991141 Fletcher's Announces 3rd Quarter ResultsNovember 15, 1999Vancouver, British Columbia - Fletcher's Fine Foods Ltd. announced results for the third quarter of 1999. Sales for the quarter increased by 18% to a record $142.1 million from $120.3 million in 1998. Earnings for the quarter increased to $1.2 million or $0.16 per share as compared to a loss of $3.5 million or $0.48 per share in 1998, however, the 1998 third quarter results include a $9.5 million charge relating to a labor disruption at the Company's Red Deer, Alberta plant. On a year to date basis, sales increased by 9% to $331.2 million while net earnings increased to $2.0 million or $0.27 per share from a loss of $0.5 million or $0.08 per share in 1998. “Despite a number of positive achievements during the quarter our Fresh Pork Division's financial performance continues to be impacted by a shortage of hogs in Western Canada,” said Fred Knoedler, President and CEO. “Looking forward, we believe this supply imbalance is close to being resolved, and correspondingly, that the relationship between Western Canadian hog prices and average North American hog prices will return to normal in the near future. A combination of regulatory changes that now allow for live US hogs to be imported into Canada, and a reconfiguration of hog processing capacity in Western Canada should bring equilibrium to the market place,” added Mr. Knoedler. “Our short term targeted production level for the Fresh Pork Division's hog processing plant in Red Deer, Alberta is to be consistently processing 8,000 hogs per day. At this level, which is about 30% above current production levels, the plant maximizes its operating efficiencies, on a single shift basis,” said George Paleologou, VP and CFO. “We expect to achieve our target by the middle of next year based on the changes occurring in the Western Canadian hog market, our internal hog procurement initiatives and an increasing hog supply from Saskatchewan Wheat Pool, our strategic partner. Ultimately, however, our goal is to operate the Red Deer plant at its capacity of 16,000 hogs per day,” added Mr. Paleologou. The Prepared Foods Division continues to achieve record sales and margins. For the quarter its sales were up 8.0% to $85.0 million while its margins, as a percentage of sales increased to 23.7% as compared to 21.7% in 1998. By focusing on developing long term sustainable margins through the growth of its branded consumer products business, the Prepared Foods Division is generating higher, more predictable cash flows. The Fresh Pork Division's third quarter sales increased by almost 37.2% as compared to 1998 while its gross margin, as a percentage of sales, decreased to 2.6% versus 3.6% in 1998. “The corner stone of our corporate strategy is to generate higher more stable operating margins by processing a significant portion of our fresh pork into premium branded products,” said Mr. Knoedler. “We remain committed to our goal of being the leading marketer and manufacturer of branded processed pork products in Canada and the Western U.S.,” added Mr. Knoedler. “Sales through our direct to store delivery network or DSD network continue to grow at rates in excess of 20% per annum,” said Mr. Knoedler. “In the short term, the investments we are making in the sales and distribution infrastructure needed to support this growth are resulting in significant increases in our selling and administration costs. We remain confident, however, that in the long term our DSD initiatives will create significant value for our shareholders,” added Mr. Knoedler. It was also announced that Fletcher's signed a letter of intent on November 9, 1999 with Peace Pork Inc. Peace Pork produces about 110,000 hogs annually from its operations in Northern Alberta. Under the terms of the letter of intent, Fletcher's will initially purchase up to a 40% interest in Peace Pork and the two parties will enter into an exclusive hog supply arrangement. Furthermore, Peace Pork will leverage the benefits it receives under the arrangement to double its production. “Rocky and Carnie Morrill, the two individuals who manage Peace Pork's operations, each have significant stakes in Peace Pork and excellent reputations in the hog production industry. They have consistently operated Peace Pork in the top tenth percentile of the industry,” said Mr. Paleologou. “We are very excited about this partnership and about the addition of these two highly skilled managers to our organization,” added Mr. Paleologou. Fletcher's is also negotiating similar arrangements with several other large hog producers in Alberta. “We are providing efficient hog producers with capital, downside hog pricing protection and shareholder liquidity in exchange for a minority interest equity position, upside hog pricing protection and a guaranteed hog supply. In addition, the producer uses the equity and pricing protection supplied by Fletcher's to raise debt and further expand its production,” said Mr. Knoedler. “The advantages associated with this economic model include, acquiring expertise by creating strategic relationships with existing producers, developing community support through local management of operations and reduced capital requirements,” added Mr. Knoedler. “It is far less costly to expand an existing well run operation than to develop a new one,” said George Paleologou. “By leveraging existing infrastructure we maximize the returns we can generate through vertical integration,” added Mr. Paleologou. Fletcher's has been engaged in the food processing business since 1917 and has manufacturing facilities in Alberta, British Columbia, Oregon, Saskatchewan and Washington.
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