Maple Leaf Foods Reports First Quarter Financial Results
TORONTO, ONTARIO, Apr 28, 2004 (CCNMatthews via COMTEX) -- Operating Earnings Up 45%; Earnings Per Share Up 128%
Maple Leaf Foods Inc. (TSX:MFI) today reported its financial results for the first quarter ended March 31, 2004.
"Operating earnings and earnings per share increased sharply in the first quarter, reflecting a continued improvement in both our performance and market conditions that began in late 2003," said Michael McCain, President and Chief Executive Officer. "We realized earnings growth in both the bakery and protein businesses, despite lower North American pork processor margins compared to last year. We expect this trend line improvement to continue in 2004, and our financial performance to be enhanced by the recent acquisition of Schneider Foods, as well as the steady progress we are making in increasing our product innovation and value-added sales."
Sales for the first quarter of $1.19 billion compared to $1.25 billion for 2003, while earnings from operations before restructuring costs increased to $48.0 million compared to $33.2 million last year. Comparisons of earnings from operations exclude $7.4 million in restructuring costs in the first quarter of 2003. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring costs are not representative of ongoing operating earnings. Earnings comparisons are also affected by income related to sales of poultry production quota in both years and a gain related to the wind up of a pension plan last year. As indicated in the table below, before taking account of these items, earnings from operations increased by 57%.
Earnings from operations before restructuring costs
($ millions) First Quarter
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Protein Value Chain 2004 2003 Change
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Meat Products Group 10.0 4.4
Agribusiness Group 16.2 10.2
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Total Protein Value Chain 26.2 14.6 79.5%
Bakery Products Group 17.7 13.3 33.1%
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43.9 27.9 57.3%
Sale of production quota 4.1 0.6
Pension wind-up gain - 4.7
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$48.0 $33.2 44.6%
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--------------------------------------------------------------------Net earnings for the first quarter of $19.3 million ($0.16 per share) compared to $6.0 million ($0.04 per share) last year. Before accounting for restructuring costs, net earnings last year were $9.5 million ($0.07 per share).
Other income for the first quarter increased to $1.1 million from $0.3 million last year, primarily due to a gain on the sale of fixed assets in 2004 of $1.0 million.
Interest expense for the first quarter of $16.7 million compared to $16.2 million last year. Although average debt levels were higher than last year, this was mostly offset by lower interest rates.
Cash flow from operating activities for the first quarter of 2004 was a source of funds of $24.0 million compared to a use of funds of $67.0 million last year. This significant improvement was due to higher earnings and lower investment in working capital, partially due to a $20 million increase in the company's accounts receivable securitization program. Capital expenditures of $21.1 million were consistent with last year.
Meat Products Group (branded value-added prepared meat products; fresh, frozen and branded value-added pork products; fresh, frozen and branded value-added chicken and turkey products; and global food marketing, distribution and trading)
Meat Products Group sales for the first quarter of 2004 declined to $678.6 million from $721.0 million last year primarily due to a reduction in the number of hogs processed. Strong sales increases in the Company's poultry and packaged meats businesses partly offset these sales decreases.
Earnings from operations, before accounting for a $4.7 million pension wind-up gain last year, increased to $10.0 million from $4.4 million in 2003. The primary contributors to this increase in the quarter were improved gross margins on poultry sales and increased earnings from consumer packaged meats. Gross margins in the poultry business were driven by a combination of market share increases in Maple Leaf Prime Naturally and improved Canadian market conditions. Maple Leaf Fully Cooked Roasts, which was launched in 2003, continued to achieve strong market growth. In addition, significant benefits were realized from improvements in the Atlantic Canada meat processing operations in the quarter. Gross margins from fresh pork declined in line with an approximate 17% quarter over quarter reduction in USDA published North American average pork processor margins. This was partly offset by improvements in the Company's product mix as higher margin, value-added and branded pork sales increased. The profitability of the Company's international operations declined from last year due to weaker pork sales to Japan. Management anticipates strengthening of the Japanese market demand going forward.
