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Premium Brands Holdings Corporation Announces 2010 First Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 7, 2010) - Premium Brands Holdings Corporation (TSX:PBH), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the first quarter of 2010.

HIGHLIGHTS

- Revenue for the quarter increased by 5.6% or $5.8 million to a record $109.7 million as compared to $103.9 million in the first quarter of 2009.

- Record EBITDA for the quarter of $7.3 million as compared to $6.3 million in the first quarter of 2009.

- Rolling twelve months free cash flow of $28.4 million as compared to declared distributions and dividends of $20.7 million.

- Earnings before unrealized exchange gains/losses, non-controlling interest and income taxes of $2.2 million or $0.12 per share as compared to $2.2 million or $0.12 per share in the first quarter of 2009.

- Record Retail segment sales and earnings for the quarter of $51.9 million and $4.3 million, respectively, as compared to $47.5 million and $2.8 million, respectively, in the first quarter of 2009.

- The Foodservice segment increased its sales to $57.8 million from $56.4 million in the first quarter of 2009 and its earnings to $2.0 million from $1.9 million in the first quarter of 2009.

- During the quarter the Company completed the acquisition of 100% of the shares of South Seas Meats Ltd. South Seas is a distributor of specialty meats, including a wide range of Halal and other ethnic foods, to restaurants, hotels and specialty butcher shops in the Greater Vancouver area.

- Subsequent to the quarter the Company completed the acquisition of an 80% interest in Vancouver, BC based Duso's Enterprises Ltd. Duso's is a specialty manufacturer of high quality branded and private label fresh pastas and sauces.

SUMMARY FINANCIAL INFORMATION

(In thousands of dollars except per share amounts) Quarter Ended
 Mar 27, Mar 28,
 2010 2009
Revenue 109,677 103,903
EBITDA 7,317 6,307
Normalized earnings before taxes (1) 2,178 2,077
Normalized earnings before taxes per share (1) 0.12 0.12
Earnings 1,826 2,072
Earnings per share 0.10 0.12

(1) Excludes unrealized gains and losses on foreign currency contracts and
 non-controlling interest.


 Rolling Four Quarters Ended
 Mar 27, Dec 26,
 2010 2009
Free cash flow 28,396 28,475
Declared distributions and dividends 20,721 20,687
Declared distributions and dividends per share 1.176 1.176
Free cash flow ratio 73.0% 72.6%

"In general terms, we are pleased with our first quarter performance given the continued weakness of Western Canada's economy," said Mr. George Paleologou, President and CEO. "While our involvement with the 2010 Vancouver Winter Olympics had a positive impact on our results, the more significant factors were the strong organic growth achieved by our Retail segment and the continued focus by all of our businesses on margin expansion and cost management.

"Looking forward, we are encouraged by the improving tone of the overall economy and the positive signs of recovery that we are starting to see in our more economically sensitive foodservice and convenience store focused businesses.

"In 2009 our diverse portfolio of specialty food manufacturing and differentiated food distribution businesses enabled us to be one of the few food companies in Canada to post record sales and EBITDA. For 2010, with an improving economic environment and our strong balance sheet, we are even better positioned to generate industry leading results.

"In terms of business acquisitions, we continue to enjoy a full pipeline of promising opportunities and fully expect to add to the two acquisitions we have completed so far in 2010," added Mr. Paleologou.

RESULTS OF OPERATIONS

Revenue

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 13 weeks 13 weeks
 ended ended
(in thousands of dollars except Mar 27, % Mar 28, %
 percentages) 2010 (1) 2009 (1)
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Revenue by segment:
 Retail 51,925 47.3% 47,489 45.7%
 Foodservice 57,752 52.7% 56,414 54.3%
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 Consolidated 109,677 100.0% 103,903 100.0%
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(1) Expressed as a percentage of consolidated revenue

Retail's revenue for the first quarter of 2010 increased by $4.4 million or 9.3% as compared to the first quarter of 2009 primarily due to: (i) general organic growth across a broad range of products and customers of $3.6 million representing an organic growth rate of approximately 7.6%; (ii) the Company's involvement with the 2010 Vancouver Winter Olympics which resulted in approximately $1.9 million in incremental sales; and (iii) an early Easter which resulted in approximately $0.5 million in sales occurring in the first quarter in 2010 versus the second quarter in 2009. Retail's organic growth rate of 7.6% was after accounting for a $1.3 million decrease in the Company's sales to the convenience store channel which continues to be impacted, albeit at a much lesser degree than in the latter part of 2009, by weaker economic conditions in western Canada.

