Canada Bread Reports Second Quarter Results



    Commodity Prices Pressure Earnings; Improvements Expected in 2nd Half '08

    TORONTO, July 24 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today
announced its financial results for the second quarter ended June 30, 2008.

    
    -   Adjusted earnings per share of $0.30 compared to $0.84 last year, as
        high wheat and fuel costs outpaced price increases

    -   Stabilization of commodity markets and pricing expected to improve
        earnings in the second half of 2008

        Note: Adjusted earnings per share measures are defined as earnings
        per share before restructuring and other related costs.
    

    "High commodity prices continued to have a significant impact on our
margins and financial results," said Richard Lan, President and CEO. "We
believe these effects, while material, are short-term with improvements to
come in the second half of the year as markets stabilize and we continue to
pass on costs by way of price increases to offset the effects of commodity
inflation."

    Financial Overview
    ------------------
    Sales for the second quarter increased 16.4% to $437.4 million compared
to the same period last year due to higher selling prices and contributions
from acquisitions. Excluding acquisitions, sales increased by 8.9% compared to
last year.
    Earnings from operations before restructuring and other related costs
("Adjusted Operating Earnings") were $12.4 million for the second quarter
compared to $34.0 million last year. High wheat, fuel and other input costs
compressed margins as price increases implemented earlier in the year were not
sufficient to cover these rapid cost increases. Management anticipates that a
decrease in wheat prices from new crops, due to be harvested in August, and
improved supplies will lower costs toward the end of the year and restore
margins. As the rest of the year progresses, any further inflationary
increases, such as energy, or unanticipated increases in the cost of wheat
will be managed by further price increases.
    Net earnings before restructuring and other related costs for the quarter
were $7.5 million ($0.30 per share), compared to $21.2 million ($0.84 per
share) last year. Year-to-date earnings per share, on a comparable basis, were
$0.81 compared to $1.60 last year.
    Following is a summary of net earnings and earnings per share ("EPS")
before restructuring and other related costs ("Adjusted EPS"):

    
    ($ millions)           Second Quarter                 Year-to-Date
                    ---------------------------------------------------------
                      2008      2007    Change      2008      2007    Change
                      ----      ----    ------      ----      ----    ------
    Net Earnings      $6.5     $21.2    (69.2%)    $18.7     $39.1    (52.1%)

    Restructuring
     and other
     related costs,
     net of tax        1.0         -         -       1.9       1.5     26.9%
                    ---------------------------------------------------------
    Net earnings
     before
     restructuring
     and other
     related costs(i) $7.5     $21.2    (64.5%)    $20.7     $40.6    (49.2%)
                    ---------------------------------------------------------
                    ---------------------------------------------------------
    Adjusted EPS(i)  $0.30     $0.84    (64.5%)    $0.81     $1.60    (49.2%)
                    ---------------------------------------------------------

    (i) These are not recognized measures under Canadian GAAP. Management
        believes that this is the most appropriate basis on which to evaluate
        results, as restructuring and other related costs are not
        representative of continuing operations.


    Business Segment Review
    -----------------------
    The following table summarizes Adjusted Operating Earnings by business
segment:

    ($ millions)           Second Quarter                 Year-to-Date
                    ---------------------------------------------------------
                      2008      2007    Change      2008      2007    Change
                      ----      ----    ------      ----      ----    ------
    Fresh Bakery      12.5      25.8    (51.7%)     25.1      47.8    (47.4%)
    Frozen Bakery     (0.1)      8.2   (100.7%)      6.8      16.2    (58.0%)
                    ---------------------------------------------------------
                      12.4      34.0    (63.5%)     31.9      64.0    (50.1%)
                    ---------------------------------------------------------
                    ---------------------------------------------------------

    Fresh Bakery (Fresh bakery products, specialty baked goods and hand-held
    ------------  snacks, and fresh pasta and sauces)
    

    Fresh Bakery sales for the second quarter increased by 17.8% to
$287.6 million compared to $244.2 million last year, largely due to price
increases and contributions from acquisitions, partly offset by reduced
volumes. Excluding acquisitions, sales increased by 11.5% compared to last
year.
    Adjusted Operating Earnings for the quarter were $12.5 million compared
to $25.8 million last year. This decline was driven by margin compression as
price increases for fresh bread and pasta were not enough to cover the
increase in wheat and other commodity costs. In addition, costs related to
marketing and innovation were higher than last year by 33.6%. During the
quarter, the Company launched its Smart 100% Whole Grain Wheat bread
nationally and also launched Smart snack cakes in Eastern Canada.

