Associated Brands Income Fund
TSX : ABF.UN

Associated Brands Income Fund

August 11, 2005 16:25 ET

Associated Brands Announces Second Quarter 2005 Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 11, 2005) - Associated Brands Income Fund (TSX:ABF.UN) announced today its results for the three and six months ended July 2, 2005.

Reported sales in the second quarter of 2005 were $36.2 million compared to $38.9 million in the prior year. For the six months ended July 2, 2005, sales were $72.2 million compared to $78.6 million in the prior year. The decline was due primarily to lower contract manufacturing business in the United States and increased competition from branded products in the Canadian marketplace. The appreciation of the Canadian dollar compared to the U.S. dollar reduced reported sales by $1.7 million in the second quarter and $3.1 million through the first six months of the year compared to the same periods in 2004.

"Business conditions in the second quarter remained challenging compared to last year," commented Rob Dougans, President and Chief Executive Officer. "Our goals remain the same - to grow revenue, increase margins, enhance cash flow and improve overall operating effectiveness. We are not satisfied with our Q2 results."

Mr. Dougans continued: "Looking forward, sales and marketing initiatives have resulted in an improved sales pipeline and the securing of a number of new product listings with our customers. Current and anticipated new product launches should result in revenue growth going forward."

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter were $2.8 million compared to $4.1 million last year. EBITDA for the six months ended July 2, 2005 was $5.5 million compared to $8.3 million last year. EBITDA in the second quarter of 2005 was impacted primarily by lower sales and higher manufacturing, packaging and transportation costs compared to last year's second quarter. As a percentage of sales, gross profit was 18.1% of sales in the second quarter of 2005, an improvement over the 16.9% earned in the first quarter of the year, but down from the 20.6% of sales earned in the second quarter of 2004. Gross profit was 17.5% of sales through the first six months of 2005 compared to 20.5% in the same period last year. Net earnings were $1.2 million or $0.095 per unit (diluted) in the second quarter of 2005 compared to $2.3 million or $0.175 per unit (diluted) in the second quarter of last year. For the first six months of 2005 net earnings were $2.2 million or $0.171 per unit (diluted) compared to $4.6 million or $0.355 per unit (diluted) in the same period last year.

"The increase in gross profit percentage compared to the first quarter of the year reflects improving manufacturing efficiencies, sourcing and procurement activities, as well as selected selling price increases in our Canadian markets. Distribution costs continue to be above targeted standards due to the business mix, changing customer order patterns, and fuel surcharges. This trend should moderate going forward through the outsourcing of certain U.S. logistics requirements which commenced in July," Mr. Dougans added.

"Our recent sales and marketing initiatives, combined with our ongoing efforts to enhance productivity and plant efficiency, should generate improved performance through the balance of the year," commented John Currie, Executive Chairman.

Distributable cash in the second quarter of 2005 was $1.9 million or $0.157 per Fund unit compared to $3.0 million or $0.254 per Fund unit in the second quarter of last year. Distributions in the second quarter were $0.210 per unit compared to $0.269 per unit last year. For the first six months of 2005 distributable cash was $3.6 million or $0.302 per Fund unit compared to $5.9 million or $0.504 per Fund unit last year. For the first six months of 2005, distributions were $0.420 per unit compared to $0.538 per unit in the same period last year.


As a result of disappointing operating results and cash flows in the second quarter, the Fund is close to reaching the maximum allowable limits under certain covenants in its current credit agreement. Management is currently in discussions regarding a proposed private placement of debt, exchangeable debentures or equity and, if the placement is completed, will use the proceeds to repay a portion of its credit facilities and to finance certain accretive capital projects that management believes will increase distributable cash over the next two years.