Foodservice's revenue for the first quarter of 2010 increased by $1.3 million or 2.4% as compared to the first quarter of 2009 due to: (i) acquisitions made in the first quarter of 2010 and part way through the first quarter of 2009 which accounted for a sales increase of approximately $3.2 million; and (ii) the 2010 Vancouver Winter Olympics which resulted in approximately $0.7 million in incremental sales. Partially offsetting these increases was a decrease in the segment's sales to hotels and restaurants due to the continuing impact, albeit at a much lesser degree than in the latter part of 2009, of weaker economic conditions in western Canada.

Gross Profit

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 13 weeks 13 weeks
 ended ended
(in thousands of dollars except Mar 27, % Mar 28, %
 percentages) 2010 (1) 2009 (1)
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Gross profit by segment:
 Retail 16,516 31.8% 14,436 30.4%
 Foodservice 11,869 20.6% 10,886 19.3%
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 Consolidated 28,385 25.9% 25,322 24.4%
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(1) Expressed as a percentage of the corresponding segment's revenue

Retail's gross profit as a percentage of its revenue (gross margin) for the first quarter of 2010 as compared to the first quarter of 2009 increased by 1.4 percentage points primarily due to: (i) improved production efficiencies resulting from a number of factors, including improved overhead coverage caused by its higher sales levels; and (ii) the segment's gross margin in the first quarter of 2009 being impacted by approximately $0.4 million in production line start up costs.

Foodservice's gross margin for the first quarter of 2010 as compared to the first quarter of 2009 increased by 1.3 percentage points primarily due to: (i) lower costs for a variety of commodities purchased by the segment; (ii) improved purchasing power for imported products resulting from a stronger Canadian dollar relative to the U.S. dollar; and (iii) improved production efficiencies at several of its Centennial business' custom cutting operations.

Selling, General and Administrative Expenses (SG&A)

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 13 weeks 13 weeks
 ended ended
(in thousands of dollars except Mar 27, % Mar 28, %
 percentages) 2010 (1) 2009 (1)
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SG&A by segment:
 Retail 10,634 20.5% 9,966 21.0%
 Foodservice 9,002 15.6% 8,103 14.4%
 Corporate 1,432 946
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 Consolidated 21,068 19.2% 19,015 18.3%
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(1) Expressed as a percentage of the corresponding segment's revenue

Retail's selling, general and administrative expenses (SG&A) for the first quarter of 2010 as compared to the first quarter of 2009 increased by $0.7 million primarily due to: (i) costs associated with the Company's involvement in the 2010 Vancouver Winter Olympics; and (ii) increased variable selling costs, such as sales commissions, resulting from the segment's higher sales levels. Retail's SG&A as a percentage of its sales decreased to 20.5% from 21.0% in the first quarter of 2009 primarily due to its higher sales levels relative to a variety of fixed SG&A costs, including the cost of operating its truck fleet.

Foodservice's SG&A for the first quarter of 2010 as compared to the first quarter of 2009 increased by $0.9 million primarily due to: (i) SG&A associated with acquisitions made in the first quarter of 2010 and part way through the first quarter of 2009; and (ii) increased costs resulting from ramping up its infrastructure in anticipation of improving economic conditions and the successful execution of a variety of sales initiatives focused on growing its multi-unit restaurant chain business.

Adjusted EBITDA

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 13 weeks 13 weeks
 ended ended
(in thousands of dollars except Mar 27, % Mar 28, %
 percentages) 2010 (1) 2009 (1)
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Adjusted EBITDA by segment:
 Retail 5,882 11.3% 4,470 9.4%
 Foodservice 2,867 5.0% 2,783 4.9%
 Corporate (1,432) (946)
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 Consolidated 7,317 6.7% 6,307 6.1%
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(1) Expressed as a percentage of the corresponding segment's revenue

The Company's adjusted EBITDA for the first quarter of 2010 as compared to the first quarter of 2009 increased by $1.0 million or 16.0% primarily due to the strong performance of the Company's Retail segment which, in turn, was due to:

- Strong organic growth across a broad range of its products and customers;

- The Company's involvement with the 2010 Vancouver Winter Olympics; and

- Continuing improvement in the efficiency of its manufacturing operations.

