The continuing fall out effects from the discovery of BSE in Western Canada and a stronger Canadian dollar have impacted on speciality meat processor Premium Brands' third quarter results. There was little growth in terms of sales, though the company argues that operations have been consistent for both the 13 and 39 week periods ending 27 September 2003.

Nonetheless, sales for the quarter from continuing operations were slightly down compared with the previous year coming in at $70 million versus $70.2 million in 2002. Segment earnings for the quarter decreased to $2.1 million from $3.5 million in 2002, due largely to BSE-related issues. The firm says that stronger Canadian dollar has resulted in lower translated sales for the company's US operations.

"The discovery of one cow in Western Canada with BSE continues to negatively impact our overall results, with most of the effects being seen in our mainstream processed meats division's Fletcher's operation," said company president George Paleologou. "The range of issues resulting from the BSE discovery, including the closing of key export markets to certain products and pressure on mainstream processed meat margins as consumers took advantage of lower beef prices, created a number of operational challenges, particularly for our mainstream processed meats division."

The speciality foods division's sales for the quarter decreased to $29.1 million from $30.9 million in 2002 due primarily to the sale of its label printing business earlier in the year. Sales from the division's continuing operations were down by $0.4 million due to a combination of BSE-related issues and the termination of fourteen of the Goodlife home delivery network's weaker franchisees earlier in the year.

Overall, the specialty foods division's segment earnings, as a percentage of sales, decreased to 5.1 per cent from 5.6 per cent due to the sale of its label printing business earlier in the year and to the Goodlife home delivery network incurring a segment loss of $0.4 million versus a small profit in the third quarter of 2002.

There was some good news however. The mainstream processed meats division's Harvest operation and the speciality division's core deli businesses grew their combined sales in the third quarter by 4 per cent to $34.4 million. "The improved margins of our core deli businesses are the direct result of the synergies being realised from the recently completed restructuring of our DSD distribution networks," said Paleologou. "As this part of the speciality division grows we expect to see further expansion of its segment margins from increased leverage of its relatively fixed cost distribution infrastructure."

In addition, third quarter year to date sales for the mainstream processed meats division as a whole were up 5.9 per cent to $117 million while its volumes were up 10 per cent to 23.5 million kilograms.

Aside from coping with the affects of the BSE issue, it has been an eventful year so far for Premium Brands. During the second quarter the company sold its label printing businesses, Adam's Label & Tag and Apex Label & Systems to Tapp Technologies for $3 million and a 20 per cent interest in Tapp. As part of the sale, the company received the right, exercisable at any time after April 2006, to require Tapp to repurchase the Company's 20 per cent interest in Tapp for the greater of $3 million and fair market value.

The company is confident that brighter times lie ahead. "The discovery of no further incidents of BSE in Canada, as well as recent negotiations on the re-opening of the US Border to Canadian beef products are positive signs that the worst is now behind us", said Premium Brands chairman Fred Knoedler. "Looking forward, we are cautiously optimistic that normalcy will return to North American protein markets in the coming months."