Premium Brands Income Fund
TSX : PBI.UN

Premium Brands Income Fund

March 27, 2008 02:00 ET

Premium Brands Income Fund Announces Record Fourth Quarter Sales and Earnings

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 27, 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 quarter and year ended December 31, 2007.

HIGHLIGHTS

- The Fund's sales for the year increased by $110.0 million or 50.8% to a record $326.4 million while its sales for the quarter increased by $48.7 million or 91.9% to a record $101.8 million.

- EBITDA for the year increased to a record $33.4 million from $22.7 million in 2006 while the Fund's EBITDA for the quarter increased to a record of $8.9 million from $4.8 million in the fourth quarter of 2006.

- Earnings for the year were a record $25.5 million or $1.46 per unit as compared to $12.8 million or $0.83 per unit in 2006. For the quarter the Fund's net earnings were a record $3.2 million or $0.18 per unit as compared to $2.8 million or $0.16 per unit for the fourth quarter of 2006.

- Distributable cash for 2007 increased by $7.8 million to a record $26.6 million or $1.52 per unit from $18.8 million or $1.21 per unit in 2006.

- The Fund's payout ratio decreased to 77.2% from 97.7% in 2006 and 100% when the Fund was created in July 2005.



SUMMARY

(In thousands of dollars
except per unit amounts) 13 weeks ended Year ended
Dec 31, Dec 31, Dec 31, Dec 31,
2007 2006 2007 2006

Sales 101,765 53,037 326,441 216,465
EBITDA 8,900 4,811 33,351 22,682
Earnings 3,172 2,757 25,488 12,836
Earnings per unit 0.18 0.16 1.46 0.83
Distributable cash 6,660 4,075 26,557 18,783
Declared cash distributions 5,129 5,129 20,514 18,357
Payout ratio 77.0% 125.9% 77.2% 97.7%


"2007 was another very successful year for Premium Brands. Not only did our legacy businesses continue to generate record growth and earnings but we were also successful in acquiring two new exceptional businesses, namely Centennial Foodservice and Stuyver's Bakestudio," said Mr. George Paleologou, President.

"Since 2001 we have been working diligently to transform Premium Brands from a struggling commodity goods manufacturer into a unique food business platform that is well positioned to capitalize on current and emerging consumer trends. Today, with a portfolio of eight leading specialty manufacturers, eight number one specialty retail brand names, and three differentiated proprietary distribution networks servicing 25,000 customers, we have achieved the first step of what we set out to do in 2001," added Mr. Paleologou.

"Looking forward, our next step is to substantially grow our footprint with the goal of becoming one of North America's predominant specialty foods companies," said Mr. Fred Knoedler, CEO. "With our unique business strategies, and the significant competitive advantages and growth opportunities they afford us, we are ideally positioned to achieve this."

RESULTS OF OPERATIONS

For the quarter ended December 31, 2007 as compared to the quarter ended December 31, 2006

Revenue for the fourth quarter of 2007 was up $48.7 million or 91.9% to $101.8 million as compared to the fourth quarter of 2006. $44.8 million of this increase was due to acquisitions and $3.9 million due to organic growth of approximately 7.2% from the Fund's other businesses.

The Fund's gross profit margin for the quarter decreased to 27.0% from 31.7% in the fourth quarter of 2006 due solely to the acquisition of Centennial, which has historically generated a gross profit margin of 16.5% to 17.0%, as compared to an average of 30% to 33% for the Fund's remaining businesses. Excluding the recently acquired Centennial and specialty bakery businesses, the gross profit margin for the Fund's remaining businesses was relatively stable at 32.5% versus 31.7% in 2006.

As a percentage of sales, selling, general and administrative expenses ("SG&A") for the quarter decreased to 18.2% from 22.6% in the fourth quarter of 2006 due primarily to the Centennial acquisition. Excluding 2007 acquisitions, SG&A as a percentage of sales for the Fund's remaining businesses was relatively stable at 22.9% as compared to 22.6% in 2006.

The Fund's EBITDA, as a percentage of sales, decreased to 8.7% for the fourth quarter of 2007 from 9.1% in the fourth quarter of 2006 due to its acquisition of Centennial, which has historically had a lower EBITDA margin as compared to the Fund's other businesses. Excluding 2007 acquisitions, EBITDA as a percentage of sales for the Fund's remaining businesses increased to 9.7% for the quarter from 9.1% in the fourth quarter of 2006.

