Premium Brands Holdings Corporation Announces Record 2011 Fourth Quarter Sales and Earnings from Operations
(firmenpresse) - VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 03/15/12 -- Premium Brands Holdings Corporation (TSX: PBH), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the fourth quarter of 2011.
HIGHLIGHTS
"We are pleased with the progress made by many of our businesses over the last year, both in terms of further solidifying their competitive positions in existing markets as well as establishing footholds in new markets across Canada and the U.S. Pacific Northwest," said Mr. Paleologou, President and CEO.
While the margins in many of Premium Brands' businesses were under pressure for most of 2011 due to record high costs for a variety of input commodities, its diversification strategies and focus on specialty markets and emerging consumer trends enabled it to continue to generate solid results.
"Looking forward, a combination of a full year's earnings from Piller's, which we acquired towards the end of 2011, the turnaround of our recently acquired Deli Chef and SJ Irvine businesses, and an improving economic environment for many of our legacy businesses, sets the stage for further improvement in our performance in 2012," added 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, Washington State and Nevada. The Company services over 26,000 customers and its family of brands and businesses include Grimm's, Harvest, McSweeney's, Bread Garden Express, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Harlan Fairbanks, Creekside Bakehouse, Centennial Foodservice, B&C Foods, Shahir, Duso's Fine Foods, Maximum Seafood, SK Food Group, OvenPride, Hub City Fisheries, Audrey's, Deli Chef, Hamish & Enzo and Piller's.
RESULTS OF OPERATIONS
Extra Week of Operations
The Company's fiscal year ends on the last Saturday of the calendar year. As a result its fiscal year is generally 52 weeks, however, every five to six years the Company has a fiscal year that is 53 weeks due to the calendar year being slightly longer than 52 weeks.
In 2011 the Company's fiscal year was 53 weeks resulting in an extra week of operations as compared to 2010. The Company estimates the impact of the extra week of operations on its sales and EBITDA to be $15.6 million ($11.9 million if recent acquisitions are excluded) and $0.1 million, respectively. The nominal impact on the Company's EBITDA relative to the higher sales impact is due to: (i) the year-end holiday season and generally poor weather in December resulting in the extra week being a relatively poor sales week; and (ii) despite the poor sales week the Company still incurred a full week of costs for items such as plant, sales, distribution and administrative overhead.
Retail's revenue for the fourth quarter of 2011 as compared to the fourth quarter of 2010 increased by $81.4 million or 106.5% due to: (i) the acquisitions of SK Food Group in the fourth quarter of 2010, Deli Chef in the first quarter of 2011, SJ in the second quarter of 2011 and Piller's in the third quarter of 2011 which resulted in $68.8 million in incremental sales for the quarter; (ii) organic growth of $9.1 million representing an organic growth rate of approximately 11.9%; and (iii) $5.0 million in incremental sales in Retail's legacy businesses resulting from an extra week of operations in 2011. Partially offsetting these increases was the loss of approximately $1.5 million in sales of third party products sourced in the U.S. due to suppliers choosing to directly market these products to Canadian retailers.
Retail's strong organic growth for the quarter, which was well above the Company's targeted range of 6% to 8%, was partly due to a $6.4 million increase in frozen wrap and breakfast sandwich sales driven in part by a very successful fall promotion with a major cafe chain.
Retail's sales to convenience stores, which have been contracting on a year over year comparative basis for the last couple of years, were flat for the quarter as an improved economic environment, particularly in western Canada, helped to offset the negative impact that several factors, including record high gas prices, are having on consumer spending in this channel.
Retail's revenue for 2011 increased by $194.2 million or 78.3% as compared to 2010 primarily due to: (i) the acquisitions of Duso's and SK Food Group in 2010 and Deli Chef, SJ and Piller's in 2011, which resulted in incremental sales of $184.9 million; (ii) organic growth across a range of products and customers of $9.3 million representing an organic growth rate of approximately 3.7%; and (iii) $5.0 million in incremental sales in Retail's legacy businesses resulting from an extra week of operations in 2011. Partially offsetting these increases was: (i) a $1.9 million decrease in revenue in the first quarter of 2011 due to one-time sales in 2010 resulting from the Company's involvement with the 2010 Vancouver Winter Olympics; and (ii) the loss of approximately $3.1 million in sales of third party products sourced in the U.S. due to suppliers choosing to directly market these products to Canadian retailers.
