Premium Brands Income Fund
TSX : PBI.UN

Premium Brands Income Fund

November 01, 2007 14:51 ET

CORRECTION: Premium Brands Income Fund Announces Record Third Quarter Sales and Earnings

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 1, 2007) - A correction is issued with respect to the release issued today at 6:00 ET. In the second table of the "Supplemental Disclosure" section, the headers should have shown as "39 weeks ended Sept 29, 2007" and "39 weeks ended Sept 30, 2006" instead of the incorrect "39 weeks ended Sept 29, 2006" and "39 weeks ended Sept 30, 2007". The corrected release follows:

Premium Brands Income Fund (TSX:PBI.UN), a leading producer, marketer and distributor of specialty branded consumer food products, announced today its results for the third quarter of 2007.

THIRD QUARTER HIGHLIGHTS

- Sales increased by $49.9 million or 84.8% to a record $108.6 million.

- EBITDA increased to a record of $11.5 million from $6.6 million in the third quarter of 2006.

- Net earnings were a record $7.2 million or $0.42 per unit as compared to $3.6 million or $0.24 per unit in the third quarter of 2006.

- The Fund completed the acquisition of Centennial Foodservice in early July. With annual sales of approximately $160 million, Centennial is western Canada's leading specialty distributor of high quality "center-of-the-plate" protein products to the foodservice industry.

- In August the Fund acquired an 80% interest in a specialty baked goods business with sales of approximately $6 million per year.

- The Fund reaffirmed its guidance for 2008 including sales of $430 million to $440 million, EBITDA of approximately $42 million and capital maintenance expenditures of $2.5 million to $3.0 million.



QUARTER SUMMARY

(In thousands of dollars except per unit amounts)
For the 13 weeks ended
Sept 29, 2007 Sept 30, 2006

Sales 108,634 58,770
EBITDA 11,506 6,567
Earnings from continuing operations 7,370 4,331
before non-controlling interest
Loss from discontinued operations - (696)
Net earnings 7,248 3,553
Net earnings per unit 0.42 0.24


Sales for the third quarter of 2007 were up $49.9 million or 84.8% to $108.6 million as compared to $58.8 million in 2006. $45.8 million of the increase was due to acquisitions and $4.1 million due to organic growth of approximately 7.0% from the Fund's other businesses.

The Fund's gross profit margin for the quarter decreased to 27.8% from 32.9% in the third quarter of 2006 due solely to the acquisition of Centennial, which has historically generated a gross profit margin of 16.5% to 17.0% as compared to an average of 30% to 33% for the Fund's remaining businesses. Excluding the recently acquired Centennial and specialty bakery businesses, the gross profit margin for the Fund's remaining businesses increased to 34.1% for the quarter from 32.9% in the third quarter of 2006 due primarily to changes in sales mix, improved plant efficiencies resulting from higher production volumes and the third quarter of 2006 being negatively impacted by inflationary pressures on certain raw material costs.

As a percentage of sales, selling, general and administrative expenses ("SG&A") for the quarter decreased to 17.2% from 21.7% in the third quarter of 2006 due primarily to the Centennial acquisition. Excluding the Centennial and specialty bakery businesses, SG&A as a percentage of sales for the Fund's remaining businesses decreased to 21.1% for the quarter from 21.7% in the third quarter of 2006 due to a variety of factors including higher sales relative to certain fixed SG&A and changes in sales mix that resulted in lower selling commissions on a percentage of sales basis.

EBITDA for the quarter improved by 75.2% or $4.9 million to $11.5 million from $6.6 million in the third quarter of 2006 due to the continued successful implementation of the Fund's two core strategies, namely:

- The acquisition and development of branded specialty food businesses that have a leading position in a niche market segment; and

- The diversification of the Fund's customer base through the acquisition and development of unique distribution and wholesale networks that service a large variety of end users including niche retailers, convenience stores, delicatessens, small grocery chains, concession stands, hotels, restaurants and institutions. These networks in turn provide its specialty food operations with proprietary access to a large and diversified customer base.

