Canada Bread Company, Limited Reports Results for the First Quarter 2014

TSX: CBY

TORONTO, May 1, 2014 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the first quarter ended March 31, 2014. First quarter highlights include:

• Adjusted Operating Earnings⁽¹⁾⁽³⁾ increased 18.6% to $20.3 million in the first quarter compared to $17.1 million last year.
• Net earnings from continuing operations⁽³⁾ for the quarter increased to $9.8 million compared to $2.3 million last year.
• Adjusted Earnings per Share⁽²⁾⁽³⁾ for the quarter was $0.60 compared to $0.45 in the first quarter of 2013.

"All segments of our business continued to benefit from strategic capital investments that have improved operating efficiencies and lowered costs," said Richard Lan, President and CEO. "We continue to clear regulatory requirements to complete the sale of Canada Bread to Grupo Bimbo and our people are excited about opportunities to grow this business by joining the global bakery leader."

Financial Overview

Canada Bread Company, Limited ("the Company") sales from continuing operations⁽³⁾ for the first quarter decreased 1.2% to $342.8 million compared to $346.9 million last year, or 2.4% after adjusting for discontinued categories in the U.K. and the impact of currency translation on sales in the U.S. and U.K. The decrease was due to lower sales volumes and a lower value sales mix, partly offset by higher pricing across the Company.

Adjusted Operating Earnings increased 18.6% in the first quarter to $20.3 million compared to $17.1 million last year, as operational improvements were partly offset by lower volumes.

Net earnings from continuing operations in the quarter totaled $9.8 million ($0.39 basic earnings per share) compared to $2.3 million ($0.09 basic earnings per share) last year, which included $1.9 million of pre-tax restructuring and other related costs (2013: $10.4 million). Adjusted Earnings per Share was $0.60 for the first quarter compared to $0.45 last year.

Several items are excluded from the discussions of underlying earnings performance as they are not representative of on-going operational activities. Refer to the section entitled Non-IFRS Financial Measures at the end of this News Release for a description and reconciliation of all non-IFRS financial measures.

Business Segment Review

The following table summarizes sales by business segment:

(Unaudited)	First Quarter
($ thousands)		2014				2013
Fresh Bakery ^(3)		$	216,173		$	220,802
Frozen Bakery			126,664			126,065
Sales		$	342,837		$	346,867
The following table summarized Adjusted Operating Earnings by business segment:
(Unaudited)	First Quarter
($ thousands)		2014			2013
Fresh Bakery ^(3)		$	15,276		$	13,277
Frozen Bakery			5,025			3,841
Adjusted Operating Earnings^(1)		$	20,301		$	17,118

 

Fresh Bakery
Includes fresh bakery products, including breads, rolls, and bagels sold to retail, foodservice, and convenience channels. It includes national brands such as Dempster's^® and many leading regional brands.

Fresh Bakery sales for the first quarter decreased 2.1% to $216.2 million compared to $220.8 million last year, as lower volumes and a lower value sales mix were partly offset by the benefit of a price increase taken in the early part of 2013.

Adjusted Operating Earnings in the Fresh Bakery segment increased 15.1% to $15.3 million from $13.3 million last year, largely driven by operational efficiencies. This was the result of lower overhead costs as the third sub-scale Toronto, Ontario bakery was closed during the second quarter of 2013, with production consolidated into the Hamilton, Ontario bakery, as well as simplification of the product portfolio. These benefits were partly offset by higher selling, general and administrative costs and lower volumes. The benefit of a price increase last year was offset by higher input costs, despite lower input costs for wheat, due to the impact of a weaker Canadian dollar on other raw material costs, and higher inflationary costs.

Frozen Bakery
Includes frozen bakery products, including frozen par-baked bakery products, specialty and artisan breads, and bagels sold to retail, foodservice, and convenience channels in North America and the U.K. It includes national brands such as Tenderflake® and New York Bakery Co^TM.

Frozen Bakery sales for the first quarter increased 0.5% to $126.7 million, and decreased 3.0% after adjusting for discontinued categories in the U.K. and the impact of currency translation on sales in the U.S. and U.K. The decrease was due to lower sales volumes and a lower value sales mix, partly offset by higher pricing across the segment.

