Associated Brands Income Fund
TSX : ABF.UN

Associated Brands Income Fund

November 08, 2006 21:55 ET

Associated Brands Income Fund Announces Third Quarter 2006 Results

Revenue Growth of 9.6% for Third Quarter

TORONTO, ONTARIO--(CCNMatthews - Nov. 8, 2006) - Associated Brands Income Fund (TSX:ABF.UN) (the "Fund" or "Associated Brands") announced today its results for the three and nine months ended September 30, 2006.

The Fund delivered its fourth consecutive quarter of revenue growth in the third quarter of 2006 with case volumes and revenues rising 5.5% and 9.6% respectively compared to last year's third quarter. For the nine months ended September 30, 2006, case volumes and revenues increased by 4.0% and 4.7% respectively. Revenues in the first nine months of 2006 compared to the first nine months of 2005 were negatively impacted by the appreciation of the Canadian dollar compared to last year, reducing revenues by $1.5 million and $5.0 million in the three months and nine months ended September 30, 2006 respectively, compared to what they would have been had last year's exchange rates existed during the corresponding periods this year.

The increases in revenues in the third quarter of 2006 are attributable to new products launched in 2005, growth in case volumes, and price increases implemented in the first quarter of 2006. Customer sponsored new products introduced in 2005 added $2.9 million in revenues in the third quarter and $9.5 million for the first nine months of 2006.

"Our accelerated growth in the third quarter is a result of our customer focus and product innovation initiatives. Our strategy is to provide our customers with business building solutions and develop a portfolio of dry-blend product platforms to meet evolving customer and consumer needs. I am very pleased with our strong sales pipeline that should support future growth," commented Rob Dougans, President and Chief Executive Officer.

Gross profit for the three months ended September 30, 2006 was $5.5 million or 14% of revenue compared to last year's third quarter gross profit of $5.7 million or 16% of revenue. Cost pressures related to higher raw material, packaging, labour, energy and transportation costs continued to be experienced during the three months ended September 30, 2006. The price increases initiated in the first quarter of 2006 continued to partially offset these input cost pressures. Unfavourable manufacturing variances were experienced in the three months ended September 30, 2006, largely due to higher labour costs at the Judson and Medina dry-blend facilities. Product costs were also impacted by reduced line productivity.

"We are very disappointed with the lack of progress made on improving operating margins through in-plant cost improvement initiatives. An upgrading of manufacturing leadership is underway to improve action and accountability. Our goal is to fully capture the value of our revenue growth momentum," Mr. Dougans concluded.

Earnings before interest, taxes, depreciation and amortization and non-recurring expenses (EBITDA) in the third quarter of 2006 were $1.7 million compared to $1.9 million in the same period last year. For the first nine months of 2006, EBITDA was $4.4 million compared to $7.3 million for the same period last year. EBITDA was negatively impacted by the cost increases outlined above, partially offset by the price increases implemented in the first quarter of the year. Selling, general and administrative expenses were also higher in the nine months ended September 30, 2006 due to costs incurred with the planned recruitment of certain key positions in late 2005 and 2006 along with increased professional fees. Partially offsetting these increases was the significant reduction in costs which were incurred in the three months ended October 1, 2005 related to the nutritional and trans-fat content labeling packaging conversion.

Distributable cash in the third quarter of 2006 was a shortfall of $0.1 million or $0.01 per Fund unit compared to $1.2 million or $0.10 per Fund unit for the same period last year. For the first nine months of 2006 the Fund generated a shortfall in distributable cash of $0.2 million or $0.018 per Fund unit compared to distributable cash of $4.7 million or $0.402 per Fund unit last year. The Fund did not pay cash distributions to Unitholders through the first nine months of 2006.

As previously disclosed, the Fund entered into agreements with its bank and holders of its exchangeable debentures, effective September 30, 2006, to amend the terms and conditions governing its $43.3 million bank facilities and $11.0 million in principal amount of outstanding exchangeable debentures. Details of these agreements can be found in the Fund's Management and Discussion and Analysis for the three months ended September 30, 2006, available on the Fund's website, as well as other regulatory disclosure documents available at www.sedar.com.



Financial Highlights:
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Three months ended Nine months ended
($000, except
unit and per unit Sept. 30, Oct. 1, Sept. 30, Oct. 1,
amounts and 2006 2005 2006 2005
percentages) restated restated
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Revenues 38,912 35,504 112,704 107,680
EBITDA 1,714 1,854 4,428 7,328
Net Loss (893) (27,973) (2,569) (25,742)
Net Loss per Fund
Unit - diluted $ (0.068) $ (2.378) $ (0.196) $ (2.188)
Distributable Cash
(shortfall) (129) 1,173 (240) 4,727
Distributable Cash
(shortfall) per Fund
Unit $ (0.010) $ 0.100 $ (0.018) $ 0.402
Distributable Cash
(shortfall) per Fund
Unit-diluted $ (0.010) $ 0.090 $ (0.018) $ 0.362
Distributions Declared
per Fund Unit - $ 0.170 - $ 0.590
Weighted Average Fund
Units Outstanding 13,080,560 11,762,800 13,073,365 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 45 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.

This press release contains certain forward-looking information and statements. Forward-looking information typically contains statements with words such as "consider", "anticipate", "believe", "expect", "plan", "intend", "may", "likely" or similar words suggesting future outcomes or statements regarding an outlook for, or future changes in, the Fund's financial performance, results of operations or distributions or other expectations, future events or performance. Readers should not place undue reliance on forward-looking information and should be aware that forward looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements of the Fund to differ materially from those suggested by the forward-looking statements. These factors include, but are not limited to, the possible failure to successfully plan and execute business improvement strategies; restrictions and covenants contained in the Fund's credit agreement and under the terms of its exchangeable debentures; the absence of long term sales contracts; possible failure to develop new product offerings; operating hazards; sensitivity of sales to weather conditions; product liability; compliance with or changes in environmental, health and safety and other regulations and guidelines; changes in income tax legislation; possible declines in vertical industry markets (grocery, foodservice, industrial and contract manufacturing); competition; reliance on key personnel; possible labour action; volatility in commodity prices and other input materials; prices; foreign exchange exposure; exposure to floating interest rates; exposures under derivative financial instruments; the possible failure to expand into the United States; changes in consumer preferences; and capital expenditures.

The above list of important factors affecting forward-looking information is not exhaustive, and reference should be made to the other risks discussed in the Fund's filings with Canadian securities regulatory authorities. The Fund undertakes no obligation, except as required by law, to update publicly or otherwise any forward-looking information, whether as a result of new information, future events or otherwise, or the above list of factors affecting this information.

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, translation gains and losses arising on all monetary assets and liabilities of the Fund denominated in a foreign currency, goodwill and intangible assets write-down, non-recurring expenses and non-controlling interests. 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, unit-based compensation expense 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.

Associated Brands' Third Quarter 2006 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.

Conference Call

A telephone conference call to discuss the third quarter results will be hosted by Associated Brands' management team on Thursday, November 9, 2006 at 10:00 a.m. E.T. The telephone numbers for the conference call are (416) 849-2698 or toll free at (866) 400-2270. The telephone numbers to listen to the conference call after it is completed (Instant Replay) are local (416) 915-1035 or toll free (866) 245-6755. The passcode for the Instant Replay is 381291#. The install replay will be available until midnight, November 15, 2006. The conference call will also be archived on the Associated Brands website.

Contact Information

  • Associated Brands Income Fund
    Rob Dougans
    President and CEO
    (416) 503-7012