Connors Bros. Income Fund whose subsidiaries market consumer food products under brands such as Bumble Bee(R), Clover Leaf(R), Brunswick(R), Castleberry's(R) and Sweet Sue(R), today announced its results for the year ended December 31, 2007. (Note: amounts in U.S. dollars unless otherwise noted).
Fourth quarter results included charges related to the Recall (defined below) and a non-cash asset impairment charge to recognize the diminished value of meats business assets. Excluding these items, Adjusted EBITDA was up 3.9% as strong seafood performance offset lost sales and profit from the meats business. Financial highlights for the quarter are presented in the table below.
<< Fourth Quarter Highlights:
------------------------------------------------------------------------- ------------------------------------------------------------------------- Summary Results - Fourth Quarter 2007 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarters ended ---------------------------------------------- December 31, 2007 ---------------------------------- (in millions, except per Excluding Recall Including Dec 31, unit data) Recall(1) Charges(2) Recall 2006 ----------------------------------------------
Revenue $ 225.6 $ (2.3) $ 227.9 $ 239.3 Net earnings (loss) $ 11.1 $ (82.2) $ (71.1) $ 18.0 Asset impairment charges - $ (78.4) $ (78.4) - Net earnings (loss) per unit - diluted $ 0.22 $ (1.63) $ (1.41) $ 0.35 Adjusted EBITDA(3) $ 25.2 n/a n/a $ 24.3 ------------------------------------------------------------------------- -------------------------------------------------------------------------
(1) Pro forma net earnings excluding Recall charges and non-cash asset impairment charges (2) Includes Recall charges and non-cash asset impairment charges (3) Adjustments to EBITDA include elimination of impact of recall charges, gains on insurance claims, non-cash asset impairment charges, and restructuring and other transition costs.
- The Fund reported a net loss for the fourth quarter of 2007 of $71.1 million, or a loss of $1.41 per unit as a result of recall charges and a $78.4 million non-cash charge related to impairment of goodwill, intangible assets and property, plant and equipment located in
- Revenues decreased by $11.4 million, or 4.8% to $227.9 million due to lower meat and poultry sales as a result of halted shipments following a recall of certain
- Market shares for seafood products remained strong in both the
- EBITDA for the fourth quarter of 2007, as adjusted to exclude the impact of the items noted above, increased by 3.9% to $25.2 million from $24.3 million for the fourth quarter of 2006 reflecting strong seafood performance offset by lost meat sales.
Highlights for 2007 Year:
------------------------------------------------------------------------- ------------------------------------------------------------------------- Summary Results ------------------------------------------------------------------------- ------------------------------------------------------------------------- Years ended ---------------------------------------------- December 31, 2007 ---------------------------------- (in millions, except per Excluding Recall Including Dec. 31, unit data) Recall(1) Charges(2) Recall 2006 ----------------------------------------------
Revenue $ 927.5 $ (11.1) $ 916.4 $ 938.2 Net earnings (loss) $ 43.4 $ (116.5) $ (73.2) $ 46.5 Asset impairment charges - $ (81.9) $ (81.9) - Net earnings (loss) per unit - diluted $ 0.84 $ (2.30) $ (1.44) $ 0.90 Adjusted EBITDA(3) $ 91.2 n/a n/a $ 86.2 ------------------------------------------------------------------------- -------------------------------------------------------------------------
(1) Pro forma net earnings excluding Recall charges and non-cash asset impairment charges (2) Includes Recall charges and non-cash asset impairment charges (3) Adjustments to EBITDA include elimination of impact of recall charges, gains on insurance claims, non-cash asset impairment charges, and restructuring and other transition costs.
- The Fund reported a net loss for 2007 of $73.2 million as a result of Recall charges and non-cash impairment charges related to the red meats assets. Excluding the non-cash asset impairment charge and the Recall charges, pro forma net earnings for the year would have been $43.4 million.
- Revenues decreased by $21.9 million, or 2.3% due to lower meat and poultry sales lost as a result of halted shipments following the Recall.
- EBITDA, as adjusted to exclude the Recall, restructuring charges and insurance recovery gains increased by 5.8% to $91.2 million from $86.2 million reflecting strong seafood performance offset by lost meat and poultry sales.
- Standardized distributable cash for 2007 was C$39.6 million or C$0.77 per unit (diluted), resulting in a standardized distributable cash payout ratio of 102.3%, with Recall costs and capital expenditures for a new ERP system offsetting reduced distributions as a result of the suspension of distributions.
"We ended 2007 with solid performance in the fourth quarter, particularly in our seafood business which continues to deliver strong results", said Chris Lischewski, president and chief executive officer of the Fund's operating subsidiaries. "While overall net sales were down in the quarter, this was primarily driven by lost meat product sales following the Recall.
We were able to deliver a 7.2% improvement in gross profit driven by seafood pricing taken to recover raw material cost increases, improved product mix as a larger part of our sales came from more profitable seafood products, and lower freight and warehousing costs as we begin to see the benefit of the distribution center consolidation we completed in 2007.
