PR Newswire
MISSISSAUGA, ON, August 5, 2021
Meat Protein delivers healthy Adjusted EBITDA Margin of 11.6%, despite transitory headwinds
TSX: MFI
www.mapleleaffoods.com
MISSISSAUGA, ON, August 5, 2021 /PRNewswire/ - Maple Leaf Foods Inc. ("Maple Leaf Foods" or the "Company") (TSX: MFI) today reported its financial results for the second quarter ended June 30, 2021.
"As we anticipated, our second quarter faced material market headwinds and a difficult year-over-year comparable quarter due to COVID-19 effects, and yet our business delivered excellent results" said Michael H. McCain, President and CEO. "In Meat Protein, performance was impressive with sales growth of 7.4% and Adjusted EBITDA margins of 11.6%. We expect our margins to fully recover beginning in the third quarter. In Plant Protein, where we continue to invest for long-term growth, we expected our sales in the first and second quarters to come in soft. At the same time, we expect to return to our strategic growth targets or above in the second half of this year. Our brand momentum, innovation pipeline and customer activity all support this.
"During these challenging times, I continue to be inspired by our people, confident in the resiliency and effectiveness of our strategic Blueprint, and more optimistic than ever in achieving our long-term goals," concluded Mr. McCain.
Second Quarter 2021 Highlights
(i) | Refer to the section titled Non-IFRS Financial Measures in this news release. |
Financial Highlights
As at or for the | ||||||||||||||||||
Measure(i) (Unaudited) | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||
Sales | $ | 1,158.9 | $ | 1,094.6 | 5.9 | % | $ | 2,211.9 | $ | 2,117.3 | 4.5 | % | ||||||
Net Earnings | $ | 8.8 | $ | 25.7 | (65.8) | % | $ | 56.5 | $ | 21.9 | 157.3 | % | ||||||
Basic Earnings per Share | $ | 0.07 | $ | 0.21 | (66.7) | % | $ | 0.46 | $ | 0.18 | 155.6 | % | ||||||
Adjusted Operating Earnings(ii) | $ | 56.4 | $ | 66.7 | (15.4) | % | $ | 106.7 | $ | 111.8 | (4.5) | % | ||||||
Adjusted Earnings per Share(ii) | $ | 0.28 | $ | 0.35 | (20.0) | % | $ | 0.54 | $ | 0.56 | (3.6) | % | ||||||
Adjusted EBITDA - Meat Protein Group(ii) | $ | 129.7 | $ | 138.2 | (6.2) | % | $ | 253.0 | $ | 249.3 | 1.5 | % | ||||||
Sales - Plant Protein Group | $ | 48.1 | $ | 60.6 | (20.6) | % | $ | 90.7 | $ | 107.0 | (15.2) | % | ||||||
Free Cash Flow(ii) | $ | (135.9) | $ | 53.7 | (353.1) | % | $ | (331.1) | $ | (79.6) | (316.0) | % | ||||||
Construction Capital(ii) | $ | 720.8 | $ | 229.0 | 214.8 | % | ||||||||||||
Net Debt(ii) | $ | (1,068.2) | $ | (606.7) | 76.1 | % |
(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 second quarter of 2021 were $1,158.9 million compared to $1,094.6 million last year, an increase of 5.9%, driven by higher sales in the Meat Protein Group, partially offset by lower sales in the Plant Protein Group. For more details on sales performance by operating segment, please refer to the section titled Operating Review.
Year-to-date sales for 2021 were $2,211.9 million compared to $2,117.3 million last year, an increase of 4.5%, due to similar factors as noted above.
Net earnings for the second quarter of 2021 were $8.8 million ($0.07 per basic share) compared to $25.7 million ($0.21 per basic share) last year. The reduction in net earnings was primarily driven by a higher net loss of $31.7 million (2020: net loss of $17.2 million) from non-cash fair value changes in biological assets and derivative contracts, which are both excluded in the calculation of Adjusted Operating Earnings below. Results were also impacted by limited access to China and lower primary processing margins in the Meat Protein Group, as well as lower sales volume and capacity utilization in the Plant Protein Group.
Year-to-date net earnings for 2021 were $56.5 million ($0.46 per basic share) compared to $21.9 million ($0.18 per basic share) last year. The increase was primarily driven by a lower net loss of $4.9 million (2020: net loss of $53.9 million) from non-cash fair value changes in biological assets and derivative contracts, which are both excluded in the calculation of Adjusted Operating Earnings below.
Adjusted Operating Earnings for the second quarter of 2021 were $56.4 million compared to $66.7 million last year, and Adjusted Earnings per Share for the second quarter of 2021 were $0.28 compared to $0.35 last year due to similar factors as noted above.
Year-to-date Adjusted Operating Earnings for 2021 were $106.7 million compared to $111.8 million last year, and Adjusted Earnings per Share for 2021 were $0.54 compared to $0.56 last year due to similar factors as noted above.
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.
