Media Centre
2014/02/27

Maple Leaf Foods Reports Results for Fourth Quarter 2013

TSX: MFI
www.mapleleaffoods.com

TORONTO, Feb. 27, 2014 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the fourth quarter and full year ended December 31, 2013.

  • Adjusted Operating Earnings(1)(2)(3) for the fourth quarter was a loss of $21.7 million compared to Adjusted Operating Earnings of $70.0 million last year. Year-to-date Adjusted Operating Earnings were a loss of $12.3 million compared to Adjusted Operating Earnings of $172.0 million last year
  • Adjusted Earnings per Share(2)(3)(4) was a loss of $0.25 compared to Adjusted Earnings per Share of $0.27 last year. Year-to-date Adjusted Earnings per Share was a loss of $0.51 compared to Adjusted Earnings per Share of $0.47 last year.
  • The Bakery Products Group achieved Adjusted EBITDA(2)(3)(5) margins of 11.6% for the full year compared to 10.1% last year
  • The Company sold its Rothsay and Olivieri businesses for net combined proceeds of $744.8 million
  • The Company announced an agreement to sell its 90% interest in Canada Bread Company, Limited, to Grupo Bimbo

"We are in a peak phase of executing our prepared meats network strategy, which added tremendous costs and inefficiency in the quarter as we ramped up five new facilities while continuing to operate our parallel older plants," said Michael H. McCain, President and CEO. "As expected, this is causing short-term earnings volatility, which was compounded by weak protein markets. Our Bakery business delivered solid results for the quarter and increased earnings for the full year. We are very pleased with this performance, particularly with strong gains in our U.K. and frozen bakery operations."

"For three years we have been building a new plant network, which entered a peak period in December of 2013 as we began commissioning Maple Leaf's single largest facility in Hamilton," continued Mr. McCain. "Now the focus changes. From here on, our job is to get the new plants running at peak performance, transfer production from older high cost plants to new low cost plants, and close the older plants down. Once completed, later this year, we expect to start seeing significant structural margin expansion. We also expect more normal market conditions to unfold in 2014. Combined with our plans to pay down debt, invest in the business and return excess capital to shareholders, we believe Maple Leaf will be very well positioned to drive profitable growth and deliver strong shareholder value."

Financial Overview

Maple Leaf Foods Inc. ("the Company") sales(3) of $1,107.0 million for the fourth quarter declined 2.1% from last year, or 0.7% after adjusting for the impacts of divestitures and foreign exchange, due to lower volumes which were partly offset by higher pricing. For the year ended December 31, 2013, sales decreased 3.2% from the prior year to $4,406.4 million, or 1.6% after adjusting for divestitures and foreign exchange, due to the same factors.

Adjusted Operating Earnings for the fourth quarter decreased to a loss of $21.7 million compared to Adjusted Operating Earnings of $70.0 million last year, primarily due to lower earnings in the Protein Group. For the full year, Adjusted Operating Earnings declined to a loss of $12.3 million compared to Adjusted Operating Earnings of $172.0 million last year, as lower Protein Group earnings more than offset an improvement in the Bakery Group.

Net loss from continuing operations(2)(3) for the fourth quarter was $14.4 million (loss of $0.13 per basic share attributable to common shareholders) compared to net earnings from continuing operations of $41.0 million ($0.28 per basic share attributable to common shareholders) last year. Net loss from continuing operations for the full year was $58.5 million (loss of $0.48 per basic share attributable to common shareholders) compared to net earnings from continuing operations of $42.0 million ($0.25 per basic share attributable to common shareholders) last year.

Adjusted Earnings per Share in the fourth quarter of 2013 was a loss of $0.25 compared to Adjusted Earnings per Share of $0.27 last year. Full year Adjusted Earnings per Share declined to a loss of $0.51 compared to Adjusted Earnings per Share of $0.47 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 at the end of this News Release for a description and reconciliation of all non-IFRS financial measures.

Business Segment Review

Following is a summary of sales by business segment:

Fourth Quarter Year-to-Date
(Unaudited) (Audited)
($ thousands) 2013 2012 2013 2012
Meat Products Group $ 742,739 $ 751,362 $ 2,923,857 $ 3,046,633
Agribusiness Group(3) 4,585 8,973 29,005 26,630
Protein Group $ 747,324 $ 760,335 $ 2,952,862 $ 3,073,263
Bakery Products Group(3) 359,661 370,340 1,453,586 1,478,565
Sales $ 1,106,985 $ 1,130,675 $ 4,406,448 $ 4,551,828

The following table summarizes Adjusted Operating Earnings by business segment:

Fourth Quarter Year-to-Date
(Unaudited) (Audited)
($ thousands) 2013 2012(2) 2013 2012(2)
Meat Products Group $ (42,625) $ 42,585 $ (86,192) $ 98,367
Agribusiness Group(3) (10,003) (4,826) (38,258) (15,453)
Protein Group $ (52,628) $ 37,759 $ (124,450) $ 82,914
Bakery Products Group(3) 30,912 33,139 113,699 96,410
Non-allocated Costs in Adjusted
Operating Earnings(i)
- (901) (1,500) (7,305)
Adjusted Operating Earnings $ (21,716) $ 69,997 $ (12,251) $ 172,019
(i) Non-allocated costs comprise expenses not separately identifiable to business segment groups, and do not form part of the measures used by the Company when assessing the segments' operating results.