In the first quarter, a strain of avian flu was discovered in poultry flocks in the U.S. and later in British Columbia, which has resulted in a depopulation of birds in the affected areas. While this has created a short-term poultry supply shortage, provided the outbreak does not spread further throughout Canada, the impact to Maple Leaf Foods is not material.
On April 5, 2004 the Company completed the acquisition of Schneider Corporation ("Schneider Foods") for approximately $500 million, including the assumption of approximately $95 million of Schneider Foods' outstanding debt. The price is subject to closing adjustments that will be finalized by the end of the second quarter.
Agribusiness Group: (research, development and supply of quality livestock nutrition products and services; pet food; swine production; and animal by-products recycling)
Agribusiness Group sales for the first quarter decreased to $212.1 million from $223.0 million last year, mainly due to lower commodity prices, as feed volumes and hog sales increased over the prior year period.
Earnings from operations, before accounting for sales of poultry production quota, increased 59% to $16.2 million from $10.2 million last year. Rendering operations benefited from strong volumes, while earnings from animal nutrition increased modestly from last year. Earnings related to hog production increased from last year . Changes made by the Company beginning in 2003 to re-align production costs and contracts to reflect currency fluctuations, coupled with rapidly rising hog prices towards the end of the quarter, began to offset the effects of a stronger Canadian dollar. Management estimates that the Company's effective hog ownership position will decline from 28% in the first quarter to approximately 20% in the second quarter due to hog contract renegotiations.
Bakery Products Group (fresh, frozen and branded value-added bakery products, including frozen par-baked bakery products; and specialty pasta and sauces)
Bakery Product Group sales for the first quarter decreased 1% to $304.0 million compared to $307.5 million last year, primarily due to the impact of the stronger Canadian dollar on US dollar denominated sales. After adjusting for this exchange rate effect, sales increased slightly from last year as a result of increased Frozen Bakery sales.
Earnings from operations increased 33% to $17.7 million compared to $13.3 million last year, primarily driven by strong increases in Frozen Bakery earnings in North America and the UK. These operations benefited from improvements in food service and retail product mix, higher volumes and price increases that have mostly offset rising input costs. Fresh Bakery operations realized a modest increase in operating earnings, with product mix and margin improvement in most regions of the country. This performance was somewhat offset by continued inefficiencies in Atlantic Canada bakeries resulting from the consolidation of production and distribution operations in 2003. Progress was made during the first quarter to address these issues and management expects improving results over the course of the year. During the quarter, wheat prices increased significantly from the same period last year, resulting in higher flour prices; however price increases implemented by the Company in late 2003 and in the first quarter of 2004 mostly offset these and other increased input costs.
The recent trend in North America towards lower carbohydrate diets did not have a material impact on the bakery operations in the first quarter; however, the Company is beginning to see a softening in the commercial white bread market in the second quarter which management believes is related to reduced carbohydrate diets. The Company is well positioned to face this trend due to its strong market position in whole grain and other healthy bread products, as demand for these products tends to increase in nutritionally sensitive markets. For example, the Canadian market in the whole grains segment increased 7% in the first quarter compared to a decline of 1% in the overall commercial bread category. The Company launched lower carbohydrate alternative products in late 2003, and volume sales growth of Dempster's Carb Wise and Healthy Way Carb Conscious breads was very strong throughout the first quarter of 2004.
Other Matters
Maple Leaf Foods declared a dividend of $0.04 per share payable on June 30, 2004 to shareholders of record on June 11, 2004.
Maple Leaf Foods Inc. is a leading Canadian food processing company committed to delivering quality food products to consumers around the world. Headquartered in Toronto, Canada, the Company now employs more than 23,000 people at its operations across Canada and in the United States, Europe and Asia.
An investor presentation related to the Company's first quarter financial results is available at www.mapleleaf.com and can be found under Investor Relations on the Quarterly Results page. A conference call will be held at 2:00 p.m. EST on April 28, 2004 to review Maple Leaf Foods' first quarter financial results. To participate in the call, please dial 1-416-405-9328 or 800-387-6126. For those unable to participate, playback will be made available an hour after the event at 416-695-5800 / 800-408-3053 (Passcode 3035969#).
