TSX: MFI
www.mapleleaffoods.com
MISSISSAUGA, ON,
"Maple Leaf continues to deliver on its responsibility as an essential service, its commitment to protect employees, and its support of local communities during these extraordinary times," stated
"Our operational resiliency, strong brands, and the success of our sustainable meat strategy delivered excellent results in Meat Protein in the third quarter," continued
Third Quarter 2020 Highlights
Total Company sales growth of 6.2% and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")(i) Margin of 7.8% of sales, ahead of last year.Meat Protein Group sales growth of 6.4% driven primarily by strong demand in the retail channel, growth in branded and sustainable meats, and increased exports toUSA and Asian markets relative to last year.- Meat Protein Group Adjusted EBITDA Margin at 12.1%, achieving a fourth consecutive quarter above 11.0% despite COVID-19 impacts, including the operational impact on the Company's
Brandon, Manitoba facility due to community outbreak. Plant Protein Group sales growth of 9.3% (8.2% after excluding the impacts of foreign exchange). Production issues as well as the impact of COVID-19 tempered sales growth in the quarter. Adjusted EBITDA in thePlant Protein Group was a loss of$39.6 million .- Adjusted Operating Earnings(i) of
$36.9 million were significantly ahead of last year, as strong commercial performance in theMeat Protein Group more than offset COVID-19 costs and strategic investment in thePlant Protein Group . - Net earnings for the quarter of
$66.0 million , compared to$13.4 million last year, due to factors noted above, as well as a higher gain from non-cash fair value changes in biological assets and derivative contracts. - Gross costs associated with COVID-19 were approximately
$19 million . These were partially offset by discretionary spending cuts in selling, general and administrative expenses ("SG&A"), resulting in a net impact of approximately$12 million to total Company Adjusted EBITDA. - Capital Expenditures were
$103.0 million , compared to$60.5 million last year. Year-to-date capital expenditures were$304.2 million . Both quarter and year-to-date capital expenditures were primarily related to theLondon, Ontario poultry facility. - For 2020,
Maple Leaf Foods continues to execute against its strategic framework, focused on profitable growth in theMeat Protein Group , and investing for growth in thePlant Protein Group .
(i) | Refer to the section titled Non-IFRS Financial Measures in this news release. |
Financial Highlights | ||||||||||||||
Measure(i) | ||||||||||||||
Three months ended | Nine months ended | |||||||||||||
2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||
Sales | $ | 1,057.2 | $ | 995.8 | 6.2% | $ | 3,174.5 | $ | 2,925.6 | 8.5% | ||||
Net Earnings (Loss) | $ | 66.0 | $ | 13.4 | 392.0% | $ | 87.9 | $ | 57.2 | 53.8% | ||||
Basic Earnings (Loss) per Share | $ | 0.54 | $ | 0.11 | 390.9% | $ | 0.72 | $ | 0.46 | 56.5% | ||||
Adjusted Operating Earnings(ii) | $ | 36.9 | $ | 9.7 | 280.3% | $ | 148.7 | $ | 117.0 | 27.1% | ||||
Adjusted Earnings per Share(ii) | $ | 0.17 | $ | 0.03 | 466.7% | $ | 0.73 | $ | 0.55 | 32.7% | ||||
Free Cash Flow(ii) | $ | 60.0 | $ | 38.0 | 57.9% | $ | (16.5) | $ | 4.4 | (475.0)% |
(i) | All financial measures in millions of dollars except Basic and Adjusted Earnings per Share. |
(ii) | Refer to the section titled Non-IFRS Financial Measures in this news release. |
Sales for the third quarter of 2020 were
Year-to-date sales for 2020 were
Net earnings for the third quarter of 2020 were
Year-to-date net earnings for 2020 were
Adjusted Operating Earnings for the third quarter of 2020 were
Year-to-date Adjusted Operating Earnings for 2020 were
For further discussion on key metrics and a discussion of results by operating segment, refer to the section titled Operating Review.
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 Non-IFRS Financial Measures at the end of this news release for a description and reconciliation of all non-IFRS financial measures.
