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Premium Brands Holdings Corporation Announces Record Third Quarter Sales and Earnings and Declares Fourth Quarter Dividend

VANCOUVER , Nov. 13, 2018 /CNW/ - Premium Brands Holdings Corporation (PBH.TO), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the third quarter of 2018. 

HIGHLIGHTS FOR THE QUARTER

  • Record revenue of $835.5 million representing a 49.8% or $277.9 million increase as compared to the third quarter of 2017.  The Company's organic volume growth rate for the quarter was 5.4%.
  • Record adjusted EBITDA of $71.3 million representing a 44.0% or $21.8 million increase as compared to the third quarter of 2017.
  • Record adjusted earnings of $0.95 per share representing a 21.8% or $0.17 per share increase as compared to the third quarter of 2017.
  • During the quarter, the Company invested $254.4 million in the acquisitions of Ready Seafood, Yorkshire Valley Farms and Select Foods.
  • The Company provided sales and adjusted EBITDA guidance for 2019.
  • Subsequent to the quarter, the Company declared a quarterly dividend of $0.475 per share.


SUMMARY FINANCIAL INFORMATION
(In millions of dollars except per share amounts and ratios)


13 weeks
ended
Sep 29,

2018

13 weeks
ended
Sep 30,

2017

39 weeks
ended
Sep 29, 
2018

39 weeks
ended
Sep 30,
2017






Revenue   

835.5

557.6

2,181.9

1,613.2

Adjusted EBITDA 

71.3

49.5

188.6

142.9

Earnings 

36.1

21.3

79.9

63.3

EPS   

1.09

0.72

2.50

2.13

Adjusted earnings 

31.5

23.3

85.7

66.8

Adjusted EPS  

0.95

0.78

2.68

2.25









Trailing Four Quarters Ended




Sep 29,

2018 

Dec 30,

2017






Free cash flow   



153.9

131.3

Declared dividends  



59.5

50.6

Declared dividend per share  



1.845

1.680

Payout ratio   



38.7%

38.5%

 

"We made significant progress on many fronts during the third quarter and are generally pleased with our results, which included record sales and earnings and the completion of two very strategic acquisitions.  We did, however, have to make some tough but deliberate choices, particularly with respect to our U.S. businesses which are having to navigate through a highly inflationary economy that is operating at full employment. 

"As always, we continue to run our business with a long-term outlook and a strong bias towards sustainable growth.  Unfortunately, for the third quarter this meant making some decisions that negatively impacted our short term results in order to better position us to generate long-term shareholder value.  This included delaying certain new sales initiatives, such as the launching of several very innovative products by our U.S. sandwich and protein platforms, to ensure we have in place the production capacity, trained labor and supply chain robustness necessary to properly support our customers' needs.  We also chose to invest in additional promotion spending and feature pricing in order to accelerate consumer awareness of recently launched sales initiatives in new channels and geographic regions.

"I have no doubt that our decisions are the right ones," said Mr. George Paleologou , President and CEO.  "Furthermore, I can say with full confidence that our long term prospects have never been better.  In fact, we now have more major new growth initiatives in our pipeline than we have ever had in our history.  These cross all of our business platforms and include a wide variety of exciting opportunities such as meat snack sticks and charcuterie in the U.S., artisan sandwiches in grocery and convenience channels across North America and fresh seafood in the U.S. and eastern Canada. 

"A common theme across many of our growth platforms is replicating in the U.S. the success they have achieved in Canada , both through acquisitions and organic initiatives.  It is still early days, but despite the recent delays in a number of initiatives we are already seeing significant progress on this front with our U.S. sales growing by almost 100% in the quarter to $278.7 million and organic growth accounting for close to 20% of this growth," said Mr. Paleologou.

"We are making excellent progress towards our goal of building billion dollar platforms in each of the sandwich, meat snack, cooked protein and seafood categories due in large part to our success in the U.S.," added Mr. Paleologou.

"In addition to showing our strong year over year growth, our third quarter results more importantly demonstrate our ability to continue to grow our business and to generate record results while making the right decisions for creating long-term shareholder value.  Our unique business model, entrepreneurial culture and focus on innovation and on producing great quality food products that are relevant to today's consumers position us very well to deal with any challenges that we may face.

"In terms of acquisitions, 2018 will be the busiest in our history. So far this year we have invested over $740.0 million in new businesses and our pipeline of potential transactions remains very full," said Mr. Paleologou.

