Maple Leaf Foods Inc. ("Maple Leaf Foods" or the "Company") (TSX: MFI) today reported its financial results for the third quarter ended September 30, 2022
Meat Protein delivers top-line growth of 3.8% and Adjusted EBITDA Margin of 8.5% in the quarter
Plant Protein targeting neutral or better Adjusted EBITDA in the latter half of 2023
MISSISSAUGA, ON, Nov. 8, 2022 /PRNewswire/ - Maple Leaf Foods Inc. ("Maple Leaf Foods" or the "Company") (TSX: MFI) today reported its financial results for the third quarter ended September 30, 2022.
"We are at an important inflection point in our business, grounded in exceptional underlying strength and opportunity even though this is not immediately obvious in current performance or reflected in our share price," said Michael H. McCain, Chief Executive Officer of Maple Leaf Foods. "The post pandemic economy has been challenging, but the headwinds it has created are transitional and short term. Quite simply, if global pork markets and labour constraints normalized, we would be delivering above our 14% Adjusted EBITDA margin target in the third quarter of 2022 and expecting that to continue. The good news is we are seeing strong signs of improvement on these fronts, plus we are on track with our London Poultry and Bacon Centre of Excellence projects which will deliver $130 million annually in Adjusted EBITDA once we get through the normal start-up work and are ramped up to full commercial production."
"In our plant protein business we are firmly on track to meet our Adjusted EBITDA neutral target in the latter half of 2023," continued Mr. McCain. "Our plans are clearly working. We expect to cut our Adjusted EBITDA losses in the fourth quarter this year by half year over year, and we are now examining initiatives which have the potential to take us beyond our target on this path to profitability. We do not believe the underlying strength and value of our business, including the significant returns that our major capital investment will soon be delivering, are currently reflected in our share price, yet are optimistic it will in time."
Third Quarter 2022 Highlights
Meat Protein: Expect mid-to-high single digit sales growth in 2022, and Adjusted EBITDA Margin expansion to achieve a target range of 14% - 16% when market conditions normalize.
Plant Protein: Targeting to deliver neutral or better Adjusted EBITDA in the latter half of 2023.
Capital expenditure: for 2022 is expected to be approximately $375 million, down from prior forecast of $400 million to $500 million, mainly due to a shift in the timing of expenditures. For 2023, capital expenditure for the full year is expected to be in the $275 million to $325 million range with approximately $150 million attributable to maintenance projects and the balance attributable to growth capital.
(i) Refer to the section titled Non-IFRS Financial Measures in this news release.
Three months ended September 30,
Nine months ended September 30,
Basic (Loss) Earnings per Share
Adjusted Operating Earnings(ii)(iii)
Adjusted Earnings per Share(ii)(iii)
Adjusted EBITDA - Meat Protein Group(ii)(iii)
Adjusted EBITDA - Plant Protein Group(ii)(iii)
Sales - Plant Protein Group
(i) All financial measures in millions of dollars except Basic and Adjusted Earnings per Share.
(ii) Refer to the section titled Non-IFRS Financial Measures in this news release.
(iii) Certain comparative figures have been restated to conform with current year presentation.
Sales for the third quarter of 2022 were $1,231.9 million compared to $1,188.6 million last year, an increase of 3.6%, driven by higher sales in the Meat Protein Group, partially offset by lower sales in the Plant Protein Group. For more details on sales performance by operating segment, refer to the section entitled Operating Review.
Year-to-date sales for 2022 were $3,553.5 million compared to $3,400.6 million last year, an increase of 4.5%, due to similar factors as noted above.
Net loss for the third quarter of 2022 was $229.5 million ($1.86 per basic share) compared to earnings of $44.5 million ($0.36 per basic share) last year. The net loss included a $190.9 million one-time non-cash impairment charge related to the Plant Protein Group, and a decrease in fair value of biological assets of $31.5 million (2021: gain of $6.6 million). In addition, pork market headwinds, weaker commercial performance due to cost inflation and labour challenges, and start-up expenses related to Construction Capital contributed to the net loss.
Year-to-date net loss for 2022 was $270.4 million ($2.18 per basic share) compared to earnings of $100.9 million ($0.82 per basic share) last year due to similar factors as noted above as well as restructuring charges in the Plant Protein Group.
Adjusted Operating Earnings for the third quarter of 2022 were $24.1 million compared to $70.6 million last year, and Adjusted Earnings per Share for the third quarter of 2022 were a loss of $0.01 compared to earnings of $0.38 last year as a result of weaker commercial performance due to cost inflation and labour challenges.
