Saputo (Saputo or the Company) reported today its financial results for fiscal 2014, which ended on March 31, 2014. All amounts in this news release are in Canadian dollars, unless otherwise indicated, and are presented according to International Financial Reporting Standards (IFRS).
Consolidated revenues for the quarter ended March 31, 2014 amounted to $2.486 billion, an increase of $432.6 million or 21.1% compared to $2.053 billion for the same quarter last fiscal year.
The USA Sector revenues increased by approximately $249 million as compared to the corresponding quarter last fiscal year. A more favourable average block market per pound of cheese in the fourth quarter of US$2.18 compared to US$1.67 during the same quarter of fiscal 2013 increased revenues by approximately $106 million. Contributing to the increase was an increase in sales volumes as well as higher selling prices. The weakening of the Canadian dollar versus the US dollar added approximately $91 million in revenues as compared to the same quarter last fiscal year.
In the Canada Sector, revenues increased by approximately $25 million in the fourth quarter as compared to last fiscal year. Higher selling prices relating to the cost of milk as raw material, in addition to increases in sales volumes in both the retail and foodservice segments in Canada were the primary reasons for the increase as compared to last fiscal year. Sales volumes of traditional milk and cheese categories were higher, while value-added milk and butter categories experienced a decrease in sales volumes.
Revenues from the International Sector increased by approximately $159 million as compared to the corresponding quarter last fiscal year. The Sector benefitted from the contribution of the Dairy Division (Australia) since January 21, 2014. Additionally, selling price increases relating to the cost of milk as raw material in Argentina as well as price increases in dairy ingredients in the international market added to revenues. Sales volume increases in Argentina and a more favourable dairy ingredients product mix offset lower sales volumes in the Dairy Ingredients Division. The Dairy Division (Europe) ceased operations in the first quarter of fiscal 2014, and as a result negatively impacted revenues by approximately $15 million when compared to last fiscal year.
Consolidated adjusted earnings before interest, income taxes, depreciation, amortization, acquisition, restructuring, and other costs (adjusted EBITDA1) totalled $277.8 million for the quarter ended March 31, 2014, an increase of $48.1 million or 20.9% compared to the $229.7 million for the same quarter last fiscal year.
The EBITDA of the USA Sector increased by approximately $25 million in the fourth quarter compared to the same quarter last fiscal year. An increase in the average block market per pound of cheese to US$2.18 in the fourth quarter, as compared to US$1.67 in the same quarter last fiscal year, positively affected the absorption of fixed costs. During the quarter, the block price opened at US$2.00 and closed at US$2.39, an increase of US$0.39, compared to opening at US$1.76 and closing at US$1.69, a decrease of US$0.07 for the same period last fiscal year. This positive difference had a favourable impact on the realization of inventories. The relationship between the average block market per pound of cheese and the cost of milk as raw material was unfavourable as compared to the same quarter last fiscal year. These combined market factors, including unfavourable margins associated with higher commodity prices in the Dairy Foods Division, increased EBITDA by approximately $16 million, as compared to the same period last fiscal year. Increased sales volumes and lower promotional costs were offset by higher ingredients, fuel and conversion costs as compared to the same period of the prior fiscal year, negatively affecting EBITDA. The weakening of the Canadian dollar versus the US dollar added approximately $10 million in EBITDA as compared to the same quarter last fiscal year.
EBITDA for the Canada Sector decreased by approximately $10 million in comparison to the same quarter last fiscal year. Higher ingredients and operational costs in the Dairy Division (Canada) offset increased sales volumes, in both retail and foodservice segments.
The EBITDA of the International Sector increased by approximately $33 million for the quarter ended March 31, 2014 in comparison to the same quarter last fiscal year. Contributing to this increase is the inclusion of EBITDA from the Dairy Division (Australia) since January 21, 2014. EBITDA of the Dairy Division (Argentina) increased, as compared to the corresponding period last fiscal year, mainly due to higher selling prices in the export market. This increase was slightly offset by an increase in operational costs.
Depreciation and amortization for the quarter ended March 31, 2014 totalled $39.5 million, an increase of $3.9 million compared to $35.6 million for the same quarter last fiscal year. The increase is mainly due to the inclusion of Dairy Division (Australia)'s results beginning on January 21, 2014.
In the fourth quarter of fiscal 2014, the Company incurred acquisition costs relating to the Warrnambool Acquisition, which closed on February 12, 2014, and the Scotsburn Acquisition, finalized on April 14, 2014, totalling $9.5 million ($9.2 million after tax), restructuring costs in relation to plant closures in the United States and Canada totalling $30.7 million ($19.9 million after tax), as well as other costs totalling $5.5 million ($3.9 million after tax) relating to amendments to pension plans for executive officers. In connection with the restructuring costs, the Company has incurred $7.8 million in severance costs, $0.8 million in other closure costs and $22.1 million in impairment charges to property, plant and equipment.
In the last quarter of fiscal 2013, the Company incurred acquisition costs relating to the Morningstar Acquisition, totalling $9.6 million ($6.1 million after tax), as well as restructuring costs in relation to plant closures in Europe and Canada totalling $32.6 million ($22.6 million after tax). In connection with the restructuring costs, the Company had incurred $7.8 million in severance costs, $2.8 million in other closure costs, $21.7 million in impairment charges to property, plant and equipment, and $0.3 million in other charges.
