The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from Marketwire

Rogers Sugar Inc: Interim Report for the 3rd Quarter 2013 Results

- Increase of 7,500 Metric Tonnes in Sales Volume From the Comparable Quarter - Amount of $1.9 Million Recorded for Future Pension Plan Updates Reduces Adjusted Gross Margin Rate for the Quarter and Year-to-Date

Wednesday, July 31, 2013

Rogers Sugar Inc: Interim Report for the 3rd Quarter 2013 Results

16:05 EDT Wednesday, July 31, 2013

MONTREAL, QUEBEC--(Marketwired - July 31, 2013) - Rogers Sugar Inc. (TSX:RSI)

Message to Shareholders: On behalf of the Board of Directors, I am pleased to present the unaudited condensed consolidated interim financial results of Rogers Sugar Inc. (the "Company") for the three and nine months ended June 29, 2013.

Volume for the third quarter was 165,304 metric tonnes, as opposed to 157,786 metric tonnes in the comparable quarter of last year, an increase of approximately 7,500 metric tonnes. Year-to-date volume of 472,633 metric tonnes is approximately 4,400 metric tonnes lower than last year. For the quarter industrial volume was higher by approximately 7,000 metric tonnes and higher by approximately 19,900 metric tonnes year-to-date. As discussed last year, some industrial volume was lost in calendar 2012, but in large part recovered in calendar 2013, hence the increase in volume for the quarter and year-to-date. Liquid volume was also higher by approximately 7,900 metric tonnes for the quarter and by approximately 8,500 metric tonnes year-to-date due primarily to shipments to a large bottler in western Canada since March 2013. Consumer volume was lower by approximately 800 metric tonnes for the quarter and by 1,300 metric tonnes year-to-date. The volume variance for the quarter and year-to-date is due mainly to timing in customers' retail promotions. Export volume was lower by approximately 6,600 metric tonnes for the quarter and by approximately 31,500 metric tonnes year-to-date. Timing in deliveries against the annual U.S. refined quota and Mexican sales is the major reason for the decrease from the comparable quarter. The decrease in the year-to-date volume is due mainly to sugar sold under a special quota to the U.S. in fiscal 2012. A special quota of 136,078 metric tonnes opened, effective October 3, 2011 by the U.S. Department of Agriculture, of which 25,000 metric tonnes was allocated specifically to Canada and the balance of 111,078 to global suppliers on a first-come, first-served basis. The Company, through its cane refineries was able to enter approximately 10,000 metric tonnes against the global quota by the time it closed on October 25, 2011. As the sole producer of Canadian origin sugar in Taber Alberta, the Company was able to enter approximately 17,600 metric tonnes by the time that quota closed on November 30, 2011.

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. At the end of the third quarter, earnings before interest and income taxes ("EBIT") had a mark-to-market loss of $1.1 million for the quarter and a mark-to-market gain of $2.9 million year-to-date, which was deducted/added to calculate adjusted EBIT and gross margin results. The major reasons for this mark-to-market loss/gain are the timing in the settlement of derivative financial instruments and movement in raw sugar values.

For the quarter, adjusted gross margin decreased by approximately $3.9 million when compared to the same quarter of last year. On a per metric tonne basis, adjusted gross margin was $95.31 compared to $124.49 for the third quarter of last year. The decrease in the adjusted gross margin rate is due in large part to the expense of approximately $1.9 million for future pension plan updates, as now required under IFRS, following the signing of a new three-year labour agreement in Montreal. This represents approximately $11.50 per metric tonne. In addition, the sales mix with higher industrial and liquid volumes and lower consumer and export volumes also had a negative impact on the adjusted gross margin rate for the quarter. Year-to-date adjusted gross margin was $15.3 million lower than last year's comparable period and the adjusted gross margin rate per tonne was $138.00 as compared to $168.74 in fiscal 2012. The decrease was due mainly to an unfavourable sales mix with higher low margin liquid volume and no special quota export sales to the U.S., to the recording of $1.9 million for future pension plan updates and for additional energy costs of approximately $1.0 million incurred in the second quarter of fiscal 2013 for auxiliary natural gas.