Year-to-date Adjusted Operating Earnings for 2022 were $63.9 million compared to $180.4 million last year, and Adjusted Earnings per Share for 2022 were $0.02 compared to $0.94 last year due to similar factors as noted above.
For further discussion on key metrics and a discussion of results by operating segment, refer to the section titled Operating Review.
Note: Several items are excluded from the discussions of underlying earnings performance as they are not representative of ongoing operational activities. Refer to the section entitled Non-IFRS Financial Measures at the end of this news release for a description and reconciliation of all non-IFRS financial measures.
As an essential service, Maple Leaf Foods is focused on protecting the health and well-being of its people, maintaining business continuity and broadening its social outreach. To manage through this unprecedented environment, the Company has taken a number of measures in its business and operating practices that include heightened safety policies and procedures, adopting a vaccination mandate for all employees and contractors, and close communication and collaboration with public health authorities, including hosting on-site vaccination clinics in 2021. The measures enacted to protect the health and safety of employees have increased the Company's current cost structure due to higher labour, personal protective equipment, sanitation and other expenses associated with the pandemic.
Overall, the Company believes its proactive and comprehensive efforts have, and should continue to mitigate adverse operational impacts. As the COVID-19 situation evolves, Maple Leaf Foods will continue to adapt and adopt best practices that prioritize the health and safety of its employees and the stability of the food supply. As part of Maple Leaf Foods' broader social responsibility since the pandemic began, the Company has provided extensive support to front-line staff, emergency food relief efforts and health care providers.
The Company has two reportable segments. These segments offer different products, with separate organizational structures, brands, and financial and marketing strategies. The Company's chief operating decision makers regularly review internal reports for these businesses: performance of the Meat Protein Group is based on revenue growth, Adjusted Operating Earnings and Adjusted EBITDA, while the performance of the Plant Protein Group in the short term is focused on obtaining Adjusted EBITDA neutral or better results.
The following table summarizes the Company's sales, gross profit (loss), SG&A, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin by operating segment for the three months ended September 30, 2022 and September 30, 2021.
Three months ended September 30, 2022
Three months ended September 30, 2021
($ millions)(i)
(Unaudited)
Selling, general and administrative
Adjusted Operating Earnings(iii)(iv)
Adjusted EBITDA Margin(iii)(iv)
Totals may not add due to rounding.
Non-allocated includes eliminations of inter-segment sales and associated cost of goods sold, changes in the fair value of biological assets and derivatives, and non-allocated costs which are comprised of expenses not separately identifiable to reportable segments or are not part of the measures used by the Company when assessing a segment's operating results.
Refer to the section titled Non-IFRS Financial Measures in this news release.
Certain comparatives figures have been restated to conform with current year presentation.
The following table summarizes the Company's sales, gross profit (loss), SG&A, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin by operating segment for the nine months ended September 30, 2022 and September 30, 2021.
Nine months ended September 30, 2022
Nine months ended September 30, 2021
($ millions)(i)
(Unaudited)
Selling, general and administrative
Adjusted Operating Earnings(iii)(iv)
Adjusted EBITDA Margin(iii)(iv)
Totals may not add due to rounding.
Non-allocated includes eliminations of inter-segment sales and associated cost of goods sold, changes in the fair value of biological assets and derivatives, and non-allocated costs which are comprised of expenses not separately identifiable to reportable segments or are not part of the measures used by the Company when assessing a segment's operating results.
Refer to the section titled Non-IFRS Financial Measures in this news release.
Certain comparatives figures have been restated to conform with current year presentation.
The Meat Protein Group is comprised of prepared meats, ready-to-cook and ready-to-serve meals, and value-added fresh pork and poultry products that are sold to retail, foodservice and industrial channels, and agricultural operations in pork and poultry. The Meat Protein Group includes leading brands such as Maple Leaf®, Maple Leaf Prime®, Maple Leaf Natural Selections®, Schneiders®, Schneiders® Country Naturals®, Mina®, Greenfield Natural Meat Co.®, and many leading regional brands.
Sales for the third quarter of 2022 increased 3.8% to $1,194.5 million compared to $1,150.3 million last year. Sales growth was driven by pricing action to mitigate inflation and a favourable mix-shift in product sales, including growth in sustainable meats, branded products and sales to the United States, partially offset by lower sales volume.
