Canada Bread Reports Results for the Fourth Quarter and Year End 2011

TSX: CBY

TORONTO, Feb. 28, 2012 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the fourth quarter ended December 31, 2011.  Fourth quarter highlights include:

  • Adjusted Operating Earnings(1) for the year were $109.8 million compared to $111.5 million last year
  • For the fourth quarter, Adjusted Operating Earnings declined 4% to $26.2 million
  • Adjusted EPS(2) for the year was $3.43 (2010: $2.90) and $0.67 (2010: $0.62) for the fourth quarter
  • Net earnings for the quarter declined 36% to $7.8 million, including $12.2 million in pre-tax restructuring and other related costs associated with plant closures and manufacturing optimization initiatives

"We maintained consistent earnings for the year despite a surge in wheat prices," said Richard Lan, President and CEO. "Our fourth quarter results declined due to incremental costs resulting from changes in our manufacturing network, and continued exposure to high input costs in our frozen bakery business. Our focus in 2012 is to continue with the execution of our value creation initiatives which will contribute to margin growth, and to manage higher input costs through pricing"

(1): Adjusted Operating Earnings are defined as earnings from operations before restructuring and other related costs and other income (expense).

(2): Adjusted Earnings per Share ("Adjusted EPS") are defined as basic earnings per share adjusted for the impact of restructuring and other related costs, net of tax.

Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.

Financial Overview

Sales for the fourth quarter increased 2% to $400.3 million compared to $393.1 million last year. After adjusting for the sale of the Company's fresh sandwich product line in February 2011 and currency translation on sales in the U.S. and U.K., sales increased 4%, primarily due to price increases implemented earlier in 2011. This increase was slightly offset by a change in sales mix and lower sales volumes.

Adjusted Operating Earnings for the fourth quarter were $26.2 million compared to $27.4 million in the prior year. Price increases implemented earlier in 2011 were not sufficient to fully offset higher raw material costs and overall inflation in the Frozen Bakery business.  Earnings were also impacted by duplicative overhead costs related to the Company's new fresh bakery in Hamilton, Ontario and some impacts due to supply chain disruptions related to the SAP implementation in the fresh bakery operations in Western Canada. These additional costs were partly offset by efficiency gains from network optimization initiatives in the Frozen Bakery business and overall lower selling, general and administrative expenses due to cost reduction initiatives implemented earlier in 2011.

Adjusted Operating Earnings for the year were $109.8 million compared to $111.5 million last year.  Adjusted Earnings per Share for the fourth quarter were $0.67 compared to $0.62 last year and $3.43 for 2011 compared to $2.90 for 2010.

Business Segment Review

The following table summarizes sales by business segment:

                           
        Fourth Quarter
(Unaudited)
    Year-to-Date
(Audited)
($ thousands)       2011     2010     2011     2010
Fresh Bakery       $261,963     $261,876     $1,087,335     $1,086,827
Frozen Bakery       138,317     131,203     508,121     501,610
Total Sales       $400,280     $393,079     $1,595,456     $1,588,437
                           

The following table summarized Adjusted Operating Earnings by business segment:

                           
              Fourth Quarter
(Unaudited)
    Year-to-Date
    (Audited)
($ thousands)       2011     2010     2011     2010
Fresh Bakery       $19,463     $20,864     $99,857     $100,180
Frozen Bakery       6,738     6,566     9,934     11,362
Adjusted Operating Earnings       $26,201     $27,430     $109,791     $111,542
                           

Fresh Bakery

Includes fresh bakery products, including breads, rolls, bagels, sweet goods, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's® and Olivieri® and many leading regional brands.

Fresh Bakery sales for the fourth quarter of $262.0 million were consistent with $261.9 million last year. After adjusting for the sale of the Company's fresh sandwich product line in February 2011, sales increased 4%, primarily due to price increases implemented earlier in 2011. This was partially offset by lower volumes.

Adjusted Operating Earnings were $19.5 million compared to $20.9 million last year. During the quarter, price increases implemented in the first half of 2011 offset higher wheat costs; however, margins were compressed due to approximately $4.0 million of duplicative overhead costs associated with the transition to the Company's new bakery in Hamilton, Ontario, and by approximately $2.5 million in costs due to supply chain disruptions related to the installation of SAP in the fresh bakery operations in Western Canada. These additional costs were partly mitigated by cost reduction initiatives and lower promotional expenses.  The sale of the fresh sandwich product line in February 2011 was accretive to earnings.

