TSX: MFI
www.mapleleaffoods.com
MISSISSAUGA, ON, Aug. 1, 2019 /CNW/ - Maple Leaf Foods Inc.
("Maple Leaf Foods" or "the Company") (TSX: MFI) today reported its
financial results for the second quarter ending June 30,
2019.
Quarterly Highlights
- Sales increased by 12.5%, driven by acquisitions, our
value-added product portfolio and continued double-digit growth in
plant-based protein
- Recorded a net loss of $6.3
million or $0.05 per share due
to $60.7 million of non-cash fair
value changes on balance sheet items, not reflective of the
commercial performance of the Company and excluded from Adjusted
EBITDA(1)
- Adjusted EBITDA Margin(1) of 11.3% in meat
protein and 10.6% for the Company, driven by strong commercial
performance
- Net Debt(10) of $403.4
million, of which $63.6
million is Construction Capital(11)
- Pursuing aggressive new growth goals in plant-based protein,
leveraging our market leadership
"We finished the quarter with strong top line growth and
expanded our adjusted EBITDA margin," said Michael H. McCain, President and CEO. "Our
meat protein business delivered excellent profit growth even with
difficult market conditions, and we have materially stepped up our
game as a leader in the plant-based protein market, positioning us
to win in this high-growth business. Combined with our growth
capital investments, we are pursuing compelling strategies to
deliver outstanding shareholder return. Our vision to be the most
sustainable protein company on earth will redefine Maple Leaf in
the next decade."
Financial Highlights
Second quarter sales increased 12.5% to $1,022.7 million and Adjusted Earnings per
Share(3) decreased 2.9% to $0.33 compared to the same quarter last year.
Adjusted EBITDA Margin for the quarter was 11.3% for meat
protein, and 10.6% for the Company.
For the six months ended June 30, 2019, sales increased
11.8% and Adjusted Earnings per Share decreased 17.2%. Adjusted
EBITDA Margin was 10.0% for the Company.
Measure(a)
(Unaudited)
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
2019
|
|
|
2018
|
|
Change
|
|
|
2019
|
|
|
2018
|
|
Change
|
Sales
|
$
|
1,022.7
|
|
$
|
909.2
|
|
12.5%
|
|
$
|
1,929.8
|
|
$
|
1,726.8
|
|
11.8%
|
Net Earnings
(Loss)
|
$
|
(6.3)
|
|
$
|
34.9
|
|
(118.2)%
|
|
$
|
43.8
|
|
$
|
62.8
|
|
(30.4)%
|
Basic Earnings (Loss)
per Share
|
$
|
(0.05)
|
|
$
|
0.28
|
|
(117.9)%
|
|
$
|
0.35
|
|
$
|
0.50
|
|
(30.0)%
|
Adjusted EBITDA
Margin
|
|
10.6%
|
|
|
10.1%
|
|
50 bps
|
|
|
10.0%
|
|
|
10.1%
|
|
(10) bps
|
Adjusted Operating
Earnings(2)
|
$
|
65.2
|
|
$
|
57.8
|
|
12.8%
|
|
$
|
107.3
|
|
$
|
110.6
|
|
(3.0)%
|
Adjusted Earnings per
Share
|
$
|
0.33
|
|
$
|
0.34
|
|
(2.9)%
|
|
$
|
0.53
|
|
$
|
0.64
|
|
(17.2)%
|
|
(a) All financial measures
in millions except Adjusted EBITDA Margin and Basic and Adjusted
Earnings per Share.
|
|
Note: Several
items are excluded from the discussions of underlying earnings
performance as they are not representative of ongoing operational
activities. Refer to the section entitled Reconciliation of
Non-IFRS Financial Measures at the end of this news release for a
description and reconciliation of all non-IFRS financial
measures.
|
Operating Review
($
thousands)
(Unaudited)
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
Total
Sales
|
|
$
|
1,022,699
|
|
$
|
909,244
|
|
$
|
1,929,789
|
|
$
|
1,726,753
|
Adjusted Operating
Earnings
|
|
$
|
65,227
|
|
$
|
57,833
|
|
$
|
107,301
|
|
$
|
110,605
|
Adjusted EBITDA
Margin
|
|
|
10.6
%
|
|
|
10.1%
|
|
|
10.0%
|
|
|
10.1%
|
Sales for the second quarter increased 12.5% to $1,022.7 million. Excluding acquisitions, sales
grew 3.5% driven by favourable mix due to food renovation
supporting major brand strategies, fresh market values, and pricing
actions taken in 2018 to mitigate inflationary pressures. Continued
expansion of sustainable meats and plant-based protein also
contributed to growth in sales.
Sales for the first six months increased 11.8% to $1,929.8 million. Excluding acquisitions, sales
grew 2.5% consistent with the factors noted above.
Adjusted Operating Earnings were $65.2
million compared to $57.8
million in the second quarter of 2018. The gains in Adjusted
Operating Earnings reflect positive commercial performance across
the business driven by higher fresh market values, favorable mix
attributed to food renovation, sustainable meats and growing
footprint into the U.S., partially offset by higher input costs and
continued investments in plant-based protein and branded
products.
Adjusted Operating Earnings in the first six months was
$107.3 million compared to
$110.6 million last year. The change
in Adjusted Operating Earnings is consistent with factors noted
above, which were more than offset by investments in growth
initiatives in plant-based protein, protein kits and meat pies.
