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Press release from CNW Group

Canada Bread Reports Results for the First Quarter 2012

Wednesday, May 02, 2012

Canada Bread Reports Results for the First Quarter 201208:04 EDT Wednesday, May 02, 2012TSX: CBYTORONTO, May 2, 2012 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the first quarter ended March 31, 2012.  First quarter highlights include:Adjusted Operating Earnings(1) for the first quarter declined 48% to $8.8 million compared to $16.7 million last yearNet earnings for the quarter were $0.8 million, compared to a net loss of $1.0 million last yearAdjusted EPS(2) for the quarter was $0.21, down from $0.56 in the first quarter of 2011"Our first quarter results were significantly impacted, as expected, by an industry wide decline in bakery volumes," said Richard Lan, President and CEO. "Despite this, we benefited from our position in key categories, innovation and the strength of our brands. We are addressing the challenges and improving profitability through increased marketing, consumer outreach and cost reduction."(1): Adjusted Operating Earnings, a non-IFRS measure, is defined as earnings from operations before restructuring and other related costs and other income (expense). (2): Adjusted Earnings per Share ("Adjusted EPS"), a non-IFRS measure, is 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 first quarter were $370.2 million compared to $371.8 million last year. After adjusting for the sale of the Company's fresh sandwich product line in February 2011, the strategic exit from fresh and in-store bakery bread categories in the U.K., and currency translation on sales in the U.S. and U.K., sales increased 2%.  The increase was due to price increases implemented across the business during 2011 and was partially offset by declines in Fresh Bakery sales volumes.Adjusted Operating Earnings for the first quarter declined 48% to $8.8 million in 2012, compared to $16.7 million last year.  The most significant factor was a decline in fresh bakery volumes, a trend which has been experienced across the North American industry.  The Company is focusing on expansion in higher growth categories, strategic customer partnerships and increased marketing and consumer communications to increase volumes through the remainder of the year.  Earnings were also impacted by higher input costs and overall inflation, and approximately $3 million in incremental costs related to inventory write-downs in the fresh pasta business and duplicative overhead costs as the Company commissions its new fresh bakery in Hamilton, Ontario.  These impacts were partly offset by the benefits of price increases implemented in early 2011 and from the sale of the Company's fresh sandwich product line in the first quarter of 2011.Net earnings in the quarter were $0.8 million ($0.03 basic earnings per share) compared to a loss of $1.0 million ($0.04 basic loss per share) last year and included $5.9 million pre-tax restructuring costs (2011: $20.1 million).Adjusted Earnings per Share for the first quarter decreased to $0.21 per share in 2012 from $0.56 per share last year, which had included $0.10 per share related to a tax adjustment associated with a prior acquisition.Business Segment ReviewThe following table summarizes sales by business segment:       First Quarter(Unaudited)($ thousands)  20122011Fresh Bakery  $248,183$255,085Frozen Bakery  122,061116,675Total Sales  $370,244$371,760     The following table summarized Adjusted Operating Earnings by business segment:   First Quarter(Unaudited)($ thousands)  20122011Fresh Bakery  $7,268$17,985Frozen Bakery  1,493(1,261)Adjusted Operating Earnings  $8,761$16,724Fresh 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 first quarter declined 3% to $248.2 million from $255.1 million last year. After adjusting for the sale of the Company's fresh sandwich product line in February 2011, sales decreased 1% as volume declines more than offset the benefit of price increases implemented during 2011.Adjusted Operating Earnings in the first quarter of 2012 declined 60% to $7.3 million compared to $18.0 million last year, driven by a decline in fresh bakery volumes, a trend experienced across the North American industry. Earnings were also impacted by approximately $3 million in incremental costs related to inventory write-downs in the fresh pasta operations and duplicative overhead costs as the Company commissions its new fresh bakery in Hamilton, Ontario.   Earnings were further affected by higher input costs, overall inflation and increases in advertising and promotional spending.  These impacts were partly offset by price increases implemented in early 2011 and the sale of the fresh sandwich product line in the first quarter of 2011.During the quarter, the Company closed two bakeries in the Greater Toronto Area as it continues to consolidate production into its new fresh bakery in Hamilton, Ontario.  Duplicative overhead costs will continue until the Company completes the commissioning of the Hamilton bakery and closes the third Toronto bakery in early 2013.