Ontario-based marketer and distributor of salty snacks, Humpty Dumpty Snack Foods, has revealed that sales growth and bottom-line performance that slightly exceeded expectations in its Q3.

Net sales increased 5.6% during the quarter, driven by solid growth in the Humpty Dumpty brand as the company continues to pursue its branded growth strategy. Gains made in the branded segment were partially offset by softness in the private label segment.

Net earnings remained relatively consistent quarter over quarter, at C$56,000 (C$.01 per share) compared with C$26,000 (C$0.00 per share) in the prior year. Gross margin in the Q3 was 39.3% of net sales, unchanged from the previous year, despite significantly higher potato costs.

Selling and administrative costs increased to 37.0% of net sales from 36.6% in the prior year, mainly due to higher administrative operating costs. EBITA was C$1m in the Q3, a drop from C$1.1m in the prior year. Increased selling and administrative costs offset the C$940,000 growth in total gross margin. Amortisation costs increased C$26,000 to C$758,000. Interest expense fell to C$164,000 from C$330,000 in the previous year, due to lower interest rates.

Cash flow generated by operations was C$518,000, a decrease of C$2.9m from the prior year. This change reflects increased working capital required to fund the company's growth. Net cash used in financing activities totalled C$518,000 compared with C$3.1m in the prior year, as the company's cash position in 2002 eliminated short-term debt repayments. Cash used in investing activities increased to C$399,000 in the Q3, up from C$297,000 in the prior year, due to increased investment in capital assets.

Nine-month review

Net earnings for the first nine months of 2002 improved by C$616,000 to C$1m (C$0.11 per share) from C$390,000 (C$0.04 per share) in the same period last year. Net sales grew 2.2%

to C$126.4m and year-to-date, strong branded growth has been offset by a decline in private label sales. This reflects retailers' increasing focus and support of Humpty Dumpty's branded products.

Gross margin increased to 42.0% of net sales from 41.3% in the prior year, as the company's branded growth improved sales mix and margins. This success was partly mitigated by rising raw material costs. 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.

Selling and administrative costs increased slightly to 38.5% of net sales from 38% in the prior year, as the company continued to invest in the selling and administrative infrastructure required to support ongoing growth. EBITA was C$4.5m during the first nine months compared with C$4m in the prior year. Amortisation expense  remained constant at C$2.2m. Interest expense fell by C$573,000 to C$537,000 as a result of lower interest rates and reduced borrowings.

Cash flow generated by operations was C$784,000 during the first nine months compared with C$4.1m in the prior year, as improved earnings were more than offset by growth in working capital required by the business.

Net cash generated by financing activities was C$1.3m in FY 2002 compared with C$3.6m of cash used in the prior year. Renegotiation of the company's banking facilities in December 2001 accounts for this change. Cash used in investing activities was C$1.1m, an increase of C$482,000 year on year, as the company ramped up investment in its facilities.

Financial position

At 30 June 2002, Humpty Dumpty's cash position was C$1m, which compares favourably with C$3.4m of bank indebtedness at 30 September 2001, which was 26.5% of the available line, and C$3.5m of bank indebtedness at 30 June 2001, which was 26.9% 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.

Outlook

"The Humpty Dumpty brand is winning increasing support from our retail partners," said Gerry Schmalz, chairman and CEO: "As a result, we've achieved continued branded sales growth and bottom-line improvement year to date. We remain confident that our branded strategy will continue to increase Humpty Dumpty's brand equity, build market share and position us to deliver profitable growth and shareholder value."

Consolidated balance sheets

     (In thousands of dollars)
     -------------------------------------------------------------------------
                                        June 30        June 30   September 30
                                         2002           2001         2001
     -------------------------------------------------------------------------
                                     (Unaudited)    (Unaudited)    (Audited)
     Assets
     Current Assets:
       Cash                            $  1,028       $      -       $      -
       Trade accounts receivable         18,397         17,322         18,853
       Inventories                        6,357          5,873          7,102
       Prepaids                             787          1,064            917
       Future income taxes                  353            766            352
     -------------------------------------------------------------------------
                                         26,922         25,025         27,224

     Capital assets                      32,453         32,652         33,233
     Other assets                        13,406         13,809         13,656
     Future income taxes                    887            325            835
     -------------------------------------------------------------------------
                                       $ 73,668       $ 71,811       $ 74,948
     -------------------------------------------------------------------------
     Liabilities and Shareholders' Equity
     Current Liabilities:
       Bank indebtedness               $      -       $  3,500       $  3,449
       Accounts payable and accrued
        liabilities                      26,584         26,825         28,378
       Income taxes payable                 933            563          2,561
       Current portion of
        long-term debt                    2,000          3,055          2,780
       Current portion of
        subordinated loans                  488            313            321
     -------------------------------------------------------------------------
                                         30,005         34,256         37,489

     Long-term debt                       7,000          2,098          1,403
     Future income taxes                  4,899          6,088          5,077
     Subordinated loans                   8,208          8,385          8,429
     Shareholders' equity:
       Share capital                     21,032         21,032         21,032
       Contributed surplus                  519            519            519
       Retained earnings                  2,005           (567)           999
     -------------------------------------------------------------------------
                                         23,556         20,984         22,550
     -------------------------------------------------------------------------
                                       $ 73,668       $ 71,811       $ 74,948