal 2014 as our share of that quota returned to a more historical level. With the U.S. / Mexico anti-dumping dispute closer to resolution, the Company may have other export opportunities and will continue to investigate and pursue any other export opportunities.
Consumer volume is expected to be comparable to fiscal 2014.
Overall, total sales volume is expected to be lower in fiscal 2015 as compared to fiscal 2014.
Following the Montreal workforce reduction in September 2014, the Company expects to achieve labour savings of approximately $5.0 million in fiscal 2015 compared to fiscal 2014.
These labour savings, as well as the year-to-date energy savings, are expected to be generally offset by a reduction in adjusted gross margin as a result of lower sales volume. Furthermore, the Company benefited in fiscal 2014 from a $1.9 million profit triggered by the receipt of a raw sugar vessel in advance, when compared to our needs, in order to capitalize on favourable spreads in the #11 world raw sugar futures at that time, a situation that is not expected to re-occur in fiscal 2015.
A significant portion of fiscal 2015's natural gas requirements and related foreign currency have been hedged at average prices comparable to those realized in fiscal 2014. In addition, natural gas futures positions for fiscal 2016 to 2019 have also been taken. Some of these positions are at prices higher than current market values, but are at the same or better levels than those achieved in fiscal 2014. We will continue to monitor natural gas market dynamics with the objective of minimizing natural gas costs.
Administration and selling expenses for fiscal 2015 are expected to decrease due to one-time events that occurred in fiscal 2014. The process improvement analysis at the Montreal refinery resulted in incremental consulting fees and severance costs and additional non-cash pension expense was recorded in fiscal 2014 as a result of the termination of a defined benefit pension plan.
The Taber sugar beet slicing campaign was completed in February 2015. We are estimating total beet sugar production at approximately 85,000 metric tonnes, once the thick juice campaign is completed in the spring of 2015.
To date, an agreement has not yet been reached with the Alberta Sugar Beet Growers. Discussions are ongoing with the intent of reaching an agreement within the next 10 days. In the event that no agreement is reached for next year's crop, Taber's customers would be supplied from the inventory carryover from the current crop and from its available idle capacity at the Vancouver refinery.
The complete financial statements are available at the following address: http://media3.marketwire.com/docs/Rogers_Sugar_0430_e.pdf
Contacts: Ms. Manon Lacroix Vice-President Finance and Secretary (514) 940-4350 (514) 527-1610 (FAX) www.rogerssugarinc.com or www.Lantic.ca
Source: Rogers Sugar Inc.
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