Net loss for the second quarter was $6.3
million (loss of $0.05 per
basic share) compared to net earnings of $34.9 million ($0.28 per basic share) in the second quarter of
2018. Second quarter net earnings were negatively impacted by
$60.7 million due to non-cash fair
value changes in biological assets and unrealized losses on
derivative contracts, and higher interest costs as the Company
continues to invest in the business. This was partially offset by
margin expansion in prepared meats and growth in sustainable meats
and plant-based protein, net of higher input costs and continued
investments in plant-based protein and branded products.
For the first six months, net earnings were $43.8 million ($0.35 per basic share) compared to $62.8 million ($0.50 per basic share) last year. The decrease in
net earnings for year to date is consistent with the factors noted
above.
Adjusted EBITDA Margin for the second
quarter was 11.3% for meat protein and 10.6% for the Company,
compared to 10.1% for the Company in the second quarter of 2018.
For the first six months, Adjusted EBITDA Margin decreased to 10.0%
from 10.1% consistent with the factors noted above. Adjusted EBITDA
Margin was also impacted by the adoption of IFRS 16 - Leases ("IFRS
16"). Upon the adoption of IFRS 16, leases previously classified as
operating leases were capitalized on the Company's consolidated
interim balance sheet. For the second quarter an incremental
$7.9 million in depreciation and
$1.8 million in interest was recorded
on the Company's consolidated interim statement of earnings, not
included in Adjusted EBITDA. Incremental increases in depreciation
and interest for the first six months were $16.0 million and $3.6
million, respectively.
The Company's consolidated interim balance sheet included
$403.4 million (2018: $21.1 million) of Net Debt, of which $63.6 million (2018: $18.5
million) was Construction Capital.
Subsequent Events
On July 19, 2019, the Company
amended the accounts receivable securitization facility by
extending the maturity to July 19,
2022 under similar terms and using the same financial
institution with a long-term debt rating of AA-. The maximum cash
advance available to the Company under the amended facility has
increased from $110.0 million to
$120.0 million.
Other Matters
On July 31, 2019, the Board of
Directors approved a dividend of $0.145 per share payable September 30, 2019 to shareholders of record at
the close of business on September 6,
2019. Unless indicated otherwise by the Company at or before
the time the dividend is paid, this dividend will be considered an
eligible dividend for the purposes of the "Enhanced Dividend Tax
Credit System".
Conference Call
An investor presentation related to the Company's second quarter
financial results is available at www.mapleleaffoods.com and
can be found under Presentations and Webcasts on the
Investors page. A conference call will be held
at 2:30 p.m. EDT on August 1,
2019, to review Maple Leaf Foods' second quarter financial
results. To participate in the call, please dial 416-764-8609 or
1-888-390-0605. For those unable to participate, playback will be
made available an hour after the event at 416-764-8677 or
1-888-390-0541 (Passcode:718822#).
A webcast presentation of the second quarter financial results
will also be available at:
https://event.on24.com/wcc/r/2045496/AA233556501E3B619AD3CE8FDB4FAD10
The Company's full unaudited condensed consolidated interim
financial statements and related Management's Discussion and
Analysis are available on the Company's website.
Outlook
Maple Leaf Foods is committed to creating shared value with a
focus on driving commercial and financial results and enhancing
competitive advantage through addressing some of society's most
pressing issues. The Company is a leading consumer protein company,
with the competitive advantages of a portfolio of leading brands, a
robust pipeline of opportunities in attractive expanding markets
and a proven-track record of execution. Combined with its solid
balance sheet and capital structure that provide the financial
flexibility to invest in future growth, Maple Leaf Foods is
well-positioned to drive sustainable growth and create shareholder
value.
Ongoing uncertainty in fresh pork markets is expected with
continued global trade negotiations, the confirmation of African
Swine Fever ("ASF") in China and
China's temporary suspension of
Canadian pork imports. ASF is leading to a shortage of pork protein
in China, which is expected to
increase worldwide market pricing of lean hogs as well as processed
pork. Maple Leaf Foods intends to mitigate the impact of the
Chinese import suspension of pork with exports to other countries
and inventory management strategies. Within this environment,
management remains focused on existing opportunities to grow the
core business by improving commercial performance, operational
efficiencies and progressing against strategic initiatives for
longer-term value creation.
In 2017, Maple Leaf Foods set a profitability target to achieve
an Adjusted EBITDA margin between 14% - 16% within five years. The
Company remains focused on meeting this target through its
profitable meat protein operations with ongoing progress in key
structural margin expansion initiatives, including its sustainable
meat strategy, poultry network strategy, its food renovation
strategy supporting Maple Leaf's flagship brands and its cost
culture to deliver operational savings and efficiencies to fuel
growth. Distinct from the more mature meat protein market,
plant-based protein is rapidly expanding and presents a dynamic
marketplace with vast growth opportunities. Leveraging its market
leadership, Maple Leaf is changing its plant-based strategy and
pursuing aggressive new growth goals focused on expanding sales.
Continued investments in its plant-based protein brands' strength,
product innovation, people and supply chain excellence serve to
secure Maple Leaf Foods' leading position in this burgeoning
market.
