Premium Brands Holdings Corporation
TSX : PBH

Premium Brands Holdings Corporation

November 10, 2009 07:00 ET

Premium Brands Holdings Corporation Announces 2009 Third Quarter Results Including Record EBITDA

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 10, 2009) - Premium Brands Holdings Corporation (TSX:PBH), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the third quarter of 2009.

HIGHLIGHTS

- Revenue for the quarter was $123.4 million as compared to $123.4 million in the third quarter of 2008.

- EBITDA for the quarter was a record $13.2 million as compared to $11.7 million in the third quarter of 2008 and $11.5 million in the third quarter of 2007.

- Free cash flow for the rolling four quarters ended September 26, 2009 was $28.4 million as compared to declared distributions and dividends of $20.7 million.

- Earnings before costs associated with Premium Brands' conversion to a corporation and unrealized gains and losses on foreign currency contracts for the quarter were $8.7 million versus $6.9 million in the third quarter of 2008.

- During the quarter Premium Brands completed a transaction by way of a plan of arrangement that resulted in its conversion from a publicly traded income trust to a publicly traded company.

- As part of its conversion to a corporation, Premium Brands renegotiated the terms of its senior credit facilities including extending the maturity date to July 2012, creating a new $10 million term facility to fund the costs of the conversion, and revising its financial covenants to provide it with increased financial flexibility.

- Subsequent to the quarter, the Company completed a $35.0 million offering of 7% convertible unsecured subordinated debentures, the proceeds of which are expected to be used to fund future acquisitions and capital projects.



SUMMARY FINANCIAL INFORMATION

(In thousands of dollars except per Quarter Ended 39 Weeks Ended
share amounts) Sept 26, Sept 27, Sept 26, Sept 27,
2009 2008 2009 2008

Revenue 123,404 123,435 351,605 332,628
EBITDA 13,180 11,672 31,041 31,023
Earnings excluding unrealized loss
(gain) on foreign currency contracts
and conversion costs 8,695 6,936 17,871 17,076
Conversion costs 1,390 - 1,390 -
Earnings 6,876 7,365 15,597 18,211
Earnings per share 0.39 0.42 0.89 1.04

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

Free cash flow 28,414 29,848
Declared distributions and dividends 20,683 20,593
Declared distributions and dividends
per share 1.176 1.176
Free cash flow ratio 72.8% 69.0%


"We are very pleased with our performance for the third quarter given the current challenging economic environment. Through continued growth in our businesses focusing on the grocery channel we were able to offset sales decreases in some of our more economically sensitive businesses, while our margins benefited from a combination of lower commodity input costs and other cost savings initiatives," said Mr. George Paleologou, President and CEO.

"Looking forward, we are cautiously optimistic that we will continue to build on the positive momentum of the latter part of the third quarter. In addition, we expect to start seeing some of the positive impacts in the fourth quarter from Vancouver's hosting of the 2010 Winter Olympics," stated Mr. Paleologou. "Please see the Press Releases section under Investor Relations on our website for additional details on some of the initiatives we are putting into place in preparation for the Games," added Mr. Paleologou.

On November 9, 2009 the Company completed a $35.0 million public offering of 7% convertible unsecured subordinated debentures resulting in net proceeds of $33.1 million after underwriting fees of $1.4 million and costs of approximately $0.5 million. As part of the offering, the Company granted the underwriters of the offering an option to purchase up to an additional $5.3 million of debentures, exercisable in whole or in part and at the sole discretion of the underwriters, at any time up until December 9, 2009.

"Our recent public offering of convertible unsecured subordinated debentures will significantly reduce our senior debt to EBITDA leverage and will provide us with additional capital to pursue our very successful acquisitions strategy," stated Mr. Paleologou.

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 State. In addition, it 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. Premium Brands' family of brands includes Grimm's, Harvest, McSweeney's, Bread Garden, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Harlan's, Centennial Foodservice and B&C Foods.



Premium Brands Holdings Corporation

CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)

Sept 26, Dec 31, Sept 27,
2009 2008 2008
Current assets:
Cash and cash equivalents $ 386 $ 1,679 $ 728
Accounts receivable 34,343 35,020 37,145
Current portion of other assets 178 247 219
Inventories 47,637 44,088 46,027
Prepaid expenses 2,580 2,240 3,386
Future income taxes 1,965 85 76
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87,089 83,359 87,581