Response to COVID-19
As an essential service, Maple Leaf Foods is focused on protecting the health and well-being of its people, maintaining business continuity, and broadening its social outreach. To manage through this unprecedented environment, the Company has taken a number of measures in its business and operating practices that include heightened safety policies and procedures, and close communication and collaboration with public health authorities including on-site vaccination clinics. The measures enacted to protect the health and safety of employees have increased the Company's cost structure due to higher labour, personal protective equipment, sanitation and other expenses associated with the pandemic. Continuing COVID-19 structural costs have been incorporated in the Company's 2021 operating plan.
Overall, the Company believes its proactive and comprehensive efforts have, and should continue to mitigate adverse operational impacts. As the COVID-19 situation evolves, Maple Leaf Foods will continue to adapt and adopt best practices that prioritize the health and safety of its employees and the stability of the food supply. As part of Maple Leaf Foods' broader social responsibility since the pandemic began, the Company has provided extensive support to front-line staff, emergency food relief efforts and health care providers.
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 Meat Protein Group is based on revenue growth, Adjusted Operating Earnings and Adjusted EBITDA, while the performance of the Plant Protein Group is based predominantly on revenue growth rates, gross margin optimization and controlling SG&A investment levels, which generate high revenue growth rates.
The following table summarizes the Company's sales, gross profit, SG&A expenses, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin by operating segment for the three months ended June 30, 2021 and June 30, 2020.
Three months ended June 30, 2021 | Three months ended June 30, 2020 | |||||||||||||||||
($ millions)(i) (Unaudited) | Meat Protein | Plant Protein | Non- | Total | Meat Protein | Plant Protein | Non- | Total | ||||||||||
Sales | $ | 1,117.5 | 48.1 | (6.7) | $ | 1,158.9 | $ | 1,040.4 | 60.6 | (6.4) | $ | 1,094.6 | ||||||
Gross profit | $ | 167.0 | 0.3 | (31.7) | $ | 135.7 | $ | 176.6 | 7.9 | (17.2) | $ | 167.3 | ||||||
Selling, general and administrative expenses | $ | 81.2 | 29.8 | — | $ | 110.9 | $ | 83.7 | 34.1 | — | $ | 117.8 | ||||||
Adjusted Operating Earnings(iii) | $ | 85.9 | (29.5) | — | $ | 56.4 | $ | 92.9 | (26.3) | — | $ | 66.7 | ||||||
Adjusted EBITDA(iii) | $ | 129.7 | (25.9) | — | $ | 103.8 | $ | 138.2 | (22.6) | — | $ | 115.7 | ||||||
Adjusted EBITDA Margin(iii) | 11.6% | (53.9)% | n/a | 9.0% | 13.3% | (37.2)% | n/a | 10.6% | ||||||||||
(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 expenses, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin by operating segment for the six months ended June 30, 2021 and June 30, 2020.
Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||||||||
($ millions)(i) | Meat Protein | Plant Protein | Non- | Total | Meat Protein | Plant Protein | Non- | Total | ||||||||||
Sales | $ | 2,131.2 | 90.7 | (9.9) | $ | 2,211.9 | $ | 2,021.7 | 107.0 | (11.4) | $ | 2,117.3 | ||||||
Gross profit | $ | 333.1 | 0.4 | (4.9) | $ | 328.6 | $ | 333.9 | 14.6 | (53.9) | $ | 294.7 | ||||||
Selling, general and administrative expenses | $ | 168.3 | 58.6 | — | $ | 226.8 | $ | 171.8 | 65.0 | — | $ | 236.7 | ||||||
Adjusted Operating Earnings(iii) | $ | 164.9 | (58.1) | — | $ | 106.7 | $ | 162.1 | (50.3) | — | $ | 111.8 | ||||||
Adjusted EBITDA(iii) | $ | 253.0 | (50.9) | — | $ | 202.1 | $ | 249.3 | (43.1) | — | $ | 206.2 | ||||||
Adjusted EBITDA Margin(iii) | 11.9% | (56.1)% | n/a | 9.1% | 12.3% | (40.3)% | n/a | 9.7% | ||||||||||
(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. |
Meat Protein Group
The Meat Protein Group is comprised of prepared meats, ready-to-cook and ready-to-serve meals, value-added fresh pork and poultry products that are sold to retail, foodservice and industrial channels, and agricultural operations in pork and poultry. The Meat Protein Group includes leading brands such as Maple Leaf®, Maple Leaf Prime®, Schneiders®, Mina®, Greenfield Natural Meat Co.® and many leading regional brands.
Sales for the second quarter of 2021 increased 7.4% to $1,117.5 million compared to $1,040.4 million last year. Sales growth was driven by higher fresh pork and poultry market values, favourable mix-shift towards branded products and sustainable meats, and higher volumes in the U.S. These factors more than offset an unfavourable impact from foreign exchange. Strong recovery in foodservice volumes offset normalization in retail volumes from the initial pandemic onset.
