Maple Leaf Foods Reports Results for the Fourth Quarter and Year-End 2017

MISSISSAUGA, ON, Feb. 21, 2018 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the fourth quarter and full year ended December 31, 2017. 

• Sales and Adjusted EBITDA margin ⁽¹⁾ growth in the quarter, continuing momentum for the year
• Sustained commercial performance benefiting from balanced portfolio
• 18% increase in quarterly dividend, the fourth consecutive annual increase
• Completed acquisition of The Field Roast Grain Meat Company, SPC, subsequent to year end

Financial Highlights

"We completed 2017 with another quarter of both top-line sales and margin growth which contributed to a highly successful year. Improvement in prepared meats, plus accelerating growth in the U.S. and plant protein, offset softening in pork processing, which continues to demonstrate the benefits of our balanced portfolio." said Michael H. McCain, President and CEO. "Looking forward, we are excited about the future. In our quest to be the most sustainable protein company on earth, the coming year will mark the most ambitious brand renovation in our history.  We have great confidence our brand strategy will support continued growth for years to come."

OPERATING REVIEW

The following is a summary of sales and Adjusted Operating Earnings for the fourth quarter:

The following table summarizes sales and Adjusted Operating Earnings for the two years ended December 31:

Sales and Earnings Review

Fourth Quarter

Sales for the fourth quarter increased 5.9% to $876.8 million or 5.4% after adjusting for the impact of foreign exchange and acquisitions, driven primarily by pricing and volume growth, with prepared meats sales benefiting from innovation and the Company's development in the U.S. market. Sales in the value-added fresh portfolio benefited from continued increased demand for fresh value-added poultry. The addition of Lightlife also contributed to the increase.

Adjusted Operating Earnings for the fourth quarter of 2017 were $64.7 million compared to $63.7 million in the fourth quarter of 2016. Adjusted EBITDA margin increased to 10.7% in the fourth quarter of 2017 from 10.4% in the prior year. Increased sales and volume growth, lower operating costs, as well as a partial reduction in year over year variable compensation costs, contributed to higher earnings in the quarter. Commercial performance in prepared meats partially offset a softening in the pork complex, reversing the trend from earlier in the year. Fourth quarter earnings also benefited from continued high demand for fresh value-added poultry. 

Net earnings for the quarter were $59.1 million compared to $76.2 million in the same period last year. The progress in the business reflected in positive revenue and margin growth, and a tax benefit associated with U.S. tax reform, was more than offset by factors excluded in calculating Adjusted Operating Earnings. These factors consist of unrealized losses on derivative contracts, the change in fair value of biological assets and restructuring costs.

Basic Earnings per Share was $0.47 for the fourth quarter of 2017 compared to $0.57 in the fourth quarter of 2016 due to the factors described above. Adjusted Earnings per Share in the fourth quarter of 2017 was $0.41 compared to $0.31 in the fourth quarter of 2016.

Full Year 2017

Sales for 2017 increased 5.7% to $3,522.2 million, or 4.8% after adjusting for the impact of foreign exchange and acquisitions compared to the prior year. Higher sales across the portfolio benefited from improved volumes and pricing, as well as the addition of Lightlife. Prepared meats sales benefited from the same factors noted above. Sales in the value-added fresh portfolio increased due to stronger volumes and improved sales mix.

Adjusted Operating Earnings for 2017 increased to $263.8 million compared to $239.3 million in the prior year. Increased sales across the business contributed to earnings growth. Earnings performance in the value-added fresh portfolio was partially offset by margin compression in prepared meats related to the volatility in raw material costs for the majority of the year.  During the fourth quarter the trend reversed, with a softening in the pork complex partially offset by improved commercial performance in prepared meats.

Net earnings for the year were $164.1 million compared to $181.7 million in the prior year. Full year revenue and margin growth, and a tax benefit associated with U.S. tax reform, were also impacted by the factors noted above which are excluded in calculating Adjusted Operating Earnings.

Basic Earnings per Share was $1.28 for 2017 compared to $1.35 in the prior year. Adjusted Earnings per Share increased to $1.54 from $1.23 in the prior year.

Subsequent Events

On November 30, 2017, the Company signed a definitive agreement to acquire 100% of the outstanding shares of The Field Roast Grain Meat Company, SPC, a privately held U.S. based corporation engaged in the production and distribution of premium grain-based protein and vegan cheese products. The transaction was subject to customary U.S. regulatory review, and was completed on January 29, 2018. The purchase price was US$120.0 million plus transaction costs settled through a combination of cash-on-hand and borrowings under the existing revolving credit facility as described in Note 13 of the consolidated financial statements. The transaction will be accounted for as a business combination.

Other Matters

On February 20, 2018, the Board of Directors approved a dividend of $0.13 per share, $0.52 per share on an annual basis, from $0.11 per share, payable March 29, 2018 to shareholders of record at the close of business March 9, 2018. Unless indicated otherwise by the Company at 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".

Conference Call

An investor presentation related to the Company's fourth quarter financial results is available at www.mapleleaffoods.com and can be found under Investor Material on the Investors page. A conference call will be held at 2:30 p.m. EDT on February 21, 2018, to review Maple Leaf Foods' fourth quarter financial results. To participate in the call, please dial 416-340-2216 or 800-273-9672. For those unable to participate, playback will be made available an hour after the event at 905-694-9451 or 800-408-3053 (Passcode: 2610656#).

A webcast presentation of the fourth quarter financial results will also be available at:

https://edge.media-server.com/m6/p/dovrix49

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

Non-IFRS Financial Measures

The Company uses the following non-IFRS measures: Adjusted Operating Earnings, Adjusted Earnings per Share, Adjusted EBITDA, and Free Cash Flow. Management believes that these non-IFRS measures provide useful information to investors in measuring the financial performance of the Company. 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 audited consolidated statement of earnings to Adjusted Operating Earnings for the years 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 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 audited consolidated statements of earnings to Adjusted Earnings per Share for the years 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.

Adjusted Earnings Before Interest, Tax, 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 audited consolidated statements of earnings to Adjusted EBITDA for the years ended, 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.

Free Cash Flow

Free Cash Flow, a non-IFRS measure, is used by Management to evaluate cash flow after investing in the maintenance or expansion of the Company's asset base. It is defined as cash provided by operations, less additions to long-term assets. The following table calculates Free Cash Flow for the periods indicated below:

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: expectations regarding the use of derivatives, futures and options; the expected use of cash balances; source of funds for ongoing business requirements; capital investments and expectations regarding capital 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. 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., 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; 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 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; 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" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2017, 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 Inc. is a leading consumer protein company, making high quality, innovative products under national brands including Maple Leaf®, Maple Leaf Prime®, Maple Leaf Natural Selections®, Schneiders®, Schneiders® Country Naturals®, Mina® and Lightlife^TM. Maple Leaf employs approximately 11,500 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).  

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SOURCE Maple Leaf Foods Inc.