Canada Bread: Reports Results for the Third Quarter 2013

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

• Adjusted Operating Earnings increased 16,7 percent to 38,9 million CAD compared to 33,3 million CAD last year. Year-to-date Adjusted Operating Earnings increased 19,0 percent to 92,5 million CAD compared to 77,7 million CAD last year
• Net earnings for the quarter increased to 24,5 million CAD compared to 23,5 million CAD last year. For the first nine months, net earnings increased to 51,3 million CAD from 49,8 million CAD last year.
• Adjusted Earnings per Share for the quarter was 1,10 CAD, up from 0,93 CAD in the third quarter of 2012. For the first nine months, Adjusted Earnings per Share was 2,60 CAD, up from 2,18 CAD last year.
• The Company achieved an Adjusted Ebitda margin of 13,2 percent in the third quarter

«The business delivered solid earnings growth in the third quarter, benefiting from a very strong focus on efficiency gains, cost reduction and innovative new products», said Richard Lan, President and CEO. «We are realizing some of the benefits of our strategic initiatives already implemented and moving forward with others to realize this potential».

Financial Overview

Canada Bread Company Limited sales for the third quarter decreased 2,2 percent to 392,5 million CAD compared to 401,5 million CAD last year or 1,4 percent 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, primarily in the fresh bread business, partially offset by higher pricing across the Company.

Sales for the first nine months decreased 1,5 percent to 1’158,8 million CAD compared to 1’176,6 million CAD last year or 0,9 percent after adjusting for discontinued categories in the U.K. and the impact of currency translation, due to similar factors noted above.

Adjusted Operating Earnings increased 16,7 percent in the third quarter to 38,9 million CAD compared to 33,3 million CAD last year, driven by higher pricing and operational improvements, partly offset by lower volumes. For the first nine months, Adjusted Operating Earnings increased 19,0 percent to 92,5 million CAD compared to 77,7 million CAD last year, due to similar factors noted above.

Net earnings in the quarter was 24,5 million CAD (0,96 CAD basic earnings per share) compared to 23,5 million CAD (0,93 CAD basic earnings per share) last year and included 3,7 million CAD of pre-tax restructuring and other related costs (2012: 0,2 million CAD). Year-to-date net earnings was 51,3 million CAD (2,02 CAD basic earnings per share) compared to 49,8 million CAD (1,96 CAD basic earnings per share) last year and included 15,2 million CAD of pre-tax restructuring and other related costs (2012: 7,3 million CAD).

Adjusted Earnings per Share was 1,10 CAD for the third quarter (2012: 0,93 CAD) and 2,60 CAD for the first nine months of 2013 (2012: 2,18 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.

Fresh Bakery: Business Segment Review

Includes fresh bakery products, including breads, rolls, bagels, sweet goods and fresh pasta and sauces sold to retail, foodservice and convenience channels.

Fresh Bakery sales for the third quarter decreased 4,0 percent to 266,7 million CAD compared to 277,7 million CAD last year, as lower volumes were partly offset by the benefit of an earlier price increase in the fresh bread business. During the first nine months of 2013, sales decreased 3,0 percent to 780,6 million CAD compared to 805,1 million CAD last year due to similar factors.

Adjusted Operating Earnings in the Fresh Bakery segment declined 5,9 percent to 26,4 million CAD from 28,1 million CAD last year. Lower volumes and higher raw material and inflationary costs in the fresh bread business were partly offset by operating efficiencies, driven by the closure of a third Toronto, Ontario bakery, higher pricing and lower selling, general and administrative expenses. Earnings in the fresh pasta business were consistent with the prior year.

For the first nine months, Adjusted Operating Earnings increased 5,8 percent to 68,2 million CAD compared to 64,5 million CAD last year. In the fresh bread business, earnings improved as a result of higher pricing, operational improvements and lower selling, general and administrative spend, partly offset by lower volumes and higher raw material and other inflationary costs. Earnings in the fresh pasta business increased mainly due to an inventory write-off in the first quarter of last year that did not re-occur.

Frozen Bakery: Business Segment Review

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 United Kingdom.

Frozen Bakery sales for the third quarter increased 1,6 percent to 125,8 million CAD or 4,2 percent 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 increase was driven by volume growth in the U.K. and higher pricing in both the North American and U.K. bakery businesses. Year-to-date Frozen Bakery sales increased 1,8 percent to 378,3 million CAD or 3,8 percent 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 increase was due to similar factors affecting the third quarter.

Third quarter Adjusted Operating Earnings increased to 12,5 million CAD from 5,2 million CAD last year. The North American frozen bakery business benefited from operational cost reductions and higher pricing, while the U.K. business earnings benefited from increased volumes in the bagel and croissant categories. This business continued to benefit from network consolidation, investment in scale facilities and focus on its core categories.

For the first nine months of 2013, Adjusted Operating Earnings increased 83,4 percent to 24,2 million CAD compared to 13,2 million CAD last year, due to similar factors affecting the third quarter.

Subsequent Events

On October 21, 2013 the Company announced that it has established a Special Committee comprised solely of independent directors in connection with the potential sale by Maple Leaf Foods Inc., of its 90 percent interest in the Company. Maple Leaf has advised the Company´s Board that it is exploring strategic alternatives for its 90 percent interest in the Company, including a potential sale. This process is expected to conclude in early 2014. There can be no assurance that the process being undertaken by Maple Leaf Foods Inc. will result in the consummation of any transaction.

On October 24, 2013, the Company announced that it has signed a definitive agreement to sell substantially all of the net assets of its fresh pasta and sauce business, a component of the Fresh Bakery segment, for gross proceeds of approximately 120 million CAD. Subject to Competition Bureau review, the transaction is expected to close by the end of 2013.

Other Matters

On October 29, 2013, the Company declared a dividend of 0,50 CAD per share payable on January 02, 2014 to shareholders of record at the close of business on December 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».