First quarter Adjusted Operating Earnings increased to $5.0 million from $3.8 million last year. Earnings in the U.K. bakery business benefited from higher pricing and lower raw material costs, as well as lower selling, general, and administration expenses. In the North American frozen bakery business, earnings declined primarily due to higher selling, general and administrative costs, resulting from a provision recorded against a trade receivable. Lower volumes and higher inflationary costs were offset by improved operating efficiencies and lower input costs for wheat.

Pending Transaction

On February 12, 2014, the Company announced that Grupo Bimbo, S.A.B. de C.V. of Mexico ("Grupo Bimbo") had agreed to acquire all of the issued and outstanding common shares of Canada Bread, by way of a statutory arrangement under the Business Corporations Act (Ontario) (the "Arrangement"). Under the terms of the Arrangement, Grupo Bimbo has agreed to acquire each common share of Canada Bread for $72.00 per share in cash.

On March 17, 2014, the proposed transaction received approval from the Canadian Competition Bureau to proceed. On March 24, 2014, the proposed transaction received clearance from the U.S. Department of Justice under the Hart-Scott-Rodino Act to proceed.

Subsequent to the quarter end, the Arrangement was also approved by the shareholders of Canada Bread at a special meeting held in April 2014. Subject to Investment Canada approval, the proposed transaction is expected to close in the second quarter of 2014.

Other Matters

As previously disclosed, rather than payment of a full quarterly dividend, the Arrangement contemplates the payment of a stub period dividend in the quarter in which the transaction closes.  As the Arrangement is expected to close during the second quarter, no quarterly dividend has been declared for this quarter, but rather pursuant to the Arrangement, one will be deemed to have been declared in the amount of $0.75 per share, pro-rated for the actual number of days elapsed in the second quarter up to and including the closing date of the transaction. This dividend will be payable at the effective time of the Arrangement to holders of record of Canada Bread common shares immediately prior to the effective time of the Arrangement.  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".  If the transaction does not close in the second quarter, the Company expects it would declare and pay a dividend in respect of the second quarter early in the third quarter of 2014.

Reconciliation of Non-IFRS Financial Measures

The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted Earnings per Share. 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. Therefore, they may not be comparable to similarly titled measures presented by other publicly traded companies, and should not be construed as an alternative to other financial measures determined in accordance with IFRS.

Adjusted Operating Earnings

Adjusted Operating Earnings, a non-IFRS measure, is used by Management to evaluate financial operating results. It is defined as earnings before income taxes adjusted for items that are not considered representative of on-going operational activities of the business, and items where the economic impact of the transactions will be reflected in the earnings in future periods when the underlying asset is sold or transferred. The table below provides a reconciliation of net earnings from continuing operations as reported under IFRS to Adjusted Operating Earnings for the three months ended, as indicated below. Management believes that this basis is the most appropriate on which to evaluate operating results, as they are representative of the on-going operations of the Company.

($ thousands)	Three months ended March 31, 2014
(Unaudited)	Fresh Bakery ^(3)			Frozen Bakery			Unallocated Costs			Consolidated
Net earnings from continuing operations										$	9,844
Income taxes											3,960
Earnings before income taxes from continuing operations										$	13,804
Interest expense											214
Earnings before interest and income taxes from continuing operations	$	14,641		$	4,767		$	(5,390)		$	14,018
Other (income) expense		(1,248)			264			5,390			4,406
Restructuring and other related costs		1,883			(6)			-			1,877
Adjusted Operating Earnings	$	15,276		$	5,025		$	-		$	20,301
($ thousands)	Three months ended March 31, 2013
(Unaudited)	Fresh Bakery ^(3)			Frozen Bakery			Unallocated Costs			Consolidated
Net earnings from continuing operations										$	2,294
Income taxes											1,503
Earnings before income taxes from continuing operations										$	3,797
Interest expense											397
Earnings before interest and income taxes from continuing operations	$	4,164		$	30		$	-		$	4,194
Other (income) expense		(1,298)			3,811			-			2,513
Restructuring and other related costs		10,411			-			-			10,411
Adjusted Operating Earnings	$	13,277		$	3,841		$	-		$	17,118

 

Adjusted Earnings per Share

Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate on-going financial operating results. It is defined as basic earnings per share, adjusted for items that are not considered representative of on-going operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. The table below provides a reconciliation of basic earnings per share from continuing operations as reported under IFRS to Adjusted Earnings per Share for the three months ended, as indicated below. Management believes this basis is the most appropriate on which to evaluate financial results as they are representative of the on-going operations of the Company.