These factors contributed to a 3.9% increase in adjusted EBITDA in the fourth quarter." "In looking back at 2007 as a whole, despite rising costs and an intensely competitive environment, we were able to build on our position as the leading branded seafood company in
Our factories performed well in 2007 in handling this record volume and contributed to a 70 basis point improvement in gross margin. We made significant progress in the development of our new ERP system which is scheduled to be implemented in 2008, and we increased our leadership in the seafood sustainability arena through the establishment of a company sustainability fund and an outreach program to other stakeholders to maintain and increase our stewardship of our important seafood resources."
"The most notable event for the company in 2007 was, however, the recall of meat products produced on one production line of our
Impact of New Marketing Plan in 2008
The company also announced a new marketing campaign to be launched in 2008. "As the shelf stable seafood market leader in both the
Fourth Quarter Operational and Financial Summary:
Revenue for the fourth quarter of 2007 was $227.9 million as compared to $239.3 million for the fourth quarter of 2006, a decrease of $11.4 million or 4.8%. Case-equivalent volumes decreased by 16.9% as a result of the Recall with meats and poultry products accounting for the majority of the decrease. Seafood volume was down 6.2% reflecting category declines in light meat tuna due to significant cost increases passed on in pricing, and aggressive promotional activity by competitors during the fourth quarter of 2007. Excluding light meat tuna volume,
Standardized Distributable Cash and Distributable Cash
In the second quarter of 2007, the Fund began to measure and report on standardized distributable cash, a new measure of distributable cash recommended by the Canadian Institute of Chartered Accountants. This measurement is most meaningful on a full year basis as seasonal changes in working capital may have a significant impact on a quarter's performance which is not indicative of the cash generation of the business. As a result, the Fund reports standardized distributable cash over a 12 month period. Standardized distributable cash for the 12 months ended December 31, 2007 was C$39.6 million or C$0.77 per unit (diluted), resulting in a standardized distributable cash payout ratio of 102.3%, with Recall costs and capital expenditures for a new ERP system offsetting reduced distributions as a result of the suspension of distributions announced in August 2007. Distributions in excess of standardized distributable cash for the twelve months ended December 31, 2007 were paid from cash flows from operations, as capital expenditures were financed, in part by new borrowing. We have defined "distributable cash" as EBITDA less maintenance capital expenditures, interest paid and cash taxes. Distributable cash for the fourth quarter of 2007 was a negative (C$58.7) million, or (C$1.16) per unit (diluted), compared to distributable cash of C$21.1 million, or C$0.41 per unit (diluted) for the fourth quarter of 2006. The negative distributable cash in 2007 reflects the $81.9 million write-down of assets associated with the red meats business. Excluding the Recall charges, asset impairment charges, insurance gains, and restructuring charges, adjusted distributable cash for the twelve months ended December 31, 2007 was C$75.7 million or C$1.47 per unit (diluted), resulting in an adjusted distributable cash payout ratio for the twelve months ended December 31, 2007 of 53.6%. The payout ratio for the 12 months ended December 31, 2007 reflects the suspension of distributions for August through December 2007.
Other Financial Highlights
As of December 31, 2007, consolidated debt was $275.3 million, resulting in a twelve-month leverage ratio of 3.0x, which is in compliance with the Fund's senior debt facilities credit agreement. During the three and twelve months ended December 31, 2007, the company invested $5.7 million and $21.3 million, respectively, in property, plant, and equipment (including a $2.5 million payment for the new ERP platform which had been accrued at December 31, 2006), and, in the first quarter of 2007 made a $6.1 million investment for a minority position in a tuna processing business headquartered in Thailand. These investments were financed primarily from cash from operations, insurance proceeds earmarked for reinvestment, and additional borrowing. Inventory balances increased to $275.8 million from $259.2 million at September 29, 2007, an increase of $16.6 million as a result of the year-end inventory build of seafood products prior to the Lenten season sales in Q1 2008. Overall net working capital decreased $26.4 million as compared to ending balances on December 31, 2006.