Retail's low organic growth rate for 2011, which was below the Company's targeted range of 6% to 8%, was primarily due to: (i) lower sales of barbeque focused products during the first two quarters of 2011 due to extremely poor weather across western Canada; and (ii) a $3.0 million decrease in sales to convenience stores in the first three quarters of 2011 due to reduced consumer spending in this channel that was the result of a variety of factors including continued consumer concerns about the uncertainty of the economic environment and record high gas prices.
Looking forward (see Forward Looking Statements), the Company expects Retail's organic growth rate for 2012 to be within its targeted range of 6% to 8%. This is based on a number of assumptions including: (i) the successful implementation of a variety of new product and new customer based initiatives; (ii) the continuation of the positive trends the Company is seeing with respect to consumer spending in the convenience store channel; (iii) the successful integration of independent distributors from the Pridcorp Network into Retail's convenience store DSD network; and (iv) limited price inflation based on the cost of most of the food commodities used by Retail, many of which rose to record levels in 2011, stabilizing in 2012.
Foodservice's revenue for the fourth quarter of 2011 as compared to the fourth quarter of 2010 increased by $13.2 million or 16.6% due to: (i) $6.3 million in incremental sales in Foodservice's legacy businesses resulting from an extra week of operations in 2011; (ii) organic growth of $5.2 million representing an organic growth rate of 7.0%; and (iii) the acquisition of Hub City Fisheries in the fourth quarter of 2010 which resulted in $1.9 million in incremental sales. These increases were partially offset by a $0.2 million decrease in Worldsource's food brokerage sales due to reduced trading opportunities.
Foodservice's organic growth, which was within the Company's targeted range of 6% to 8%, was driven by a combination of: (i) higher sales to its core hotel, restaurant and institutional customers as a result of several factors including improved consumer spending in this channel; and (ii) increased wholesale seafood sales resulting partially from a competitor in the Greater Toronto Area shutting down its business.
Foodservice's revenue for 2011 as compared to 2010 increased by $64.8 million or 22.6% due to: (i) the acquisitions of Maximum Seafood and Hub City Fisheries in 2010 which resulted in $41.9 million in incremental sales; (ii) organic growth of $17.2 million representing an organic growth rate of 6.4%; (iii) $6.3 million in incremental sales in Foodservice's legacy businesses resulting from an extra week of operations in 2011; and (iv) increased Worldsource sales of $0.1 million. These increases were partially offset by a $0.7 million decrease in revenue due to one-time sales in the first quarter of 2010 resulting from the Company's involvement with the 2010 Vancouver Winter Olympics.
Looking forward (see Forward Looking Statements) the Company expects Foodservice's organic growth rate for 2012 to be within its targeted range of 6% to 8%. This is based on a number of assumptions including: (i) a continuation of the positive trends the Company is seeing with respect to consumer spending in the foodservice channel; (ii) western Canada's economy continuing to improve; and (iii) some price inflation based on continuing increases in certain beef commodity inputs.
Retail's gross profit as a percentage of its revenue (gross margin) for the fourth quarter of 2011 as compared to the fourth quarter of 2010 decreased primarily due to the acquisitions of SK Food Group in 2010 and SJ and Piller's in 2011 as these businesses generate lower average gross margins as compared to Retail's other businesses.
Excluding SK Food Group, SJ and Piller's, Retail's gross margin (legacy gross margin) for the fourth quarter of 2011 improved slightly to 29.5% as compared to 29.1% in the fourth quarter of 2010. While Retail's legacy gross margin did show some improvement during the quarter on a year over year basis, it is still below the Company's targeted range of 32% to 33% due to record high costs for a variety of input commodities including poultry, pork, beef, and flour.
Retail's gross margin for 2011 as compared to 2010 decreased primarily due to: (i) the acquisitions of SK Food Group, SJ and Piller's; and (ii) a number of Retail's businesses being impacted for much of 2011 by rising costs for a variety of input commodities. Throughout 2011 the Company implemented a number of initiatives, including selling price increases and product packaging changes, to address the impact of higher costs on its margins. Excluding SK Food Group, SJ and Piller's, Retail's gross margin for 2011 was 30.6% as compared to 30.9% for 2010.
