Maple Leaf Foods Investor Presentation Second Quarter 2008 - - PowerPoint PPT Presentation

Maple Leaf Foods Investor Presentation

Second Quarter 2008 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 2007 Annual Consolidated Financial Statements and other public filings for a description of operations and factors that could impact the Company’s financial results.

Overview

Operations Overview Market Factors Financial Highlights

2

Q2 2008 Summary

Operating earnings continued to be pressured by commodity markets, as inflation and commodity volatility outpaced ongoing price increases

• Wheat prices up 116%
• Oil prices up 91%
• Significant hog price volatility

Restructuring of protein operations on plan

• Brandon second shift “cut” operations commissioned smoothly
• Two new distribution warehouses commissioned in Western Canada

Significant recovery anticipated in second half of 2008

• Full effect of pricing to recover inflation and commodity increases
• Stabilization of key commodity markets
• Contribution from restructuring

3

Adjusted Earnings Per Share ($0.01)

Adjusted Earnings Per Share ($CAD) Q1 Q2 Q3 Full Year Q4

2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008

All operating earnings measures are defined as earnings from continuing operations before restructuring and other related costs. All earnings per share measures are defined as earnings per share from continuing operations before restructuring and other related costs and certain non recurring tax adjustments.

Adjusted Operating Earnings ($Millions) Q1 Q2 Q3 Full Year Q4

2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008

4

173 199 40 0.12 0.13 0.12 0.09 0.04 0.06 0.05 0.13 0.20 (0.01) 0.38 0.51 50 33 47 53 19 34 39 52 58

Meat Products Group

Sales down 3% due to lower fresh pork and chicken wholesale prices and elimination of lower margin products Operating earnings down 62% from Q2/07

• Lower fresh poultry margins as feed prices

pushed live bird prices up

• Modestly higher fresh pork earnings as industry

processor margins improved

• Inflationary and innovation costs in packaged

meats business

Strategic repositioning of protein operations beginning to yield benefits

• Mostly offset to date by start-up costs; expected

to contribute to earnings in the second half of the year

924 942 896 879 863 820 763 926 955 857 3,746 3,458

Sales ($Millions)

Q1 Q2 Q3 Q4

Operating Earnings ($Millions)

2006 2007 2008 2006 2007 2008

Full Year

38 1 4 1 4 9 42 1 2 1 5 21 25 6 74 90

Q1 Q2 Q3 Q4 Full Year

2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008

5

Protein Restructuring Update

Building a Value-Added Meat and Meals Business

Activity Objective Q2 Milestones Fresh Pork Reorganization

Establish a low cost supply of pork for packaged meats business and reduce commodity exposure by consolidating 6 fresh pork plants into one scale plant in Brandon - reducing fresh pork processed by 40% to 4.3 mm hogs/yr Second-shift expansion of value-added cut

• perations commissioned at Brandon pork plant;

formal sale process of Burlington pork plant launched

Network Optimization

Increase internal utilization of fresh pork and scale of operations Commissioned ham boning expansion at Winnipeg plant, increasing value-added boning of Brandon hams

Hog Production

Shift from equity investments in hog

• perations to 100% ownership of fewer

barns, reducing hogs raised by 50% Restructuring of Manitoba operations mostly complete; sale of Alberta and Ontario investments will reduce hogs raised to ~850,000/yr by end of July

Supply Chain

Increase capacity and significantly reduce supply chain costs Commissioned new distribution centers in Saskatoon and British Columbia

6

Brandon Pork Plant Expansion

Commissioned double shift “cut” operations in July

• Critical step in the protein restructuring
• Running at target volumes, subsequent to a smooth start-up
• Enables significant cost reduction, scale efficiencies and margin

improvements

• Saskatoon and Winnipeg processing plants closed; third plant to close

by the end of September Successful foreign recruiting and training program has established a productive and stable workforce

7

Agribusiness Group

Sales declined 4% due to lower hog volumes as Alberta and Ontario wind down Operating earnings up 62% from Q2/07 Strong rendering results due to higher commodity prices and increased contributions from biodiesel Loss from hog production increased by $2.2 million from Q2/07 but significantly improved from Q1/08 Industry liquidation of sow herds expected to improve pricing late 2008 or early 2009

61 65 63 53 60 59 62 66 53 64 245 241

Sales ($Millions)

Q1 Q2 Q3 Q4

Operating income ($Millions)

2006 2007 2008

Full Year

(9) 1 4 1 5 1 (9) (4)

• 3

8 (3) (8)

Q1 Q2 Q3 Q4 Full Year

2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008

8

Hog Production Restructuring

Hog production volumes down 10% to 299,000 hogs (332,000 last year)

• Further decline to 212,000

hogs per quarter expected by end of July Restructuring of core operations in Manitoba mostly complete; operating improvements realized in Q2 Significant reduction in exposure to hog production in the second half of the year

299 332 1,325 1,480 2006 Annual 2007 Annual Q2, 2007 Q2, 2008

Effective Hogs Produced

(000’s)

9

Bakery Products Group

Sales up 16% due to higher selling prices and contribution from acquisitions Operating earnings fell 74% due to unprecedented and rapid increases in wheat prices and fuel costs

• Challenge keeping price increases paced with

rapid rise in wheat markets and other commodities

• Prices increases implemented in March, future

pricing may be required to keep pace with commodity increases including energy costs

• Margins expected to recover in 2nd half due to

lower new crop wheat costs combined with full effects of pricing

• Earnings impacted by increased investment in

marketing and innovation

Good performance in the UK bakery, benefiting from acquisitions

• Growth rates slowed due to oven fire at

Rotherham bakery; production has been restored

301 355 358 385 393 382 437 342 335 375 1 ,334 1 ,51 1

Sales ($Million)

