Canada Bread: Q4/2008 net earnings increase

Toronto / CA. (cb) Canada Bread Company Limited reported its financial results for the fourth quarter and year ended December 31, 2008. Adjusted Operating Earnings increased 7,8 percent compared to the prior year fourth quarter and Adjusted Operating Earnings per Share increased by 28 percent to 1,13 CAD. Net earnings per share of 1,04 CAD compared to 0,93 CAD last year. Margins were partially restored in the fourth quarter due to earlier price increases and lower wheat costs, although Adjusted Operating Earnings for the year declined 24,6 percent. All earnings measures are defined as earnings from operations before restructuring and other related costs and other income. All earnings per share measures are defined as earnings per share before restructuring and other related costs and other income.

«Despite a challenging first half of 2008, we ended the year with a return to stability and improved earnings», said Richard Lan, President and CEO. «The recent decline in commodity prices, combined with price increases helped to restore margins in the fourth quarter. Across our businesses, we remain focused on building volume through a steadfast commitment to our customers, innovation and new category expansion».

Financial Overview

Sales for the fourth quarter increased by 13,1 percent to 445,0 million CAD compared to the same period last year, while sales for the year increased by 12,9 percent to 1,7 billion CAD, reflecting higher selling prices and contributions from acquisitions. Excluding acquisitions, sales increased by 8,8 percent in the fourth quarter compared to last year and by 8,9 percent for the year.

For the fourth quarter, earnings from operations before restructuring and other related costs (Adjusted Operating Earnings) increased by 7,8 percent to 33,8 million CAD compared to 31,4 million CAD last year, while Adjusted Operating Earnings for the year declined by 24,6 percent to 97,6 million CAD from 129,5 million CAD last year. Net earnings before restructuring and other related costs for the quarter increased 28,1 percent to 28,7 million CAD (1,13 CAD per share), compared to 22,4 million CAD (0,88 CAD per share) last year. Net earnings before restructuring and other related costs for the year declined 13,1 percent to 73,1 million CAD (2,87 CAD per share), compared to 84,2 million CAD (3,31 CAD per share) last year.

Fresh Bakery (Fresh bakery products, specialty baked goods
and hand-held snacks, and fresh pasta and sauces)

Fresh Bakery sales for the fourth quarter increased 16,8 percent to 279,1 million CAD compared to 239,0 million CAD last year, largely due to the benefit of price increases implemented during the year and contributions from acquisitions. North American bakery volumes remained consistent with the fourth quarter last year. Sales for 2008 increased 15,7 percent to 1,1 billion CAD compared to 945,9 million CAD last year.

Adjusted Operating Earnings for the fourth quarter increased to 25,4 million CAD compared to 15,7 million CAD last year, while Adjusted Operating Earnings for the year declined to 76,5 million CAD compared to 88,4 million CAD for 2007, reflecting the significant impact of high commodity prices earlier in 2008. The combined impacts of price increases implemented in December 2007 and March 2008 and declining wheat prices contributed to margin improvement in the fourth quarter, but did not cover losses experienced earlier in the year. While commodity prices declined in the fourth quarter of 2008, the concurrent strengthening of the U.S. Dollar partially reduced the benefit of lower commodity wheat prices in the Canadian fresh bakery business, impacting margin recovery.

Frozen Bakery (North American and U.K. frozen bakery products; including frozen par-baked and specialty bakery products)

Frozen Bakery sales for the fourth quarter increased 7,5 percent to 165,8 million CAD compared to 154,3 million CAD last year, largely due to the benefit of price increases implemented during the year and mix improvements. Sales for the year increased 8,3 percent to 614,1 million CAD compared to 567,3 million CAD last year.

Adjusted Operating Earnings for the fourth quarter declined to 8,4 million CAD compared to 15,7 million CAD last year and declined 48,6 percent from 41,1 million CAD in 2007 to 21,1 million CAD for the year. This reflects the significant impact of high commodity prices earlier in 2008 and higher production costs. While North American frozen bakery operations benefited from mix improvements, higher utility, maintenance costs and production inefficiencies due to the transfer of production from the Toronto Bagel Plant to other regional plants impacted their earnings during the quarter. The U.K. bakery operations experienced higher production costs due to a new bagel oven commissioned at the Rotherham plant to replace an oven destroyed by fire earlier in the year. These start-up costs, as well as business interruption losses throughout the year, were partially offset by an 8,3 million CAD insurance payment in the fourth quarter that is recorded in other income. In addition, the U.K. business was further impacted by a weak economy which resulted in decreased sales volumes of its premium specialty bakery products. To further integrate acquisitions and improve capacity utilization, two sub-scale bakery plants were closed and production moved to other plants.

Other Income: The Company recorded other income for the fourth quarter of 8,3 million CAD, compared to 0,1 million CAD in 2007 due to insurance proceeds received to cover business interruption losses resulting from an oven fire that occurred at the Company´s bagel plant in Rotherham, United Kingdom earlier in the year. During the year, the Company received 14,7 million CAD in insurance payments related to this fire.

Release: Canada Bread Reports Results for Fourth Quarter and Fiscal 2008