Interest and other financing costs for the fourth quarter of 2007 increased to $1.8 million from $0.4 million in the fourth quarter of 2006 primarily due to higher debt levels resulting from the Centennial and Stuyver's acquisitions in mid-2007 and the Creekside acquisition at the end of 2006.

Amortization of intangible and other assets for the quarter increased from $0.2 million in 2006 to $1.2 million in 2007 due primarily to $0.4 million in new amortization expense relating to businesses acquired in 2007, $0.2 million in additional expense relating to the accelerated amortization of a variety of intangible assets, and a $0.4 million charge resulting from the write off of a note receivable from Tapp Technologies Inc. ("Tapp"). The note receivable from Tapp resulted from the sale of a non-core label printing business to Tapp in 2003.

The Fund recognized in the fourth quarter an unrealized loss on foreign currency contracts of $0.5 million as a result of new accounting rules which require the fair market valuation of any derivative contracts not accounted for as cash flow hedges. The unrealized loss of $0.5 million is a theoretical number representing what it would have cost the Fund, on December 31, 2007, to liquidate its U.S. dollar forward purchase contracts outstanding at that time. The Fund does not, however, intend to terminate these contracts, but rather uses them to stabilize the cost of its U.S. dollar denominated purchases and, in turn, its selling margins.

For the first three quarters of 2007 the Fund accounted for its foreign currency contracts as cash flow hedges and recorded changes in the fair value of these contracts in its consolidated statement of comprehensive earnings. During the fourth quarter, the Fund determined that these contracts no longer met the requirements necessary for hedge accounting and, as a result, recognized the unrealized loss in its consolidated statement of operations.

For the year ended December 31, 2007 as compared to the year ended December 31, 2006

The Fund's revenue for 2007 increased by 50.8% or $110.0 million to $326.4 million as compared to $216.5 million in 2006. Acquisitions accounted for $95.7 million of the increase and organic growth at a rate of 7.0% for $15.0 million of the increase. Partially offsetting these factors was a $0.8 million decrease in sales of mainstream processed meats due to the Fund's decision to exit certain lower margin product categories part way through the first quarter of 2006.

The 7% organic growth rate for 2007 was driven by a variety of factors including the continued successful implementation of its core specialty food and distribution strategies and the strength of Western Canada's economy.

The Fund's gross profit margin for 2007 decreased to 29.5% from 33.0% in 2006 due solely to the acquisition of Centennial, which has historically generated a gross profit margin of 16.5% to 17.0% as compared to an average of 30% to 33% for the Fund's remaining businesses. Excluding 2007 acquisitions, the gross profit margin for the Fund's remaining businesses was relatively stable at 33.3% versus 33.0% in 2006.

The Fund's margins can be impacted by cyclical trends in a number of commodities purchased by its manufacturing and distribution businesses. For 2007, the Fund was able to mitigate the impact of increases in the prices of certain commodities such as flour, cheese and fuel through its diversified product portfolio, which saw decreases in other commodities such as certain cuts of pork and beef, and through its ability to pass on increased costs by raising selling prices.

As a percentage of sales, SG&A for 2007 decreased to 19.2% from 22.5% in 2006 due primarily to the Centennial acquisition. Excluding 2007 acquisitions, SG&A, as a percentage of sales for the Fund's remaining businesses, was relatively stable at 22.0% versus 22.5% in 2006 with the decrease being primarily due to the Fund's higher sales relative to certain fixed SG&A costs and changes in its sales mix that resulted in lower selling commissions on a percentage of sales basis.

The Fund's EBITDA, as a percentage of sales, decreased to 10.2% for 2007 from 10.5% in 2006 due to its acquisition of Centennial, which has historically had a lower EBITDA margin as compared to the Fund's other businesses. Excluding 2007 acquisitions, EBITDA as a percentage of sales for the Fund's remaining businesses increased to 11.3% from 10.5% in 2006.

Depreciation for 2007 increased to $6.2 million from $5.6 million in 2006 primarily due to acquisitions.

Interest and other financing costs for 2007 increased to $4.9 million from $2.2 million in 2006 primarily due to the Fund's 2007 acquisitions and the Creekside Custom Foods acquisition at the end of 2006 being financed by debt.

Amortization of intangible and other assets increased from $0.5 million in 2006 to $2.0 million in 2007 due primarily to $0.3 million in new amortization expense relating to businesses acquired in 2007, $0.5 million in additional expense relating to the accelerated amortization of a variety of intangible assets, and a $0.4 million charge resulting from the write off of a note receivable from Tapp.