Meat Products Group
Includes value-added prepared meats, lunch kits, protein snacks, and value-added 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 fourth quarter declined 1.1% to $742.7 million from $751.4 million last year. After adjusting for the impact of divesting the Company's potato processing operations and poultry agricultural operations, and the impact of foreign exchange, sales increased 0.7%. Increased prepared meats volumes and higher pricing in fresh pork more than offset lower pricing in fresh poultry and lower fresh pork volumes.

Full year sales declined 4.0%, or 2.1% after adjusting for the impact of divestitures and foreign exchange, primarily due to lower volumes in the fresh pork and prepared meats businesses. Partly offsetting this was the benefit of higher commodity prices in fresh pork, price increases in the fresh poultry and prepared meats businesses, and higher fresh poultry volumes.

Adjusted Operating Earnings for the fourth quarter declined to a loss of $42.6 million compared to Adjusted Operating Earnings of $42.6 million last year.

The Company is in a peak phase of completing its prepared meats strategy, designed to establish a low cost supply chain and achieve structural margin expansion. Earnings were significantly impacted by the cost of commissioning five new facilities, resulting in transitional costs of approximately $15 million during the quarter (2012: approximately $4 million) and approximately $50 million for the full year (2012: approximately $12 million). Start-up costs at newly expanded facilities in Winnipeg, Manitoba, and Saskatoon, Saskatchewan, decreased compared to the third quarter of 2013; however, this was offset by higher overhead costs associated with commissioning the newly constructed plant in Hamilton, Ontario. In addition to transitional costs, the Company also experienced other manufacturing and distribution inefficiencies associated with operating legacy plants in parallel until production is fully transferred to newer, more efficient facilities in 2014.

Margins in the prepared meats business were also compressed by higher raw material and other input costs, as well as inflationary costs that were not fully offset by pricing. Selling, general, and administrative costs were higher than last year, due to comparatively lower variable compensation expense last year. During the fourth quarter of 2012, the prepared meats business recognized $5.9 million in provision reversals related to re-assessments of environmental remediation costs on facilities planned for closure that did not re-occur in 2013. Higher volumes in the fourth quarter of 2013, particularly in the branded retail category, partly offset the above earnings impacts.

Earnings in primary pork processing were negatively affected by lower export margins, primarily to the Japanese market, lower volumes, and declining values for by-product sales. These reductions were partly offset by lower selling, general, and administrative costs. Earnings in fresh poultry declined due to lower primary processing spreads and inflationary costs that were only partly offset by higher earnings from value-added sales.

The sale of the Company's potato processing operations in January 2013 reduced Adjusted Operating Earnings in the fourth quarter by approximately $3 million compared to last year.

For the full year, Adjusted Operating Earnings was a loss of $86.2 million compared to Adjusted Operating Earnings of $98.4 million last year. Factors impacting the prepared meats business are the same as noted above, in addition to the impact of lower volumes in the first quarter of 2013. Factors impacting the fresh pork and poultry businesses are the same as noted above for the fourth quarter. The sale of the Company's potato processing operations in January 2013 reduced Adjusted Operating Earnings by approximately $13 million compared to last year.

Agribusiness Group
Includes Canadian hog production operations that primarily supplies the Meat Products Group with livestock.

Agribusiness Group sales for the fourth quarter declined to $4.6 million from $9.0 million last year due to lower pricing on toll feed sales and lower sales of live hogs to third parties. Sales for the full year increased 8.9% to $29.0 million from $26.6 million last year due to higher hog volumes, partly offset by lower pricing on toll feed sales.

Adjusted Operating Earnings in the fourth quarter decreased to a loss of $10.0 million compared to a loss of $4.8 million last year, primarily due to lower contributions from hedging programs, which more than offset higher market prices for hogs. Feed costs were consistent with the prior year.

Full year Adjusted Operating Earnings decreased to a loss of $38.3 million compared to a loss of $15.5 million last year due to lower contributions from hedging programs, higher feed costs, and higher selling, general, and administrative expenses, partly offset by an increase in the market price for hogs.

Bakery Products Group
Includes fresh and frozen bakery products, including breads, rolls, bagels, frozen par-baked products, specialty and artisan breads sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's®, Tenderflake®, and New York Bakery CoTM, and many leading regional brands.

Bakery Products Group sales for the fourth quarter decreased 2.9% to $359.7 million, or 2.4% after adjusting for discontinued categories in the U.K. and the impact of currency translation on sales in the U.S. and U.K. as lower sales volumes, primarily at the fresh bakery business, were partly offset by higher pricing.

