Canada Bread Reports Third Quarter Results



    Earnings Strengthen as Commodity Markets Decline Late in Quarter

    TORONTO, Oct. 29 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today
announced its financial results for the third quarter ended September 30,
2008.

    
    -   Adjusted Operating Earnings declined 6% compared to the prior year
        period

    -   Adjusted Earnings per Share increased to $0.93, including insurance
        proceeds related to a fire in the Rotherham, U.K. bagel facility

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

    "Earnings strengthened as commodity markets began to decline late in the
quarter and we benefited from significant capital investments that have
lowered our operating costs," said Richard Lan, President and CEO. "While
wheat prices are declining, labour, packaging and other input costs have
increased. We expect previously implemented price increases to continue to
improve margins through the end of the year. We are continuing to grow and
diversify our product mix through some exciting new products that were
launched in the quarter. These expand our leadership in the premium nutrition
and specialty bakery categories under the banner of our strong brands."

    
    Financial Overview
    ------------------
    

    Sales for the third quarter increased 14.8% to $443.1 million compared to
the same period last year due to higher selling prices and contributions from
acquisitions. Excluding acquisitions, sales increased by 9.7% compared to last
year. Year-to-date sales increased by 12.8% to $1,263.4 million.
    Earnings from operations before restructuring and other related costs and
other income ("Adjusted Operating Earnings") declined 6.6% to $31.9 million
compared to $34.1 million last year. Net earnings before restructuring and
other related costs for the quarter increased 12.6% to $23.7 million ($0.93
per share), compared to $21.1 million ($0.83 per share) last year.
Year-to-date earnings per share, on a comparable basis, were $1.75 compared to
$2.43 last year.
    Following is a summary of net earnings and earnings per share ("EPS")
before restructuring and other related costs ("Adjusted EPS"):

    
    ($ millions)               Third Quarter              Year-to-Date
                        -----------------------------------------------------
                           2008     2007   Change     2008     2007   Change
                           ----     ----   ------     ----     ----   ------

    Net Earnings        $  19.7  $  21.1    (6.4%) $  38.5  $  60.2   (36.1%)

    Restructuring and
     other related
     costs, net of tax      4.0      0.0      N/A      5.9      1.5   294.5%

                        -----------------------------------------------------
    Net earnings before
     restructuring and
     other related
     costs(i)           $  23.7  $  21.1    12.6%  $  44.4  $  61.7   (28.0%)
                        -----------------------------------------------------
                        -----------------------------------------------------
    Adjusted EPS(i)     $  0.93  $  0.83    12.6%  $  1.75  $  2.43   (28.0%)
                        -----------------------------------------------------

    (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)           Third Quarter                 Year-to-Date
                   ----------------------------------------------------------
                           2008     2007   Change     2008     2007   Change
                           ----     ----   ------     ----     ----   ------

    Fresh Bakery           26.0     24.9     4.1%     51.1     72.7   (29.7%)
    Frozen Bakery           5.9      9.2   (35.9%)    12.7     25.4   (50.0%)
                   ----------------------------------------------------------
                           31.9     34.1    (6.6%)    63.8     98.1   (34.9%)
                   ----------------------------------------------------------
                   ----------------------------------------------------------


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

    Fresh Bakery sales for the third quarter increased 19.2% to
$290.2 million compared to $243.5 million last year, largely due to price
increases and contributions from acquisitions. Excluding acquisitions, sales
increased by 13.8% compared to last year.
    Adjusted Operating Earnings for the quarter were $26.0 million compared
to $24.9 million last year. Earnings were significantly impacted in the first
half of 2008 by an unprecedented rise in commodity prices. Price increases
implemented late in 2007 and early 2008 contributed to results in the third
quarter, but have not offset prior losses. In the early part of the quarter,
earnings across the business were affected by high wheat and oil prices, which
began to decline towards the end of the quarter. Management anticipates that
the combination of the price increases implemented earlier in the year and
lower commodity prices will continue to improve margins through the end of the
year. During the quarter the Company increased its investment in innovation
and marketing and promotional activities. Supporting sales growth and product
diversification in the Fresh Bakery business, new product launches included
Dempster's Naan bread, diversifying into this high growth specialty category
and Dempster's BodyWise diet breads. The Company also launched Nature's Path,
a national line of branded organic breads.