Operating Review
The Company has two reportable segments. These segments offer different products, with separate organizational structures, brands, financial and marketing strategies. The Company's chief operating decision makers regularly review internal reports for these businesses: performance of the
The following table summarizes the Company's sales, gross profit, SG&A, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin by operating segment for the three months ended
Three months ended | Three months ended | |||||||||||||||||||
($ millions)(i) (Unaudited) | Meat | Non-Allocated(ii) | Total | Meat | Non-Allocated(ii) | Total | ||||||||||||||
Sales | $ | 1,014.4 | 51.4 | (8.6) | $ | 1,057.2 | $ | 953.3 | 47.0 | (4.5) | $ | 995.8 | ||||||||
Gross profit | $ | 160.6 | 3.4 | 64.1 | $ | 228.1 | $ | 123.4 | 10.0 | 6.4 | $ | 139.7 | ||||||||
Selling, general and administrative expenses | $ | 80.7 | 46.5 | — | $ | 127.2 | $ | 78.8 | 44.9 | — | $ | 123.7 | ||||||||
Adjusted Operating Earnings(iii) | $ | 80.0 | (43.1) | — | $ | 36.9 | $ | 44.6 | (34.9) | — | $ | 9.7 | ||||||||
Adjusted EBITDA(iii) | $ | 122.6 | (39.6) | (0.5) | $ | 82.6 | $ | 85.4 | (31.6) | (0.4) | $ | 53.4 | ||||||||
Adjusted EBITDA Margin(iii) | 12.1 | % | (77.0) | % | N/A | 7.8 | % | 9.0 | % | (67.3) | % | N/A | 5.4 | % |
(i) | Totals may not add due to rounding. |
(ii) | Non-allocated includes eliminations of inter-segment sales and associated cost of goods sold, changes in the fair value of biological assets and derivatives, and non-allocated costs which are comprised of expenses not separately identifiable to reportable segments and are not part of the measures used by the Company when assessing a segment's operating results. |
(iii) | Refer to the section titled Non-IFRS Financial Measures in this news release. |
The following table summarizes the Company's sales, gross profit, SG&A, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin by operating segment for the nine months ended
Nine months ended | Nine months ended | |||||||||||||||||||
($ millions)(i) (Unaudited) | Meat | Non-Allocated(ii) | Total | Meat | Non-Allocated(ii) | Total | ||||||||||||||
Sales | $ | 3,036.2 | 158.3 | (20.0) | $ | 3,174.5 | $ | 2,807.7 | 126.7 | (8.8) | $ | 2,925.6 | ||||||||
Gross profit | $ | 494.5 | 18.0 | 10.2 | $ | 522.8 | $ | 417.5 | 27.8 | (15.1) | $ | 430.2 | ||||||||
Selling, general and administrative expenses | $ | 252.4 | 111.5 | — | $ | 363.9 | $ | 254.7 | 73.6 | — | $ | 328.3 | ||||||||
Adjusted Operating Earnings(iii) | $ | 242.1 | (93.5) | — | $ | 148.7 | $ | 162.8 | (45.8) | — | $ | 117.0 | ||||||||
Adjusted EBITDA(iii) | $ | 371.9 | (82.7) | (0.5) | $ | 288.8 | $ | 283.0 | (36.7) | (0.4) | $ | 245.9 | ||||||||
Adjusted EBITDA Margin(iii) | 12.2 | % | (52.2) | % | N/A | 9.1 | % | 10.1 | % | (29.0) | % | N/A | 8.4 | % |
(i) | Totals may not add due to rounding. |
(ii) | Non-allocated includes eliminations of inter-segment sales and associated cost of goods sold, changes in the fair value of biological assets and derivatives, and non-allocated costs which are comprised of expenses not separately identifiable to reportable segments and are not part of the measures used by the Company when assessing a segment's operating results. |
(iii) | Refer to the section titled Non-IFRS Financial Measures in this news release. |
Sales for the third quarter of 2020 increased 6.4% to
Year-to-date sales for 2020 increased 8.1% to
Gross profit for the third quarter of 2020 was
Year-to-date gross profit for 2020 was
SG&A expenses for the third quarter of 2020 were
Year-to-date SG&A expenses for 2020 were
Adjusted Operating Earnings for the third quarter of 2020 were
Year-to-date Adjusted Operating Earnings for 2020 were
Adjusted EBITDA Margin was 12.1% compared to 9.0% last year, consistent with the factors noted above.
Year-to-date Adjusted EBITDA Margin was 12.2% compared to 10.1% last year, with the increase consistent with the factors noted above.
Sales for the third quarter of 2020 were
Year-to-date sales for 2020 were
Gross profit for the third quarter of 2020 was
Year-to-date gross profit for 2020 was
SG&A expenses for the third quarter of 2020 were
Year-to-date SG&A expenses for 2020 were
Adjusted Operating Earnings for the third quarter of 2020 were a loss of
Year-to-date Adjusted Operating Earnings for 2020 were a loss of
Other Matters
On
Conference Call
A conference call will be held at 8:00 a.m. ET on
A webcast of the third quarter conference call will also be available at:
https://www.mapleleaffoods.com/investors/events/
The Company's full unaudited condensed consolidated interim financial statements and related Management's Discussion and Analysis are available on the Company's website.
An investor presentation related to the Company's third quarter financial results is available at www.mapleleaffoods.com and can be found under Presentations and Webcasts on the Investors page.
2020 Outlook
The impact of the COVID-19 pandemic to people, communities, and organizations has been significant. By providing nutrition to people nationally and internationally,
In the third quarter, gross costs associated with COVID-19 were approximately
Factoring in
- Mid-to-high single digit revenue growth driven by sustainable meats and higher sales to Asian markets.
- Gross margin expansion due to the continued mix benefits in prepared meats resulting from growth in sustainable meats and brand renovation, coupled with pork complex conditions more in-line with the 5-year average, as well as contributions from higher sales to Asian markets. These factors are expected to more than offset incremental costs associated with COVID-19.
- Expand Adjusted EBITDA Margin, making significant progress towards the 2022 Adjusted EBITDA Margin target of 14.0-16.0%, based on the factors noted above, cost efficiencies, and SG&A savings to mitigate costs associated with COVID-19.
- Commitment to a business model that drives approximately 30% revenue growth. Due to supply chain and COVID-19 disruptions largely experienced in the third quarter,
Maple Leaf Foods expects sales growth in 2020 to be slightly below this strategic target. - Commitment to a business model that will deliver gradually improving gross margins to approximately 30% over the long-term. Due to factors noted above as well as inherent inefficiencies of a rapidly growing business,
Maple Leaf Foods expects gross margin for 2020 to be below 2019 levels. - SG&A expense is expected to be approximately
$150 million (US$110 million ). The Company will continue to invest in advertising, promotion and marketing to establish brand awareness, while scaling up talent and operations to develop the organizational structure required for this growing business.