Year-to-date sales for 2021 increased 5.4% to $2,131.2 million compared to $2,021.7 million last year. Sales growth was driven by higher fresh pork and poultry market values, favourable mix-shift from branded products and sustainable meats, U.S. volume and prepared meats pricing action taken in the fourth quarter of 2020 to mitigate inflation and other structural cost increases. These factors more than offset an unfavourable impact from foreign exchange and lower sales to China. Strong recovery in foodservice volumes during the second quarter offset normalization in retail volumes.
Gross profit for the second quarter of 2021 was $167.0 million (gross margin of 14.9%) compared to $176.6 million (gross margin of 17.0%) last year. Mix-shift benefits towards growth in branded products and sustainable meats were more than offset by limited access to China and lower margins in primary processing. Gross profit in the second quarter of 2020 was also impacted by significant operational and one-off costs in response to COVID-19.
Year-to-date gross profit for 2021 was $333.1 million (gross margin of 15.6%) compared to $333.9 million (gross margin of 16.5%) last year. Strong operational performance and mix-shift benefits from branded products and sustainable meats were offset by limited access to China. Gross profit in the first half of 2020 was also impacted by significant operational and one-off costs in response to COVID-19.
SG&A expenses for the second quarter of 2021 were $81.2 million compared to $83.7 million last year. The reduction in SG&A expenses was driven by a decrease in variable compensation, partially offset by the normalization of advertising and promotions spend compared to last year. Other discretionary spending accounts, such as travel and training were similar to last year.
Year-to-date SG&A expenses for 2021 were $168.3 million compared to $171.8 million last year. The reduction in SG&A was driven by a decrease in variable compensation, and the lapping of donations made in March 2020 to support front-line health care workers at the outset of the COVID-19 pandemic. This more than offset the normalization of advertising and promotions as well as higher personnel costs.
Adjusted Operating Earnings for the second quarter of 2021 were $85.9 million compared to $92.9 million last year, consistent with factors noted above.
Year-to-date Adjusted Operating Earnings for 2021 were $164.9 million compared to $162.1 million last year, consistent with factors noted above.
Adjusted EBITDA for the second quarter of 2021 were $129.7 million compared to $138.2 million last year, driven by factors consistent with those noted above. Adjusted EBITDA Margin for the second quarter was 11.6% compared to 13.3% last year, also driven by factors consistent with those noted above.
Year-to-date Adjusted EBITDA for 2021 were $253.0 million compared to $249.3 million last year, driven by factors consistent with those noted above. Year-to-date Adjusted EBITDA Margin for 2021 was 11.9% compared to 12.3% last year, also driven by factors consistent with those noted above.
Plant Protein Group
The Plant Protein Group is comprised of refrigerated plant protein products, premium grain-based protein, and vegan cheese products sold to retail, foodservice and industrial channels. The Plant Protein Group includes the leading brands Lightlife® and Field Roast™.
Sales for the second quarter of 2021 decreased 20.7% to $48.1 million compared to $60.6 million last year. Excluding the impact of foreign exchange, sales decreased 10.4%, driven by lower retail volumes as the business lapped surge demand in 2020 tied to COVID-19. This more than offset higher foodservice volumes and pricing action implemented in the fourth quarter of 2020 to mitigate inflation and structural cost increases.
Year-to-date sales for 2021 decreased 15.2% to $90.7 million compared to $107.0 million last year. Excluding the impact of foreign exchange, sales were down 6.9%, driven by lower volumes in fresh retail products. This more than offset pricing action implemented in the fourth quarter of 2020 to mitigate inflation and structural cost increases.
Gross profit for the second quarter of 2021 was $0.3 million (gross margin of 0.6%) compared to $7.9 million (gross margin of 13.0%) last year. The decrease in gross profit was attributed to strategic investments in capacity to build for anticipated demand, which has resulted in increased overhead and transitory costs. Other factors include lower sales volumes and higher trade expenditures. The second quarter of 2020 was also impacted by significant operational and one-off costs in response to COVID-19.
Year-to-date gross profit for 2021 was $0.4 million (gross margin of 0.5%) compared to $14.6 million (gross margin of 13.7%) last year. The decrease in gross profit was attributed to lower sales volumes and capacity utilization, as well as higher trade expenditure. Gross profit in the first half of 2020 was also impacted by significant operational and one-off costs in response to COVID-19.
SG&A expenses for the second quarter of 2021 were $29.8 million (61.9% of sales) compared to $34.1 million (56.3% of sales) last year. The decrease in SG&A expenses was primarily driven by the impact of foreign exchange. Excluding this, spend was similar to last year as lower variable compensation was offset by increased expenses related to organizational capacity.
Year-to-date SG&A expenses for 2021 were $58.6 million (64.6% of sales) compared to $65.0 million (60.7% of sales) last year. The decrease in SG&A expenses was primarily driven by the impact of foreign exchange. Excluding this, spend was similar to last year as lower advertising and promotion costs were offset by increased expenses related to organizational capacity.
