Premium Brands Holdings Corporation
TSX : PBH

Premium Brands Holdings Corporation

March 18, 2010 05:00 ET

Premium Brands Holdings Corporation Announces 2009 Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 18, 2010) - Premium Brands Holdings Corporation (TSX:PBH), a leading producer, marketer and distributor of branded specialty food products, announced today its results for 2009.

HIGHLIGHTS

- Record revenue of $462.8 million as compared to $449.4 million for 2008. For the quarter the Company's revenue was $111.2 million as compared to $116.7 million in the fourth quarter of 2008.

- Record EBITDA of $40.7 million, which was slightly above the Company's EBITDA for 2008 of $40.6 million. For the quarter the Company's EBITDA was $9.7 million as compared to $9.6 million in the fourth quarter of 2008.

- Free cash flow of $28.5 million as compared to declared distributions and dividends of $20.7 million.

- Normalized earnings before taxes of $21.9 million or $1.24 per share as compared to $22.1 million or $1.26 per share in 2008. For the quarter the Company's normalized earnings before taxes was $4.3 million or $0.25 per share as compared to $4.6 million or $0.26 per share in the fourth quarter of 2008.

- During the quarter the Company completed a $40.3 million offering of 7% convertible unsecured subordinated debentures, the proceeds of which are expected to be used mostly to fund future acquisitions and capital projects.



SUMMARY FINANCIAL INFORMATION

(In thousands of dollars Quarter Ended Fiscal Period Ended
except per share amounts) Dec 26, Dec 31, Dec 26, Dec 31,
2009 2008 2009 2008

Revenue 111,159 116,735 462,764 449,363
EBITDA 9,686 9,603 40,727 40,626
Normalized earnings
before taxes (1) 4,319 4,564 21,877 22,055
Normalized earnings
before taxes per share (1) 0.25 0.26 1.24 1.26
Earnings 3,260 3,172 18,857 21,383
Earnings per share 0.19 0.18 1.07 1.22

(1) Excludes unrealized gains and losses on foreign currency contracts,
conversion costs, operation shut down costs and product recall insurance
claim.


Rolling Four Quarters Ended
Dec 26, Dec 31,
2009 2008

Free cash flow 28,475 29,848
Declared distributions and dividends 20,687 20,593
Declared distributions and dividends per share 1.176 1.176
Free cash flow ratio 72.6% 69.0%


"We are very pleased that despite facing one of the most challenging economic environments in recent history, we continued to grow our revenue and EBITDA in 2009 and, more importantly, make solid progress in positioning our company for the future. During the year we completed our conversion to a corporation in a tax efficient manner, significantly improved our ability to continue to execute on our acquisitions strategy by completing a $40 million convertible debenture offering and invested in two new businesses. Furthermore, we continued to pay an annualized dividend of $1.176 per share which resulted in the declaration of over $20 million in dividends during the year.

"We consider the conditions of 2009 to have been the almost perfect stress test for our business model and are fully satisfied with how it performed" said Mr. Paleologou, President and CEO. "Our overall performance for the year was the result of doing many things right, however, the biggest single contributor was our unique entrepreneurial culture that enabled our management teams to react very quickly to the rapid changes that occurred in our markets in 2009," added Mr. Paleologou.

"In terms of the fourth quarter of 2009, while we are satisfied with our EBITDA performance we were disappointed with our revenues as, for the first time in 2009, we experienced some weakness across all of our sales channels, including the retail grocery channel. The slow down in retail grocery sales was due to a variety of factors, including H1N1 hysteria, and while it was somewhat concerning at the time, I am pleased to say it was short lived and by the end of the quarter sales through this channel were back on track.

"Looking forward, we are optimistic about our prospects for 2010, particularly with the positive impact that Vancouver's hosting of the 2010 Winter Olympics has had on some of our businesses during a time that is historically slow," stated Mr. Paleologou. "Furthermore, I am very pleased with the role that many of our businesses played in the 2010 Winter Olympics. For more details on this please see the Press Releases section under Investor Relations on our website."



