Maple Leaf Foods Investor Presentation Second Quarter Ended June - - PowerPoint PPT Presentation
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
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.
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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 - $512 million Hog production restructuring ahead of plan Began consolidating pork processing into Brandon facility with closure of Saskatoon primary processing operation
Bakery Products Group earnings up 15% with improvements in all
On track to build a significantly more profitable and focused value- added meat, meals and bakery company
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$ 0 .0 8 $ 0 .12 $ 0 . 2 0 $ 0 .12 $ 0 .13 $ 0 .2 5
$0.00 $0.05 $0.1 $0.1 5 $0.20 $0.25 $0.30
Q1 Q2 YTD Quarter ($CAD)
2 0 0 6 2 0 0 7 2 0 0 6 2 0 0 7 2 0 0 6 2 0 0 7
(1) Earnings per share presented before restructuring and other related costs and excluding discontinued operations.
Operating earnings increase of 12% was impacted by higher interest expense and tax rates Earnings per share including feed nutrition $0.17 (last year $0.17)
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658 1,083 1,026 1,015 997 924 955 926 942 896 879 1,143 1,064 1,063 200 400 600 800 1,000 1,200
Q1 Q2 Q3 Q4
$ million CAD
2004 2005 2006 2007 2004 2005 2006 2004 2005 2006 2004 2005 2006 2007Sales 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
10.0 12.6 15.2 23.1 18.7 17.5 13.3 10.4 13.7 13.6 9.2 21.3 14.8 37.9 5 10 15 20 25 30 35 40
Q1 Q2 Q3 Q4
$ million CAD
2004 2005 2006 2007 2004 2005 2006 2004 2005 2006 2004 2005 2006 2007Q2 Operating Earnings up 9%
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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
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Earnings from hog production
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
Q2 Sales down 3% * Q2 Operating Earnings up 7% *
* Restated to exclude results of animal nutrition business
51 59 52 64 61 53 63 64 66 65 10 20 30 40 50 60 70
Q1 Q2 Q3 Q4
$ million CAD
2005 2006 2007 2005 2006 2007 2005 2006 2005 20067.5 19.4 12.6 1.4 4.3 1.2 0.9 4.6 0.3
1 5 9 13 17 21
Q1 Q2 Q3 Q4
$ million CAD
2005 2006 2007 2005 2006 2007 2005 2006 2005 2006Q4
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279 303 304 315 289 314 309 301 335 342 358 375 314 355 60 120 180 240 300 360 420
Q1 Q2 Q3 Q4
$ million CAD
2004 2005 2006 2007 2004 2005 2006 2004 2005 2006 2004 2005 2006 2007
Growth driven by higher margin value- added 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 industry- wide volume softness in fresh bakery
Price increases will be implemented to
Lower pasta earnings, affected by higher input costs and start up of new capacity due to new business volumes
Sales up 12% (6% excl. acquisitions)
17.7 23.4 27.8 23.1 20.6 26.9 31.4 22.3 24.7 29.0 23.8 23.3 33.3 27.6 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0
Q1 Q2 Q3 Q4
$ million CAD 2004 2005 2006 2007 2004 2005 2006 2004 2005 2006 2004 2005 2006 2007
Operating Earnings up 15%
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Impact on Maple Leaf:
Higher hog production costs Higher fresh meat prices and input costs for processed meats business
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 286 301 233 203 207 217 228 202 222 247 253 345 401 379 Close Price 320 267 206 205 213 232 206 216 236 260 263 390 388 330
Effective Date: Jul 7, 2007 150 200 250 300 350 400 450 500
US¢\bushel
US Corn Price / Bushel – Up 53% vs. Q2 / 06
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Impact on Maple Leaf:
Margin erosion in fresh and frozen bakery and pasta businesses as flour and dairy costs increased Price increases planned to
2007
US Wheat Price / Bushel – Up 17% vs. Q2 / 06
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 405 418 366 361 347 345 354 372 411 460 478 516 505 537 Close Price 436 389 373 348 355 347 384 385 415 524 458 519 528 623 Source: Bloomberg
Effective Date: Jul 3, 2007 300 350 400 450 500 550 600 650
US¢\bushel
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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 Live Bird versus Wholesale Poultry Price
$- $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 Live Bird & Wholesale Poultry Price ($/kg)
Spread Wholesale Price Live Price (eviscerated)
Effective date: June 30, 2007
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Q2-05* Q3-05* Q4-05* Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Wholesale Pork 71.66 $ 73.76 $ 66.99 $ 61.76 $ 69.20 $ 73.61 $ 66.10 $ 66.43 $ 73.95 $ Live Hog 70.99 $ 68.79 $ 62.61 $ 58.31 $ 65.79 $ 71.11 $ 62.96 $ 62.78 $ 71.24 $ 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, 2007
Live Hog versus Wholesale Pork Price
$(10) $- $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 Live Hog & Wholesale Pork Price (USD /CWT)
Spread (2006 Cutout) Wholesale Pork Live Hog Price
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closing adjustments Sale of Animal Nutrition Business Red Meat: Oct 2007 Ongoing 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 Processed meats network optimization Dec 2007 Complete Manitoba restructuring Restructuring of hog production operations
2007 Q3/Q4 2007 Closed primary pork processing operations in Saskatoon (15,000-17,000 hogs per week) Announced closure of primary pork processing
Double-shift of the front-end processing at Brandon plant on track Consolidating primary pork processing in Brandon plant
Status Description Activity
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Sale of animal nutrition business to Nutreco closed July 20/07
2006 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 2006
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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
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$165-215 54-104 $46 $33 $13 $65 Total 11 35 Q2 Year-to-Date 5 28 Q2 2007 6 7 Q1 2007 40 14 15 Other 125-175 40-90 50 Refocus of Protein Operations Remaining Full Year 2006 Restructuring Costs ($ ’millions) Total
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
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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 $3.8 million Retention payments $3.3 million Poultry plant closure $2.9 million Goodwill impairment related to MLAN sale $20.7 million Other $1.8 million ___________ TOTAL $32.5 million
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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
Second Quarter Ended June 30, 2007
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