Canada Bread: Reports Results for Q2/2013

Toronto / CA. (cb) Canada Bread Company Limited reported its financial results for the second quarter ended June 30, 2013. Second quarter highlights include:

• Adjusted Operating Earnings for the second quarter of 36,5 million CAD was consistent with last year. Year-to-date Adjusted Operating Earnings increased 20,7 percent to 53,6 million CAD
• Net earnings1? for the quarter was 24,5 million CAD compared to 26,1 million CAD last year. For the first six months, net earnings increased to 26,8 million CAD from 26,3 million CAD last year.
• Adjusted Earnings Per Share1)(3? for the quarter was 1,07 CAD, up from 1,06 CAD in the second quarter of 2012. For the first six months, Adjusted Earnings per Share was 1,51 CAD, up from 1,25 CAD last year.

«In the quarter we realized returns on prior strategic investments to lower costs and improve productivity in our manufacturing network», said Richard Lan, President and CEO. «This includes our new bakery in Hamilton, Ontario and our expanded facilities in the U.K. We expect continued operational improvements, along with profitable contributions from many exciting new product launches that are planned throughout the balance of the year».

Financial Overview

Canada Bread Company Limited (the Company) sales for the second quarter decreased 1,8 percent to 397,6 million CAD compared to 404,9 million CAD last year or 0,7 percent after adjusting for discontinued bread categories in the U.K. and currency translation on sales in the U.S. and U.K. Lower sales volumes in the fresh bread business were partially offset by volume growth in the U.K. as well as higher pricing implemented during the first quarter in the fresh and North American frozen bakery businesses.

Sales for the first six months decreased 1,1 percent to 766,3 million CAD compared to 775,1 million CAD last year, but were consistent with last year after adjusting for discontinued bread categories in the U.K. and currency translation due to similar factors noted above.

Adjusted Operating Earnings for the second quarter of 36,5 million CAD was consistent with last year as a decline in volumes, primarily in the fresh bread business, was offset by operational efficiencies and lower SG+A expenses. For the first six months, Adjusted Operating Earnings increased 20,7 percent to 53,6 million CAD compared to 44,4 million CAD last year. Operational improvements and lower SG+A expenses more than offset lower volumes, mainly in the fresh bread business. Price increases earlier in the year also contributed to earnings growth, but this was largely offset by higher raw material and other inflationary costs.

Net earnings in the quarter was 24,5 million CAD (0,97 CAD basic earnings per share) compared to 26,1 million CAD (1,03 CAD basic earnings per share) last year and included 1,0 million CAD of pre-tax restructuring and other related costs (2012: 1,2 million CAD). Year-to-date net earnings was 26,8 million CAD (1,05 CAD basic earnings per share) compared to 26,3 million CAD (1,03 CAD basic earnings per share) last year and included 11,5 million CAD of pre-tax restructuring and other related costs (2012: 7,1 million CAD).

Adjusted Earnings per Share was 1,07 CAD for the second quarter (2012: 1,06 CAD) and 1,51 CAD for the first six months of 2013 (2012: 1,25 CAD).

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 – Fresh Bakery

Includes fresh bakery products, including breads, rolls, bagels, sweet goods and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as «Dempster´s» and «Olivieri» and many leading regional brands.

Fresh Bakery sales for the second quarter decreased 2,9 percent to 271,2 million CAD compared to 279,2 million CAD last year, as lower volumes were only partly offset by the benefit of an earlier price increase in the fresh bread business. During the first six months of 2013, sales decreased 2,6 percent to 513,8 million CAD compared to 527,3 million CAD last year due to similar factors.

Earnings declined 1,3 million CAD or 4,2 percent in the second quarter as higher net corporate costs allocated to the segment more than offset higher earnings at the fresh bread and fresh pasta businesses.

Earnings in the fresh bread business increased as a result of reduced costs and improved operating efficiencies. Also contributing to earnings were lower SG+A expenses. These benefits were partly offset by a decline in volume. During the quarter, the Company closed a third bakery in the Toronto area, eliminating any future duplicative overhead costs associated with consolidating production at its bakery in Hamilton, Ontario. Results in the fresh pasta business increased mainly due to lower SG+A costs.

For the first six months, Adjusted Operating Earnings increased 14,9 percent to 41,8 million CAD compared to 36,4 million CAD last year. Operational improvements and lower SG+A expenses more than offset lower volumes, mainly attributable to the fresh bread business.

Business Segment Review – 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».

Frozen Bakery sales for the second quarter were 126,5 million CAD compared to 125,7 million CAD in 2012. After adjusting for discontinued bread categories in the U.K. and currency translation on sales in the U.S. and U.K., sales increased 4,1 percent. Stronger volumes in the U.K. and the benefit of earlier price increases in the North American business were partly offset by a decline in North American frozen bakery volumes. Year-to-date Frozen Bakery sales increased 1,9 percent to 252,5 million CAD compared to 247,8 million CAD last year. After adjusting for discontinued bread categories in the U.K. and currency translation on sales in the U.S. and U.K., sales increased 5,1 percent due to similar factors.

Second quarter Adjusted Operating Earnings increased 17,8 percent to 7,9 million CAD from 6,7 million CAD last year. Performance in the North American frozen bakery business was consistent as earlier price increases offset inflationary costs and lower volumes. Earnings in the U.K. bakery business improved primarily due to higher volumes in both bagels and croissants. This business continues to benefit from network consolidation, investment in scale facilities and focus on its core categories.

For the first six months of 2013, Adjusted Operating Earnings increased 47,3 percent to 11,7 million compared to 8,0 million CAD last year, due to similar factors noted above.

Other Matters

On July 30, 2013, the Company declared a dividend of 0,50 CAD per share payable on October 1, 2013 to shareholders of record at the close of business on September 06, 2013. 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».