Year-to-date sales for 2022 increased 5.0% to $3,444.1 million compared to $3,281.5 million last year. Sales growth was driven by pricing actions to mitigate inflationary cost increases and favourable mix-shift towards sustainable meats, branded products and growth in sales to the United States. These positive factors were partially offset by lower sales volume.
Gross profit for the third quarter of 2022 was $125.6 million (gross margin of 10.5%) compared to $191.5 million (gross margin of 16.6%) last year. Gross profit was negatively impacted by cost inflation, labour shortages affecting the supply chain and pork market headwinds, including challenges in the Japanese market, partially offset by pricing action. Gross profit for the third quarter included start-up expenses of $11.0 million (2021: $2.0 million) associated with Construction Capital projects, which are excluded from the calculation of Adjusted Operating Earnings.
Year-to-date gross profit for 2022 was $392.5 million (gross margin of 11.4%) compared to $524.6 million (gross margin of 16.0%) last year. Gross profit was negatively impacted by labour and supply chain disruptions, inflationary cost increases, and pork market headwinds, including challenges in the Japanese market, partially offset by pricing action. Gross profit year-to-date included start-up expenses of $28.7 million (2021: $4.1 million) associated with Construction Capital projects, which are excluded in the calculation of Adjusted Operating Earnings.
SG&A expenses for the third quarter of 2022 were $82.9 million compared to $85.9 million last year. The decrease in SG&A expenses was largely driven by a reduction in variable compensation, partially offset by the timing of advertising and promotional expenses.
Year-to-date SG&A expenses for 2022 were $258.9 million compared to $254.1 million last year. The increase in SG&A expenses was driven by the timing of advertising and promotional expenses, a gradual normalization of discretionary spending, salary inflation, as well as donations to support the relief efforts in Ukraine, partially offset by lower variable compensation.
Adjusted Operating Earnings for the third quarter of 2022 were $53.6 million compared to $107.6 million last year, consistent with factors noted above.
Year-to-date Adjusted Operating Earnings for 2022 were $162.3 million compared to $274.6 million last year, consistent with factors noted above.
Adjusted EBITDA for the third quarter of 2022 were $100.9 million compared to $151.3 million last year, driven by factors consistent with those noted above. Adjusted EBITDA Margin for the third quarter was 8.5% compared to 13.2% last year, also driven by factors consistent with those noted above.
During the third quarter of 2022 the Meat Protein Group Adjusted EBITDA Margin was negatively impacted by an estimated 560 basis points resulting from the current business environment. Pork export margins to Japan accounted for over a third of this gap, headwinds in the North American pork market and labour shortages each contributed approximately another quarter of the gap, timing on our pricing actions to manage inflation made up the balance.
Year-to-date Adjusted EBITDA for 2022 were $302.6 million compared to $406.4 million last year, driven by factors consistent with those noted above. Year-to-date Adjusted EBITDA Margin for 2022 was 8.8% compared to 12.4% last year, also driven by factors consistent with those noted above.
The Plant Protein Group is comprised of refrigerated and frozen plant protein products, premium grain-based protein, and vegan cheese products sold to retail, foodservice and industrial channels. The Plant Protein Group includes the leading brands Lightlife® and Field Roast™.
Sales for the third quarter of 2022 decreased 9.1% to $43.6 million compared to $48.0 million last year. Excluding the impact of foreign exchange, sales decreased 12.3%, driven by lower volumes in retail and foodservice products. This more than offset pricing action implemented to mitigate inflation and structural cost increases.
Year-to-date sales for 2022 decreased 6.7% to $129.3 million compared to $138.6 million last year. Excluding the impact of foreign exchange, sales decreased 9.2%, driven by lower volumes in retail products. This more than offset growth in foodservice volumes and pricing action implemented to mitigate inflation and structural cost increases.
