Maple Leaf Foods Reports Results for the Second Quarter 2014

TSX: MFI
www.mapleleaffoods.com

TORONTO, July 31, 2014 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the second quarter, June 30, 2014.

• Adjusted Operating Earnings⁽¹⁾⁽³⁾ for the second quarter was a loss of $12.1 million compared to a loss of $32.3 million last year. For the first six months, Adjusted Operating Earnings was a loss of $42.0 million compared to a loss of $60.1 million last year.
• Adjusted Earnings per Share⁽³⁾⁽⁴⁾ for the quarter was a loss of $0.13 compared to a loss of $0.25 per share last year. Adjusted Earnings per Share for the first six months was a loss of $0.37 compared to a loss of $0.48 last year.
• Net loss from continuing operations for the second quarter was $39.5 million compared to $38.4 million last year. For the first six months, net loss from continuing operations was $164.2 million compared to $69.0 million last year.
• The Company completed the sale of its 90% interest in Canada Bread Company, Limited to Grupo Bimbo in the second quarter of 2014.

"We continue to make good progress on our strategic agenda, although the transitory cost of duplicative supply chains continues to be significant," said Michael H. McCain, President and CEO. "We implemented material price increases during the second quarter which going forward will fully offset significant raw material cost increases to date. As anticipated, there is a short-term impact on demand, which we expect will normalize in time. Our progress in converting to the new supply chain continues as performance improves in our Western facilities and commissioning of the new flagship plant in Hamilton, Ontario is underway. Following the successful sale of our bakery business, we completed a comprehensive organizational restructuring in the quarter, right-sizing our structure to cost effectively support our needs as a focused value-added protein company. We are managing significant change along with our base business performance, and we are very satisfied with our progress towards our financial targets."

Financial Overview

Maple Leaf Foods Inc. ("the Company") sales from continuing operations of $831.8 million for the second quarter was an increase of 9.6% from last year, or 8.2% after adjusting for the impacts of foreign exchange, as higher pricing was partly offset by lower volume. Sales from continuing operations of $1,543.1 million for the first six months was an increase of 6.5%, or 5.3% after adjusting for foreign exchange, due to the same factors.

Adjusted Operating Earnings for the second quarter was a loss of $12.1 million compared to a loss of $32.3 million last year, as improved market conditions in the Agribusiness Group more than offset lower earnings in the Meat Products Group. For the first six months, Adjusted Operating Earnings increased was a loss of $42.0 million compared to a loss of $60.1 million last year, due to similar factors.

Net loss from continuing operations for the second quarter was $39.5 million (loss of $0.28 per basic share attributable to common shareholders) compared to a loss of $38.4 million (loss of $0.27 per basic share attributable to common shareholders) last year. Net loss from continuing operations included $20.0 million ($0.11per basic share attributable to common shareholders) of pre-tax expenses related to restructuring and other related costs (2013: $14.4 million, or $0.07 per basic share attributable to common shareholders).

For the first six months, net loss from continuing operations was $164.2 million (loss of $1.17 per share attributable to common shareholders) compared to a net loss of $69.0 million (loss of $0.49 per basic share attributable to common shareholders) last year. Net loss from continuing operations included $41.8 million ($0.22 per basic share attributable to common shareholders) of pre-tax expenses related to restructuring and other related costs (2013: $51.3 million or $0.27 per basic share attributable to common shareholders). Net loss also included financing costs of $98.6 million related to the repayment of the Company's long-term notes payable in April 2014.

Adjusted Earnings per Share was a loss of $0.13 in the second quarter of 2014 compared to a loss of $0.25 last year. For the first six months, Adjusted Earnings per Share was a loss of $0.37 compared to a loss of $0.48 last year.

Several items are excluded from the discussions of underlying earnings performance as they are not representative of ongoing operational activities. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures at the end of the Management Discussion and Analysis on page 11 for a description and reconciliation of all non-IFRS financial measures.

Business Segment Review

Following is a summary of sales by business segment:

The following table summarizes Adjusted Operating Earnings by business segment:

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 second quarter increased 9.7% to $825.6 million, or 8.3% after adjusting for the weaker Canadian dollar that benefited pork exports. This was primarily driven by higher market prices for fresh pork, as well as price increases implemented in the prepared meats business during the second quarter of 2014 in response to higher raw material and inflationary costs. Partly offsetting these were lower volume in the prepared meats business, largely due to the pricing actions implemented in the second quarter, combined with a decline in fresh pork volume. For the first six months, sales increased 7.0% to $1,531.0 million, or 5.8% after adjusting for the impact of foreign exchange, largely due to the same factors noted above, with the addition of higher volume and sales mix in the first quarter of 2014.