Interest

Interest and other financing costs for the first quarter of 2010 as compared to the first quarter of 2009 increased by $1.0 million due primarily to: (i) an increase in the Company's borrowing spread resulting from the renegotiation of its credit facilities in July 2009, combined with relatively similar base borrowing rates (i.e. the bank prime and bankers acceptance rates) in both quarters; and (ii) the pay down of lower cost senior debt through the issuance of unsecured convertible debentures in the third quarter of 2009.

The Company's interest and other financing costs for the first quarter of 2010 were consistent with the amount incurred in the fourth quarter of 2009 given that there were no significant changes in the Company's total funded debt during the first quarter of 2010 or in its base borrowing rates.

Free Cash Flow

The following table provides a reconciliation of free cash flow to cash flow from operating activities:

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 52 weeks 13 weeks 13 weeks
 ended ended ended Four
 Dec 26, Mar 28, Mar 27, Rolling
(in thousands of dollars) 2009 2009 2010 Quarters
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Cash flow from operating activities 26,634 1,588 10,591 35,637
Changes in non-cash working capital 3,867 3,561 (5,492) (5,186)
Capital maintenance expenditures (2,026) (411) (440) (2,055)
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Free cash flow 28,475 4,738 4,659 28,396
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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 and Washington. The Company services over 25,000 customers and its family of brands include Grimm's, Harvest, McSweeney's, Bread Garden Express, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Harlan's, Creekside Bakehouse, Centennial Foodservice, B&C Foods and Duso's.

 Premium Brands Holdings Corporation

 CONSOLIDATED BALANCE SHEETS
 (Unaudited and in thousands)

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 Mar 27, Dec 26, Mar 28,
 2010 2009 2009
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Current assets:
 Cash and cash equivalents $ 588 $ 469 $ 1,052
 Accounts receivable 33,720 34,380 31,914
 Current portion of other assets 187 180 230
 Inventories 49,093 45,991 53,161
 Prepaid expenses 2,708 2,116 2,395
 Future income taxes 4,925 4,926 87
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 91,221 88,062 88,839

Capital assets 65,063 66,029 69,108
Investment in significantly influenced
 company 744 891 1,307
Future income taxes 42,607 43,529 -
Intangible assets 38,102 38,298 40,468
Goodwill 110,981 110,535 110,853
Other assets 2,645 2,663 3,378
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 $ 351,363 $ 350,007 $ 313,953
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Current liabilities:
 Cheques outstanding $ 1,586 $ 2,470 $ 2,724
 Bank indebtedness 2,455 2,411 9,314
 Dividend payable 5,204 5,180 1,723
 Accounts payable and accrued liabilities 44,559 37,429 43,660
 Puttable interest in subsidiaries 1,877 1,992 -
 Deferred credit 4,068 4,068 -
 Current portion of long-term debt 8,293 8,212 389
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 68,042 61,762 57,810

Puttable interest in subsidiaries 1,977 2,001 4,311
Future income taxes - - 1,823
Deferred credit 36,420 37,087 -
Long-term debt 73,229 74,705 114,756
Convertible unsecured subordinated
 debentures 36,910 36,769 -
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 216,578 212,324 178,700

Non-controlling interest 1,147 1,099 1,074

Shareholders' equity:
 Accumulated earnings 73,594 71,768 54,983
 Accumulated distributions and dividends
 declared (92,943) (87,739) (72,222)
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 Retained earnings (deficit) (19,349) (15,971) (17,239)
 Share capital 156,675 156,483 156,122
 Equity component of convertible
 debentures 1,225 1,225 -
 Accumulated other comprehensive loss (4,913) (5,153) (4,704)
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 133,638 136,584 134,179
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 $ 351,363 $ 350,007 $ 313,953
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 Premium Brands Holdings Corporation