RESULTS OF OPERATIONS

Revenue

(in thousands of dollars except percentages)

13 weeks % 13 weeks % 52 weeks % Year %
ended (1) ended (1) ended (1) ended (1)
Dec 26, Dec 31, Dec 26, Dec 31,
2009 2008 2009 2008

Revenue by
segment:
Retail 54,374 48.9% 56,127 48.1% 217,606 47.0% 220,276 49.0%
Foodservice 56,785 51.1% 60,608 51.9% 245,158 53.0% 229,087 51.0%
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Consolidated 111,159 100.0% 116,735 100.0% 462,764 100.0% 449,363 100.0%
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(1) Expressed as a percentage of consolidated revenue


Retail's revenue for 2009 decreased by $2.7 million or 1.2% as compared to 2008 primarily due to a decrease of approximately $8.3 million in sales to convenience stores. The decrease in sales to convenience stores was the result of reduced consumer spending in this selling channel caused by a general slow down in the western Canadian economy. Partially offsetting this factor was continued organic growth in Retail's sales to grocery format retailers and $1.2 million in incremental sales resulting from business acquisitions made part way through 2008.

Retail's revenue for the fourth quarter of 2009 decreased by $1.7 million or 3.1% as compared to the fourth quarter of 2008 primarily due to a decrease of approximately $2.6 million in sales to convenience stores partially offset by continued organic growth of its sales to grocery format retailers.

Foodservice's revenue for 2009 increased by $16.1 million or 7.0% as compared to 2008. Acquisitions made part way through 2008 and in 2009 accounted for approximately $29.2 million of the increase and organic growth of its WorldSource food brokerage business for another $6.7 million. Partially offsetting these increases was a decrease in its sales to hotels and restaurants due to weaker economic conditions in western Canada that resulted in lower consumer sales in these venues. To a lesser extent, lower average selling prices resulting from food cost deflation also partially offset Foodservice's sales increases from acquisitions and WorldSource.

Foodservice's revenue for the fourth quarter of 2009 decreased by $3.8 million or 6.3% as compared to the fourth quarter of 2009 due to decreased sales to hotels and restaurants and, to a lesser extent, lower average selling prices resulting from food cost deflation. These decreases were partially offset by organic growth of its WorldSource food brokerage business of approximately $1.4 million and acquisitions, which also resulted in approximately $1.3 million in incremental sales.



Gross Profit

(in thousands of dollars except percentages)

13 weeks % 13 weeks % 52 weeks % Year %
ended (1) ended (1) ended (1) ended (1)
Dec 26 Dec 31, Dec 26, Dec 31,
2009 2008 2009 2008

Gross profit
by segment:
Retail 17,258 31.7% 17,259 30.7% 71,445 32.8% 69,635 31.6%
Foodservice 12,064 21.2% 13,232 21.8% 50,166 20.5% 50,675 22.1%
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Consolidated 29,322 26.4% 30,491 26.1% 121,611 26.3% 120,310 26.8%
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(1) Expressed as a percentage of the corresponding segment's revenue


Retail's gross profit as a percentage of its revenue (gross margin) for 2009 as compared to 2008 increased by 1.2 percentage points primarily due to lower costs for a range of commodities used in the manufacturing of its products and, to a lesser extent, improved production efficiencies resulting from a combination of factors including the recent merger of its two Edmonton based sandwich production facilities.

The change in Retail's gross margin for the fourth quarter of 2009 as compared to the fourth quarter of 2008 reflects the same trends that impacted its gross margin for 2009 as compared to 2008.

Foodservice's gross margin for 2009 as compared to 2008 decreased by 1.6 percentage points primarily due to changes in its sales mix resulting from the growth of its WorldSource food brokerage business and its acquisition of B&C Food Distributors in the latter half of 2008 (both of which generate lower margins relative to its legacy businesses) combined with the contraction of its higher margin hotel and restaurant sales. Excluding the impact of the WorldSource and B&C businesses, Foodservice's gross margin for 2009 as compared to 2008 was approximately 0.4 percentage points higher.

Foodservice's gross margin for the fourth quarter of 2009 as compared to the fourth quarter of 2008 decreased by 0.6 percentage points primarily due to changes in its sales mix as discussed above.



