Dominion Citrus Limited
TSX : DMN.PR.A

Dominion Citrus Limited

March 25, 2011 17:23 ET

Dominion Citrus Limited (TSX:DOM.PR.A): Fiscal 2010 Report to Shareholders

TORONTO, ONTARIO--(Marketwire - March 25, 2011) - Dominion Citrus Limited ("Dominion", the "Company") (TSX:DMN.PR.A) reports a net loss of $1,278,000 or $0.06 per share for the year ended December 31, 2010 compared to a net loss of $2,364,000 or $0.11 per share for the same period in 2009 inclusive of a $2,403,000 one-time gain on sale in 2009. Loss before other income and expense was $1,134,000 for 2010 versus $468,000 in 2009.

Fiscal 2010 revenue from continuing operations of $67,453,000 was lower by 13.5% versus fiscal 2009 due largely to lower sales in the Distribution Division given the September 2009 downsizing to two selling stalls at the Ontario Food Terminal. This division was stabilized during the year and is focusing on business development and maximizing revenue in its existing customer base. Revenue reductions were also experienced in certain packaging lines. The Company's Quebec operations realized increased revenue for the year 2010, somewhat offsetting the aforementioned reductions.

Gross margin for 2010 was $12,315,000 representing a decrease of $3,047,000 from 2009. The decrease was mainly due to reduced volume and some difficulties in purchasing experienced through the downsizing. Gross margin percentage was 18.3% in 2010 versus 19.7% in the previous year. The gross margin percentage has improved considerably over the latter part of 2010 in the distribution business, and moves into 2011 with a positive trend.

Total expenses for fiscal 2010 were $13,449,000 versus $15,830,000 in 2009, inclusive of one-time restructuring and related costs of $499,000 and $1,464,000 respectively.

Earnings before other income and expense was a loss of $1,134,000 in fiscal 2010 versus a loss of $468,000 in 2009, both including restructuring expenses as aforementioned.

Other income and expense for fiscal 2010 includes normal course interest expenses and a $132,000 one-time write-down of property, plant and equipment related to certain redundant packaging equipment. Fiscal 2009 included a goodwill impairment of $88,000 associated with Dominion's Quebec subsidiary, an $881,000 non-cash write-down of certain operating assets at the Company's Kelfield location, a net gain on sale of $2,383,000 which is mainly attributable to a $2,403,000 gain for the sale of two Type "A" selling stalls at the Ontario Food Terminal formerly used by Dominion Citrus Distribution. Fiscal 2009 also included interest expense on the Participating Notes of $2,799,000 versus Nil in 2010 given an interest holiday on the notes.

The net loss from continuing operations for the fourth quarter of 2010 was $162,000, compared to a loss of $1,394,000 for same period in 2009. The 2010 and 2009 fourth quarter results respectively are inclusive of one-time costs of $302,000 and $969,000 related to various restructuring and related initiatives. Loss per share from continuing operations was $0.01 in the fourth quarter of 2010 compared to a loss of $0.06 reported in 2009. The net loss from discontinued operations for the fourth quarter of 2010 was $12,000 compared with a loss of $357,000 in the same period in 2009 and loss per share from discontinued operations of $0.00 compared to the $(0.02) reported in 2009.

The year 2010 marked a transition point for Dominion Citrus in its efforts to improve the operating efficiency and profitability of the business. The Company had a full year operating out of two selling stalls at the Ontario Food Terminal and was focused for the entire year on its core operations after the sales of Delta Foods and Apple Valley Juice in previous years. A philosophical shift took place in late 2010 from operational restructuring and downsizing to maximizing the output and capacity utilization of the remaining operations.

A brief summary of 2010 highlights is as follows.

  • On July 12, 2010, the Company entered into a Food Storage Agreement for use of space at its 51 Kelfield Street facility in Toronto, Ontario. The Agreement is with an Ontario based food company for an initial term of 1 year.

