Premium Brands Inc.

March 16, 2005 09:00 ET

Premium Brands Inc. Announces 2004 Results, Intention to Convert to an Income Trust and Outlook for 2005


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: PREMIUM BRANDS INC.

TSX SYMBOL: FFF

MARCH 16, 2005 - 09:00 ET

Premium Brands Inc. Announces 2004 Results, Intention
to Convert to an Income Trust and Outlook for 2005

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - March 16, 2005) - Premium
Brands Inc. (TSX:FFF)

Highlights

- Sales from continuing operations for the quarter increased by 16.4% to
$47.6 million. For the year, the Company's sales from continuing
operations were up 13.3% to $182.4 million.

- Earnings from continuing operations before non-cash investment write
downs and income taxes were $0.9 million for the quarter and $4.6
million for the year. The comparable numbers for 2003 were $0.4 million
and $3.3 million respectively.

- The net loss for the fourth quarter was $2.39 per share versus a net
loss of $0.08 per share in 2003 due to a $1.67 per share non-cash charge
relating to the write down of two investments and a net loss from
discontinued operations of $0.77 per share.

- The Company's announces that it is now at the end of its three year
restructuring plan, which included the disposition of its non-core
commodity businesses, a substantial reduction in its debt levels and a
reallocation of capital to its specialty foods businesses. The Company
further announced that as part of its efforts to unlock the shareholder
value created from this restructuring, it has appointed a special
committee to oversee its conversion into a new publicly traded income
fund.

- Looking forward the Company is projecting 2005 EBITDA (earnings before
interest, taxes, depreciation and amortization) of $17 million to $18
million and capital maintenance expenditures of $1.0 million to $1.5
million. The Company's projected EBITDA is based on its 2004 EBITDA
before non-cash investment write downs of $14.7 million adjusted for
acquisitions, new capacity and new sales initiatives.



Summary Financial Information

(in thousands of dollars) For the 52 Weeks Ended
Dec 25, Dec 27, Dec 28,
2004 2003 2002

Sales from continuing operating
companies (1) 182,366 158,918 151,161
EBITDA from continuing
operating companies (2) (1) 17,891 16,225 16,149
Earnings from continuing
operating companies (3) 4,642 3,108 2,964
Net loss (23,582) (949) (5,570)
Assets of continuing operations 144,001 153,407 171,486
Funded debt (4) 43,646 66,425 73,210

(1) Amounts exclude sales of the Company's label printing business
which was sold in April 2003.
(2) Amounts exclude corporate costs, investment write downs and
EBITDA of the Company's label printing business, which was sold
in April 2003
(3) Amounts exclude investment write downs, transactional items,
taxes and earnings of the Company's label printing business,
which was sold in April 2003.
(4) Defined as total bank indebtedness plus total long term debt.


Premium Brands Inc. (TSX:FFF) a leading producer and marketer of
specialty branded consumer food products announced today its fourth
quarter and year to date results for the 13 week and 52 week periods
ended December 25, 2004.

The Company's sales from continuing operations for the fourth quarter
increased by $6.7 million or 16.4% to $47.6 million due to the
acquisition of Hygaard Fine Foods and to the continued success of the
Company's direct-to-store, meat snack and foodservice initiatives.
Hygaard accounted for approximately $3.1 million of the growth. For the
year, Premium Brands sales from continuing operations were up 13.3% to
$182.4 million.

Gross profit for the quarter increased to $14.3 million from $12.7
million in 2003 as a result of the Company's higher sales levels. As a
percentage of sales, gross profit fell to 30.0% from 31.0% in 2003 due
to sharply higher commodity input prices offset partially by improved
plant efficiencies and favorable product mix changes. For the year, the
same trend applied with the Company's gross profit margin at 30.7%
versus 31.8% in 2003.

Selling, general and administrative ("SG&A") expenses for the fourth
quarter were $10.7 million versus $9.6 million in 2003. The increase was
due solely to higher sales levels. As a percentage of sales, SG&A costs
decreased to 22.5% from 23.4% due to the Company's relatively fixed
administrative costs.

On a year to date basis SG&A costs, as a percentage of sales, were 22.6%
versus 22.3% in the prior year. The increase was due to $1.0 million in
incremental leasing costs in 2004 resulting from the sale and leaseback
of its direct-to-store fleet in the fourth quarter of 2003, and
approximately $1.4 million in incremental interest and unusual gains in
2003.

Earnings from continuing operations before non-cash investment write
downs and income taxes increased to $0.9 million for the quarter versus
$0.4 million in 2003. The increase was due to a combination of improved
operating earnings and lower interest costs resulting from reduced debt
levels. For the year, earnings from continuing operations before
non-cash investment write downs and income taxes were $4.6 million in
2004 as compared to $3.3 million in 2003.

The Company incurred a net loss from continuing operations for the
quarter of $16.9 million or $1.62 per share due to a non-cash $17.5
million write down of the Company's investments in Tapp Technologies
Inc. and Community Pork Ventures Inc. The write downs were part of the
Company's restructuring process that has raised $165 million in proceeds
from the sale of non-core businesses and redundant assets and paid down
almost $100 million in funded debt.