Sales for the full year decreased 1.7% to $1,453.6 million, or 0.8% after adjusting for discontinued categories and currency translation. Lower sales volumes in the fresh and North American frozen bakery businesses were partly offset by stronger volumes in the U.K. and higher pricing across all the businesses.

Fourth quarter Adjusted Operating Earnings decreased 6.7% to $30.9 million from $33.1 million last year, primarily reflecting lower fresh bakery earnings that were partly offset by stronger earnings in the U.K. bakery business.

Lower volumes in the fresh bakery business were only partly offset by increased efficiencies at the new Hamilton, Ontario bakery, simplification of the product portfolio, and the reorganization of the distribution network, all of which contributed to lower operating costs. The benefits of earlier price increases were offset by higher trade spend and inflationary costs in the quarter. North American frozen bakery business earnings decreased modestly, as inflationary costs, lower volumes, and higher selling, general, and administrative expenses were mostly offset by operating improvements. The U.K. bakery business benefited from higher pricing and lower operating and selling, general, and administrative expenses, which more than offset higher raw material and inflationary costs.

For the full year, Adjusted Operating Earnings increased 17.9% to $113.7 million from $96.4 million last year, primarily driven by operating improvements in the fresh and North American frozen bakery businesses, lower selling, general, and administrative costs at the fresh bakery business resulting from earlier restructuring initiatives, increased volumes in the U.K. bakery business, and higher pricing across all the businesses. These benefits were partly offset by lower volumes in the fresh and North American frozen bakery businesses and higher raw material and inflationary costs.

Sale of Rothsay and Olivieri Businesses

During the fourth quarter, the Company sold its Rothsay by-product recycling and Olivieri fresh pasta businesses for net proceeds of $628.5 million and $116.3 million, respectively. The operating results and gain on sale of these two businesses have been classified as discontinued operations and prior year amounts have been presented as discontinued operations on a comparable basis. The Rothsay business was previously reported in the Agribusiness Group and the Olivieri business was previously reported in the Bakery Products Group. Earnings per share from discontinued operations were $3.70 for the fourth quarter (2012: $0.07) and $4.03 for the year ended December 31, 2013 (2012: $0.39). Included in the fourth quarter and full year 2013 figures is a net gain on sale of the businesses of $3.69 per share.

Long-term EBITDA Margin Targets

In the Company's third quarter Management's Discussion & Analysis, Management provided restated 2015 Adjusted EBITDA margin targets to reflect the sale of the Rothsay business. These targets, which were 10.0% for the Protein Group, 12.3% for the Bakery Products Group, and 10.8% for the Company, remain unchanged following the sale of the Olivieri business. Upon completion of the proposed sale of the Company's interest in Canada Bread Company, Limited ("Canada Bread"), the Adjusted EBITDA margin target will be 10.0%, consistent with the current Protein Group target.

Subsequent Events

On February 12, 2014, the Company announced that Grupo Bimbo, S.A.B. de C.V. of Mexico ("Grupo Bimbo") had agreed to acquire all of the issued and outstanding common shares of Canada Bread by way of a statutory arrangement under the Business Corporations Act (Ontario) (the "Arrangement"). Under the terms of the Arrangement, Grupo Bimbo has agreed to acquire each common share of Canada Bread for $72.00 per share in cash. Maple Leaf expects to receive net proceeds of approximately $1.65 billion for its 90% interest in Canada Bread. The Arrangement will require the approval of at least 66 2/3% of the votes cast by the shareholders of Canada Bread at a special meeting of shareholders expected to take place in early April 2014. Maple Leaf has entered into a voting support agreement with Grupo Bimbo pursuant to which the Company has agreed to vote all of its common shares of Canada Bread in favour of the Arrangement at such meeting. The Company is not able to estimate the ultimate gain on disposition given the uncertainty surrounding the timing of the close of this proposed transaction. Subsequent to the sale, the Company will no longer be consolidating the results and related balance sheet of Canada Bread Company, Limited. The Arrangement is subject to receipt of court approval, regulatory approvals and other customary closing conditions, and is expected to close in the second quarter of 2014.

On February 19, 2014, the Company sold an investment property located in the Toronto area, which was classified as an asset held for sale in the year end consolidated financial statements, for gross proceeds of $6.4 million.

Other Matters

On February 26, 2014 the Company declared a dividend of $0.04 per share payable March 31, 2014 to shareholders of record at the close of business on March 7, 2014. 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 fourth 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 February 27, 2014 to review Maple Leaf Foods' fourth quarter financial results. To participate in the call, please dial 416-340-9432 or 800-952-4972. For those unable to participate, playback will be made available an hour after the event at 905-694-9451 / 800-408-3053 (Passcode 3990937).