Adjusted EBIT of $9.0 million was approximately $3.7 million lower when compared to the same quarter last year due in large part to the decrease in adjusted margin rate, as explained above, slightly offset by lower administration expenses of approximately $0.3 million due to timing in expenses. Year-to-date adjusted EBIT of $44.7 million was approximately $15.6 million lower than last year due mainly to the lower adjusted gross margins of $15.3 million and to higher administration expenses of approximately $0.3 million.

For the quarter, free cash flow was $7.2 million as compared to $8.8 million in fiscal 2012, a decrease of approximately $1.6 million. Year-to-date free cash flow was $32.5 million, a decrease of approximately $10.8 million over last year's comparable period. For the quarter, the lower adjusted net earnings of $3.2 million combined with higher cash income taxes payment of approximately $0.8 million were partially offset by lower net cash pension contributions of approximately $1.9 million when compared to last year's comparable quarter. The year-to-date decrease of $10.8 million is due mainly to the lower adjusted net earnings of $10.4 million.

A new three-year labour agreement was reached with the main unit of the unionized employees of the Montreal refinery, replacing the contract that expired in February 2013. In addition a new five-year labour agreement was reached with the unionized employees of the Vancouver refinery, replacing the contract that also expired in February 2013. Both agreements were signed at competitive rates. Negotiations with the four remaining units of the Montreal refinery are on-going with the intent of reaching satisfactory agreements over the coming weeks.

During the quarter, Lantic entered into a new five-year credit agreement of $150.0 million effective June 28, 2013, replacing the $200.0 million credit agreement that expired on the same date. The total available credit was reduced by $50.0 million to better suit the expected financial needs of the Company. In addition, the Company negotiated a five-year interest swap agreement, as at June 28, 2013, at a rate of 2.09% for an initial amount of $50.0 million declining to $30.0 million by the end of the agreement. The new interest swap contract will allow the Company to benefit from lower finance charges as compared to the former swap agreement that expired on the same date.

FOR THE BOARD OF DIRECTORS,
SIGNED
Stuart Belkin, Chairman
Vancouver, British Columbia - July 31, 2013

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") dated July 31, 2013 of Rogers Sugar Inc. ("Rogers") should be read in conjunction with the unaudited condensed consolidated interim financial statements and notes thereto for the period ended June 29, 2013, as well as the audited consolidated financial statements and MD&A for the year ended September 29, 2012. The quarterly condensed interim consolidated financial statements and any amounts shown in this MD&A were not reviewed or 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 Chief Financial Officer have designed or caused it to be designed under their supervision, disclosure controls and procedures.

In addition, the Chief Executive Officer and Chief Financial Officer 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 Chief Financial Officer have evaluated whether or not there were any changes to its ICFR during the three month period ended June 29, 2013 that have materially affected, or are reasonably likely to materially affect, the Company's ICFR. No such changes were identified through their evaluation.

Results of operations

Consolidated Results For the three months
ended
For the nine months
ended
(In thousands of dollars, except for volume and per share information) June 29, 2013
(Unaudited)
June 30, 2012
(Unaudited)
June 29, 2013
(Unaudited)
June 30, 2012
(Unaudited)
Volume (metric tonnes) 165,304 157,786 472,633 477,034
Revenues $ 138,403 $ 147,687 $ 412,598 $ 467,624
Gross margin 14,618 18,207 68,108 59,784
Administration and selling expenses 4,797 5,068 14,626 14,298
Distribution expenses 2,002 1,959 5,944 5,954
Earnings before net finance costs and provision for income taxes (EBIT) $ 7,819 $ 11,180 $ 47,538 $ 39,532
Net finance costs 2,457 2,260 6,500 7,244
Provision for income taxes 1,367 2,011 10,476 8,971
Net earnings $ 3,995 $ 6,909 $ 30,562 $ 23,317
Net earnings per share - basic $ 0.04 $ 0.07 $ 0.32 $ 0.25

In the normal course of business, the Company uses derivative financial instruments consisting of sugar futures, foreign exchange forward contracts, natural gas futures and interest rate swaps. The Company sells refined sugar to some clients in U.S. dollars. These sales contracts are viewed as having an embedded derivative if the functional currency of the customer is not U.S. dollars, the embedded derivative being the source currency of the transaction, U.S. dollars. Derivative financial instruments and embedded derivatives are marked-to-market at each reporting date, with the unrealized gains/losses charged to the consolidated statement of earnings with a corresponding offsetting amount charged to the statement of financial position.