The Company's discontinued operations include its Vancouver, B.C. and
Algona, WA mainstream processed meat operations as well as its Goodlife
Foods business. The mainstream processed meat operations were sold in
October 2004 and have accordingly been classified as discontinued
operations. The Goodlife Foods business was classified as a discontinued
operation when Premium Brands began seeking strategic alternatives for
this business in November 2004.

The loss from discontinued operations increased to $8.1 million for the
quarter as compared to $1.0 million in 2003 due to a $6.6 million
non-cash write down of certain Goodlife Foods assets and wind up costs
associated with the sale of the mainstream processed meat operations.
For the year, the loss from discontinued operations was $9.0 million
versus a loss of $2.9 million in 2003.

The non-cash write down of the Company's Tapp and Community Pork
investments, combined with a loss from discontinued operations was
partially offset by a profit from the Company's remaining operations
resulting in a net loss for the quarter of $25.0 million or $2.39 per
share versus a loss of $0.9 million or $0.08 per share in 2003. On a
year to date basis, the Company posted a net loss of $23.6 million or
$2.26 per share versus $0.9 million or $0.09 per share in 2003.

For additional details on the Company's 2003 results please refer to its
2003 consolidated financial statements and MD&A as filed at
www.sedar.com.

Income Trust Conversion

Premium Brands also announced today that it is now at the end of its
three year restructuring plan, which included the disposition of its
non-core commodity businesses, a substantial reduction in its debt
levels and a reallocation of capital to its specialty foods businesses.
The Company further announced that as part of its efforts to unlock the
shareholder value created from this restructuring, it has appointed a
special committee to oversee a proposed conversion into a new publicly
traded income fund ("the Proposal"). The Company's current mandate is to
complete this process by the end of June 2005.

If the contemplated trust conversion is approved by Premium Brands'
shareholders, each Premium Brands shareholder will receive units of an
income fund in exchange for his or her shares of Premium Brands. The
Proposal is subject to regulatory, board and shareholder approvals.

"In the last three years we have raised proceeds of $165 million from
the sale of non core cyclical businesses and redundant assets and have
reduced our funded debt by almost $100 million. At the same time our
projected EBITDA from our stable and growing specialty branded
businesses has doubled to the $17 million to $18 million range as we
have re-positioned the Company towards higher and more consistent margin
generating operations," stated Mr. George Paleologou, President.

"Overall we are very pleased with the results of our restructuring
efforts and are confident that Premium Brands is now very well
positioned for the income trust market. Our remaining operating
businesses, which combine leading specialty brands with efficient
operating platforms and proprietary distribution initiatives, have
demonstrated the consistent free cash flow performance necessary to be a
successful income trust over the long term," added Mr. Paleologou.

"Our excellent growth prospects, both through acquisition and internal
initiatives, combined with the high consistent margins of our operating
businesses make us an excellent candidate for the income trust market,"
said Mr. Fred Knoedler, Chairman and CEO.

2005 Annual Guidance

The Company is projecting sales of $200 million to $210 million and
EBITDA (earnings before interest, taxes, depreciation and amortization)
of $17 million to $18 million for 2005. This is based on 2004's EBITDA
of $14.7 million normalized for the following factors:

- A full year of operations from its recently acquired Hygaard Fine
Foods operation.

- New meat snack capacity at the Company's expanded Yorkton, SK plant,
which came on line at the end of 2004.

- The Company's projected sales growth based on a variety of new product
and geographical expansion initiatives, including its continued
expansion into Central Canada.

The Company anticipates $1.0 million to $1.5 million in capital
maintenance expenditures in 2005.

"Despite extremely challenging industry conditions including two
outbreaks of BSE and the impact of record high raw material costs,
Premium Brands has successfully re-positioned its assets, reduced its
debt levels and established its remaining businesses as leaders in their
respective industry segments," stated Mr. Knoedler.

Premium Brands has been engaged in the food processing business since
1917 and has manufacturing facilities in British Columbia, Alberta,
Saskatchewan, Manitoba and Oregon.



CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)

--------------------------------------------------------------------
Dec 25, Dec 27,
2004 2003
--------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 124 $ 187
Accounts receivable 15,483 13,617
Notes receivable 2,893 3,965
Inventories 10,834 9,280
Prepaid expenses 1,955 1,139
Future income taxes 3,000 3,936
Current assets of discontinued
operations 2,993 17,226
--------------------------------------------------------------------
37,282 49,350
--------------------------------------------------------------------
Notes receivable 1,336 1,893
Future income taxes 12,085 11,401
Investments 832 18,244
Capital assets 45,705 43,064
Goodwill 44,370 37,761
Intangible assets 5,384 8,920
Non-current assets of discontinued
operations 8,521 34,126
--------------------------------------------------------------------
$ 155,515 $ 204,759
--------------------------------------------------------------------
--------------------------------------------------------------------

Current liabilities:
Bank indebtedness $ 8,787 $ 12,719
Accounts payable and accrued
liabilities 18,139 16,001
Current portion of long-term debt 4,606 7,861
Current liabilities of discontinued
operations 1,794 10,437
--------------------------------------------------------------------
33,326 47,018
--------------------------------------------------------------------