For 2019 the Company expects to:
- Invest approximately $460.0
million in capital expenditures, including approximately
$200.0 million related to the
construction of the new value-added poultry facility in
London, Ontario and the new
plant-based protein facility in Shelbyville, Indiana. This includes continuing
construction of its London Poultry facility and advancing its
Shelbyville plant-based protein
facility;
- Continue to build its leadership in sustainable meat with
further advancement in animal care including progress towards
transitioning all sows under management to open housing systems by
2021, and ongoing retail and food service growth of the RWA
category in Canada and the
U.S.;
- Gain further momentum in prepared meats sales volume as the
Company benefits from the food renovation and brand repositioning
of its Maple Leaf®, Schneiders® and Swift®
brands; and
- Pursue aggressive new growth goals focused on expanding sales
and accelerating its leadership in the refrigerated plant-based
protein market under its flagship LightlifeTM and Field
Roast Grain Meat Co.TM brands, targeting 2020 sales to
exceed $280.0 million with an
opportunity of greater than $3.0
billion in sales on a 10 year horizon, based on the
plant-based protein market's growth potential and the Company's
anticipated share of the market.
Reconciliation of Non-IFRS Financial Measures
The Company uses the following non-IFRS measures: Adjusted
Operating Earnings, Adjusted Earnings per Share, Adjusted EBITDA,
Adjusted EBITDA Margin, Construction Capital and Net Debt.
Management believes that these non-IFRS measures provide useful
information to investors in measuring the financial performance of
the Company for the reasons outlined below. These measures do not
have a standardized meaning prescribed by IFRS and therefore they
may not be comparable to similarly titled measures presented by
other publicly traded companies and should not be construed as an
alternative to other financial measures determined in accordance
with IFRS.
Adjusted Operating Earnings
Adjusted Operating Earnings, a non-IFRS measure, is used by
Management to evaluate financial operating results. It is defined
as earnings before income taxes adjusted for items that are not
considered representative of ongoing operational activities of the
business and items where the economic impact of the transactions
will be reflected in earnings in future periods when the underlying
asset is sold or transferred. The table below provides a
reconciliation of net earnings as reported under IFRS in the
consolidated financial statements to Adjusted Operating Earnings
for the three and six months ended June
30, as indicated below. Management believes that this basis
is the most appropriate on which to evaluate operating results, as
they are representative of the ongoing operations of the
Company.
($ thousands)
(Unaudited)
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net (loss)
earnings
|
|
$
|
(6,342)
|
|
$
|
34,925
|
|
$
|
43,762
|
|
$
|
62,843
|
Income tax (recovery)
expense
|
|
(1,033)
|
|
13,085
|
|
17,800
|
|
24,592
|
(Loss) earnings
before income taxes
|
|
$
|
(7,375)
|
|
$
|
48,010
|
|
$
|
61,562
|
|
$
|
87,435
|
Interest expense and
other financing costs
|
|
9,078
|
|
1,866
|
|
16,511
|
|
3,519
|
Other expense
(income)
|
|
4,281
|
|
(1,769)
|
|
6,358
|
|
1,085
|
Restructuring and
other related (reversals) costs
|
|
(1,429)
|
|
1,916
|
|
1,391
|
|
3,971
|
Earnings from
operations
|
|
$
|
4,555
|
|
$
|
50,023
|
|
$
|
85,822
|
|
$
|
96,010
|
Decrease in fair
value of biological assets(4)
|
|
38,290
|
|
20,256
|
|
12,027
|
|
27,353
|
Unrealized loss
(gain) on derivative contracts(4)
|
|
22,382
|
|
(12,446)
|
|
9,452
|
|
(12,758)
|
Adjusted Operating
Earnings
|
|
$
|
65,227
|
|
$
|
57,833
|
|
$
|
107,301
|
|
$
|
110,605
|
Adjusted Earnings per Share
Adjusted Earnings per Share, a non-IFRS measure, is used by
Management to evaluate financial operating results. It is defined
as basic earnings per share and is adjusted on the same basis as
Adjusted Operating Earnings. The table below provides a
reconciliation of basic earnings per share as reported under IFRS
in the Company's consolidated financial statements to Adjusted
Earnings per Share for the three and six months ended June 30, as indicated below. Management believes
this basis is the most appropriate on which to evaluate financial
results as they are representative of the ongoing operations of the
Company.
($ per share)
(Unaudited)
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Basic (loss) earnings
per share
|
|
$
|
(0.05)
|
|
$
|
0.28
|
|
$
|
0.35
|
|
$
|
0.50
|
Restructuring and
other related (reversals) costs(5)
|
|
(0.01)
|
|
0.01
|
|
0.01
|
|
0.02
|
Items included in
other expense (income) not
|
|
|
|
|
|
|
|
|
considered
representative of ongoing operations(6)
|
0.03
|
0.01
|
0.04
|
0.03
|
Change in the fair
value of biological assets(7)
|
|
0.23
|
|
0.12
|
|
0.07
|
|
0.16
|
Change in the fair
value of unrealized loss (gain) on
|
|
|
|
|
|
|
|
|
derivative
contracts(7)
|
|
0.13
|
|
(0.07)
|
|
0.06
|
|
(0.07)
|
Adjusted Earnings
per Share (8)
|
|
$
|
0.33
|
|
$
|
0.34
|
|
$
|
0.53
|
|
$
|
0.64
|
Adjusted Earnings Before Interest, Income Taxes,
Depreciation, and Amortization
Adjusted EBITDA is calculated as earnings before interest and
income taxes plus depreciation and intangible asset amortization,
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 following table provides a reconciliation of net earnings as
reported under IFRS in the consolidated financial statements to
Adjusted EBITDA for the three and six months ended June 30, as indicated below. Management believes
Adjusted EBITDA is useful in assessing the performance of the
Company's ongoing operations and its ability to generate cash flows
to fund its cash requirements, including the Company's capital
investment program.
