Maple Leaf Foods Third Quarter 2019 All do llar amo unts are pre - - PowerPoint PPT Presentation

Maple Leaf Foods

Third Quarter 2019

All do llar amo unts are pre se nte d in Canadian do llars unle ss o the rwise no te d.

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

T his pre se nta tio n c o nta ins “fo rwa rd-lo o king info rma tio n” within the me a ning o f a pplic a b le se c uritie s la w. T he se sta te me nts a re b a se d o n c urre nt e xpe c ta tio ns, e stima te s, fo re c a sts, a nd pro je c tio ns a b o ut the industrie s in whic h the Co mpa ny o pe ra te s, a s we ll a s b e lie fs a nd a ssumptio ns ma de b y the Ma na g e me nt o f the Co mpa ny. T he Co mpa ny’ s e xpe c ta tio ns with re spe c t to future sa le s a nd re turns a sso c ia te d with the a ntic ipa te d g ro wth o f its pla nt-b a se d pro te in b usine ss a s o f the da te he re o f a re b a se d o n a numb e r o f a ssumptio ns, e stima te s a nd pro je c tio ns tha t ha ve b e e n de ve lo pe d b a se d o n e xpe rie nc e a nd a ntic ipa te d tre nds, inc luding b ut no t limite d to : ma rke t g ro wth a ssumptio ns, ma rke t sha re a ssumptio ns, ne w pro duc t inno va tio n, fo re ig n e xc ha ng e ra te s a nd c o mpe titio n. T he Co mpa ny’ s e xpe c ta tio ns with re spe c t to impro ving po rk ma rke t e c o no mic s a s o f the da te he re o f a re b a se d o n a numb e r o f a ssumptio ns, inc luding b ut no t limite d to : po rk supply pre ssure s in Afric a n Swine F e ve r c o nfirme d re g io ns, g lo b a l e xpo rt tra de tre nds a nd ho g future s pric ing . T he se sta te me nts a re no t g ua ra nte e s o f future pe rfo rma nc e a nd invo lve a ssumptio ns a nd risks a nd unc e rta intie s tha t a re diffic ult to pre dic t. T he se a ssumptio ns ha ve b e e n de rive d fro m info rma tio n c urre ntly a va ila b le to the Co mpa ny, inc luding info rma tio n o b ta ine d b y the Co mpa ny fro m third-pa rty so urc e s. T he se a ssumptio ns ma y pro ve to b e inc o rre c t in who le o r in pa rt. I n a dditio n, a c tua l re sults ma y diffe r ma te ria lly fro m tho se e xpre sse d, implie d, o r fo re c a ste d in suc h fo rwa rd-lo o king info rma tio n, whic h re fle c t the Co mpa ny’ s e xpe c ta tio ns o nly a s o f the da te he re o f. Ple a se re fe r to the se c tio ns e ntitle d “Risk F a c to rs” a nd “F

• rwa rd-L
• o king Sta te me nts” in the Co mpa ny's Ma na g e me nt Disc ussio n a nd Ana lysis fo r the fisc a l ye a r e nde d

De c e mb e r 31, 2018 a nd fo r the q ua rte r e nde d Se pte mb e r 30, 2019 fo r a dditio na l de ta il. I n a dditio n, this pre se nta tio n c o nta ins the fo llo wing no n-I F RS me a sure s:

Adjuste d Ope ra ting E a rning s: De fine d a s e a rning s b e fo re inc o me ta xe s a djuste d fo r ite ms tha t a re no t c o nside re d re pre se nta tive o f o ng o ing o pe ra tio na l a c tivitie s o f the b usine ss, a nd

ite ms whe re the e c o no mic impa c t o f the tra nsa c tio ns will b e re fle c te d in e a rning s in future pe rio ds whe n the unde rlying a sse t is so ld o r tra nsfe rre d.

Adjuste d E a rning s pe r Sha re : De fine d a s b a sic e a rning s pe r sha re a djuste d fo r a ll ite ms tha t a re no t c o nside re d re pre se nta tive o f o ng o ing o pe ra tio na l a c tivitie s o f the b usine ss, a nd ite ms

whe re the e c o no mic impa c t o f the tra nsa c tio ns will b e re fle c te d in e a rning s in future pe rio ds whe n the unde rlying a sse t is so ld o r tra nsfe rre d.