Management believes that the Company's financial results are more meaningful to management, investors, analysts and any other interested parties when financial results are adjusted by the gains/losses from financial derivative instruments and from embedded derivatives for which adjusted financial results provide a more complete understanding of factors and trends affecting our business. This measurement is a non-GAAP measurement.

Management uses the non-GAAP adjusted results of the operating company to measure and to evaluate the performance of the business through its adjusted gross margin, adjusted EBIT and adjusted net earnings. In addition, management believes that these measures are important to our investors and parties evaluating our performance and comparing such performances to our past results. Management also uses adjusted gross margin, adjusted EBIT and adjusted net earnings when discussing results with the Board of Directors, analysts, investors, banks and other interested parties.

The results of operations would therefore need to be adjusted by the following:

Income (loss) For the three months
ended
For the nine months
ended
(In thousands) June 29, 2013
(Unaudited)
June 30, 2012
(Unaudited)
June 29, 2013
(Unaudited)
June 30, 2012
(Unaudited)
Mark-to-market adjustment (excluding interest swap) $ (2,411 ) $ (511 ) $ (6,216 ) $ (10,466 )
Cumulative timing differences 1,273 (924 ) 9,102 (10,246 )
Total adjustment to cost of sales $ (1,138 ) $ (1,435 ) $ 2,886 $ (20,712 )

The movement in the price values of raw sugar and natural gas caused a mark-to-market loss during the quarter. For raw sugar a mark-to-market loss of $1.7 million was recorded as compared to a mark-to-market loss of $1.5 million in the comparable quarter of last year. Year-to-date a mark-to-market loss of $7.9 million was recorded as compared to a mark-to-market loss of $3.8 million in the comparable period of fiscal 2012. With the recent decline in natural gas prices, a mark-to-market loss of $1.3 million and of $1.2 million was recorded in the third quarter and year-to-date respectively, versus a negligible mark-to-market loss for the quarter and a mark-to-market loss of $4.6 million year-to-date of fiscal 2012. Foreign exchange forward contracts and embedded derivatives, on which foreign exchange movements have an impact, had a combined mark-to-market gain of $0.6 million for the quarter and of $2.9 million year-to-date. For the comparable period the combined mark-to-market adjustment was a mark-to-market gain of $1.0 million for the quarter and a mark-to-market loss of $2.1 million year-to-date.

The 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 third quarter the total cost of sales adjustment is a loss of $1.1 million to be added to the consolidated operating results while a total cost of sales loss of $1.4 million was added to the consolidated operating results in fiscal 2012 comparable quarter. Year-to-date a gain of $2.9 million was deducted from the consolidated results while a total cost of sales loss of $20.7 million was added to the consolidated results of last year's comparable period.

In addition, the Company recorded a mark-to-market gain of $0.4 million for the quarter and of $1.9 million year-to-date, the same amounts for the comparable periods of last year, on the mark-to-market of an interest swap under short-term finance expense.

The following is a table showing the adjusted consolidated results (non-GAAP) without the above mark-to-market results:

Consolidated Results For the three months
ended
For the nine months
ended
June 29, 2013
(Unaudited)
June 30, 2012
(Unaudited)
June 29, 2013
(Unaudited)
June 30, 2012
(Unaudited)
Gross margin as per financial statements $ 14,618 $ 18,207 $ 68,108 $ 59,784
Adjustment as per above 1,138 1,435 (2,886 ) 20,712
Adjusted gross margin 15,756 19,642 65,222 80,496
EBIT as per financial statements 7,819 11,180 47,538 39,532
Adjustment as per above 1,138 1,435 (2,886 ) 20,712
Adjusted EBIT 8,957 12,615 44,652 60,244
Net earnings as per financial statements 3,995 6,909 30,562 23,317
Adjustment to cost of sales as per above 1,138 1,435 (2,886 ) 20,712
Adjustment for mark-to-market of finance costs (438 ) (449 ) (1,867 ) (1,908 )
Deferred taxes on above adjustments (323 ) (254 ) 1,002 (4,878 )
Adjusted net earnings $ 4,372 $ 7,641 $ 26,811 $ 37,243
Net earnings per share basic, as per financial statements $ 0.04 $ 0.07 $ 0.32 $ 0.25
Adjustment for the above 0.01 0.01 (0.04 ) 0.15
Adjusted net earnings per share basic $ 0.05 $ 0.08 $ 0.28 $ 0.40