Capital assets 67,432 69,833 67,658
Investment in significantly influenced
company 1,003 - -
Future income taxes 48,844 - -
Goodwill 110,606 110,769 110,000
Intangible assets 38,975 41,063 42,276
Other assets 2,581 2,170 2,105
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$ 356,530 $ 307,194 $ 309,620
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Current liabilities:
Cheques outstanding $ 1,389 $ 1,354 $ 1,367
Bank indebtedness 1,753 9,676 6,074
Dividend payable 5,168 1,725 1,726
Accounts payable and accrued liabilities 44,487 42,472 47,847
Deferred credit 1,568 - -
Current portion of long-term debt 10,216 386 207
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64,581 55,613 57,221

Puttable interest in subsidiaries 3,978 4,224 3,974
Future income taxes - 1,457 1,597
Deferred credit 41,766 - -
Long-term debt 108,402 107,067 106,126
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218,727 168,361 168,918

Non-controlling interest 987 1,155 1,199

Shareholders' equity:
Accumulated earnings 68,508 52,911 50,131
Accumulated distributions and dividends
declared (82,559) (67,052) (61,876)
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Retained earnings (deficit) (14,051) (14,141) (11,745)
Accumulated other comprehensive loss (5,255) (4,419) (5,072)
Share capital 156,122 156,238 156,320
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136,816 137,678 139,503
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$ 356,530 $ 307,194 $ 309,620
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Premium Brands Holdings Corporation

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

13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept 26, Sept 27, Sept 26, Sept 27,
2009 2008 2009 2008

Revenue $ 123,404 $ 123,435 $ 351,605 $ 332,628
Cost of goods sold 89,375 90,879 259,316 242,809
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Gross profit 34,029 32,556 92,289 89,819
Selling, general and
administrative expenses 20,849 20,884 61,248 58,796
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13,180 11,672 31,041 31,023
Depreciation of capital
assets 2,142 1,929 6,432 5,552
Interest and other
financing costs 1,928 1,923 4,748 5,641
Amortization of
intangible and other
assets 621 516 1,898 1,653
Amortization of financing
costs 48 52 156 145
Accretion of puttable
interest in subsidiaries - 200 - 400
Unrealized loss (gain) on
foreign currency contracts 429 (429) 884 (1,135)
Equity loss in
significantly influenced
company 132 - 377 -
Conversion costs 1,390 - 1,390 -
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Earnings before income
taxes and non-controlling
interest 6,490 7,481 15,156 18,767

Provision for (recovery
of) income taxes
Current 90 2 90 5
Future (473) - (403) 410
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(383) 2 (313) 415
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Earnings before
non-controlling interest 6,873 7,479 15,469 18,352
Non-controlling interest
- net of income taxes (3) 114 (128) 141
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Earnings for the period $ 6,876 $ 7,365 $ 15,597 $ 18,211
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Earnings per share:
Basic and diluted $ 0.39 $ 0.42 $ 0.89 $ 1.04

Weighted average shares
outstanding 17,580 17,531 17,582 17,506


Premium Brands Holdings Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept 26, Sept 27, Sept 26, Sept 27,
2009 2008 2009 2008

Cash flows from
operating activities:
Earnings before
non-controlling
interest $ 6,873 $ 7,479 $ 15,469 $ 18,352
Items not involving
cash:
Depreciation of capital
assets 2,142 1,929 6,432 5,552
Amortization of
intangible assets 620 515 1,894 1,649
Amortization of other
assets 1 1 4 4
Amortization of
financing costs 48 52 156 145
Accretion of puttable
interest - 200 - 400
Gain on sale of assets (17) (30) (5) (29)
Restricted Trust Share
Plan accrual 142 142 376 83
Long-term incentive
plan accrual 155 23 (1,406) 69
Accrued interest income (38) (15) (69) (59)
Unrealized loss (gain)
on foreign
currency contracts 429 (429) 884 (1,135)
Equity loss in
significantly
influenced company 132 - 377 -
Future income taxes (473) - (403) 410
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10,014 9,867 23,709 25,441
Change in non-cash
working capital 8,395 4,414 4,683 3,549
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18,409 14,281 28,392 28,990
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Cash flows from
financing activities:
Long-term debt - net 4,452 4,970 11,734 7,952
Bank indebtedness and
cheques outstanding (7,705) (5,459) (7,888) (3,889)
Net proceeds from
issuance of units - 1,938 - 1,938
Purchase of shares under
normal course issuer bid - (115) -
Dividends paid to
shareholders (5,168) (5,160) (15,507) (15,417)
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(8,421) (3,711) (11,776) (9,416)
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Cash flows from
investing activities:
Collection of notes
receivable 2 72 84 711
Net proceeds from sales
of assets 32 55 101 68
Capital asset additions (1,553) (2,786) (4,909) (10,090)
Business acquisitions - (7,930) (1,681) (10,960)
Conversion to
corporation (8,850) - (8,850) -
Repayment of share
purchase loans 7 23 116 255
Investment in
significantly
influenced company - - (1,379) -
Promissory note from
significantly
influenced company - - (1,240) -
Payments to shareholders
of non-wholly owned
subsidiaries (40) - (200) (100)
Other (5) 20 (5) 80
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(10,407) (10,546) (17,963) (20,036)
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Change in cash and cash
equivalents (419) 24 (1,347) (462)
Effects of exchange on
cash and cash
equivalents 28 30 54 74
Cash and cash equivalents
- beginning of period 777 674 1,679 1,116
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Cash and cash
equivalents - end of
period $ 386 $ 728 $ 386 $ 728
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RESULTS OF OPERATIONS

