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Press release from PR Newswire

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, 2012 TSX: CBY TORONTO, Feb. 28, 2012 /PRNewswire/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the fourth quarter ended December 31, 2011.  Fourth quarter highlights include: Adjusted Operating Earnings(1) for the year were $109.8 million compared to $111.5 million last year For the fourth quarter, Adjusted Operating Earnings declined 4% to $26.2 million Adjusted EPS(2) for the year was $3.43 (2010: $2.90) and $0.67 (2010: $0.62) for the fourth quarter Net earnings for the quarter declined 36% to $7.8 million, including $12.2 million in pre-tax restructuring and other related costs associated with plant closures and manufacturing optimization initiatives "We maintained consistent earnings for the year despite a surge in wheat prices," said Richard Lan, President and CEO. "Our fourth quarter results declined due to incremental costs resulting from changes in our manufacturing network, and continued exposure to high input costs in our frozen bakery business. Our focus in 2012 is to continue with the execution of our value creation initiatives which will contribute to margin growth, and to manage higher input costs through pricing" (1): Adjusted Operating Earnings are defined as earnings from operations before restructuring and other related costs and other income (expense). (2): Adjusted Earnings per Share ("Adjusted EPS") are defined as basic earnings per share adjusted for the impact of restructuring and other related costs, net of tax. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release. Financial Overview Sales for the fourth quarter increased 2% to $400.3 million compared to $393.1 million last year. After adjusting for the sale of the Company's fresh sandwich product line in February 2011 and currency translation on sales in the U.S. and U.K., sales increased 4%, primarily due to price increases implemented earlier in 2011. This increase was slightly offset by a change in sales mix and lower sales volumes. Adjusted Operating Earnings for the fourth quarter were $26.2 million compared to $27.4 million in the prior year. Price increases implemented earlier in 2011 were not sufficient to fully offset higher raw material costs and overall inflation in the Frozen Bakery business.  Earnings were also impacted by duplicative overhead costs related to the Company's new fresh bakery in Hamilton, Ontario and some impacts due to supply chain disruptions related to the SAP implementation in the fresh bakery operations in Western Canada. These additional costs were partly offset by efficiency gains from network optimization initiatives in the Frozen Bakery business and overall lower selling, general and administrative expenses due to cost reduction initiatives implemented earlier in 2011. Adjusted Operating Earnings for the year were $109.8 million compared to $111.5 million last year.  Adjusted Earnings per Share for the fourth quarter were $0.67 compared to $0.62 last year and $3.43 for 2011 compared to $2.90 for 2010. Business Segment Review The following table summarizes sales by business segment:                                     Fourth Quarter (Unaudited)     Year-to-Date (Audited) ($ thousands)       2011     2010     2011     2010 Fresh Bakery       $261,963     $261,876     $1,087,335     $1,086,827 Frozen Bakery       138,317     131,203     508,121     501,610 Total Sales       $400,280     $393,079     $1,595,456     $1,588,437                             The following table summarized Adjusted Operating Earnings by business segment:                                           Fourth Quarter (Unaudited)     Year-to-Date     (Audited) ($ thousands)       2011     2010     2011     2010 Fresh Bakery       $19,463     $20,864     $99,857     $100,180 Frozen Bakery       6,738     6,566     9,934     11,362 Adjusted Operating Earnings       $26,201     $27,430     $109,791     $111,542                             Fresh Bakery Includes fresh bakery products, including breads, rolls, bagels, sweet goods, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's® and Olivieri® and many leading regional brands. Fresh Bakery sales for the fourth quarter of $262.0 million were consistent with $261.9 million last year. After adjusting for the sale of the Company's fresh sandwich product line in February 2011, sales increased 4%, primarily due to price increases implemented earlier in 2011. This was partially offset by lower volumes. Adjusted Operating Earnings were $19.5 million compared to $20.9 million last year. During the quarter, price increases implemented in the first half of 2011 offset higher wheat costs; however, margins were compressed due to approximately $4.0 million of duplicative overhead costs associated with the transition to the Company's new bakery in Hamilton, Ontario, and by approximately $2.5 million in costs due to supply chain disruptions related to the installation of SAP in the fresh bakery operations in Western Canada. These additional costs were partly mitigated by cost reduction initiatives and lower promotional expenses.  