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Press release from CNW Group

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

Tuesday, February 28, 2012

Canada Bread Reports Results for the Fourth Quarter and Year End 201108:08 EST Tuesday, February 28, 2012TSX: CBYTORONTO, 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 yearFor the fourth quarter, Adjusted Operating Earnings declined 4% to $26.2 millionAdjusted EPS(2) for the year was $3.43 (2010: $2.90) and $0.67 (2010: $0.62) for the fourth quarterNet 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 OverviewSales 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 $2.90 for 2010.Business Segment ReviewThe following table summarizes sales by business segment:                  Fourth Quarter(Unaudited)  Year-to-Date(Audited)($ thousands)   2011  2010  2011  2010Fresh Bakery   $261,963  $261,876  $1,087,335  $1,086,827Frozen Bakery   138,317  131,203  508,121  501,610Total 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  2010Fresh Bakery   $19,463  $20,864  $99,857  $100,180Frozen Bakery   6,738  6,566  9,934  11,362Adjusted Operating Earnings   $26,201  $27,430  $109,791  $111,542              Fresh BakeryIncludes 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 BakeryIncludes 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 MattersOn February 27, 2012 Canada Bread Company, Limited declared a dividend of $0.20 per share payable on April 2, 2012 to shareholders of record at the close of business on March 12, 2012.  Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, this dividend will be considered an Eligible Dividend for the purposes of the "Enhanced Dividend Tax Credit System".Reconciliation of Non-IFRS Financial MeasuresThe Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.Adjusted Operating EarningsThe following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited earnings for the three month periods ended as indicated below.  Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results during the period.              (Unaudited)   Three months ended December 31, 2011($ thousands)   FreshBakery  FrozenBakery  Unallocated Costs  ConsolidatedNet earnings           $  7,757Income taxes            6,152Earnings from operations before income taxes           $13,909Interest expense            180Earnings from operations before interest              and income taxes  $  17,160 $  (3,071) $  - $  14,089Other (income) expense   (57)  7  -  (50)Restructuring and other related costs   2,360  9,802  -  12,162Adjusted Operating Earnings  $  19,463 $6,738 $  - $  26,201               (Unaudited)   Three months ended December 31, 2010($ thousands)   FreshBakery  FrozenBakery  Unallocated Costs  ConsolidatedNet earnings           $  13,841Income taxes            4,837Earnings from operations before income taxes           $  18,678Interest expense            212Earnings from operations before interest              and income taxes  $  19,586 $   5,180 $  (5,876) $  18,890Other (income) expense   137  -  5,876  6,013Restructuring and other related costs   1,141  1,386  -  2,527Adjusted Operating Earnings  $  20,864 $  6,566 $- $  27,430              Adjusted Earnings per ShareThe 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 endedDecember 31,(Audited)($ per share)  2011  2010  2011  2010Basic earnings per share  $  0.31  $  0.54  $  2.04  $  2.44Restructuring and other related costs(i)  0.37  0.08  1.39  0.46Adjusted 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 StatementsThis 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, LIMITEDThree and twelve months ended December 31, 2011 and 2010CANADA BREAD COMPANY, LIMITEDConsolidated Balance Sheets(In thousands of Canadian dollars)                                        As at December 31, 2011  As atDecember 31,2010  As atJanuary 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 $  142,965Retained earnings   530,852   510,126  462,969Accumulated other comprehensive loss   (10,215)  (14,096)  (5,634)Total shareholders' equity  $  663,602  $  638,995 $  600,300Total liabilities and shareholders' equity  $  964,475  $  912,945 $  930,082 CANADA BREAD COMPANY, LIMITEDConsolidated Statements of Earnings(In thousands of Canadian dollars, except share amounts)               Three months endedDecember 31,Twelve months endedDecember 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 $  111,542Restructuring 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 $  90,175Interest expense    180  212  1,052  2,891              Earnings before income taxes    $13,909 $  18,678 $  62,796 $87,284Income 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 shareholdersBasic 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, LIMITEDConsolidated 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, LIMITEDConsolidated Statements of Changes in Shareholders' Equity(In thousands of Canadian dollars)                                                 SharecapitalRetainedearningsTotalaccumulatedothercomprehensivelossTotalshareholders'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                                                               Sharecapital  RetainedearningsTotalaccumulatedothercomprehensiveloss  Totalshareholders'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, LIMITEDConsolidated Statements of Cash Flows(In thousands of Canadian dollars)                             Three months endedDecember 31,     Twelve months endedDecember 31,         2011 20102011 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 12,25447,839 50,476  Deferred income taxes    (6,003) 881(6,295) (5,249)  Income tax current    11,818 5,06017,140 30,461  Interest expense    180 2121,052 2,891  Loss (gain) on sale of property and            equipment     (36) 235232 126  Change in provision for restructuring and           other related costs    7,952 1,46832,232 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- 2,000Cash 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 2,3745,830 3,114 Change in intangible assets   (31) 254(65) 254 Other     - 12-  16Cash 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)  $     23,173Net cash and cash equivalents,            beginning of period    35,731 98,89176,624 53,451Net 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  $    84,401Bank 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, LIMITEDSegmented Financial Information(In thousands of Canadian dollars)                Three months endedDecember 31,  Twelve months endedDecember 31,    2011 20102011 2010    (Unaudited) (Unaudited)   Sales           Fresh Bakery  $  261,963  $    261,876 $ 1,087,335  $  1,086,827  Frozen Bakery 138,317 131,203508,121 501,610     $  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 6,5669,934 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 4,13616,729 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 5,70720,810 23,293     $   12,793  $    12,254 $      47,839  $     50,476                              As atAs at As at        December 31,  December 31, January 1,        20112010 2010            Total assets           Fresh Bakery      $    516,485 $    438,362  $   460,125  Frozen Bakery     368,534371,825 408,229  Non-allocated assets     79,456102,758 61,728         $    964,475 $    912,945  $   930,082Goodwill           Fresh Bakery      $    125,892 $    125,892  $   124,827  Frozen Bakery     140,121138,384 142,902         $    266,013 $    264,276  $   267,729    For further information: Investor Contact: Nick Boland, VP Investor Relations: 416-926-2005 Media Contact: 416-926-2020