Premium Brands Holdings Corporation Announces Record First Quarter Sales and EBITDA

Marketwired

VANCOUVER, BRITISH COLUMBIA--(Marketwired - May 9, 2013) -  Premium Brands Holdings Corporation (PBH.TO), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the first quarter of 2013.

HIGHLIGHTS

  • Revenue for the quarter increased by 5.9% to a record $229.2 million from $216.4 million in the first quarter of 2012.
  • Record Adjusted EBITDA for the quarter of $12.8 million as compared to $11.6 million in the first quarter of 2012.
  • A quarterly dividend of $6.2 million or $0.294 per share.
  • Rolling four quarters free cash flow of $47.8 million or $2.30 per share resulting in a dividend to free cash flow ratio of 51.4%.
  • The purchase of certain segments of the business of Harbour Marine Products Inc., namely its salmon and high grade sushi tuna processing businesses, for $2.0 million. 
  • The acquisition of Freybe Gourmet Foods Ltd., one of western Canada's leading manufacturers of premium gourmet deli meats, for $55.0 million.
  • An increase in its quarterly dividend to $0.3125 per share from the previous rate of $0.294 per share. The increase will commence for the dividend period ended June 28, 2013 with the first dividend under the new rate being payable on July 15, 2013.

SUMMARY FINANCIAL INFORMATION

(In thousands of dollars except per share amounts and ratios) 13 Weeks 13 Weeks
  Ended Ended
  Mar 30, Mar 31,
  2013 2012
     
Revenue 229,181 216,443
Adjusted EBITDA 12,758 11,603
Net earnings 1,166 1,161
EPS 0.06 0.06
     
  Rolling Four Quarters Ended
  Mar 30, Dec 31,
  2013 2012
     
Free cash flow 47,813 46,784
Declared dividends 24,576 24,381
Declared dividend per share 1.176 1.176
Payout ratio 51.4% 52.1%

"Although we are pleased with our overall performance for the quarter, we still have some work to do," said Mr. George Paleologou, President and CEO. 

"We have made significant capital investments in many of our businesses over the last year and a half and expect to start generating solid returns on these initiatives in the coming quarters. This, combined with our recent Freybe acquisition, which we expect to be very synergistic, and the significant progress being made on the restructuring of our NDSD business, positions us for a strong second half of 2013.

"In the meantime, our diversified group of businesses and their focus on selling premium, branded specialty products continues to deliver consistent growth and earnings. This is despite the range of issues currently facing the food industry and the constant economic headwinds that are challenging all businesses.

"Our recently announced 6.3% dividend increase reflects our confidence in our business model and the competitive strength of the many entrepreneurial businesses under the Premium Brands umbrella.

"In terms of acquisitions, we are working on a number of exciting opportunities and expect that 2013 will be another eventful year," said Mr. Paleologou.

About Premium Brands

Premium Brands owns a broad range of leading specialty food manufacturing and differentiated food distribution businesses with operations in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nevada and Washington State. The Company services over 22,000 customers and its family of brands and businesses include Grimm's, Harvest, McSweeney's, Bread Garden Go, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Direct Plus, National Direct-to-Store Distribution (NDSD), Harlan Fairbanks, Creekside Bakehouse, Centennial Foodservice, B&C Food Distributors, Shahir, Wescadia, Duso's, Maximum Seafood, SK Food Group, OvenPride, Hub City Fisheries, Audrey's, Deli Chef, Piller's and Freybe.

RESULTS OF OPERATIONS

Revenue
               
(in thousands of dollars except percentages)
    13 weeks     13 weeks    
    ended     ended    
    Mar 30,     Mar 31,    
    2013 %   2012 %  
               
Revenue by segment:              
  Retail 138,323 60.4 % 132,627 61.3 %
  Foodservice 90,858 39.6 % 83,816 38.7 %
  Consolidated 229,181 100.0 % 216,443 100.0 %

Retail's revenue for the first quarter of 2013 as compared to the first quarter of 2012 increased by $5.7 million or 4.3% due to organic growth across a range of products and customers. Its growth rate was below the Company's targeted range of 6% to 8% primarily due to the following factors:

  1. The restructuring of Retail's NDSD business' distribution network (see Restructuring Costs). This initiative includes the conversion of NDSD's customers in certain defined territories from being serviced by NDSD's direct-to-store delivery (DSD) trucks to being serviced by exclusive third party distributors that form part of NDSD's distribution network. As a result, in territories that have been converted the Company now sells its products at a discounted price to an exclusive third party distributor who in turn sells and distributes the Company's products to convenience store retailers;
  1. The decision by two large convenience store chains to use basic service wholesale distributors instead of NDSD's full service DSD network to deliver the Company's products to their stores. Similar to the impact of transitioning certain business to third party distributors, this resulted in the Company selling its products at a discounted price to wholesale distributors who in turn sell and distribute the products to the applicable convenience store chain's retail locations; and
  1. The sale of Retail's fresh sandwich operation in Etobicoke, Ontario in the fourth quarter of 2012.

