Maple Leaf Foods Investor Presentation Second Quarter Ended June 30, 2007

Transcription

1 Maple Leaf Foods Investor Presentation Second Quarter Ended June 30, 2007 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.

2 Second Quarter Summary Second quarter operating earnings increased 12% over last year Solid performance in the context of significant organizational change and rising grain and meat costs Excellent progress on reorganization of the Protein businesses Completed the sale of our animal nutrition business - $512 million Hog production restructuring ahead of plan Began consolidating pork processing into Brandon facility with closure of Saskatoon primary processing operation Bakery Products Group earnings up 15% with improvements in all operating segments except fresh pasta On track to build a significantly more profitable and focused valueadded meat, meals and bakery company 2

3 Earnings Per Share of $0.13 (1) (2006: $0.12) excluding results from the animal nutrition business $0.30 $0.25 Operating earnings increase of 12% was impacted by higher interest expense and tax rates $0.25 Quarter ($CAD) $0.20 $0.15 $0.10 Earnings per share including feed nutrition $0.17 (last year $0.17) $0.08 $0.12 $0.12 $0.13 $0.20 $0.05 $ Q1 Q2 YTD (1) Earnings per share presented before restructuring and other related costs and excluding discontinued operations. 3

4 Meat Products Group Operating Earnings up 9% $ million CAD 1,200 1, $ million CAD ,143 1,064 1,063 1,083 1,026 1, Q1 Q2 Q3 Q4 Q2 Operating Earnings up 9% Sales declined due to sale/exiting of non-core international businesses Successfully managed rising fresh meat input costs through pricing pricing did not fully offset continued rise in meat costs more pricing will be rolled out in the back-half of 2007 Earnings positively impacted by higher industry poultry processor margins and lower manufacturing costs related to the closure of a processing plant in Atlantic Canada Continued to invest heavily in advertising and promotion to support new product launches Q1 Q2 Q3 Q4 4

5 Innovation Update Strong early results for Maple Leaf Simply Fresh product launch Maple Leaf s first major expansion into high growth chilled meals; launched in Q1/07 with national distribution Retail sales progressing at the same pace as Maple Leaf Fully Cooked Roasts in year one of launch Gained over 10% market share in chilled meals category within first five months; over 30% in single serve entrees Five new products being launched in September/07, offering 11 single meal entrée varieties 5

6 Agribusiness Group Excluding animal nutrition, earnings increased 7% $ million CAD $ million CAD Q2 Sales down 3% * Q1 Q2 Q3 Q4 Q2 Operating Earnings up 7% * Q1 Q2 Q3 Q4 Q4 Earnings from hog production operations declined significantly Higher feed costs driven by increases in corn and other grains High mortality rates due to circovirus; herd health continues to improve and expected to normalize by year-end. Quarter-over-quarter comparisons affected by a one-time inventory adjustment in 2006 Rendering earnings increased as higher prices realized, tracking rising commodity prices * Restated to exclude results of animal nutrition business 6

7 Bakery Products Group $ million CAD $ million CAD Sales up 12% (6% excl. acquisitions) Q1 Q2 Q3 Q4 Operating Earnings up 15% Q1 Q2 Q3 Q4 Growth driven by higher margin valueadded categories and price increases implemented last year Manufacturing efficiency gains resulting from investments to increase capacity and automation Organic growth and contribution from acquisitions continue to drive UK earnings French Croissant Company, acquired in Q4/06 Continued growth in bagel market Rising wheat prices pressured margins along with some continued industrywide volume softness in fresh bakery Price increases will be implemented to offset higher costs Lower pasta earnings, affected by higher input costs and start up of new capacity due to new business volumes 7

8 Corn Prices up 53% Corn prices remained high due to demand from ethanol production US Corn Price / Bushel Up 53% vs. Q2 / 06 US \bushel Impact on Maple Leaf: Higher hog production costs Higher fresh meat prices and input costs for processed meats business 150 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 QTR Price Close Price Effective Date: Jul 7,

9 Wheat Prices Up 17% Rising with corn/grain prices US \bushel US Wheat Price / Bushel Up 17% vs. Q2 / 06 Impact on Maple Leaf: Margin erosion in fresh and frozen bakery and pasta businesses as flour and dairy costs increased Price increases planned to offset impact in the back half of 2007 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 QTR Price Close Price Source: Bloomberg Effective Date: Jul 3,