Gross profit for the third quarter of 2022 was a loss of $9.8 million (gross margin loss of 22.5%) compared to a loss of $3.3 million (gross margin loss of 6.8%) last year. The decrease in gross profit was driven by inflationary costs and strategic investments in capacity ahead of anticipated demand, which resulted in increased overhead and short-term costs. This was partially offset by pricing action. Gross profit for the quarter also included start-up expenses of $0.2 million (2021: $0.6 million) associated with Construction Capital projects which are excluded in the calculation of Adjusted Operating Earnings
Year-to-date gross profit for 2022 was a loss of $26.2 million (gross margin loss of 20.2%) compared to a loss of $2.9 million (gross margin loss of 2.1%) last year. The decrease in gross profit was driven by inflationary costs and strategic investments in capacity ahead of anticipated demand, which resulted in increased overhead and short-term costs. This was partially offset by pricing action. Year-to-date gross profit also included start-up expenses of $4.8 million (2021: $1.6 million) associated with Construction Capital projects which are excluded in the calculation of Adjusted Operating Earnings
SG&A expenses for the third quarter of 2022 were $19.9 million (45.5% of sales) compared to $34.4 million (71.7% of sales) last year. The decrease in SG&A expenses was primarily attributable to lower advertising expenses and people costs as a result of the restructuring plan implemented towards the end of the second quarter.
Year-to-date SG&A expenses for 2022 were $77.0 million (59.5% of sales) compared to $93.0 million (67.0% of sales) last year. The decrease in SG&A expenses was primarily attributable to lower advertising expenses and people costs as a result of the restructuring plan implemented towards the end of the second quarter, partially offset by higher consulting costs.
Adjusted Operating Earnings for the third quarter of 2022 were a loss of $29.5 million compared to a loss of $37.1 million last year. The decrease in Adjusted Operating Earnings is consistent with the factors noted above.
Year-to-date Adjusted Operating Earnings for 2022 were a loss of $98.4 million compared to a loss of $94.2 million last year. The decrease in Adjusted Operating Earnings is consistent with the factors noted above.
On November 7, 2022, the Board of Directors approved a quarterly dividend of $0.20 per share (an increase of $0.02 per share from the 2021 third quarter dividends), $0.80 per share on an annual basis, payable December 30, 2022 to shareholders of record at the close of business December 8, 2022. Unless indicated otherwise by the Company at or before the time the dividend is paid, the dividend will be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".
A conference call will be held at 8:00 a.m. ET on November 8, 2022, to review Maple Leaf Foods' third quarter financial results. To participate in the call, please dial 416-764-8650 or 1-888-664-6383. For those unable to participate, playback will be made available an hour after the event at 416-764-8677 or 1-888-390-0541 (Passcode: 351137#).
The Company's full unaudited consolidated interim financial statements ("Consolidated Interim Financial Statements") and related Management's Discussion and Analysis are available on the Company's website.
An investor presentation related to the Company's third quarter financial results is available at www.mapleleaffoods.com and can be found under Presentations and Webcasts on the Investors page.
Maple Leaf Foods is a leading consumer protein company, supported by a portfolio of market leading brands, a solid balance sheet and capital structure that provide financial flexibility. Over the last several years, the Company has developed a foundation to pursue compelling growth vectors across its business and to create value for all stakeholders.
In Meat Protein, the Company's strategy is to drive profitable growth. Given the unprecedented market dynamics, marked by a challenging post-pandemic economy, the conflict in Europe, high inflation and significant market and supply chain disruption, Maple Leaf Foods expects that its Meat Protein Group will achieve the following:
In late 2021, the Company announced that it was re-evaluating its outlook for the Plant Protein Group and launching a comprehensive review of the overall plant protein category. This decision was driven by a pronounced slowdown in growth rates in the category, particularly in the second half of the year, which fueled the Company's imperative to identify and thoroughly assess the causes, near and long-term trends, and overall implications. While the Company's analysis is ongoing, the results to date confirm that the very high category growth rates previously predicted by many industry experts are unlikely to be achieved given current customer feedback, experience, buy rates and household penetration. Based on this new information, the Company believes that the category will continue to grow at more modest, but still attractive rates. Current estimates suggest that the category will grow at an average annual rate of 10% to 15%, making it a $6 billion to $10 billion market by 2030. Accordingly, the Company has pivoted its strategy and investment thesis for the Plant Protein Group and has set a new goal to deliver neutral or better Adjusted EBITDA in the latter half of 2023. Work is ongoing to implement this pivot. Given the current size of the Plant Protein Group of approximately US$150 million of annual revenue in 2021, the expected resultant business model from this strategy would deliver a 30% gross margin, with less than US$50 million in SG&A, to achieve the stated Adjusted EBITDA target. Based on the choices made in the second quarter and the current momentum in SG&A savings, the Company expects to reduce Adjusted EBITDA losses in the fourth quarter of 2022 by half compared to the same quarter of 2021.