FOURTH QUARTER 2018 DIVIDEND

The Company's Board of Directors approved a cash dividend of $0.475 per share for the fourth quarter of 2018, which will be payable on January 15, 2019 to shareholders of record at the close of business on December 28, 2018 .

Unless indicated otherwise in writing at or before the time the dividend is paid, each dividend paid by the Company in 2018 or a subsequent year is an eligible dividend for the purposes of the Enhanced Dividend Tax Credit System.

ABOUT PREMIUM BRANDS

Premium Brands owns a broad range of leading specialty food manufacturing and differentiated food distribution businesses with operations across Canada and the United States. 

www.premiumbrandsholdings.com

RESULTS OF OPERATIONS

The Company reports on two reportable segments, Specialty Foods and Premium Food Distribution, as well as corporate costs (Corporate).  The Specialty Foods segment consists of the Company's specialty food manufacturing businesses while the Premium Food Distribution segment consists of the Company's differentiated distribution and wholesale businesses. 

Revenue

(in millions of dollars except percentages)


13 weeks

ended

Sep 29,

2018

%

(1)

13 weeks

ended

Sep 30,

2017

%

(1)

39 weeks

ended

Sep 29,

2018

%

(1)

39 weeks

ended

Sep 30,

2017

%

(1)












Revenue by segment:









Specialty Foods

579.7

69.4%

329.7

59.1%

1,479.7

67.8%

961.9

59.6%

Premium Food Distribution

255.8

30.6%

227.9

40.9%

702.2

32.2%

651.3

40.4%










Consolidated

835.5

100.0%

557.6

100.0%

2,181.9

100.0%

1,613.2

100.0%


(1)     Expressed as a percentage of consolidated revenue

 

Specialty Foods' (SF) revenue for the third quarter of 2018 as compared to the third quarter of 2017 increased by $250.0 million or 75.8% primarily due to: (i) business acquisitions, which accounted for $220.4 million of the increase; (ii) organic volume growth of $22.1 million , representing a growth rate of 6.7%, which was driven primarily by sandwiches, meat snacks and cooked protein products.  SF also made significant progress in growing its sales in the U.S., which now account for approximately 32% of its total sales; (iii) a $7.0 million increase in the translated value of its U.S. based businesses' sales resulting from a weaker Canadian dollar; and (iv) selling price inflation of $0.5 million . 

SF's organic volume growth of 6.7% was below the Company's expectation for the quarter primarily due to: (i) delays in the launch of a number of sandwich, meat snack, deli meats and burger growth initiatives.  Some of these are now projected to commence in the fourth quarter of 2018, however, as a result of seasonal factors and customer listing cycles the majority of them have been rescheduled to launch in the first and second quarters of 2019; and (ii) temporary production issues at one of SF's raw material suppliers that resulted in product shortages and approximately $4.8 million in lost sales.

For the first three quarters of 2018 as compared to the first three quarters of 2017, SF's revenue increased by $517.8 million or 53.8% primarily due to the same factors outlined above with business acquisitions accounting for $220.4 million of the increase and its organic volume growth rate being 10.1%.

Premium Food Distribution's (PFD) revenue for the third quarter of 2018 as compared to the third quarter of 2017 increased by $27.9 million or 12.3% primarily due to: (i) business acquisitions, which generated $18.3 million in growth; (ii) organic volume growth of $8.3 million , representing a growth rate of 3.6%; and (iii) selling price inflation of $1.3 million . 

PFD's organic volume growth rate for the quarter of 3.6% was primarily driven by: (i) a significant increase in wholesale business with retailers in eastern Canada as a result of better weather conditions and additional product promotions; and (ii) improved seafood sales due in part to a stronger Johnstone Strait sockeye salmon fishery.  These factors were partially offset by: (i) slower foodservice sales in western Canada that were the result of a variety of factors including less activity in the Alberta oil industry and generally softer market conditions in certain geographic regions; and (ii) labor related supply disruptions in Brazil that impacted PFD's trading business' ability to procure certain products.

For the first three quarters of 2018 as compared to the first three quarters of 2017, PFD's revenue increased by $50.9 million or 7.8% primarily due to: (i) business acquisitions, which accounted for $31.7 million of the growth; (ii) organic volume growth of $16.1 million representing a growth rate of 2.5%; and (iii) selling price inflation of $3.1 million . 