A webcast presentation of the fourth quarter financial results will also be available at http://www.media-server.com/m/p/eb4zbyw7

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; Adjusted Earnings per Share; Adjusted EBITDA; and Net Debt. 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 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 from continuing operations as reported under IFRS to Adjusted Operating Earnings for the three months ended, as indicated below, and a reconciliation of net earnings from continuing operations as reported under IFRS in the audited consolidated statements of earnings to Adjusted Operating Earnings for the years then ended, as indicated below. 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.

Three months ended December 31, 2013
Meat Bakery
($ thousands) Products Agribusiness Products Unallocated
(Unaudited) Group Group (3) Group (3) costs Consolidated
Net earnings (loss) from continuing operations $ (14,449)
Income taxes (3,557)
Earnings (loss) before income taxes from continuing operations $ (18,006)
Interest expense 17,833
Change in the fair value of non-designated
interest rate swaps (92)
Other (income) expense (835) (276) (11,402) (2,046) (14,559)
Restructuring and other related costs 12,490 - 2,785 - 15,275
Earnings (loss) from Continuing Operations $ (42,625) $ (10,003) $ 30,912 $ 22,167 $ 451
Decrease (increase) in fair value of biological assets - - - (18,109) (18,109)
Unrealized (gains) losses on commodity futures contracts - - - (4,058) (4,058)
Adjusted Operating Earnings $ (42,625) $ (10,003) $ 30,912 $ - $ (21,716)

Three months ended December 31, 2012(2)
Meat Bakery
($ thousands) Products Agribusiness Products Unallocated
(Unaudited) Group Group (3) Group (3) costs Consolidated
Net earnings (loss) from continuing operations $ 40,954
Income taxes 14,595
Earnings (loss) before income taxes from continuing operations $ 55,549
Interest expense 17,190
Change in the fair value of non-designated
interest rate swaps (117)
Other (income) expense 673 (4,229) (277) (481) (4,314)
Restructuring and other related costs 8,982 - 3,814 - 12,796
Earnings (loss) from Continuing Operations $ 42,585 $ (4,826) $ 33,139 $ 10,206 $ 81,104
Decrease (increase) in fair value of biological assets - - - (10,703) (10,703)
Unrealized (gains) losses on commodity futures contracts - - - (404) (404)
Adjusted Operating Earnings $ 42,585 $ (4,826) $ 33,139 $ (901) $ 69,997

Twelve months ended December 31, 2013
Meat Bakery
($ thousands) Products Agribusiness Products Unallocated
(Audited) Group Group (3) Group (3) costs Consolidated
Net earnings (loss) from continuing operations $ (58,543)
Income taxes $ (22,842)
Earnings (loss) before income taxes from continuing operations $ (81,385)
Interest expense 69,842
Change in the fair value of non-designated
interest rate swaps (2,022)
Other (income) expense (47,745) (1,036) (6,255) (22,959) (77,995)
Restructuring and other related costs 73,466 - 17,953 1,745 93,164
Earnings (loss) from Continuing Operations $ (86,192) $ (38,258) $ 113,699 $ 12,355 $ 1,604
Decrease (increase) in fair value of biological assets - - - (13,540) (13,540)
Unrealized (gains) / losses on commodity futures contracts - - - (315) (315)
Adjusted Operating Earnings $ (86,192) $ (38,258) $ 113,699 $ (1,500) $ (12,251)

Twelve months ended December 31, 2012(2)
Meat Bakery
($ thousands) Products Agribusiness Products Unallocated
(Audited) Group Group (3) Group (3) costs Consolidated
Net earnings (loss) from continuing operations $ 41,967
Income taxes 20,005
Earnings (loss) before income taxes from continuing operations $ 61,972
Interest expense 71,707
Change in the fair value of non-designated
interest rate swaps (7,297)
Other (income) expense (2,323) (4,294) (1,635) (388) (8,640)
Restructuring and other related costs 36,438 - 11,073 - 47,511
Earnings (loss) from Continuing Operations $ 98,367 $ (15,453) $ 96,410 $ (14,071) $ 165,253
Decrease (increase) in fair value of biological assets - - - 3,436 3,436
Unrealized (gains) losses on commodity futures contracts - - - 3,330 3,330
Adjusted Operating Earnings $ 98,367 $ (15,453) $ 96,410 $ (7,305) $ 172,019

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 from continuing operations 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 from continuing operations as reported under IFRS to Adjusted Earnings per Share for the three months ended, as indicated below, and a reconciliation of basic earnings per share from continuing operations as reported under IFRS in the audited consolidated statements of earnings to Adjusted Earnings per Share for the years then ended, as indicated below. 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.

