Maple Leaf Foods Investor Presentation Third Quarter 2007 Financial Results

Transcription

1 Maple Leaf Foods Investor Presentation Third Quarter 2007 Financial Results Some of the statements in this presentation may constitute forward-looking information and future results could differ materially from what is included. Please refer to Maple Leaf s 2006 Annual Consolidated Financial Statements and other public filings for a description of operations and factors that could impact the Company s financial results. 1

2 Overview Operations Overview Market Factors Financial Highlights 2

3 Third Quarter Summary Steady operating performance in the face of unprecedented cost inflation resulting from a continued rise in wheat, grain and meat prices, and currency changes Contribution from UK Bakery and improvements in North American Frozen Bakery drove higher Bakery results Meat Group benefited from manufacturing improvements and price increases that maintained margins despite input cost increases Significant losses in hog production operations pressured earnings Movement of Canadian dollar to parity with US dollar was negative; reinforcing the benefits of implementing a new protein business model Excellent progress in protein reorganization including restructuring hog production operations; closure of two primary processing plants; and commencing a double-shift at the Brandon pork plant Increased investments in our core value-added food businesses to increase efficiencies, add capacity and accelerate new product innovation 3

4 Earnings Per Share of $0.06¹ Quarter ($CAD) Operating earnings increased 14% to $39 million Earnings per share from continuing operations of $0.06 compared to $0.05 last year Including gain on sale of animal nutrition business, earnings per share in Q3/07 were $1.77 On a pro-forma basis, MLAN sale would have been $0.13 per share dilutive to full year 2006 earnings Year-to-date earnings per share were $0.31; up 24% compared to last year $0.09 $0.12 $0.13 $0.12 $0.05 $0.06 $0.25 $ Q1 Q2 Q3 YTD (1) Earnings per share presented before restructuring and other related costs and excluding discontinued operations. 4

5 Meat Products Group Sales down 7% ($Millions) Sales declined due to sale/exiting of non-core global businesses Successfully offset higher fresh meat input costs in the processed meat business through price increases Increased earnings in fresh poultry despite lower industry processor spreads Benefited from improved manufacturing efficiencies due to the closure of plant in Atlantic Canada Profit growth in the consumer foods business was affected by higher costs related to the launch of Maple Leaf Simply Fresh chilled meals 1,063 1,026 1, Q1 Q2 Q3 Q4 Operating Earnings up 25% ($Millions) Q1 Q2 Q3 Q4 5

6 New Products Update Maple Leaf Simply Fresh Maple Leaf s first major expansion into high growth chilled meals; launched in Q1/07 with national distribution $70 million category in Canada growing at 20% annually Continue strong growth with 39% market share in single serve entrees; 25% across chilled meals category Five new Entrees and one new Meal Kit launched in October 6

7 Agribusiness Group (1) Sales consistent ($Millions) 7 Sales were consistent, while earnings from operations were significantly lower due to losses in hog production operations Materially higher feed costs driven by increases in corn and other grains Lower hog prices due to a 7% decline in the US dollar from Q3/06 A decline in industry hog prices Rendering earnings increased due to higher selling prices for products, which track rising commodity grain prices (1) Restated to exclude results of animal nutrition business Q1 Q2 Q3 Q4 Operating Earnings declined ($Millions) Q1 Q2 Q3 Q4

8 Protein Reorganization Update Building a Value-Added Meat and Meals Business Activity Reducing fresh pork processing Restructuring hog production Description Closed primary pork processing operations in Saskatoon (15,000-17,000 hogs per week) Closed primary pork processing operations in Winnipeg (15,000 20,000 hogs/week) Commissioned second-shift front-end processing in Brandon fresh pork plant; processing a total of ~60,000 hogs per week and ramping up to 75,000 by November. A major milestone towards consolidating pork processing into one scale plant. Number of sows under management reduced from 120,000 to 66,000; end-state of approximately 35,000 sows Manitoba operations restructured to 100% ownership by year-end Goal to sell Ontario operations by early 2008, which represent full and partial ownership of ~ 22,000 sows Status Closed Jun/07 Closed Oct/07 Commenced Sept/07 8

9 Bakery Products Group Sales up 13%; 4% excluding acquisitions Frozen bakery results improved as manufacturing issues which impacted 2006 results were addressed and volumes increased A number of initiatives underway to improve results in this business Fresh bakery profitability declined due to materially higher input costs and some industry wide volume softness The impact was partially offset by sales mix and manufacturing improvements and forward flour purchases Fresh Bakery last implemented price increases in Q4/06 Additional price increases are being implemented in Q4 to help manage sharply rising flour and dairy costs Sales up 13% ($Millions) Q1 Q2 Q3 Q4 Operating Earnings up 31% ($Millions) Q1 Q2 Q3 Q4 9

10 Bakery Group (cont d) Organic growth and contribution from acquisitions continue to drive results from UK Bakery business French Croissant Company, acquired in Q4, 2006 Continued growth in bagel market Acquired La Fornaia in August 2007, a leading producer of hand formed specialty bakery products, from traditional Italian ciabatta and filled focaccia to a range of organic, multi-seed breads and rolls Significantly strengthens our market share in the premium bread market and our new product innovation capabilities 10