Adjusted Operating Earnings for the second quarter of 2021 were a loss of $29.5 million compared to a loss of $26.3 million last year. The decline in Adjusted Operating Earnings is consistent with the factors noted above.
Year-to-date Adjusted Operating Earnings for 2021 were a loss of $58.1 million compared to a loss of $50.3 million last year. The decline in Adjusted Operating Earnings is consistent with the factors noted above.
Other Matters
On August 4, 2021, the Board of Directors approved a quarterly dividend of of $0.18 per share, $0.72 per share on an annual basis, payable September 29, 2021 to shareholders of record at the close of business September 8, 2021. 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
A conference call will be held at 8:00 a.m. ET on August 5, 2021, to review Maple Leaf Foods' second quarter financial results. To participate in the call, please dial 416-764-8650 or 1-888-664-6383. 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: 127538#).
A webcast of the second quarter conference call will also be available at: https://www.mapleleaffoods.com
The Company's full unaudited condensed consolidated interim financial statements ("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 second quarter financial results is available at www.mapleleaffoods.com and can be found under Presentations and Webcasts on the Investors page.
2021 Outlook
Throughout the COVID-19 pandemic, Maple Leaf Foods has remained focused on protecting its employees and ensuring continuity of its supply chain. As a result, the current environment does increase certain operating costs and potential for short-term processing disruptions to protect the health and safety of plant personnel. Continuing COVID-19 structural costs have been incorporated in the Company's 2021 operating plan.
Based on year-to-date performance and the Company's outlook for the balance of the year, Maple Leaf Foods expects to achieve the following in 2021:
Meat Protein Group - Driving Profitable Growth
Plant Protein Group - Investing for Growth
Capital
Factors that could have an impact on the business, which cannot be estimated or controlled due to the COVID-19 pandemic, include:
In addition to financial and operational priorities, Maple Leaf Foods believes that shared value and operating its business for the benefit of all stakeholders is crucial. The Company's guiding pillars to be the "Most Sustainable Protein Company on Earth" include Better Food, Better Care, Better Communities, Better Planet and are core to how Maple Leaf Foods conducts itself. To that end, the Company's priorities include:
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, Net Debt, Free Cash Flow and Return on Net Assets. 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 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 and interest expense 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 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 Interim Financial Statements to Adjusted Operating Earnings and Adjusted EBITDA for the three and six months ended June 30, 2021 as indicated below. Management believes that these non-IFRS measures are 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.
Three months ended June 30, 2021 | Three months ended June 30, 2020 | ||||||||||||||||||
($ millions)(i) (Unaudited) | Meat Protein | Plant Protein | Non- | Total | Meat Protein | Plant Protein | Non- | Total | |||||||||||
Earnings (loss) before income taxes | $ | 86.7 | (29.6) | (42.9) | $ | 14.2 | $ | 92.8 | (26.3) | (29.3) | $ | 37.2 | |||||||
Interest expense and other financing costs | — | — | 5.7 | 5.7 | — | — | 8.1 | 8.1 | |||||||||||
Other (income) expense | (2.0) | 0.1 | 5.5 | 3.6 | (1.4) | — | 4.1 | 2.7 | |||||||||||
Restructuring and other related costs | 1.2 | — | — | 1.2 | 1.5 | — | — | 1.5 | |||||||||||
Earnings (loss) from operations | $ | 85.9 | (29.5) | (31.7) | $ | 24.7 | $ | 92.9 | (26.3) | (17.2) | $ | 49.5 | |||||||
Decrease in fair value of biological assets | — | — | 51.9 | 51.9 | — | — | 26.7 | 26.7 | |||||||||||
Unrealized gain on derivative contracts | — | — | (20.2) | (20.2) | — | — | (9.5) | (9.5) | |||||||||||
Adjusted Operating Earnings | $ | 85.9 | (29.5) | — | $ | 56.4 | $ | 92.9 | (26.3) | — | $ | 66.7 | |||||||
Depreciation and amortization | 45.8 | 3.7 | — | 49.4 | 44.0 | 3.7 | — | 47.7 | |||||||||||
Items included in other expense representative of ongoing operations(iii) | (1.9) | (0.1) | — | (2.0) | 1.4 | — | — | 1.3 | |||||||||||
Adjusted EBITDA | $ | 129.7 | (25.9) | — | $ | 103.8 | $ | 138.2 | (22.6) | — | $ | 115.7 | |||||||
Adjusted EBITDA Margin | 11.6% | (53.9)% | n/a | 9.0% | 13.3% | (37.2)% | n/a | 10.6% | |||||||||||
(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 other miscellaneous expenses. |
Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||||||||
($ millions)(i) | Meat Protein | Plant Protein | Non- | Total | Meat Protein | Plant Protein | Non- | Total | ||||||||||
Earnings (loss) before income taxes | $ | 162.9 | (58.3) | (24.5) | $ | 80.1 | $ | 161.0 | (50.4) | (76.5) | $ | 34.2 | ||||||
Interest expense and other financing costs | — | — | 10.7 | 10.7 | — | — | 16.0 | 16.0 | ||||||||||
Other (income) expense | (0.9) | 0.2 | 8.9 | 8.2 | (0.2) | — | 6.7 | 6.5 | ||||||||||