Revenue

(in thousands of dollars except percentages)

13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept Sept Sept Sept
26, 27, 26, 27,
2009 (1) 2008 (1) 2009 (1) 2008 (1)
Revenue by
segment:
Retail 58,310 47.3% 60,156 48.7% 163,232 46.4% 164,149 49.3%
Food-
service 65,094 52.7% 63,279 51.3% 188,373 53.6% 168,479 50.7%
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Consoli-
dated 123,404 100.0% 123,435 100.0% 351,605 100.0% 332,628 100.0%
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(1) Expressed as a percentage of consolidated revenue


Retail's revenue for the third quarter of 2009 decreased by $1.8 million or 3.1% as compared to the third quarter of 2008 primarily due to a decrease of approximately $3.2 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.

Retail's year-to-date revenue for 2009 as compared to 2008 decreased by $0.9 million or 0.6% due to a decrease in sales to convenience stores of approximately $5.7 million partially offset by $1.2 million in incremental sales resulting from business acquisitions and continued organic growth of its sales to grocery format retailers.

Foodservice's revenue for the third quarter of 2009 increased by $1.8 million or 2.9% as compared to the third quarter of 2009. Acquisitions accounted for approximately $6.2 million of the increase and organic growth of its WorldSource food brokerage business for another $1.1 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 and, to a lesser extent, lower average selling prices resulting from food cost deflation.

Foodservice's year-to-date revenue for 2009 as compared to 2008 increased by $19.9 million due to business acquisitions, which accounted for $27.7 million of the increase, and organic growth of approximately $5.2 million in its WorldSource food brokerage business. These increases were partially offset by a decrease in sales to hotels and restaurants resulting from lower consumer sales in these venues.



Gross Profit

(in thousands of dollars except percentages)

13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept Sept Sept Sept
26, 27, 26, 27,
2009 (1) 2008 (1) 2009 (1) 2008 (1)
Gross
profit by
segment:
Retail 20,404 35.0% 19,169 31.9% 54,186 33.2% 52,376 31.9%
Food-
service 13,625 20.9% 13,387 21.2% 38,103 20.2% 37,443 22.2%
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Consoli-
dated 34,029 27.6% 32,556 26.4% 92,289 26.2% 89,819 27.0%
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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 the third quarter of 2009 as compared to the third quarter of 2008 increased by 3.1 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.

Retail's year-to-date gross margin for 2009 as compared to 2008 increased by 1.3 percentage points due to a variety of factors including lower costs for a range of commodities used in the manufacturing of its products, improved production efficiencies and lower freight costs.

Foodservice's gross margin for the third quarter of 2009 as compared to the third quarter of 2008 decreased by 0.3 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 as discussed above. Excluding the impact of the WorldSource and B&C businesses, Foodservice's gross margin for the third quarter of 2009 as compared to the third quarter of 2008 was approximately 1.0 percentage points higher with the increase being due to a variety of factors including lower commodity input costs, improved product pricing and operational efficiencies.

Foodservice's year-to-date gross margin for 2009 as compared to 2008 decreased by 2.0 percentage points primarily due to changes in its sales mix as discussed above. Excluding the impact of the WorldSource and B&C businesses, Foodservice's year-to-date gross margin for 2009 as compared to 2008 was approximately 0.3 percentage points lower.



Selling, General and Administrative Expenses ("SG&A")

(in thousands of dollars except percentages)

13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept Sept Sept Sept
26, 27, 26, 27,
2009 (1) 2008 (1) 2009 (1) 2008 (1)
SG&A by
segment:
Retail 10,618 18.2% 11,423 19.0% 31,350 19.2% 31,401 19.1%
Food-
service 8,990 13.8% 8,422 13.3% 26,538 14.1% 23,792 14.1%
Corporate 1,241 1,039 3,360 3,603
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Consoli-
dated 20,849 16.9% 20,884 16.9% 61,248 17.4% 58,796 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 the third quarter of 2009 as compared to the third quarter of 2008 decreased by $0.8 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.