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 first quarter increased 5% to $122.1 million from $116.7 million in 2011. After adjusting for the Company's strategic exit of unprofitable fresh and in-store bakery bread categories in the U.K. related to a facility closure and currency translation on sales in the U.S. and U.K., sales increased 8%, driven by higher sales volumes in both North America and the U.K., as well as price increases implemented in the North American frozen bakery business during 2011.Adjusted Operating Earnings in Frozen Bakery for the first quarter of 2012 were $1.5 million compared to a loss of $1.3 million last year.  Earnings improvements were due to lower selling, general and administrative expenses, higher sales volumes in North America and improved sales mix in the U.K.  The lower selling, general and administrative expenses were due to reduced general and administrative costs and lower advertising and promotional expenses, primarily in the U.K. The business also benefited from the continuing growth in the U.K. bagel category and North American foodservice channel.The Company closed its bakery in Walsall, U.K. in March 2012 as part of a plan to focus production in its core categories of bagels, croissants and specialty breads. The Company now operates three facilities in Rotherham, London and Maidstone. As a result, the business expects to realize reduced operating costs, higher efficiencies and a higher value sales mix going forward.Other MattersOn May 1, 2012, Canada Bread declared a dividend of $0.50 per share payable on July 3, 2012 to shareholders of record at the close of business on June 8, 2012.  Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, this dividend will be considered an Eligible Dividend for the purposes of the "Enhanced Dividend Tax Credit System".Reconciliation of Non-IFRS Financial MeasuresThe Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.Adjusted Operating EarningsThe following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited earnings for the three month periods ended as indicated below.  Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results during the period.     (Unaudited) Three months ended March 31, 2012($ thousands)Fresh BakeryFrozen Bakery Consolidated     Net earnings   $839 Income taxes   1,623 Earnings from operations before income taxes   2,462 Interest expense   437 Earnings (loss) from operations before interest and income taxes$5,352($2,453) 2,899 Other (income) expense(231)209 (22) Restructuring and other related costs2,1473,737 5,884 Adjusted Operating Earnings$7,268$1,493 $8,761     (Unaudited) Three months ended March 31, 2011($ thousands)Fresh BakeryFrozen Bakery Consolidated     Net loss   ($966)Income taxes   (2,621)Loss from operations before income taxes   (3,587)Interest expense   339Earnings (loss) from operations before interest and income taxes$8,468($11,716) (3,248)Other Income(78)- (78)Restructuring and other related costs9,59510,455 20,050Adjusted Operating Earnings$17,985($1,261) $16,724Adjusted Earnings per ShareThe following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under IFRS as indicated below.  Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs are not representative of operational results.         Three months endedMarch 31,(Unaudited)($ per share)  20122011Basic earnings per share  $0.03($0.04)Restructuring and other related costs(i)  0.180.60Adjusted Earnings per Share(ii)  $0.21$0.56(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.Condensed Consolidated Interim Financial Statements(Expressed in Canadian dollars)(Unaudited)CANADA BREAD COMPANY, LIMITEDThree months ended March 31, 2012 and 2011Consolidated Balance Sheets      As at March 31,  As at March 31,  As at December 31, (In thousands of Canadian dollars) 2012  2011  2011       (unaudited)  (unaudited)    ASSETS          Current assets           Cash and cash equivalents $ 42,070   $51,847   $59,223   Accounts receivable 47,670   51,263   56,522   Note receivable 51,910   53,270   45,847   Inventories  56,181   52,107   60,048   Income and other taxes recoverable 7,572   6,591   2,162   Prepaid expenses and other assets 3,244   3,934   5,218        $ 208,647   $219,012   $229,020   Property and equipment  416,505   383,814   425,944   Investment property  9,546   8,443   8,415   Other long-term assets 4,460   3,980   4,456   Deferred tax asset 15,812   10,264   17,917   Goodwill  264,342   261,590   266,013   Intangible assets 12,814   12,799   12,710   Total assets  $ 932,126   $899,902   $964,475                LIABILITIES AND SHAREHOLDERS' EQUITY         Current liabilities          Bank indebtedness $ 4,786   $-   $3,153   Accounts payable and accruals 170,421   178,925   185,811   Provisions  14,140   20,435   23,066   Due to Maple Leaf Foods Inc. 3,650   1,021   2,451   Dividends payable 5,083   1,525   5,083   Current portion of long-term debt 2,567   2,329   2,452        $ 200,647   $204,235   $222,016   Long-term debt  1,567   1,652   1,634   Deferred tax liability 18,607   21,136   21,784   Employee benefits  51,199   36,291   50,434   Provisions   5,046   6,235   5,005   Other long-term liabilities -   444   -   Total liabilities   $ 277,066   $269,993   $300,873                Shareholders' equity         Share capital  $ 142,965   $142,965   $142,965  Retained earnings 525,308   507,635   530,852  Accumulated other comprehensive loss  (13,213)  (20,691)  (10,215) Total shareholders' equity $ 655,060   $629,909   $663,602  Total liabilities and shareholders' equity $ 932,126   $899,902   $964,475  Consolidated Statements of EarningsThree months ended March 31       (In thousands of