Premium Brands Holdings Corporation Announces Second Quarter 2015 Results

VANCOUVER, BC--(Marketwired - August 06, 2015) - Premium Brands Holdings Corporation (TSX: PBH), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the second quarter of 2015.

HIGHLIGHTS FOR THE QUARTER

• Record second quarter revenue of $368.1 million representing a 14.2% increase as compared to the second quarter of 2014

• Record second quarter adjusted EBITDA of $28.7 million as compared to adjusted EBITDA of $21.7 million in the second quarter of 2014

• Record adjusted earnings for the quarter of $11.3 million or $0.47 per share as compared to $7.1 million or $0.32 per share for the second quarter of 2014. After a $21.5 million non-cash write-down of certain deferred tax assets, which was the result of a previously announced settlement with the Canada Revenue Agency, the Company had a net loss for the quarter of $10.5 million or $0.43 per share.

• Record rolling four quarters free cash flow of $71.8 million resulting in a dividend to free cash flow ratio of 42.8%

• Entered into a settlement agreement with the Canada Revenue Agency regarding the deductibility of tax attributes associated with the Company's conversion from an income trust in 2009. Under the agreement the Company solidified $16.6 million in previously realized tax savings and secured $44.8 million of tax attributes which are expected to result in approximately $15.7 million in future tax savings. The agreement also resulted in the loss of $89.1 million in tax attributes and a corresponding non-cash write-off of approximately $21.5 million of deferred tax assets

• Issued $69.0 million of convertible unsecured subordinated debentures bearing interest at 5% and convertible into common shares at a price of $44.65

• Issued a notice of intention to redeem all outstanding 5.75% convertible unsecured subordinated debentures. This resulted in the redemption of only $1.2 million of debentures as the balance of the original $57.5 million issuance was converted into common shares

• Subsequent to the quarter, completed the acquisition of Isernio's Inc. for US$12.0 million. Isernio's is based in the State of Washington and is one of the U.S. Pacific Northwest's leading manufacturers of premium branded fresh sausage

"The continuing improvement in our performance is being driven by a number of factors including strong consumer demand for a broad range of our specialty food products and the realization of benefits associated with several large capital investments that we have made over the last three years. Furthermore, the growth in our adjusted EBITDA is despite input cost challenges created by the impact the weakening Canadian dollar is having on the cost of certain food commodities," said Mr. George Paleologou, President and CEO.

"Overall, we are very pleased with our results as we continue to make solid progress towards our goal of being one of North America's leading specialty food companies.

"We are also very pleased to have recently added Isernio's, which is one of the leading premium branded fresh sausage businesses in the U.S. Pacific Northwest, to our portfolio of great specialty food companies. Looking forward we expect to complete more accretive acquisitions in 2015 based on a robust acquisition pipeline and leveraging our strong financial position," added Mr. Paleologou.

About 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, Ontario, Quebec, Nevada, Ohio and Washington State. The Company services a diverse base of customers located across North America and its family of brands and businesses include Grimm's, Harvest, McSweeney's, Bread Garden Go, Hygaard, Hempler's, Isernio's, Quality Fast Foods, Direct Plus, Harlan Fairbanks, Creekside Bakehouse, Stuyver's Bakestudio, Centennial Foodservice, B&C Food Distributors, Shahir, Wescadia, Duso's, Maximum Seafood, Ocean Miracle, SK Food Group, OvenPride, Hub City Fisheries, Audrey's, Deli Chef, Piller's and Freybe.

RESULTS OF OPERATIONS

Retail's revenue for the second quarter of 2015 as compared to the second quarter of 2014 increased by $33.4 million or 16.5% primarily due to: (i) general organic growth across a range of products and customers; (ii) an increase in the translated value of Retail's U.S. based businesses' sales resulting from a decline in the value of the Canadian dollar; and (iii) selling price increases that were implemented in the later part of 2014 in response to higher raw material costs (see Gross Profit). Excluding the impact of exchange translation and inflation, Retail's organic growth for the quarter was 7.1%.

Retail's revenue for the first two quarters of 2015 as compared to the first two quarters of 2014 increased by $81.1 million or 21.6% primarily due to the same factors as outlined above. Excluding the impact of exchange translation and inflation, Retail's organic growth for the first two quarters of 2015 was 9.6%.