Adjuste d E a rning s Be fore Inte re st, T a xe s, De pre c ia tion a nd Amortiza tion: De fine d a s Adjuste d Ope ra ting E

a rning s plus de pre c ia tio n a nd inta ng ib le a sse t a mo rtiza tio n, a djuste d fo r ite ms inc lude d in o the r e xpe nse tha t a re no t c o nside re d re pre se nta tive o f o ng o ing o pe ra tio na l a c tivitie s o f the b usine ss.

Ne t (De bt) Ca sh: De fine d a s c a sh a nd c a sh e q uiva le nts, le ss lo ng -te rm de b t a nd b a nk inde b te dne ss. Construc tion Ca pita l: De fine d a s inve stme nts in pro je c ts o ve r $50.0 millio n tha t a re re la te d to lo ng e r-te rm stra te g ic initia tive s, with no re turns e xpe c te d fo r a t le a st 12 mo nths in the future

a nd the a sse t will b e re -c a te g o rize d fro m Co nstruc tio n Ca pita l o nc e o pe ra tio na l.

Core Gross Ma rg in: De fine d a s g ro ss ma rg in a djuste d fo r the impa c t o f ine ffic ie nc ie s a sso c ia te d with sta rt-up pro duc tio n a nd o the r c o sts re la te d to b uilding sc a le to suppo rt hig h g ro wth Ple ase re fe r to the Co mpany’ s Manag e me nt and Disc ussio n and Analysis fo r the q uarte r e nde d Se pte mb e r 30, 2019 fo r additio nal info rmatio n o n no n-I F RS financ ial me asure s

F

• rward-looking Statements and non-IFRS Measures

2

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

Our objectives today

• 1. Describe our new segmented reporting and key

financial metrics

• 2. Explain erratic global pork markets
• 3. Update you on our progress to deliver on our

strategic Blueprint

• 4. Unpack our significant investment in Plant

Protein to drive growth and value creation

3

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

• New reporting reflects two significant segments with different financial goals:

 Meat Protein with a robust multi-year agenda of profitable growth  Plant Protein capitalizing on enormous opportunities for rapid top-line growth

• Pork markets experienced unexpected erratic conditions connected to global trade

uncertainty and African Swine Fever

• Brand renovation builds momentum; double digit growth in U.S. sustainable meat

sales

• Advanced our strategic Blueprint to deliver financial targets and leadership in

sustainability

• Investments in Plant Protein business fueled >30% sales growth rates and

accelerating

A pivot point in Plant Protein; extraordinary events in global pork markets

4

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019 MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

4

Q3 Results reflect significant progress in advancing our new segmented operating direction

Meat Protein

Deliver profitable growth and EBITDA margin target of 14%-16% in 2022

Plant Protein

Reach $3B in sales within 10 years and maintain core gross margin of ~30% Maple Leaf Consolidated Financial Results Q3 2019

Sales ($M)

$953.3 +13.7%

Adjusted EBITDA

$85.4 +8.0%

Adjusted EBITDA (%)

9.0%

• 40 bps

Q3 2019

Sales ($M)

$47.0 +30.1%

Core Gross Margin (%)

28.9% +380 bps

SG&A ($M)

$44.9 +422%

Q3 2019

Sales ($M)

$995.83

Adjusted EPS ($)

$0.03

Net Debt ($M)

$403.1

Construction Capital ($M)

$79.5

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

5

Global pork markets were thrown off balance by extraordinary events…

6

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

China

ASF dramatically reduces hog population in China by ~50%1 and is spreading through Asia Pork prices fall first, then rise Frozen pork released from storage

North America

Hog production increases with expected increase in demand from China NA hog prices fall as China puts tariffs on US pork and temporarily suspends Canadian imports

North American hog and pork prices fall despite dramatic rise in demand for pork in China The Paradox

Hog slaughter accelerated

BUT

Imports fall first, then rise

The Paradox

6

• 1. Rabobank, Sept 2019

W e were on the wrong side of these events for Q3, with offsetting benefits anticipated in Q4

7

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

Impact to Maple Leaf Erratic August Hog Futures

Raised prices to offset higher costs But only realized benefit in late Q3 Locked-in summer prepared meats raw material costs in April at height of pork markets Some transitory prepared meats volume softness in the wake of erratic markets Pork complex traded

220 bps below five year

average Trade barriers negatively impacted North American hog prices and processor spreads Recent movement in US exports and futures signal improving markets

Source: CME, USDA

Aug 2019 Hog Futures (LHS) Primary processing spread (RHS) Primary processing spread 5 –year average (RHS)

