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Sleeman Reports Fourth Quarter and Fiscal 2005 Results.

Article Excerpt
GUELPH, Ontario -- Sleeman Breweries Ltd. (TSX:ALE) today released its financial results for the fourth quarter and fiscal year ended December 31, 2005.

Fourth Quarter Financial Highlights

- Net revenue was $49.6 million compared to $53.8 million for the same period last year.

- Earnings before interest, taxes, depreciation and amortization (EBITDA) were $5.7 million compared to $9.7 million for the same quarter last year.

- Net earnings were $0.5 million or $0.03 cents per share, compared to $3.9 million in the fourth quarter of 2004.

"The fourth quarter of 2005 was a very challenging period for Sleeman due to the intense price competition the Company faced in all of its key Canadian markets, especially Quebec," said John Sleeman, Chairman and CEO. "Our volumes and market share held up quite well in this environment. However, our revenue per hectolitre and profitability were impacted as we offered limited time offer discounts to remain competitive with those offered by the large national brewers and the smaller regional brewers who benefit from provincial tax subsidies. I am pleased to say that our cost reduction efforts continue to generate savings as we reduced our average cost of goods sold by $1 per hectoliter in the quarter."

Twelve Month Financial Review

- Net revenue was $206.7 million compared to $211.5 million in the prior year.

- EBITDA was $29.1 million compared to $35.9 million in the 2004 fiscal year.

- Net income for the year was $8.1 million, or $0.48 per share on a diluted basis, compared to $14.4 million, or $0.87 per share on a diluted basis in 2004.

- Normalized diluted earnings per share were $0.60 for 2005 compared to $0.90 in 2004.

Operational Highlights

- Continuing with the highly successful John Sleeman Presents line of specialty beers, the Company introduced John Sleeman Presents India Pale Ale nationally in the quarter.

- Consistent with Unibroue's historical position as an innovative brewer of premium beers, Sleeman introduced two new Unibroue product offerings into the Quebec market in the quarter, Cerezo and San Antonio.

- In Western Canada, the Company introduced Okanagan Spring Winter Collections and Okanagan Spring Light to further solidify this brand's position as Western Canada's leading craft premium beer.

- The Company introduced the "heritage series" of Sleeman packages for the US market to support Sleeman's position as Canada's Premium Beer in the large and growing US import beer market. The "heritage series" consists of Sleeman Cream Ale, Original Dark Amber, Porter and India Pale Ale and are available in embossed amber bottles in open six pack carrier cases preferred by US craft beer drinkers.

Today, we are announcing a further reorganization across the organization aimed at reducing the Company's costs by approximately $2.7 million annually; $1.7 million for the current fiscal year. The number of full time positions will be reduced by approximately 40 as a result of this initiative. A key element of this reorganization, will be the consolidation of the Ontario, Quebec and Maritimes provincial businesses under one Managing Director, Dan Fox. Sleeman will record a one-time charge of $2.0 million in the first quarter of 2006 in connection with this reorganization.

Mr. Sleeman continued, "The reorganization announced today further reflects the Company's determination to reduce its cost structure. We will reduce our production, distribution and selling, general and administrative expenses to maintain our competitive position in response to continued pricing activity. We will also introduce innovative products and sales and marketing campaigns in the coming months to return the Company to its historical growth rates."

Management's Discussion and Analysis of Results of Operations and Financial Position:

The following discussion and analysis should be read in conjunction with the financial statements for the fourth quarter of fiscal 2005 and 2004; with the MD&A in the fiscal 2004 annual report, including the section on risks and uncertainties; and with the notes to the financial statements for the fourth quarter of fiscal 2005 and in the fiscal 2004 annual report. (All amounts are in Canadian dollars unless otherwise stated.)

The following comments were prepared as of March 1, 2006. Additional information relating to the Company, including its Annual Information Form, is available on SEDAR at www.sedar.com.

Operating Results

Quarterly Comparison

The current fiscal quarter had 13 weeks while the prior year's fiscal quarter had 14 weeks. This represented a 7% reduction in sales days in the current quarter and explained a significant portion of the decline in sales volumes when compared to the prior year's fourth quarter.

The following chart sets out the per hectolitre results(1) for the quarter based on the number of hectolitres produced and sold by the Company:

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3 months ended 3 months ended December 31, 2005 January 1, 2005

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Net revenue $161 $173

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Cost of goods sold 77 78

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Gross margin 84 95

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Selling, general and administrative 66 64

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EBITDA(2) 18 31

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Depreciation and amortization 7 6

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Earnings before interest and taxes 11 25

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Interest 8 6

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Earnings before taxes 3 19

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Income taxes 2 6

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Net earnings $1 $ 13

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NET REVENUE

Net revenue decreased to $49.6 million in the current quarter from $53.8 million in the prior year's quarter. The $12 per hectolitre decline in the current quarter, was the result of lower net prices on its value brands in the Quebec, Ontario and Alberta markets and on its premium brands in Quebec and Ontario. Produced and sold volumes declined 1% to 309,000 hectolitres. Sapporo volumes increased 3% to 51,000 hectolitres. Core volumes decreased 2% while industry volumes were flat in the quarter.

In Eastern Canada, comparable net revenue decreased by 7%. The 3% increase in core volumes was more than offset by the impact of the shift to "floor priced" value beer in Ontario and the impact of lower net pricing in the Ontario and Quebec premium categories.

In Western Canada, comparable net revenue was down 8%. Core volumes declined by 10% as value brand sales continued to be affected by tax subsidy induced competitor pricing and provincial government bans of high alcohol large container packages in major urban centres. Net revenue per hectolitre increased due to the continuing mix shift in favour of premium brand sales.

COST OF GOODS SOLD...