Gross Profit

(in millions of dollars except percentages)


13 weeks

ended

Sep 29,

2018

%

(1)

13 weeks

ended

Sep 30,

2017

%

(1)

39 weeks

ended

Sep 29,

2018

%

(1)

39 weeks

ended

Sep 30,

2017

%

(1)












Gross profit by segment:









Specialty Foods

127.4

22.0%

66.2

20.1%

325.5

22.0%

206.1

21.4%

Premium Food Distribution

39.1

15.3%

36.3

15.9%

110.6

15.8%

104.4

16.0%










Consolidated

166.5

19.9%

102.5

18.4%

436.1

20.0%

310.5

19.2%


(1)     Expressed as a percentage of the corresponding segment's revenue

 

SF's gross profit as a percentage of its revenue (gross margin) for the third quarter of 2018 as compared to the third quarter of 2017 increased by 190 basis points primarily due to: (i) decreases in the cost of certain raw material commodities including various pork and chicken products, many of which are now trading at close to five year averages; (ii) incremental contribution margin associated with SF's organic volume growth; (iii) recently acquired businesses having higher gross margins relative to SF's average gross margin; (iv) the reclassification of approximately $1.9 million of freight costs to selling, general and administrative expense; and (v) a one-time operating tax cost recovery of $1.6 million .  Partially offsetting these factors were transitory lower gross margins resulting from a variety of new sales growth initiatives.  In particular, SF's margins were impacted by: (i) the use of introductory and/or temporary promotional pricing to generate incremental consumer demand for new products or in new markets; and (ii) operating inefficiencies associated with initial production runs for new products.  In general terms, the Company views this lost margin as an investment in future growth.

SF's gross margin for the quarter was also impacted by: (i) sales mix changes as a portion of its organic growth was driven by products that have lower gross margins relative to its average gross margins – correspondingly these products have lower SG&A ratios relative to SF's average SG&A ratios; and (ii) albeit to a much lesser extent, rising labor and freight costs.

SF's gross margin for the first three quarters of 2018 as compared to the first three quarters of 2017 increased by 60 basis points primarily due to the factors outlined.

PFD's gross margins for the third quarter of 2018 as compared to the third quarter of 2017 decreased by 60 basis points primarily due to: (i) changes in sales mix as lower margin wholesale business with retailers was the major driver of its organic growth; and (ii) recently acquired businesses having lower gross margins relative to PFD's average gross margin due to a combination of a variety of transitory issues and structurally having lower gross margins relative to PFD's average gross margins – correspondingly these businesses have lower SG&A ratios relative to PFD's average SG&A ratios.

PFD's gross margin for the first three quarters of 2018 as compared to the first three quarters of 2017 decreased by 20 basis points primarily due to the factors outlined above.

Selling, General and Administrative Expenses (SG&A)

(in millions of dollars except percentages)


13 weeks

ended

Sep 29,

2018

%

(1)

13 weeks

ended

Sep 30,

2017

%

(1)

39 weeks

ended

Sep 29,

2018

%

(1)

39 weeks

ended

Sep 30,

2017

%

(1)












SG&A by segment:









Specialty Foods

67.8

11.7%

29.7

9.0%

167.3

11.3%

95.6

9.9%

Premium Food Distribution

23.8

9.3%

20.5

9.0%

69.3

9.9%

62.0

9.5%

Corporate

3.6


2.8


10.9


10.0











Consolidated

95.2

11.4%

53.0

9.5%

247.5

11.3%

167.6

10.4%


(1)     Expressed as a percentage of the corresponding segment's revenue

 

SF's SG&A for the third quarter of 2018 as compared to the third quarter of 2017 and for the first three quarters of 2018 as compared to the first three quarters of 2017 increased by $38.1 million and $71.7 million , respectively primarily due to: (i) business acquisitions; (ii) the reclassification of $1.9 million in freight expenses from cost of sales; (iii) incremental freight costs resulting from a combination of higher sales volumes and increased freight rates; (iv) investments in additional selling and administration infrastructure needed to support SF's continued growth; (v) higher variable compensation associated with the growth in SF's free cash flow; and (vi) increased discretionary promotional spending.