7

Locked-in costs and communicated price increases

W e continue to be focused on executing our strategic Blueprint

8

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

8

…accomplishing several milestones in the third quarter

9

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

• Adopted Science Based

Targets to more aggressively reduce emissions - 1 of only 2 meat companies globally

• Sustainable meats continued

to deliver double-digit growth in the U.S

• Commissioned humane CO2

stunning in Edmonton poultry facility

Sustainability Strategy Poultry Strategy

• Brands continued to shift

sales mix toward higher margin prepared meats

• Improved operational

efficiencies post renovation

• Completed national roll-out
• f Prime Raised Without

Antibiotics

Food Renovation

• Construction of new scale

poultry facility underway

• Core contributor to

structural margin expansion

9

Pivoting to a plant protein business, we are intentionally investing heavily to drive high revenue growth

10

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

Significant SG&A investments in all elements of brand development Innovation pipeline Across the board investments in talent to enable sustainable growth rates >30% Talent & infrastructure Winning with product that delivers on all consumer needs Supply chain Operating an efficient and effective supply chain is our wheel house, but there are short term inefficiencies to maintain pace of growth Brand penetration

10

US household penetration1

Refrigerated segment is underpenetrated compared with other plant-based categories Plant-based protein is expected to reach 10% - 15% of the meat protein market by 2029 versus 1% today

1) IRI panel data for the 52 week period ended November 18, 2018 (refrigerated and frozen meat substitutes) and Nielsen total US household panel 52 week period ended October 6, 2018 2) Nielsen xAOC +WFM for the 52 week period ended August 11, 2018 3) May not add due to rounding 4) Assumed category growth rates

The End Game: Estimated $25 billion1 market in 10 years and a $3B Maple Leaf Plant Protein business

Forecasted protein market size (meat and plant based protein) (North America; $B)2 …with plant-based protein growth additive to total protein consumption

9 13 4

190 200 210 220 230

191 2

2019F

203

2029F

193 229 Foodservice All meat subs Meat Frozen retail Refrigerated retail

18% 2019-29 CAGR 43% 27% 1% 5% 9% 12% 37% 98% 0% 20% 40% 60% 80% 100% Total meat substitutes Refrigerated meat substitutes Frozen meat substitutes PB milk Conventional meat

$25B

3

4

11

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

W e are prepared for negative EBITDA in the short term enrouteto creating significant value

12

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

Plant Protein Revenue Growth Key performance metrics Sales ($M) $47.0 $36.1 +30.1% Gross Profit ($M) $10.0 $9.1 +9.9% Core GM(%) 28.9% 25.1% +380 bps SG&A ($M) $44.9 $8.6 +422% Adj EBITDA ($M) $(31.6) $2.0 n/a Adj EBITDA (%) (67.3)% 5.7% n/a

Investments tied to driving high growth

• Significant investments in marketing,

commercial and product development resources

• We will continue to invest so long as

Greenleaf’s growth remains strong

• Investment can be brought in line with CPG

levels whenever the focus shifts to stable profitable growth and terminal value

Q3 19 Q3 18 Change GM(%) 21.3% 25.1%

• 380 bps

Core Gross Margin maintained at ~30%

• Core gross margin adjusts for start-up

production inefficiencies and scale-up costs related to high growth

• Maintaining solid profitable business model

while delivering high levels of growth

12

Greenleaf’s investments have already had big payoffs

13

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

…to drive increased brand awareness and consumer adoption increase in ad & promo…

~35X

Media impressions1

>1B

…to improve product sensory and greatly expand innovation pipeline increase in R&D …

~10X

…to build an organization structure to support Greenleaf’s rapid growth increase investment in people…

>2X

Retail stores carrying

• ur innovation SKUs

>12,000

Q3-19 (vs Q3-18)

13

Our wins are accelerating as we dial up the marketing…

14

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

Roy Choi Field Roast partnership Greenleaf Tailgate Tour

High profile chef hosting our docuseries

Ellen

Over 11 million impressions

Kristen Bell & Dax Shepard

Over 250 million impressions 11 college games across the U.S.

14

….and our distribution coverage!

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

15

A steady focus on value creation

16

MAPLE LEAF FOODS – Q3 2019 BUSINESS AND FINANCIAL REVIEW | OCTOBER 30. 2019

• Segmented financials provide greater market

visibility to contribution and growth potential

• f Plant Protein business
• Managing through short-term global market

impacts with the right strategies

• Delivering sales and margin expansion in

value-added meats to deliver on EBITDA margin target

• Driving top-line growth Plant Protein

segment AND building a profitable business model

• Advancing our longer-term value creation

strategies