    
    Frozen Bakery (North American and U.K. frozen bakery products; including
    -------------  frozen par-baked and specialty bakery products)
    

    Frozen Bakery sales increased by 13.8% to $149.8 million from
$131.6 million last year. This was a result of increased prices and
contributions from acquisitions, partly offset by translation difference
related to the weaker U.S. dollar. Excluding acquisitions, sales increased by
4.0% compared to last year.
    Adjusted Operating Earnings for the quarter were a loss of $0.1 million
compared to earnings of $8.2 million last year as a result of lower earnings
in the North American frozen bakery operations, driven by wheat and other
inflationary cost increases, including energy, that were not fully offset by
price increases. These effects were partly offset by cost reductions related
to operational and sales mix improvements. Earnings in the U.K. operations
continue to track ahead of last year, benefiting from the contribution of
acquisitions in new product categories. Bagel growth rates were slower in the
first half of the year as production was curtailed in the Company's U.K. bagel
plant due to an oven fire. Growth rates are expected to improve in the second
half of the year as production rates and advertising and promotion activities
will be restored in July 2008.
    The North American frozen bakery operations are implementing changes to
increase capacity utilization and improve margins. This includes the closure
of a bagel facility in Toronto and the transfer of production to other
regional plants. An expansion at the Company's Roanoke Virginia plant is also
expected to be commissioned through the second half of 2008, improving product
costs and reducing freight and distribution costs to supply regional
customers.

    Other Matters
    -------------
    On July 23, 2008, Canada Bread Company, Limited declared a dividend of
$0.06 per share payable on October 1, 2008 to shareholders of record on
September 8, 2008. Unless indicated otherwise, by the corporation, in writing
at or before the time the dividend is paid, each dividend paid by the
corporation in 2008 or a subsequent year is an eligible dividend for the
purposes of the "Enhanced Dividend Tax Credit System".

    Forward-Looking Statements
    --------------------------
    This document contains, and the Company's oral and written public
communications often contain, forward-looking statements that 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 our objectives and goals, as well as statements
with respect to our beliefs, plans, objectives, expectations, anticipations,
estimates and intentions. 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 statements. These statements are not guarantees of future
performance and involve assumptions and risks and uncertainties that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed, implied or forecasted in such
forward-looking statements. The Company does not intend, and the Company
disclaims any obligation to update any forward-looking statements, whether
written or oral, or whether as a result of new information, future events or
otherwise except as required by law.
    These forward-looking statements are based on a variety of factors and
assumptions including, but not limited to: the condition of the Canadian and
United States economies; the rate of appreciation of the Canadian dollar
versus the U.S. dollar; the availability and prices of raw materials, energy
and supplies; product pricing; the competitive environment and related market
conditions; improvement of operating efficiencies; continued access to
capital; the cost of compliance with environmental and health standards;
adverse results from ongoing litigation; no expected actions of domestic and
foreign governments and the general assumption that none of the risks
identified under "Risk Factors" in the Company's 2007 Annual Information Form
will materialize. These assumptions have been derived from information
currently available to the Company including information obtained by the
Company from third-party industry analysts.
    Actual results may differ materially from those predicted by such
forward-looking statements. While the Company does not know what impact any of
these differences may have on its business, results of operations, financial
condition and the market price of its securities may be materially adversely
affected. Factors that could cause actual results or outcomes to differ
materially from the results expressed or implied by forward-looking statements
are discussed more fully in the Company's Management's Discussion and Analysis
for the year ended December 31, 2007, which is available on SEDAR at
www.sedar.com.

    Canada Bread Company Limited, which is 89.8% owned by Maple Leaf Foods
Inc., is a leading manufacturer and distributor of fresh bakery products,
frozen par-baked products and fresh pasta and sauces. The Company had 2007
sales of $1.5 billion and employs approximately 8,800 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 six months ended June 30, 2008 and 2007



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

    -------------------------------------------------------------------------
                                             As at        As at        As at
                                           June 30,     June 30, December 31,
                                              2008         2007         2007
    -------------------------------------------------------------------------
                                        (Unaudited)  (Unaudited)
    ASSETS