Interest expense for the quarter increased to $2.2 million from $0.7 million in the third quarter of 2006 primarily due to the Centennial and bakery acquisitions in 2007 and the Creekside acquisition at the end of 2006 being financed by the issuance of debt.

Net earnings for the third quarter were $7.2 million or $0.42 per unit as compared to $3.6 million or $0.24 per unit in the corresponding 2006 quarter. Included in the third quarter of 2006 are $0.7 million in costs associated with the final wind down of the Fund's discontinued operation.

"Our unique business model combined with our disciplined acquisition strategy is continuing to generate superior financial performance," said Mr. George Paleologou, President. "Over the last five years our sales have grown from $152.6 million to our current run rate of over $400.0 million while our EBITDA has increased from $12.3 million to our current run rate of over $38.0 million.

"Furthermore, our results for the quarter represent the tenth of the last eleven quarters that we have posted record sales and operating earnings with the one quarter exception being due solely to unusually difficult weather conditions across western Canada in the fourth quarter of 2006," added Mr. Paleologou.

"We are very pleased with how our specialty food manufacturing and distribution strategies are positioning us as one of Canada's leading food businesses," said Mr. Fred Knoedler, CEO. "Looking forward, we see tremendous opportunities to continue building on the momentum we have generated over the last several years."

DISTRIBUTABLE CASH

The Fund's distributable cash for the first three quarters of 2007 as compared to the first three quarters of 2006 increased by $5.3 million to $20.0 million due to the Centennial and specialty bakery acquisitions in the third quarter of 2007 and the continued improvement in the operating results of the Fund's other businesses.

Declared cash distributions for the first three quarters of 2007 increased to $15.4 million as compared to $13.2 million for the first three quarters of 2006 due to the issuance of 2,444,280 new units in October 2006. The Fund's monthly distribution has remained constant at $0.098 per unit since its conversion to an income trust structure in July 2005.

Payout Ratio

Due to the seasonality of the Fund's operations the calculation of its payout ratio (defined as cash distributions divided by distributable cash) on a quarterly basis is not meaningful. A better indicator of the sustainability of the Fund's monthly cash distribution is its trailing four quarters payout ratio.

For the trailing four quarters ended Sept 29, 2007 the Fund's payout ratio was 85.2% based on distributable cash of $24.1 million and declared cash distributions of $20.5 million. This compares to a payout ratio of 96.0% for the trailing four quarters ended June 30, 2007. The significant improvement in the Fund's payout ratio was due to the increase in the Fund's 2007 distributable cash for the first three quarters of 2007 as compared to the first three quarters of 2007.

The Fund's acquisitions in the third quarter of 2007 in particular had a significant impact on its payout ratio. Prior to making these investments the Fund's distributable cash per unit and its payout ratio were being negatively impacted by an equity offering completed in the fourth quarter of 2006 due to the proceeds of the offering not yet being invested, i.e. the Fund was paying out a distribution on the 2,444,280 units issued in the fourth quarter of 2006 but not yet receiving a adequate return on the proceeds of the offering.

Looking forward, the Fund expects to see continued improvement in its payout ratio on the basis of:

a. The continued contribution to its distributable cash from recent acquisitions as the current trailing four quarter period includes less than one quarter's results from these businesses;

b. The continued growth of its other specialty food and distribution businesses; and

c. For the next several quarters the Fund does not intend to increase its monthly distribution, despite its increased distributable cash, but instead plans to use the additional cash to bring its net funded debt to EBITDA ratio to within its targeted range of 2.0:1 to 2.5:1.

In conjunction with the expected continued improvement in the Fund's payout ratio, the use of its excess distributable cash to reduce its net funded debt to EBITDA ratio, and its likely conversion back to a corporate ownership structure, the Fund is in the process of re-evaluating its current long-term targeted trailing four quarters payout ratio of 85% to 90%.