Restructuring and other related costs | 2.9 | — | — | 2.9 | 1.3 | — | — | 1.3 | ||||||||||
Earnings (loss) from operations | $ | 164.9 | (58.1) | (4.9) | $ | 101.8 | $ | 162.1 | (50.3) | (53.9) | $ | 57.9 | ||||||
Decrease in fair value of biological assets | — | — | 13.4 | 13.4 | — | — | 41.3 | 41.3 | ||||||||||
Unrealized (gain) loss on derivative contracts | — | — | (8.5) | (8.5) | — | — | 12.5 | 12.5 | ||||||||||
Adjusted Operating Earnings | $ | 164.9 | (58.1) | — | $ | 106.7 | $ | 162.1 | (50.3) | — | $ | 111.8 | ||||||
Depreciation and amortization | 91.2 | 7.4 | — | 98.7 | 87.0 | 7.3 | — | 94.2 | ||||||||||
Items included in other expense representative of ongoing operations(iii) | (3.1) | (0.2) | — | (3.3) | 0.2 | — | — | 0.2 | ||||||||||
Adjusted EBITDA | $ | 253.0 | (50.9) | — | $ | 202.1 | $ | 249.3 | (43.1) | — | $ | 206.2 | ||||||
Adjusted EBITDA Margin | 11.9% | (56.1)% | n/a | 9.1% | 12.3% | (40.3)% | n/a | 9.7% | ||||||||||
(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 other miscellaneous expenses. |
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 Interim Financial Statements to Adjusted Earnings per Share for the three 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) | Three months ended June 30, | Six months ended June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Basic earnings per share | $ | 0.07 | $ | 0.21 | $ | 0.46 | $ | 0.18 | ||||
Restructuring and other related costs(i) | 0.01 | 0.01 | 0.02 | 0.01 | ||||||||
Items included in other expense not considered representative of ongoing operations(ii) | 0.02 | 0.03 | 0.04 | 0.05 | ||||||||
Change in fair value of biological assets | 0.31 | 0.16 | 0.08 | 0.25 | ||||||||
Unrealized (gain) loss on derivatives | (0.12) | (0.06) | (0.05) | 0.07 | ||||||||
Adjusted Earnings per Share(iii) | $ | 0.28 | $ | 0.35 | $ | 0.54 | $ | 0.56 |
(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. |
(iii) | Totals may not add due to rounding. |
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 and related financing charges in projects over $50.0 million that are related to longer-term strategic initiatives, with no returns expected for at least 12 months in the future and the asset will be re-categorized from Construction Capital once operational. Current strategic initiatives primarily include the investments in the London, Ontario poultry production facility, further capacity and efficiency improvements in the prepared meats business, investments in plant protein capacity at the Walker Drive facility in Brampton, Ontario, and the plant protein production facilities in Indiana. The following table is a summary of Construction Capital activity and debt financing for the periods indicated below.
($ thousands) (Unaudited) | As at June 30, | ||||||
2021 | 2020 | ||||||
Opening balance at January 1 | $ | 440,590 | $ | 106,831 | |||
Additions | 148,520 | 56,926 | |||||
Interest paid and capitalized on construction capital(i) | 3,821 | 871 | |||||
Balance at March 31 | $ | 592,931 | $ | 164,628 | |||
Additions | 123,275 | 62,760 | |||||
Interest paid and capitalized on construction capital(i) | 4,547 | 1,596 | |||||
Balance at June 30 | $ | 720,753 | $ | 228,984 | |||
Construction Capital debt financing(ii) | $ | 703,502 | $ | 224,897 |
(i) | Certain comparatives figures have been restated to conform with current year presentations. |
(ii) | 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 Interim 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) | As at June 30, | |||||
(Unaudited) | 2021 | 2020 | ||||
Cash and cash equivalents | $ | 58,878 | $ | 111,229 | ||
Current portion of long-term debt | $ | (5,235) | $ | (924) | ||
Long-term debt | (1,121,865) | (716,986) | ||||
Total debt | $ | (1,127,100) | $ | (717,910) | ||
Net Debt | $ | (1,068,222) | $ | (606,681) |
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 and capitalized interest. The following table calculates Free Cash Flow for the periods indicated below:
($ thousands) (Unaudited) | Three months ended June 30, | Six months ended June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Cash provided by (used in) operating activities | $ | 29,971 | $ | 147,139 | $ | (263) | $ | 101,342 | ||||
Additions to long-term assets | (161,273) | (91,626) | (322,240) | (177,918) | ||||||||
Interest paid and capitalized(i) | (4,638) | (1,816) | (8,609) | (3,011) | ||||||||
Free Cash Flow | $ | (135,940) | $ | 53,697 | $ | (331,112) | $ | (79,587) |
(i) | Certain comparatives figures have been restated to conform with current year presentations. |
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:
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:
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:
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 Meat Protein Group, expected sales and growth margin targets in the Plant Protein Group and SG&A spend, may be considered to be financial outlooks for purposes of applicable securities legislation. These financial outlooks are presented to evaluate potential future earnings and anticipated future uses of cash flows and may not be appropriate for other purposes. Readers should not assume these financial outlooks will be achieved.