    Current assets
      Cash and cash equivalents        $     8,149  $    10,414  $     2,847
      Accounts receivable                   89,722       61,358       68,464
      Inventories                           58,826       51,406       47,036
      Future tax asset - current            19,367        4,968        5,937
      Prepaid expenses                       8,167        3,786        4,798
      Other current assets                       -       74,158       80,586
      -----------------------------------------------------------------------
                                       $   184,231  $   206,090  $   209,668

    Property and equipment                 412,036      385,978      396,623

    Goodwill                               401,531      360,486      371,066

    Other intangibles                       13,356        5,035       12,870

    Future tax asset - non-current               -          379            -

    Other long-term assets                  10,533        1,905        7,955
    -------------------------------------------------------------------------
                                       $ 1,021,687  $   959,873  $   998,182
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Bank indebtedness                $    10,092  $    10,667  $     9,845
      Accounts payable and accrued
       charges                             188,244      172,551      177,695
      Due to Maple Leaf Foods Inc.           6,213        8,855        5,408
      Dividends payable                      1,525        1,525        1,525
      Income and other taxes payable        18,555       20,822       15,078
      Current portion of long-term debt     90,272       10,843      107,644
      -----------------------------------------------------------------------
                                       $   314,901  $   225,263  $   317,195

    Long-term debt                               -       82,066            5

    Future tax liability - non-current      33,492       29,896       33,522

    Other long-term liabilities             13,317        6,526       12,417

    Shareholders' equity                   659,977      616,122      635,043
    -------------------------------------------------------------------------
                                       $ 1,021,687  $   959,873  $   998,182
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------




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

    -------------------------------------------------------------------------
                                Three months ended         Six months ended
                                      June 30,                  June 30,
    (Unaudited)                  2008         2007         2008         2007
    -------------------------------------------------------------------------

    Sales                 $   437,418  $   375,723  $   820,287  $   734,060

    Cost of goods sold        373,381      295,616      691,052      579,423
    -------------------------------------------------------------------------

    Gross margin          $    64,037  $    80,107  $   129,235  $   154,637

    Selling, general and
     administrative
     expenses                  51,639       46,112       97,293       90,681
    -------------------------------------------------------------------------

    Earnings from
     operations before
     restructuring and
     other related costs  $    12,398  $    33,995  $    31,942  $    63,956
    Restructuring and
     other related costs       (1,419)           -       (2,692)      (2,192)
    -------------------------------------------------------------------------

    Earnings from
     operations           $    10,979  $    33,995  $    29,250  $    61,764
    Other income (expense)      1,541          (93)       1,575          409
    -------------------------------------------------------------------------

    Earnings before
     interest and income
     taxes                $    12,520  $    33,902  $    30,825  $    62,173
    Interest expense            2,077        1,375        3,835        2,630
    -------------------------------------------------------------------------

    Earnings before
     income taxes         $    10,443  $    32,527  $    26,990  $    59,543

    Income taxes                3,905       11,302        8,241       20,408
    -------------------------------------------------------------------------
    Net earnings          $     6,538  $    21,225  $    18,749  $    39,135
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share
     - basic and diluted  $      0.26  $      0.84  $      0.74  $      1.54

    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         Six months ended
                                      June 30,                  June 30,
    (Unaudited)                  2008         2007         2008         2007
    -------------------------------------------------------------------------

    Net earnings          $     6,538  $    21,225  $    18,749  $    39,135

    Other comprehensive
     income (loss)

      Change in accumulated
       foreign currency
       translation adjustment  (1,389)      (9,326)      10,309      (10,041)

      Change in unrealized
       derivative loss on
       cash flow hedges           595        2,032       (1,074)       1,853
    -------------------------------------------------------------------------
                                 (794)      (7,294)       9,235       (8,188)
    -------------------------------------------------------------------------
    Comprehensive income  $     5,744  $    13,931  $    27,984  $    30,947
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------




    Consolidated Statements of Retained Earnings
    (In thousands of Canadian dollars, except in share amounts)

    -------------------------------------------------------------------------
                                                    Six months ended June 30,
    (Unaudited)                                            2008         2007
    -------------------------------------------------------------------------

    Retained earnings, beginning of period          $   528,327  $   450,733

    Net earnings                                         18,749       39,135

    Inter-company acquisition                                 -          (57)

    Dividends declared ($0.12 per share;
     2007: $0.12 per share)                              (3,050)      (3,050)

    -------------------------------------------------------------------------
    Retained earnings, end of period                $   544,026  $   486,761
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------