11 Overview Operations Overview Market Factors Financial Highlights 11

12 Corn Prices Up 38% (1) US Corn Price/Bushel US \bushel Corn Prices US \bushel Average Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 QTR Price Close Price Effective Date: oct 9, 2007 Increased feed prices and hog production costs Higher fresh meat prices and input costs for processed meats business Related rise in wheat and dairy costs affected input costs in bakery and fresh pasta operations (1) Compared to Q3/06 12

13 Wheat Prices Climbed 49% (1) US Wheat Price/Bushel US \bushel Wheat Prices US \bushel Average Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 QTR Price Close Price Source: Bloomberg Effective Date: Oct 9, 2007 Significant rise in flour costs for the fresh and frozen bakery and pasta businesses Increased hog feed costs, as Canadian producers lose a wheat cost advantage over corn (1) Compared to Q3/06 13

14 Poultry Processor Spread Down 6% (1) Spread declined as rising feed costs increased live bird prices Live Bird Versus Wholesale Poultry Price $4.00 Live Bird versus Wholesale Poultry Price Spread Wholesale Price Live Price (eviscerated) $3.50 $3.00 Live Bird & Wholesale Poultry Price ($/kg) $2.50 $2.00 $1.50 $1.00 $0.50 $- Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Wholesale Poultry $ 2.68 $ 2.66 $ 2.51 $ 2.64 $ 2.97 $ 3.01 $ 3.24 $ 3.20 $ 3.09 Live Bird (evisc.) $ 1.51 $ 1.50 $ 1.53 $ 1.56 $ 1.52 $ 1.51 $ 1.63 $ 1.73 $ 1.72 Spread $ 1.17 $ 1.16 $ 0.98 $ 1.08 $ 1.45 $ 1.50 $ 1.61 $ 1.47 $ 1.37 Source: EMI Composite Market Indicator Updated: September 26, (1) Compared to Q3/06

15 USDA Pork Processor Margins Down 55% (1) Lower hog prices affected hog production results Live Hog versus Wholesale Pork Price USDA Pork Processor Margins Live Hog versus Wholesale Pork Price $100 Spread (2006 Cutout) Wholesale Pork ( 2006 Cutout Calculation) Live Hog $90 $80 Live Hog & Wholesale Pork Price (USD /CW T) $70 $60 $50 $40 $30 $20 $10 $- $(10) Q3-05* Q4-05* Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Wholesale Pork $ $ $ $ $ $ $ $ $ Live Hog $ $ $ $ $ $ $ $ $ Spread $ 4.97 $ 4.38 $ 3.45 $ 3.41 $ 2.50 $ 3.14 $ 3.65 $ 2.71 $ 1.13 Source: USDA * Historical Wholesale Pork values have been restated using January 1, 2006 cutout calculation method. NOTE: Effective the first quarter of 2006 the USDA revised certain assumptions used in calculating the wholesale pork cutout. For comparative purposes, the 2004 and 2005 Wholesale Pork numbers have been adjusted to reflect the new calculation (1) Compared to Q3/06 Effective date: Sep 30,

16 Overview Operations Overview Market Factors Financial Highlights 16

17 Capital Expenditures Up 70% in Q3 Capital Expenditures ($Millions) Reinvesting to add capacity and drive growth in value-added meat, meals and bakery businesses 170 Investment in the new Brampton, ON plant to support chilled meals and value-added red meat processing 96 Warehouse expansion at Roanoke, VA bakery to increase storage capacity and reduce costs Substantial capacity expansion in the UK bagel and croissant facilities to support growing customer demand Q1 Q2 Q3 YTD 17

18 Q3 Restructuring Costs Restructuring and other related costs in Q3/07 of $7.4 million (including discontinued operations and including cash of $2.9 million) ($Millions) Refocus of protein operations Retention payments Poultry plant closure Discontinued Operations $6.1 $0.6 $0.3 $0.4 $7.4 18

19 Restructuring Costs Overview ($ Millions) Non-Cash Cash $47 -$97 $165 -$ Contingent on outcome of sale vs. closure of certain facilities $65 $ Protein Value Chain Restructuring Costs YTD Q Remaining Total Restructuring Costs 40 Other Note: Excludes estimated gain on sale of MLAN of $190 million. 19

20 Funded Debt Leverage Ratio (Net Debt/EBITDA) Funded Debt Leverage Ratio Net Debt/EBITDA Net Debt and EBITDA ($Billions) Ratio Target Range Net Debt EBITDA 4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x Schneider Foods Purchase Sale of Animal Nutrition Q2 07 Ratio includes historical earnings from Animal Nutrition business Q3 07 Net Debt '02 '03 '04 '05 '06 Q3' 2007 LTM PF Excl. Animal Nutrition EBITDA Note: Before restructuring and other related costs, normalized for full year of acquisition results.

21 Summary Solid operating performance in quarter in the face of significantly higher input costs and rising currency Rising input costs are being managed over time through pricing Excellent progress on protein reorganization with several important milestones achieved Major capital projects underway to add capacity and reduce costs in value-added meat and bakery Strong balance sheet and significant financial resources to reinvest in growing our core businesses 21

22 Maple Leaf Foods Investor Presentation Third Quarter Ended September 30,