For the quarter, total volume increased by approximately 7,500 metric tonnes from the comparable quarter of fiscal 2012. Industrial volume increased by approximately 7,000 metric tonnes due mainly to gain of additional volume with existing and new customers. Liquid volume was also higher by approximately 7,900 metric tonnes due largely to the recovery of a large HFCS substitutable account in western Canada. Consumer volume decreased by approximately 800 metric tonnes due mainly to timing in customers' retail promotions. Export volume decreased by approximately 6,600 metric tonnes due mainly to timing in the delivery of volume against the annual U.S. quota and exports to Mexico.

Year-to-date volume decreased by approximately 4,400 metric tonnes. Industrial volume is higher by approximately 19,900 metric tonnes, due to the gain of additional volume with existing and new customers. Liquid volume is approximately 8,500 metric tonnes higher due to the gain of a large HFCS substitutable account in western Canada. Consumer volume is lower year-to date by approximately 1,300 metric tonnes due mainly to timing in customers' retail promotions. Export volume was lower by approximately 31,500 metric tonnes year-to-date due to sugar sold under a special quota to the U.S. in fiscal 2012, where no such special quota occurred in fiscal 2013.

Revenues for the quarter were approximately $9.3 million lower than the previous year comparable quarter, mainly as a result of the lower level of raw sugar values during the quarter as compared to fiscal 2012. Year-to-date revenues are $55.0 million lower due mainly to higher raw sugar values in fiscal 2012 and to the higher selling values of U.S. export volume sold against the U.S. special quotas in fiscal 2012.

As previously mentioned, gross margin of $14.6 million for the quarter and of $68.1 million year-to-date do not reflect the economic margin of the Company, as it includes a loss of $1.1 million for the quarter and a gain of $2.9 million year-to-date for the mark-to-market of derivative financial instruments explained earlier. We will therefore comment on adjusted gross margin results.

For the quarter, adjusted gross margin decreased by approximately $3.9 million when compared to the same quarter of last year. On a per metric tonne basis, adjusted gross margin was $95.31 compared to $124.49 for the third quarter of last year. The decrease in the adjusted gross margin rate is due in large part to the expense of approximately $1.9 million for future pension plan updates, as now required under IFRS, following the signing of the new three-year labour agreement in Montreal. This represents approximately $11.50 per metric tonne. In addition, the sales mix with higher industrial and liquid volumes and lower consumer and export volumes also had a negative impact on the adjusted gross margin rate for the quarter. Year-to-date adjusted gross margin was $15.3 million lower than last year's comparable period and the adjusted gross margin rate per tonne was $138.00 as compared to $168.74 in fiscal 2012. The decrease was due mainly to an unfavourable sales mix with lower margin liquid volume and no special quota export sales to the U.S., to the booking of $1.9 million for future pension plan updates and for additional energy costs of approximately $1.0 million incurred in the second quarter of fiscal 2013 for auxiliary natural gas.

Administration and selling costs were lower by approximately $0.3 million for the quarter and higher by approximately $0.3 million year-to-date than the comparable periods of fiscal 2012. The variance in the quarter and year-to-date is due mainly to timing in expenses.

Distribution costs for the quarter and year-to-date were consistent with last year comparable periods.

Finance costs, for both fiscal 2013 and 2012, include for the quarter a mark-to-market gain on the interest swap of $0.4 million and of $1.9 million year-to-date. Without the above mark-to-market adjustment, interest expense for the quarter was higher by approximately $0.2 million due mainly to the higher level of short-term borrowings. Year-to-date interest expense is lower by approximately $0.8 million due mainly to the write-off of deferred financing charges of approximately $0.6 million as a result of the early redemption of the third series convertible debentures in fiscal 2012.

The provision for income taxes includes a deferred tax recovery of $0.3 million for the quarter and a deferred tax expense of $1.0 million year-to-date for the mark-to-market adjustment as compared to a recovery of $0.3 million for the quarter and $4.9 million year-to-date for the comparable periods of last year. On an adjusted basis the provision for income taxes was approximately $1.7 million for the quarter and $9.5 million year-to date as compared to a provision of $2.3 million for the quarter and $13.8 million year-to-date for the comparable periods of last year. The decrease for the quarter and year-to-date is due mainly to the decrease in adjusted earnings before income taxes as a result of the lower adjusted gross margins.