The Fund generated an income tax recovery in 2007 of $6.4 million due to changes in the manner in which publicly traded trusts such as the Fund will be treated for tax purposes starting on or before January 1, 2011. For 2006 the Fund had nominal tax expense due to its distributions to unitholders, which are tax deductible, exceeding its taxable income.

The Fund shut down its last discontinued operation in July 2006, and over the remainder of 2006 liquidated substantially all of the assets associated with this operation. In conjunction with the shut down, the Fund incurred a loss from discontinued operations of $1.4 million in 2006.

SUPPLEMENTAL DISCLOSURE

EBITDA and distributable cash are not terms defined under Canadian generally accepted accounting principals ("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 losses 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 from continuing operations before non-controlling interest:



--------------------------------------------------------------------------
13 weeks 13 weeks Year Year
ended ended ended ended
Dec 31, Dec 31, Dec 31, Dec 31,
(in thousands of dollars) 2007 2006 2007 2006
--------------------------------------------------------------------------

Earnings from continuing
operations before
non-controlling interest 3,282 2,818 25,895 14,446
Depreciation of capital
assets 1,623 1,501 6,164 5,559
Interest and other financing
costs 1,792 372 4,932 2,185
Amortization of intangible
and other assets 1,205 148 2,030 500
Amortization of financing
costs 92 3 97 3
Amortization of puttable
interest in subsidiaries 43 - 43 -
Unrealized losses on foreign
currency contracts 461 - 461 -
Income tax provision
(recovery) 402 (31) (6,271) (11)
--------------------------------------------------------------------------

EBITDA 8,900 4,811 33,351 22,682
--------------------------------------------------------------------------
--------------------------------------------------------------------------


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:



--------------------------------------------------------------------------
13 weeks 13 weeks Year Year
ended ended ended ended
Dec 31, Dec 31, Dec 31, Dec 31,
(in thousands of dollars) 2007 2006 2007 2006
--------------------------------------------------------------------------

Cash flows from continuing
operations 12,005 3,090 31,830 19,481
Change in non-cash working
capital (4,825) 1,363 (3,528) 1,010
Restricted Trust Unit Plan
accrual (82) - (82) -
Payments received on notes
receivable 132 69 463 432
Maintenance capital
expenditures (417) (386) (1,780) (1,887)
Non-controlling interest (110) (61) (407) (253)
Amortization of puttable
interest in subsidiaries (43) - (43) -
Unusual cash income taxes - - 104 -
--------------------------------------------------------------------------

Distributable cash 6,660 4,075 26,557 18,783
--------------------------------------------------------------------------
--------------------------------------------------------------------------



Premium Brands Income Fund

CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)

--------------------------------------------------------------------------
Dec 31, Dec 31,
2007 2006
--------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 1,116 $ 1,940
Accounts receivable 30,870 18,115
Current portion of other assets 897 766
Inventories 39,533 21,424
Prepaid expenses 1,855 1,334
Future income taxes 70 304
--------------------------------------------------------------------------
74,341 43,883

Future income taxes - 524
Capital assets 59,931 53,119
Intangible assets 41,384 7,116
Goodwill 107,716 65,040
Other assets 2,282 4,517
--------------------------------------------------------------------------

$ 285,654 $ 174,199
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Current liabilities:
Cheques outstanding $ 695 $ 756
Bank indebtedness 9,703 5,424
Distributions payable 1,710 1,710
Accounts payable and accrued liabilities 35,914 19,471
Current portion of long-term debt 148 179
--------------------------------------------------------------------------
48,170 27,540

Long-term debt 96,914 11,670
Future income taxes 453 -
Puttable interest in subsidiaries 3,575 -
--------------------------------------------------------------------------
149,082 39,210

Non-controlling interest 1,158 2,373

Unitholders' equity:
Unitholders' capital 154,382 154,382
Accumulated earnings 32,647 7,058
Accumulated distributions declared (46,459) (25,945)
Accumulated other comprehensive loss (5,156) (2,879)
--------------------------------------------------------------------------

135,414 132,616
--------------------------------------------------------------------------

$ 285,654 $ 174,199
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Premium Brands Income Fund

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

--------------------------------------------------------------------------
13 weeks 13 weeks 52 weeks 52 weeks
ended ended ended ended
Dec 31, Dec 31, Dec 31, Dec 31,
2007 2006 2007 2006
--------------------------------------------------------------------------

Revenue $ 101,765 $ 53,037 $ 326,441 $ 216,465
--------------------------------------------------------------------------

