Sunora Foods Inc. Q1 2016 Results (Ending March 31st 2016)
NOTE: Keep in mind that Q4 2015 and Q1 2016 had some one time issues with regards to logistics, back-orders and currency fluctuations. Otherwise, as stated in the news today, Q2 results and beyond will be much better.
Price: $0.12
Common Shares: 42,254,332
Insider Holdings: 72% As per SEDI
Financial
Assets
Cash: $2,981,812 - $0.07c a share just in cash
Accounts Receivable: $989,160
Inventory: $607,523
Prepaid Expenses: $18,419
Deferred Tax: $147,974
Total Assets: $4,744,888
Liabilities
Accounts Payable: $936,008
Income Tax: $48,940
Customer Deposits: $63,734
Total Liabilities: $1,048,682
Q1 2016 Net Income: $24,871
2015 Total Net Income: $502,182
2014 Total Net Income: $189,073
Breakdown in sales distribution for Q1(in MD&A)
USA: $2,167,415 (Last year was $1,785,591) – Increase by $381,824
Canada: $235,713 (Last year was $275,451) – decrease by $39,738
International: $248,251 (Last year was $682,925 – Shipping issues for the quarter caused discrepancy)
MD&A Highlights
The $24,971 of net income and comprehensive income in the three months ended March 31, 2016 was lower than the same quarter of 2015. This was primarily as a result of a foreign exchange loss of $82,655, as opposed to a foreign exchange gained $131,013 in the prior year. In addition, sales were slightly lower, and the gross margin declined from the prior year as a result of delivery issues with a copacker.
Sunora's current assets consist of cash, accounts receivable, prepaid expenses and inventory. Cash is held for working capital requirements and to fund expansion costs for new markets and customers. A policy of conserving cash is rigorously followed by management in order to sustain operations and not hamper its marketing strategies. Accounts receivable is in a comparable range to that of December 31, 2015, due to continuing efforts by management to control the Company’s credit and collections. The increase in inventory is due to increased bulk oil purchases in anticipation of future sales.
Sunora's current liabilities consist of accounts payable and accrued liabilities, income tax payable and customer deposits. Accounts payable increased by $467,782 since December 31, 2015, due to increased bulk of oil purchases at the end of this quarter. Nevertheless, Sunora is committed to its policy to manage its trade payables on a current basis and maintain its excellent credit standing.
The Company's target Working Capital Ratio (Current Assets divided by Current Liabilities, which is an indicator of its ability to finance its on-going operations) is 2:1. Current Assets comprise cash, accounts receivable, prepaid expenses and inventory; current liabilities include accounts payable, accrued liabilities and income taxes payable. The amounts of accounts receivable, inventory and accounts payable and accrued liabilities at a point in time are the direct result of sales and purchases and how the Company manages collections, supplier credit and inventory levels, which in turn is manifested in the available cash. At March 31, 2016, the Working Capital Ratio has declined to 4.4:1 compared to 6.75:1 at December 31, 2015.The Company's business has been managed with a strong working capital position which has enabled the Company to operate without debt. Additionally, the current nature of Sunora's operations has enabled it to expand without making capital investments. Therefore, the Company believes it is in a very favourable position to expand in the future.
The Company operates in the single segment of food oil. Competition is always a significant factor in the food oil industry. The Company determines the geographic location of revenues based on the location of its customers. The geographic categories presented are the United States, Canada and Other; other comprises various regions in South America, Africa, Asia, the Middle East, Eastern Russia, Australia and New Zealand.
The Company had an economic dependence on one customer. During the three months ended March 31, 2016 and the three month period ended March 31, 2015, sales to this customer represented approximately 21% and 13% of the Company's total sales, respectively. Sunora's sales to the United States have recently trended higher in proportion of sales in Canada. Overseas markets are generally continuing to grow and provide greater long term stability to sales. The growth of sales in emerging markets, where awareness of healthy food choices is growing as a result of the expanding middle classes, is a positive trend for Sunora.
Cost of sales consists of purchases of crude and refined oil, freight and custom duties. Sunora achieved a gross margin of 9.4 % in the three months ended March 31, 2016, which varied due to delivery issues with co- packers, compared to 11% in the three months ended March 31, 2015. These margins were within an expected range.
Outlook
Sunora maintains strong relationships with strategically located customers in North America and overseas. These relationships continue to drive demand for food oil products from Canada, with Sunora well positioned to meet existing and additional demand. Management has focused on increasing visibility in emerging markets, with a specific focus on the economies in Asia, with a view to meet this increased demand for Canadian manufactured food oil products. Sunora’s operations are impacted by geopolitical situations that may hold up deliveries as was experienced in the last quarter of 2015. As the middle class in these emerging economies demands higher quality and healthier foods, Sunora is well positioned to meet additional demand.
Management is actively identifying and analyzing operations that might increase gross margins for the Company. Prospective businesses considered include packagers and suppliers in the food oil industry. With each operation identified, a detailed review and analysis is undertaken by management. Specific focus is currently on packagers with operations in Canada that are looking for a strategic partner to expand international operations. Management is also actively considering possible new products that may benefit from new domestic and international markets. With the continuing improvement in the United States economy and new customers being added in Asia Sunora is well placed to improve its profitability and financial position. |