GUIDANCE

For 2008 the Fund is reaffirming its guidance of annual sales of $430 million to $440 million, EBITDA of approximately $42 million and capital maintenance expenditures of $2.5 million to $3.0 million.

SUPPLEMENTAL DISCLOSURE

EBITDA, distributable cash and net funded debt are not terms defined under GAAP. As a result, these terms as defined by the Fund may not be comparable to similarly titled measures presented by other publicly traded entities, nor should they be construed as alternatives to other earnings measures determined in accordance with GAAP.

The Fund believes that EBITDA is a useful indicator of the amount of cash generated by the Fund's operating businesses prior to financing and income tax costs. The following table provides a reconciliation of EBITDA to earnings from continuing operations before non-controlling interest:



(in thousands of dollars) 13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept 29, Sept 30, Sept 29, Sept 30,
2007 2006 2007 2006

Earnings from continuing
operations before
non-controlling interest 7,370 4,331 22,613 11,628
Depreciation of capital
assets (1) 1,662 1,422 4,541 4,058
Interest and other financing
costs (2) 2,160 697 3,140 1,813
Amortization of intangible and
other assets (1) 312 117 830 352
Income tax provision
(recovery) (2) 2 - (6,673) 20
--------------------------------------------------------------------------

EBITDA 11,506 6,567 24,451 17,871
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) Amount added back as this is a non-cash expense for the period.
(2) Amount added back as this is a financing or tax related charge.


The Fund believes that distributable cash is a useful indicator of the amount of cash available for distribution to its unitholders. The following table provides a reconciliation of distributable cash to cash flows from continuing operations:



(in thousands of dollars) Four Four
quarters 39 weeks 39 weeks quarters
ended ended ended ended
Dec 31, Sept 29, Sept 30, Sept 29,
2006 2007 2006 2007

Cash flows from continuing
operations 19,481 19,820 16,391 22,910
Change in non-cash working
capital (1) 1,010 1,393 (353) 2,756
Payments received on notes
receivable (2) 432 331 362 401
Maintenance capital
expenditures (3) (1,887) (1,363) (1,501) (1,749)
Non-controlling interest (4) (253) (297) (192) (358)
Unusual cash income taxes (5) - 104 - 104
--------------------------------------------------------------------------

Distributable cash 18,783 19,988 14,707 24,064
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) Cash used for increases in the Fund's working capital is funded through
draws on its operating lines of credit while cash resulting from
decreases in its working capital is used to pay down its operating
lines of credit.
(2) Amount represents principal payments received on notes receivable.
(3) Amount represents the portion of the Fund's capital expenditures that
are funded from cash generated by its operations.
(4) Amount represents the portion of the Fund's cash flows that is
attributable to non-controlling interests.
(5) Amount is the result of an income tax reassessment for a business that
was sold by the Fund in 2003 ("the Sold Business"). The income tax
reassessment related to years in which the Fund owned the Sold Business
and for which the Fund had indemnified the purchaser of the Sold
Business.


The Fund believes that net funded debt is a useful indicator of its financial strength. The following table provides the calculation of net funded debt:



(in thousands of dollars) Sept 29, 2007 Dec 31, 2006

Cheques outstanding 4,167 756
Bank indebtedness 9,236 5,424
Current portion of long-term debt 151 179
Deferred financing fees (1) 187 210
Long-term debt 97,538 11,670
--------------------------------------------------------------------------
111,279 18,239
Less cash and cash equivalents 661 1,940
--------------------------------------------------------------------------

Net funded debt 110,618 16,299
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) As a result of the Fund's adoption of the Canadian Institute of
Chartered Accountants' new accounting rules for financial instruments
at January 1, 2007, deferred financing fees, which were previously
included in other assets, have been retroactively reclassified as a
reduction to long-term debt.