Capital
Maple Leaf Foods estimates that its total capital expenditures for the year will be in the range of$450 million to$500 million , withConstruction Capital comprising approximately 70% of the spend. A significant portion of theConstruction Capital is related to theLondon, Ontario poultry facility, as well as other projects to further capacity and efficiency improvements in our prepared meats business and investments in plant protein capacity at theWalker Drive facility inBrampton, Ontario . Estimated capital expenditures for the full year has been modified due to factors that include the impact that COVID-19 continues to have on both the pace and timing of construction and facility improvements as well as the lower expected spend for the remainder of the year at theShelbyville, Indiana plant protein facility.
Factors that could have an impact on our business, which we cannot estimate or control due to the COVID-19 pandemic, include:
- Volatility in the pork and poultry commodity and foreign exchange markets.
- The balance between retail and foodservice demand.
- Potential future production disruptions or shutdowns.
- The duration of government measures, including social distancing.
In addition to financial and operational priorities,
- Commitment to carbon neutrality.
- Better Food: leading the real food movement and transitioning key brands to 100.0% "raised without antibiotics".
- Better Care: further advancement of animal care, including progress towards transitioning all sows under management to open housing systems by 2021.
- Better Communities: investing approximately 1% of pre-tax profit to advance sustainable food security.
- Better Planet: focus on eliminating waste in any resources the Company consumes, including food, energy, water, packaging, and time.
Update on
The Company recently completed a full assessment of the impact of recent events, including COVID-19, have had on the cost and timing of its
COVID-19 Update
As an essential service,
The health and safety of its people is paramount, while ensuring the security of the Company's food supply. In the third quarter,
While the mid-term impact of COVID-19 continues to be uncertain,
Non-IFRS Financial Measures
The Company uses the following non-IFRS measures: Adjusted Operating Earnings, Adjusted Earnings per Share, Adjusted EBITDA, Adjusted EBITDA Margin,
Adjusted Operating Earnings, Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted Operating Earnings, Adjusted EBITDA and Adjusted EBITDA Margin are non-IFRS measures used by Management to evaluate financial operating results. Adjusted Operating Earnings 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. Adjusted EBITDA is defined as Adjusted Operating Earnings plus depreciation and intangible asset amortization, adjusted for items included in other expense that are not considered representative of ongoing operational activities of the business. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by sales.
The tables below provide a reconciliation of earnings (loss) before income taxes as reported under IFRS in the consolidated financial statements to Adjusted Operating Earnings and Adjusted EBITDA for the three and nine months ended
Three months ended | Three months ended | ||||||||||||||||||||
($ millions)(i) (Unaudited) | Non-Allocated(ii) | Total | Non-Allocated(ii) | Total | |||||||||||||||||
Earnings (loss) before income taxes | $ | 79.8 | (43.2) | 53.7 | $ | 90.4 | $ | 39.6 | (34.9) | (2.9) | $ | 1.8 | |||||||||
Interest expense and other financing costs | — | — | 7.5 | 7.5 | — | — | 8.1 | 8.1 | |||||||||||||
Other (income) expense | (1.6) | 0.0 | 2.9 | 1.4 | 0.4 | 0.1 | 1.1 | 1.5 | |||||||||||||
Restructuring and other related costs | 1.7 | — | — | 1.7 | 4.6 | — | — | 4.6 | |||||||||||||
Earnings (loss) from operations | $ | 80.0 | (43.1) | 64.1 | $ | 100.9 | $ | 44.6 | (34.9) | 6.4 | $ | 16.1 | |||||||||
(Increase) decrease in fair value of biological assets | — | — | (40.2) | (40.2) | — | — | 1.3 | 1.3 | |||||||||||||
Unrealized gain on derivative contracts | — | — | (23.9) | (23.9) | — | — | (7.7) | (7.7) | |||||||||||||
Adjusted Operating Earnings | $ | 80.0 | (43.1) | — | $ | 36.9 | $ | 44.6 | (34.9) | — | $ | 9.7 | |||||||||
Depreciation and amortization | 44.1 | 3.6 | — | 47.7 | 41.2 | 3.3 | — | 44.5 | |||||||||||||
Items included in other income (expense) representative | |||||||||||||||||||||
of ongoing operations(iii) | 1.3 | 0.0 | (0.5) | (2.0) | (0.4) | (0.1) | (0.4) | (0.8) | |||||||||||||
Adjusted EBITDA | $ | 122.6 | (39.6) | (0.5) | $ | 82.6 | $ | 85.4 | (31.6) | (0.4) | $ | 53.4 | |||||||||
Adjusted EBITDA Margin | 12.1 | % | (77.0) | % | N/A | 7.8 | % | 9.0 | % | (67.3) | % | N/A | 5.4 | % |
(i) | Totals may not add due to rounding. |
(ii) | Non-Allocated includes eliminations of inter-segment sales and associated cost of goods sold, and non-allocated costs which are comprised of expenses not separately identifiable to reportable segments and are not part of the measures used by the Company when assessing a segment's operating results. |
(iii) | Primarily includes gain/loss on sale of long-term assets and gain/loss on equity investments. |