Three months ended Twelve months ended
December 31, December 31,
(Unaudited) (Audited)
($ per share) 2013(3) 2012(2)(3) 2013(3) 2012(2)(3)
Basic earnings (loss) per share from continuing operations $ (0.13) $ 0.28 $ (0.48) $ 0.25
Restructuring and other related costs(i) 0.08 0.07 0.49 0.25
Items included in other income not considered representative of
on-going operations(ii) (0.09) (0.02) (0.43) (0.02)
Change in the fair value of non-designated interest rate swaps(iii) - - (0.01) (0.04)
Change in the fair value of unrealized (gains) losses on commodity
futures contracts(iii) (0.02) - - 0.02
Change in the fair value of biological assets(iii) (0.10) (0.06) (0.07) 0.02
Adjusted Earnings per Share(iv) $ (0.25) $ $ 0.27 $ (0.51) $ 0.47
(i) Includes per share impact of restructuring and other related costs, net of tax and non-controlling interest.
(ii) Includes gains/losses associated with non-operational activities, including gains/losses related to restructuring activities, business combinations, discontinued operations, assets held for sale, and hedge ineffectiveness recognized in earnings, all net of tax.
(iii) Includes per share impact of the change in fair value of non-designated interest rate swaps, unrealized (gains) losses on commodity futures contracts and the change in fair value of biological assets, net of tax.
(iv) May not add due to rounding.

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 expected timing of the completion of the sale of the shares of Canada Bread to Grupo Bimbo (there can be no assurances that any transaction will be completed); the anticipated benefits, timing, actions, costs, and investments associated with the Company's Value Creation Plan; expectations regarding improving business trends, expectations regarding actions to reduce costs, restore and/or promote volumes and/or increase prices, improve efficiencies; expected duplicative overhead costs incurred due to the concurrent operation of the new Hamilton, Ontario, fresh bakery and existing bakeries; the expected use of cash balances, source of funds for ongoing business requirements, capital investments and debt repayment; and expectations regarding sufficiency of the allowance for uncollectible accounts. Words such as "expect", "anticipate", "intend", "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 include among other things:

  • the risks associated with the acquisition of Canada Bread by Grupo Bimbo
  • the risks associated with implementing and executing the Plan;
  • the risks associated with the availability of capital and the Company's outstanding indebtedness;
  • the risks associated with changes in the Company's systems and processes;
  • the risks posed by food contamination, consumer liability, and product recalls;
  • the risks associated with acquisitions, divestitures, and capital expansion projects;
  • the impact on pension expense and funding requirements of fluctuations in the market prices of fixed income and equity securities and changes in interest rates;
  • the cyclical nature of the cost and supply of hogs and the competitive nature of the pork market generally;
  • the risks related to the health status of livestock;
  • the impact of a pandemic on the Company's operations;
  • the Company's exposure to currency exchange risks;
  • the ability of the Company to hedge against the effect of commodity price changes through the use of commodity futures and options;
  • the impact of changes in the market value of the biological assets and hedging instruments;
  • the impact of international events on commodity prices and the free flow of goods;
  • the risks posed by compliance with extensive government regulation;
  • the risks posed by litigation;
  • the impact of changes in consumer tastes and buying patterns;
  • the impact of extensive environmental regulation and potential environmental liabilities;
  • the risks associated with a consolidating retail environment;
  • the risks posed by competition;
  • the risks associated with complying with differing employment laws and practices globally, the potential for work stoppages due to non-renewal of collective agreements, and recruiting and retaining qualified personnel;
  • the risks associated with the Company's independent distributors;
  • the risks associated with pricing the Company's products;
  • the risks associated with managing the Company's supply chain; and
  • the risks associated with failing to identify and manage the strategic risks facing the Company.

The Company cautions the reader that the foregoing list of factors is not exhaustive. These factors are discussed in more detail under the heading "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the period ended December 31, 2013, that is available on SEDAR at www.sedar.com. The reader should review such section in detail. 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.

Additional information concerning the Company, including the Company's Annual Information Form, will be available on SEDAR at www.sedar.com.

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 18,000 people at its operations across Canada and in the U.S., Europe, and Asia.

Footnote Legend

  1. Adjusted Operating Earnings, a non-IFRS measure, is used by Management to evaluate financial operating results. It is defined as earnings from operations 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. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.
  2. 2012 figures have been restated for the impact of adopting the revised International Accounting Standard 19 Employee Benefits ("IAS 19"), as disclosed in Note 32 of the Company's audited consolidated financial statements.
  3. Figures exclude the results of the Rothsay and Olivieri businesses, which are reported as discontinued operations. Refer to Note 22 of the Company's audited consolidated financial statements.
  4. 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 from continuing operations attributable to common shareholders, and is adjusted for all 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. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.
  5. Adjusted EBITDA, a non-IFRS measure, is used by Management to evaluate financial operating results. It is defined as earnings 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.

Consolidated Financial Statements
(Expressed in thousands of Canadian dollars)

MAPLE LEAF FOODS INC.