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

    -------------------------------------------------------------------------
                                Three months ended         Six months ended
                                      June 30,                  June 30,
    (Unaudited)                  2008         2007         2008         2007
    -------------------------------------------------------------------------

    CASH PROVIDED BY
     (USED IN)

    Operating activities
      Net earnings        $     6,538  $    21,225  $    18,749  $    39,135
      Add (deduct) items
       not affecting cash:
        Depreciation and
         amortization          14,182       12,458       27,001       24,742
        Future income taxes    (1,350)      (1,039)        (423)         (69)
        Loss (gain) on sale
         of property and
         equipment                188          105          173         (385)
        Changes in
         restructuring and
         other related costs    1,175            -        1,917            -
      Other                      (207)        (535)       1,305         (291)
      Change in operating
       working capital         (7,285)       4,988      (34,905)      (5,982)
      -----------------------------------------------------------------------
                          $    13,241  $    37,202  $    13,817  $    57,150

    Financing activities
      Dividends paid           (1,525)      (1,525)      (3,050)      (3,050)
      Net increase (decrease)
       in long-term debt       13,371       (3,432)     (17,377)       6,026
      Settlement of cross
       currency interest
       rate swap with
       Maple Leaf Foods Inc.        -            -       80,586            -
      -----------------------------------------------------------------------
                          $    11,846  $    (4,957) $    60,159  $     2,976

    Investing activities
      Additions to property
       and equipment          (17,242)     (30,858)     (25,870)     (42,525)
      Proceeds from sale
       of property and
       equipment                  517          126          532          726
      Acquisition of business,
       - net of cash acquired      (8)        (245)     (43,544)      (8,234)
      Change in intangible
       assets                     160         (117)         (39)         (86)
      -----------------------------------------------------------------------
                          $   (16,573) $   (31,094) $   (68,921) $   (50,119)

    Increase (decrease)
     in cash and cash
     equivalents                8,514        1,151        5,055       10,007

    Net cash and cash
     equivalents,
     beginning of period      (10,457)      (1,404)      (6,998)     (10,260)
    -------------------------------------------------------------------------
    Net cash and cash
     equivalents, end
     of period            $    (1,943) $      (253) $    (1,943) $      (253)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------





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

    -------------------------------------------------------------------------
                                Three months ended         Six months ended
                                      June 30,                  June 30,
    (Unaudited)                  2008         2007         2008         2007
    -------------------------------------------------------------------------

    Sales
      Fresh Bakery        $   287,638  $   244,155  $   524,862  $   463,341
      Frozen Bakery           149,780      131,568      295,425      270,719
    -------------------------------------------------------------------------
                          $   437,418  $   375,723  $   820,287  $   734,060
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings from
     operations before
     restructuring and
     other related costs
      Fresh Bakery        $    12,457  $    25,769  $    25,146  $    47,770
      Frozen Bakery               (59)       8,226        6,796       16,186
    -------------------------------------------------------------------------
                          $    12,398  $    33,995  $    31,942  $    63,956
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Additions to property
     and equipment
      Fresh Bakery        $     9,605  $    18,574  $    11,173  $    25,576
      Frozen Bakery             7,636       12,284       14,697       16,949
    -------------------------------------------------------------------------
                          $    17,241  $    30,858  $    25,870  $    42,525
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     amortization
      Fresh Bakery        $     7,472  $     6,504  $    13,852  $    12,706
      Frozen Bakery             6,710        5,954       13,149       12,036
    -------------------------------------------------------------------------
                          $    14,182  $    12,458  $    27,001  $    24,742
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                             As at        As at        As at
                                           June 30,     June 30, December 31,
                                              2008         2007         2007
    -------------------------------------------------------------------------
                                        (Unaudited)  (Unaudited)
    Total assets
      Fresh Bakery                     $   465,250  $   398,774  $   400,518
      Frozen Bakery                        521,853      509,503      573,772
      Non-allocated assets                  34,584       51,596       23,892
    -------------------------------------------------------------------------
                                       $ 1,021,687  $   959,873  $   998,182
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Goodwill
      Fresh Bakery                     $   155,616  $   130,884  $   131,256
      Frozen Bakery                        245,915      229,602      239,810
    -------------------------------------------------------------------------
                                       $   401,531  $   360,486  $   371,066
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    




For further information:

For further information: Lynda Kuhn, Senior Vice President,
Communications and Consumer Affairs, (416) 926-2026, www.canadabread.ca


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