($ thousands)
(Unaudited)
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net (loss)
earnings
|
|
$
|
(6,342)
|
|
$
|
34,925
|
|
$
|
43,762
|
|
$
|
62,843
|
Income tax (recovery)
expense
|
|
(1,033)
|
|
13,085
|
|
17,800
|
|
24,592
|
(Loss) earnings
before income taxes
|
|
$
|
(7,375)
|
|
$
|
48,010
|
|
$
|
61,562
|
|
$
|
87,435
|
Interest expense and
other financing costs
|
|
9,078
|
|
1,866
|
|
16,511
|
|
3,519
|
Items included in
other expense (income) not
|
|
|
|
|
|
|
|
|
representative of
ongoing operations
|
3,877
|
1,602
|
5,701
|
4,292
|
Restructuring and
other related (reversals) costs
|
|
(1,429)
|
|
1,916
|
|
1,391
|
|
3,971
|
Change in the fair
value of biological assets and
|
|
|
|
|
|
|
|
|
unrealized loss on
derivative contracts
|
60,672
|
7,810
|
21,479
|
14,595
|
Depreciation and
amortization
|
|
43,205
|
|
30,404
|
|
85,825
|
|
60,278
|
Adjusted
EBITDA
|
|
$
|
108,028
|
|
$
|
91,608
|
|
$
|
192,469
|
|
$
|
174,090
|
Adjusted EBITDA
Margin
|
|
10.6%
|
|
10.1%
|
|
10.0%
|
|
10.1%
|
Construction Capital
Construction Capital, a non-IFRS measure, is used by Management
to evaluate the amount of capital resources invested in specific
strategic development projects that have not yet entered commercial
production. It is defined as investments in projects over
$50.0 million that are related to
longer-term strategic initiatives, with no returns expected for at
least 12 months in the future and the asset will be re-categorized
from Construction Capital once operational. Current strategic
initiatives primarily include the investments in the London, Ontario poultry production facility,
and the plant-based protein production facility in Shelbyville, Indiana. The following table is a
summary of Construction Capital activity and debt financing for the
periods indicated below.
($ thousands)
(Unaudited)
|
|
2019
|
|
|
2018
|
Opening balance at
January 1
|
|
$
|
22,422
|
|
|
$
|
12,950
|
Additions
|
|
18,100
|
|
|
1,925
|
Balance at March
31
|
|
$
|
40,522
|
|
|
$
|
14,875
|
Additions
|
|
23,127
|
|
|
3,693
|
Balance at June
30
|
|
$
|
63,649
|
|
|
$
|
18,568
|
Construction
Capital Debt Financing(9)
|
|
$
|
63,649
|
|
|
$
|
18,568
|
Net Debt
The following table reconciles Net Debt to amounts reported
under IFRS in the Company's consolidated financial statements as at
June 30, as indicated below. The
Company calculates Net Debt as cash and cash equivalents, less
long-term debt and bank indebtedness. Management believes this
measure is useful in assessing the amount of financial leverage
employed.
($ thousands)
(Unaudited)
|
As at June
30,
|
|
2019
|
|
2018
|
Cash and cash
equivalents
|
|
$
|
66,927
|
|
$
|
36,497
|
Current portion of
long-term debt
|
|
(874)
|
|
(827)
|
Long-term
debt
|
|
(469,421)
|
|
(56,803)
|
Total
(debt)
|
|
$
|
(470,295)
|
|
$
|
(57,630)
|
Net
(Debt)
|
|
$
|
(403,368)
|
|
$
|
(21,133)
|
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 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: future performance; expectations regarding the use of
derivatives, futures and options; the expected use of cash
balances; source of funds for ongoing business requirements;
expectations regarding capital projects, investments and
expenditures; expectations regarding the implementation of
environmental sustainability initiatives; expectations regarding
the adoption of new accounting standards and the impact of such
adoption on financial position; expectations regarding pension plan
performance and future pension plan liabilities and contributions;
expectations regarding levels of credit risk; and expectations
regarding outcomes of legal actions. 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. All
statements in this document, other than statements of historical
fact, are forward looking statements. These statements are not
guarantees of future performance and involve assumptions, 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., Japanese, and Chinese
economies; the rate of exchange of the Canadian dollar to the U.S.
dollar, the Japanese yen, and the Euro; 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; 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 focusing solely on the
protein business;
- risks related to the Company's decisions regarding any
potential return of capital to shareholders;
- risks associated with the execution of capital projects,
including cost, schedule and regulatory variables;
- risks associated with international trade and access to
markets;
- risks associated with concentration of production in fewer
facilities;
- risks associated with the availability of capital;
- risks associated with changes in the Company's information
systems and processes;
- risks associated with cyber threats;
- 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;
- risks associated with the supply management system for poultry
in Canada;
- risks associated with the use of contract manufacturers;
- 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;
- risks associated with failing to identify and manage the
strategic risks facing the Company; and
- impact of changes in International Financial Reporting
Standards and other accounting standards that the Company is
required to adhere to for regulatory purposes.
In addition to the factors referenced above, the Company's
expectations with respect to future sales associated with the
anticipated growth of its plant-based protein business as of the
date hereof are based on a number of assumptions, estimates and
projections that have been developed based on experience and
anticipated trends, including but not limited to: market growth
assumptions, market share assumptions, new product innovation,
foreign exchange rates and competition.