  • On July 7, 2010, the Company received an extension of its banking facility and a waiver of covenant breaches existing on December 31, 2009, March 27, 2010 and June 26, 2010. The demand credit facility was reduced to $1.5 million from $3.0 million and the tangible net worth ("TNW") covenant was revised to reflect the current size of the business. The TNW covenant was altered to vary by quarter to reflect the seasonal nature of the Company's business. A quarterly "clean down" is required on the facility whereby the balance must be brought to zero each quarter. Interest is still charged at the Bank's prime rate of interest plus 1.50%.

  • On November 4, 2010, the Company announced the appointment of Jason Fielden as President and Chief Executive Officer of Dominion Citrus Limited, replacing Winston Ash, effective December 31, 2010. Mr. Fielden will continue his duties as Vice President of Finance, Chief Financial Officer and Secretary until a replacement is named.

  • Food storage was provided during the year to several companies as the Company continues to seek more optimal use of its 51 Kelfield Street facility.

  • The bulk of cost cutting and operational rationalization initiatives were completed in 2009. Further decreases were realized in the full year 2010 results as improvements made during the year will continue to flow through on an annualized basis.

The fourth quarter and year to date results of the continuing operations are summarized below (all figures in $000's except per share):

  Three months ended   Twelve months ended  
  Dec 31   Dec 31   Dec 31   Dec 31  
  2010   2009   2010   2009  
Revenue $18,293   $20,264   $67,453   $77,971  
Net earnings (loss) ($162 ) ($1,394 ) ($1,278 ) ($2,364 )
Fully diluted earnings (loss) per share ($0.01 ) ($0.06 ) ($0.06 ) ($0.11 )
               
Note: Fiscal 2009 included a $2,403,000 one-time gain on sale       

Fiscal 2011 Outlook

Going into 2011 the Company has a full year behind it since divesting of its non-core businesses and assets. These changes have been substantial. They nonetheless leave Dominion Citrus with its key competitive advantages:

  • an integrated product/service platform;

  • a strong history and brand which yield an extensive supply and customer channel; and

  • an experienced team of professionals giving the ability to deliver consistent quality of product and service.

Culturally, Dominion Citrus is getting back to the roots of who it is and is demanding the level of excellence that has marked the company for many decades.

Strategically, the fresh produce wholesale, distribution and packaging industry continues to be a competitive one. The business changes at an increasingly rapid pace and Dominion is focusing on leading rather than following in this regard. Some of the continuing challenges and risks in the industry include the consolidation of large scale retailers yielding greater buying power, intense competition within the wholesale arena, low switching costs for customers, increasing specialization of competitors, and rapid foreign exchange fluctuations. Dominion will meet the challenges in the industry by leveraging its competencies and concentrating on a philosophy characterized as follows:

  • Obsessive about cost control and operational efficiency – always seeking ways to deliver at lower cost;

  • Efficient allocation of resources;

  • A focus on increasing the integration of its business units; and

  • An ardent belief that Dominion must continually seek growth and lead change through quality, service, and entrepreneurialism.

Operationally, the Company has a highly proactive sales development plan in place that was started in late 2010. This initiative led to positive trends in the Company's key distribution business in December 2010 versus the previous year. The initiative will be perpetuated company wide and will seek new customers, new channels, and augmentation of existing customers and channels. Business development and innovation are key drivers going forward especially as it relates to cross-divisional opportunities. Cost efficiency and resource allocation will be improved through continual testing and evaluation of specific opportunities that will yield better financial results. This will include continual evaluation of processes and people. Finally, margin management is a never ending requirement throughout the organization.

The Company is continuing to seek cost reduction alternatives for its remaining real estate obligations, including the remaining Brockville building formerly used by Delta Foods, the Dominion Citrus Juice facility in Clarksburg and the 51 Kelfield Street warehouse in Toronto. These efforts include (i) the continued marketing of space for sublease at the Dominion Citrus Juice facility; and (ii) the provision of storage in a portion of its Kelfield Street facility under a Food Storage Agreement as announced on July 12, 2010.