Nine months ended | Nine months ended | |||||||||||||||||||
($ millions)(i) (Unaudited) | Non-Allocated(ii) | Total | Non-Allocated(ii) | Total | ||||||||||||||||
Earnings (loss) before income taxes | $ | 240.8 | (93.5) | (22.8) | $ | 124.5 | $ | 155.9 | (46.0) | (46.6) | $ | 63.4 | ||||||||
Interest expense and other financing costs | — | — | 23.4 | 23.4 | — | — | 24.6 | 24.6 | ||||||||||||
Other (income) expense | (1.8) | 0.1 | 9.6 | 7.9 | 0.9 | 0.1 | 6.8 | 7.9 | ||||||||||||
Restructuring and other related costs | 3.1 | — | — | 3.1 | 6.0 | — | — | 6.0 | ||||||||||||
Earnings (loss) from operations | $ | 242.1 | (93.5) | 10.2 | $ | 158.9 | $ | 162.8 | (45.8) | (15.1) | $ | 101.9 | ||||||||
Decrease in fair value of biological assets | — | — | 1.2 | 1.2 | — | — | 13.3 | 13.3 | ||||||||||||
Unrealized (gain) loss on derivative contracts | — | — | (11.4) | (11.4) | — | — | 1.8 | 1.8 | ||||||||||||
Adjusted Operating Earnings | $ | 242.1 | (93.5) | — | $ | 148.7 | $ | 162.8 | (45.8) | — | $ | 117.0 | ||||||||
Depreciation and amortization | 131.1 | 10.9 | — | 141.9 | 121.1 | 9.3 | — | 130.4 | ||||||||||||
Items included in other income (expense) representative | ||||||||||||||||||||
of ongoing operations(iii) | (1.3) | (0.1) | (0.5) | (1.8) | (0.9) | (0.1) | (0.4) | (1.5) | ||||||||||||
Adjusted EBITDA | $ | 371.9 | (82.7) | (0.5) | $ | 288.8 | $ | 283.0 | (36.7) | (0.4) | $ | 245.9 | ||||||||
Adjusted EBITDA Margin | 12.2 | % | (52.2) | % | N/A | 9.1 | % | 10.1 | % | (29.0) | % | N/A | 8.4 | % |
(i) | Totals may not add due to rounding. |
(ii) | Non-Allocated includes eliminations of inter-segment sales and associated cost of goods sold, and non-allocated costs which are comprised of expenses not separately identifiable to reportable segments and are not part of the measures used by the Company when assessing a segment's operating results. |
(iii) | Primarily includes insurance settlements, gain/loss on sale of long-term assets and gain/loss on equity investments. |
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 consolidated financial statements to Adjusted Earnings per Share for the three and nine months ended
Three months ended | Nine months ended | ||||||||||||||
($ per share)(Unaudited) | 2020 | 2019 | 2020 | 2019 | |||||||||||
Basic earnings per share | $ | 0.54 | $ | 0.11 | $ | 0.72 | $ | 0.46 | |||||||
Income tax recovery not considered representative | |||||||||||||||
of ongoing operations | — | (0.08) | — | (0.08) | |||||||||||
Restructuring and other related costs(i) | 0.01 | 0.03 | 0.02 | 0.04 | |||||||||||
Items included in other expense not considered | |||||||||||||||
representative of ongoing operations(ii) | — | 0.01 | 0.05 | 0.04 | |||||||||||
Change in fair value of biological assets | (0.24) | 0.01 | 0.01 | 0.08 | |||||||||||
Unrealized loss (gain) on derivatives | (0.14) | (0.05) | (0.07) | 0.01 | |||||||||||
Adjusted Earnings per Share | $ | 0.17 | $ | 0.03 | $ | 0.73 | $ | 0.55 |
(i) | Includes per share impact of restructuring and other related costs, net of tax. |
(ii) | Primarily includes legal fees and provisions and transaction related costs, net of tax. |
($ thousands) | ||||||||
2020 | 2019 | |||||||
Opening balance at | $ | 105,211 | $ | 22,422 | ||||
Additions | 56,926 | 18,100 | ||||||
Balance at | $ | 162,137 | $ | 40,522 | ||||
Additions | 62,760 | 23,127 | ||||||
Balance at | $ | 224,897 | $ | 63,649 | ||||
Additions | 72,083 | 15,832 | ||||||
Balance at | $ | 296,980 | $ | 79,481 | ||||
$ | 296,980 | $ | 79,481 |
(i) | Assumed to be fully funded by debt to the extent that the Company has Net Debt outstanding. |
Net Debt
The following table reconciles Net Debt to amounts reported under IFRS in the Company's consolidated financial statements as at
($ thousands) | As at | ||||||
(Unaudited) | 2020 | 2019 | |||||
Cash and cash equivalents | $ | 178,190 | $ | 70,760 | |||
Current portion of long-term debt | $ | (937) | $ | (887) | |||
Long-term debt | (712,147) | (472,990) | |||||
Total debt | $ | (713,084) | $ | (473,877) | |||
Net Debt | $ | (534,894) | $ | (403,117) |
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 cash additions to long-term assets. The following table calculates Free Cash Flow for the periods indicated below:
($ thousands) (Unaudited) | Three months ended | Nine months ended | |||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Cash provided by operating activities | $ | 135,202 | $ | 97,772 | $ | 236,544 | $ | 189,035 | |||||||
Additions to long-term assets | (75,167) | (59,774) | (253,085) | (184,621) | |||||||||||
Free Cash Flow | $ | 60,035 | $ | 37,998 | $ | (16,541) | $ | 4,414 |
Return on Net Assets
Return on Net Assets ("RONA") is calculated by dividing tax effected earnings from operations (adjusted for items which are not considered representative of the underlying operations of the business) by average monthly net assets. Net assets are defined as total assets (excluding cash and deferred tax assets) less non-interest bearing liabilities (excluding deferred tax liabilities). Management believes that RONA is an appropriate basis upon which to evaluate long-term financial performance.