Financial Highlights (financial statements attached):



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Three months ended Six months ended
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($000, except unit and
per unit amounts and July 2, July 3, July 2, July 3,
percentages) 2005 2004 2005 2004

Sales 36,217 38,866 72,176 78,644
EBITDA 2,758 4,070 5,474 8,299
Net Earnings 1,235 2,286 2,231 4,637
Net Earnings per Unit
(diluted) $0.095 $0.175 $0.171 $0.355
Distributable Cash 1,853 2,985 3,554 5,923
Distributable Cash per
Fund Unit $0.157 $0.254 $0.302 $0.504
Distributions Declared
per Fund Unit $0.210 $0.269 $0.420 $0.538
Weighted Average Fund
Units Outstanding 11,762,800 11,762,800 11,762,800 11,762,800
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Associated Brands Income Fund (TSX: ABF.UN), through its operating subsidiaries, is a leading North American manufacturer and supplier of private-label dry blend food products and household products. Since beginning operations in 1985, Associated Brands has grown to become one of the three largest suppliers of a diverse range of private-label dry-blend food products in North America, producing over eleven million cases annually across multiple product categories currently sold to 44 of the 50 largest North American food retailers. Associated Brands plans to build unitholder value by leveraging its solid presence in the U.S. private-label market, expanding its product offerings to current and new customers and adding additional contract manufacturing business, and through accretive acquisitions that meet its strict operating and strategic criteria. More information can be obtained at www.associatedbrands.com.

Certain statements in this press release may include "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of Associated Brands Income Fund to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this press release, such statements use such words as "may", "will", "expect", "anticipate", "project", "believe", "plan", and other similar terminology. The risks and uncertainties are detailed from time to time in reports filed by the Fund with the securities regulatory authorities in all of the provinces and territories of Canada. New risk factors may arise from time to time and it is not possible for management to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance and achievements of the Fund to be materially different from those contained in forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Except as outlined below, financial information is in accordance with Canadian generally accepted accounting principles ("GAAP").

As used herein, "EBITDA" means earnings before interest, income taxes, depreciation, amortization, and translation gains and losses arising on all monetary assets and liabilities of the Fund denominated in a foreign currency. EBITDA is not a recognized measure under GAAP. Management believes that EBITDA is a useful supplemental measure to net earnings (loss), as it provides investors with an indication of cash available for distribution prior to debt service, capital expenditures and income taxes.

Distributable cash is also not a defined term under GAAP. Distributable cash is equal to net earnings before amortization, future income taxes and translation gains and losses arising from all monetary assets and liabilities of the Fund denominated in a foreign currency, less capital expenditures and debt repayments and reserves that the trustees may consider appropriate. Management believes distributable cash is a useful supplemental measure of operating performance, as it provides investors with an indication of cash available for distribution.

Investors should be cautioned that neither EBITDA nor distributable cash should be construed as an alternative to net earnings (loss) determined in accordance with GAAP as an indicator of the Fund's performance or to cash flows from operating, investing and financing activities as a measure of liquidity and cash flows. The Fund's method of calculating EBITDA and distributable cash may differ from the methods by which other issuers calculate EBITDA and distributable cash and, accordingly, EBITDA and distributable cash may not be comparable to measures used by other issuers.



The following is a summarized version of the Consolidated Financial
Statements
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Associated Brands Income Fund
Consolidated Statement of Earnings and Deficit
(Unaudited)
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For the 13 For the 13 For the 26 For the 26
weeks ended weeks ended weeks ended weeks ended
July 2, 2005 July 3, 2004 July 2, 2005 July 3, 2004

Sales $36,216,925 $38,885,976 $72,176,013 $78,643,813

Cost of sales 29,649,528 30,874,131 59,525,323 62,495,763
------------- ------------ ------------ ------------
6,567,397 8,011,845 12,650,690 16,148,050
------------- ------------ ------------ ------------
Expenses
General and
administrative 2,179,142 2,432,971 4,292,080 4,732,404
Selling and
marketing 1,634,020 1,501,321 2,886,758 3,031,873
Amortization 867,679 903,944 1,740,978 1,803,967
------------- ------------ ------------ ------------
4,680,841 4,838,236 8,919,816 9,568,244
------------- ------------ ------------ ------------


Interest
expense 518,309 488,953 1,079,828 931,127
------------- ------------ ------------ ------------
Earnings before
income taxes 1,368,247 2,684,656 2,651,046 5,648,679

Income taxes 133,604 398,258 420,101 1,011,739
------------- ------------ ------------ ------------
Net earnings $1,234,643 $2,286,398 $2,230,945 $4,636,940
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------

Net earnings
per Fund unit
Basic $0.11 $0.19 $0.19 $0.39
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Diluted $0.09 $0.17 $0.17 $0.35
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------