Selling, General and Administrative Expenses (SG&A)

(in thousands of dollars except percentages)

13 weeks % 13 weeks % 52 weeks % Year %
ended (1) ended (1) ended (1) ended (1)
Dec 26, Dec 31, Dec 26, Dec 31,
2009 2008 2009 2008

SG&A by segment:
Retail 9,595 17.6% 10,461 18.6% 40,946 18.8% 41,862 19.0%
Foodservice 8,513 15.0% 9,377 15.5% 35,050 14.3% 33,169 14.5%
Corporate 1,528 1,050 4,888 4,653
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Consolidated 19,636 17.7% 20,888 17.9% 80,884 17.5% 79,684 17.7%
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(1) Expressed as a percentage of the corresponding segment's revenue


Retail's selling, general and administrative expenses (SG&A) for 2009 as compared to 2008 decreased by $0.9 million due to a variety of factors including reduced sales commissions resulting from its lower convenience store sales as the primary compensation for sales people in this channel are sales based commissions; and reduced freight and fuel costs resulting from a general decrease in gas and diesel prices. These factors were partially offset by higher promotional spending in the grocery sales channel earlier in the year.

Retail's SG&A for the fourth quarter of 2009 as compared to the fourth quarter of 2008 also decreased by $0.9 million for the same reasons that its SG&A for 2009 as compared to 2008 decreased, however, in the fourth quarter of 2009 there was no increase in promotional spending partially offsetting these decreases.

Foodservice's SG&A for 2009 as compared to 2008 increased by $1.9 million due primarily to business acquisitions partially offset by lower variable selling expenses resulting from its lower sales to hotels and restaurants; and lower employee incentive payments due to a smaller increase in the Company's free cash flow in 2009 relative to the increase in 2008.

Foodservice's SG&A for the fourth quarter of 2009 as compared to the fourth quarter of 2008 decreased by $0.9 million due primarily to lower variable selling expenses and employee incentive payments as discussed above.



Adjusted EBITDA

(in thousands of dollars except percentages)

13 weeks % 13 weeks % 52 weeks % Year %
ended (1) ended (1) ended (1) ended (1)
Dec 26, Dec 31, Dec 26, Dec 31,
2009 2008 2009 2008

Adjusted EBITDA
by segment:
Retail 7,663 14.1% 6,798 12.1% 30,503 14.0% 27,773 12.6%
Foodservice 3,551 6.3% 3,855 6.4% 15,116 6.2% 17,507 7.6%
Corporate (1,528) (1,050) (4,892) (4,654)
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Consolidated 9,686 8.7% 9,603 8.2% 40,727 8.8% 40,626 9.0%
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(1) Expressed as a percentage of the corresponding segment's revenue


The Company's adjusted EBITDA for 2009 as compared to 2008, and for the fourth quarter of 2009 as compared to the fourth quarter of 2008, improved despite the challenging economic environment that it faced in 2009 primarily due to:

- Disciplined product pricing strategies that enabled the Company to benefit from decreases in a range of commodity input costs;

- Continued organic growth in the grocery segment of the retail market;

- The strong performance of its relatively new WorldSource food brokerage initiative;

- The successful implementation of the Company's business acquisition strategies; and

- The ongoing improvement in the efficiency of its manufacturing operations.

Excluding $0.4 million in costs incurred in the first quarter of 2009 for the start up of a new beef jerky production line and the merger and capacity expansion of its Edmonton sandwich production facilities, the Company's adjusted EBITDA for 2009 was $41.1 million.

Operation Shutdown Costs

In 2009 the Company incurred $0.8 million of costs associated with the following initiatives:

- In October 2009 the Company permanently shut down its 25,000 square foot deli meats processing facility located in Edmonton, Alberta (the Edmonton plant). A portion of the Edmonton plant's production was transferred to the Company's Richmond, BC deli plant and the balance to the Saskatoon, SK plant operated by Irvine. $0.7 million of costs associated with the shutdown of the Edmonton plant were expensed in 2009; and

- In November 2009 the Company resolved the last remaining dispute relating to its shutdown of a retail franchise business in 2006. $0.1 million of costs associated with the settlement were expensed in 2009.