The Company currently estimates its capital expenditures for 2022 will be approximately $375 million with approximately 50% to be comprised of Construction Capital. This primarily relates to the completion of the London, Ontario poultry facility and other projects to add growth and capacity in areas such as expanding our raised without antibiotics hog barns, and beginning construction on the addition of a further processed poultry production line at the Brampton, Ontario Prepared Meats facility. The lower estimated capital spend for the year is primarily timing related.
Going forward the Company distinguishes two types of capital expenditures. Maintenance capital consists of non-discretionary investment required to maintain the Company's existing operations and competitive position. Growth capital includes discretionary investments meant to create stakeholder value through initiatives that, for example, expand margins, increase capacities or create further competitive advantage. For 2023, the Company expects total capital expenditures to be in the $275 million to $325 million range. Approximately $150 million of that will be maintenance capital with the remainder being growth capital. This growth capital will mainly consist of an increase to further processed poultry capacity at the Prepared Meats plant in Brampton, Ontario, an increase in raised without antibiotics hog barn capacity, expanded capacity in the kits category, and upgrading smokehouse operations. The Company expects depreciation and amortization used in calculating Adjusted EBITDA for 2023 to be approximately $250 million compared to approximately $200 million in 2022 mainly as a result of large construction projects now coming on line.
The Company expects the London, Ontario poultry facility to start to deliver approximately $100 million annually of additional Adjusted EBITDA once fully ramped up which is expected to be by the end of 2023. Additionally, the Company expects the Bacon Centre of Excellence to contribute approximately $30 million annually of additional Adjusted EBITDA once fully ramped up which is expected to be in the second half of 2023.
The ongoing effects of COVID-19 induced supply chain disruptions and the war in Ukraine are unpredictable and may impact a number of factors that drive growth in the business, including:
For more information on the impact of COVID-19 on the business and the associated risks, refer to the section titled Response to COVID-19, and for more information on the factors that may influence future performance, see the section titled Forward-Looking Statements in this news release.
The execution of the Company's financial and operational priorities are embedded in a commitment to deliver shared value for the benefit of all stakeholders. The Company's guiding pillars to be the "Most Sustainable Protein Company on Earth" include Better Food, Better Care, Better Communities, Better Planet and are core to how Maple Leaf Foods conducts itself. To that end, the Company's priorities include:
Non-IFRS Financial Measures
The Company uses the following non-IFRS measures: Adjusted Operating Earnings, Adjusted Earnings per Share, Adjusted EBITDA, Adjusted EBITDA Margin, Construction Capital, Net Debt, Free Cash Flow and Return on Net Assets. Management believes that these non-IFRS measures provide useful information to investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.
Adjusted Operating Earnings, Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted Operating Earnings, Adjusted EBITDA and Adjusted EBITDA Margin are non-IFRS measures used by Management to evaluate financial operating results. Adjusted Operating Earnings is defined as earnings before other income, income taxes and interest expense adjusted for items that are not considered representative of ongoing operational activities of the business and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. Adjusted EBITDA is defined as Adjusted Operating Earnings plus depreciation and intangible asset amortization, adjusted for items included in other expense that are considered representative of ongoing operational activities of the business. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by sales.
The table below provides a reconciliation of earnings (loss) before income taxes as reported under IFRS in the Consolidated Interim Financial Statements to Adjusted Operating Earnings and Adjusted EBITDA for the three and nine months ended September 30, 2022 as indicated below. Management believes that these non-IFRS measures are useful in assessing the performance of the Company's ongoing operations and its ability to generate cash flows to fund its cash requirements, including the Company's capital investment program.
Three months ended September 30, 2022
Three months ended September 30, 2021
($ millions)(i)
(Unaudited)
Earnings (loss) before income taxes
Interest expense and other financing costs
Restructuring and other related costs
Earnings (loss) from operations
Start-up expenses from Construction Capital(iii)(iv)
Change in fair value of biological assets
Unrealized loss (gain) on derivative contracts
Adjusted Operating Earnings(iv)
Depreciation and amortization(iv)
Items included in other income (expense)
representative of ongoing operations(v)
Adjusted EBITDA Margin(iv)
Totals may not add due to rounding.
Non-allocated includes eliminations of inter-segment sales and associated cost of goods sold, and non-allocated costs which are comprised of income and expenses not separately identifiable to reportable segments or are not part of the measures used by the Company when assessing a segment's operating results.