Canadian dollars, except share amounts)     (Unaudited)      2012  2011              Sales      $370,244   $371,760 Cost of goods sold     308,489   299,417               Gross margin     $61,755   $72,343 Selling, general and administrative expenses  52,994   55,619               Earnings before the following:  $8,761   $16,724 Restructuring and other related costs  (5,884)  (20,050)Other income       22   78               Earnings (loss) before interest and income taxes $2,899   $(3,248)Interest expense      437   339               Earnings (loss) before income taxes  $2,462   $(3,587)Income taxes      1,623   (2,621)              Net earnings (loss)     $839   $(966)              Earnings (loss) per share attributable to common shareholders     Basic and diluted earnings (loss) per share $0.03   $(0.04)Weighted average number of shares (millions)  25.4   25.4  Consolidated Statements of Other Comprehensive LossThree months ended March 31          (In thousands of Canadian dollars)         (Unaudited)       2012  2011               Net earnings (loss)      $ 839   $(966)               Other comprehensive loss           Change in accumulated foreign currency translation adjustment  (2,298)  (5,490) Change in unrealized gains and losses on cash flow hedges  (700)  (1,105) Change in actuarial gains and losses    (1,300)  -           $ (4,298)  $(6,595)Comprehensive loss      $ (3,459)  $(7,561) Consolidated Statements of Changes in Shareholders' Equity             Total                accumulated                other  Total(In thousands of Canadian dollars) Share  Retained  comprehensive  shareholders'(Unaudited)   capital  earnings  loss  equity                 Balance at December 31, 2011$142,965  $530,852  $(10,215) $663,602  Net earnings   -   839   -  839  Other comprehensive loss -   (1,300)  (2,998)  (4,298) Dividends declared ($0.20 per share) -   (5,083)  -  (5,083)Balance at March 31, 2012$142,965  $525,308  $(13,213) $655,060                                                Total                accumulated                other  Total(In thousands of Canadian dollars) Share  Retained  comprehensive  shareholders'(Unaudited)   capital  earnings  loss  equity                 Balance at December 31, 2010$142,965 $510,126  $(14,096) $638,995  Net loss   -  (966)  -  (966) Other comprehensive loss -  -  (6,595)  (6,595) Dividends declared ($0.06 per share) -  (1,525)  -  (1,525)Balance at March 31, 2011$142,965  $507,635  $(20,691) $629,909 Consolidated Statements of Cash FlowsThree months ended March 31         (In thousands of Canadian dollars)        (Unaudited)      2012  2011              CASH (USED IN) PROVIDED BY:                       Operating activities          Net earnings (loss)    $839  $(966) Add (deduct) items not affecting cash:        Depreciation and amortization    11,349   12,207   Deferred income taxes     18   (3,578)  Income tax current     1,605   559   Interest expense     437   339   (Gain) loss on sale of long-term assets  (231)  5   Change in provision for restructuring and other related costs (4,350)  18,386  Decrease in pension liability     (941)  (333) Net income taxes paid      (6,555)  (9,818) Interest paid      (359)  (277) Other      150   (461) Change in non-cash operating working capital (7,427)  (15,198)Cash (used in) provided by operating activities$(5,465) $865               Financing activities          Dividends paid     $(5,083) $(1,525)Cash used in financing activities   $(5,083) $(1,525)              Investing activities          Additions to long-term assets    $(10,657) $(29,858) Capitalization of interest expense   -   (114) Proceeds from sale of long-term assets  2,419   5,039  Other      -   816 Cash used in investing activities   $(8,238) $(24,117)              Decrease in cash and cash equivalents $(18,786) $(24,777)Net cash and cash equivalents, beginning of period 56,070   76,624 Net cash and cash equivalents, end of period $37,284  $51,847               Net cash and cash equivalents is comprised of:     Cash and cash equivalents    $42,070  $51,847 Bank indebtedness     (4,786)  - Net cash and cash equivalents, end of period $37,284  $51,847 Segmented Financial InformationThree months ended March 31(In thousands of Canadian dollars)     (Unaudited)   2012  2011          Sales        Fresh Bakery   $248,183   $255,085  Frozen Bakery  122,061   116,675       $370,244   $371,760           Earnings (loss) before restructuring and other related      costs and other income      Fresh Bakery   $7,268   $17,985  Frozen Bakery  1,493   (1,261)      $8,761   $16,724           Capital expenditures       Fresh Bakery   $9,194   $26,458  Frozen Bakery  1,463   3,400       $10,657  $29,858           Depreciation and amortization      Fresh Bakery   $7,057   $6,635  Frozen Bakery  4,292   5,572       $11,349   $12,207        As at March 31,  As at March 31,  As at December 31,       2012  2011  2011              Total assets            Fresh Bakery   $513,106  $466,086  $516,485  Frozen Bakery   353,533   354,540   368,534  Non-allocated assets   65,487   79,276   79,456       $932,126  $899,902  $964,475 Goodwill            Fresh Bakery   $125,892  $125,892  $125,892  Frozen Bakery   138,450   135,698   140,121       $264,342  $261,590  $266,013    For further information: Investor Contact: Nick Boland, VP Investor Relations: 416-926-2005 Media Contact: 416-926-2020