Net interest expense increased to $19.3 million compared to $14.9 million for the corresponding period last fiscal year. The increase is mainly attributed to a higher level of debt resulting from the Warrnambool Acquisition, as well as a general increase in interest rates in Argentina, as compared to the same quarter last fiscal year.
With respect to income taxes, the effective tax rate for the current quarter was 30.2% compared to 27.9% for the same quarter last fiscal year, excluding acquisition, restructuring and other costs in fiscal 2014 and restructuring and acquisition costs in fiscal 2013. The income tax rate varies and could increase or decrease based on the amount of taxable income derived and from which source, any amendments to tax laws and income tax rates and changes in assumptions and estimates used for tax assets and liabilities by the Company and its affiliates.
Net earnings amounted to $119.8 million for the quarter ended March 31, 2014, an increase of $19.3 million compared to the net earnings of $100.5 million for the same quarter last fiscal year. This is due to the factors mentioned above.
Adjusted net earnings1 amounted to $152.8 million for the quarter ended March 31, 2014, an increase of $23.6 million compared to the same quarter last fiscal year. This increase is due to the factors mentioned above, without considering acquisition, restructuring and other costs.
During the quarter, the Company added approximately $80 million in property, plant and equipment, issued shares for a cash consideration of $17.7 million as part of the stock option plan and paid out $44.8 million in dividends to its shareholders. For the same quarter, the Company generated net cash from operating activities of $144.6 million, a decrease from the $160.1 million generated for the corresponding period last fiscal year.
Adjusted EBITDA and adjusted net earnings represent non-IFRS measures. Refer to "Measurement of Results not in Accordance with International Financial Reporting Standards" on page 6 of the Management's Discussion and Analysis, included in the Company's 2014 Annual Report, for the definition of these terms.
OUTLOOK
In fiscal 2015, the Company intends to continue to improve its efficiencies, while remaining committed to producing quality products, innovation and internal growth. It will continue to analyze its activities, invest in capital projects and identify opportunities. The Company's flexible capital structure and low debt levels allow it to actively evaluate and pursue strategic acquisition opportunities, with the goal of expanding its presence in key markets.
Fiscal 2015 will bring another year of continuous challenges in Canada due to the competitive nature of the market. Despite these difficult conditions, the Dairy Division (Canada) will continue to pursue volume growth in commodity and specialty-type cheeses and in the fluid milk category. The Division will seek opportunities in the value-added milk category, which offers growth potential, and one in which the Company is well-positioned. The Dairy Division (Canada) will pursue investments in product categories such as specialty cheeses, for which the intention is to maximize exposure across Canada, with coast-to-coast distribution capabilities.
The Dairy Division (Canada) will complete, in the first quarter of fiscal 2015, the project to consolidate distribution activities of the Greater Montreal area into one distribution center located in Saint-Laurent, Québec. This initiative was announced in fiscal 2013 and is a result of the Company's ongoing evaluation of activities aimed at cost reduction and productivity enhancements.
The recent Scotsburn Acquisition will enable the Dairy Division (Canada) to increase its presence in Atlantic Canada. The Division will evaluate opportunities and possible synergies in an effort to improve and expand its product offerings to all customers.
In fiscal 2015, the Company will close three facilities, as announced in fiscal 2013 and 2014. These measures are part of the Company's continual effort to pursue additional efficiencies and decrease costs. Annual after tax savings should be approximately $8 million, of which approximately $6 million should commence in fiscal 2015.
Innovation has always been a priority, enabling the Company to offer products that meet the needs of today's consumers. Accordingly, resources were allocated to product innovation allowing it to forge and secure long-term relationships with both customers and consumers.
In fiscal 2015, the Company will continue the integration of the Dairy Foods Division (USA) and will focus on implementing the Company's processes and systems. The USA Sector intends to capitalize on the Division's national manufacturing and distribution footprint and benefit from possible synergies. An analysis of administrative and information technology will be done in order to effectively integrate central functions, streamline systems, and adopt an efficient working environment.
Additionally, in fiscal 2015, the Company will attempt to recuperate lost volumes in the Cheese Division (USA) and should also benefit from the effort of the International Sector, towards growing the export sales market.
The Cheese Division (USA) plans to continue to gain distribution and market share for its premium lines of snack cheeses and flavoured blue cheese offerings.
The closure of two plants in the US in fiscal 2015, which was announced in March 2014, is in line with the Company's continual review of operations in order to maximize return on capital and seek additional efficiencies. Annual after tax savings should be approximately $3 million.
The USA Sector will continue to evaluate opportunities to improve efficiencies in both manufacturing and distribution facilities across the US. The Sector will also continue to monitor fluctuations in dairy markets and take appropriate decisions to mitigate the impact on operations.
The International Sector will continue to pursue sales volume growth in existing markets, as well as develop additional international markets from its operations in Argentina for which capacity was increased over the last two years. Also, the Company will pursue growth of cheese export sales volumes out of the Cheese Division (USA). The inclusion of the Dairy Division (Australia) has given the International Sector an additional platform and will be key for the long-term growth of this Sector as a dairy player on a global scale. The Company intends to accelerate growth in Australia, by making necessary capital investments and devoting resources to increase manufacturing capacity, grow milk intake and create new opportunities. The International Sector will continue to evaluate overall activities in an effort to improve efficiencies.