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 December 31, 2020, that is available on SEDAR at www.sedar.com. The reader should review such section in detail. Additional information concerning the Company, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com.
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 Maple Leaf Foods Inc.
Maple Leaf Foods is a carbon neutral company with a vision to be the most sustainable protein company on earth, responsibly producing food products under leading brands including Maple Leaf®, Maple Leaf Prime®, Maple Leaf Natural Selections®, Schneiders®, Schneiders® Country Naturals®, Mina®, Greenfield Natural Meat Co.®, Lightlife® and Field Roast™. The Company employs approximately 13,500 people and does business primarily in Canada, the U.S. and Asia. The Company is headquartered in Mississauga, Ontario and its shares trade on the Toronto Stock Exchange (MFI).
Consolidated Interim Balance Sheets
(In thousands of Canadian dollars) (Unaudited) | As at June 30, | As at June 30, | As at December 31, | |||
ASSETS | (Audited) | |||||
Current assets | ||||||
Cash and cash equivalents | $ | 58,878 | $ | 111,229 | $ | 100,828 |
Accounts receivable | 201,027 | 163,753 | 159,750 | |||
Notes receivable | 66,297 | 33,783 | 31,550 | |||
Inventories | 442,152 | 422,308 | 398,070 | |||
Biological assets | 118,445 | 78,249 | 125,648 | |||
Income taxes recoverable | 1,830 | — | 1,830 | |||
Prepaid expenses and other assets | 52,810 | 43,653 | 64,517 | |||
Assets held for sale | — | 34,167 | 575 | |||
$ | 941,439 | $ | 887,142 | $ | 882,768 | |
Property and equipment | 2,011,453 | 1,512,093 | 1,721,487 | |||
Right-of-use assets | 180,579 | 237,618 | 222,705 | |||
Investments | 15,370 | 17,076 | 15,910 | |||
Other long-term assets | 8,851 | 10,638 | 9,568 | |||
Deferred tax asset | 24,775 | — | 14,070 | |||
Goodwill | 647,772 | 664,598 | 652,501 | |||
Intangible assets | 373,663 | 356,323 | 341,196 | |||
Total assets | $ | 4,203,902 | $ | 3,685,488 | $ | 3,860,205 |
LIABILITIES AND EQUITY | ||||||
Current liabilities | ||||||
Accounts payable and accruals | $ | 499,099 | $ | 436,794 | $ | 501,529 |
Current portion of provisions | 886 | 3,247 | 1,529 | |||
Current portion of long-term debt | 5,235 | 924 | 900 | |||
Current portion of lease obligations | 40,276 | 42,295 | 79,601 | |||
Income taxes payable | 14,396 | 11,060 | 27,639 | |||
Other current liabilities | 59,862 | 40,651 | 55,849 | |||
$ | 619,754 | $ | 534,971 | $ | 667,047 | |
Long-term debt | 1,121,865 | 716,986 | 745,048 | |||
Lease obligations | 154,457 | 212,871 | 160,636 | |||
Employee benefits | 90,879 | 180,597 | 188,946 | |||
Provisions | 44,555 | 43,202 | 44,230 | |||
Other long-term liabilities | 6,022 | 19,768 | 11,918 | |||
Deferred tax liability | 140,957 | 91,067 | 109,916 | |||
Total liabilities | $ | 2,178,489 | $ | 1,799,462 | $ | 1,927,741 |
Shareholders' equity | ||||||
Share capital | $ | 840,230 | $ | 844,700 | $ | 838,969 |
Retained earnings | 1,210,225 | 1,075,805 | 1,124,973 | |||
Contributed surplus | 3,186 | 3,240 | 5,866 | |||
Accumulated other comprehensive loss | (9,490) | (13,789) | (13,414) | |||
Treasury stock | (18,738) | (23,930) | (23,930) | |||
Total shareholders' equity | $ | 2,025,413 | $ | 1,886,026 | $ | 1,932,464 |
Total liabilities and equity | $ | 4,203,902 | $ | 3,685,488 | $ | 3,860,205 |
Consolidated Interim Statements of Net Earnings
(In thousands of Canadian dollars, except share amounts) | Three months ended June 30, | Six months ended June 30, | |||||||
(Unaudited) | 2021 | 2020 | 2021 | 2020 | |||||
Sales | $ | 1,158,861 | $ | 1,094,574 | $ | 2,211,944 | $ | 2,117,341 | |
Cost of goods sold | 1,023,205 | 927,260 | 1,883,334 | 1,822,668 | |||||
Gross profit | $ | 135,656 | $ | 167,314 | $ | 328,610 | $ | 294,673 | |
Selling, general and administrative expenses | 110,924 | 117,833 | 226,804 | 236,734 | |||||