For the quarter, the Company continued to operate three small bakeries in the Greater Toronto Area as it gradually consolidates production at its new fresh bakery in Hamilton, Ontario. During this period the Company is incurring incremental overhead costs, which will be eliminated once all three bakeries are closed. Two of these plants were closed in the first quarter of 2012, and the remaining bakery is expected to close in early 2013.  The duplicative costs are consistent with management's expectations.

The incremental costs related to the SAP implementation primarily affected the fourth quarter as they were specific to disruptions related to installation of the system in Western Canada, and are not expected to affect 2012 earnings in any material amount.

As previously announced, during the fourth quarter of 2011, the Fresh Bakery business also decommissioned and transferred production from its Delta, B.C., plant, to its other bakeries in Langley, B.C. and Edmonton, Alberta.

Adjusted Operating Earnings were $99.9 million for the full year compared to $100.2 million in 2010.

Frozen Bakery

Includes frozen bakery products, including frozen par-baked bakery products, specialty and artisan breads, and bagels sold to retail, foodservice and convenience channels in North America and the U.K. It includes national brands such as Tenderflake® and New York Bakery CoTM.

Frozen Bakery sales for the fourth quarter increased by 5% to $138.3 million from $131.2 million in 2010. Higher sales resulted from price increases implemented earlier in 2011 and increased sales volumes in the U.K. business driven by the successful re-launch of the  New York Bakery bagels, combined with increased seasonal sales of other product lines. Sales in the North American frozen bakery business were slightly lower than last year.

Adjusted Operating Earnings in Frozen Bakery for the fourth quarter were consistent at $6.7 million compared to $6.6 million last year, with improved results in the U.K. largely offset by lower earnings North America. Price increases implemented during the first half of the year offset higher raw material costs in the U.K. but did not fully mitigate the impact in North America.  Management intends to implement further price increases commencing in early 2012 to address this shortfall. Cost reductions in selling, general and administrative expenses and operational efficiency gains resulting from the prior closure of a frozen bakery in Quebec, and the consolidation of production in the U.K., helped mitigate the remaining impact of higher raw material costs.

During the quarter the Company decided that it will close its bakery in Walsall, U.K. in early 2012 as part of the transition to optimize the manufacturing of morning goods and specialty bakery products and expects to incur approximately $12.7 million in pre-tax restructuring and other related costs, $6.8 million of which will be cash expenses.

Adjusted Operating Earnings were $9.9 million for the full year of 2011 compared to $11.4 million in 2010.

Other Matters

On February 27, 2012 Canada Bread Company, Limited declared a dividend of $0.20 per share payable on April 2, 2012 to shareholders of record at the close of business on March 12, 2012.  Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, this dividend will be considered an Eligible Dividend for the purposes of the "Enhanced Dividend Tax Credit System".

Reconciliation of Non-IFRS Financial Measures

The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.

Adjusted Operating Earnings

The following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited earnings for the three month periods ended as indicated below.  Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results during the period.

                           
(Unaudited)       Three months ended December 31, 2011

($ thousands)
      Fresh
Bakery
    Frozen
Bakery
    Unallocated
Costs
   
Consolidated
Net earnings                       $   7,757
Income taxes                         6,152
Earnings from operations before income taxes                       $ 13,909
Interest expense                         180
Earnings from operations before interest                           
and income taxes     $   17,160   $   (3,071)   $   -   $   14,089
Other (income) expense       (57)     7     -     (50)
Restructuring and other related costs       2,360     9,802     -     12,162
Adjusted Operating Earnings     $   19,463   $ 6,738   $   -   $   26,201

 

                           
(Unaudited)       Three months ended December 31, 2010

($ thousands)
      Fresh
Bakery
    Frozen
Bakery
    Unallocated
Costs
   
Consolidated
Net earnings                       $   13,841
Income taxes                         4,837
Earnings from operations before income taxes                       $   18,678
Interest expense                         212
Earnings from operations before interest                           
and income taxes     $   19,586   $    5,180   $   (5,876)   $   18,890
Other (income) expense       137     -     5,876     6,013
Restructuring and other related costs       1,141     1,386     -     2,527
Adjusted Operating Earnings     $   20,864   $   6,566   $ -   $   27,430
                           

Adjusted Earnings per Share

The following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under IFRS as indicated below.  Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs are not representative of operational results.