Deficit,
beginning of
period $(10,692,013) $(5,628,060) $(9,218,127) $(4,816,761)

Net earnings 1,234,643 2,286,398 2,230,945 4,636,940
Distributions
declared to
Fund
unitholders (2,470,188) (3,161,841) (4,940,376) (6,323,682)
Distributions
declared on
Class B
exchangeable
units - - - -
------------- ------------ ------------ ------------

Deficit, end of
period $(11,927,558) $(6,503,503)$(11,927,558) $(6,503,503)
------------- ------------ ------------ ------------
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Associated Brands Income Fund
Consolidated Balance Sheet
(Unaudited)
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Assets July 2, December 31,
2005 2004
Current
Receivables $10,845,309 $12,644,937
Income taxes receivable - 99,596
Inventories 22,497,383 22,406,391
Prepaids 1,279,072 1,389,197
Future income taxes 329,065 251,968
-------------- --------------
34,950,829 36,792,089

Property, plant and equipment 22,301,854 23,723,222
Trademarks 15,315,000 15,315,000
Goodwill 84,263,592 84,263,592
Other assets 327,404 443,240
Future income taxes 500,774 339,946
-------------- --------------

$157,659,453 $160,877,089
-------------- --------------
-------------- --------------

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Liabilities
Current
Bank indebtedness $3,401,401 $7,238,681
Payables and accruals 12,949,193 9,947,126
Cash distributions payable 823,396 823,396
Payable to former owners 2,302,137 2,302,137
Income taxes payable 141,212 -
-------------- --------------
19,617,339 20,311,340
-------------- --------------

Long-term debt 29,729,676 29,543,880
-------------- --------------

Non-controlling interest 12,023,908 12,023,908
-------------- --------------

Unitholders' Equity
Fund units 108,216,088 108,216,088
Deficit (11,927,558) (9,218,127)
-------------- --------------
96,288,530 98,997,961
-------------- --------------

$157,659,453 $160,877,089
-------------- --------------
-------------- --------------


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Associated Brands Income Fund
Consolidated Statement of Cash Flows
(Unaudited)
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Increase For the 13 For the 13 For the 26 For the 26
(decrease) in weeks ended weeks ended weeks ended weeks ended
cash and cash July 2, 2005 July 3, 2004 July 2, 2005 July 3, 2004
equivalents

Operating
Net earnings $1,234,643 $2,286,398 $2,230,945 $4,636,940
Amortization 867,679 903,944 1,740,978 1,803,967
Future income
taxes (181,995) (72,244) (237,925) (142,060)
Translation
loss on
long-term debt 81,782 23,400 185,796 70,200
Change in
non-cash
operating
working capital 406,527 (105,540) 5,061,636 (1,476,758)
------------ ------------ ------------ ------------
2,408,636 3,035,958 8,981,430 4,892,289
------------ ------------ ------------ ------------

Financing
Proceeds/
(repayment)
of bank
Indebtedness 145,305 255,683 (3,837,280) 1,727,953
Payment of
distributions
to Unitholders (2,470,188) (3,161,841) (4,940,376) (6,323,682)
------------ ------------ ------------ ------------
(2,324,883) (2,906,158) (8,777,656) (4,595,729)
------------ ------------ ------------ ------------

Investing
Purchase of
property, plant
and Equipment (70,338) (124,469) (181,314) (290,390)
Purchase of
Other assets (13,415) (5,331) (22,460) (6,170)
------------ ------------ ------------ ------------
(83,753) (129,800) (203,774) (296,560)
------------ ------------ ------------ ------------

Net decrease in
cash and cash
equivalents - - - -

Cash and cash
equivalents,
beginning of year - - - -
------------ ------------ ------------ ------------

Cash and cash
equivalents, end
of year $ - $ - $ - $ -
------------ ------------ ------------ ------------
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Associated Brands' Second Quarter 2005 Consolidated Financial Statements and Management's Discussion and Analysis are available on the investor relations page at www.associatedbrands.com and on SEDAR at www.sedar.com.

Contact Information

  • Associated Brands Income Fund
    John Currie
    Executive Chairman
    (416) 503-7001