Premium Brands owns a broad range of leading specialty food manufacturing and differentiated food distribution businesses with operations in British Columbia, Alberta, Saskatchewan, Manitoba and Washington. The Company services over 25,000 customers and its family of brands include Grimm's, Harvest, McSweeney's, Bread Garden Express, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Harlan's, Creekside Bakehouse, Centennial Foodservice and B&C Foods.



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Premium Brands Holdings Corporation

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CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)

Dec 26, Dec 31,
2009 2008

Current assets:
Cash and cash equivalents $ 469 $ 1,679
Accounts receivable 34,380 35,020
Current portion of other assets 180 247
Inventories 45,991 44,088
Prepaid expenses 2,116 2,240
Future income taxes 4,926 85
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88,062 83,359

Capital assets 66,029 69,833
Investment in significantly influenced company 891 -
Future income taxes 43,529 -
Intangible assets 38,298 41,063
Goodwill 110,535 110,769
Other assets 2,663 2,170
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$350,007 $307,194
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Current liabilities:
Cheques outstanding $ 2,470 $ 1,354
Bank indebtedness 2,411 9,676
Dividend payable 5,180 1,725
Accounts payable and accrued liabilities 37,429 42,472
Puttable interest in subsidiaries 1,992 -
Deferred credit 4,068 -
Current portion of long-term debt 8,212 386
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61,762 55,613

Puttable interest in subsidiaries 2,001 4,224
Future income taxes - 1,457
Deferred credit 37,087 -
Long-term debt 74,705 107,067
Convertible unsecured subordinated debentures 36,769 -
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212,324 168,361

Non-controlling interest 1,099 1,155

Shareholders' equity:
Accumulated earnings 71,768 52,911
Accumulated distributions and dividends declared (87,739) (67,052)
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Retained earnings (deficit) (15,971) (14,141)
Share capital 156,483 156,238
Equity component of convertible debentures 1,225 -
Accumulated other comprehensive loss (5,153) (4,419)
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136,584 137,678
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$350,007 $307,194
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands except per share amounts)


13 weeks 13 weeks 52 weeks 52 weeks
ended ended ended ended
Dec 26, Dec 31, Dec 26, Dec 31,
2009 2008 2009 2008

Revenue $111,159 $116,735 $462,764 $449,363
Cost of goods sold 81,837 86,244 341,153 329,053
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Gross profit 29,322 30,491 121,611 120,310
Selling, general and administrative
expenses 19,636 20,888 80,884 79,684
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9,686 9,603 40,727 40,626
Depreciation of capital assets 1,869 2,375 8,301 7,927
Interest and other financing costs 2,323 1,652 7,071 7,293
Amortization of intangible and other
assets 660 752 2,558 2,405
Amortization of financing costs 88 54 244 199
Accretion of puttable interest in
subsidiaries 200 250 200 650
Unrealized loss (gain) on foreign
currency contracts (66) (51) 818 (1,186)
Equity loss in significantly
influenced company 115 - 492 -
Conversion costs 108 - 1,498 -
Operation shutdown costs 840 - 840 -
Product recall insurance claim - 987 - 987
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Earnings before income taxes and
non-controlling interest 3,549 3,584 18,705 22,351

Provision for (recovery of) income taxes
Current (79) - 11 5
Future 256 456 (147) 866
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177 456 (136) 871
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Earnings before non-controlling interest 3,372 3,128 18,841 21,480
Non-controlling interest - net of
income taxes 112 (44) (16) 97
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Earnings for the period $ 3,260 $ 3,172 $ 18,857 $ 21,383
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Earnings per share:
Basic and diluted $ 0.19 $ 0.18 $ 1.07 $ 1.22

Weighted average shares outstanding 17,618 17,526 17,589 17,505


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

13 weeks 13 weeks 52 weeks 52 weeks
ended ended ended ended
Dec 26, Dec 31, Dec 26, Dec 31,
2009 2008 2009 2008