                         
      Three months ended
December 31,
(Unaudited)
    Year ended
December 31,
(Audited)
($ per share)     2011     2010     2011     2010
Basic earnings per share     $  0.31     $  0.54     $  2.04     $  2.44
Restructuring and other related costs(i)     0.37     0.08     1.39     0.46
Adjusted Earnings per Share (ii)     $  0.67     $  0.62     $  3.43     $  2.90
(i) Includes per share impact of restructuring and other related costs, net of tax.
(ii) May not add due to rounding.
   

Forward-Looking Statements

This document contains, and the Company's oral and written public communications often contain, "forward-looking information" within the meaning of applicable securities laws.  These statements are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to objectives and goals, as well as statements with respect to beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Specific forward-looking information in this document includes, but is not limited to, statements concerning expectations regarding actions to reduce costs and improve efficiencies, restore volumes and/or increase prices, timing of promotional investment, improving business trends, expected duplicative overhead costs incurred due to the concurrent operation of the new Hamilton fresh bakery and existing bakeries, expectations regarding the timing and amount of capital investments; expectations regarding the timing and cost of plant closures; the expected use of cash balances, source of funds for ongoing business requirements, capital investments and debt repayment, and expectations regarding sufficiency of the allowance for uncollectible accounts. Words such as "expect", "anticipate", "intend", "attempt", "may", "will", "plan", "believe", "seek", "estimate", and variations of such words and similar expressions are intended to identify such forward-looking information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict.

In particular, these statements are based on a variety of factors and assumptions that are discussed throughout this document. In addition, expectations concerning the performance of the Company's business in general are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, U.S. and U.K. economies; the rate of exchange of the Canadian dollar to the U.S. dollar and British pound; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign governments and the general assumption that none of the risks identified below or elsewhere will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward-looking information, which reflect the Company's expectations only as of the date hereof.

Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted in such forward-looking information are discussed in more detail under the heading "Risk Factors" in the Company's Management's Discussion and Analysis for the year ended December 31, 2011 and are updated each quarter in the Management's Discussion and Analysis, which are available on SEDAR at www.sedar.com. The reader should review such sections in detail. The Company does not intend to, and the Company disclaims any obligation to, update any forward-looking information, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law.

Additional information concerning the Company, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com.

Canada Bread Company Limited, which is 90% owned by Maple Leaf Foods Inc. (TSX:MFI), is a leading manufacturer and distributor of fresh bakery products, frozen par-baked products and fresh pasta and sauces. The Company had 2011 sales of $1.6 billion and employs approximately 6,000 people at its operations across North America and in the United Kingdom.



Consolidated Financial Statements
(Expressed in Canadian dollars)


CANADA BREAD COMPANY, LIMITED


Three and twelve months ended December 31, 2011 and 2010




CANADA BREAD COMPANY, LIMITED
Consolidated Balance Sheets
(In thousands of Canadian dollars)

             
                                      As at
December 31,
2011
    As at
December 31,
2010
    As at
January 1,
2010
                                       
ASSETS                    
                               
Current assets                        
  Cash and cash equivalents     $   59,223   $ 84,401   $ 57,698
  Accounts receivable       56,522     48,264     130,807
  Notes receivable        45,847     37,639     -
  Inventories         60,048     55,477     56,659
  Income and other taxes recoverable       2,162     -     -
  Prepaid expenses and other assets       5,218     4,516     4,438
              $   229,020   $   230,297   $   249,602
                             
  Property and equipment       425,944     387,603     383,024
  Investment property       8,415     3,743     3,959
  Other long-term assets       4,456     3,857     3,203
  Deferred tax asset       17,917     9,543     5,887
  Goodwill         266,013     264,276     267,729
  Intangible assets       12,710     13,626     16,678
  Total assets       $   964,475   $   912,945   $   930,082
                       
LIABILITIES AND SHAREHOLDERS' EQUITY                    
                             
Current liabilities                    
  Bank indebtedness     $   3,153   $   7,777   $   4,247
  Accounts payable and accruals       185,811     171,742     238,071
  Provisions         23,066     13,068     3,919
  Due to Maple Leaf Foods Inc.       2,451     5,336     3,817
  Dividends payable       5,083     1,525     1,525
  Income and other taxes payable       -     3,248     13,155
  Current portion of long-term debt       2,452     2,332     -
              $   222,016   $   205,028   $   264,734
                         