Three and twelve months ended December 31, 2013 and 2012

Consolidated Balance Sheets

As at As at As at
December 31, December 31, January 1,
2013 2012 2012
(Restated) (Restated)
ASSETS
Current assets
Cash and cash equivalents $ 506,670 $ $ 90,414 $ -
Accounts receivable 111,034 117,533 133,504
Notes receivable 115,514 124,457 123,545
Inventories 287,786 301,804 293,231
Biological assets 95,740 78,127 49,265
Income taxes and other taxes recoverable 43,300 41,527 43,789
Assets held for sale 5,206 37,087 -
Prepaid expenses and other assets 17,921 12,590 24,688
$ 1,183,171 $ 803,539 $ 668,022
Property and equipment 1,323,318 1,212,177 1,067,246
Investment property 12,865 11,979 11,232
Employee benefits 117,615 107,831 133,942
Deferred tax asset 26,119 132,558 127,456
Goodwill 720,798 753,156 753,739
Intangible assets 198,578 208,793 191,896
Other long-term assets 16,628 13,663 11,926
Total assets $ 3,599,092 $ 3,243,696 $ 2,965,459
LIABILITIES AND EQUITY
Current liabilities
Bank indebtedness $ 4,408 $ 48,243 $ 36,404
Accounts payable and accruals 649,554 446,911 507,059
Provisions 54,853 26,335 44,255
Current portion of long-term debt 209,780 6,573 5,618
Other current liabilities 47,927 14,961 20,409
$ 966,522 $ 543,023 $ 613,745
Long-term debt 744,212 1,206,945 941,956
Employee benefits 174,503 420,933 350,853
Provisions 19,603 25,800 28,936
Other long-term liabilities 28,744 80,084 88,153
Deferred tax liability 23,516 8,912 11,703
Total liabilities $ 1,957,100 $ 2,285,697 $ 2,035,346
Shareholders' equity
Share capital $ 905,216 $ 902,810 $ 902,810
Retained earnings (deficit) 602,717 (72,701) (78,674)
Contributed surplus 79,139 75,913 64,327
Accumulated other comprehensive loss (4,593) (13,263) (17,042)
Treasury stock (1,350) (1,845) (6,347)
Total shareholders' equity $ 1,581,129 $ 890,914 $ 865,074
Non-controlling interest 60,863 67,085 65,039
Total equity $ 1,641,992 $ 957,999 $ 930,113
Total liabilities and equity $ 3,599,092 $ 3,243,696 $ 2,965,459

Consolidated Statements of Earnings (Loss)

(In thousands of Canadian dollars, except share amounts)
Three months ended December 31, Twelve months ended December 30,
2013 2012 2013 2012
(Unaudited) (Unaudited) (Restated)
(Restated)
Sales $ 1,106,985 $ 1,130,675 $ 4,406,448 $ 4,551,828
Cost of goods sold 983,206 938,255 3,920,652 3,878,219
Gross margin $ 123,779 $ 192,420 $ 485,796 $ 673,609
Selling, general and administrative expenses 123,328 111,316 484,192 508,356
Earnings from continuing operations
before the following: $ 451 $ 81,104 $ 1,604 $ 165,253
Restructuring and other related costs (15,275) (12,796) (93,164) (47,511)
Change in fair value of non-designated
interest rate swaps 92 117 2,022 7,297
Other income (expense) 14,559 4,314 77,995 8,640
Earnings (loss) before interest and
income taxes from continuing operations $ (173) $ 72,739 $ (11,543) $ 133,679
Interest expense and other financing costs 17,833 17,190 69,842 71,707
Earnings (loss) before income taxes
from continuing operations $ (18,006) $ 55,549 $ (81,385) $ 61,972
Income taxes (3,557) 14,595 (22,842) 20,005
Net earnings (loss) from continuing operations $ (14,449) $ 40,954 $ (58,543) $ 41,967
Net earnings and gain on disposal of discontinued
operations 525,824 9,352 570,706 54,595
Net earnings $ 511,375 $ 50,306 $ 512,163 $ 96,562
Attributed to:
Common shareholders $ 500,747 $ 48,139 $ 496,310 $ 89,416
Non-controlling interest 10,628 2,167 15,853 7,146
$ 511,375 $ 50,306 $ 512,163 $ 96,562
Earnings (loss) per share attributable to common shareholders
Basic earnings per share $ 3.58 $ 0.35 $ 3.55 $ 0.64
Diluted earnings per share $ 3.58 $ 0.34 $ 3.55 $ 0.63
Basic earnings (loss) per share
from continuing operations $ (0.13) $ 0.28 $ (0.48) $ 0.25
Diluted earnings (loss) per share
from continuing operations $ (0.13) $ 0.27 $ (0.48) $ 0.24
Weighted average number of shares (millions) 140.0 139.3 139.9 139.4

Consolidated Statements of Comprehensive Income (Loss)