Adjusted Operating Earnings for the second quarter was a loss of $15.6 million compared to a loss of $11.5 million last year, as lower earnings in the prepared meats and fresh poultry businesses were only partly offset by improved results in the fresh pork business.

The prepared meats business incurred transitional costs of approximately $25 million during the second quarter of 2014, which were largely related to commissioning activities and overhead costs at the new meat processing facility in Hamilton, Ontario. Last year, transitional costs were approximately $12 million during the same period, mainly attributable to start-up activities at plant expansions in Western Canada.

Lower volume in the prepared meats business also contributed to lower earnings. The decrease in volume was mainly due to price increases taken during the second quarter of 2014, which were implemented to offset rising raw material and inflationary costs in the quarter. Raw material prices continued to remain higher than last year due to the outbreaks of disease in hog production herds in the U.S. Adding to this was a weakening Canadian dollar that also contributed to higher input costs. Higher selling, general and administrative expense as a result of the timing of advertising and promotional spend, also reduced earnings.

Earnings in the fresh pork business increased due to improved domestic and foreign sales. Higher primary pork processing margins and market values for by-products also contributed to earnings, as did plant labour and yield efficiencies which offset lower volume due to decreased hog supplies. Earnings in fresh poultry declined due to an unfavourable sales mix and plant operating inefficiencies. These were partly offset by improved primary poultry processing spreads.

For the first six months, Adjusted Operating Earnings was a loss of $43.1 million compared to a loss of $21.9 million last year, due to similar factors noted above, as well as margin compression in the prepared meats business, as the benefit of price increases in the second quarter implemented to offset higher raw material prices going forward, did not fully offset for the first six months.

Agribusiness Group

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

Agribusiness Group sales for the second quarter declined by 8.2% to $6.2 million compared to $6.8 million last year, due to lower pricing on toll feed sales. Sales for the first six months declined 32.6% to $12.2 million, due to the same factors above.

Adjusted Operating Earnings in the second quarter was $5.2 million compared to a loss of $16.9 million last year, primarily due to higher market prices, net of hedging activities, for hogs, and lower feed costs. For the first six months, Adjusted Operating Earnings was $4.9 million compared to a loss of $29.8 million last year, due to the same factors above.

Divestiture of Canada Bread and Discontinued Operations

On May 23, 2014, Grupo Bimbo, S.A.B. de C.V. of Mexico ("Grupo Bimbo") acquired the 90.0% of issued and outstanding shares of Canada Bread owned by the Company, by way of a statutory plan of arrangement under the Business Corporations Act (Ontario) (the "Arrangement"). During the quarter, the Company received gross proceeds of approximately $1,657.0 million (which includes its share of the dividend paid upon closing of the Arrangement) for its 90.0% interest in Canada Bread, resulting in a pre-tax gain of $1,030.5 million for the three months ended June 30, 2014, and $999.6 million for the six months ended June 30, 2014. Upon the sale of the business, the net assets of Canada Bread have been de-recognized from assets held for sale. For the six months ended June 30, 2014, the Canada Bread operations have been classified as discontinued operations on the Consolidated Statements of Net Earnings (Loss), and are presented as part of Bakery Products Group for segmented reporting.

Discontinued operations for the three and six months ended June 30, 2014, pertain to the Bakery Products Group and transaction costs associated with previous disposals. Discontinued operations in the three and six months ended June 30, 2013, were restated to include the Bakery Products Group, as well as the Rothsay and Olivieri businesses that were sold during the fourth quarter of 2013.

Sales from discontinued operations for the second quarter were $225.0 million and included two months of results from the Bakery Products Group. Sales from discontinued operations for the second quarter of 2013 were $458.7 million and included $374.5 million relating to the Bakery Products Group, and $84.2 million related to the Rothsay and Oliveri businesses.

Net earnings from discontinued operations for the second quarter was $938.4 million and included a $1,030.5 million pre-tax gain on disposal of the Bakery Products Group, and related income taxes of $103.7 million for an after tax net gain of $926.8 million. The balance of net earnings from discontinued operations was comprised of $13.4 million of the Bakery Products Group operations for two months, and $1.8 million of transaction costs associated with the 2013 sale of the Rothsay business. Net earnings from discontinued operations for the second quarter of 2013 was $38.4 million and included $23.9 million in earnings of the Bakery Products Group, $13.8 million related to Rothsay, and $0.6 million related to Olivieri.