FORWARD-LOOKING STATEMENTS

This discussion and analysis includes forward-looking statements with respect to the Fund, including its business operations strategy and financial performance and condition. These statements generally can be identified by the use of forward-looking words such as "may", "could", "should", "would", "will", "expect", "intend", "plan", "estimate", "project", "anticipate", "believe" or "continue", or the negative thereof or similar variations. Although management believes that the expectations reflected in such forward-looking statements are reasonable and represent the Fund's internal expectations and belief at this time, such statements involve unknown risks and uncertainties which may cause the Fund's actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the Fund's expectations include, among other things: (i) seasonal and/or weather related fluctuations in the Fund's sales; (ii) changes in the cost of raw materials used in the production of the Fund's products; (iii) changes in consumer preferences for food products; (iv) competition from other food manufacturers and distributors; and (v) new government regulations affecting the Fund's business and operations.

The Fund disclaims any intention or obligations to revise forward-looking statements whether as a result of new information, future developments, or otherwise.

Premium Brands owns a broad range of leading branded specialty food businesses with manufacturing and distribution facilities located in British Columbia, Alberta, Saskatchewan, Manitoba and Washington. In addition, the Fund owns proprietary food distribution and wholesale networks through which it sells both its own products and those of third parties to approximately 25,000 customers. The Fund's family of brands includes Grimm's, Harvest, McSweeney's, Bread Garden, Hygaard, Hempler's, Quality Fresh Foods, Gloria's Fresh, Harlan's and Centennial.

Premium Brands Income Fund

CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)



Sept 29, Dec 31, Sept 30,
2007 2006 2006

Current assets:
Cash and cash equivalents $ 661 $ 1,940 $ 1,441
Accounts receivable 35,781 18,054 18,760
Current portion of notes receivable 781 766 671
Inventories 40,248 21,424 20,847
Prepaid expenses and other 2,307 1,334 1,530
Future income taxes (note 3) 304 304 304
Current assets of discontinued
operations - 261 82
--------------------------------------------------------------------------
80,082 44,083 43,635

Future income taxes (note 3) 6,244 524 524
Capital assets 58,541 53,119 53,308
Goodwill 118,208 65,040 63,970
Intangible assets 22,388 7,116 4,492
Other assets 3,163 4,317 2,877
Non-current assets of discontinued
operations - - 220
--------------------------------------------------------------------------

$ 288,626 $ 174,199 $ 169,026
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Current liabilities:
Cheques outstanding $ 4,167 $ 756 $ 1,699
Bank indebtedness 9,236 5,424 4,125
Distributions payable (note 5) 1,710 1,710 1,470
Accounts payable and accrued
liabilities 36,254 19,056 21,011
Current portion of long-term debt
(note 4) 151 179 191
Current liabilities of discontinued
operations 210 415 682
--------------------------------------------------------------------------
51,728 27,540 29,178

Long-term debt (note 4) 97,538 11,670 29,570
--------------------------------------------------------------------------
149,266 39,210 58,748

Non-controlling interest 2,780 2,373 2,254

Unitholders' equity:
Unitholders' capital 154,382 154,382 127,779
Accumulated earnings 28,677 7,058 4,301
Accumulated distributions declared (41,331) (25,945) (20,816)
Accumulated other comprehensive
loss (note 2) (5,148) (2,879) (3,240)
--------------------------------------------------------------------------

136,580 132,616 108,024
--------------------------------------------------------------------------

$ 288,626 $ 174,199 $ 169,026
--------------------------------------------------------------------------
--------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated financial
statements.


CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands except per unit amounts)



13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept 29, Sept 30, Sept 29, Sept 30,
2007 2006 2007 2006

Revenue $ 108,634 $ 58,770 $ 224,676 $ 163,428
Cost of goods sold 78,463 39,435 155,926 108,770
--------------------------------------------------------------------------

Gross profit 30,171 19,335 68,750 54,658
Selling, general and
administrative expenses 18,665 12,768 44,299 36,787
--------------------------------------------------------------------------

11,506 6,567 24,451 17,871
Depreciation of capital assets 1,662 1,422 4,541 4,058
Interest and other financing
costs 2,160 697 3,140 1,813
Amortization of intangible and
other assets 312 117 830 352
--------------------------------------------------------------------------

7,372 4,331 15,940 11,648
Income tax provision
(recovery) 2 - (6,673) 20
--------------------------------------------------------------------------

Earnings from continuing
operations before
non-controlling interest 7,370 4,331 22,613 11,628
Non-controlling interest 122 82 297 192
Loss from discontinued
operations - 696 - 1,357
--------------------------------------------------------------------------
Earnings for the period $ 7,248 $ 3,553 $ 22,316 $ 10,079
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Earnings per unit from
continuing operations
after non-controlling
interest:
Basic and diluted 0.42 0.28 $ 1.28 $ 0.76

Loss per unit from
discontinued operations:
Basic and diluted 0.00 (0.04) $ 0.00 $ (0.09)

Net earnings per unit
Basic and diluted 0.42 0.24 $ 1.28 $ 0.67

Weighted average units
outstanding 17,444 15,000 17,444 15,000

The accompanying notes are an integral part of these consolidated financial
statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)



13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept 29, Sept 30, Sept 29, Sept 30,
2007 2006 2007 2006

Cash flows from operating
activities:
Earnings from continuing
operations before
non-controlling interest $ 7,370 $ 4,331 $ 22,613 $ 11,628
Items not involving cash:
Depreciation of capital
assets 1,662 1,422 4,541 4,058
Amortization of intangible
and other assets 312 117 830 352
Loss on sale of assets 10 - 6 -
Future income taxes 2 - (6,777) -
--------------------------------------------------------------------------
9,356 5,870 21,213 16,038
Change in continuing non-cash
working capital (539) 2,576 (1,393) 353
--------------------------------------------------------------------------
Cash flow from continuing
operations 8,817 8,446 19,820 16,391
--------------------------------------------------------------------------

Discontinued operations 81 150 56 (139)
--------------------------------------------------------------------------
8,898 8,596 19,876 16,252
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Cash flows from financing
activities:
Long-term debt - net 86,986 6,800 86,875 6,749
Bank indebtedness and
cheques outstanding 3,594 (5,157) 3,772 4,303
Distributions paid to
unitholders (5,128) (4,409) (15,386) (13,228)
Other - (184) - (214)
--------------------------------------------------------------------------
85,452 (2,950) 75,261 (2,390)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Cash flows from investing
activities:
Change in notes
receivable - net 89 2,796 303 1,082
Capital asset additions (2,040) (7,827) (4,086) (10,903)
Non-controlling interest - - (218) -
Proceeds from sales of
assets - net 1 7 8 18
Business acquisitions (92,417) (8) (92,417) (3,043)
Net change in unit
purchase loan plan (125) - (62) -
Other (88) (26) 55 (30)
--------------------------------------------------------------------------
(94,580) (5,058) (96,416) (12,876)
--------------------------------------------------------------------------

Change in cash and cash
equivalents (230) 588 (1,279) 986
Cash and cash equivalents -
beginning of period 891 853 1,940 455
--------------------------------------------------------------------------

Cash and cash equivalents
end of period $ 661 $ 1,441 $ 661 $ 1,441
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Interest and other
financing
costs paid $ 1,661 $ 738 $ 2,535 $ 1,798

Net income taxes paid
(refunded) $ 3 $ (2) $ 3 $ 11

The accompanying notes are an integral part of these consolidated financial
statements.

Contact Information

  • Premium Brands Income Fund
    George Paleologou
    President
    (604) 656-3100
    or
    Premium Brands Income Fund
    Will Kalutycz
    CFO
    (604) 656-3100