Start-up expenses are temporary costs as a result of operating new facilities that are or have been classified as Construction Capital. These costs can include training, product testing, yield and labour efficiency variances, duplicative overheads and other temporary expenses required to ramp-up production.
Certain comparative figures have been restated to conform with current year presentation.
2022 primarily includes certain costs associated with sustainability projects, gains and losses on the sale of long-term assets, legal settlements, and other miscellaneous expenses. 2021 primarily includes certain costs associated with sustainability projects, gains and losses on the sale of long-term assets, legal settlements, and other miscellaneous expenses.
Nine months ended September 30, 2022
Nine months ended September 30, 2021
($ millions)(i)
(Unaudited)
Earnings (loss) before income taxes
Interest expense and other financing costs
Restructuring and other related costs
Earnings (loss) from operations
Start-up expenses from Construction Capital(iii)(iv)
Change in fair value of biological assets
Unrealized loss (gain) on derivative contracts
Adjusted Operating Earnings(iv)
Depreciation and amortization(iv)
Items included in other income (expense)
representative of ongoing operations(v)
Adjusted EBITDA Margin(iv)
Totals may not add due to rounding.
Non-allocated includes eliminations of inter-segment sales and associated cost of goods sold, and non-allocated costs which are comprised of income and expenses not separately identifiable to reportable segments or are not part of the measures used by the Company when assessing a segment's operating results.
Start-up expenses are temporary costs as a result of operating new facilities that are or have been classified as Construction Capital. These costs can include training, product testing, yield and labour efficiency variances, duplicative overheads and other temporary expenses required to ramp-up production.
Certain comparative figures have been restated to conform with current year presentation.
2022 primarily includes certain costs associated with sustainability projects, gains and losses on the sale of long-term assets, legal settlements, and other miscellaneous expenses. 2021 primarily includes certain costs associated with sustainability projects, gains and losses on the sale of long-term assets, legal settlements, and other miscellaneous expenses.
Adjusted Earnings per Share
Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate financial operating results. It is defined as basic earnings per share and is adjusted on the same basis as Adjusted Operating Earnings. The table below provides a reconciliation of basic earnings per share as reported under IFRS in the Consolidated Interim Financial Statements to Adjusted Earnings per Share for the three and nine months ended September 30, as indicated below. Management believes this basis is the most appropriate on which to evaluate financial results as they are representative of the ongoing operations of the Company.
Three months ended September 30,
Nine months ended September 30,
Basic (loss) earnings per share
Restructuring and other related costs(i)
Items included in other expense not considered representative of ongoing operations(ii)
Start-up expenses from Construction Capital(iii)(iv)
Change in fair value of biological assets
Change in unrealized fair value on derivatives
Adjusted Earnings per Share(iv)(v)
Includes per share impact of restructuring and other related costs, net of tax.
Primarily includes legal fees and provisions and transaction related costs, net of tax.
Start-up expenses are temporary costs as a result of operating new facilities that are or have been classified as Construction Capital. These costs can include training, product testing, yield and labour efficiency variances, duplicative overheads and other temporary expenses required to ramp-up production.
Certain comparatives figures have been restated to conform with current year presentation.
Totals may not add due to rounding.
Construction Capital, a non-IFRS measure, is used by Management to evaluate the amount of capital resources invested in specific strategic development projects that are not yet operational. It is defined as investments and related financing charges in projects over $50.0 million that are related to longer-term strategic initiatives, with no returns expected for at least 12 months from commencement of construction and the asset is re-categorized from Construction Capital once operational. The current balance of Construction Capital includes investments in the London, Ontario poultry production facility and in increased further processed poultry capacity in the Prepared Meats facility in Brampton, Ontario. The expansion of the Bacon Centre of Excellence in Winnipeg, Manitoba, was completed in the fourth quarter of 2021 and recategorized. Investments in capacity at the Walker Drive facility in Brampton, Ontario, and the plant protein production facilities in Indiana were completed in the first quarter of 2022 and have been recategorized. The following table is a summary of Construction Capital activity and debt financing for the periods indicated below.
Property and equipment and intangibles at January 1
Other capital and intangible assets at January 1(i)
Construction Capital at January 1
Transfers from Construction Capital
Construction Capital at March 31
Construction Capital at June 30
Construction Capital at September 30(iii)(iv)
Other capital and intangible assets at September 30(i)
Property and equipment and Intangibles at September 30
Construction Capital debt financing(v)
Other capital and intangible assets consists of property and equipment and intangibles that do not meet the definition of Construction Capital.