Long-term debt 30,253 35,492
Other - 555
Non-current liabilities of discontinued
operations - 5,182
--------------------------------------------------------------------

63,579 88,247

Non-controlling interest 235 642

Shareholders' equity 91,701 115,870
--------------------------------------------------------------------

$ 155,515 $ 204,759
--------------------------------------------------------------------
--------------------------------------------------------------------


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 25, Dec 27, Dec 25, Dec 27,
2004 2003 2004 2003
--------------------------------------------------------------------

Sales $ 47,584 $ 40,866 $182,366 $160,938
--------------------------------------------------------------------

Gross profit 14,286 12,668 55,942 51,150
Selling, general and
administrative 10,727 9,573 41,214 35,864
--------------------------------------------------------------------

Earnings before undernoted
items 3,559 3,095 14,728 15,286
Depreciation 1,467 1,322 5,166 5,851
--------------------------------------------------------------------
2,092 1,773 9,562 9,435

Interest 765 993 3,022 4,281
Amortization of intangible
assets 463 345 1,849 1,322
Non-controlling interest 1 79 49 308
Equity in loss of associated
companies - - - 250
--------------------------------------------------------------------

863 356 4,642 3,274
Write down of investments 17,450 - 17,450 -
--------------------------------------------------------------------

Earnings (loss) from continuing
operations before
income taxes (16,587) 356 (12,808) 3,274
Income tax expense 316 170 1,782 1,341
--------------------------------------------------------------------

Earnings (loss) from
continuing operations (16,903) 186 (14,590) 1,933
Loss from discontinued
operations, net of taxes (8,053) (1,040) (8,992) (2,882)
--------------------------------------------------------------------

Net loss (24,956) (854) (23,582) (949)
--------------------------------------------------------------------
--------------------------------------------------------------------

Earnings (loss) per share from
continuing operations:
Basic and diluted $ (1.62) $ 0.02 $ (1.40) $ 0.19

Loss per share from discontinued
operations:
Basic and diluted $ (0.77) $ (0.10) $ (0.86) $ (0.28)

Net loss per share:
Basic and diluted $ (2.39) $ (0.08) $ (2.26) $ (0.09)

Weighted average shares
outstanding 10,430 10,406 10,430 10,381
--------------------------------------------------------------------
--------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

--------------------------------------------------------------------
13 weeks 13 weeks 52 weeks 52 weeks
ended ended ended ended
Dec 25, Dec 27, Dec 25, Dec 27,
2004 2003 2004 2003
--------------------------------------------------------------------

Cash provided by (used for)
operations:
Earnings (loss) from
continuing operations $(16,903) $ 186 $(14,590) $ 1,933
Items not involving cash:
Depreciation 1,467 1,322 5,166 5,851
Amortization of intangible
assets 463 345 1,849 1,322
Non-controlling interest 1 79 49 308
Stock based compensation 10 - 10 -
Equity in loss of associated
companies - - - 250
Gain on sale of assets (5) (53) (603) (40)
Write down of investments 17,450 - 17,450 -
Gain on sale of subsidiary - (79) - (788)
Future income taxes 306 54 1,682 992
--------------------------------------------------------------------
2,789 1,854 11,013 9,828

Discontinued operations:
Discontinued operations
(net of tax) (8,053) (1,040) (8,992) (2,882)
Gain on sale of assets (672) - (672) -
Items not involving cash 7,088 188 9,243 2,317
Changes in assets and
liabilities (10,766) (442) (14,224) (2,549)
Changes in non-cash operating
assets and liabilities (4,362) 577 (4,482) (6,371)
--------------------------------------------------------------------

(13,976) 1,137 (8,114) 343
--------------------------------------------------------------------

Cash provided by (used for)
financing:
Repayment of long-term debt (6,220) (7,012) (21,783) (9,067)
Proceeds from long-term debt - 2,525 13,300 2,525
Bank indebtedness (1,655) 928 (3,932) 1,438
Notes 31 2,632 3,940 3,660
Share price adjustment - (50) - (2,165)
Other (225) (737) (1,128) (708)
--------------------------------------------------------------------
(8,069) (1,714) (9,603) (4,317)
--------------------------------------------------------------------

Cash provided by (used for)
investments:
Proceeds from the sale of
assets 23,060 2,686 31,662 5,888
Capital asset additions (1,385) (2,085) (6,133) (5,361)
Business acquisitions (21) - (7,838) -
Other (37) (194) (37) (221)
--------------------------------------------------------------------
21,617 407 17,654 306
--------------------------------------------------------------------

Change in cash and cash
equivalents (428) (170) (63) (3,668)
Cash and cash equivalents,
beginning of period 552 357 187 3,855
--------------------------------------------------------------------

Cash and cash equivalents,
end of period $ 124 $ 187 $ 124 $ 187
--------------------------------------------------------------------
--------------------------------------------------------------------



-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Premium Brands Inc.
    George Paleologou
    President
    (604) 656-3100
    or
    Premium Brands Inc.
    Will Kalutycz
    CFO
    (604) 656-3100