The sale of the fresh sandwich product line in February 2011 was accretive to earnings. For the quarter, the Company continued to operate three small bakeries in the Greater Toronto Area as it gradually consolidates production at its new fresh bakery in Hamilton, Ontario. During this period the Company is incurring incremental overhead costs, which will be eliminated once all three bakeries are closed. Two of these plants were closed in the first quarter of 2012, and the remaining bakery is expected to close in early 2013.  The duplicative costs are consistent with management's expectations. The incremental costs related to the SAP implementation primarily affected the fourth quarter as they were specific to disruptions related to installation of the system in Western Canada, and are not expected to affect 2012 earnings in any material amount. As previously announced, during the fourth quarter of 2011, the Fresh Bakery business also decommissioned and transferred production from its Delta, B.C., plant, to its other bakeries in Langley, B.C. and Edmonton, Alberta. Adjusted Operating Earnings were $99.9 million for the full year compared to $100.2 million in 2010. Frozen Bakery Includes frozen bakery products, including frozen par-baked bakery products, specialty and artisan breads, and bagels sold to retail, foodservice and convenience channels in North America and the U.K. It includes national brands such as Tenderflake® and New York Bakery CoTM. Frozen Bakery sales for the fourth quarter increased by 5% to $138.3 million from $131.2 million in 2010. Higher sales resulted from price increases implemented earlier in 2011 and increased sales volumes in the U.K. business driven by the successful re-launch of the  New York Bakery bagels, combined with increased seasonal sales of other product lines. Sales in the North American frozen bakery business were slightly lower than last year. Adjusted Operating Earnings in Frozen Bakery for the fourth quarter were consistent at $6.7 million compared to $6.6 million last year, with improved results in the U.K. largely offset by lower earnings North America. Price increases implemented during the first half of the year offset higher raw material costs in the U.K. but did not fully mitigate the impact in North America.  Management intends to implement further price increases commencing in early 2012 to address this shortfall. Cost reductions in selling, general and administrative expenses and operational efficiency gains resulting from the prior closure of a frozen bakery in Quebec, and the consolidation of production in the U.K., helped mitigate the remaining impact of higher raw material costs. During the quarter the Company decided that it will close its bakery in Walsall, U.K. in early 2012 as part of the transition to optimize the manufacturing of morning goods and specialty bakery products and expects to incur approximately $12.7 million in pre-tax restructuring and other related costs, $6.8 million of which will be cash expenses. Adjusted Operating Earnings were $9.9 million for the full year of 2011 compared to $11.4 million in 2010. Other Matters On February 27, 2012 Canada Bread Company, Limited declared a dividend of $0.20 per share payable on April 2, 2012 to shareholders of record at the close of business on March 12, 2012.  Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, this dividend will be considered an Eligible Dividend for the purposes of the "Enhanced Dividend Tax Credit System". Reconciliation of Non-IFRS Financial Measures The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. Adjusted Operating Earnings The following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited earnings for the three month periods ended as indicated below.  Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results during the period.                             (Unaudited)       Three months ended December 31, 2011 ($ thousands)       Fresh Bakery     Frozen Bakery     Unallocated Costs     Consolidated Net earnings                       $   7,757 Income taxes                         6,152 Earnings from operations before income taxes                       $ 13,909 Interest expense                         180 Earnings from operations before interest                            and income taxes     $   17,160   $   (3,071)   $   -   $   14,089 Other (income) expense       (57)     7     -     (50) Restructuring and other related costs       2,360     9,802     -     12,162 Adjusted Operating Earnings     $   19,463   $ 6,738   $   -   $   26,201                               (Unaudited)       Three months ended December 31, 2010 ($ thousands)       Fresh Bakery     Frozen Bakery     Unallocated Costs     Consolidated Net earnings                       $   13,841 Income taxes                         4,837 Earnings from operations before income taxes                       $   18,678 Interest expense                         212 Earnings from operations before interest                            and income taxes     $   19,586   $    5,180   $   (5,876)   $   18,890 Other (income) expense       137     -     5,876     6,013 Restructuring and other related costs       1,141     1,386     -     2,527 Adjusted Operating Earnings     $   20,864   $   6,566   $ -   $   27,430                             Adjusted Earnings per Share The following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under IFRS as indicated below.  Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs are not representative of operational results.                                 Three months ended December 31, (Unaudited)     Year ended December 31, (Audited) ($ per share)     2011     2010     2011     2010 Basic earnings per share     $  0.31     $  0.54     $  2.04     $  2.44 Restructuring and other related costs(i)     0.37     0.08     1.39     0.46 Adjusted Earnings per Share (ii)     $  0.67     $  0.62     $  3.43     $  2.90 (i) Includes per share impact of restructuring and other related costs, net of tax. (ii) May not add due to rounding.     Forward-Looking Statements This document contains, and the Company's oral and written public communications often contain, "forward-looking information" within the meaning of applicable securities laws.  These statements are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to objectives and goals, as well as statements with respect to beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Specific forward-looking information in this document includes, but is not limited to, statements concerning expectations regarding actions to reduce costs and improve efficiencies, restore volumes and/or increase prices, timing of promotional investment, improving business trends, expected duplicative overhead costs incurred due to the concurrent operation of the new Hamilton fresh bakery and existing bakeries, expectations regarding the timing and amount of capital investments; expectations regarding the timing and cost of plant closures; the expected use of cash balances, source of funds for ongoing business requirements, capital investments and debt repayment, and expectations regarding sufficiency of the allowance for uncollectible accounts. Words such as "expect", "anticipate", "intend", "attempt", "may", "will", "plan", "believe", "seek", "estimate", and variations of such words and similar expressions are intended to identify such forward-looking information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. In particular, these statements are based on a variety of factors and assumptions that are discussed throughout this document. In addition, expectations concerning the performance of the Company's business in general are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, U.S. and U.K. economies; the rate of exchange of the Canadian dollar to the U.S. dollar and British pound; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign governments and the general assumption that none of the risks identified below or elsewhere will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward-looking information, which reflect the Company's expectations only as of the date hereof. Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted in such forward-looking information are discussed in more detail under the heading "Risk Factors" in the Company's Management's Discussion and Analysis for the year ended December 31, 2011 and are updated each quarter in the Management's Discussion and Analysis, which are available on SEDAR at www.sedar.com. The reader should review such sections in detail. The Company does not intend to, and the Company disclaims any obligation to, update any forward-looking information, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law. Additional information concerning the Company, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com. Canada Bread Company Limited, which is 90% owned by Maple Leaf Foods Inc. (TSX:MFI), is a leading manufacturer and distributor of fresh bakery products, frozen par-baked products and fresh pasta and sauces. The Company had 2011 sales of $1.6 billion and employs approximately 6,000 people at its operations across North America and in the United Kingdom. Consolidated Financial Statements (Expressed in Canadian dollars) CANADA BREAD COMPANY, LIMITED Three and twelve months ended December 31, 2011 and 2010 CANADA BREAD COMPANY, LIMITED Consolidated Balance Sheets (In thousands of Canadian dollars)                                                     As at December 31, 2011     As at December 31, 2010     As at January 1, 2010                                         ASSETS                                                     Current assets                           Cash and cash equivalents     $   59,223   $ 84,401   $ 57,698   Accounts receivable       56,522     48,264     130,807   Notes receivable        45,847     37,639     -   Inventories         60,048     55,477     56,659   Income and other taxes recoverable       2,162     -     -   Prepaid expenses and other assets       5,218     4,516     4,438               $   229,020   $   230,297   $   249,602                                 Property and equipment       425,944     387,603     383,024   Investment property       8,415     3,743     3,959   Other long-term assets       4,456     3,857     3,203   Deferred tax asset       17,917     9,543     5,887   Goodwill         266,013     264,276     267,729   Intangible assets       12,710     13,626     16,678   Total assets       $   964,475   $   912,945   $   930,082                         LIABILITIES AND SHAREHOLDERS' EQUITY                                                   