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 Co^TM.

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

 

 

 

 

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