A web cast presentation of the first quarter financial results will be available at http://www.firstcallevents.com/service/ajwz404882369gf12.html at 2:00 p.m. EST and via a link on the Company's website www.mapleleaf.com. An archived replay of the web cast will be available following the call at each of the above links.
The Company is hosting its Annual and Special Meeting today at 11:00 a.m. at the Glenn Gould Studio, CBC Building, Main Floor, 250 Front Street West, Toronto. A live web cast of the meeting may be accessed at http://www.startcast.com/shows/91/A0003. A replay of the web cast will also be available at this link or via the Company's website at http://www.mapleleaf.com/Investor/PresentationsWebCast shortly after the close of the Annual and Special Meeting.
Maple Leaf Foods Inc.
Consolidated Balance Sheets
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In thousands of Canadian dollars As at As at
March 31, December 31,
2004 2003 2003
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(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 46,085 $ 122,009 $ 38,908
Accounts receivable (Note 2) 226,256 240,514 242,306
Inventories 292,118 275,568 259,758
Future tax asset 4,352 9,616 4,854
Prepaid expenses and other assets 12,407 16,421 9,355
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581,218 664,128 555,181
Investments in associated
companies 56,209 66,550 58,189
Property and equipment 795,972 770,172 802,332
Other long-term assets 179,453 167,460 171,262
Future tax asset 31,591 17,125 29,906
Goodwill and other intangible
assets 531,918 474,681 531,851
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$ 2,176,361 $ 2,160,116 $ 2,148,721
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LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
charges $ 509,296 $ 479,046 $ 501,997
Income and other taxes payable 5,079 18,691 12,212
Current portion of long-term debt 4,400 10,013 4,959
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518,775 507,750 519,168
Long-term debt 736,051 765,472 730,627
Future tax liability 56,246 46,063 50,397
Other long-term liabilities 35,907 17,905 35,274
Minority interest 70,734 93,405 70,068
Shareholders' equity 758,648 729,521 743,187
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$ 2,176,361 $ 2,160,116 $ 2,148,721
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The accompanying notes to the consolidated financial statements are
an integral part of this statement.
Maple Leaf Foods Inc.
Consolidated Statements of Earnings
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In thousands of Canadian dollars, Quarter ended
except per share amounts March 31,
2004 2003
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(Unaudited) (Unaudited)
Sales $ 1,194,731 $ 1,251,464
Earnings from operations
before restructuring costs 48,002 33,248
Restructuring costs - (7,422)
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Earnings from operations 48,002 25,826
Other income (Note 3) 1,096 312
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Earnings before interest and income taxes 49,098 26,138
Interest expense 16,726 16,176
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Earnings before income taxes 32,372 9,962
Income taxes 11,298 3,327
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Earnings before minority interest 21,074 6,635
Minority interest 1,743 653
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Net earnings for the period $ 19,331 $ 5,982
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Earnings per share (basic and diluted)
(Note 4) $ 0.16 $ 0.04
Dividends per share declared 0.04 0.04
Weighted average number of
shares (millions) 113.2 113.0
The accompanying notes to the consolidated financial statements are
an integral part of this statement.
Maple Leaf Foods Inc.
Consolidated Statements of Retained Earnings
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In thousands of Canadian dollars,
except per share amounts. Quarter Ended March 31,
2004 2003
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(Unaudited) (Unaudited)
Retained earnings, beginning of period $ 74,982 $ 63,758
Net earnings for the period 19,331 5,982
Dividends declared ($0.04 per share;
2003: $0.04 per share) (4,528) (4,525)
Convertible debenture charge (1,216) (1,209)
Premium on repurchase of share capital - (592)
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Retained earnings, end of period $ 88,569 $ 63,414
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The accompanying notes to the consolidated financial statements are
an integral part of this statement.
Maple Leaf Foods Inc.