Looking forward (see Forward Looking Statements), for 2012 Retail expects its gross margin, after accounting for the impact of recent acquisitions, to trend towards its targeted range of 25% to 26% based on: (i) Retail's continuing implementation of a variety of margin enhancement initiatives, including targeted selling price increases, new product development, packaging changes and improving plant efficiencies; and (ii) the costs of some of the input commodities that have impacted its margins over the last year stabilizing, albeit at historically high levels.
Foodservice's gross margin for the fourth quarter of 2011 as compared to the fourth quarter of 2010 was down slightly due to: (i) sales mix changes, namely increased sales of lower margin frozen seafood products; and (ii) continued record high costs for certain input commodities.
Foodservice's gross margin for 2011 as compared to 2010 decreased primarily due to: (i) the acquisitions of Maximum Seafood and Hub City Fisheries part way through 2010 as these businesses generate lower average gross margins as compared to Foodservice's other businesses; and (ii) rising input costs for a variety of input commodities, in general, and for beef based products, in particular. Excluding Maximum Seafood and Hub City Fisheries, Foodservice's gross margin for 2011 was 18.7% as compared to 18.4% in 2010.
Looking forward (see Forward Looking Statements), Foodservice expects its gross margin to remain stable to slightly up for 2012 as compared to 2011 based on the benefits of its various margin improvement initiatives, which include selling price increases, improved operating efficiencies resulting from higher sales volumes and the introduction of a new hamburger patty program, being largely offset by increases in the cost of certain beef input commodities.
Retail's SG&A in the fourth quarter of 2011 as compared to the fourth quarter of 2010 increased by $13.6 million primarily due to: (i) the acquisitions of SK Food Group in 2010 and Deli Chef, SJ and Piller's in 2011 which resulted in an increase of $12.4 million; (ii) incremental SG&A in Retail's legacy businesses resulting from an extra week of operations in 2011; and (iii) higher freight and fuel costs resulting from fuel price increases. These increases were partially offset by lower distribution costs resulting from the rationalization of certain areas of Retail's direct-to-store delivery network.
Retail's SG&A for 2011 as compared to 2010 increased by $28.0 million primarily due to: (i) the acquisitions of Duso's and SK Food Group in 2010 and the acquisitions of Deli Chef, SJ and Piller's in 2011 which resulted in an increase in Retail's SG&A of $27.4 million; (ii) incremental SG&A in Retail's legacy businesses resulting from an extra week of operations in 2011; and (iii) higher freight and fuel costs resulting from fuel price increases. These increases were partially offset by: (i) a decrease in one-time costs associated with the Company's involvement in the 2010 Vancouver Winter Olympics in 2010; and (ii) lower distribution costs resulting from the rationalization of certain areas of Retail's direct-to-store delivery network.
Excluding acquisitions, Retail's SG&A as a percentage of revenue for 2011 was approximately 19.0% as compared to 18.8% for 2010.
Foodservice's SG&A in the fourth quarter of 2011 as compared to the fourth quarter of 2010 increased by $0.9 million primarily due to: (i) incremental SG&A in Foodservice's legacy businesses resulting from an extra week of operations in 2011; (ii) the acquisition of Hub City Fisheries in the fourth quarter of 2010 which accounted for $0.1 million of the increase; and (iii) higher freight and fuel costs resulting from fuel price increases.
Foodservice's SG&A for 2011 as compared to 2010 increased by $6.7 million primarily due to: (i) the acquisitions of Maximum Seafood and Hub City Fisheries in 2010 which accounted for $4.6 million of the increase; (i) incremental SG&A in Foodservice's legacy businesses resulting from an extra week of operations in 2011; (ii) the recognition in the second quarter of 2010 of a $0.5 million gain on the sale of a redundant property; and (iii) higher freight and fuel costs resulting from fuel price increases.
Excluding acquisitions and the $0.5 million gain on the sale of a redundant property in the second quarter of 2010, Foodservice's SG&A as a percentage of revenue for 2011 was approximately 13.9% as compared to 14.1% for 2010.