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, projections, beliefs, judgments and assumptions based on information available at the time the applicable forward-looking statement was made and in light of the Company's experience combined with its perception of historical trends. Such statements include, but are not limited to, statements with respect to objectives and goals, in addition to statements with respect to beliefs, plans, targets, goals, objectives, expectations, anticipations, estimates, and intentions. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "could", "would", "believe", "plan", "intend", "design", "target", "undertake", "view", "indicate", "maintain", "explore", "entail", "schedule", "objective", "strategy", "likely", "potential", "outlook", "aim", "propose", "goal", and similar expressions suggesting future events or future performance. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict.
By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
Specific forward-looking information in this document may include, but is not limited to, statements with respect to:
- implications of COVID-19;
- future performance, including future financial objectives, goals and targets, expected capital spend and expected SG&A expenditures for the Company and each of its operating segments;
- the execution of the Company's business strategy, including the development and expected timing of business initiatives, brand expansion and repositioning, and other growth opportunities, as well as the impact thereof;
- the impact of international trade conditions on the Company's business, including access to markets, implications associated with the spread of foreign animal disease (such as African Swine Fever ("ASF")), and other social, economic and political factors that affect trade;
- competitive conditions and the Company's ability to position itself competitively in the markets in which it competes;
- capital projects, including planning, construction, estimated expenditures, schedules, approvals, expected capacity, in-service dates and anticipated benefits of construction of new facilities and expansions of existing facilities;
- the Company's dividend policy, including future levels and sustainability of cash dividends, the tax treatment thereof and future dividend payment dates;
- the impact of commodity prices on the Company's operations and financial performance, including the use and effectiveness of hedging instruments;
- expected future cash flows and the sufficiency thereof, sources of capital at attractive rates, future contractual obligations, future financing options, renewal of credit facilities, and availability of capital to fund growth plans, operating obligations and dividends;
- operating risks, including the execution, monitoring and continuous improvement of the Company's food safety programs, animal health initiatives and cost reduction initiatives;
- the implementation, cost and impact of environmental sustainability initiatives, as well as the anticipated future cost of remediating environmental liabilities;
- the adoption of new accounting standards and the impact of such adoption on the financial position of the Company;
- expectations regarding pension plan performance, including future pension plan assets, liabilities and contributions; and
- developments and implications of actual or potential legal actions.
Various factors or assumptions are typically applied by the Company in drawing conclusions or making the forecasts, projections, predictions or estimations set out in the forward-looking statements. These factors and assumptions are based on information currently available to the Company, including information obtained by the Company from third-party sources and include but are not limited to the following:
- expectations regarding the impact and future implications of COVID-19 and adaptations in operations, customer and consumer behaviour, economic patterns and international trade;
- the competitive environment, associated market conditions and market share metrics, the expected behaviour of competitors and customers and trends in consumer preferences;
- the success of the Company's business strategy, including execution of the strategy in each of the Meat Protein and Plant Protein Groups;
- prevailing commodity prices, interest rates, tax rates and exchange rates;
- the economic condition of and the socio-political dynamics between
Canada , theU.S. ,Japan andChina , and the ability of the Company to access markets in these countries; - the spread of foreign animal disease (including ASF), preparedness strategies to manage such spread, and implications for all protein markets;
- the availability of capital to fund future capital requirements associated with existing operations, assets and projects;
- expectations regarding participation in and funding of the Company's pension plans;
- the availability of insurance coverage to manage certain liability exposures;
- the extent of future liabilities and recoveries related to legal claims;
- prevailing regulatory, tax and environmental laws; and
- future operating costs and performance, including the Company's ability to achieve operating efficiencies and maintain high sales volumes, high turnover of inventories and high turnover of accounts receivable.
Readers are cautioned that these assumptions may prove to be incorrect in whole or in part. The Company's actual results may differ materially from those anticipated in any forward-looking statements.