Statement of quarterly results

The following is a summary of selected financial information of the consolidated financial statements and non-GAAP measures of the Company for the last eight quarters.

2013
(Unaudited)
2012
(Unaudited)
2011 (Unaudited)
(In thousands of dollars, except for volume, margin rate and per share information) 3-Q
2-Q
1-Q 4-Q 3-Q 2-Q 1-Q 4-Q
Volume (MT) 165,304 150,914 156,415 164,539 157,786 146,494 172,754 170,880
Revenues 138,403 131,819 142,376 150,469 147,687 144,132 175,805 160,866
Gross margin 14,618 22,851 30,639 18,077 18,207 17,923 23,654 33,507
EBIT 7,819 16,021 23,698 11,072 11,180 11,583 16,769 25,679
Net earnings 3,995 10,434 16,133 6,944 6,909 6,528 9,880 16,531
Gross margin rate per MT 88.43 151.42 195.88 109.86 115.39 122.35 136.92 196.08
Per share
Net earnings
Basic 0.04 0.11 0.17 0.07 0.07 0.07 0.11 0.19
Diluted 0.04 0.11 0.16 0.07 0.07 0.07 0.10 0.16
Non-GAAP Measures
Adjusted gross margin 15,756 19,899 29,567 21,696 19,642 23,065 37,789 25,486
Adjusted EBIT 8,957 13,069 22,626 14,691 12,615 16,725 30,904 17,658
Adjusted net earnings 4,372 7,552 14,887 9,782 7,641 9,841 19,761 10,919
Adjusted gross margin rate per MT 95.31 131.87 189.02 131.86 124.49 157.45 218.74 149.15
Adjusted net earnings per share
Basic 0.05 0.08 0.16 0.10 0.08 0.10 0.22 0.12
Diluted 0.05 0.08 0.15 0.10 0.08 0.10 0.19 0.11

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

The cash flow generated by the operating company, Lantic, is paid to Rogers by way of dividends and return of capital on the common shares of Lantic, and by the payment of interest on the subordinated notes of Lantic held by Rogers, after having taken reasonable reserves for capital expenditures and working capital. The cash received by Rogers is used to pay dividends to its shareholders.

Cash flow from operations was positive $22.0 million for the quarter, as opposed to positive $10.1 million in the comparable quarter of fiscal 2012. The main reason for the increase in cash flow from operations for the quarter is related to a larger decrease in inventories of approximately $5.2 million, due mainly to the lower value of raw sugar and to a lower increase in accounts receivables of approximately $4.4 million, when compared to the comparable quarter of fiscal 2012. Year-to-date cash flow from operations is positive $7.0 million as opposed to positive $25.0 million for the comparable period of last year. The year-to-date reduction in cash flow from operations of approximately $18.0 million from last year is due to the increase in inventories in fiscal 2013 versus fiscal 2012 as it accounts for a net variance of $32.2 million year-over-year. The increase is due to the timing in the receipt of cane raw sugar vessels and to the larger beet sugar inventories at the closing of each related period. This variance in inventory of $32.2 million was partially offset with lower income tax payments of approximately $2.8 million in fiscal 2013 and higher net earnings of approximately $7.2 million.

Total capital expenditures were comparable for the quarter and $0.4 million higher year-to-date than the previous year, due mainly to timing of projects when compared to fiscal 2012.

In order to provide additional information the Company believes it is appropriate to measure free cash flow, a non-GAAP measure, which is generated by the operations of the Company and can be compared to the level of dividends paid by Rogers. Free cash flow is defined as cash flow from operations excluding changes in non-cash working capital, mark-to-market and derivative timing adjustments, financial instruments non-cash amount and including capital expenditures.