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

    Frozen Bakery sales increased by 7.4% to $152.9 million from $142.3
million last year. This was a result of increased prices and contributions
from acquisitions. Excluding acquisitions, sales increased by 2.7% compared to
last year.
    Adjusted Operating Earnings for the quarter declined to $5.9 million from
$9.2 million last year. The Company's U.K. bakery business experienced lower
bagel sales growth as result of a fire at the principal bagel line at the
Rotherham plant, which impacted sales and earnings and increased manufacturing
costs as the new oven was commissioned. These costs and business disruption
are covered by insurance and proceeds of $4.8 million received in the third
quarter are included in Other Income. The Company has received $6.5 million
year-to-date and expects to receive further insurance reimbursements in the
fourth quarter of 2008 and in the first quarter of 2009.
    As part of its acquisition integration activities, the U.K. bakery
business is taking steps to further reduce costs and improve operating
efficiencies. This includes the closure of two small bakery operations
announced in the quarter, with production from these facilities, primarily
croissants and bagels, being transferred to the Company's larger bakeries in
Maidstone and Rotherham.
    In continuation of its initiatives to increase the profitability of its
North American frozen bakery business, the Company closed a bagel plant in
Toronto and shifted production to other regional facilities. A bagel line is
also being commissioned at its bakery in Roanoke, Virginia, which will move
production closer to customers and reduce transportation costs.

    
    Other Matters
    -------------
    

    On October 22, 2008, Canada Bread Company, Limited declared a dividend of
$0.06 per share payable on January 2, 2009 to shareholders of record on
December 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. In particular, 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 magnitude of
the rate of change 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. 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 statements. Factors that could
cause actual results or outcomes to differ materially from the results
expressed, implied or forecasted in such 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. 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.

    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 nine months ended September 30, 2008 and 2007



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

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

    Current assets
      Cash and cash equivalents      $    20,328   $    12,439   $     2,847
      Accounts receivable                 76,108        72,712        68,464
      Inventories                         58,451        49,086        47,036
      Future tax asset - current          18,719         4,607         5,937
      Prepaid expenses and other
       receivables                        13,039         7,431         4,798
      Other current assets                     -        82,146        80,586
      -----------------------------------------------------------------------
                                     $   186,645   $   228,421   $   209,668

    Property and equipment               408,160       393,825       396,623

    Goodwill                             395,181       387,465       371,066

    Other intangibles                     18,331         4,596        12,870

    Future tax asset - non-current             -           360             -

    Other long-term assets                 9,815         1,779         7,955
    -------------------------------------------------------------------------
                                     $ 1,018,132   $ 1,016,446   $   998,182
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Bank indebtedness              $     9,521   $    10,157   $     9,845
      Accounts payable and accrued
       charges                           185,670       181,911       177,695
      Due to Maple Leaf Foods Inc.         3,960         7,757         5,408
      Dividends payable                    1,525         1,525         1,525
      Income and other taxes payable      18,560        21,131        15,078
      Current portion of long-term
       debt                                   50        10,352       107,644
      -----------------------------------------------------------------------
                                     $   219,286   $   232,833   $   317,195

    Long-term debt                        78,453       116,700             5

    Future tax liability -
     non-current                          35,867        29,382        33,522

    Other long-term liabilities           13,918        12,157        12,417

    Shareholders' equity                 670,608       625,374       635,043
    -------------------------------------------------------------------------
                                     $ 1,018,132   $ 1,016,446   $   998,182
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                Three months ended         Nine months ended
                                      September 30,             September 30,
    (Unaudited)                  2008         2007         2008         2007
    -------------------------------------------------------------------------

    Sales                 $   443,086  $   385,849  $ 1,263,373  $ 1,119,909

    Cost of goods sold        363,501      304,754    1,054,553      884,177
    -------------------------------------------------------------------------
    Gross margin          $    79,585  $    81,095  $   208,820  $   235,732
    Selling, general and
     administrative
     expenses                  47,726       46,979      145,019      137,660
    -------------------------------------------------------------------------
    Earnings from
     operations before
     the following:       $    31,859  $    34,116  $    63,801  $    98,072
    Restructuring and
     other related costs       (5,718)           -       (8,410)      (2,192)
    Other income                4,797           77        6,372          486
    -------------------------------------------------------------------------
    Earnings before
     interest and income
     taxes                $    30,938  $    34,193  $    61,763  $    96,366
    Interest expense            2,147        1,446        5,982        4,076
    -------------------------------------------------------------------------
    Earnings before income
     taxes                $    28,791  $    32,747  $    55,781  $    92,290
    Income taxes                9,064       11,660       17,305       32,068
    -------------------------------------------------------------------------
    Net earnings          $    19,727  $    21,087  $    38,476  $    60,222
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share -
     basic and diluted    $      0.77  $      0.83  $      1.51  $      2.37
    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         Nine months ended
                                      September 30,             September 30,
    (Unaudited)                  2008         2007         2008         2007
    -------------------------------------------------------------------------

    Net earnings          $    19,727  $    21,087  $    38,476  $    60,222

    Other comprehensive
     income (loss)
      Change in accumulated
       foreign currency
       translation
       adjustment              (7,010)      (8,689)       3,299      (18,730)
      Change in unrealized
       derivative loss on
       cash flow hedges          (561)      (1,621)      (1,635)         232
    -------------------------------------------------------------------------
                               (7,571)     (10,310)       1,664      (18,498)
    -------------------------------------------------------------------------
    Comprehensive income  $    12,156  $    10,777  $    40,140  $    41,724
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                              Nine months ended September 30,
    (Unaudited)                                            2008         2007
    -------------------------------------------------------------------------

