Maple Leaf Foods Reports Results for First Quarter 2013

TSX: MFI
www.mapleleaffoods.com

TORONTO, May 2, 2013 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the first quarter ended March 31, 2013.

• Adjusted Operating Earnings⁽¹⁾⁽²⁾ decreased 76.2% to $7.6 million compared to $31.7 million last year
• Net loss⁽²⁾ increased to $14.7 million from a loss of $5.8 million last year
• Adjusted Earnings per Share⁽²⁾⁽³⁾ decreased to a loss of $0.06 per share from Adjusted Earnings per Share of $0.06 last year

"This was a very difficult quarter, with lower earnings in our Protein business overshadowing good improvement in our Bakery results," said Michael H. McCain, President and CEO. "For some time, we expected a volatile first half to 2013, but this certainly has been more severe than anticipated. Our meat business has demonstrated multiple years of progressive and steady improvement, but this quarter experienced the aggregate impact of poor market conditions, weaker volumes in the wake of necessary price advances and transition costs related to our new network. While challenging in the near term, we expect steady improvements through the remainder of the year as a result of improved markets, restoring stable volumes and continued success in our supply chain conversions. Our strategic initiatives, which are the most material contributor to our margin expansion, are on track and contributing to results."

Financial Overview

Sales of $1,112.8 million were 4.1% lower than last year, or 2.3% after adjusting for the impacts of divestitures and foreign exchange, as lower volumes were partly offset by higher pricing.

Adjusted Operating Earnings for the first quarter were $7.6 million compared to $31.7 million last year, primarily due to lower earnings in the Protein Group as market pricing and foreign exchange impacted primary pork processing and hog production earnings.

Net loss increased to $14.7 million ($0.11 basic loss per share) compared to a loss of $5.8 million ($0.04 basic loss per share) last year. The net loss included $47.4 million ($0.25 per share) of pre-tax expenses related to restructuring and other related costs (2012: $20.4 million, or $0.11 per share). The increase in restructuring expenses resulted from the advanced level of planning and execution of the Company's transformation plans, which required Management to record employee related restructuring costs. Adjusted Earnings per Share declined by $0.12 to a loss of $0.06 from Adjusted Earnings per Share of $0.06 last year.

Several items are excluded from the discussions of underlying earnings performance as they are not representative of on-going operational activities. Refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.

Business Segment Review

Following is a summary of sales by business segment:

Following is a summary of Adjusted Operating Earnings by business segment:

Protein Group
Results for the Company's Meat Products and Agribusiness Groups should be viewed in combination due to intercompany transactions and correlated factors within these operations.

Sales for the Protein Group, which includes the Company's Meat Products and Agribusiness Groups, declined 5.9% to $744.4 million in the first quarter of 2013 from $790.8 million last year. The decline was primarily driven by lower volumes and the divestiture of the Company's potato processing business, partly offset by higher pricing. Adjusted Operating Earnings declined to a loss of $5.1 million compared to Adjusted Operating Earnings of $33.3 million last year. The most significant factor was a $24 million impact from market conditions resulting from the record drought in the U.S. Midwest in 2012 and the devaluation of the Japanese Yen, which mostly impacted primary processing and hog production earnings. Other factors in the quarter included a $10 million impact related to lower volumes, primarily in prepared meats, principally as a reaction to price increases required to offset higher raw material costs, and an increase of $7 million in transitional costs related to the execution of strategic initiatives. Partially offsetting these factors was $9 million of cost reduction benefits from strategic value creation initiatives in the prepared meats business. Further detail on the Meat Products Group and Agribusiness Group are provided below.

Meat Products Group
Includes value-added prepared meats, lunch kits; and fresh pork, poultry and turkey products sold to retail, foodservice, industrial and convenience channels. Includes leading Canadian brands such as Maple Leaf ®, Schneiders ® and many leading sub-brands.

Meat Products Group sales for the first quarter declined 6.7% to $677.0 million, or 4.3% after adjusting for the impact of divesting the Company's potato processing business and a stronger Canadian dollar. Sales were lower as a result of lower volumes in the fresh pork and prepared meats businesses, partly offset by price increases in prepared meats and higher market pricing for pork and poultry products.