(Unaudited)		Three months ended March 31,
($ per share)		2014^(i)			2013^(3)
Basic earnings per share from continuing operations		$	0.39		$	0.09
Items not considered representative of on-going operations^(i)			0.16			0.06
Restructuring and other related costs^(ii)			0.05			0.30
Adjusted Earnings per Share ^(iii)		$	0.60		$	0.45

(i)	Includes gains/losses associated with non-operational activities, including gains/losses related to restructuring activities, business combinations, discontinued operations, and assets held for sale, all net of tax.
(ii)	Includes per share impact of restructuring and other related costs, net of tax.
(iii)	May not add due to rounding

Forward-Looking Statements

This document contains, and the Company's oral and written public communications often contain, "forward-looking information" within the meaning of applicable securities laws. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which the Company operates and beliefs and assumptions made by Management. 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 the expected timing of the completion of the sale of the shares of the Company to Grupo Bimbo (there can be no assurances that any transaction will be completed), expectations regarding the use of derivatives, futures and options, expectations regarding the timing and amount of capital investments, expectations regarding the timing and cost of old facility closures and new facility openings, the expected use of cash balances, source of funds for ongoing business requirements, capital investments and debt repayment, expectations regarding the impact of new accounting standards, expectations regarding sufficiency of the allowance for uncollectible accounts and expectations regarding pension plan performance and future pension liabilities and contributions. 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 include, among other things:

• the risks associated with the pending acquisition by Grupo Bimbo
• the risks associated with changes in the Company's shared systems and processes;
• the risks associated with the management service agreement with Maple Leaf;
• the Company's exposure to currency exchange risks;
• the ability of the Company to hedge against the effect of commodity price changes through the use of commodity futures and options;
• the impact of international events on commodity prices and the free flow of goods;
• the risks associated with a consolidating retail environment;
• the risks related to capital expansion projects;
• the risks posed by food contamination, consumer liability, and product recalls;
• the risks related to acquisitions and divestitures;
• the risks posed by compliance with extensive government regulation;
• the risks posed by litigation;
• the impact of changes in consumer tastes and buying patterns;
• the impact of extensive environmental regulation and potential environmental liabilities;
• the risks associated with complying with differing employment laws and practices globally, the potential for work stoppages due to non-renewal of collective agreements, and recruiting and retaining qualified personnel;
• the impact on pension expense and funding requirements of fluctuations in the market prices of fixed income and equity securities and changes in interest rates;
• the risks associated with the Company's independent distributors;
• the risks posed by competition;
• the risks associated with pricing the Company's products;
• the risks associated with managing the Company's supply chain; and
• the risks associated with failing to identify and manage the strategic risks facing the Company.

The Company cautions the reader that the foregoing list of factors is not exhaustive. These factors 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, 2013, that is available on SEDAR at www.sedar.com. The reader should review such section 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, will be available on SEDAR at www.sedar.com.

Canada Bread Company Limited, which is 90.0% owned by Maple Leaf Foods Inc. (TSX:MFI), is a leading manufacturer and distributor of fresh bakery products and frozen par-baked products. The Company had sales of $1.5 billion in 2013 and employs approximately 5,400 people at its operations across North America and in the U.K.

Footnote Legend

---

(1)	Adjusted Operating Earnings, a non-IFRS measure, is used by Management to evaluate financial operating results.  It is defined as earnings before income taxes adjusted for items that are not considered representative of on-going operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.
(2)	Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate on-going financial operating results.  It is defined as basic earnings per share, adjusted for all items that are not considered representative of on-going operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this News Release.
(3)	Figures exclude the results of the Olivieri business in the Fresh Bakery segment. Olivieri results are reported as discontinued operations as disclosed in Note 16 of the Company's 2014 first quarter unaudited condensed consolidated financial statements.

Condensed Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
(Unaudited)