Earnings before the following: | $ | 24,732 | $ | 49,481 | $ | 101,806 | $ | 57,939 | |
Restructuring and other related costs | 1,190 | 1,507 | 2,858 | 1,338 | |||||
Other expense | 3,617 | 2,719 | 8,159 | 6,488 | |||||
Earnings before interest and income taxes | $ | 19,925 | $ | 45,255 | $ | 90,789 | $ | 50,113 | |
Interest expense and other financing costs | 5,711 | 8,068 | 10,679 | 15,960 | |||||
Earnings before income taxes | $ | 14,214 | $ | 37,187 | $ | 80,110 | $ | 34,153 | |
Income tax expense | 5,440 | 11,528 | 23,644 | 12,206 | |||||
Net earnings | $ | 8,774 | $ | 25,659 | $ | 56,466 | $ | 21,947 | |
Earnings per share attributable to common shareholders: | |||||||||
Basic earnings per share | $ | 0.07 | $ | 0.21 | $ | 0.46 | $ | 0.18 | |
Diluted earnings per share | $ | 0.07 | $ | 0.21 | $ | 0.45 | $ | 0.18 | |
Weighted average number of shares (millions): | |||||||||
Basic | 123.4 | 123.1 | 123.3 | 123.0 | |||||
Diluted | 125.5 | 124.2 | 125.5 | 124.1 |
Consolidated Interim Statements of Other Comprehensive Income (Loss)
(In thousands of Canadian dollars) | Three months ended June 30, | Six months ended June 30, | |||||||||
(Unaudited) | 2021 | 2020 | 2021 | 2020 | |||||||
Net earnings | $ | 8,774 | $ | 25,659 | $ | 56,466 | $ | 21,947 | |||
Other comprehensive income (loss) | |||||||||||
Actuarial gains (losses) that will not be reclassified to profit or loss (Net of tax of $0.1 million and $24.9 million; 2020: $12.7 million and 15.2 million) | $ | 233 | $ | (37,066) | $ | 73,161 | $ | (44,286) | |||
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; 2020: $0.0 million and $0.0 million) | $ | (4,685) | $ | (8,063) | $ | (10,150) | $ | 13,537 | |||
Change in foreign exchange on long-term debt designated as a net investment hedge (Net of tax of $0.8 million and $1.5 million; 2020: $1.4 million and $2.1 million) | 3,464 | 7,819 | 7,282 | (11,300) | |||||||
Change in cash flow hedges (Net of tax of $0.5 million and $2.4 million; 2020: $0.1 million and $6.6 million) | 1,201 | (388) | 6,792 | (18,819) | |||||||
Total items that are or may be reclassified subsequently to profit or loss | $ | (20) | $ | (632) | $ | 3,924 | $ | (16,582) | |||
Total other comprehensive income (loss) | $ | 213 | $ | (37,698) | $ | 77,085 | $ | (60,868) | |||
Comprehensive income (loss) | $ | 8,987 | $ | (12,039) | $ | 133,551 | $ | (38,921) |
Consolidated Interim Statements of Changes in Total Equity
Accumulated other | |||||||||||||
(In thousands of Canadian dollars) (Unaudited) | Share | Retained | Contributed | Foreign | Unrealized | Treasury | Total | ||||||
Balance at December 31, 2020 | $ | 838,969 | 1,124,973 | 5,866 | 3,002 | (16,416) | (23,930) | $ | 1,932,464 | ||||
Net earnings | — | 56,466 | — | — | — | — | 56,466 | ||||||
Other comprehensive income (loss)(ii) | — | 73,161 | — | (2,868) | 6,792 | — | 77,085 | ||||||
Dividends declared ($0.36 per share) | — | (44,375) | — | — | — | — | (44,375) | ||||||
Share-based compensation expense | — | — | 9,229 | — | — | — | 9,229 | ||||||
Deferred taxes on share-based compensation | — | — | (450) | — | — | — | (450) | ||||||
Exercise of stock options | 1,929 | — | — | — | — | — | 1,929 | ||||||
Settlement of share-based compensation | — | — | (9,679) | — | — | 5,192 | (4,487) | ||||||
Change in obligation for repurchase of shares | (668) | — | (1,780) | — | — | — | (2,448) | ||||||
Balance at June 30, 2021 | $ | 840,230 | 1,210,225 | 3,186 | 134 | (9,624) | (18,738) | $ | 2,025,413 | ||||
Accumulated other | |||||||||||||
(In thousands of Canadian dollars) (Unaudited) | Share capital | Retained earnings | Contributed surplus | Foreign | Unrealized | Treasury stock | Total equity | ||||||
Balance at December 31, 2019 | $ | 840,005 | 1,137,450 | — | 4,274 | (1,481) | (30,378) | $ | 1,949,870 | ||||
Net earnings | — | 21,947 | — | — | — | — | 21,947 | ||||||