SF's SG&A as a percentage of sales (SG&A ratio) for the third quarter of 2018 as compared to the third quarter of 2017 increased by 270 basis points primarily due to the factors outlined above with the impact of acquisitions representing a significant majority of the increase.  These were partially offset by: (i) changes in SF's sales mix as a portion of its growth was driven by products with lower variable SG&A costs; and (ii) its organic revenue growth in relation to the relatively fixed nature of some of its SG&A costs.

PFD's SG&A for the third quarter of 2018 as compared to the third quarter of 2017 and for the first three quarters of 2018 as compared to the first three quarters of 2017 increased by $3.3 million and $7.3 million , respectively primarily due to: (i) business acquisitions; (ii) investments in additional fleet and sales infrastructure needed to support future growth; and (iii) incremental freight costs resulting from a combination of increased freight rates and higher sales volumes.

PFD's SG&A ratio for the third quarter of 2018 as compared to the third quarter of 2017 increased by 30 basis points primarily due to investments in additional fleet and sales infrastructure needed to support future growth partially offset by: (i) business acquisitions due to the purchased businesses having lower SG&A ratios relative to PFD's average SG&A ratio; and (ii) its organic revenue growth in relation to the relatively fixed nature of some of its SG&A costs.

Adjusted EBITDA

(in millions of dollars except percentages)


13 weeks

ended

Sep 29,

2018

%

(1)

13 weeks

ended

Sep 30,

2017

%

(1)

39 weeks

ended

Sep 29,

2018

%

(1)

39 weeks

ended

Sep 30,

2017

%

(1)












Adjusted EBITDA by segment:









Specialty Foods

59.6

10.3%

36.5

11.1%

158.2

10.7%

110.5

11.5%

Premium Food Distribution

15.3

6.0%

15.8

6.9%

41.2

5.9%

42.4

6.5%

Corporate

(3.6)


(2.8)


(10.9)


(10.0)











Consolidated

71.3

8.5%

49.5

8.9%

188.6

8.6%

142.9

8.9%


(1)     Expressed as a percentage of the corresponding segment's revenue

 

Adjusted EBITDA for the third quarter of 2018 as compared to the third quarter of 2017 increased by $21.8 million or 44.0% to $71.3 million .  This result was below the Company's expectations for the quarter primarily due to:

  • Delays in the launch of a number of new sales initiatives that impacted its expected sandwich, meat snack, deli meats and burger sales.  Some of these initiatives are now projected to commence in the fourth quarter of 2018, however, as a result of seasonal factors and customer listing cycles the majority of them have been re-scheduled to be launched in the first and second quarters of 2019.
  • Temporary production issues at one of the Company's raw material suppliers that resulted in product shortages and approximately $4.8 million in lost sales.
  • Transitory lower gross margins in its SF segment resulting from a variety of new growth initiatives.  In particular, the Company's margins were impacted by: (i) the use of introductory and/or temporary promotional pricing to generate incremental consumer demand for new products or in new markets; and (ii) operating inefficiencies associated with initial production runs for new products.  In general terms, the Company views this lost margin as an investment in future growth.
  • Lower than anticipated gross margins due to projected deflation in the cost of certain raw material commodities not occurring.


Plant Start-up and Restructuring Costs

Plant start-up and restructuring costs consist of expenses associated with the start-up of new production capacity or the reconfiguration of existing capacity to gain efficiencies and/or additional capacity. The Company expects (see Forward Looking Statements) these projects to result in significant improvements in its future earnings and cash flows.

During the first three quarters of 2018, the Company incurred $2.5 million in plant start-up costs relating primarily to the following projects:

Bakery
Reconfiguration
Project

The Company incurred $0.5 million in plant start-up costs associated with the reconfiguration of production between its two legacy artisan bakeries (one in Langley, B.C. and the other in Delta, B.C.) and its newest artisan bakery (in Richmond, B.C.), which it acquired at the end of 2016 as part of the purchase of Island City Baking.  This project was completed in the third quarter.



GTA Facility Project

The Company incurred $1.4 million in plant start-up costs associated with the construction of a state-of-the-art distribution and custom cutting facility in the Greater Toronto Area (GTA Facility). 

 

Looking forward (see Forward Looking Statements), the Company expects to complete construction of the GTA Facility in the fourth quarter of 2018 and to have it operating at normal production efficiencies in early 2019. The projected total plant start-up costs for this initiative is $2.5 million.