Current liabilities                       Bank indebtedness     $   3,153   $   7,777   $   4,247   Accounts payable and accruals       185,811     171,742     238,071   Provisions         23,066     13,068     3,919   Due to Maple Leaf Foods Inc.       2,451     5,336     3,817   Dividends payable       5,083     1,525     1,525   Income and other taxes payable       -     3,248     13,155   Current portion of long-term debt       2,452     2,332     -               $   222,016   $   205,028   $   264,734                             Long-term debt       1,634     1,629     2,547   Deferred tax liability       21,784     24,408     28,283   Employee benefits       50,434     36,645     27,421   Provisions         5,005     6,240     6,797   Total liabilities      $   300,873   $   273,950   $   329,782                         Shareholders' equity                     Share capital       $   142,965   $   142,965   $   142,965 Retained earnings       530,852     510,126     462,969 Accumulated other comprehensive loss       (10,215)     (14,096)     (5,634) Total shareholders' equity     $   663,602   $   638,995   $   600,300 Total liabilities and shareholders' equity     $   964,475   $   912,945   $   930,082   CANADA BREAD COMPANY, LIMITED Consolidated Statements of Earnings (In thousands of Canadian dollars, except share amounts)                               Three months ended December 31, Twelve months ended December 31,         2011     2010     2011     2010         (Unaudited)     (Unaudited)                                         Sales     $   400,280   $ 393,079   $   1,595,456   $    1,588,437                             Cost of goods sold       328,043     306,828     1,284,432     1,255,218                             Gross margin     $   72,237   $ 86,251   $   311,024   $   333,219                             Selling, general and administrative expenses       46,036     58,821     201,233     221,677                             Earnings before the following:     $   26,201   $ 27,430   $ 109,791   $   111,542 Restructuring and other related costs       (12,162)     (2,527)     (46,357)     (15,548) Other income (expense)       50     (6,013)     414     (5,819)                             Earnings before interest and income taxes       $ 14,089   $ 18,890   $ 63,848   $   90,175 Interest expense        180     212     1,052     2,891                             Earnings before income taxes       $ 13,909   $   18,678   $   62,796   $ 87,284 Income taxes       6,152     4,837     10,845     25,212                             Net earnings       $ 7,757   $ 13,841   $ 51,951   $   62,072                             Earnings per share attributable to common shareholders Basic and diluted earnings per share     $   0.31   $ 0.54   $ 2.04   $ 2.44                             Weighted average number of shares (millions)       25.4     25.4     25.4     25.4   CANADA BREAD COMPANY, LIMITED Consolidated Statements of Comprehensive Income (In thousands of Canadian dollars)                                                     Three months ended         Twelve months ended                         December 31,           December 31,                   2011     2010     2011     2010                   (Unaudited)     (Unaudited)             Net earnings             $  7,757    $   13,841   $    51,951    $    62,072                                       Other comprehensive income (loss)                                  Change in accumulated foreign currency                                  translation adjustment       (5,247)     (5,501)     3,307     (14,050)     Change in unrealized gains and losses                                   on cash flow hedges       (473)     3,932     574     5,588     Change in actuarial gains and losses         (948)     (8,815)     (14,448)     (8,815)                 $   (6,668)   $   (10,384)   $    (10,567)   $    (17,277)                                       Comprehensive income            $ 1,089   $   3,457   $    41,384    $    44,795   CANADA BREAD COMPANY, LIMITED Consolidated Statements of Changes in Shareholders' Equity (In thousands of Canadian dollars)                                                                                                 Share capital Retained earnings Total accumulated other comprehensive loss Total shareholders' equity                           Balance at January 1, 2011    $   142,965    $  510,126  $   (14,096)    $    638,995                             Net earnings       -   51,951 -   51,951   Other comprehensive income (loss)   -   (14,448) 3,881   (10,567)   Dividends declared ($0.66 per share)   -   (16,777) -   (16,777) Balance at December 31, 2011    $   142,965    $  530,852  $   (10,215)    $   663,602                                                                                                                             Share capital     Retained earnings Total accumulated other comprehensive loss     Total shareholders' equity                           Balance at January 1, 2010    $  142,965   $   462,969  $     (5,634)    $    600,300                             Net earnings       -   62,072 -   62,072   Other comprehensive loss   -   (8,815) (8,462)   (17,277)   Dividends