Premium Brands Income Fund
TSX : PBI.UN

Premium Brands Income Fund

August 06, 2008 05:00 ET

Premium Brands Income Fund Announces Record Second Quarter Sales and Earnings

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 6, 2008) - Premium Brands Income Fund (TSX:PBI.UN), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the second quarter of 2008.

HIGHLIGHTS

- The Fund's revenue for the quarter increased by $51.1 million or 80.3% to a record $114.8 million.

- EBITDA for the quarter increased to a record $12.3 million from $8.3 million in the second quarter of 2007. Excluding $0.5 million in one time costs associated with the start up of a new meat snack facility in Langley, B.C. and the consolidation of the certain fresh sandwich and pastry operations into a new 27,000 square foot facility in Delta, B.C., the Fund's EBITDA for the quarter was $12.8 million.

- On a rolling four quarter basis the Fund generated revenue of $419.6 million and EBITDA of $39.8 million. Excluding one time plant start up and transition costs of $1.0 million, the Fund's rolling four quarters EBITDA was $40.8 million.

- Earnings for the quarter before income taxes were $7.8 million or $0.44 per unit as compared to $6.0 million or $0.35 per unit in the second quarter of 2007.

- Distributable cash for the rolling four quarters ended June 28, 2008 increased to a record $30.1 million or $1.724 per unit as compared to the Fund's current annual cash distribution of $1.176 per unit.

- The Fund's rolling four quarters payout ratio decreased to 68.2% from 73.3% at the end of the first quarter of 2008 and 77.2% for the four quarters ended December 31, 2007.

- During the quarter the Fund completed the acquisition of Noble House Distributors, a direct-to-store distributor operating in Northern Alberta with a fleet of seven trucks and who is a distributor for the Fund's Direct Plus direct-to-store distribution network.

- Also during the quarter the Fund completed the acquisition of the B.C. operations of Mrs. Willman's Baking, a baked goods manufacturer, which will provide the Fund with much needed fresh sandwich and pastry production capacity.

"Looking ahead we are encouraged by the number of acquisition and organic growth opportunities that are being presented to us in each of the market segments we compete. These opportunities, combined with our proven track record, will ensure that the strong momentum that we have generated over the last four years continues for the balance of 2008 and beyond," said Mr. George Paleologou, President and CEO.



SUMMARY

(In thousands of dollars 13 weeks ended 26 weeks ended
except per unit amounts) Jun 28, Jun 30, Jun 28, Jun 30,
2008 2007 2008 2007

Revenue 114,844 63,699 209,193 116,042
EBITDA 12,945 12,310 8,348 19,351
Earnings before income taxes 7,760 6,045 11,185 8,393
Earnings per unit before
income taxes 0.48 0.44 0.35 0.64
Earnings 7,409 12,695 10,682 15,068
Earnings per unit 0.42 0.73 0.61 0.86


Rolling 4 quarters ended
Jun 28, Mar 29, Dec 31,
2008 2008 2007

Distributable cash 30,079 27,989 26,557
Distributable cash per unit 1.724 1.605 1.522
Declared cash distributions 20,514 20,514 20,514
Declared cash distributions per unit 1.176 1.176 1.176
Payout ratio 68.2% 73.3% 77.2%


"Our results for the quarter represent the thirteenth of the last fourteen quarters that we have achieved record sales and operating earnings with the one quarter exception being the fourth quarter of 2006 when there was unusually difficult weather conditions across all of western Canada," said Mr. Paleologou.

"We also continued the trend of growing our distributable cash per unit on a rolling four quarter basis achieving a record $1.724 per unit, which compares to $1.522 per unit at the end of 2007 and $1.176 per unit when we first converted to an income trust in July 2005.

"We are particularly pleased that our strong performance has occurred during what has been one of the most challenging operating environments for food companies in recent times. Sharply rising commodity input costs, changing consumer and regulatory demands, tight labour markets, and record high energy costs have significantly impacted the bottom lines of most North American food companies. We have, however, been able to prosper by focusing on our two core business strategies, namely:

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

- Investing in differentiated food distribution networks that complement our specialty food businesses and diversify our customer base.