Retail's long-term targeted range for its organic growth rate is 6% to 8%. Looking forward (see Forward Looking Statements), it expects to exceed this range for 2015 based on (i) the factors outlined above; and (ii) leveraging a number of capacity expansion projects that it has completed over the last several years including construction of a new state-of-the-art artisan bakery in 2012 and a new 180,000 square foot sandwich production facility in 2014.

Foodservice's revenue for the second quarter of 2015 as compared to the second quarter of 2014 increased by $12.4 million or 10.4% primarily due to: (i) selling price increases that were implemented in the later part of 2014 and in 2015 in response to higher raw material costs (see Gross Profit); and (ii) the acquisition of Ocean Miracle, an Ontario based seafood distribution business, in the fourth quarter of 2014 which accounted for $4.8 million of the increase. Excluding the impact of these factors, Foodservice's organic growth for the quarter was flat as increases generated from a variety of sales initiatives were offset by: (i) reduced sales in northern Alberta due to the impact that lower oil commodity prices has had on this region; and (ii) an average west coast sockeye salmon fishery relative to a very strong fishery in 2014.

Foodservice's revenue for the first two quarters of 2015 as compared to the first two quarters of 2014 increased by $30.4 million or 14.3% primarily due to the same factors as outlined above. Excluding the impact of inflation and acquisitions, Foodservice's organic growth for the first two quarters of 2015 was 1.2%.

Foodservice's long-term targeted range for its organic growth rate is also 6% to 8%. Looking forward (see Forward Looking Statements), it expects to exceed this range for 2015 based on continued high selling prices as record high costs for certain raw materials are expected to continue until the latter part of the year. In terms of volume, Foodservice's growth for 2015 is expected to be relatively low due to continued weak sales in northern Alberta and a smaller west coast sockeye salmon fishery relative to 2014.

Retail's gross profit as a percentage of its revenue (gross margin) for the second quarter of 2015 as compared to the second quarter of 2014 as well as for the first two quarters of 2015 as compared to the first two quarters of 2014 increased primarily due to: (i) selling price increases implemented by its protein focused businesses (see Revenue) in response to a record run up in beef and pork raw material costs in 2014; (ii) an easing of certain pork raw material costs, albeit this factor was partially offset by longer term purchase commitments and a weaker Canadian dollar as pork commodity prices are generally U.S. dollar based; and (iii) improved operating efficiencies resulting from a restructuring of Retail's deli meats production capacity that was completed near the end of the second quarter of 2014. These factors were partially offset by temporary operating inefficiencies associated with the ramp up of Retail's new 180,000 square foot sandwich production facility (see Plant Start-up and Restructuring Costs).

Foodservice's gross margin for the second quarter of 2015 as compared to the second quarter of 2014 as well as for the first two quarters of 2015 as compared to the first two quarters of 2014 decreased primarily due to record high beef raw material costs. Foodservice has been able to recover most of its raw material cost increases through higher selling prices (see Revenue), however, due to the extent of the increases it has not been able to achieve its historic gross margins.

Looking forward (see Forward Looking Statements), Foodservice expects its gross margin to improve towards the end of 2015 based on projected lower beef raw material costs.

Retail's SG&A for the second quarter of 2015 as compared to the second quarter of 2014 as well as for the first two quarters of 2015 as compared to the first two quarters of 2014 increased by $1.9 million and $3.3 million, respectively, primarily due to: (i) incremental costs associated with Retail's organic sales growth (see Revenue) including higher advertising and freight costs as well as additional sales and administration infrastructure; (ii) increased discretionary employee compensation accruals associated with growth in the Company's free cash flow; and (iii) an increase in the translated value of Retail's U.S. based businesses' SG&A resulting from a decline in the value of the Canadian dollar. These increases were partially offset by reduced costs resulting from the rationalization and subsequent sale of Retail's direct-to-store delivery network for the convenience store channel in 2014.

Retail's SG&A as a percentage of its revenue for the first two quarters of 2015 as compared to the first two quarters of 2014 decreased mainly due to the fixed nature of certain costs relative to the growth in its revenue (see Revenue).