(In thousands of Canadian dollars) Three months ended December 31, Twelve months ended Decmeber 31,
2013 2012 2013 2012
(Unaudited) (Unaudited) (Restated)
(Restated)
Net earnings $ 511,375 $ 50,306 $ 512,163 $ 96,562
Other comprehensive income (loss)
Items that will not be reclassified
to profit or loss:
Change in actuarial gains and losses $ 60,892 $ 7,261 $ 203,365 $ (61,591)
Total items that will not be reclassified
to profit or loss $ 60,892 $ 7,261 $ 203,365 $ (61,591)
Items that are or may be reclassified
subsequently to profit or loss:
Change in accumulated foreign currency
translation adjustment $ 6,189 $ 1,972 $ 10,728 $ (1,730)
Change in unrealized gains and losses
on cash flow hedges 565 (1,061) (546) 5,251
Total items that are or may be reclassified
subsequently to profit or loss $ 6,754 $ 911 $ 10,182 $ 3,521
$ 67,646 $ 8,172 $ 213,547 $ (58,070)
Comprehensive income $ 579,021 $ 58,478 $ 725,710 $ 38,492
Attributed to:
Common shareholders $ 567,062 $ 55,773 $ 706,515 $ 31,981
Non-controlling interest 11,959 2,705 19,195 6,511

Consolidated Statements of Changes in Total Equity

(In thousands of Canadian dollars)

Attributable to Common Shareholders
Total
accumulated
other Non-
Share Retained Contributed comprehensive Treasury controlling Total
capital earnings surplus loss stock interest equity
Balance at December 31, 2012 $ 902,810 $ (72,701) $ 75,913 $ (13,263) $ (1,845) $ 67,085 $ 957,999
(Restated)
Net earnings - 496,310 - - - 15,853 512,163
Other comprehensive
income - 201,535 - 8,670 - 3,342 213,547
Dividends declared
($0.16 per share) - (22,427) - - - (25,417) (47,844)
Stock-based compensation
expense - - 12,604 - - - 12,604
Exercise of stock options 2,406 - - - - - 2,406
Issuance of treasury stock - - (495) - 495 - -
Cash settlement of stock compensation - - (14,391) - - - (14,391)
Modification of stock compensation plan - - 3,508 - - - 3,508
Other - - 2,000 - - - 2,000
Balance at December 31, 2013 $ 905,216 $ 602,717 $ 79,139 $ (4,593) $ (1,350) $ 60,863 $ 1,641,992
Attributable to Common Shareholders
Total
accumulated
other Non-
Share Retained Contributed comprehensive Treasury controlling Total
capital deficit surplus loss stock interest equity
(Restated)
Balance at January 1, 2012 $ 902,810 $ (78,674) $ 64,327 $ (17,042) $ (6,347) $ 65,039 $ 930,113
(Restated)
Net earnings - 89,416 - - - 7,146 96,562
Other comprehensive
income (loss) - (61,214) - 3,779 - (635) (58,070)
Dividends declared
($0.16 per share) - (22,229) - - - (4,473) (26,702)
Stock-based compensation
expense - - 24,711 - - - 24,711
Issuance of treasury stock - - (13,525) - 13,525 - -
Repurchase of treasury stock - - - - (9,023) - (9,023)
Acquisition of business - - - - - (82) (82)
Other - - 400 - - 90 490
Balance at December 31, 2012 $ 902,810 $ (72,701) $ 75,913 $ (13,263) $ (1,845) $ 67,085 $ 957,999