"Looking forward, we see significant opportunities to continue to grow our business, both through organic initiatives as well as business acquisitions."

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, 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 include Grimm's, Harvest, McSweeney's, Bread Garden, Hygaard, Hempler's, Quality Fresh Foods, Gloria's Fresh, Harlan's and Centennial Foodservice.



Premium Brands Income Fund

CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)

--------------------------------------------------------------------------
Jun 28, Dec 31, Jun 30,
2008 2008 2007
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Current assets:
Cash and cash equivalents $ 674 $ 1,116 $ 891
Accounts receivable 36,486 30,870 21,908
Current portion of other assets 297 897 724
Inventories 41,231 39,533 25,294
Prepaid expenses 3,028 1,855 1,596
Future income taxes 73 70 304
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81,789 74,341 50,717

Future income taxes - - 7,299
Capital assets 65,229 59,931 51,549
Goodwill 109,237 107,716 64,870
Intangible assets 40,328 41,384 6,502
Other assets 2,158 2,282 3,130
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$ 298,741 $ 285,654 $ 184,067
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Current liabilities:
Cheques outstanding $ 779 $ 695 $ 1,500
Bank indebtedness 11,189 9,703 4,858
Distributions payable 1,710 1,710 1,710
Accounts payable and accrued liabilities 42,307 35,914 27,041
Current portion of long-term debt 155 148 158
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56,140 48,170 35,267

Puttable interest in subsidiaries 3,774 3,575 -
Future income taxes 919 423 -
Long-term debt 101,018 96,914 10,929
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161,851 149,082 46,196

Non-controlling interest 1,085 1,158 2,330

Unitholders' equity:
Unitholders' capital 154,382 154,382 154,382
Accumulated earnings 43,179 32,647 21,429
Accumulated distributions declared (56,716) (46,459) (36,203)
Accumulated other comprehensive loss (5,040) (5,156) (4,067)
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135,805 135,414 135,541
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$ 298,741 $ 285,654 $ 184,067
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands except per unit amounts)

--------------------------------------------------------------------------
13 weeks 13 weeks 26 weeks 26 weeks
ended ended ended ended
Jun 28, Jun 30, Jun 28, Jun 30,
2008 2007 2008 2007
--------------------------------------------------------------------------

Revenue $114,844 $ 63,699 $209,193 $116,042
Cost of goods sold 82,611 41,834 151,930 77,463
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Gross profit 32,233 21,865 57,263 38,579
Selling, general and
administrative expenses 19,923 13,517 37,912 25,634
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12,310 8,348 19,351 12,945
Depreciation of
capital assets 1,876 1,430 3,623 2,879
Interest and other
financing costs 1,850 543 3,718 980
Amortization of intangible
and other assets 683 267 1,211 518
Amortization of
financing costs 47 - 93 -
Amortization of puttable
interest in subsidiaries 150 - 200 -
Unrealized gain on foreign
currency contracts (31) - (706) -
--------------------------------------------------------------------------

Earnings before
income taxes and
non-controlling interest 7,735 6,108 11,212 8,568

Provision for (recovery
of) income taxes
Current 3 104 3 104
Future 348 (6,754) 500 (6,779)
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351 (6,650) 503 (6,675)
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Earnings before
non-controlling interest 7,384 12,758 10,709 15,243
Non-controlling interest -
net of income taxes (25) 63 27 175
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Earnings for the period $ 7,409 $ 12,695 $ 10,682 $ 15,068
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Earnings per unit
Basic and diluted $ 0.42 $ 0.73 $ 0.61 $ 0.86

Weighted average units
outstanding 17,444 17,444 17,444 17,444


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

--------------------------------------------------------------------------
13 weeks 13 weeks 26 weeks 26 weeks
ended ended ended ended
Jun 28, Jun 30, Jun 28, Jun 30,
2008 2007 2008 2007
--------------------------------------------------------------------------