For additional information on discontinued operations please see Note 21 of the second quarter 2014 unaudited condensed consolidated financial statements.

Other Matters

On July 30, 2014, the Company declared a dividend of $0.04 per share payable September 30, 2014, to shareholders of record at the close of business on September 5, 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 second 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 July 31, 2014, to review Maple Leaf Foods' second 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 7829406).

A webcast presentation of the second quarter financial results will also be available at http://www.media-server.com/m/p/nb3tjyug

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 from continuing operations adjusted for items that are not considered representative of ongoing operational activities of the business and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. The table below provides a reconciliation of net earnings as reported under IFRS in the unaudited consolidated interim statements of earnings to Adjusted Operating Income for the three and six months 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 ongoing operations of the Company.

Adjusted Earnings per Share

Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate ongoing 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 ongoing operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. The table below provides a reconciliation of basic earnings per share from continuing operations as reported under IFRS in the unaudited consolidated interim statements of earnings to Adjusted Earnings per Share for the three and six months ended, as indicated below. Management believes this basis is the most appropriate on which to evaluate financial results as they are representative of the ongoing operations of the Company.

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, as well as 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, in addition to 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 Value Creation Plan; expectations regarding Net Debt to EBITDA ratios during the implementation of the Value Creation 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; 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", "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., and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar, 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:

• risks associated with the Company's Transaction Services Agreement with Grupo Bimbo, S.A.B. de C.V. of Mexico
• risks associated with implementing and executing the Value Creation Plan;
• risks associated with the availability of capital;
• risks associated with changes in the Company's systems and processes;
• risks posed by food contamination, consumer liability, and product recalls;
• risks associated with acquisitions, divestitures, and capital expansion projects;
• impact on pension expense and funding requirements of fluctuations in the market prices of fixed income and equity securities and changes in interest rates;
• cyclical nature of the cost and supply of hogs and the competitive nature of the pork market generally;
• risks related to the health status of livestock;
• impact of a pandemic on the Company's operations;
• the Company's exposure to currency exchange risks;
• ability of the Company to hedge against the effect of commodity price changes through the use of commodity futures and options;
• impact of changes in the market value of the biological assets and hedging instruments;
• impact of international events on commodity prices and the free flow of goods;
• risks posed by compliance with extensive government regulation;
• risks posed by litigation;
• impact of changes in consumer tastes and buying patterns;
• impact of extensive environmental regulation and potential environmental liabilities;
• risks associated with a consolidating retail environment;
• risks posed by competition;
• risks associated with complying with differing employment laws and practices, the potential for work stoppages due to non-renewal of collective agreements, and recruiting and retaining qualified personnel;
• risks associated with pricing the Company's products;
• risks associated with managing the Company's supply chain; and
• 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" presented previously in this document. The reader should review such section in detail. Some of the forward-looking information may be considered to be financial outlooks for purposes of applicable securities legislation including, but not limited to, statements concerning future EBITDA margins; capital expenditures; cash costs; and non-cash restructuring charges. These financial outlooks are presented to allow the Company to benchmark the results of the Value Creation Plan. These financial outlooks may not be appropriate for other purposes and readers should not assume they will be achieved. 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, is available on SEDAR at www.sedar.com. Maple Leaf Foods Inc. 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 12,800 people at its operations in Canada, the U.S., 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 continuing 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. Regarding biological assets, please refer to Note 6 of the Company's 2014 second quarter unaudited condensed consolidated interim financial statements. Realized and unrealized gains/losses on commodity futures contracts and settlement of long-term incentive plan are reported within cost of sales and selling, general and administrative respectively in the Company's 2014 second quarter unaudited condensed consolidated interim financial statements.
3. Figures exclude the results of the Rothsay business and the Bakery Products Group, which are reported as discontinued operations. Refer to Note 21 of the Company's 2014 second quarter unaudited condensed consolidated interim 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. 2013 figures exclude the results of the Rothsay business, which are reported as discontinued operations. Refer to Note 21 of the Company's 2014 second quarter unaudited condensed consolidated interim financial statements.

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

MAPLE LEAF FOODS INC.

Six months ended June 30, 2014 and 2013

SOURCE Maple Leaf Foods Inc.