 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited and in thousands except per share amounts)
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 13 weeks 13 weeks
 ended ended
 Mar 27, Mar 28,
 2010 2009
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Revenue $ 109,677 $ 103,903
Cost of goods sold 81,292 78,581
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Gross profit 28,385 25,322
Selling, general and administrative expenses 21,068 19,015
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 7,317 6,307
Depreciation of capital assets 1,924 2,099
Interest and other financing costs 2,340 1,357
Amortization of intangible and other assets 615 647
Amortization of financing costs 113 54
Unrealized loss on foreign currency contracts 156 16
Equity loss in significantly influenced company 147 73
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Earnings before income taxes and non-controlling
 interest 2,022 2,061

Provision for income taxes
 Current 11 -
 Future 137 70
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 148 70
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Earnings before non-controlling interest 1,874 1,991
Non-controlling interest - net of income taxes 48 (81)
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Earnings $ 1,826 $ 2,072
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Earnings per share
 Basic and diluted $ 0.10 $ 0.12

Weighted average shares outstanding 17,629 17,585



 Premium Brands Holdings Corporation

 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited and in thousands)
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 13 weeks 13 weeks
 ended ended
 Mar 27, Mar 28,
 2010 2009
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Cash flows from operating activities:
 Earnings before non-controlling interest $ 1,874 $ 1,991
 Items not involving cash:
 Depreciation of capital assets 1,924 2,099
 Amortization of intangible assets 614 646
 Amortization of other assets 1 1
 Amortization of financing costs 113 54
 Accretion of puttable interest in subsidiaries - -
 Loss on sale of assets 3 6
 Restricted Share Plan accrual 141 95
 Employee benefit plan accrual - 155
 Accrued interest income (11) (57)
 Unrealized loss on foreign currency contracts 156 16
 Equity loss in significantly influenced company 147 73
 Future income taxes 137 70
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 5,099 5,149
 Change in non-cash working capital 5,492 (3,561)
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 10,591 1,588
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Cash flows from financing activities:
 Long-term debt - net (1,869) 7,474
 Bank indebtedness and cheques outstanding (840) 1,008
 Purchase of shares under normal course issuer bid - (115)
 Dividends paid to shareholders (5,180) (5,170)
 Other (8) -
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 (7,897) 3,197
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Cash flows from investing activities:
 Collection of notes receivable 3 77
 Net proceeds from sales of assets 165 9
 Capital asset additions (1,069) (1,210)
 Business acquisitions (1,590) (1,681)
 Repayment of share purchase loans 21 25
 Investment in significantly influenced company - (1,380)
 Promissory note from significantly influenced company - (1,240)
 Payments to shareholders of non-wholly owned subsidiaries (115) -
 Other (5) -
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 (2,590) (5,400)
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Decrease in cash and cash equivalents 104 (615)

Effects of exchange on cash and cash equivalents 15 (12)

Cash and cash equivalents - beginning of period 469 1,679
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Cash and cash equivalents - end of period $ 588 $ 1,052
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Interest and other financing costs paid $ 1,516 $ 1,468

FORWARD LOOKING STATEMENTS

This press release includes forward looking statements with respect to Premium Brands, 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 Premium Brands' internal expectations and belief as of May 6, 2010, such statements involve unknown risks and uncertainties beyond Premium Brands' 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.

Important factors that could cause actual results to differ materially from Premium Brands' expectations include, among other things: (i) seasonal and/or weather related fluctuations in its 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 for its products; (iv) changes in the cost of products sourced from third party manufacturers and sold through Premium Brands' proprietary distribution networks; (v) changes in Canadian income tax laws; (vi) changes in consumer preferences for food products; (vii) competition from other food manufacturers and distributors; (viii) new government regulations affecting Premium Brands' business and operations; (ix) the inability to realize anticipated tax attributes associated with its recent conversion to a corporation; (x) exposure to third party credit/contractual risk and operational risk relating to its recent conversion to a corporation; and (xi) other factors as discussed in the Company's Management's Discussion and Analysis for 2009, which is filed electronically through SEDAR and is available online at [ www.sedar.com ]. It should be noted that this list of important factors affecting forward looking information may not be exhaustive.

Unless otherwise indicated, the forward looking information in this document is made as of May 6, 2010 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.