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 year ended
December 31, 2018, that is available
on SEDAR at www.sedar.com. 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 capital expenditures. These financial outlooks are presented
to evaluate anticipated future uses of cash flows, and 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.
About Maple Leaf Foods Inc.
Maple Leaf Foods is a producer of food products under leading
brands including Maple Leaf®, Maple Leaf Prime®, Maple Leaf Natural
Selections®, Schneiders®, Schneiders® Country Naturals®, Mina®,
Greenfield Natural Meat Co.®, LightlifeTM, Field Roast
Grain Meat Co.TM and Swift®. Maple Leaf employs
approximately 12,500 people and does business in Canada, the U.S. and Asia. The Company is headquartered in
Mississauga, Ontario and its
shares trade on the Toronto Stock Exchange (MFI).
Footnote Legend
- Adjusted EBITDA is calculated as earnings before interest
and income taxes plus depreciation and intangible asset
amortization, adjusted for items that are not considered
representative of ongoing operational activities of the business,
and items where the economic impact of the transactions will be
reflected in earnings in future periods when the underlying asset
is sold or transferred. Adjusted EBITDA margin is calculated as
Adjusted EBITDA divided by sales. Please refer to the section
entitled Reconciliation of Non-IFRS Financial Measures in this news
release.
- 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 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. Please refer to the section
entitled Reconciliation of Non-IFRS Financial Measures in this news
release.
- Adjusted Earnings per Share, a non-IFRS measure, is used by
Management to evaluate financial operating results. It is defined
as basic earnings per share and is adjusted on the same basis as
Adjusted Operating Earnings. Please refer to the section entitled
Reconciliation of Non-IFRS Financial Measures in this news
release.
- Unrealized gains/losses on derivative contracts is reported
within cost of goods sold in the Company's 2019 second quarter
unaudited condensed consolidated interim financial statements. For
biological assets information, please refer to Note 5 of the
Company's 2019 second quarter unaudited condensed consolidated
interim financial statements.
- Includes per share impact of restructuring and other related
costs, net of tax.
- Primarily includes vacancy costs, acquisition related costs,
interest income, and litigation costs, net of
tax.
- Includes per share impact of the change in unrealized losses
on derivative contracts and the change in fair value of biological
assets, net of tax.
- May not add due to rounding.
- Assumed to be fully funded by debt to the extent that the
Company has Net Debt outstanding.
- The Company calculates Net Debt as cash and cash
equivalents, less long-term debt and bank indebtedness. Please
refer to the section entitled Reconciliation of Non-IFRS Financial
Measures in this news release.
- Construction Capital, a non-IFRS measure, is used by
Management to evaluate the amount of capital resources invested in
specific strategic development projects that have not yet entered
commercial production. It is defined as investments in projects
over $50.0 million that are related
to longer-term strategic initiatives, with no returns expected for
at least 12 months in the future and the asset will be
re-categorized from Construction Capital once operational. Please
refer to the section entitled Reconciliation of Non-IFRS Financial
Measures in this news release.
Consolidated Interim Balance Sheets
(In thousands of
Canadian
dollars)
|
As at June
30,
|
|
As at June
30,
|
|
As at December
31,
|
(Unaudited)
|
2019
|
|
2018(i)
|
|
2018(i)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
66,927
|
|
|
$
|
36,497
|
|
|
$
|
72,578
|
Accounts
receivable
|
|
161,979
|
|
|
143,515
|
|
|
146,283
|
Notes
receivable
|
|
40,049
|
|
|
36,452
|
|
|
30,504
|
Inventories
|
|
396,800
|
|
|
326,303
|
|
|
348,901
|
Biological
assets
|
|
107,565
|
|
|
87,001
|
|
|
111,493
|
Prepaid expenses and
other assets
|
|
47,265
|
|
|
22,327
|
|
|
38,222
|
Assets held for
sale
|
|
33,798
|
|
|
—
|
|
|
—
|
|
|
$
|
854,383
|