Free cash flow is as follows:

For the three months
ended
For the nine months
ended
(In thousands of dollars) June 29, 2013
(Unaudited)
June 30, 2012
(Unaudited)
June 29, 2013
(Unaudited)
June 30, 2012
(Unaudited)
Cash flow from operations $ 21,983 $ 10,111 $ 7,018 $ 25,046
Adjustments:
Changes in non-cash working capital (17,185 ) (6,778 ) 23,639 (2,821 )
Changes in non-cash income taxes payable 523 (629 ) 1,922 5,502
Changes in non-cash interest payable 2,075 1,684 2,036 1,881
Mark-to-market and derivative timing adjustments 700 986 (4,753 ) 18,804
Financial instruments non-cash amount 366 4,438 7,335 1,529
Capital expenditures (1,307 ) (1,223 ) (4,916 ) (4,484 )
Investment capital expenditures 460 64 580 322
Net issue (repurchase) of shares/convertible debentures 20 181 92 262
Deferred financing charges (450 ) - (450 ) (2,716 )
Free cash flow $ 7,185 $ 8,834 $ 32,503 $ 43,325
Declared dividends $ 8,470 $ 8,465 $ 59,281 $ 24,446

Free cash flow was lower by approximately $1.6 million than the comparable quarter in fiscal 2012 and lower by $10.8 million year-to-date. The decrease was due to the lower adjusted earnings from operations for the quarter of $3.2 million, higher income tax cash payments of approximately $0.8 million and lower net capital expenditures of approximately $0.3 million, partially offset with lower net cash pension contributions of approximately $1.9 million. The year-to-date decrease of $10.8 million is due mainly to the lower adjusted net earnings of $10.4 million.

Changes in non-cash working capital represent quarter-over-quarter movement in current assets such as accounts receivables and inventories, and current liabilities like accounts payable. Movements in these accounts are due mainly to timing in the collection of receivables, receipts of raw sugar and payment of liabilities. Increases or decreases in such accounts do not therefore constitute available cash for distribution. Such increases or decreases are financed from available cash or from the Company's available credit facilities of $150.0 million. Increases or decreases in short-term bank indebtedness are also due to timing issues from the above, and therefore do not constitute available cash for distribution.

The combined impact of the mark-to-market and financial instruments non-cash amount of $1.1 million for the quarter and of $2.6 million year-to-date does not represent cash items as these contracts will be settled when the physical transactions occur, which is the reason for the adjustment to free cash flow.

Capital expenditures, net of investment capital, were lower than last year by approximately $0.3 million for the quarter and higher by approximately $0.2 million year-to-date due mainly to timing of capital projects. Investment capital expenditures are added back as these capital projects are not required for the operation of the refineries, but are undertaken due to their substantial operational savings to be realized when these projects are completed.

Year-to-date an amount of $0.1 million was received following the exercise of share options by two executives of the Company, while $0.2 million was received following the exercise of share options by an executive of the Company during the third quarter of fiscal 2012, for a total of $0.3 million year-to-date in fiscal 2012.

During the quarter the Company negotiated a new five-year Credit Agreement for which deferred financing charges of approximately $0.5 million were paid by the end of the third quarter. Also during the first quarter of fiscal 2012, the Company issued fifth series convertible unsecured subordinated debentures ("Fifth series debentures") for which an amount of approximately $2.7 million of deferred financing charges was incurred.

Since May 2012, the Company pays a quarterly dividend of 9.0 cents per common share, for a total amount of approximately $8.5 million per quarter. In addition during the second quarter of fiscal 2013, the Company declared and paid an additional dividend of $33.9 million based on previously earned but undistributed free cash flow of approximately $64.7 million generated in the last five fiscal years ended September 29, 2012.

Contractual obligations

There are no significant changes in the contractual obligations table disclosed in the Management's Discussion and Analysis of the September 29, 2012 Annual Report.

At June 29, 2013, the Company had commitments to purchase a total of 1,672,500 metric tonnes of raw sugar, of which none had been priced at quarter end.

Capital resources

During the quarter, Lantic entered into a new five-year credit agreement of $150.0 million effective June 28, 2013, replacing the $200.0 million credit agreement that expired on the same date. The total available credit was reduced by $50.0 million to better suit the expected financial needs of the Company. In addition the Company negotiated a five-year interest swap agreement, as at June 28, 2013, at a rate of 2.09% for an initial amount of $50.0 million declining to $30.0 million by the end of the agreement. The new interest swap contract will allow the Company to benefit from lower finance charges as compared to the former swap agreement that expired on the same date. At quarter end an amount of $92.0 million had been drawn under the credit agreement. In addition, an amount of $2.4 million in cash and cash equivalents 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 quarter 3,500 common shares were issued following the exercise of share options by an executive for a total of 23,500 common shares issued under the exercise of share options year-to-date. As at July 31, 2013, there were 94,114,260 common shares outstanding.