Excluding the $3.7 million sales decrease associated with the above factors, Retail's organic growth rate for the quarter was approximately 7.1%.

Looking forward (see Forward Looking Statements), for the balance of 2013 the Company expects Retail's organic sales growth to be at or slightly below its long-term targeted range of 6% to 8%.

Foodservice's revenue for the first quarter of 2013 as compared to the first quarter of 2012 increased by $7.0 million or 8.4% due to: (i) general organic growth of $3.8 million representing an organic growth rate of 4.8%; (ii) the acquisition of certain businesses from Harbour Marine which accounted for $1.8 million of the increase; and (iii) increased sales in its Worldsource food brokerage business of $1.4 million resulting from improved trading opportunities.

Foodservice's organic growth rate for the quarter was below the Company's long-term target of 6% to 8% due to: (i) a general shortage of wild and exotic fish species that impacted the sales of its Maximum Seafood and Hub City Fisheries businesses; and (ii) poorer than normal weather in a number of areas across Canada in the latter half of the quarter which impacted its Centennial Foodservice and Harlan Fairbanks businesses.

Looking forward (see Forward Looking Statements), for the balance of 2013 the Company expects Foodservice's organic sales growth to be within its long-term targeted range of 6% to 8%. 

Gross Profit  
               
(in thousands of dollars except percentages)  
    13 weeks     13 weeks    
    ended     ended    
    Mar 30,     Mar 31,    
    2013 %   2012 %  
Gross profit by segment:              
  Retail 27,982 20.2 % 28,741 21.7 %
  Foodservice 16,557 18.2 % 15,058 18.0 %
  Consolidated 44,539 19.4 % 43,799 20.2 %

Retail's gross profit as a percentage of its revenue (gross margin) for the first quarter of 2013 as compared to the first quarter of 2012 decreased due to: (i) temporary production inefficiencies at SK Food Group's Reno, NV plant due to a combination of the launch of new sandwich wraps for two large international customers in the fourth quarter of 2012 and the installation of several new pieces of equipment during the first quarter of 2013; (ii) lower margins at NDSD resulting from the transition of certain product sales to third party distributors and wholesale distributors (see Revenue); and (iii) increased plant overheads associated with Stuyver's new artisan bakery in Langley, BC, which was completed in the third quarter of 2012, and Deli Chef's new sandwich production facility in Laval, QC, which was completed at the end of the second quarter of 2012. 

Foodservice's gross margin for the first quarter of 2013 as compared to the first quarter of 2012 remained relatively stable.

Selling, General and Administrative Expenses (SG&A)  
               
(in thousands of dollars except percentages)  
    13 weeks     13 weeks    
    ended     ended    
    Mar 30,     Mar 31,    
    2013 %   2012 %  
SG&A by segment:              
  Retail 18,154 13.1 % 19,162 14.4 %
  Foodservice 12,061 13.3 % 11,594 13.8 %
  Corporate 1,566     1,440    
  Consolidated 31,781 13.9 % 32,196 14.9 %

Retail's SG&A in the first quarter of 2013 as compared to the first quarter of 2012 decreased by $1.0 million due to the rationalization of NDSD's distribution network (see Restructuring Costs). This decrease was partially offset by increased selling and marketing costs associated with Retail's organic sales growth (see Revenue).

Foodservice's SG&A in the first quarter of 2013 as compared to the first quarter of 2012 increased by $0.5 million due to: (i) higher variable selling costs associated with Foodservice's organic sales growth (see Revenue); and (ii) increased costs associated with the development of the infrastructure needed to accelerate the growth of its seafood based initiatives.