Consolidated Statements of Cash Flows

(In thousands of Canadian dollars) Three months ended December 31, Twelve months ended December 31,
2013 2012 2013 2012
(Unaudited) (Unaudited) (Restated)
(Restated)
CASH (USED IN) PROVIDED BY:
Operating activities
Net earnings $ 511,375 $ 50,306 $ 512,163 $ 96,562
Add (deduct) items not affecting cash:
Change in fair value of biological assets (18,109) (10,703) (13,540) 3,436
Depreciation and amortization 36,682 35,093 141,818 132,739
Stock-based compensation 2,358 8,482 12,604 24,711
Deferred income taxes 76,304 10,695 52,847 9,967
Income tax current 3,747 7,135 23,443 28,922
Interest expense 16,445 17,187 68,496 71,685
Gain on sale of property and equipment 613 (203) (2,320) (624)
Gain on sale of business (605,901) - (605,901) -
Gain on sale of assets held for sale (10,564) - (67,640) (459)
Gain on sale of investment property - - (323) -
Gain on business combination - (5,330) 985 (5,330)
Change in fair value of non-designated
interest rate swaps (92) (117) (2,022) (7,297)
Change in fair value of
derivative financial instruments (3,746) (196) 117 3,107
Impairment of assets (net of reversals) (87) - 5,837 -
Increase in pension liability 1,079 (4,801) 15,789 13,282
Net income taxes paid (7,559) (5,349) (28,537) (21,861)
Interest paid (13,479) (16,473) (62,949) (69,896)
Change in provision for restructuring
and other related costs 7,591 7,120 55,497 13,179
Other 7,181 (2,038) (13,194) (9,427)
Change in non-cash operating working capital 43,236 (24,383) 166,955 (64,616)
Cash provided by operating activities $ 47,074 $ 66,425 $ 260,125 $ 218,080
Financing activities
Dividends paid $ (5,613) $ (5,639) $ (22,427) $ (22,229)
Dividends paid to non-controlling interest (1,271) (1,270) (5,084) (3,710)
Net increase (decrease) in long-term debt (592,088) 83,410 (279,178) 272,546
Purchase of treasury stock - - - (9,023)
Exercise of stock options 2,230 - 2,406 -
Cash settlement of stock compensation (14,391) - (14,391) -
Increase in financing costs (1,388) - (1,388) -
Other - (352) - (1,619)
Cash provided by (used in) financing activities $ (612,521) $ 76,149 $ (320,062) $ 235,965
Investing activities
Additions to long-term assets $ (87,647) $ (108,723) $ (361,155) $ (306,334)
Acquisition of business - (46,560) (922) (77,690)
Capitalization of interest expense (4,854) (2,771) (15,980) (6,901)
Proceeds from sale of long-term assets 3,598 1,630 12,094 7,481
Proceeds from sale of business 744,811 - 744,811 -
Proceeds from sale of assets held for sale 11,495 - 141,180 7,974
Cash provided by (used in) investing activities $ 667,403 $ (156,424) $ 520,028 $ (375,470)
Increase (decrease) in cash and cash equivalents $ 101,956 $ (13,850) $ 460,091 $ 78,575
Net cash and cash equivalents, beginning of period 400,306 56,021 42,171 (36,404)
Net cash and cash equivalents, end of period $ 502,262 $ 42,171 $ 502,262 $ 42,171
Net cash and cash equivalents is comprised of:
Cash and cash equivalents $ 506,670 $ 90,414 $ 506,670 $ 90,414
Bank indebtedness (4,408) (48,243) (4,408) (48,243)
Net cash and cash equivalents, end of period $ 502,262 $ 42,171 $ 502,262 $ 42,171

Segmented Financial Information

Three months ended December 31, Twelve months ended December 31,
2013 2012 2013 2012
(Unaudited) (Unaudited) (Restated)
(Restated)
Sales
Meat Products Group $ 742,739 $ 751,362 $ 2,923,857 $ 3,046,633
Agribusiness Group 22,303 64,938 235,199 259,181
Bakery Products Group 372,805 390,747 1,531,993 1,567,196
Total sales $ 1,137,847 $ 1,207,047 $ 4,691,049 $ 4,873,010
Sales from discontinued operations (30,862) (76,372) (284,601) (321,182)
Sales from continuing operations $ 1,106,985 $ 1,130,675 $ 4,406,448 $ 4,551,828
Earnings before restructuring and other related
costs and other income
Meat Products Group $ (42,625) $ 42,585 $ (86,192) $ 98,367
Agribusiness Group (6,365) 10,327 23,303 59,813
Bakery Products Group 30,675 30,504 116,030 94,010
Non-allocated costs 22,167 10,206 12,355 (14,071)
Total earnings before restructuring
and other related costs and other income $ 3,852 $ 93,622 $ 65,496 $ 238,119
Earnings before restructuring
and other related costs and other income
from discontinued operations (3,401) (12,518) (63,892) (72,866)
Earnings before restructuring
and other related costs and other income
from continuing operations $ 451 $ 81,104 $ 1,604 $ 165,253
Capital expenditures
Meat Products Group $ 87,532 $ 85,951 $ 318,995 $ 234,663
Agribusiness Group 6,481 7,424 17,917 16,361
Bakery Products Group 17,864 15,348 48,473 55,310
$ 111,877 $ 108,723 $ 385,385 $ 306,334
Depreciation and amortization
Meat Products Group $ 19,264 $ 16,431 $ 69,111 $ 61,260
Agribusiness Group 2,453 4,031 14,748 15,980
Bakery Products Group 14,965 14,631 57,959 55,499
$ 36,682 $ 35,093 $ 141,818 $ 132,739

Segmented Financial Information

As at December 31, As at December 31, As at January 1,
2013 2012 2012
(Restated) (Restated)
Total assets
Meat Products Group $ 1,823,866 $ 1,617,413 $ 1,482,741
Agribusiness Group 195,537 275,167 224,108
Bakery Products Group 1,169,669 1,005,432 944,032
Non-allocated assets 410,020 345,684 314,578
$ 3,599,092 $ 3,243,696 $ 2,965,459
Goodwill
Meat Products Group $ 428,236 $ 442,925 $ 442,336
Agribusiness Group - 13,845 13,845
Bakery Products Group 292,562 296,386 297,558
$ 720,798 $ 753,156 $ 753,739

SOURCE Maple Leaf Foods Inc.

Investor Contact: Nick Boland,
VP Investor Relations: 416-926-2005
Media Contact: 416-926-2020


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