    Retained earnings, beginning of period          $   528,327  $   450,733
    Net earnings                                         38,476       60,222
    Inter-company acquisition                                 -          (57)
    Dividends declared ($0.18 per share; 2007:
     $0.18 per share)                                    (4,575)      (4,575)
    -------------------------------------------------------------------------
    Retained earnings, end of period                $   562,228  $   506,323
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                Three months ended         Nine months ended
                                      September 30,             September 30,
    (Unaudited)                  2008         2007         2008         2007
    -------------------------------------------------------------------------
    CASH PROVIDED BY (USED
     IN)

    Operating activities
      Net earnings        $    19,727  $    21,087  $    38,476  $    60,222
      Add (deduct) items
       not affecting cash:
        Depreciation and
         amortization          14,012       12,194       41,014       36,936
        Future income
         taxes                  1,817        1,057        1,394          988
        Loss (gain) on
         sale of property
         and equipment            (34)         (62)         139         (447)
        Changes in
         restructuring and
         other related costs    4,987            -        6,904            -
      Other                      (218)      (1,096)       1,087       (1,387)
      Change in operating
       working capital          1,154       (2,280)     (33,752)      (8,262)
    -------------------------------------------------------------------------
    Cash provided by
     operating activities $    41,445  $    30,900  $    55,262  $    88,050

    Financing activities
      Dividends paid           (1,525)      (1,525)      (4,575)      (4,575)
      Net increase
       (decrease) in
       long-term debt         (11,768)      35,146      (29,145)      41,172
      Settlement of cross
       currency interest
       rate swap with
       Maple Leaf Foods Inc.        -            -       80,586            -
    -------------------------------------------------------------------------
    Cash provided by (used
     in) financing
     activities           $   (13,293) $    33,621  $    46,866  $    36,597

    Investing activities
      Additions to property
       and equipment          (14,155)     (22,058)     (40,025)     (64,583)
      Proceeds from sale
       of property and
       equipment                   86           62          618          788
      Acquisition of
       business - net of
       cash acquired           (1,275)     (40,235)     (44,819)     (48,469)
      Change in intangible
       assets                     (58)         245          (97)         159
    -------------------------------------------------------------------------
    Cash used in investing
     activities           $   (15,402) $   (61,986) $   (84,323) $  (112,105)

    Increase (decrease) in
     cash and cash
     equivalents               12,750        2,535       17,805       12,542

    Net cash and cash
     equivalents, beginning
     of period                 (1,943)        (253)      (6,998)     (10,260)
    -------------------------------------------------------------------------
    Net cash and cash
     equivalents, end of
     period               $    10,807  $     2,282  $    10,807  $     2,282
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                Three months ended         Nine months ended
                                      September 30,             September 30,
    (Unaudited)                  2008         2007         2008         2007
    -------------------------------------------------------------------------

    Sales
      Fresh Bakery        $   290,196  $   243,509  $   815,058  $   706,850
      Frozen Bakery           152,890      142,340      448,315      413,059
    -------------------------------------------------------------------------
                          $   443,086  $   385,849  $ 1,263,373  $ 1,119,909
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings from
     operations before
     restructuring and
     other related costs
     and other income
      Fresh Bakery        $    25,985  $    24,955  $    51,131  $    72,725
      Frozen Bakery             5,874        9,161       12,670       25,347
    -------------------------------------------------------------------------
                          $    31,859  $    34,116  $    63,801  $    98,072
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Additions to property
     and equipment
      Fresh Bakery        $     5,912  $     5,392  $    17,085  $    30,968
      Frozen Bakery             8,243       16,666       22,940       33,615
    -------------------------------------------------------------------------
                          $    14,155  $    22,058  $    40,025  $    64,583
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     amortization
      Fresh Bakery        $     7,122  $     6,470  $    20,975  $    19,176
      Frozen Bakery             6,890        5,724       20,039       17,760
    -------------------------------------------------------------------------
                          $    14,012  $    12,194  $    41,014  $    36,936
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                             As at        As at        As at
                                         September    September     December
                                          30, 2008     30, 2007     31, 2007
    -------------------------------------------------------------------------
                                        (Unaudited)  (Unaudited)
    Total assets
      Fresh Bakery                     $   459,396  $   399,304  $   400,518
      Frozen Bakery                        507,191      515,709      573,772
      Non-allocated assets                  51,545      101,433       23,892
    -------------------------------------------------------------------------
                                       $ 1,018,132  $ 1,016,446  $   998,182
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Goodwill
      Fresh Bakery                     $   156,691  $   131,255  $   131,256
      Frozen Bakery                        238,490      256,210      239,810
    -------------------------------------------------------------------------
                                       $   395,181  $   387,465  $   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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