Retail's year-to-date SG&A for 2009 as compared to 2008 was relatively flat at $31.4 million as reduced sales commissions resulting from its lower convenience store sales and reduced freight and fuel costs resulting from a general decrease in gas and diesel prices were offset by a variety of cost increases including higher promotional spending in the grocery sales channel.

Foodservice's SG&A for the third quarter of 2009 as compared to the third quarter of 2008 increased by $0.6 million due primarily to business acquisitions partially offset by lower variable selling expenses resulting from its lower sales to hotels and restaurants.

The change in Foodservice's year-to-date SG&A for 2009 as compared to 2008 reflects the same trends that impacted its SG&A expenses for the third quarter of 2009 as compared to the third quarter of 2008.

Adjusted EBITDA

The following table provides a reconciliation of adjusted EBITDA to earnings before non-controlling interest:



(in thousands of dollars)

13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept 26, Sept 27, Sept 26, Sept 27,
2009 2008 2009 2008

Earnings before non-controlling
interest 6,873 7,479 15,469 18,352
Depreciation of capital assets 2,142 1,929 6,432 5,552
Interest and other financing costs 1,928 1,923 4,748 5,641
Amortization of intangible and other
assets 621 516 1,898 1,653
Amortization of financing costs 48 52 156 145
Accretion of puttable interest in
subsidiaries - 200 - 400
Unrealized loss (gain) on foreign
currency contracts 429 (429) 884 (1,135)
Equity loss in significantly
influenced company 132 - 377 -
Conversion costs 1,390 - 1,390 -
Income tax provision (recovery) (383) 2 (313) 415
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Adjusted EBITDA 13,180 11,672 31,041 31,023
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(in thousands of dollars except percentages)

13 weeks 13 weeks 39 weeks 39 weeks
ended ended ended ended
Sept Sept Sept Sept
26, 27, 26, 27,
2009 (1) 2008 (1) 2009 (1) 2008 (1)
Adjusted
EBITDA by
segment:
Retail 9,786 16.8% 7,746 12.9% 22,836 14.0% 20,975 12.8%
Food-
service 4,635 7.1% 4,965 7.8% 11,565 6.1% 13,651 8.1%
Corporate (1,241) (1,039) (3,360) (3,603)
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Consoli-
dated 13,180 10.7% 11,672 9.5% 31,041 8.8% 31,023 9.3%
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(1) Expressed as a percentage of the corresponding segment's revenue


The Company's adjusted EBITDA for the third quarter of 2009 as compared to the third quarter of 2008 increased by $1.5 million 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 and through its WorldSource food brokerage business;

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

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

Partially offsetting these favourable factors was the continued impact of the challenging economic environment on the Company's sales to convenience stores, restaurants and hotels.

Income Taxes

An estimate of Company's tax attributes as at the end of the third quarter of 2009 (in thousands of dollars) is as follows:



Scientific research and experimental development tax credits (1) 81,741
Un-depreciated capital costs (1) 77,775
Non-capital losses carried forward (1) 45,178
Cumulative eligible capital (1) 41,742
Investment tax credits (1) 14,729
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Total 261,165
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(1) Amount is estimated and is subject to finalization of certain aspects
of the Conversion (see Conversion to a Corporation).


As a result of the Company's tax attributes it does not expect to incur any substantial current income tax expense in the near future (see Forward Looking Statements). Correspondingly, the majority of its provision for (recovery of) income taxes relates to changes in the value of its future income tax ("FIT") assets and liabilities as shown below:



(in thousands of dollars) 39 weeks 39 weeks
ended ended
Sept 26, 2009 Sept 27, 2008

Opening FIT liability (1) (1,372) (733)
Adjustments:
Foreign currency translation adjustment (2) (406) (7)
Acquisitions impact 8,850 (371)
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Adjusted opening FIT asset (liability) 7,072 (1,111)
Closing FIT asset (liability) (1) 7,475 (1,521)
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Provision for (recovery of) FIT (403) 410
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(1) Calculated as current FIT assets plus long term FIT assets less current
deferred credits less long term FIT liabilities less long term deferred
credits at the beginning of the applicable period.
(2) Adjustment is the result of changes in the currency exchange rate used
to translate the Company's U.S. based operations, which are denominated
in U.S. dollars, into Canadian dollars.


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 Brand's internal expectations and belief as of November 9, 2009, 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; and (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 November 9, 2009 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