Adjusted Operating Earnings for the first quarter declined to a loss of $10.5 million compared to earnings of $15.1 million last year. As expected, last year's record drought in the U.S. Midwest caused a significant rise in grain and meat costs. The Company experienced an 8% decline in prepared meats volumes in the wake of price increases required to offset these higher input costs. Earnings were also impacted by additional transitional costs associated with executing the Company's network transformation project, principally duplicative overhead and start-up costs. In the quarter, these transitional costs were more than offset by earnings accretion from network transformation and simplification initiatives completed last year that, along with innovation and a higher value sales mix, expanded margins in the quarter. The sale of the Company's potato processing business in the quarter reduced Adjusted Operating Earnings by approximately $3 million compared to last year.

Earnings in primary pork processing were primarily impacted by a rapid devaluation of the Japanese Yen that reduced margins on pork exports, lower contributions from hedging programs, and lower returns from by-product sales. Industry processing margins continued to be negative during the quarter, although improved compared to last year. Earnings in the poultry business were affected by lower industry processing margins, partly offset by higher pricing in value-added channels.

Agribusiness Group
Consists of Canadian hog production and animal by-product recycling operations, including biodiesel manufacturing and distribution.

Sales in the Agribusiness Group increased 3.3% to $67.5 million for the first quarter compared to $65.3 million last year due to higher pricing and volumes in the by-products recycling business.

Adjusted Operating Earnings in the first quarter declined 70.4% to $5.4 million compared to $18.2 million last year, entirely driven by hog production earnings that were impacted by a combination of higher feed costs, lower market prices for hogs, and lower contribution from hedging activities. Earnings in the by-products recycling operations were consistent with last year, as increased raw material costs were offset by higher selling prices and biodiesel volumes.

Bakery Products Group
Includes fresh and frozen bakery products, including breads, rolls, bagels, specialty and artisan breads, sweet goods, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's®, Tenderflake®, Olivieri® and New York Bakery Co^TM, and many leading regional brands.

Bakery Products Group sales for the first quarter decreased 0.4% to $368.4 million, but increased by 0.6% after adjusting for the closure of a bakery in the U.K. and currency translation on sales in the U.S. and U.K. This increase in sales was mostly due to price increases implemented during the quarter in the fresh and North American frozen bakery businesses and higher croissant volumes in the U.K., partly offset by lower volumes in the fresh bakery business.

Adjusted Operating Earnings increased to $14.1 million compared to $2.4 million last year, due in large part to improved performance in the fresh bakery business. Results from the frozen and fresh pasta businesses also increased while earnings from the U.K. operations were consistent with last year.

The substantial earnings increase in the fresh bakery business was mostly the result of improved operating efficiencies, contribution from the new Hamilton, Ontario bakery and non-recurrence of SAP start up costs incurred last year. Also benefiting earnings were price increases and lower advertising & promotional costs. During the quarter, approximately $3 million of duplicative overhead costs were incurred pending the closure of a third Toronto bakery. These costs, expected to be approximately $5 million in total for the first half of the year, will be eliminated in early June when the bakery is closed and production transferred to the Company's recently constructed Hamilton, Ontario bakery.

Higher margins in the North American frozen bakery business were largely due to price increases implemented during the quarter, while increased earnings in the fresh pasta business resulted from an inventory write-off in the first quarter of last year that did not re-occur. Although the U.K. bakery business benefited from higher volumes and the closure of the Walsall facility last year, increased marketing spending during the quarter to support continued growth of the New York Bakery brand offset these improvements.

Long-Term EBITDA⁽¹⁾ Margin Targets

When the Company's value creation plan was announced in 2010, Management projected that improvements resulting from the plan would achieve an estimated Earnings Before Interest, Tax, Depreciation and Amortization ("EBITDA") margin of 12.5% in 2015. As a result of the subsequent adoption of International Accounting Standard 19 Employee Benefits (IAS 19), effective January 1, 2013, the Company retrospectively recorded an adjustment to non-cash pension expense of $35.2 million in 2012 related to its defined benefit pension plans, which is included in the calculation of EBITDA. As this change in accounting for pensions was not contemplated at the time, and was not included in Management's estimate of future margins, the Company has adjusted its 2015 EBITDA margin target to 11.7%, which reflects a revised EBITDA margin target of 11.4% for the Protein Group and 12.3% for the Bakery Products Group.

The impact of adopting revised IAS 19 is fully described in Note 24 of the Company's 2013 first quarter unaudited condensed consolidated interim financial statements.

(1) EBITDA is calculated as earnings from operations and before interest and income taxes plus depreciation and intangible asset amortization, adjusted for items that are not considered representative of on-going 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.

Subsequent Events

On April 4, 2013, the Company entered into an agreement to sell a bakery, producing specialty products, located in London, U.K.

