000458 Fletcher's Announces First Quarter Results

Vancouver, British Columbia - Fletcher's Fine Foods Ltd. announced its results for the first quarter of 2000. Sales for the quarter increased by 15.6% to a record $100.3 million, while the Company's net earnings fell to $1.2 million or $0.15 per share from $1.6 million or $0.21 per share in 1999.

Both the Company's Prepared Foods and Fresh Pork Divisions showed strong growth with their sales increasing by 15.1% and 16.3%, respectively. The Prepared Foods Division's sales increased to $55.2 million from $48.0 million while the Fresh Pork Division's sales increased to $45.1 million from $38.8 million.

Included in the Company's first quarter earnings is a dilution gain of $3.8 million resulting from the issuance of shares by McSweeney's, a business unit within the Prepared Foods Division. McSweeney's share issuance resulted from its acquisition of the distribution infrastructure of a catalogue based home delivery service for premium food products. McSweeney's intends to build a unique internet based business-to-consumer model using the acquired distribution infrastructure, which includes 280 refrigerated trucks, a list of over 400,000 customers and 27 distribution facilities located across Western Canada and into Ontario. As part of this initiative, which will be done under the Goodlife Foods brand name, McSweeney's will be changing its corporate name to Goodlife Brands Inc.

To fund its expansion into home delivery, Goodlife Brands Inc. is in the process of completing a $12.5 million equity financing for a 26% interest in the company. If successful, this financing will result in Fletcher's recognizing an additional dilution gain of about $4 million.

“The $3.8 million dilution gain resulting from McSweeney's recent share issuance is representative of the value being created by our Prepared Foods Division,” said Mr. Fred Knoedler. “This Division has, over the last four years, focused on developing the brands and infrastructure it needs to become the leading marketer and manufacturer of branded specialty deli products in Canada and the Western US. With the completion of its current capital plan this summer, it will have the capacity and efficiencies needed to continue aggressively growing its sales and, more importantly, margins for the next several years,” said Mr. Knoedler.

Steady expansion of the Company's Prepared Foods Division's margins was overshadowed by negative margins in the Company's Fresh Pork Division. The Prepared Foods Division generated a record first quarter gross profit of $11.6 million versus $10.0 million in 1999 while the Fresh Pork Division realized a gross profit of negative $0.3 million versus $5.1 million in 1999.

By focusing on the development of long term sustainable margins through growth of its branded consumer products business, the Prepared Foods Division is continuing to generate higher, more predictable earnings and cash flows.

“The first quarter is historically our Prepared Foods Division's most challenging, however, despite this it continued to expand its sales and margins. Furthermore, it was able to do this at a time when most meat processing companies are experiencing contracting margins due to rising input costs, in general, and fresh pork commodity prices, in particular,” said Mr. Fred Knoedler, President and CEO. “Over the last four years, this Division has grown from annual sales of about $115 million to over $250 million while its gross profit margins have expanded from about 13% to 24% on an annual basis,” added Mr. Knoedler.

The fall in the Fresh Pork Division's margins was the result of a continued shortage of hogs in Western Canada combined with rising hog prices. The Company was, however, able to partially mitigate the Fresh Pork Division's poor performance through equity earnings resulting from its recent 40% investment in hog producer Peace Pork Inc.

“The same conditions that resulted in the Fresh Pork Division's poor margins enabled Peace Pork to generate substantial earnings for the quarter,” said Mr. George Paleologou, Vice President and CFO. “Once Peace Pork completes its expansion, the benefits associated with our vertical integration into hog production will become even more significant,” added Mr. Paleologou.

“Looking forward, our recently announced strategic partnership with the Quadra Group will also help to reduce the volatility of our Fresh Pork Division's margins through a hog supply agreement that reduces the variability of the Division's hog input prices. Given the current trend of rising hog prices, we anticipate that the Fresh Pork Division will begin benefiting from this arrangement in the very near future,” said Mr. Paleologou.

“Within the next three years, we anticipate that Peace Pork and Quadra on a combined basis, will be supplying the Fresh Pork Division with over 700,000 hogs annually,” said Mr. Knoedler. “In 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.

The Company's selling, general and administrative expenses, as a percentage of sales, continued its positive trend from the fourth quarter falling to 11.4% from 12.1% in the first quarter of 1999.

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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