Maple Leaf Foods reports Q4 net loss from continuing operations of C$14.4M, compared to year-ago earnings of C$41M; sales fall 2.1% to C$1.11B
February 27, 2014
– 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."
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
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.
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.
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.
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.