Factors that could cause actual results or outcomes to differ materially from the results expressed, implied, or projected in the forward-looking statements contained in this document include, among other things, risks associated with the following:
- implications of COVID-19 on the operations and financial performance of the Company, as well the implications for macro socio-economic trends;
- competition, market conditions and the activities of competitors and customers;
- food safety, consumer liability and product recalls;
- the health status of livestock, including the impact of potential pandemics;
- international trade and access to markets, as well as social, political and economic dynamics affecting same;
- availability of and access to capital;
- decision respecting the return of capital to shareholders;
- the execution of capital projects, including cost, schedule and regulatory variables;
- food safety, consumer liability and product recalls;
- cyber security and the maintenance and operation of the Company's information systems and processes;
- acquisitions and divestitures;
- climate change;
- fluctuations in the debt and equity markets;
- fluctuations in interest rates and currency exchange rates;
- pension assets and liabilities;
- cyclical nature of the cost and supply of hogs and the competitive nature of the pork market generally;
- the effectiveness of commodity and interest rate hedging strategies;
- impact of changes in the market value of the biological assets and hedging instruments;
- the supply management system for poultry in
Canada ; - availability of plant protein ingredients;
- intellectual property, including product innovation, product development, brand strategy and trademark protection;
- consolidation of operations and focus on protein;
- the use of contract manufacturers;
- reputation;
- weather;
- compliance with government regulation and adapting to changes in laws;
- actual and threatened legal claims;
- consumer trends and changes in consumer tastes and buying patterns;
- environmental regulation and potential environmental liabilities;
- consolidation in the retail environment;
- employment matters, including complying with employment laws across multiple jurisdictions, the potential for work stoppages due to non-renewal of collective agreements, recruiting and retaining qualified personnel, reliance on key personnel and succession planning;
- pricing of products;
- managing the Company's supply chain;
- changes in International Financial Reporting Standards and other accounting standards that the Company is required to adhere to for regulatory purposes; and
- other factors as set out under the heading "Risk Factors" in the Company's Management Discussion and Analysis for the year ended
December 31, 2019 .
The Company cautions readers that the foregoing list of factors is not exhaustive.
Readers are further cautioned that some of the forward-looking information, such as statements concerning future capital expenditures, Adjusted EBITDA Margin growth in the
More information about risk factors can be found under the heading "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended
All forward-looking statements included herein speak only as of the date hereof. Unless required by law, the Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained herein are expressly qualified by this cautionary statement.
About
Consolidated Interim Balance Sheets
(In thousands of Canadian dollars) (Unaudited) | As at | As at 2019(i) | As at 2019(i) | |||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 178,190 | $ | 70,760 | $ | 97,285 | ||||||
Accounts receivable | 136,827 | 151,479 | 154,969 | |||||||||
Notes receivable | 32,107 | 32,418 | 31,699 | |||||||||
Inventories | 401,339 | 384,115 | 385,534 | |||||||||
Biological assets | 121,828 | 108,558 | 119,016 | |||||||||
Income and other taxes recoverable | — | 2,107 | — | |||||||||
Prepaid expenses and other assets | 50,156 | 37,815 | 51,494 | |||||||||
Assets held for sale | 734 | 37,044 | 34,293 | |||||||||
$ | 921,181 | $ | 824,296 | $ | 874,290 | |||||||
Property and equipment | 1,576,653 | 1,346,625 | 1,386,482 | |||||||||
Right-of-use assets | 230,771 | 229,864 | 227,426 | |||||||||
Investments | 16,398 | 3,127 | 3,448 | |||||||||
Other long-term assets | 10,121 | 11,506 | 12,497 | |||||||||
Deferred tax asset | 5,900 | — | — | |||||||||
661,599 | 659,612 | 657,179 | ||||||||||
Intangible assets | 351,587 | 350,898 | 352,713 | |||||||||
Total assets | $ | 3,774,210 | $ | 3,425,928 | $ | 3,514,035 | ||||||
LIABILITIES AND EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable and accruals | $ | 468,113 | $ | 406,697 | $ | 445,774 | ||||||
Current portion of provisions | 2,710 | 2,701 | 3,973 | |||||||||
Current portion of long-term debt | 937 | 887 | 899 | |||||||||
Current portion of lease obligations | 41,797 | 39,650 | 39,505 | |||||||||
Income taxes payable | 3,482 | — | 205 | |||||||||
Other current liabilities | 35,572 | 31,166 | 44,698 | |||||||||
$ | 552,611 | $ | 481,101 | $ | 535,054 | |||||||