Q1 Q2 Q3 Q4

Operating Earnings ($Million)

2006 2007 2008

Full Year

23 25 24 29 25 31 33 28 1 7 9 1 01 1 7

Q1 Q2 Q3 Q4 Full Year

2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008

10

Overview

Operations Overview Market Factors Financial Highlights

11

Commodity Headwinds

Q2 earnings pressured by significant inflationary costs

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 Q4-07 Q1-08 Q2-08

Corn, Soybeans, Wheat

200 400 600 800 1,000 1,200 1,400 1,600 98 99 00 01 02 03 04 05 06 07 08YTD

US Cents/BU

Corn Soybean Hard Wheat

Corn, Soybeans, Wheat

Energy - Oil / Natural Gas

2 4 6 8 10 12 14 16 Natural Gas (CAD / Gj)

• 10

10 30 50 70 90 110 130 150 Oil (USD / Barrel) Canadian Natural Gas Prices US Oil Prices

Energy – Oil / Natural gas

Energy prices soar; at historic high 91% rise in oil

44% rise in natural gas 116% rise in wheat, impacting Bakery business 67% rise in corn increased feed costs

12

US Wheat Price/Bushel

400 800 1200 1600 2000 2400

US¢\bushel Futures as of July 22nd

Wheat Prices Up 116% in Q2

(1) Feb.‘06 Oct.‘06 Oct.‘07 Mar.‘08

Maple Leaf Price Increases

Volatile wheat prices in the quarter, and significant rise in flour costs impacted bakery business

(1) Average price compared to Q2/07 Average QTR Price Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 411 460 478 517 505 537 705 911 1,499 1,158 943 888 899 906 897 903 Close Price 415 524 458 519 528 623 927 1,036 1,194 1,175 n/a n/a n/a n/a n/a n/a Source: Reuters - Minneapolis Wheat Exchange Effective Date: June 30, 2008

US Wheat Price/Bushel

13

Poultry Processor Spread Down 29% in Q2

(1)

(1) Compared to Q2/07

Live Bird Versus Wholesale Poultry Price

…due to rising feed and live bird costs

14

USDA Pork Processor Margins up 21% in Q2

(1)

… due to declining hog costs

(1) Compared to Q2/07

Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Wholesale Pork 69.20 $ 73.61 $ 66.10 $ 66.43 $ 73.95 $ 70.49 $ 59.41 $ 58.44 $ 73.87 $ Live Hog 65.79 $ 71.11 $ 62.96 $ 62.78 $ 71.24 $ 69.36 $ 54.20 $ 54.04 $ 70.60 $ Spread 3.41 $ 2.50 $ 3.14 $ 3.65 $ 2.71 $ 1.13 $ 5.21 $ 4.40 $ 3.27 $ Source: USDA 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 ( 2006 Cutout Calculation) Live Hog

Live Hog Versus Wholesale Pork Price

15

50 55 60 65 70 75 80 85 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Week

US$/cwt

Five Year Average Q2 2008

Peak to trough increase of 58% Peak to trough increase of 24%

A v e r a g e P r i c e I n c r e a s e

• f

$ 2 . U S $ / C W T Average Price Increase of $1.25 US

$ / C W T

Hog Costs Increased at a Fast Pace

Unseasonal and sharp increase in hog costs dampened full benefit of industry margin expansion

Live Hog Price Movement in the Second Quarter 2008 versus Five Year Average

16

Forecasts strengthening of prices later in 2008/2009

Hog Futures Markets

Hog Futures Prices

$20 $30 $40 $50 $60 $70 $80 $90 $100 $110

Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09

US$/cwt

Futures as of July 18th

Hog Future Prices

17

Overview

Market Factors Financial Highlights Operations Overview

18

Significant capital investments to reduce costs and increase competitiveness of manufacturing/supply chain Investment of $63 million in the quarter

• Second shift expansion at Brandon plant
• Consolidation of value-added ham boning
• perations in Winnipeg
• Investment in two new warehouses

Forecasted full year 2008 expenditures of $280 million; $108 million to date

52 59 59 66 237 46 63

Q1 Q2 Q3 Full Year Q4

2007 2008 2007 2008 2007 2008 2007 2008 2007 2008

Capital Expenditures

Capital Expenditures ($Millions)

19

Other Activities

Formally launched process to sell Burlington pork plant

• Highly efficient and strategically located business
• Last material element of protein restructuring
• Expect completion by late 2008/early 2009

Purchased additional shares in Canada Bread

• Increased ownership from 88.0% to 89.8% for cost of $33 million

Launched sale of small hog genetics business in Manitoba Small remaining hog production operations in Ontario being marketed

20

Anticipated Improvements in 2nd Half

Market stabilization of wheat markets as a result of new crop and improved supply Full impact of pricing in the Bakery business Benefits from second shift of the Brandon facility Fewer hogs produced leading to lower exposure to commodities; and lower production costs in remaining

• perations

Benefits from consolidated warehousing in Western Canada Improved margins and synergies as a result of expansion at the Lagimodiere ham boning plant

21

Summary

Unprecedented rise in grain and fuel costs significantly impacted bakery and hog production results Inflationary costs will be managed through price increases Excellent progress on protein reorganization with several important milestones achieved Substantial recovery expected in the back half of 2008

22

Maple Leaf Foods Investor Presentation

Second Quarter 2008 Financial Results

23