Foodservice's SG&A for the second quarter of 2015 as compared to the second quarter of 2014 as well as for the first two quarters of 2015 as compared to the first two quarters of 2014 increased by $1.2 million and $2.6 million, respectively, primarily due to: (i) additional sales and administration infrastructure; and (ii) the acquisition of Ocean Miracle in the fourth quarter of 2014.

Foodservice's SG&A as a percentage of its revenue for the first two quarters of 2015 as compared to the first two quarters of 2014 decreased mainly due to the fixed nature of certain costs relative to the growth in its revenue (see Revenue).

Corporate SG&A for the second quarter of 2015 as compared to the second quarter of 2014 as well as for the first two quarters of 2015 as compared to the first two quarters of 2014 increased by $0.8 million and $2.0 million, respectively, primarily due to increased discretionary employee compensation accruals associated with the growth in the Company's free cash flow and exchange losses on U.S. dollar denominated liabilities.

The Company's adjusted EBITDA for the first two quarters of 2015 as compared to the first two quarters of 2014 increased by $14.9 million or 45.2% to $47.7 million primarily due to; (i) growth in the Company's sales (see Revenue); (ii) improved gross margins resulting from higher selling prices, decreases in certain raw material costs, and improved operating efficiencies associated with the restructuring of the Company's deli meats production capacity (see Gross Profit); and (iii) the rationalization and subsequent sale of the Company's direct-to-store delivery network for the convenience store channel in 2014 (see SG&A).

These increases were partially offset by: (i) temporary operating inefficiencies associated with the ramp up of the Company's new 180,000 square foot sandwich plant (see Plant Start-up and Restructuring Costs); and (ii) below normal margins in the Company's foodservice business due to continued record high beef raw material costs (see Gross Profit).

The Sandwich Capacity project, which included the construction of a new 180,000 square foot production facility in Columbus, OH in 2014, was the Company's only active restructuring initiative in the first half of 2015. While no further restructuring costs are anticipated for this project, the Columbus plant is still operating at below long-term performance expectation levels.

Looking forward (see Forward Looking Statements), the Company is projecting a steady improvement in the profitability of this operation based on: (i) improved operating efficiencies as production processes are refined and the Columbus plant workforce becomes more experienced; and (ii) continued sales growth which will help to offset the incremental overhead associated with the new plant and the sales and administration infrastructure that was put into place in 2014 to support this growth.

Interest and other financing costs

The Company's interest and other financing costs for the second quarter of 2015 as compared to the second quarter of 2014 and for the first two quarters of 2015 as compared to the first two quarters of 2014 decreased primarily due to: (i) a reduction in the Company's total funded debt; and (ii) a reduction in the weighted average cost of its funded debt that was mainly the result of the conversion and repayment of its 7.00% debentures in 2014 and its 5.75% debentures in 2015.

FORWARD LOOKING STATEMENTS

This press release contains forward looking statements with respect to the Company, 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 the Company's internal expectations and belief as of August 5, 2015, such statements involve unknown risks and uncertainties beyond the Company's 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.

Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include: (i) changes in the cost of raw materials used in the production of the Company's products; (ii) seasonal and/or weather related fluctuations in the Company's sales; (iii) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (iv) changes in the cost of products sourced from third party manufacturers and sold through the Company's proprietary distribution networks; (v) risks associated with the Company's conversion from a publicly traded income trust to a publicly traded corporation; (vi) changes in the Company's relationships with its larger customers; (vii) potential liabilities and expenses resulting from defects in the Company's products; (viii) changes in consumer food product preferences; (ix) competition from other food manufacturers and distributors; (x) execution risk associated with the Company's growth and business restructuring initiatives; (xi) risks associated with the Company's business acquisition strategies; (xii) changes in the value of the Canadian dollar relative to the U.S. dollar; (xiii) new government regulations affecting the Company's business and operations; (xiv) the Company's ability to raise the capital needed to fund its business activities; (xv) labour related issues including potential labour disputes with employees represented by labour unions and labour shortages; and (xvi) a major disruption or failure of the Company's information technology systems. Details on these risk factors as well as other factors can be found in the Company's 2014 MD&A, which is filed electronically through SEDAR and is available online at www.sedar.com.

Unless otherwise indicated, the forward looking statements in this document are made as of August 5, 2015 and, except as required by applicable law, will not be publicly updated or revised. This cautionary statement expressly qualifies the forward looking statements in this press release.