Consolidated Statements of Cash Flows
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In thousands of Canadian dollars Quarter ended March 31,
2004 2003
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CASH PROVIDED BY (USED IN): (Unaudited) (Unaudited)
Operating activities
Net earnings for the period $ 19,331 $ 5,982
Add (deduct) items not affecting cash:
Depreciation 26,304 24,685
Stock based compensation 625 12
Minority interest 1,743 653
Future income taxes 5,956 819
Increase in pension asset (5,087) (7,550)
Undistributed losses of associated
companies 443 407
Gain on sale of property and equipment (1,049) (132)
Other (3,082) (1,685)
Change in other long-term receivables (655) 59
Change in non-cash operating
working capital (20,487) (90,254)
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24,042 (67,004)
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Financing activities
Dividends paid (4,528) (4,525)
Dividends paid to minority interest (234) (664)
Increase in long-term debt 9,000 75,113
Decrease in long-term debt (3,035) (9,954)
Convertible debenture interest paid (1,370) (1,370)
Increase in share capital 277 1,289
Shares repurchased for cancellation - (1,200)
Other 463 464
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573 59,153
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Investing activities
Additions to property and equipment (21,115) (20,252)
Proceeds from sale of property and
equipment 3,674 446
Change in other investments, net 515 (7,460)
Other (512) 260
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(17,438) (27,006)
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Increase (decrease) in cash and cash
equivalents 7,177 (34,857)
Cash and cash equivalents, beginning
of period 38,908 156,866
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Cash and cash equivalents, end
of period 46,085 122,009
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The accompanying notes to the consolidated financial statements are
an integral part of this statement.
Maple Leaf Foods Inc.
Segmented Financial Information
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Quarter ended
In thousands of Canadian dollars. March 31,
2004 2003
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(Unaudited) (Unaudited)
Sales
Meat Products Group $ 678,633 $ 720,968
Agribusiness Group 212,125 222,995
Bakery Products Group 303,973 307,501
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$ 1,194,731 $ 1,251,464
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Earnings from operations, before
restructuring costs (1)
Meat Products Group $ 9,985 $ 9,075
Agribusiness Group 20,275 10,895
Bakery Products Group 17,742 13,278
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$ 48,002 $ 33,248
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Capital expenditures
Meat Products Group $ 6,701 $ 9,619
Agribusiness Group 2,738 4,560
Bakery Products Group 11,676 6,073
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$ 21,115 $ 20,252
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Depreciation
Meat Products Group $ 10,490 $ 10,313
Agribusiness Group 5,067 4,493
Bakery Products Group 10,747 9,879
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$ 26,304 $ 24,685
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As at As at
In thousands of Canadian dollars, March 31, December 31,
2004 2003 2003
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(Unaudited) (Unaudited)
Total assets
Meat Products Group $ 683,577 $ 701,654 $ 666,489
Agribusiness Group 582,899 516,677 555,693
Bakery Products Group 696,934 715,025 716,463
Non-allocated assets 212,951 226,760 210,076
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$ 2,176,361 $ 2,160,116 $ 2,148,721
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(1) Prior to 2004, the Company included the impact of cost of
production contracts with hog producers in the Meat Products Group.
Management of the Company decided that it is more appropriate to
include these impacts in the Agribusiness Group operating results.
Therefore, 2003 segmented operating earnings before restructuring
costs have been restated to reflect this change in presentation and
make them comparable with 2004.
The accompanying notes to the consolidated financial statements are
an integral part of this statement.
Maple Leaf Foods Inc.