------------------------------------------------------------------------- ------------------------------------------------------------------------- CONNORS BROS. INCOME FUND ------------------------------------------------------------------------- ------------------------------------------------------------------------- EBITDA and Adjusted EBITDA (see Non-GAAP Measures) ------------------------------------------------------------------------- -------------------------------------------------------------------------
Three months ended Twelve Months Ended ---------------------- ---------------------- (in thousands except for Dec. 31, Dec. 31, Dec. 31, Dec. 31, per unit data) 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Net earnings (loss) $ (71,091) $ 17,989 $ (73,162) $ 46,477
Add interest expense, net 5,447 4,416 18,339 16,653 Add debt issuance costs related to extinguished debt - - - 4,321 Add (less) income taxes (benefit) 7,358 (1,333) 7,962 3,004 Depreciation 3,314 2,514 16,434 10,122 Amortization of intangibles 1,045 1,019 4,165 4,166 ---------- --------------------- ---------- EBITDA (53,927) 24,605 (26,262) 84,743 Adjustments: Add impact of product recall 3,751 - 38,557 - Add Non-cash Asset Impairment Charges 78,446 - 81,946 - Add (less) restructuring and other transition costs (recovery) - (348) - 1,529 Gain on insurance claims (3,076) - (3,076) (77) ---------- ---------- ---------- ---------- Adjusted EBITDA $ 25,194 $ 24,257 $ 91,165 $ 86,195 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------------------------------------------------------------------- -------------------------------------------------------------------------
------------------------------------------------------------------------- ------------------------------------------------------------------------- CONNORS BROS. INCOME FUND ------------------------------------------------------------------------- ------------------------------------------------------------------------- Results of Operations - Quarter ------------------------------------------------------------------------- -------------------------------------------------------------------------
Three months ended ---------------------------------------------- Dec. 31, 2007 Dec. 31, ---------------------------------- (in thousands, except Excluding Recall Including earnings per unit) Recall(1) Charges(2) Recall 2006 ----------------------------------------------
Volume - equivalent cases 7,072 8,514
Revenue $ 225,565 $ 2,334 $ 227,899 $ 239,270 Gross profit 44,604 (2,691) 41,913 41,590 Selling, general and administrative 23,996 - 23,996 20,400 expenses Asset impairment charges - 78,446 78,446 - Product recall expenses - 1,060 1,060 - Restructuring and other transition costs - - - (348) Net interest expense 5,447 - 5,447 4,416 Gain on insurance settlement (3,076) - (3,076) - Other (income) expense, net (227) - (227) 466 Net earnings (loss) $ 11,106 $ (82,197) $ (71,091) $ 17,989 Net earnings (loss) per unit - basic $ 0.22 $ (1.63) $ (1.41) $ 0.35 Net earnings (loss) per unit - diluted $ 0.22 $ (1.63) $ (1.41) $ 0.35
(1) Pro forma net earnings excluding Recall charges and non-cash asset impairment charges (2) Includes Recall charges and non-cash asset impairment charges
------------------------------------------------------------------------- ------------------------------------------------------------------------- Results of Operations - 2007 Year ------------------------------------------------------------------------- -------------------------------------------------------------------------
Years ended ---------------------------------------------- Dec. 31, 2007 Dec. 31, ---------------------------------- (in thousands, except Excluding Recall Including earnings per unit) Recall(1) Charges(2) Recall 2006 ----------------------------------------------
Volume - equivalent cases 29,584 32,037
Revenue $ 927,497 $ (11,141) $ 916,356 $ 938,225 Gross profit 156,370 (27,983) 128,387 151,673 Selling, general and administrative 90,258 - 90,258 80,648 expenses Asset impairment charges - 81,946 81,946 - Product recall expenses - 10,574 10,574 - Restructuring and other transition costs - - - 1,529 Net interest expense 18,339 - 18,339 16,653 Debt issuance costs related to extinguished debt - - - 4,321 Gain on insurance settlement (3,076) - (3,076) (77) Other income, net (4,454) - (4,454) (882) Net earnings (loss) $ 43,380 $(116,542) $ (73,162) $ 46,477 Net earnings (loss) per unit - basic $ 0.86 $ (2.30) $ (1.44) $ 0.91 Net earnings (loss) per unit - diluted $ 0.84 $ (2.30) $ (1.44) $ 0.90
(1) Pro forma net earnings excluding Recall charges and non-cash asset impairment charges (2) Includes Recall charges and non-cash asset impairment charges
------------------------------------------------------------------------- ------------------------------------------------------------------------- CONNORS BROS. INCOME FUND ------------------------------------------------------------------------- ------------------------------------------------------------------------- Standardized Distributable Cash (see Non-GAAP Measures) ------------------------------------------------------------------------- -------------------------------------------------------------------------
Three months ended Years ended ----------------------- ----------------------- (in thousands except for per Dec 31, Dec 31, Dec 31, Dec 31, unit data) 2007 2006 2007 2006 --------- --------- --------- ---------
Cash provided by operating activities $ (1,523) $ 8,078 $ 58,123 $ 30,179 Less capital expenditures 5,713 3,168 21,267 7,608 --------- --------- --------- --------- Standardized Distributable Cash - USD (7,236) 4,910 36,856 22,571 Average exchange rate for the period 0.9790 1.1373 1.0750 1.1341 --------- --------- --------- --------- Standardized Distributable Cash - C$ C$ $ (7,084) C$ $ 5,584 C$ $ 39,620 C$ $ 25,598 --------- --------- --------- --------- --------- --------- --------- --------- Cash distributions declared C$ - C$ $ 17,371 C$ $ 40,532 C$ $ 69,484 Standardized Distributable Cash payout ratio n/a 311.1% 102.3% 271.4%