000371 Fletcher's 4th Quarter & Year End Results

Vancouver, British Columbia - Fletcher's Fine Foods Ltd. announced its results for the fourth quarter of 1999. Sales for the quarter increased by 20.2% to a record $107 million, while sales for the year increased by 11.2% to $438 million.

Fletcher's Prepared Foods Division continued to show record results. For the fourth quarter its sales grew by 22.8% to $64 million while its gross profit margin, as a percentage of sales, increased to 25.8% versus 24.1% in 1998. For the year, its sales increased by 10% to $256 million while its gross profit margin, as a percentage of sales, increased to 23.9% from 21.6% in 1998 and 18.5% in 1997. By focusing on the development of long term sustainable margins through the growth of its branded consumer products business, the Prepared Foods Division is continuing to generate higher, more predictable cash flows.

The Company's Fresh Pork Division's sales increased by 16.6% to $43 million for the quarter and 12.9% to $182 million for the year due to a combination of higher average selling prices and a labor dispute in 1998. The Division's gross profit margins, however, continued to be impacted by a shortage of hogs in Western Canada, falling from an average of 10.7% of sales in 1998 to 4.7% of sales in 1999. For the fourth quarter, the Fresh Pork Division generated gross profit of only $2.3 million as compared to $9.1 million in 1998.

“We are making significant progress in addressing the short-term hog procurement issues that face our Fresh Pork Division. In addition to exploring various strategic alternatives, we have, over the last three months, signed two significant hog supply contracts and initiated our proprietary Peace Pork hog project,” said Fred Knoedler, President and CEO. “For the long term, the future of the Fresh Pork Division remains bright. Western Canada is one of the most efficient areas in the world to produce hogs and our Fresh Pork Division, which has the only modern, high capacity hog processing facility west of Manitoba, is perfectly situated to capitalize on this strategic advantage,” added Mr. Knoedler.

Selling general and administrative costs, as a percentage of sales, decreased to 12.6% for the quarter as compared to 12.8% in the fourth quarter of 1998.

“Over the last two years we have incurred significant increases in our selling, general and administrative costs as we have invested in developing our brands and the sales and distribution infrastructure needed to support and grow them. In particular, we have invested heavily in our direct to store delivery network and management information systems,” said George Paleologou, VP and CFO. “The decrease in selling, general and administrative costs, as a percentage of sales, is the start of a trend that will accelerate as we continue to grow our various businesses,” added Mr. Paleologou.

The Company's earnings before taxes and unusual items for the fourth quarter fell to $2.6 million from $7.1 million in 1998, while for the year it fell from $14.6 million to $5.1 million. This decrease in profitability was due solely to the poor performance of the Fresh Pork Division.

For the quarter, Fletcher's incurred a loss of $2.9 million or $0.37 per share versus net earnings of $4.2 million or $0.56 per share in 1998. For the year, the Company incurred a loss of $809,000 or $0.11 per share as compared to net earnings of $3.7 million or $0.53 per share in 1998. The decrease in net earnings was due to a combination of the Fresh Pork Division's poor performance and a $6.8 million restructuring charge taken in the fourth quarter.

The $6.8 million charge resulted primarily from the restructuring of a significant portion of the Prepared Foods Division's operations. Included in the charge were costs for the shut down of three US plants, the expansion of the Kent, Washington salad plant, the start up of a new state of the art meat processing facility in Algona, Washington and the restructuring of the Division's distribution facilities in Western Canada.

“The initiatives associated with the restructuring charge will result in further expansion of our Prepared Foods Division's margins through reduced overhead costs, improved plant efficiencies and the capture of synergies between our operating divisions,” said Mr. Knoedler. “Furthermore, these initiatives will increase the capacities of our Stone Mill, Grimm's and Fletcher's branded businesses,” added Mr. Knoedler.

“The improvements we are making to our Prepared Foods Division's operations will result in immediate pretax annual benefits in the range of $2.5 to $3 million,” said Mr. Paleologou. “In addition, these benefits will be immediately accretive to our cash flow since almost all of the costs associated with the $6.8 million charge were incurred in 1999,” 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.

RETURN TO HOME PAGE

E-mail: sflanagan@sprintmail.com