Cash flows from operating
activities:
Earnings before
non-controlling interest $ 7,384 $ 12,758 $ 10,709 $ 15,243
Items not involving cash:
Depreciation of
capital assets 1,876 1,430 3,623 2,879
Amortization of
intangible assets 644 164 1,134 338
Amortization of
other assets 39 103 77 180
Amortization of
financing costs 47 - 93 -
Amortization of
puttable interest
in subsidiaries 150 - 200 -
(Gain) loss on sale
of assets (2) (4) 1 (4)
Restricted Trust Unit
Plan accrual (141) - (59) -
Accrued interest income (32) (60) (44) (102)
Unrealized gain on
foreign currency contracts (31) - (706) -
Future income taxes 348 (6,754) 500 (6,779)
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10,282 7,637 15,528 11,755
Change in non-cash
working capital (1,836) (1,593) (775) (879)
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8,446 6,044 14,753 10,876
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Cash flows from
financing activities:
Long-term debt - net 2,995 (107) 2,982 (110)
Bank indebtedness and
cheques outstanding (169) (245) 1,570 178
Distributions paid
to unitholders (5,128) (5,129) (10,257) (10,258)
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(2,302) (5,481) (5,705) (10,190)
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Cash flows from
investing activities:
Collection of notes
receivable 214 239 639 316
Net proceeds from
sales of assets 10 7 13 7
Capital asset additions (3,652) (1,019) (7,304) (2,046)
Business acquisitions (3,030) - (3,030) -
Repayment of unit
purchase loan plan loan 206 39 232 63
Non-controlling interest (100) (218) (100) (218)
Other 60 59 60 143
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(6,292) (893) (9,490) (1,735)
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Decrease in cash and
cash equivalents (148) (330) (442) (1,049)
Cash and cash equivalents -
beginning of period 822 1,221 1,116 1,940
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Cash and cash equivalents -
end of period $ 674 $ 891 $ 674 $ 891
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RESULTS OF OPERATIONS

Revenue for the second quarter of 2008 increased by 80.3% or $51.1 million to $114.8 million as compared to $63.7 million in the second quarter of 2007. Business acquisitions accounted for $47.4 million of the increase and organic growth at a rate of 5.2% for the balance.

The Fund's organic growth was driven primarily by product price increases as its sales volumes were negatively impacted by poor weather conditions across Western Canada for much of the quarter. The poor weather resulted in reduced consumer outdoor activities and, in turn, reduced demand for many of the Fund's products. The Fund's sales growth rate was, to a lesser extent, also impacted by high fuel prices which are translating into less driving and lower discretionary spending by consumers at gas station retail outlets through which the Fund sells its products.

Gross profit as a percentage of revenue ("gross profit margin") for the quarter decreased to 28.1% from 34.3% in the second quarter of 2007 due primarily to the acquisition of Centennial Foodservice in July 2007 as Centennial has historically generated a gross profit margin of 16.5% to 17.0% versus an average of 30% to 33% for the Fund's remaining businesses. Excluding the impact of businesses acquired in the last half of 2007, the Fund's second quarter 2008 gross profit margin for its remaining or legacy businesses was 33.9% as compared to 34.3% in the second quarter of 2007.

The slight decrease in the legacy business' gross profit margin was due primarily to $0.2 million in start up costs at the Fund's new meat snack facility in Langley, B.C., and approximately $0.3 million in costs associated with the consolidation of its B.C. based fresh sandwich and pastry operations into a new 27,000 square foot facility. Both of these projects are now substantially complete and, in addition to providing much needed incremental capacity, are expected to generate operating efficiencies through improved production line designs.

As a percentage of revenue, selling, general and administrative expenses ("SG&A") for the second quarter of 2008 decreased to 17.3% from 21.2% in the second quarter of 2007 due to the Centennial acquisition. Excluding acquisitions made in the last half of 2007, SG&A as a percentage of revenue for the Fund's legacy businesses was 21.3%.

The Fund's EBITDA for the quarter increased by $4.0 million or 47.5% to $12.3 million from $8.3 million in the second quarter of 2007. Excluding $0.5 million in one time costs incurred in the quarter, the Fund's EBITDA was $12.8 million representing an increase of $4.5 million or 53.4% from the comparable 2007 quarter.

Depreciation for the quarter increased to $1.9 million from $1.4 million in the second quarter of 2007 due to acquisitions made in the last half of 2007.