Future accounting changes

A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ending September 28, 2013 and have not been applied in preparing these unaudited condensed consolidated interim financial statements.

IFRS 9 Financial Instruments - This standard will replace IAS 39, Financial Instruments: Recognition and Measurement with a proposed single model for only two classification categories: amortized cost and fair value. The standard is currently required to be adopted for annual periods beginning January 1, 2015. The extent of the impact on the financial statements of the Company has not yet been determined.

IFRS 10 Consolidated Financial Statements - This standard provides additional guidance to determine whether an entity should be included within the consolidated financial statements of the Company. The standard is required to be adopted for annual periods beginning January 1, 2013. The extent of the impact on the financial statements of the Company has not yet been determined.

IFRS 13 Fair Value Measurement - This standard provides new guidance on fair value measurement and disclosure requirements. This standard is required to be adopted for annual periods beginning January 1, 2013. The extent of the impact on the financial statements of the Company has not yet been determined.

IAS 19 Employee Benefits - This standard includes the elimination of the option to defer the recognition of gains and losses, enhancing the guidance around measurement of plan assets and defined benefit obligations, streamlining the presentation of changes in assets and liabilities arising from defined benefit plans and the introduction of enhanced disclosures for defined benefit plans. This standard is effective for annual periods beginning January 1, 2013. The extent of the impact on the 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 29, 2012. This document is available on SEDAR at www.sedar.com or on one of our websites at www.lantic.ca or www.rogerssugar.com.

Outlook

Industrial volume will be higher in fiscal 2013 as additional volume has been contracted for calendar 2013 with new and existing accounts. In addition the Company was able to contract for one year, starting in the spring of 2013, additional liquid sugar with one large bottler in western Canada. This should increase liquid volume in the second half of the fiscal year. Export volume is forecast to be lower this year as no U.S. special quotas are expected during the year due to large crops in the U.S. and Mexico. Overall the annual sales volume is forecast to be higher than last year.

The Taber beet thick juice campaign was completed in July 2013 and the total beet sugar production for the 2012 crop was approximately 122,000 metric tonnes. This is comparable to last year's production. This production volume is larger than our current sales estimate from Taber which will result in a significant level of inventories being warehoused into next year.

As a consequence of the large inventory carry-over, a total of 24,000 acres was planted this season, which should derive approximately 85,000 metric tonnes of beet sugar under normal growing, harvesting and processing conditions.

A new three-year labour agreement was reached with the main unit of the unionized employees of the Montreal refinery, replacing the contract that expired in February 2013. In addition a new five-year labour agreement was reached with the unionized employees of the Vancouver refinery, replacing the contract that also expired in February 2013. Both agreements were signed at competitive rates. Negotiations with the four remaining units of the Montreal refinery are on-going with the intent of reaching satisfactory agreements over the coming weeks.

A significant portion of fiscal 2013's natural gas requirements have been hedged at average prices comparable to those realized in fiscal 2012. Any un-hedged volume should benefit from the current low prices of natural gas and therefore increase adjusted gross margin rates. In addition, some futures positions for fiscal 2014 to 2017 have been taken. These positions are at prices higher than or comparable to the current market values, but at or better than levels achieved in fiscal 2012. We will continue to monitor natural gas market dynamics with the objective of minimizing natural gas costs.

The complete financial statements are available at the following address: http://media3.marketwire.com/docs/RSI-FS_Q3-13_ENG.pdf.

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Ms. Manon Lacroix
VP Finance and Secretary
(514) 940-4863
(514) 527-1610 (FAX)
www.rogerssugar.com or www.Lantic.ca

Products
  • Globe Unlimited

    Digital all access pass across devices. subscribe

  • The Globe and Mail Newspaper

    Newspaper delivered to your doorstep. subscribe

  • Globe2Go

    The digital replica of our newspaper. subscribe

  • Globe eBooks

    A collection of articles by the Globe. subscribe

See all Globe Products

Advertise with us

GlobeLink.ca

Your number one partner for reaching Canada's Influential Achievers. learn more

Digital Business Solutions
Our Company
Customer Service
Globe Recognition
Mobile Apps
NEWS APP
INVESTING APP
Other Sections