Certain comparative figures have been restated to conform with current year presentation.
As at September 30, 2022, the net book value of Construction Capital includes $3.3 million related to intangible assets (September 30, 2021: $3.2 million; December 31, 2021: $2.5 million).
Does not include $265.2 million in capital that has been transferred out but is still in the start-up stage (2021: $nil).
Assumed to be fully funded by debt to the extent that the Company has Net Debt outstanding. Construction Capital debt financing excludes interest paid and capitalized.
The following table reconciles Net Debt to amounts reported under IFRS in the Company's Consolidated Interim Financial Statements as at September 30, as indicated below. The Company calculates Net Debt as cash and cash equivalents, less long-term debt and bank indebtedness. Management believes this measure is useful in assessing the amount of financial leverage employed.
Cash and cash equivalents
Current portion of long-term debt
Free Cash Flow, a non-IFRS measure, is used by Management to evaluate cash flow after investing in the maintenance or expansion of the Company's asset base. It is defined as cash provided by operations, less cash additions to long-term assets and capitalized interest. The following table calculates Free Cash Flow for the periods indicated below:
Three months ended September 30,
Nine months ended September 30,
Cash provided by operating activities
Additions to long-term assets
Interest paid and capitalized
Return on Net Assets ("RONA") is calculated by dividing tax effected earnings from operations (adjusted for items which are not considered representative of the underlying operations of the business) by average monthly net assets. Net assets are defined as total assets (excluding cash and deferred tax assets) less non-interest bearing liabilities (excluding deferred tax liabilities). Management believes that RONA is an appropriate basis upon which to evaluate long-term financial performance.
Forward-Looking Statements
This document contains, and the Company's oral and written public communications often contain, "forward-looking information" within the meaning of applicable securities law. These statements are based on current expectations, estimates, projections, beliefs, judgments and assumptions based on information available at the time the applicable forward-looking statement was made and in light of the Company's experience combined with its perception of historical trends. Such statements include, but are not limited to, statements with respect to objectives and goals, in addition to statements with respect to beliefs, plans, targets, goals, objectives, expectations, anticipations, estimates, and intentions. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "could", "would", "believe", "plan", "intend", "design", "target", "undertake", "view", "indicate", "maintain", "explore", "entail", "schedule", "objective", "strategy", "likely", "potential", "outlook", "aim", "propose", "goal", and similar expressions suggesting future events or future performance. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict.
By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
Specific forward-looking information in this document may include, but is not limited to, statements with respect to:
Various factors or assumptions are typically applied by the Company in drawing conclusions or making the forecasts, projections, predictions or estimations set out in the forward-looking statements. These factors and assumptions are based on information currently available to the Company, including information obtained by the Company from third-party sources and include but are not limited to the following:
Readers are cautioned that these assumptions may prove to be incorrect in whole or in part. The Company's actual results may differ materially from those anticipated in any forward-looking statements.
Factors that could cause actual results or outcomes to differ materially from the results expressed, implied, or projected in the forward-looking statements contained in this document include, among other things, risks associated with the following:
The Company cautions readers that the foregoing list of factors is not exhaustive.
Readers are further cautioned that some of the forward-looking information, such as statements concerning future capital expenditures, Adjusted EBITDA Margin growth in the Meat Protein Group, and Adjusted EBITDA target in the Plant Protein Group (including the timing, pace and impact of restructuring activities), may be considered to be financial outlooks for purposes of applicable securities legislation. These financial outlooks are presented to evaluate potential future earnings and anticipated future uses of cash flows and may not be appropriate for other purposes. Readers should not assume these financial outlooks will be achieved.
More information about risk factors can be found under the heading "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2021, that is available on SEDAR at www.sedar.com. The reader should review such section in detail. Additional information concerning the Company, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com.
All forward-looking statements included herein speak only as of the date hereof. Unless required by law, the Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained herein are expressly qualified by this cautionary statement.
About Maple Leaf Foods Inc.
Maple Leaf Foods is a carbon neutral company with a vision to be the most sustainable protein company on earth, responsibly producing food products under leading brands including Maple Leaf®, Maple Leaf Prime®, Maple Leaf Natural Selections®, Schneiders®, Schneiders® Country Naturals®, Mina®, Greenfield Natural Meat Co.®, Lightlife® and Field Roast™. The Company employs approximately 14,000 people and does business primarily in Canada, the U.S. and Asia. The Company is headquartered in Mississauga, Ontario and its shares trade on the Toronto Stock Exchange (MFI).