Interest and other financing costs for the quarter increased to $1.9 million from $0.5 million in the second quarter of 2007 due primarily to acquisitions made in the last half of 2007 being financed by debt.

Amortization of intangibles, other assets and financing costs as a total increased from $0.3 million in the second quarter of 2007 to $0.7 million in the second quarter of 2008 due to the amortization of costs associated with acquisitions made in the last half of 2007.

During the quarter the Fund recognized amortization of puttable interest in subsidiaries of $0.2 million. This amount represents the accrued value on options held by third parties that entitle them to require the Fund to purchase their interest in non-wholly owned subsidiaries of the Fund.

Income taxes expense for the quarter was $0.4 million as compared to a recovery of $6.7 million in the second quarter of 2007. The 2008 second quarter expense related to changes in the estimated value of the Fund's future income tax assets and liabilities. The large gain in the second quarter of 2007 was due to changes made in 2007 to the manner in which publicly traded trusts such as the Fund will be treated for tax purposes starting on or before January 1, 2011.

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 earnings before interest, taxes, depreciation, amortization and unrealized gain (loss) on foreign currency contracts ("EBITDA") is a useful indicator of the amount of cash generated by the Fund's operating businesses prior to financing and income tax related costs. The following table provides a reconciliation of EBITDA to net earnings before non-controlling interest:



--------------------------------------------------------------------------
(in thousands of dollars) 13 weeks 13 weeks 26 weeks 26 weeks
ended ended ended ended
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
--------------------------------------------------------------------------

Earnings before
non-controlling interest 7,384 12,758 10,709 15,243
Depreciation of capital
assets 1,876 1,430 3,623 2,879
Interest and other
financing costs 1,850 543 3,718 980
Amortization of intangible
and other assets 683 267 1,211 518
Amortization of financing
costs 47 - 93 -
Amortization of
puttable interest in
subsidiaries 150 - 200 -
Unrealized gain on foreign
currency contracts (31) - (706) -
Income tax provision
(recovery) 351 (6,650) 503 (6,675)
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EBITDA 12,310 8,348 19,351 12,945
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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) Year 26 weeks 26 weeks
ended ended ended Rolling
Dec 31, June 28, June 30, four
2007 2008 2007 quarters
--------------------------------------------------------------------------

Cash flows from operations 31,830 14,753 10,876 35,707
Change in non-cash
working capital (3,528) 775 879 (3,632)
Restricted Trust Unit
Plan accrual (82) 59 - (23)
Collection of notes
receivable 463 639 281 821
Maintenance capital
expenditures (1,780) (1,395) (883) (2,292)
Amortization of
puttable interest
in subsidiaries (43) (200) - (243)
Non-controlling interest (407) (27) (175) (259)
Unusual cash income taxes 104 - 104 -
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Distributable cash 26,557 14,604 11,082 30,079
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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:



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(in thousands of dollars) June 28, 2008 Dec 31, 2007
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Cheques outstanding 779 695
Bank indebtedness 11,189 9,703
Current portion of long-term debt 155 148
Deferred financing costs 554 641
Long-term debt 101,018 96,914
--------------------------------------------------------------------------
113,695 108,101
Less cash and cash equivalents 674 1,116
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Net funded debt 113,021 106,985
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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 Canadian income tax laws; (iii) changes in the cost of raw materials used for the Fund's products; (iv) changes in the cost of products sourced from third party manufacturers and sold through the Fund's proprietary distribution networks; (v) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (vi) changes in consumer preferences for food products; (vii) competition from other food manufacturers and distributors; (viii) new government regulations affecting the Fund's business and operations; and (ix) other factors as discussed in the Fund's Annual Information Form, which is filed electronically through the System for Electronic Document Analysis and Retrieval ("SEDAR") and available online at www.sedar.com.

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

Contact Information

  • Premium Brands Income Fund
    George Paleologou
    President and CEO
    (604) 656-3100
    or
    Premium Brands Income Fund
    Will Kalutycz
    CFO
    (604) 656-3100
    Website: www.premiumbrandsincomefund.com