Humpty Dumpty Snack Foods, a marketer and distributor of salty snacks, has announced increased net sales and improved net earnings for Q2 2002, ended 31 March 2002.

Net earnings improved to a loss of C$330,000 (US$210,073) (C$0.03 loss per share) compared with a loss of C$696,000 (C$0.07 loss per share) in the prior year. Net sales grew 3.5% to C$38.3m, driven by strong growth in the Humpty Dumpty brand, offset partially by softness in the private label segment.

Gross margin increased substantially to 42.1% of net sales from 39.3% in the prior year, reflecting the impact of sales mix improvements, offset slightly by increased input costs.

Selling and administrative costs increased to 41.2% of net sales from 39.8% in the prior year, due to increases in distribution costs and investment in the Humpty Dumpty brand.

EBITA was C$336,000, up from a loss of C$158,000 in the prior year. Amortisation expense of C$739,000 remained unchanged from the same quarter in fiscal 2001. With reduced borrowing and lower interest rates, interest expense declined 61.2% to C$145,000.

Cash flow generated by operations was C$1.7m, a decrease of C$1.2m from the prior year. This change reflects increased working capital required in the quarter, partially offset by improved earnings.

Net cash used in financing activities totalled C$518,000 compared with C$2.7m in the prior year. The reduction is attributable to lower long and short-term debt repayments in 2002 resulting from refinanced bank facilities, which the company negotiated in December 2001.

Cash used in investing activities increased to C$584,000 in the Q2, up from C$182,000 in the prior year, due to increased capital investment.

Six-month financial review

Net earnings for H1 2002 improved by 161% to C$950,000 (C$0.10 per share) from C$364,000 (C$0.04 per share) in the prior year. Net sales were up slightly to C$82m from C$81.6m.

Gross margin increased to 43.4% of net sales from 42.3% in the prior year, driven by Q2 mix management, partially offset by input cost increases during the H1. Gross margins during the first half of the calendar year are typically lower than the second half, due to the seasonality of sales and storage costs for potatoes.

EBITA was C$3.4m compared to C$2.9m in the prior year. Amortisation expense of C$1.5m was consistent with the previous year. Interest expense decreased by 52.2% to C$373,000 due to lower interest rates and reduced borrowings.

Cash flow generated by operations was C$266,000 in the H1 compared with C$763,000 in the prior year, due to increased working capital requirements.

Net cash generated by financing activities was C$1.8m in fiscal 2002 compared with C$472,000 of cash used in the prior year, due to renegotiation of the company's banking facilities in December 2001.

Cash used in investing activities was C$671,000, an increase of C$380,000 over the prior year, as the Company invested more heavily in its facilities and systems.

Financial position

At 31 March 2002, the company's cash position was C$1.4m. This compares favourably with C$3.4m of bank indebtedness at 30 September 2001, 26.5% of the available line, and C$6.3m of bank indebtedness at 31 March 2001, was 48.2% of the then-available operating line.

Management believes that cash flow from operations and the existing credit facilities will provide the company with sufficient financial resources to fund its working capital needs and planned capital expenditures for the foreseeable future.


"Our branded growth strategy continues to prove its effectiveness by generating improved earnings," said chairman and CEO Gerald Schmalz: "We have the financial flexibility to continue our aggressive sales and marketing programs to build market share and profitability. We remain confident that our strategy will increase Humpty Dumpty's brand equity and position us to deliver enhanced shareholder value."