  Long-term debt       1,634     1,629     2,547
  Deferred tax liability       21,784     24,408     28,283
  Employee benefits       50,434     36,645     27,421
  Provisions         5,005     6,240     6,797
  Total liabilities      $   300,873   $   273,950   $   329,782
                       
Shareholders' equity                    
Share capital       $   142,965   $   142,965   $   142,965
Retained earnings       530,852     510,126     462,969
Accumulated other comprehensive loss       (10,215)     (14,096)     (5,634)
Total shareholders' equity     $   663,602   $   638,995   $   600,300
Total liabilities and shareholders' equity     $   964,475   $   912,945   $   930,082

 


CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)

                           
 


Three months ended
December 31,



Twelve months ended
December 31,
        2011     2010     2011     2010
        (Unaudited)     (Unaudited)            
                           
Sales     $   400,280   $ 393,079   $   1,595,456   $    1,588,437
                           
Cost of goods sold       328,043     306,828     1,284,432     1,255,218
                           
Gross margin     $   72,237   $ 86,251   $   311,024   $   333,219
                           
Selling, general and administrative expenses       46,036     58,821     201,233     221,677
                           
Earnings before the following:     $   26,201   $ 27,430   $ 109,791   $   111,542
Restructuring and other related costs       (12,162)     (2,527)     (46,357)     (15,548)
Other income (expense)       50     (6,013)     414     (5,819)
                           
Earnings before interest and income taxes       $ 14,089   $ 18,890   $ 63,848   $   90,175
Interest expense        180     212     1,052     2,891
                           
Earnings before income taxes       $ 13,909   $   18,678   $   62,796   $ 87,284
Income taxes       6,152     4,837     10,845     25,212
                           
Net earnings       $ 7,757   $ 13,841   $ 51,951   $   62,072
                           
Earnings per share attributable to common shareholders
Basic and diluted earnings per share
   
$
 
0.31
 
$

0.54
 
$

2.04
 
$

2.44
                           
Weighted average number of shares (millions)       25.4     25.4     25.4     25.4

 


CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Comprehensive Income
(In thousands of Canadian dollars)

                           
                        Three months ended         Twelve months ended
                        December 31,           December 31,
                  2011     2010     2011     2010
                  (Unaudited)     (Unaudited)            
Net earnings             $  7,757    $   13,841   $    51,951    $    62,072
                                     
Other comprehensive income (loss)                               
  Change in accumulated foreign currency                            
     translation adjustment       (5,247)     (5,501)     3,307     (14,050)  
  Change in unrealized gains and losses                             
     on cash flow hedges       (473)     3,932     574     5,588  
  Change in actuarial gains and losses         (948)     (8,815)     (14,448)     (8,815)
                $   (6,668)   $   (10,384)   $    (10,567)   $    (17,277)
                                     
Comprehensive income            $ 1,089   $   3,457   $    41,384    $    44,795

 


CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Changes in Shareholders' Equity
(In thousands of Canadian dollars)

                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Share
capital







Retained
earnings
Total
accumulated
other
comprehensive
loss






Total
shareholders'
equity
                         
Balance at January 1, 2011    $   142,965    $  510,126  $   (14,096)    $    638,995
                         
  Net earnings       -   51,951 -   51,951
  Other comprehensive income (loss)   -   (14,448) 3,881   (10,567)
  Dividends declared ($0.66 per share)   -   (16,777) -   (16,777)
Balance at December 31, 2011    $   142,965    $  530,852  $   (10,215)    $   663,602
                         
                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Share
capital
 



 


Retained
earnings
Total
accumulated
other
comprehensive
loss
 



 

Total
shareholders'
equity
                         
Balance at January 1, 2010    $  142,965   $   462,969  $     (5,634)    $    600,300
                         
  Net earnings       -   62,072 -   62,072
  Other comprehensive loss   -   (8,815) (8,462)   (17,277)
  Dividends declared ($0.24 per share)   -   (6,100) -   (6,100)
Balance at December 31, 2010    $  142,965    $   510,126  $   (14,096)    $    638,995

 


CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)

                             
 
 
 
 
 
 
 
 
 
 



 
 

  Three months ended
December 31,
   
  Twelve months ended
December 31,
                  2011   2010 2011   2010
                  (Unaudited)   (Unaudited)      
CASH PROVIDED BY (USED IN):                
                             