CANADA BREAD COMPANY, LIMITED

Three months ended March 31, 2014 and 2013

(In thousands of Canadian dollars)						As at March 31,		As at March 31,		As at December 31,
						2014		2013		2013
						(Unaudited)		(Unaudited)
ASSETS
Current assets
	Cash and cash equivalents				$	144,096	$	95,526	$	325,062
	Accounts receivable					14,761		47,983		38,480
	Note receivable					46,432		42,311		35,982
	Inventories					53,717		61,661		52,371
	Income taxes recoverable					5,903		167		4,725
	Assets held for sale					-		-		4,372
	Prepaid expenses and other assets					6,362		7,002		3,579
					$	271,271	$	254,650	$	464,571
	Property and equipment					373,322		399,861		372,542
	Investment property					9,815		9,148		9,634
	Other long-term assets					4,793		5,190		4,435
	Deferred tax asset					9,667		18,200		9,218
	Goodwill					271,300		265,934		268,444
	Employee benefits					1,758		-		-
	Intangible assets					10,001		9,753		9,804
	Total assets				$	951,927	$	962,736	$	1,138,648
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
	Bank indebtedness				$	-	$	3,088	$	4,408
	Accounts payable and accruals					215,599		162,416		204,422
	Provisions					5,304		17,357		7,375
	Due to Maple Leaf Foods Inc.					6,143		5,116		4,036
	Dividends payable					19,062		12,708		216,042
	Other current liabilities					100		-		100
	Current portion of long-term debt					554		531		568
					$	246,762	$	201,216	$	436,951
	Long-term debt					2,051		4,138		2,357
	Deferred tax liability					36,900		21,119		36,954
	Employee benefits					36,960		47,855		32,547
	Other long-term liabilities					4,562		-		1,876
	Provisions					5,488		5,039		5,630
	Total liabilities				$	332,723	$	279,367	$	516,315
Shareholders' equity
Share capital					$	142,965	$	142,965	$	142,965
Retained earnings						466,309		551,398		477,002
Accumulated other comprehensive income (loss)						9,930		(10,994)		2,366
Total shareholders' equity					$	619,204	$	683,369	$	622,333
Total liabilities and shareholders' equity					$	951,927	$	962,736	$	1,138,648

 

(In thousands of Canadian dollars, except share amounts)													Three months ended March 31,
(Unaudited)													2014		2013
															(Restated)
Sales												$	342,837	$	346,867
Cost of goods sold													272,659		282,995
Gross margin												$	70,178	$	63,872
Selling, general and administrative expenses													49,877		46,754
Earnings before the following:												$	20,301	$	17,118
Restructuring and other related costs													(1,877)		(10,411)
Other expense													(4,406)		(2,513)
Earnings before interest and income taxes from continuing operations												$	14,018	$	4,194
Interest expense													214		397
Earnings before income taxes from continuing operations												$	13,804	$	3,797
Income taxes													3,960		1,503
Net earnings from continuing operations												$	9,844	$	2,294
Net loss on disposal of discontinued operations													(628)		(13)
Net earnings												$	9,216	$	2,281
Earnings per share
	Basic and diluted earnings per share											$	0.36	$	0.09
	Basic and diluted earnings per share from continuing operations											$	0.39	$	0.09
Weighted average number of shares (millions)													25.4		25.4

 

See accompanying Notes to the Unaudited Condensed Consolidated Interim Financial Statements.

(In thousands of Canadian dollars)													Three months ended March 31,
(Unaudited)														2014		2013
Net earnings													$	9,216	$	2,281
Item that will not be reclassified to profit or loss:
		Change in actuarial gains and losses												(847)		6,503
Total item that will not be reclassified to profit or loss														(847)		6,503
Items that are or may be reclassified subsequently to profit or loss:
		Change in accumulated foreign currency
			translation adjustment											6,999		928
		Change in unrealized gains and losses
			on cash flow hedges											565		844
Total items that are or may be reclassified
	subsequently to profit or loss												$	7,564	$	1,772
													$	6,717	$	8,275
Comprehensive income													$	15,933	$	10,556

 

See accompanying Notes to the Unaudited Condensed Consolidated Interim Financial Statements.

(In thousands of Canadian dollars) (Unaudited)						Share capital			Retained earnings			Total accumulated other comprehensive income			Total shareholders' equity
Balance at December 31, 2013						$	142,965		$	477,002		$	2,366		$	622,333
	Net earnings						-			9,216			-			9,216
	Other comprehensive income						-			(847)			7,564			6,717
	Dividends declared ($0.75 per share)						-			(19,062)			-			(19,062)
Balance at March 31, 2014						$	142,965		$	466,309		$	9,930		$	619,204
(In thousands of Canadian dollars) (Unaudited)						Share capital			Retained earnings			Total accumulated other comprehensive income (loss)			Total shareholders' equity
Balance at December 31, 2012						$	142,965		$	555,322		$	(12,766)		$	685,521
	Net earnings						-			2,281			-			2,281
	Other comprehensive income						-			6,503			1,772			8,275
	Dividends declared ($0.50 per share)						-			(12,708)			-			(12,708)
Balance at March 31, 2013						$	142,965		$	551,398		$	(10,994)		$	683,369

 

See accompanying Notes to the Unaudited Condensed Consolidated Interim Financial Statements.