Adjusted EBITDA  
                   
(in thousands of dollars except percentages)  
    13 weeks       13 weeks      
    ended       ended      
    Mar 30,       Mar 31,      
    2013   %   2012   %  
Adjusted EBITDA by segment:                  
  Retail 9,828   7.1 % 9,579   7.2 %
  Foodservice 4,496   4.9 % 3,464   4.1 %
  Corporate (1,566 )     (1,440 )    
  Consolidated 12,758   5.6 % 11,603   5.4 %

The Company's Adjusted EBITDA for the first quarter of 2013 as compared to the first quarter of 2012 increased by $1.2 million or 10.0% to $12.8 million primarily due to: (i) a significant improvement in the performance of Centennial Foodservice. This was driven by a variety of differentiation based selling initiatives as well as the success of its new fresh burger production facility; (ii) solid organic growth across a number of the Company's businesses; and (iii) the stabilization of the Company's convenience store focused businesses, which include NDSD (see Restructuring Costs).

These increases were partially offset by: (i) temporary production inefficiencies at SK Food Group's Reno, NV plant due to a combination of the launch of new sandwich wraps for two large international customers in the fourth quarter of 2012 and the installation of several new pieces of equipment during the first quarter of 2013; and (ii) a decrease in the contribution margins generated by Stuyver's and Deli Chef due to increased overhead costs associated with their respective new plants, both of which were completed in 2012. 

Looking forward (see Forward Looking Statements) the Company expects its Adjusted EBITDA to be favourably impacted by the following:

  1. The acquisition of Freybe. Starting in the third quarter of 2013, i.e. after the transition of the Company's deli meats plant in Richmond, BC is completed (see Restructuring Costs), the Freybe acquisition is expected to result in an increase to the Company's annualized adjusted EBITDA run rate of approximately $6.3 million. This is after adjusting for the lease payment associated with the sale and leaseback of Freybe's plant in Langley, BC;
  1. An improvement in SK Food Group's margins as its Reno, NV operation is expected to return to normal efficiency levels early in the third quarter of 2013; and
  1. A steady improvement in Stuyver's and Deli Chef's margins as these businesses leverage the incremental capacity of their new production facilities to generate new sales.

The Company is not, however, at this time providing specific guidance on its projected Adjusted EBITDA for 2013 due to uncertainties associated with timing and impact of the above outlined items as well as the restructuring of NDSD's DSD network. 

The Company expects (see Forward Looking Statements) both the restructuring of NDSD's DSD network and the reconfiguration of its deli meats production to be substantially completed early in the third quarter of 2013 at which time it will look to resume providing guidance on its projected Adjusted EBITDA.

Interest

The Company's interest and other financing costs for the first quarter of 2013 was relatively consistent with the first quarter of 2012 despite the increase in the Company's funded due to the increase in funded debt being primarily the result of the acquisition of Freybe which occurred at the end of the quarter.

Restructuring Costs

Restructuring costs consist of costs associated with the significant restructuring of one or more of the Company's businesses. During the first quarter of 2013 the Company incurred $1.3 million in restructuring costs consisting of:

  • $0.9 million in costs relating to the restructuring and rationalization of NDSD's DSD network for the convenience store channel (see Revenue). Looking forward (see Forward Looking Statements), the Company expects this restructuring to be substantially completed early in the third quarter of 2013 and is maintaining its guidance of $3.1 million in NDSD related restructuring costs in 2013.
  • $0.2 million in non-recurring costs relating to Centennial Foodservice's seafood initiatives, which include the startup of its new seafood processing facility in Richmond, BC and the integration of the businesses acquired from Harbour Marine. This initiative was effectively completed in the first quarter of 2013.
  • $0.1 million in restructuring costs relating to the transitioning of production from the Company's Richmond, BC deli meats processing plant, which is scheduled to be shut down in July 2013, to some of its other deli meats processing plants including Freybe's Langley, BC facility. Looking forward (see Forward Looking Statements), the Company anticipates that this initiative will be completed early in the third quarter of 2013 and will result in approximately $2.4 million in restructuring costs in 2013.
  • $0.1 million in restructuring costs associated with a variety of initiatives including moving the Company's head office to a new location in Richmond, BC.
FREE CASH FLOW                
                 
(in thousands of dollars) 52 weeks   13 weeks   13 weeks      
  ended   ended   ended   Rolling  
  Dec 29,   Mar 31,   Mar 30,   Four  
  2012   2012   2013   Quarters  
                 