10 Poultry Industry Margins Up 36% $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 $- Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Wholesale Poultry $ 2.76 $ 2.68 $ 2.66 $ 2.51 $ 2.64 $ 2.97 $ 3.01 $ 3.24 $ 3.20 Live Bird (evisc.) $ 1.63 $ 1.51 $ 1.50 $ 1.53 $ 1.56 $ 1.52 $ 1.51 $ 1.63 $ 1.73 Spread $ 1.13 $ 1.17 $ 1.16 $ 0.98 $ 1.08 $ 1.45 $ 1.50 $ 1.61 $ 1.47 Source: EMI Composite Market Indicator Effective date: June 30,

11 USDA Processor Margins Down USD$1.40 Per Hog Live Hog versus Wholesale Pork Price $100 Spread (2006 Cutout) Wholesale Pork Live Hog Price $90 $80 Live Hog & Wholesale Pork Price (USD /CWT) $70 $60 $50 $40 $30 $20 $10 $- $(10) Q2-05* Q3-05* Q4-05* Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Wholesale Pork $ $ $ $ $ $ $ $ $ Live Hog $ $ $ $ $ $ $ $ $ Spread $ 0.67 $ 4.97 $ 4.38 $ 3.45 $ 3.41 $ 2.50 $ 3.14 $ 3.65 $ 2.71 Source: USDA Effective date: June 30,

12 Strategic Milestones Update Building a Value-Added Meat and Meals Business Activity Sale of Animal Nutrition Business Consolidating primary pork processing in Brandon plant Restructuring of hog production operations Processed meats network optimization Description Closed on July 20 th for $512 million subject to normal closing adjustments Closed primary pork processing operations in Saskatoon (15,000-17,000 hogs per week) Announced closure of primary pork processing operations in Winnipeg (15,000 20,000 hogs/week) Double-shift of the front-end processing at Brandon plant on track Complete Manitoba restructuring Red meat processing plant closure, with operations relocated to new plant in Brampton, Ontario, with increased capacity to support foodservice growth Ongoing network optimization resulting from Schneider Foods acquisition Status Closed Oct 2007 Q3/Q Dec 2007 Red Meat: Oct 2007 Ongoing 12

13 Impact of Animal Nutrition Sale Sale of animal nutrition business to Nutreco closed July 20/ EBIT $48 million; EBITDA $60 million Proceeds of $512 million plus closing adjustments After-tax net gain on transaction estimated at $190 million ($1.50 per share), including the following: $20.7 million goodwill impairment charged to earnings in Q2 $5 million positive tax adjustment credited to earnings in Q2 Other adjustments and net book value charges to be recorded in Q3 Accounting rules require various sale impacts to be recorded as realized, not all within the quarter in which the sale occurred Approximately $400 million applied against debt; remainder to fund Q4 debt repayments Provides Maple Leaf with significant resources to reinvest in core value-added protein and bakery businesses Debt / EBITDA ratio of 3.3x at the end of Q2 improves immediately to 2.0x as a result of the proceeds from sale of animal nutrition business Cash tax payments related to the sale estimated to be less than $10 million On a pro-forma basis, management estimates that the effect of the divestiture would have resulted in approximately $0.13 dilution in 2006 earnings per share had the sale occurred at the beginning of

14 Q2 Capital Expenditure Capital investment increased 36% to $59 million from $43 million Investment in the new Brampton, ON plant to support value-added meat and meals processing Roanoke, VA bakery warehouse expansion to increase storage capacity and reduce cost Canada Bread acquired Interstate Bakery assets located in Lakewood, WA for US$10 million Asset provides several options to realize improve efficiencies in the western Canada fresh bakery network Substantial capacity expansion in the UK bagel and croissant facilities 14

15 Restructuring Costs Overview Restructuring Costs Full Year Q1 Q2 Q2 ($ millions) Year-to-Date Remaining Total Refocus of Protein Operations Other Total $65 $13 $33 $ $ Estimates materially dependent on outcome of sale or closure of certain facilities; estimates are subject to change depending on events and changes in assumptions Total restructuring costs related to refocus of protein operations has been increased by $25 million primarily due to goodwill impairment connected to MLAN sale Estimate of cash component of $55 to $75 million has not changed, $40 million has been spent to date 15

16 Restructuring Costs Q Q2 Restructuring Costs (In $ millions) Restructuring and other related costs in Q2/07 of $32.5 million (including discontinued operations and including cash of $6.6 million) Refocus of protein operations Retention payments Poultry plant closure Goodwill impairment related to MLAN sale Other TOTAL $3.8 million $3.3 million $2.9 million $20.7 million $1.8 million $32.5 million 16

17 Summary Solid operating performance in quarter in the face of significantly higher input costs affecting processed meat and bakery earnings Rising input costs being recovered 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 operations Strong balance sheet and significant financial resources to reinvest in growing our core businesses with sale of animal nutrition business 17

18 Maple Leaf Foods Investor Presentation Second Quarter Ended June 30, 2007.