(In thousands of Canadian dollars)													Three months ended March 31,
(Unaudited)													2014		2013
CASH (USED IN) PROVIDED BY:
Operating activities
	Net earnings											$	9,216	$	2,281
	Add (deduct) items not affecting cash:
		Depreciation and amortization											11,714		12,777
		Deferred income taxes											1,714		(2,502)
		Income tax current											2,406		4,001
		Interest expense											214		397
		(Gain) loss on sale of property and equipment											124		(1,316)
		Gain on sale of assets held for sale											(1,725)		-
		Loss on sale of business											468		-
		Gain on sale of intangibles											(364)		-
		Loss on sale of investment properties											26		-
		Impairment of assets											-		3,570
	Increase in pension liability												1,513		1,282
	Net income taxes paid												(5,665)		(8,591)
	Interest received (paid)												(175)		64
	Change in provision for restructuring and other related costs												(2,009)		6,421
	Other												2,014		142
	Change in non-cash operating working capital												22,894		(1,513)
Cash provided by operating activities												$	42,365	$	17,013
Financing activities
	Dividends paid											$	(216,042)	$	(12,708)
	(Repayment) drawings of long-term debt												(349)		1,650
Cash used in financing activities												$	(216,391)	$	(11,058)
Investing activities
	Additions to property and equipment											$	(10,189)	$	(6,488)
	Proceeds from sale of property and equipment												8,125		2,556
	Adjustment to sale of business												(468)		-
Cash used in investing activities												$	(2,532)	$	(3,932)
Increase (decrease) in cash and cash equivalents												$	(176,558)	$	2,023
Net cash and cash equivalents, beginning of period													320,654		90,415
Net cash and cash equivalents, end of period												$	144,096	$	92,438
Net cash and cash equivalents is comprised of:
Cash and cash equivalents												$	144,096	$	95,526
Bank indebtedness													-		(3,088)
Net cash and cash equivalents, end of period												$	144,096	$	92,438

 

See accompanying Notes to the Unaudited Condensed Consolidated Interim Financial Statements.

SEGMENTED FINANCIAL INFORMATION

					Three months ended March 31,
					2014				2013
									Restated
Sales
	Fresh Bakery^(i)				$	216,173		$	242,848
	Frozen Bakery					126,664			126,065
Total sales					$	342,837		$	368,913
Sales from discontinued operations						-			(22,046)
Sales from continuing operations					$	342,837		$	346,867
Earnings before restructuring and other related
	costs and other income
	Fresh Bakery^(i)				$	15,276		$	13,260
	Frozen Bakery					5,025			3,841
Earnings before restrucutring and other related
	costs and other income				$	20,301		$	17,101
Loss before restructuring and other related
	costs and other income from discontinued operations					-			17
Earnings before restructuring and other related
	costs and other income from continuing operations				$	20,301		$	17,118
Capital expenditures
	Fresh Bakery^(i)				$	6,565		$	1,841
	Frozen Bakery					3,624			4,647
					$	10,189		$	6,488
Depreciation and amortization
	Fresh Bakery^(i)				$	6,843		$	8,049
	Frozen Bakery					4,871			4,728
					$	11,714		$	12,777

(i) The prior year results from the Fresh Bakery Group include assets and goodwill from the Fresh Pasta and Sauces business.   

						As at March 31, 2014		As at March 31, 2013^(i)			As at December 31, 2013
Total assets
	Fresh Bakery^(i)				$	455,457		$	495,095		$	427,722
	Frozen Bakery					357,512			340,886			329,631
	Non-allocated assets					138,958			126,755			381,295
					$	951,927		$	962,736		$	1,138,648
Goodwill
	Fresh Bakery^(i)				$	123,867		$	125,892		$	123,867
	Frozen Bakery					147,433			140,042			144,577
					$	271,300		$	265,934		$	268,444

(i) The prior year results as at March 31, 2013 from the Fresh Bakery Group include assets and goodwill from the Fresh Pasta and Sauces business.   

SOURCE: Canada Bread Company, Limited

Investor Contact: Nick Boland,
VP Investor Relations: 416-926-2005
Media Contact: 416-926-2020