|
|
$
|
652,095
|
|
|
$
|
747,981
|
Property and
equipment
|
|
1,321,425
|
|
|
1,138,860
|
|
|
1,283,950
|
Right of use
assets
|
|
233,629
|
|
|
—
|
|
|
—
|
Investment
property
|
|
5,109
|
|
|
4,398
|
|
|
5,109
|
Employee
benefits
|
|
—
|
|
|
36,733
|
|
|
5,389
|
Other long-term
assets
|
|
12,932
|
|
|
7,952
|
|
|
8,074
|
Goodwill
|
|
657,358
|
|
|
616,353
|
|
|
664,879
|
Intangible
assets
|
|
350,545
|
|
|
285,722
|
|
|
424,616
|
Total
assets
|
|
$
|
3,435,381
|
|
|
$
|
2,742,113
|
|
|
$
|
3,139,998
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and
accruals
|
|
$
|
384,002
|
|
|
$
|
310,040
|
|
|
$
|
344,460
|
Current portion of
provisions
|
|
1,853
|
|
|
6,021
|
|
|
3,457
|
Current portion of
long-term debt
|
|
874
|
|
|
827
|
|
|
80,897
|
Current portion of
lease obligations
|
|
39,796
|
|
|
—
|
|
|
—
|
Income taxes
payable
|
|
13,751
|
|
|
11,440
|
|
|
42,884
|
Other current
liabilities
|
|
45,984
|
|
|
46,642
|
|
|
24,031
|
|
|
$
|
486,260
|
|
|
$
|
374,970
|
|
|
$
|
495,729
|
Long-term
debt
|
|
469,421
|
|
|
56,803
|
|
|
302,524
|
Lease
obligations
|
|
208,782
|
|
|
—
|
|
|
—
|
Employee
benefits
|
|
160,436
|
|
|
112,229
|
|
|
103,982
|
Provisions
|
|
44,483
|
|
|
9,291
|
|
|
49,895
|
Other long-term
liabilities
|
|
2,015
|
|
|
15,267
|
|
|
53,564
|
Deferred tax
liability
|
|
117,596
|
|
|
122,057
|
|
|
127,465
|
Total
liabilities
|
|
$
|
1,488,993
|
|
|
$
|
690,617
|
|
|
$
|
1,133,159
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
Share
capital
|
|
$
|
845,735
|
|
|
$
|
834,814
|
|
|
$
|
849,655
|
Retained
earnings
|
|
1,119,678
|
|
|
1,237,712
|
|
|
1,178,389
|
Contributed
surplus
|
|
—
|
|
|
—
|
|
|
4,649
|
Accumulated other
comprehensive income
|
|
1,375
|
|
|
356
|
|
|
3,532
|
Treasury
stock
|
|
(20,400)
|
|
|
(21,386)
|
|
|
(29,386)
|
Total shareholders'
equity
|
|
$
|
1,946,388
|
|
|
$
|
2,051,496
|
|
|
$
|
2,006,839
|
Total liabilities and
equity
|
|
$
|
3,435,381
|
|
|
$
|
2,742,113
|
|
|
$
|
3,139,998
|
|
(i)
|
Restated, see Note
17(a) of the Company's 2019 second quarter unaudited condensed
consolidated interim financial statements.
|
Consolidated Interim Statements of Net Earnings
(Loss)
(In thousands of
Canadian dollars, except share amounts)
(Unaudited)
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,022,699
|
|
$
|
909,244
|
|
|
$
|
1,929,789
|
|
$
|
1,726,753
|
Cost of goods
sold
|
|
911,723
|
|
769,986
|
|
|
1,639,292
|
|
1,455,326
|
Gross
margin
|
|
$
|
110,976
|
|
$
|
139,258
|
|
|
$
|
290,497
|
|
$
|
271,427
|
Selling, general and
administrative expenses
|
|
106,421
|
|
89,235
|
|
|
204,675
|
|
175,417
|
Earnings before the
following:
|
|
$
|
4,555
|
|
$
|
50,023
|
|
|
$
|
85,822
|
|
$
|
96,010
|
Restructuring and
other related reversals (costs)
|
|
1,429
|
|
(1,916)
|
|
|
(1,391)
|
|
(3,971)
|
Other income
(expense)
|
|
(4,281)
|
|
1,769
|
|
|
(6,358)
|
|
(1,085)
|
Earnings before
interest and income taxes
|
|
$
|
1,703
|
|
$
|
49,876
|
|
|
$
|
78,073
|
|
$
|
90,954
|
Interest expense and
other financing costs
|
|
9,078
|
|
1,866
|
|
|
16,511
|
|
3,519
|
(Loss) earnings
before income taxes
|
|
$
|
(7,375)
|
|
$
|
48,010
|
|
|
$
|
61,562
|
|
$
|
87,435
|
Income tax (recovery)
expense
|
|
(1,033)
|
|
13,085
|
|
|
17,800
|
|
24,592
|
Net (loss)
earnings
|
|
$
|
(6,342)
|
|
$
|
34,925
|
|
|
$
|
43,762
|
|
$
|
62,843
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per
share:
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings
per share
|
|
$
|
(0.05)
|
|
$
|
0.28
|
|
|
$
|
0.35
|
|
$
|
0.50
|
Diluted (loss)
earnings per share
|
|
$
|
(0.05)
|
|
$
|
0.27
|
|
|
$
|
0.35
|
|
$
|
0.49
|
Weighted average
number of shares (millions)
|
|
|
|
|
|
|
|
|
|
Basic
|
|
123.7
|
|
126.0
|
|
|
123.6
|
|
126.1
|
Diluted
|
|
123.7
|
|
128.3
|
|
|
125.4
|
|
128.5
|
Consolidated Interim Statements of Other Comprehensive Income
(Loss)
(In thousands of
Canadian dollars)
(Unaudited)
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
2019
|
|
|
2018
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net (loss)
earnings
|
|
$
|
(6,342)
|
|
|
$
|
34,925
|
|
$
|
43,762
|
|
|
$
|
62,843
|
Other comprehensive
(loss) income
|
|
|
|
|
|
|
|
Actuarial (losses)
gains that will not be reclassified to
|
|
|
|
|
|
|
|
profit or
loss
|
|
|
|
|