Consolidated Interim Balance Sheets
(In thousands of Canadian dollars)
(Unaudited)
As at September 30,
2021(i)
Cash and cash equivalents
Prepaid expenses and other assets
Accounts payable and accruals
Current portion of provisions
Current portion of long-term debt
Current portion of lease obligations
Other current liabilities
Total current liabilities
Other long-term liabilities
Total long-term liabilities
Accumulated other comprehensive income (loss)
Total shareholders' equity
Total liabilities and equity
(i) Restated, see Note 17(a) of the Company's 2022 third quarter consolidated financial statements.
Consolidated Interim Statements of Net (Loss) Earnings
(In thousands of Canadian dollars, except share amounts)
Three months ended September 30,
Nine months ended September 30,
Selling, general and administrative expenses
(Loss) earnings before the following:
Restructuring and other related costs
(Loss) earnings before interest and income taxes
Interest expense and other financing costs
(Loss) earnings before income taxes
Income tax (recovery) expense
(Loss) earnings per share attributable to common
Basic (loss) earnings per share
Diluted (loss) earnings per share
Weighted average number of shares (millions):
Consolidated Interim Statements of Other Comprehensive Income (Loss)
(In thousands of Canadian dollars)
Three months ended September 30,
Nine months ended September 30,
Other comprehensive (loss) income
Actuarial gains (losses) that will not be reclassified
to profit or loss (Net of tax of $6.0 million and $7.6
million; 2021: $0.9 million and $25.8 million)
Items that are or may be reclassified subsequently to profit or loss:
Change in fair value of investments (Net of tax of
$0.0 million; 2021: $1.0 million)
Change in accumulated foreign currency translation
adjustment (Net of tax of $0.0 million and $0.0
million; 2021: $0.0 million and $0.0 million)
Change in foreign exchange on long-term debt
designated as a net investment hedge (Net of tax
of $3.9 million and $5.0 million; 2021: $1.1 million
and $0.4 million)
Change in cash flow hedges (Net of tax of $1.6
million and $5.6 million; 2021: $0.7 million and
$1.7 million)
Total items that are or may be reclassified subsequently to profit or loss
Total other comprehensive income (loss)
Comprehensive (loss) income
Consolidated Interim Statements of Changes in Total Equity
Accumulated other comprehensive
income (loss)(i)
(In thousands of Canadian dollars)
Foreign
currency
translation
adjustment
Unrealized
gains and
losses on
cash flow
hedges
Unrealized
gains on fair
value of
investments
Balance at December 31, 2021
Other comprehensive income (loss)(ii)
Dividends declared ($0.60 per
Modification of stock compensation
Deferred taxes on share-based
Exercise of stock options
Shares purchased by RSU trust
Settlement of share-based
Balance at September 30, 2022
Accumulated other comprehensive
income (loss)(i)
(In thousands of Canadian dollars)
Foreign
currency
translation
adjustment
Unrealized
gains and
losses on
cash flow
hedges
Unrealized
gains on fair
value of
investments
Balance at December 31, 2020
Other comprehensive income (loss)(ii)
Dividends declared ($0.54 per
Deferred taxes on share-based
Exercise of stock options
Settlement of share-based
Balance at September 30, 2021
Items that are or may be subsequently reclassified to profit or loss.
Included in other comprehensive income (loss) is the change in actuarial gains and losses that will not be reclassified to profit or loss and has been reclassified to retained earnings.
Consolidated Interim Statements of Cash Flows
(In thousands of Canadian dollars)
Three months ended September 30,
Nine months ended September 30,
CASH PROVIDED BY (USED IN):
Add (deduct) items not affecting cash:
Change in fair value of biological assets
Depreciation and amortization
Interest expense and other financing costs
Loss on sale of long-term assets
Change in fair value of non-designated
Change in net pension obligation
Interest paid, net of capitalized interest
Change in provision for restructuring and other
Change in derivatives margin
Change in non-cash operating working capital
Cash provided by operating activities
Additions to long-term assets
Interest paid and capitalized
Proceeds from sale of long-term assets
Proceeds from legal settlement
Cash used in investing activities
Net increase in long-term debt
Payment of lease obligation
Receipt of lease inducement
Exercise of stock options
Purchase of treasury stock
Payment of financing fees
Cash provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
SOURCE Maple Leaf Foods Inc.