New Culinary Facility

 

 

 

The Company incurred $0.5 million in plant start-up costs associated with the construction of a new 22,300 square foot culinary plant in Surrey, BC capable of producing fresh salads, soups and sauces.  This facility will replace an existing culinary plant in Langley, BC, which is operating at capacity. 

 

Looking forward (see Forward Looking Statements), the Company expects this to be completed in the first quarter of 2019 and to result in approximately $1.1 million in plant start-up costs.

 

Interest and Other Financing Costs

The Company's interest and other financing costs for the third quarter of 2018 as compared to the third quarter of 2017 and for the first three quarters of 2018 as compared to the first three quarters of 2017 increased by $6.9 million and $16.9 million , respectively primarily due to: (i) increases in its net funded debt; and (ii) a higher weighted average interest rate resulting from a combination of rising short term interest rates and increased interest rate premiums associated with the Company's higher senior debt to adjusted EBITDA ratio.

Income Taxes

The Company's expected range (see Forward Looking Statements) for its provision for income taxes as a percentage of earnings before income taxes (income tax rate) for 2018 is 25% to 27%.  This is based on: (i) an effective income tax rate range within the main tax jurisdictions that it operates in (the Tax Jurisdictions) of 21% to 28%; (ii) the expected allocation of its taxable income among the Tax Jurisdictions; and (iii) the deductibility of certain costs for income tax purposes.

For the first three quarters of 2018, the Company's income tax rate was 16.2%, which is below its expected range primarily due to the recognition of $10.3 million in tax attributes that became useable after a reorganization of certain legal entities within the Company's corporate structure.  The impact of this was partially offset by the Company's acquisition costs as most of these are not deductible for income tax purposes.  Normalizing for these factors, the Company's income tax rate for the first three quarters of 2018 is 25.2%.

Outlook for 2018 and 2019

See Forward Looking Statements for a discussion of the risks and assumptions associated with forward looking statements.

Except as noted below, the Company's outlooks for 2018 and 2019 do not incorporate any provisions for possible future acquisitions even though the Company continues to pursue a variety of opportunities and expects to complete several more transactions in the coming quarters.

2018 Outlook

(in millions of dollars)

Bottom of Range

Top of Range




Revenue:



Prior guidance

3,010.0

3,070.0

Revised guidance

3,000.0

3,060.0




Adjusted EBITDA:



Prior guidance

278.0

287.0

Revised guidance

255.0

265.0

 

The Company is reducing its expected revenue and adjusted EBITDA for 2018 based on the factors that resulted in the variance from its expectations in the third quarter (see Results of Operations – Adjusted EBITDA) continuing into the fourth quarter but being partially offset by the impact of the acquisition of Ready Seafood late in the third quarter.

The Company's adjusted EBITDA margin for 2018 is expected to be in the 8.3% to 8.7% range which is below its expectations from earlier in the year despite the relatively small change in its revenue guidance primarily due to: (i) the margins of its recently acquired Ready Seafood business being lower than the contribution margins associated with the organic growth initiatives that have been delayed to 2019; (ii) transitory lower gross margins being generated on several new growth initiatives; and (iii) lower than originally expected deflation in the cost of certain raw material commodities. 

2019 Outlook

(in millions of dollars)

Bottom of Range

Top of Range




Revenue

3,660.0

3,720.0




Adjusted EBITDA:

320.0

340.0

 

The Company is providing revenue and adjusted EBITDA guidance for its next fiscal year earlier than has been its past practice based on the significant number of acquisitions completed over the last several quarters. 

The single largest factor resulting in the expected growth in the Company's revenue and adjusted EBITDA in 2019 is a full year of results from recent acquisitions.  Some of the other key drivers of the Company's expected top and bottom line growth are as follows:

  • Leveraging the very unique capabilities of its recently expanded sandwich capacity to grow its presence in the U.S. grocery and convenience store channels as well as to develop new foodservice opportunities;
  • Leveraging the strengths of the Company's recently acquired Oberto's business, including its 100-year-old brand and a national sales and distribution infrastructure, to launch a variety of the Company's very successful meat snack and charcuterie products into the U.S.;
  • Expanding the Company's highly successful foodservice model from western Canada into Ontario ;
  • Launching a variety of new fully cooked protein products into both the Canadian and U.S. markets in response to significant demand by grocery, convenience store and foodservice customers for simple to prepare home meal replacement solutions and on-the-go protein snacks;
  • Expanding the Company's very successful seafood model from western Canada and Ontario into the U.S. and eastern Canada ;
  • Improving margins based on: (i) reduced introductory pricing and promotion costs in the back half of 2019; and (ii) better capacity utilization and operating efficiencies in the first and fourth quarters as a result of general sales growth and growing sales of counter cyclical products in new markets in the U.S.