The Company's EBITDA for the fourth quarter of 2011 as compared to the fourth quarter of 2010 increased by $3.9 million or 37.2% primarily due to: (i) acquisitions; (ii) organic growth in a number of the Company's legacy businesses; and (iii) estimated additional EBITDA of approximately $0.1 million due to an extra week of operations in the fourth quarter of 2011.
These increases were partially offset by: (i) the continuing impact of high commodity costs on the selling margins of several of the Company's businesses; and (ii) higher freight and fuel costs resulting from fuel price increases.
The Company's EBITDA for 2011 increased by $12.9 million or 30.8% as compared to 2010 primarily due to the same factors that impacted its fourth quarter EBITDA, however, this increase was also partially offset by (i) one-time benefits in the first quarter of 2010 associated with the Company's involvement with the 2010 Vancouver Winter Olympics; and (ii) the recognition in the second quarter of 2010 of a $0.5 million gain on the sale of a redundant property.
Looking forward (see Forward Looking Statements), the Company expects its EBITDA for 2012 to increase significantly based on: (i) a full year of EBITDA from businesses acquired part way through 2011; (ii) improved EBITDA resulting from the turnaround of its recently acquired Deli Chef and SJ businesses; (iii) improved stability, albeit at historically high levels, in the cost of many of the input commodities that have been negatively impacting its margins for the last two years; and (iv) continued improvement in consumer spending in the convenience store and restaurant channels. Based on these factors the Company is projecting its 2012 EBITDA to be in the range of $75.0 million to $80.0 million.
Interest
The increases in the Company's interest and other financing costs for both the fourth quarter of 2011 as compared to the fourth quarter of 2010, and 2011 as compared to 2010, were primarily due to: (i) an increase in the Company's net funded debt; and (ii) the repayment of lower cost senior debt through the issuance of convertible unsecured subordinated debentures at the beginning of 2011.
These increases were partially offset by lower interest rates on the Company's senior credit facilities due to: (i) a lower interest rate environment in general; and (ii) the Company negotiating a lower credit spread on its senior credit facilities.
Restructuring Costs
Restructuring costs consist of costs associated with a significant restructuring of one or more of the Company's businesses. In 2011, the Company incurred $2.8 million in restructuring costs consisting of:
The above costs were partially offset by a gain of $0.5 million resulting from sales to independent distributors forming part of the Company's Direct Plus convenience store direct-to-store distribution network (the Direct Plus DSD network) of the exclusive right to sell certain of the Company's products to convenience stores in defined territories. These sales of distribution territories were completed in conjunction with the restructuring of the Direct Plus DSD network.
Acquisition Bargain Purchase Gain
During the second quarter of 2011, the Company completed an initial fair value assessment for the acquisition of Deli Chef. In doing so, it determined that the fair value of the net identifiable assets acquired was $1.4 million greater than the consideration paid. Under IFRS this difference is recognized immediately as a bargain purchase gain.
In the fourth quarter of 2011 the Company finalized its fair value assessment for the acquisition of Deli Chef resulting in an additional bargain purchase gain of $0.1 million.
Income Taxes
The Company's low deferred income tax provision in 2010 and deferred income tax recovery in the fourth quarter of 2010 was due to the Company recognizing a deferred tax asset of $2.6 million in the fourth quarter of 2010. This asset was the result of the Company determining that the final tax attributes associated with the Conversion were higher than estimated at the time of the Conversion.
Note that in the Company's 2010 consolidated financial statements prepared in accordance with GAAP the $2.6 million income tax provision recovery resulting from the recognition of the additional tax attributes was largely offset by an income tax provision expense resulting from the recognition of a corresponding deferred credit of $2.2 million. Under IFRS the full deferred credit associated with the Conversion, including the $2.2 million recognized in 2010 under GAAP, was recognized in 2009.
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 March 14, 2012, 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; and (x) 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 2011 MD&A, which is filed electronically through SEDAR and is available online at .
Unless otherwise indicated, the forward looking information in this document is made as of March 14, 2012 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.
Contacts:
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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Datum: 15.03.2012 - 06:00 Uhr
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