Operating activities                    
  Net earnings           $      7,757    $    13,841  $     51,951    $      62,072
  Add (deduct) items not affecting cash:              
    Depreciation and amortization     12,793   12,254 47,839   50,476
    Deferred income taxes         (6,003)   881 (6,295)   (5,249)
    Income tax current         11,818   5,060 17,140   30,461
    Interest expense         180   212 1,052   2,891
    Loss (gain) on sale of property and               
      equipment           (36)   235 232   126
    Change in provision for restructuring and             
      other related costs         7,952   1,468 32,232   11,561
  Net income taxes paid         1,684   (14,346) (20,203)   (39,944)
  Interest paid           45   241 (750)   (776)
  Other           (2,074)   4,025 (1,817)   4,886
  Change in non-cash operating                   
    working capital         14,605   (29,715) (18,287)   (25,602)
Cash provided by (used in) operating activities  $    48,721    $    (5,844)  $   103,094    $      90,902
                             
Financing activities                    
  Dividends paid           $    (5,085)    $   (1,526)  $   (16,777)    $     (6,100)
  Net increase in long-term debt       -   1,430 -   2,000
Cash used in financing activities       $    (5,085)    $        (96)  $   (16,777)    $     (4,100)
                             
Investing activities                    
  Additions to long-term assets       $  (23,802)    $ (18,707)  $ (112,517)    $   (66,595)
  Capitalization of interest expense to              
    long-term assets         -   (260) (119)   (418)
  Proceeds from sale of long-term assets   536   2,374 5,830   3,114
  Change in intangible assets       (31)   254 (65)   254
  Other           -   12 -   16
Cash used in investing activities        $  (23,297)    $ (16,327)  $ (106,871)    $   (63,629)
                             
Increase (decrease) in cash and               
  cash equivalents          $    20,339    $ (22,267)  $   (20,554)    $     23,173
Net cash and cash equivalents,                   
  beginning of period         35,731   98,891 76,624   53,451
Net cash and cash equivalents, end of period  $    56,070    $   76,624  $     56,070    $     76,624
                             
Net cash and cash equivalents is comprised of:          
Cash and cash equivalents          $   59,223    $   84,401  $     59,223    $    84,401
Bank indebtedness         (3,153)   (7,777) (3,153)   (7,777)
Net cash and cash equivalents, end of period  $   56,070    $   76,624  $     56,070    $    76,624

 

CANADA BREAD COMPANY, LIMITED
Segmented Financial Information
(In thousands of Canadian dollars)

                   
          Three months ended
December 31,
  Twelve months ended
December 31,
        2011   2010 2011   2010
        (Unaudited)   (Unaudited)      
Sales                  
  Fresh Bakery    $  261,963    $    261,876  $ 1,087,335    $  1,086,827
  Frozen Bakery   138,317   131,203 508,121   501,610
         $  400,280    $    393,079  $ 1,595,456    $  1,588,437
                   
                   
Earnings before restructuring and
 other related costs and other income
           
   Fresh Bakery    $    19,463    $     20,864  $      99,857    $    100,180
   Frozen Bakery   6,738   6,566 9,934   11,362
         $    26,201    $     27,430  $    109,791    $    111,542
                   
Capital expenditures                  
  Fresh Bakery    $    20,793    $    14,571  $      95,788    $      47,880
  Frozen Bakery   3,009   4,136 16,729   18,715
         $    23,802  $    18,707  $    112,517    $      66,595
                   
Depreciation and amortization                  
  Fresh Bakery    $      7,584    $      6,547  $      27,029    $     27,183
  Frozen Bakery   5,209   5,707 20,810   23,293
         $    12,793    $    12,254  $      47,839    $     50,476
                   
                     
              As at As at   As at
              December 31,   December 31,   January 1,
              2011 2010   2010
                     
Total assets                
  Fresh Bakery            $    516,485  $    438,362    $   460,125
  Frozen Bakery           368,534 371,825   408,229
  Non-allocated assets           79,456 102,758   61,728
               $    964,475  $    912,945    $   930,082
Goodwill                
  Fresh Bakery            $    125,892  $    125,892    $   124,827
  Frozen Bakery           140,121 138,384   142,902
               $    266,013  $    264,276    $   267,729

 

 

 

 

SOURCE Canada Bread Company, Limited

For further information:

Investor Contact: Nick Boland,
VP Investor Relations: 416-926-2005
Media Contact: 416-926-2020

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Canada Bread Company, Limited

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