Based on its current portfolio of businesses, the Company expects its adjusted EBITDA margin for 2019 to be in the 8.7% to 9.2% range with the single most significant determining factor being the extent of its organic sales growth.  Longer term, the Company is targeting a 10% adjusted EBITDA margin based on a range of factors including continued organic sales growth and production efficiency improvements.


Premium Brands Holdings Corporation


Consolidated Balance Sheets

(in millions of Canadian dollars)



Sep 29,

Dec 30, 

Sep 30,

2018

2017

2017

Current assets:




Cash and cash equivalents

18.0

15.1

14.0

Accounts receivable

311.7

220.6

194.8

Inventories

324.5

218.1

207.8

Prepaid expenses and other assets

13.6

10.3

9.5


667.8

464.1

426.1





Capital assets

455.0

319.0

287.8

Intangible assets

445.7

201.2

148.4

Goodwill

759.4

439.1

340.4

Investment in associates

28.0

25.5

11.7

Other assets

21.6

10.6

10.9






2,377.5

1,459.5

1,225.3





Current liabilities:




Cheques outstanding

10.3

13.9

8.6

Bank indebtedness

0.5

6.2

4.8

Dividends payable

16.0

13.0

12.6

Accounts payable and accrued liabilities

242.4

179.1

176.3

Current portion of long-term debt

11.1

1.8

1.9

Current portion of provisions

2.3

20.7

20.5

Current portion of puttable interest in subsidiaries

64.4

32.1

6.0


347.0

266.8

230.7





Long-term debt

730.1

417.9

209.4

Puttable interest in subsidiaries

4.6

4.6

29.4

Deferred revenue

6.6

6.5

6.7

Provisions

42.8

1.8

1.8

Pension obligation

1.8

2.1

1.7

Deferred income taxes

79.2

47.8

48.3


1,212.1

747.5

528.0





Convertible unsecured subordinated debentures

359.3

214.3

256.5





Equity attributable to shareholders:




Retained earnings (deficit)

29.6

(3.7)

(7.7)

Share capital

753.9

482.2

433.5

Reserves

22.6

19.2

15.0


806.1

497.7

440.8






2,377.5

1,459.5

1,225.3

 


Premium Brands Holdings Corporation


Consolidated Statements of Operations

(in millions of Canadian dollars except per share amounts)



13 weeks
ended

Sep 29,

2018

13 weeks

ended

Sep 30,

2017

39 weeks
ended

Sep 29,

2018

39 weeks

ended

Sep 30,

2017






Revenue

835.5

557.6

2,181.9

1,613.2

Cost of goods sold

669.0

455.1

1,745.8

1,302.7

Gross profit before depreciation and amortization

166.5

102.5

436.1

310.5






Selling, general and administrative expenses before





depreciation and amortization

95.2

53.0

247.5

167.6


71.3

49.5

188.6

142.9






Plant start-up costs

1.4

2.6

2.5

3.9


69.9

46.9

186.1

139.0






Depreciation of capital assets

13.2

8.0

32.8

22.3

Amortization of intangible assets

4.0

2.5

10.8

7.4

Interest and other financing costs

12.3

5.4

32.8

15.9

Acquisition transaction costs

2.3

0.1

7.3

0.5

Change in value of puttable interest in subsidiaries

1.9

1.2

5.2

4.4

Accretion of provisions

-

0.3

0.3

0.8

Equity loss in associates

0.4

-

1.5

0.3

Earnings before income taxes

35.8

29.4

95.4

87.4






Provision (recovery) for income taxes





Current

5.1

10.1

22.8

21.8

Deferred

(5.4)

(2.0)

(7.3)

2.3


(0.3)

8.1

15.5

24.1






Earnings

36.1

21.3

79.9

63.3






Earnings per share:





Basic

1.09

0.72

2.50

2.13

Diluted

1.08

0.71

2.49

2.12






Weighted average shares outstanding (in millions):





Basic

33.3

29.7

32.0

29.7

Diluted

33.4

29.9

32.1

29.9

 