Other comprehensive income (loss)(ii) | — | (44,286) | — | 2,237 | (18,819) | — | (60,868) | ||||||
Dividends declared ($0.32 per share) | — | (39,306) | — | — | — | — | (39,306) | ||||||
Share-based compensation expense | — | — | 7,841 | — | — | — | 7,841 | ||||||
Deferred taxes on share-based compensation | — | — | 500 | — | — | — | 500 | ||||||
Exercise of stock options | 773 | — | — | — | — | — | 773 | ||||||
Settlement of share-based compensation | — | — | (9,738) | — | — | 6,448 | (3,290) | ||||||
Change in obligation for repurchase of shares | 3,922 | — | 4,637 | — | — | — | 8,559 | ||||||
Balance at June 30, 2020 | $ | 844,700 | 1,075,805 | 3,240 | 6,511 | (20,300) | (23,930) | $ | 1,886,026 |
(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 June 30, | Six months ended June 30, | |||||||||
(Unaudited) | 2021 | 2020(i) | 2021 | 2020(i) | |||||||
CASH PROVIDED BY (USED IN): | |||||||||||
Operating activities | |||||||||||
Net earnings | $ | 8,774 | $ | 25,659 | $ | 56,466 | $ | 21,947 | |||
Add (deduct) items not affecting cash: | |||||||||||
Change in fair value of biological assets | 51,884 | 26,676 | 13,409 | 41,335 | |||||||
Depreciation and amortization | 50,199 | 48,599 | 100,401 | 96,623 | |||||||
Share-based compensation | 4,527 | 3,975 | 9,229 | 7,841 | |||||||
Deferred income taxes | (16,054) | 620 | (9,870) | (6,897) | |||||||
Income tax current | 21,494 | 10,908 | 33,514 | 19,103 | |||||||
Interest expense and other financing costs | 5,711 | 8,068 | 10,679 | 15,960 | |||||||
Loss on sale of long-term assets | 406 | 230 | 693 | 566 | |||||||
Asset impairment | 436 | 1,572 | 436 | 1,572 | |||||||
Change in fair value of non-designated derivatives | (18,044) | (10,074) | (8,417) | 12,666 | |||||||
Change in net pension obligation | (3,409) | 2,175 | (26) | 4,419 | |||||||
Net income taxes paid | (15,426) | — | (46,703) | (8,344) | |||||||
Interest paid | (5,965) | (7,016) | (11,393) | (14,572) | |||||||
Change in provision for restructuring and other related costs | (109) | (168) | (68) | (2,765) | |||||||
Change in derivatives margin | 35,266 | 12,163 | (396) | (11,794) | |||||||
Other | (4,964) | 368 | (1,358) | 1,518 | |||||||
Change in non-cash operating working capital | (84,755) | 23,384 | (146,859) | (77,836) | |||||||
Cash provided by (used in) operating activities | $ | 29,971 | $ | 147,139 | $ | (263) | $ | 101,342 | |||
Investing activities | |||||||||||
Additions to long-term assets | $ | (161,273) | $ | (91,626) | $ | (322,240) | $ | (177,918) | |||
Interest paid and capitalized | (4,638) | (1,816) | (8,609) | (3,011) | |||||||
Acquisition of business | (40,151) | — | (40,151) | — | |||||||
Proceeds from sale of long-term assets | 215 | 8 | 768 | 8 | |||||||
Purchase of investments | — | (101) | — | (13,953) | |||||||
Cash used in investing activities | $ | (205,847) | $ | (93,535) | $ | (370,232) | $ | (194,874) | |||
Financing activities | |||||||||||
Dividends paid | $ | (22,267) | $ | (19,740) | $ | (44,375) | $ | (39,306) | |||
Net increase in long-term debt | 164,861 | (139) | 389,722 | 164,722 | |||||||
Payment of lease obligation | (9,290) | (9,005) | (18,681) | (18,114) | |||||||
Exercise of stock options | 523 | 773 | 1,929 | 773 | |||||||
Payment of financing fees | (50) | (562) | (50) | (599) | |||||||
Cash provided by (used in) financing activities | $ | 133,777 | $ | (28,673) | $ | 328,545 | $ | 107,476 | |||
(Decrease) increase in cash and cash equivalents | $ | (42,099) | $ | 24,931 | $ | (41,950) | $ | 13,944 | |||
Cash and cash equivalents, beginning of period | 100,977 | 86,298 | 100,828 | 97,285 | |||||||
Cash and cash equivalents, end of period | $ | 58,878 | $ | 111,229 | $ | 58,878 | $ | 111,229 |
(i) | Certain comparative figures have been restated to conform with current year presentation. |
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SOURCE Maple Leaf Foods Inc.