Long-term debt | 712,147 | 472,990 | 538,429 | |||||||||
Lease obligations | 207,072 | 205,750 | 204,013 | |||||||||
Employee benefits | 183,563 | 154,276 | 116,742 | |||||||||
Provisions | 43,773 | 46,020 | 44,929 | |||||||||
Other long-term liabilities | 18,303 | 2,583 | 3,026 | |||||||||
Deferred tax liability | 117,622 | 116,091 | 121,972 | |||||||||
Total liabilities | $ | 1,835,091 | $ | 1,478,811 | $ | 1,564,165 | ||||||
Shareholders' equity | ||||||||||||
Share capital | $ | 845,986 | $ | 851,068 | $ | 840,005 | ||||||
Retained earnings | 1,121,233 | 1,120,286 | 1,137,450 | |||||||||
Contributed surplus | 8,708 | 4,577 | — | |||||||||
Accumulated other comprehensive (loss) income | (12,878) | 1,564 | 2,793 | |||||||||
(23,930) | (30,378) | (30,378) | ||||||||||
Total shareholders' equity | $ | 1,939,119 | $ | 1,947,117 | $ | 1,949,870 | ||||||
Total liabilities and equity | $ | 3,774,210 | $ | 3,425,928 | $ | 3,514,035 |
(i) | Certain comparative figures have been restated to conform with current year presentation. |
Consolidated Interim Statements of Net Earnings
(In thousands of Canadian dollars, except share amounts) | Three months ended | Nine months ended | ||||||||||||||
(Unaudited) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Sales | $ | 1,057,169 | $ | 995,787 | $ | 3,174,510 | $ | 2,925,576 | ||||||||
Cost of goods sold | 829,055 | 856,070 | 2,651,723 | 2,495,362 | ||||||||||||
Gross profit | $ | 228,114 | $ | 139,717 | $ | 522,787 | $ | 430,214 | ||||||||
Selling, general and administrative expenses | 127,165 | 123,650 | 363,899 | 328,325 | ||||||||||||
Earnings before the following: | $ | 100,949 | $ | 16,067 | $ | 158,888 | $ | 101,889 | ||||||||
Restructuring and other related costs | 1,732 | 4,588 | 3,070 | 5,979 | ||||||||||||
Other expense | 1,378 | 1,534 | 7,866 | 7,892 | ||||||||||||
Earnings before interest and income taxes | $ | 97,839 | $ | 9,945 | $ | 147,952 | $ | 88,018 | ||||||||
Interest expense and other financing costs | 7,474 | 8,137 | 23,434 | 24,648 | ||||||||||||
Earnings before income taxes | $ | 90,365 | $ | 1,808 | $ | 124,518 | $ | 63,370 | ||||||||
Income tax expense (recovery) | 24,389 | (11,601) | 36,595 | 6,199 | ||||||||||||
Net earnings | $ | 65,976 | $ | 13,409 | $ | 87,923 | $ | 57,171 | ||||||||
Earnings per share attributable to common shareholders: | ||||||||||||||||
Basic earnings per share | $ | 0.54 | $ | 0.11 | $ | 0.72 | $ | 0.46 | ||||||||
Diluted earnings per share | $ | 0.53 | $ | 0.11 | $ | 0.71 | $ | 0.46 | ||||||||
Weighted average number of shares (millions): | ||||||||||||||||
Basic | 123.2 | 123.8 | 123.2 | 123.7 | ||||||||||||
Diluted | 124.6 | 125.2 | 124.3 | 125.4 |
Consolidated Interim Statements of Other Comprehensive Income (Loss)
(In thousands of Canadian dollars) | Three months ended | Nine months ended | ||||||||||||||
(Unaudited) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Net earnings | $ | 65,976 | $ | 13,409 | $ | 87,923 | $ | 57,171 | ||||||||
Other comprehensive income (loss) | ||||||||||||||||
Actuarial (losses) gains that will not be reclassified to profit | ||||||||||||||||
or loss (Net of tax of | $ | (677) | $ | 5,192 | $ | (44,963) | $ | (39,808) | ||||||||
Items that are or may be reclassified subsequently to profit or | ||||||||||||||||
Change in accumulated foreign currency translation | ||||||||||||||||
adjustment (Net of tax of | $ | (4,885) | $ | 4,154 | $ | 8,652 | $ | (11,563) | ||||||||
Change in foreign currency gain on long-term debt | ||||||||||||||||
designated as a net investment hedge (Net of tax of | 4,413 | (3,505) | (6,887) | 7,956 | ||||||||||||
Change in unrealized gains and (losses) on cash flow | ||||||||||||||||
hedges (Net of tax of | 1,383 | (461) | (17,436) | 1,639 | ||||||||||||
Total items that are or may be reclassified subsequently to | $ | 911 | $ | 188 | $ | (15,671) | $ | (1,968) | ||||||||
Total other comprehensive income (loss) | $ | 234 | $ | 5,380 | $ | (60,634) | $ | (41,776) | ||||||||
Comprehensive income | $ | 66,210 | $ | 18,789 | $ | 27,289 | $ | 15,395 |
Consolidated Interim Statements of Changes in Total Equity
Accumulated other | ||||||||||||||||
(In thousands of Canadian dollars) (Unaudited) | Share capital | Retained earnings | Contributed surplus | Foreign currency translation adjustment | Unrealized gains and losses on cash flow hedges | stock | Total equity | |||||||||
Balance at | $ | 840,005 | 1,137,450 | — | 4,274 | (1,481) | (30,378) | $ | 1,949,870 | |||||||
Net earnings | — | 87,923 | — | — | — | — | 87,923 | |||||||||
Other comprehensive income (loss)(ii) | — | (44,963) | — | 1,765 | (17,436) | — | (60,634) | |||||||||
Dividends declared ( | — | (59,177) | — | — | — | — | (59,177) | |||||||||
Share-based compensation expense | — | — | 12,161 | — | — | — | 12,161 | |||||||||
Deferred taxes on share-based | — | — | 400 | — | — | — | 400 | |||||||||
Exercise of stock options | 1,012 | — | — | — | — | — | 1,012 | |||||||||
Settlement of share-based compensation | — | — | (9,738) | — | — | 6,448 | (3,290) | |||||||||
Change in obligation for repurchase of shares | 4,969 | — | 5,885 | — | — | — | 10,854 | |||||||||