Premium Brands Holdings Corporation


Consolidated Statements of Cash Flows

(in millions of Canadian dollars)



13 weeks
ended

Sep 29,

2018

13 weeks

ended

Sep 30,

2017

39 weeks
ended

Sep 29,

2018

39 weeks

ended

Sep 30,

2017






Cash flows from (used in) operating activities:





Earnings

36.1

21.3

79.9

63.3

Items not involving cash:





Depreciation of capital assets

13.2

8.0

32.8

22.3

Amortization of intangible assets

4.0

2.5

10.8

7.4

Change in value of puttable interest in subsidiaries

1.9

1.2

5.2

4.4

Equity loss in associates

0.4

-

1.5

0.3

Deferred revenue

-

0.1

0.1

2.0

Non-cash financing costs

1.1

0.7

4.1

2.1

Deferred income tax provision (recovery)

(5.4)

(2.0)

(7.3)

2.3

Other

0.1

0.3

0.4

0.7


51.4

32.1

127.5

104.8

Change in non-cash working capital

8.8

(4.1)

(22.6)

(31.9)


60.2

28.0

104.9

72.9






Cash flows from (used in) financing activities:





Long-term debt – net

135.3

11.9

260.1

55.5

Bank indebtedness and cheques outstanding

(3.1)

(0.1)

(9.3)

(2.1)

Convertible debentures – net of issuance costs

-

-

164.7

-

Share issuance – net of issuance costs

-

-

164.9

-

Dividends paid to shareholders

(15.9)

(12.6)

(43.6)

(36.5)

Other

(0.9)

0.1

(2.8)

0.1


115.4

(0.7)

534.0

17.0






Cash flows from (used in) investing activities:





Capital asset additions

(17.0)

(12.0)

(45.2)

(49.1)

Business acquisitions

(135.5)

(28.4)

(553.5)

(40.2)

Payments to shareholders of non-wholly owned





subsidiaries

(0.2)

(0.5)

(2.0)

(2.3)

Payment of provisions

(20.0)

-

(20.5)

(1.7)

Purchase of shares for employee share loans

(1.3)

-

(11.3)

-

Investment in associates

(0.6)

(2.7)

(5.9)

(2.7)

Other

1.3

0.2

2.4

0.7


(173.3)

(43.4)

(636.0)

(95.3)






Change in cash and cash equivalents

2.3

(16.1)

2.9

(5.4)

Cash and cash equivalents – beginning of period

15.7

30.1

15.1

19.4






Cash and cash equivalents – end of period

18.0

14.0

18.0

14.0











Interest and other financing costs paid

7.8

1.5

25.0

10.8

Income taxes paid

23.5

6.3

41.4

22.2

 

NON-IFRS FINANCIAL MEASURES

The Company uses certain non-IFRS financial measures including adjusted EBITDA, free cash flow, adjusted earnings and adjusted earnings per share, which are not defined under IFRS and, as a result, may not be comparable to similarly titled measures presented by other publicly traded entities, nor should they be construed as an alternative to other earnings measures determined in accordance with IFRS.  These non-IFRS measures are calculated as follows:

Adjusted EBITDA

(in millions of dollars)

13 weeks

13 weeks

39 weeks

39 weeks


ended

ended

ended

ended


Sep 29,

Sep 30,

Sep 29,

Sep 30,


2018

2017

2018

2017






Earnings before income taxes

35.8

29.4

95.4

87.4

Plant start-up costs

1.4

2.6

2.5

3.9

Depreciation of capital assets

13.2

8.0

32.8

22.3

Amortization of intangible assets

4.0

2.5

10.8

7.4

Interest and other financing costs

12.3

5.4

32.8

15.9

Acquisition transaction costs

2.3

0.1

7.3

0.5

Change in value of puttable interest in subsidiaries

1.9

1.2

5.2

4.4

Accretion of provisions

-

0.3

0.3

0.8

Equity loss in associates

0.4

-

1.5

0.3






Consolidated adjusted EBITDA

71.3

49.5

188.6

142.9

 

Free Cash Flow

(in millions of dollars)

52 weeks

39 weeks

39 weeks



ended

ended

ended

Rolling


Dec 30,

Sep 29,

Sep 30,

Four


2017

2018

2017

Quarters






Cash flow from operating activities

85.9

104.9

72.9

117.8

Changes in non-cash working capital

45.9

22.6

31.9

36.7

Acquisition transaction costs

4.2

7.3

0.5

11.0

Plant start-up costs

7.3

2.5

3.9

5.9

Maintenance capital expenditures

(12.0)