(Net of tax of $6.6
million and $15.9 million; 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5.3 million and $9.4
million)
|
$
|
(18,618)
|
$
|
14,874
|
$
|
(45,000)
|
$
|
26,649
|
Items that are or may
be reclassified subsequently to profit or loss:
|
|
|
|
|
|
|
|
Change in accumulated
foreign currency translation
|
|
|
|
|
|
|
|
adjustment
|
|
|
|
|
(Net of tax of $0.0
million and $0.0 million; 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.0 million and $0.0
million)
|
$
|
(7,557)
|
$
|
7,369
|
$
|
(15,717)
|
$
|
19,198
|
Change in foreign
exchange gains (losses) on long-
|
|
|
|
|
|
|
|
term debt designated
as a net investment hedge
|
|
|
|
|
|
|
|
(Net of tax of $1.1
million and $2.1 million; 2018:
|
|
|
|
|
|
|
|
|
|
|
$0.1 million and $0.4
million)
|
6,277
|
(1,358)
|
11,461
|
(2,855)
|
Change in unrealized
gains (losses) on cash flow
|
|
|
|
|
|
|
|
hedges
|
|
|
|
|
|
|
|
(Net of tax of $0.4
million and $0.7 million; 2018:
|
|
|
|
|
|
|
|
|
|
|
$0.4 million and $0.9
million)
|
1,307
|
(1,207)
|
2,099
|
(6,367)
|
Total items that are
or may be reclassified subsequently
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to profit or
loss
|
$
|
27
|
$
|
4,804
|
$
|
(2,157)
|
$
|
9,976
|
Total other
comprehensive (loss) income
|
|
$
|
(18,591)
|
|
|
$
|
19,678
|
|
$
|
(47,157)
|
|
|
$
|
36,625
|
Comprehensive (loss)
income
|
|
$
|
(24,933)
|
|
|
$
|
54,603
|
|
$
|
(3,395)
|
|
|
$
|
99,468
|
Consolidated Interim Statements of Changes in Total
Equity
|
|
|
|
Accumulated
other
comprehensive income
(loss)(i)
|
|
|
|
(In thousands of Canadian dollars)
(Unaudited)
|
Share
capital
|
Retained
earnings
|
Contributed
surplus
|
Foreign
currency
translation
adjustment
|
Unrealized
gains and
losses on
cash flow
hedges
|
Treasury
stock
|
|
Total
equity
|
Balance as at
December 31, 2018
|
$
|
849,655
|
$
|
1,178,389
|
$
|
4,649
|
$
|
8,518
|
$
|
(4,986)
|
$
|
(29,386)
|
|
$
|
2,006,839
|
Impact of new IFRS
standards(iii)
|
—
|
(1,100)
|
—
|
—
|
—
|
—
|
|
(1,100)
|
Net
earnings
|
—
|
43,762
|
—
|
—
|
—
|
—
|
|
43,762
|
Other comprehensive
(loss) income(ii)
|
—
|
(45,000)
|
—
|
(4,256)
|
2,099
|
—
|
|
(47,157)
|
Dividends declared
($0.29 per share)
|
—
|
(35,910)
|
—
|
—
|
—
|
—
|
|
(35,910)
|
Share-based
compensation expense
|
—
|
—
|
9,404
|
—
|
—
|
—
|
|
9,404
|
Deferred taxes on
share-based compensation
|
—
|
—
|
1,160
|
—
|
—
|
—
|
|
1,160
|
Obligation for
repurchase of shares
|
(6,891)
|
—
|
(8,221)
|
—
|
—
|
—
|
|
(15,112)
|
Exercise of stock
options
|
2,971
|
—
|
—
|
—
|
—
|
—
|
|
2,971
|
Settlement of
share-based compensation
|
—
|
(20,463)
|
(6,992)
|
—
|
—
|
13,986
|
|
(13,469)
|
Shares purchased by
RSU trust
|
—
|
—
|
—
|
—
|
—
|
(5,000)
|
|
(5,000)
|
Balance as at June
30, 2019
|
$
|
845,735
|
$
|
1,119,678
|
$
|
—
|
$
|
4,262
|
$
|
(2,887)
|
$
|
(20,400)
|
|
$
|
1,946,388
|
|
|
|
|
|
|
Accumulated other
comprehensive income
(loss)(i)
|
|
|
|
(In thousands of Canadian dollars)
(Unaudited)
|
Share
capital
|
Retained
earnings
|
Contributed
surplus
|
Foreign
currency
translation
adjustment
|
Unrealized
gain (loss)
on cash flow
hedges
|
Treasury
stock
|
|
Total
equity
|
Balance as at
December 31, 2017
|
$
|
835,154
|
$
|
1,253,035
|
$
|
—
|
$
|
(11,420)
|
$
|
1,800
|
$
|
(26,961)
|
|
$
|
2,051,608
|
Impact of new IFRS
standards
|
—
|
(3,695)
|
—
|
—
|
—
|
—
|
|
(3,695)
|
Net
earnings
|
—
|
62,843
|
—
|
|
|
—
|
|
62,843
|
Other comprehensive
income (loss)(ii)
|
—
|
26,649
|
—
|
16,343
|
(6,367)
|
—
|
|
36,625
|
Dividends declared
($0.26 per share)
|
—
|
(32,844)
|
—
|
—
|
—
|
—
|
|
(32,844)
|
Share-based
compensation expense
|
—
|
—
|
9,238
|
—
|
—
|
—
|
|
9,238
|
Deferred taxes on
share-based compensation
|
—
|
—
|
(500)
|
—
|
—
|
—
|
|
(500)
|
Repurchase of
shares
|
(16,180)
|
(51,401)
|
(8,738)
|
—
|
—
|
—
|
|
(76,319)
|
Exercise of stock
options
|
15,840
|
—
|
—
|
—
|
—
|
—
|
|
15,840
|
Settlement of
share-based compensation
|
—
|
(16,875)
|
—
|
—
|
—
|
10,575
|
|
(6,300)
|
Shares purchased by
RSU trust
|
—
|
—
|
—
|
—
|
—
|
(5,000)
|
|
(5,000)
|
Balance as at June
30, 2018
|
$
|
834,814
|
$
|
1,237,712
|
$
|
—
|
$
|
4,923
|
$
|
(4,567)
|
$
|
(21,386)
|
|
$
|
2,051,496
|
|
|
(i)
|
Items that are or
may be subsequently reclassified to profit or loss.