Balance at | $ | 845,986 | 1,121,233 | 8,708 | 6,039 | (18,917) | (23,930) | $ | 1,939,119 | |||||||
Accumulated other | ||||||||||||||||
(In thousands of Canadian dollars) (Unaudited) | Share capital | Retained earnings | Contributed surplus | Foreign currency translation adjustment | Unrealized gains and losses on cash flow hedges | stock | Total equity | |||||||||
Balance at | $ | 849,655 | 1,178,389 | 4,649 | 8,518 | (4,986) | (29,386) | $ | 2,006,839 | |||||||
Impact of new IFRS standards | — | (1,100) | — | — | — | — | (1,100) | |||||||||
Net earnings | — | 57,171 | — | — | — | — | 57,171 | |||||||||
Other comprehensive income (loss)(ii) | — | (39,808) | — | (3,607) | 1,639 | — | (41,776) | |||||||||
Dividends declared ( | — | (53,903) | — | — | — | — | (53,903) | |||||||||
Share-based compensation expense | — | — | 13,352 | — | — | — | 13,352 | |||||||||
Deferred taxes on share-based | — | — | 1,160 | — | — | — | 1,160 | |||||||||
Change in obligation for repurchase of shares | (6,347) | — | (7,556) | — | — | — | (13,903) | |||||||||
Exercise of stock options | 7,760 | — | — | — | — | — | 7,760 | |||||||||
Settlement of share-based compensation | — | (20,463) | (7,028) | — | — | 13,986 | (13,505) | |||||||||
Shares purchased by RSU trust | — | — | — | — | — | (14,978) | (14,978) | |||||||||
Balance at | $ | 851,068 | 1,120,286 | 4,577 | 4,911 | (3,347) | (30,378) | $ | 1,947,117 |
(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. |
Consolidated Interim Statements of Cash Flows
(In thousands of Canadian dollars) | Three months ended | Nine months ended | ||||||||||||||
(Unaudited) | 2020 | 2019(i) | 2020 | 2019(i) | ||||||||||||
CASH PROVIDED BY (USED IN): | ||||||||||||||||
Operating activities | ||||||||||||||||
Net earnings | $ | 65,976 | $ | 13,409 | $ | 87,923 | $ | 57,171 | ||||||||
Add (deduct) items not affecting cash: | ||||||||||||||||
Change in fair value of biological assets | (40,176) | 1,289 | 1,159 | 13,316 | ||||||||||||
Depreciation and amortization | 47,699 | 44,534 | 141,942 | 130,359 | ||||||||||||
Share-based compensation | 4,320 | 3,948 | 12,161 | 13,352 | ||||||||||||
Deferred income taxes | 19,432 | (2,897) | 12,535 | 2,803 | ||||||||||||
Income tax current | 4,957 | (8,704) | 24,060 | 3,396 | ||||||||||||
Interest expense and other financing costs | 7,474 | 8,137 | 23,434 | 24,648 | ||||||||||||
(Gain) loss on sale of long-term assets | (2,724) | 375 | (2,158) | 1,092 | ||||||||||||
Asset impairment (impairment reversal) | (18) | — | 1,554 | — | ||||||||||||
Change in fair value of non-designated | (23,693) | (6,450) | (11,027) | 624 | ||||||||||||
Interest on lease obligation | ||||||||||||||||
Change in net pension obligation | 2,059 | 854 | 6,478 | 1,804 | ||||||||||||
Net income taxes paid | (12,807) | (7,172) | (21,151) | (37,956) | ||||||||||||
Interest paid | (8,536) | (7,264) | (23,108) | (21,006) | ||||||||||||
Change in provision for restructuring and other | 910 | 3,819 | 524 | 3,965 | ||||||||||||
Change in derivatives margin | 19,194 | (721) | 7,400 | 1,804 | ||||||||||||
Other | 3,386 | 2,255 | 4,905 | 2,191 | ||||||||||||
Change in non-cash operating working capital | 47,749 | 52,360 | (30,087) | (8,528) | ||||||||||||
Cash provided by operating activities | $ | 135,202 | $ | 97,772 | $ | 236,544 | $ | 189,035 | ||||||||
Financing activities | ||||||||||||||||
Dividends paid | $ | (19,871) | $ | (17,993) | $ | (59,177) | $ | (53,903) | ||||||||
Net increase in long-term debt | 1,018 | (667) | 165,740 | 99,630 | ||||||||||||
Payment of lease obligation | (8,971) | (8,848) | (27,085) | (25,719) | ||||||||||||
Exercise of stock options | 239 | 4,789 | 1,012 | 7,760 | ||||||||||||
Payment of financing fees | — | (769) | (599) | (5,597) | ||||||||||||
Purchase of treasury stock | — | (9,978) | — | (14,978) | ||||||||||||
Cash (used in) provided by financing activities | $ | (27,585) | $ | (33,466) | $ | 79,891 | $ | 7,193 | ||||||||
Investing activities | ||||||||||||||||
Additions to long-term assets | $ | (75,167) | $ | (59,774) | $ | (253,085) | $ | (184,621) | ||||||||
Acquisition of business, net of cash acquired | — | — | — | (847) | ||||||||||||
Capitalization of interest expense | (2,235) | (770) | (5,246) | (1,339) | ||||||||||||
Proceeds from sale of long-term assets | 36,846 | 71 | 36,854 | 146 | ||||||||||||
Purchase of investments | (100) | — | (14,053) | — | ||||||||||||
Payment of income tax liabilities assumed on | — | — | — | (11,385) | ||||||||||||
Cash used in investing activities | $ | (40,656) | $ | (60,473) | $ | (235,530) | $ | (198,046) | ||||||||
Increase (decrease) in cash and cash equivalents | $ | 66,961 | $ | 3,833 | $ | 80,905 | $ | (1,818) | ||||||||
Cash and cash equivalents, beginning of period | 111,229 | 66,927 | 97,285 | 72,578 | ||||||||||||
Cash and cash equivalents, end of period | $ | 178,190 | $ | 70,760 | $ | 178,190 | $ | 70,760 |
(i) | Certain comparative figures have been restated to conform with current year presentation. |
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