Notes to Consolidated Financial Statements
(For the quarters ended March 31, 2004 and March 31, 2003)
(Tabular amounts in thousands of Canadian dollars except share
amounts)1. Significant Accounting Policies
The unaudited interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2003. These unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles using the same accounting policies as were applied in the consolidated financial statements for the year ended December 31, 2003.
a) Hedging Relationships
As discussed in note 2(m)(i) of the annual consolidated financial statements for the year ended December 31, 2003, the Company is in compliance with CICA Accounting Guideline 13.
b) Accounting for Asset Retirement Obligations
In March 2003, the CICA issued a new accounting standard, Section 3110, "Accounting for Asset Retirement Obligations". The new standard requires companies to record the fair value of an asset retirement obligation as a liability in the period in which they incur a legal obligation associated with the retirement of tangible long-lived assets that results from the acquisition, construction, development and/or normal use of the asset. Companies are also required to record a corresponding amount as an asset that is depreciated as a charge to earnings over the life of the asset. Companies are required to adopt Section 3110 for fiscal years beginning on January 1, 2004. The Company has assessed the impact of this new standard and determined there is no material impact.
c) Comparative Figures
Certain 2003 comparative figures have been reclassified to conform with the financial statement presentation adopted in 2004.
2. Accounts Receivable
Under revolving securitization programs, the Company has sold, with limited recourse, certain of its trade accounts receivable to financial institutions. The Company retains servicing responsibilities and assumes limited recourse obligations for delinquent receivables. At March 31, 2004, trade accounts receivable amounting to $201.7 million (March 31, 2003: $180.1 million) had been sold under these programs.
3. Other Income
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Quarter Ended March 31,
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2004 2003
Gain on sale of property & equipment $ 1,049 $ 132
Rental income 102 58
Dividends received - 39
Loss from associated companies (12) (82)
Gain (loss) on real estate operations (43) 165
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$ 1,096 $ 312
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4. Earnings per share
The following table sets forth the calculation of basic and diluted
earnings per share.
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Quarter Ended March 31,
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2004 2003
Numerator:
Net earnings 19,331 5,982
Convertible debenture charge (1,216) (1,209)
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Earnings available to common
shareholders $ 18,115 $ 4,773
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Weighted average number of
shares (millions) 113.2 113.0
Earnings per share (basic and diluted) $0.16 $0.04
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--------------------------------------------------------------------5. Derivatives
In the ordinary course of business, the Company enters into derivative financial instruments to reduce underlying fair value and cash flow risks associated with foreign currency, interest rates and commodity prices. If the Company had not entered into these contracts, operating earnings would have been higher by $0.4 million and interest expense would have been lower by $3.7 million for the first quarter of 2004.
6. Acquisition of Schneider Corporation
On April 5, 2004 the Company completed the acquisition of Schneider Corporation ("Schneider Foods") for approximately $500 million, including the assumption of approximately $95 million of Schneider Foods outstanding debt. The acquisition price is subject to closing adjustments that will be finalized by the end of the second quarter.
The acquisition was funded by a combination of existing unused credit facilities, a new short-term bank facility and the assumption of existing debt of Schneider Foods.
The Company entered into a Credit Agreement with a syndicate of banks on March 1, 2004. The amount of the syndicated facility provides for an amount up to $205 million for the purpose of financing part of the purchase price and any required repayments of existing Schneider indebtedness. The facility has a maturity date of April 5, 2005 and bears interest based on bankers' acceptance rates for Canadian dollar loans and LIBOR for U.S. dollar loans.
In addition to the bank financing, the Company has entered into a Financing Agreement with The Ontario Teachers' Pension Plan Board (OTPPB). This agreement provides the Company with a standby commitment from OTPPB to purchase, at the Company's option, up to $150 million of treasury shares at any time until its expiry on April 15, 2005. Pricing of the shares under this arrangement would be at a 6% discount to the market-trading price of the Company's common shares prior to an issue.
In 2004, management will assess the impact of the acquisition on the Company's credit ratios and financial position, taking into account both recent earnings and the Schneider Foods contribution to cash flows, and will put in place new long-term debt and, possibly, equity financing, sufficient to ensure that the Company maintains debt ratios that provide access to investment grade debt financing.
CONTACT: Maple Leaf Foods Inc.
Lynda Kuhn
Vice-President, Public & Investor Relations
416-926-2026
www.mapleleaf.comCopyright (C) 2004, CCNMatthews. All rights reserved.
SOURCE: Maple Leaf Foods, Inc.