Gross profit 27,440 16,821 96,160 71,479
Selling, general and
administrative expenses 18,540 12,010 62,839 48,797
--------------------------------------------------------------------------

8,900 4,811 33,351 22,682
Depreciation of
capital assets 1,623 1,501 6,164 5,559
Interest and other
financing costs 1,792 372 4,932 2,185
Amortization of intangible
and other assets 1,205 148 2,030 500
Amortization of
financing costs 92 3 97 3
Amortization of puttable
interest in subsidiaries 43 - 43 -
Unrealized loss on foreign
currency contracts 461 - 461 -
--------------------------------------------------------------------------

3,684 2,787 19,624 14,435
Income tax provision
(recovery) 402 (31) (6,271) (11)
--------------------------------------------------------------------------

Earnings from continuing
operations before
non-controlling interest 3,282 2,818 25,895 14,446
Non-controlling interest -
net of income taxes 110 61 407 253
Loss from discontinued
operations - net of
income taxes - - - 1,357
--------------------------------------------------------------------------

Earnings $ 3,172 $ 2,757 $ 25,488 $ 12,836
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Earnings per unit from
continuing operations
after non-controlling
interest:
Basic and diluted $ 0.18 $ 0.16 $ 1.46 $ 0.91

Loss per unit from
discontinued operations:
Basic and diluted $ 0.00 $ 0.00 $ 0.00 $ (0.09)

Earnings per unit
Basic and diluted $ 0.18 $ 0.16 $ 1.46 $ 0.83

Weighted average
units outstanding 17,444 17,148 17,444 15,537


Premium Brands Income Fund

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

--------------------------------------------------------------------------
13 weeks 13 weeks 52 weeks 52 weeks
ended ended ended ended
Dec 31, Dec 31, Dec 31, Dec 31,
2007 2006 2007 2006
--------------------------------------------------------------------------

Cash flows from
operating activities:
Earnings from continuing
operations before
non-controlling
interest $ 3,282 $ 2,818 $ 25,895 $ 14,446
Items not involving cash:
Depreciation of
capital assets 1,623 1,501 6,164 5,559
Amortization of
intangible assets 590 61 1,190 245
Amortization of
other assets 610 87 840 255
Amortization of
financing costs 92 3 97 3
Amortization of puttable
interests in subsidiaries 43 - 43 -
Loss (gain) on sale
of assets 16 (17) 22 (17)
Restricted Trust Unit
Plan accrual 82 - 82 -
Accrued interest income (21) - (117) -
Unrealized loss on foreign
currency contracts 461 - 461 -
Future income taxes 402 - (6,375) -
-------------------------------------------------------------------------
7,180 4,453 28,302 20,491
Change in continuing
non-cash working capital 4,825 (1,363) 3,528 (1,010)
-------------------------------------------------------------------------
Cash flows from
continuing operations 12,005 3,090 31,830 19,481
-------------------------------------------------------------------------

Discontinued operations (33) (1,461) 23 (1,600)
-------------------------------------------------------------------------
11,972 1,629 31,853 17,881
-------------------------------------------------------------------------

Cash flows from
financing activities:
Long-term debt - net (10) (17,734) 86,860 (10,985)
Bank indebtedness and
cheques outstanding (3,005) 356 767 4,659
Financing costs - - (550) (206)
Issuance of units - net of
issuance costs - 26,572 - 26,572
Distributions paid to
unitholders (5,128) (4,889) (20,514) (18,117)
Other - (31) - (39)
-------------------------------------------------------------------------
(8,143) 4,274 66,563 1,884
-------------------------------------------------------------------------

Cash flows from
investing activities:
Collection of notes
receivable 160 (31) 463 1,051
Net proceeds from
sales of assets 36 12 44 30
Capital asset additions (3,591) (794) (7,677) (11,697)
Business acquisitions 27 (4,085) (91,840) (7,127)
Proceeds from sales of
discontinued capital
assets - 1,232 - 1,232
Purchase of units for
unit purchase loan plan - (1,500) (150) (1,500)
Repayment of unit purchase
loan plan loan 25 - 113 -
Non-controlling interest - - (218) -
Other (31) (239) 25 (269)
-------------------------------------------------------------------------
(3,374) (5,404) (99,240) (18,280)
-------------------------------------------------------------------------

Change in cash and
cash equivalents 455 499 (824) 1,485
Cash and cash equivalents -
beginning of period 661 1,441 1,940 455
--------------------------------------------------------------------------

Cash and cash equivalents -
end of period $ 1,116 $ 1,940 $ 1,116 $ 1,940
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Contact Information

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