Subsequent to the year end, the following positive developments occurred in respect of the Company's real estate obligations:

  • On January 21, 2011, the Company completed the sale of the last remaining Brockville building formerly used by Delta Foods for gross proceeds of $390,000, less transactional costs. This sale marks the last remaining assets of the Delta Foods division.

  • The Company announced on March 16, 2011 the execution of a Lease Surrender Agreement ("Lease Surrender") with the landlord of Dominion's 51 Kelfield Street warehousing facility. The lease surrender will require (i) a $750,000 payment from Dominion Citrus Limited to the Landlord in six payments between closing and August 15, 2011 which is partially funded by a letter of credit; and (ii) the sale to the Landlord (at no expense to the Landlord) of all existing racking and refrigeration equipment at the facility. Dominion's existing lease to 2020 will be substantially amended. The Company will lease back certain processing and storage space on a 3-year lease but will be subject to a termination clause should the Landlord find a more suitable tenant(s). The Lease Surrender will have no negative effect on Dominion's existing businesses. The Company will use extra third party storage when required to augment the leased storage space and will continue to lease the processing space it requires. The Lease Surrender will reduce yearly lease expense by approximately $760,000.

  • This reduction in combination with overhead cuts taken in late 2010 and the sale of the remaining Brockville building have reduced costs by over $1 million.

Several ongoing risks and uncertainties exist in the Company's core businesses including, amongst others, the highly competitive nature of the segments of the food industry in which the Company participates resulting in volume and margin pressures, continuing fluctuation and volatility of the Canadian dollar as against the US dollar which impact revenue and product margin, and ongoing weather anomalies that affect produce availability and quality. The Company has the Participating Notes owing to the Dominion Citrus Income Fund and there are no assurances that Dominion Citrus Limited can meet its obligations.

The Company did not declare any dividends on the Series A Preference Shares during 2010. As previously announced the Company will not be reinstating regular dividends until further notice. The Company will change its reporting to IFRS in 2011.

Caution Regarding Forward-Looking Statements

This Management Discussion & Analysis ("MD&A") contains statements, which, to the extent that they are not a recitation of historical fact, may constitute "forward-looking statements". Forward-looking statements may include financial and other projections, as well as statements regarding our future plans, objectives or performance, or our underlying assumptions. The words "estimate", "anticipate", "believe", "expect", "intend" or other similar expressions of future or conditional verbs such as "will", "should", "would" and "could" are intended to identify forward-looking statements. Persons reading this MD&A are cautioned that such statements are only expectations, and that our actual results or performance may be materially different.

Forward-looking information involves certain risks, assumptions, uncertainties and other factors, which may cause actual future results to differ materially from those expressed or implied in any forward-looking statements.

Readers should not place undue reliance on these forward-looking statements when making decisions, and should consider the date onto which the statements were made. Except as required by applicable security law, management disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

About Dominion

The Dominion Citrus Income Fund is a publicly traded, unincorporated, open-ended limited purpose income trust. On January 1, 2006, all of the common shares of Dominion Citrus Limited ("DCL") were exchanged for trust units of the Fund. The trust units are listed on the TSX under the symbol DOM.UN. The Series A preference shares of DCL continue to be listed on the TSX under the symbol DMN.PR.A.

Dominion is a diversified food company supplying fresh produce to a wide variety of customers in retail, foodservice and food distribution businesses. The Company provides procurement, processing, repacking, sorting, grading, warehousing and distribution services to its major domestic markets being Ontario and Québec. The Company also supplies products to customers in the United States and Europe. The website may be accessed at www.dominioncitrus.com.

Contact Information

  • Investors & Media
    Dominion Citrus Limited
    Jason Fielden
    President & CEO
    416-242-8341 Ext 250
    www.dominioncitrus.com