(13.4)

(7.9)

(17.5)






Free cash flow

131.3

123.9

101.3

153.9

 

Adjusted Earnings and Adjusted Earnings per Share

(in millions of dollars except per share amounts)

13 weeks

13 weeks

39 weeks

39 weeks


ended

ended

ended

ended


Sep 29,

Sep 30,

Sep 29,

Sep 30,


2018

2017

2018

2017






Earnings

36.1

21.3

79.9

63.3

Plant start-up costs

1.4

2.6

2.5

3.9

Acquisition transaction costs

2.3

0.1

7.3

0.5

Accretion of provisions

-

0.3

0.3

0.8

Equity loss from associates in start-up

0.4

-

1.5

-

Change in value of puttable interest in subsidiaries

1.9

-

5.2

-


42.2

24.3

96.7

68.5

Current and deferred income tax effect of above items

(10.6)

(1.0)

(11.0)

(1.7)

Adjusted earnings

31.5

23.3

85.7

66.8

Weighted average shares outstanding

33.3

29.7

32.0

29.7

Adjusted earnings per share

0.95

0.78

2.68

2.25

 

FORWARD LOOKING STATEMENTS

This press release contains forward looking statements with respect to the Company, including, without limitation, statements regarding its business operations, strategy and financial performance and condition, cash distributions, proposed acquisitions, budgets, projected costs and plans and objectives of or involving the Company. While management believes that the expectations reflected in such forward looking statements are reasonable and represent the Company's internal expectations and belief as of November 12, 2018 , there can be no assurance that such expectations will prove to be correct as such forward looking 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. 

Assumptions used by the Company to develop forward looking information contained or incorporated by reference in this press release are based on information currently available to it and include those outlined below.  Readers are cautioned that this list is not exhaustive.

  • The overall economic conditions in Canada and the United States will be relatively stable with modest improvement in the near to medium term.
  • The average cost of the basket of food commodities purchased by the Company will be relatively stable with some modest deflationary pressures in the short term.
  • The Company's major capital projects, plant start-up and business acquisition initiatives will progress in line with its expectations.
  • The Company will be able to continue to access sufficient skilled and unskilled labor at reasonable wage levels.
  • The Company will be able to continue to access sufficient goods and services for its manufacturing and distribution operations.
  • The value of the Canadian dollar relative to the U.S. dollar will continue to fluctuate in line with recent levels.
  • The Company will be able to achieve continued operating efficiency improvements.
  • There will not be any material changes in the competitive environment of the markets in which the Company's various businesses compete. 
  • There will not be any material changes in the key food trends that are driving growth in many of the Company's businesses.  These trends include: (i) growing demand for higher quality foods made with simpler more wholesome ingredients and/or with differentiating attributes such as antibiotic free, no added hormones or use of organic ingredients; (ii) increased reliance on convenience oriented foods both for on-the-go snacking as well as easy home meal preparation; (iii) healthier eating including reduced sugar consumption and increased emphasis on protein; (iv) increased snacking in between and in place of meals; (v) increased interest in understanding the background and stories behind food products being consumed; and (vi) increased social awareness on issues such as sustainability, sourcing products locally, animal welfare and food waste.
  • Overall North American weather patterns will be in line with historic patterns.  To the extent that unusual and/or extreme weather occurs this can impact the Company in a variety of ways including: (i) changes in consumer demand patterns; (ii) changes in raw material costs; and (iii) raw material shortages.
  • There will not be any material changes in the Company's relationships with its larger customers including the loss of a major product listing and/or being forced to give significant product pricing concessions.
  • There will not be any material changes in the trade relationship between Canada and the U.S., particularly with respect to certain protein commodities such as beef, pork and chicken products.
  • The Company will be able to negotiate new collective agreements with no labor disruptions. 
  • The Company will be able to continue to access reasonably priced debt and equity capital.
  • The Company's average interest cost on floating rate debt will remain relatively stable in the near to medium future.
  • Contractual counterparties will continue to fulfill their obligations to the Company.
  • There will be no material changes to the tax and other regulatory requirements governing the Company.


Unless otherwise indicated, the forward looking information in this document is made as of November 12, 2018 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.

SOURCE Premium Brands Holdings Corporation


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