|
|
|
(ii)
|
Included in other
comprehensive income (loss) is the change in actuarial gains and
losses that will not be reclassified to profit or loss and has been
reclassified to retained earnings.
|
|
|
(iii)
|
See Note 2(b) of
the Company's 2019 second quarter unaudited condensed consolidated
interim financial statements.
|
Consolidated Interim Statements of Cash Flows
(In thousands of
Canadian dollars)
(Unaudited)
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
CASH PROVIDED BY
(USED IN)
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net (loss)
earnings
|
|
$
|
(6,342)
|
|
$
|
34,925
|
|
$
|
43,762
|
|
$
|
62,843
|
Add (deduct) items
not affecting cash:
|
|
|
|
|
|
|
|
|
Change in fair value
of biological assets
|
|
38,290
|
|
20,256
|
|
12,027
|
|
27,353
|
Depreciation and
amortization
|
|
43,205
|
|
30,413
|
|
85,825
|
|
60,297
|
Share-based
compensation
|
|
4,254
|
|
4,368
|
|
9,404
|
|
9,238
|
Deferred income
taxes
|
|
(206)
|
|
9,554
|
|
5,700
|
|
15,660
|
Income tax
current
|
|
(827)
|
|
3,531
|
|
12,100
|
|
8,932
|
Interest expense and
other financing costs
|
|
9,078
|
|
1,866
|
|
16,511
|
|
3,519
|
Loss on sale of
long-term assets
|
|
523
|
|
3,447
|
|
717
|
|
3,832
|
Change in fair value
of non-designated
|
|
|
|
|
|
|
|
|
derivative financial
instruments
|
21,693
|
(12,485)
|
7,073
|
(12,300)
|
Change in net pension
liability
|
|
421
|
|
1,900
|
|
950
|
|
3,605
|
Net income taxes
paid
|
|
(4,915)
|
|
(1,802)
|
|
(30,784)
|
|
(4,270)
|
Interest
paid
|
|
(7,009)
|
|
(1,465)
|
|
(13,742)
|
|
(2,639)
|
Change in provision
for restructuring and other
|
|
|
|
|
|
|
|
|
related
costs
|
(2,030)
|
(3,702)
|
146
|
(4,287)
|
Change in derivatives
margin
|
|
(5,063)
|
|
9,755
|
|
2,525
|
|
16,285
|
Other
|
|
(308)
|
|
1,579
|
|
(64)
|
|
(4,864)
|
Change in non-cash
working capital
|
|
(18,078)
|
|
(31,669)
|
|
(60,888)
|
|
(80,678)
|
Cash provided by
operating activities
|
|
$
|
72,686
|
|
$
|
70,471
|
|
$
|
91,262
|
|
$
|
102,526
|
Financing
activities
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
$
|
(17,941)
|
|
$
|
(16,369)
|
|
$
|
(35,910)
|
|
$
|
(32,844)
|
Net increase
(decrease) in long-term debt
|
|
10,436
|
|
(4,483)
|
|
100,297
|
|
44,854
|
Payment of lease
obligation
|
|
(8,530)
|
|
—
|
|
(16,871)
|
|
—
|
Exercise of stock
options
|
|
2,971
|
|
15,626
|
|
2,971
|
|
15,840
|
Repurchase of
shares
|
|
—
|
|
(48,854)
|
|
—
|
|
(70,944)
|
Payment of deferred
financing fees
|
|
(4,785)
|
|
(50)
|
|
(4,828)
|
|
(79)
|
Purchase of treasury
stock
|
|
(5,000)
|
|
—
|
|
(5,000)
|
|
(5,000)
|
Cash (used in)
provided by financing activities
|
|
$
|
(22,849)
|
|
$
|
(54,130)
|
|
$
|
40,659
|
|
$
|
(48,173)
|
Investing
activities
|
|
|
|
|
|
|
|
|
Additions to
long-term assets
|
|
$
|
(65,280)
|
|
$
|
(47,541)
|
|
$
|
(125,415)
|
|
$
|
(82,901)
|
Acquisition of
business, net of cash acquired
|
|
—
|
|
—
|
|
(847)
|
|
(138,380)
|
Proceeds from sale of
long-term assets
|
|
75
|
|
—
|
|
75
|
|
—
|
Payment of income tax
liabilities assumed on
|
|
|
|
|
|
|
|
|
acquisition
|
|
—
|
|
—
|
|
|
(11,385)
|
|
|
—
|
Cash used in
investing activities
|
|
$
|
(65,205)
|
|
$
|
(47,541)
|
|
$
|
(137,572)
|
|
$
|
(221,281)
|
Decrease in cash
and cash equivalents
|
|
$
|
(15,368)
|
|
$
|
(31,200)
|
|
$
|
(5,651)
|
|
$
|
(166,928)
|
Cash and cash
equivalents, beginning of period
|
|
82,295
|
|
67,697
|
|
72,578
|
|
203,425
|
Cash and cash
equivalents, end of period
|
|
$
|
66,927
|
|
$
|
36,497
|
|
$
|
66,927
|
|
$
|
36,497
|
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SOURCE Maple Leaf Foods Inc.