Cash flows from operating activities:
Earnings before non-controlling
interest $ 3,372 $ 3,128 $ 18,841 $ 21,480
Items not involving cash:
Depreciation of capital assets 1,869 2,375 8,301 7,927
Amortization of intangible assets 615 751 2,509 2,400
Amortization of other assets 45 1 49 5
Amortization of financing costs 88 54 244 199
Accretion of puttable interest 200 250 200 650
Gain on sale of assets (10) (8) (15) (37)
Restricted Share Plan accrual 142 42 518 125
Employee benefit plan accrual 154 23 (1,252) 92
Accrued interest income 12 (14) (57) (73)
Unrealized loss (gain) on foreign
currency contracts (66) (51) 818 (1,186)
Equity loss in significantly
influenced company 115 - 492 -
Future income taxes 256 456 (147) 866
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6,792 7,007 30,501 32,448
Change in non-cash working capital (8,550) (2,099) (3,867) 1,449
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(1,758) 4,908 26,634 33,897
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Cash flows from financing activities:
Long-term debt - net (35,105) 16 (23,370) 7,968
Convertible debentures - net of
issuance costs 37,923 - 37,923 -
Bank indebtedness and cheques
outstanding 1,739 4,521 (6,149) 632
Financing costs (410) (50) (410) (50)
Proceeds from issuance of
shares - net - (12) - 1,926
Purchase of shares under normal
course issuer bid - (70) (116) (70)
Shares issued under dividend
reinvestment plan - net 361 - 361 -
Dividends paid to shareholders (1,725) (5,161) (17,232) (20,578)
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2,783 (756) (8,993) (10,172)
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Cash flows from investing activities:
Collection of notes receivable 1 28 85 739
Net proceeds from sales of assets 116 35 217 103
Capital asset additions (833) (3,424) (5,742) (13,514)
Business acquisitions - 53 (1,681) (15,907)
Sale and leaseback - - - 5,000
Conversion to corporation - - (8,850) -
Repayment of share purchase loans 54 23 170 278
Investment in significantly influenced
company (4) - (1,383) -
Promissory note from significantly
influenced company (183) - (1,423) -
Payments to shareholders of
non-wholly owned subsidiaries (135) - (335) (100)
Other 23 (150) 18 (69)
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(961) (3,435) (18,924) (23,470)
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Change in cash and cash equivalents 64 717 (1,283) 255
Effects of exchange on cash and cash
equivalents 19 234 73 308
Cash and cash equivalents - beginning
of period 386 728 1,679 1,116
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Cash and cash equivalents - end of
period $ 469 $ 1,679 $ 469 $ 1,679
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FORWARD LOOKING STATEMENTS

This press release includes forward looking statements with respect to Premium Brands, 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 Premium Brands' internal expectations and belief as of March 17, 2010, such statements involve unknown risks and uncertainties beyond Premium Brands' control which may cause its 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 Premium Brands' expectations include, among other things: (i) seasonal and/or weather related fluctuations in its sales; (ii) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (iii) changes in the cost of raw materials used for its products; (iv) changes in the cost of products sourced from third party manufacturers and sold through Premium Brands' proprietary distribution networks; (v) changes in Canadian income tax laws; (vi) changes in consumer preferences for food products; (vii) competition from other food manufacturers and distributors; (viii) new government regulations affecting Premium Brands' business and operations; (ix) the inability to realize anticipated tax attributes associated with its recent conversion to a corporation; (x) exposure to third party credit/contractual risk and operational risk relating to its recent conversion to a corporation; and (xi) other factors as discussed in Premium Brands Income Fund's Annual Information Form for 2008 and Premium Brands Holdings Corporation's Management's Discussion and Analysis for the third quarter of 2009, both of which are filed electronically through SEDAR and are available online at www.sedar.com. It should be noted that this list of important factors affecting forward looking information may not be exhaustive.

Unless otherwise indicated, the forward looking information in this document is made as of March 17, 2010 and, except as required by applicable law, will not be publicly updated or revised. This cautionary statement expressly qualifies the forward looking information in this document.

Contact Information

  • Premium Brands Holdings Corporation
    George Paleologou
    President and CEO
    (604) 656-3100
    or
    Premium Brands Holdings Corporation
    Will Kalutycz
    CFO
    (604) 656-3100
    www.premiumbrandsholdings.com