On April 16, 2013, the Company announced plans to close a bakery in Shawinigan, Quebec on May 3, 2013. The Company will incur approximately $3.1 million before taxes in restructuring costs, including approximately $1.6 million of cash costs.

Other Matters

On May 1, 2013, Maple Leaf Foods declared a dividend of $0.04 per share payable June 28, 2013 to shareholders of record at the close of business on June 7, 2013. Unless indicated otherwise by the Company in writing on 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".

An investor presentation related to the Company's first quarter financial results is available at www.mapleleaffoods.com and can be found under Investor Relations on the Quarterly Results page. A conference call will be held at 2:30 p.m. EDT on May 2, 2013 to review Maple Leaf Foods' first quarter financial results. To participate in the call, please dial 416-340-8061 or 866-225-0198. For those unable to participate, playback will be made available an hour after the event at 905-694-9451 / 800-408-3053 (Passcode 3231342).

A webcast presentation of the first quarter financial results will also be available at http://investor.mapleleaf.ca via a link: http://www.media-server.com/m/p/zc2zs4i3.

The Company's full financial statements and related Management's Discussion and Analysis are available for download on the Company's website.

Reconciliation of Non-IFRS Financial Measures

The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted Earnings per Share. Management believes that these non-IFRS measures provide useful information to both Management and 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 Operating Earnings, a non-IFRS measure, is used by Management to evaluate financial operating results. It is defined as earnings before income taxes adjusted for items that are not considered representative of on-going 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. The table below provides a reconciliation of net earnings as reported under IFRS in the unaudited condensed consolidated interim statements of earnings for the three month periods as indicated below to Adjusted Operating Earnings. Management believes that this basis is the most appropriate on which to evaluate operating results, as they are representative of the on-going operations of the Company.

Adjusted Earnings per Share

Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate on-going financial operating results. It is defined as basic earnings per share attributable to common shareholders, and is adjusted for items that are not considered representative of on-going 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. The table below provides a reconciliation of basic earnings per share as reported under IFRS in the unaudited condensed consolidated interim statements of earnings for the three month periods as indicated below to Adjusted Earnings per Share. Management believes this basis is the most appropriate on which to evaluate financial results as they are representative of the on-going operations of the Company.

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, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to objectives and goals, as well as statements with respect to beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Specific forward-looking information in this document includes, but is not limited to, statements with respect to the anticipated benefits, timing, actions, costs and investments associated with the Company's Value Creation Plan, expectations regarding Net Debt to EBITDA ratios during the implementation of the Plan, expectations regarding the use of derivatives, futures and options, expectations regarding improving efficiencies, the expected use of cash balances, source of funds for ongoing business requirements including renewal of existing securitization facilities, capital investments and debt repayment, expectations regarding acquisitions and divestitures, the timing of new plant openings and old plant closures, job losses and LEED® certification, expectations regarding the impact of new accounting standards, expectations regarding sufficiency of the allowance for uncollectible accounts and expectations regarding pension plan performance and future pension plan liabilities and contributions. Words such as "expect", "anticipate", "intend", "attempt", "may", "will", "plan", "believe", "seek", "estimate", and variations of such words and similar expressions are intended to identify such forward-looking information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict.

In addition, these statements and expectations concerning the performance of the Company's business in general are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, U.S., U.K. and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar, U.K. British pound and the Japanese yen; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies whether as a result of the Value Creation Plan or otherwise; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign governments; and the general assumption that none of the risks identified below or elsewhere in this document will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward-looking information, which reflect the Company's expectations only as of the date hereof.

Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by forward-looking information is discussed more fully in the Company's Annual Management's Discussion and Analysis for the period ended December 31, 2012 including the section entitled "Risk Factors" that is available on SEDAR at www.sedar.com. The Company does not intend to, and the Company disclaims any obligation to, update any forward-looking information, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law.

Maple Leaf Foods Inc. ("Maple Leaf" or the "Company") is a leading Canadian value-added meat, meals and bakery company committed to delivering quality food products to consumers around the world. Headquartered in Toronto, Canada, the Company employs approximately 20,000 people at its operations across Canada and in the United States, Europe and Asia.

Condensed Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
(Unaudited)

MAPLE LEAF FOODS INC.

Three months ended March 31, 2013 and 2012

Consolidated Balance Sheets

Consolidated Statements of Earnings (Loss)

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Changes in Total Equity

Consolidated Statements of Cash Flows

Segmented Financial Information

SOURCE Maple Leaf Foods Inc.