Cash flow from operating activities 49,849   9,246   (5,193 ) 35,410  
Changes in non-cash working capital (6,050 ) (2,665 ) 12,443   9,058  
Acquisition transaction costs 197   48   33   182  
Restructuring costs 5,705   739   1,297   6,263  
Capital maintenance expenditures (2,917 ) (752 ) (935 ) (3,100 )
Free cash flow 46,784   6,616   7,645   47,813  

FORWARD LOOKING STATEMENTS

This discussion and analysis contains forward looking statements with respect to the Company, including its business operations, strategy and financial performance and condition. These statements generally can be identified by the use of forward looking words such as "may", "could", "should", "would", "will", "expect", "intend", "plan", "estimate", "project", "anticipate", "believe" or "continue", or the negative thereof or similar variations.

Although management believes that the expectations reflected in such forward looking statements are reasonable and represent the Company's internal expectations and belief as of May 8, 2013, such statements involve unknown risks and uncertainties beyond the Company's control which may cause its actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward looking statements.

Factors that could cause actual results to differ materially from the Company's expectations include, among other things: (i) seasonal and/or weather related fluctuations in the Company's sales; (ii) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (iii) changes in the cost of raw materials used in the production of the Company's products; (iv) changes in the cost of products sourced from third party manufacturers and sold through the Company's proprietary distribution networks; (v) risks associated with the Company's conversion from a publicly traded income trust to a publicly traded corporation, including related changes in Canada's income tax laws; (vi) changes in the Company's relationships with its larger customers; (vii) potential liabilities and expenses resulting from defects in the Company's products; (viii) changes in consumer food product preferences; (ix) competition from other food manufacturers and distributors; (x) execution risk associated with the Company's growth initiatives; (xi) risks associated with the Company's business acquisition strategies; and (xii) new government regulations affecting the Company's business and operations. Details on these risk factors as well as other factors can be found in the Company's 2012 MD&A, which is filed electronically through SEDAR and is available online at www.sedar.com.

Unless otherwise indicated, the forward looking information in this document is made as of May 8, 2013 and, except as required by applicable law, will not be publicly updated or revised. This cautionary statement expressly qualifies the forward looking information in this document.

Premium Brands Holdings Corporation  
Consolidated Balance Sheets  
(Unaudited and in thousands of dollars)  
                 
  March 30,
2013
  December 29,
2012
  March 31,
2012
  January 1,
2012
 
                 
Current assets:                
  Cash and cash equivalents 3,806   3,758   3,786   4,486  
  Accounts receivable 83,208   80,180   71,760   78,343  
  Other assets 293   193   103   103  
  Inventories 99,403   79,456   91,171   78,831  
  Prepaid expenses 8,227   6,631   5,967   13,340  
  194,937   170,218   172,787   175,103  
                 
Capital assets 203,799   166,447   166,356   158,801  
Intangible assets 78,012   71,994   75,628   77,087  
Goodwill 167,725   154,451   154,577   150,417  
Other assets 4,743   4,866   2,733   2,250  
Investment in associate 4,199   4,381   5,040   5,001  
Deferred income taxes 26,196   32,575   36,582   41,334  
                 
  679,611   604,932   613,703   609,993  
                 
Current liabilities:                
  Cheques outstanding 1,775   1,928   1,900   2,500  
  Bank indebtedness 18,786   11,179   14,513   18,061  
  Dividend payable 6,196   6,188   6,001   5,958  
  Accounts payable and accrued liabilities 84,098   82,281   80,861   79,998  
  Current portion of long-term debt 24,541   127,195   17,703   17,530  
  Current portion of provisions 3,595   3,848   2,924   2,924  
  Other -   -   300   -  
  138,991   232,619   124,202   126,971  
                 
Long-term debt 181,588   13,058   172,185   160,915  
Convertible unsecured subordinated debentures 133,630   133,842   87,665   89,396  
Puttable interest in subsidiaries 15,736   15,649   15,244   15,210  
Deferred revenue 1,492   1,443   1,814   1,943  
Provisions 4,468   503   8,569   8,360  
Pension obligation 1,905   1,873   1,377   1,345  
Other -   -   -   100  
  477,810   398,987   411,056   404,240  
Equity attributable to shareholders:                
  Accumulated earnings 149,112   147,916   134,485   133,370  
  Accumulated dividends declared (161,074 ) (154,878 ) (136,498 ) (130,497 )
Retained earnings (deficit) (11,962 ) (6,962 ) (2,013 ) 2,873  
Share capital 209,546   209,093   200,150   198,057  
Equity component of convertible debentures 1,754   1,785   1,916   1,916  
Reserves 1,544   448   1,083   1,442  
Non-controlling interest 919   1,581   1,511   1,465  
  201,801   205,945   202,647   205,753  
                 