declared ($0.24 per share)   -   (6,100) -   (6,100) Balance at December 31, 2010    $  142,965    $   510,126  $   (14,096)    $    638,995   CANADA BREAD COMPANY, LIMITED Consolidated Statements of Cash Flows (In thousands of Canadian dollars)                                                         Three months ended December 31,       Twelve months ended December 31,                   2011   2010 2011   2010                   (Unaudited)   (Unaudited)       CASH PROVIDED BY (USED IN):                                               Operating activities                       Net earnings           $      7,757    $    13,841  $     51,951    $      62,072   Add (deduct) items not affecting cash:                   Depreciation and amortization     12,793   12,254 47,839   50,476     Deferred income taxes         (6,003)   881 (6,295)   (5,249)     Income tax current         11,818   5,060 17,140   30,461     Interest expense         180   212 1,052   2,891     Loss (gain) on sale of property and                      equipment           (36)   235 232   126     Change in provision for restructuring and                    other related costs         7,952   1,468 32,232   11,561   Net income taxes paid         1,684   (14,346) (20,203)   (39,944)   Interest paid           45   241 (750)   (776)   Other           (2,074)   4,025 (1,817)   4,886   Change in non-cash operating                        working capital         14,605   (29,715) (18,287)   (25,602) Cash provided by (used in) operating activities  $    48,721    $    (5,844)  $   103,094    $      90,902                               Financing activities                       Dividends paid           $    (5,085)    $   (1,526)  $   (16,777)    $     (6,100)   Net increase in long-term debt       -   1,430 -   2,000 Cash used in financing activities       $    (5,085)    $        (96)  $   (16,777)    $     (4,100)                               Investing activities                       Additions to long-term assets       $  (23,802)    $ (18,707)  $ (112,517)    $   (66,595)   Capitalization of interest expense to                   long-term assets         -   (260) (119)   (418)   Proceeds from sale of long-term assets   536   2,374 5,830   3,114   Change in intangible assets       (31)   254 (65)   254   Other           -   12 -   16 Cash used in investing activities        $  (23,297)    $ (16,327)  $ (106,871)    $   (63,629)                               Increase (decrease) in cash and                  cash equivalents          $    20,339    $ (22,267)  $   (20,554)    $     23,173 Net cash and cash equivalents,                      beginning of period         35,731   98,891 76,624   53,451 Net cash and cash equivalents, end of period  $    56,070    $   76,624  $     56,070    $     76,624                               Net cash and cash equivalents is comprised of:           Cash and cash equivalents          $   59,223    $   84,401  $     59,223    $    84,401 Bank indebtedness         (3,153)   (7,777) (3,153)   (7,777) Net cash and cash equivalents, end of period  $   56,070    $   76,624  $     56,070    $    76,624   CANADA BREAD COMPANY, LIMITED Segmented Financial Information (In thousands of Canadian dollars)                               Three months ended December 31,   Twelve months ended December 31,         2011   2010 2011   2010         (Unaudited)   (Unaudited)       Sales                     Fresh Bakery    $  261,963    $    261,876  $ 1,087,335    $  1,086,827   Frozen Bakery   138,317   131,203 508,121   501,610          $  400,280    $    393,079  $ 1,595,456    $  1,588,437                                         Earnings before restructuring and  other related costs and other income                Fresh Bakery    $    19,463    $     20,864  $      99,857    $    100,180    Frozen Bakery   6,738   6,566 9,934   11,362          $    26,201    $     27,430  $    109,791    $    111,542                     Capital expenditures                     Fresh Bakery    $    20,793    $    14,571  $      95,788    $      47,880   Frozen Bakery   3,009   4,136 16,729   18,715          $    23,802  $    18,707  $    112,517    $      66,595                     Depreciation and amortization                     Fresh Bakery    $      7,584    $      6,547  $      27,029    $     27,183   Frozen Bakery   5,209   5,707 20,810   23,293          $    12,793    $    12,254  $      47,839    $     50,476                                                         As at As at   As at               December 31,   December 31,   January 1,               2011 2010   2010                       Total assets                   Fresh Bakery            $    516,485  $    438,362    $   460,125   Frozen Bakery           368,534 371,825   408,229   Non-allocated assets           79,456 102,758   61,728                $    964,475  $    912,945    $   930,082 Goodwill                   Fresh Bakery            $    125,892  $    125,892    $   124,827   Frozen Bakery           140,121 138,384   142,902                $    266,013  $    264,276    $   267,729         SOURCE Canada Bread Company, LimitedFor further information: <p> Investor Contact: Nick Boland,<br/> VP Investor Relations: 416-926-2005<br/> Media Contact: 416-926-2020 </p>