  679,611   604,932   613,703   609,993  
                 
                 

Premium Brands Holdings Corporation
 
Consolidated Statements of Operations  
(Unaudited and in thousands of dollars except per share amounts)  
         
  13 weeks ended
 March 30, 2013
  13 weeks ended
 March 31, 2012
 
         
Revenue 229,181   216,443  
Cost of goods sold 184,642   172,644  
Gross profit before depreciation and amortization 44,539   43,799  
         
Selling, general and administrative expenses before depreciation and amortization 31,781   32,196  
  12,758   11,603  
         
Depreciation of capital assets 3,943   3,306  
Amortization of intangible assets 1,088   1,242  
Amortization of other assets 1   3  
Interest and other financing costs 4,165   4,010  
Amortization of financing costs 74   110  
Acquisition transaction costs 33   48  
Change in value of puttable interest in subsidiaries 200   180  
Accretion of provisions 3   209  
Unrealized (gain) loss on foreign currency contracts (100 ) 300  
Unrealized loss (gain) on interest rate swap contracts 100   (500 )
Restructuring costs 1,297   739  
Equity loss (income) in associate 182   (39 )
Earnings before income taxes 1,772   1,995  
         
Provision for income taxes        
  Current 358   576  
  Deferred 248   258  
  606   834  
         
Earnings 1,166   1,161  
         
Earnings (loss) for the period attributable to:        
  Shareholders 1,196   1,115  
  Non-controlling interest (30 ) 46  
         
  1,166   1,161  
         
Earnings per share        
  Basic 0.06   0.06  
  Diluted 0.06   0.05  
           
           
Premium Brands Holdings Corporation  
Consolidated Statements of Cash Flows  
(Unaudited and in thousands of dollars)  
         
  13 weeks ended
 March 30, 2013
  13 weeks ended
 March 31, 2012
 
         
Cash flows from operating activities:        
  Earnings 1,166   1,161  
  Items not involving cash:        
    Depreciation of capital assets 3,943   3,306  
    Amortization of intangible and other assets 1,089   1,245  
    Amortization of financing costs 74   110  
    Change in value of puttable interest in subsidiaries 200   180  
    Gain on disposal of capital assets (3 ) (32 )
    Accrued interest income (6 ) (7 )
    Net unrealized gain on foreign currency contracts and interest rate swaps -   (200 )
    Equity loss (income) in associate 182   (39 )
    Deferred revenue (127 ) (129 )
    Accretion of convertible debentures, long-term debt, and provisions 654   728  
    Change in value of cash conversion option liability (170 ) -  
    Deferred income taxes 248   258  
    7,250   6,581  
  Change in non-cash working capital (12,443 ) 2,665  
  (5,193 ) 9,246  
         
Cash flows from financing activities:        
  Long-term debt - net 46,991   11,415  
  Bank indebtedness and cheques outstanding 22,405   (4,148 )
  Dividends paid to shareholders (6,188 ) (5,958 )
  Purchase of 7.00% Debentures under normal course issuer bid (178 ) -  
  Other (38 ) -  
  62,992   1,309  
         
Cash flows from investing activities:        
  Capital asset additions (3,081 ) (11,230 )
  Business acquisitions (54,347 ) -  
  Payments to shareholders of non-wholly owned subsidiaries (114 ) (146 )
  Payment of provisions (253 ) -  
  Collection of share purchase loans and notes receivable 18   69  
  Net proceeds from sales of assets 3   88  
  (57,774 ) (11,219 )
         
Increase (decrease) in cash and cash equivalents 25   (664 )
Effects of exchange on cash and cash equivalents 23   (36 )
Cash and cash equivalents - beginning of period 3,758   4,486  
         
Cash and cash equivalents - end of period 3,806   3,786  
         
Interest and other financing costs paid 1,458   1,968  
         
Net income taxes paid 209   195  
Contact:
Premium Brands Holdings Corporation
George Paleologou
President and CEO
(604) 656-3100

Premium Brands Holdings Corporation
Will Kalutycz
CFO
(604) 656-3100

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