Mr. Curtis Frank reports

MAPLE LEAF FOODS REPORTS FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL RESULTS

Maple Leaf Foods Inc. has released its financial results for the fourth quarter and full year ended Dec. 31, 2023.

"In 2023, we made great progress in advancing our strategic blueprint, delivering top-line growth of 2.7 per cent, recording an increase of $155-million in adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] to $428-million for the year, and meeting our commitment to achieve adjusted EBITDA neutral or better in our plant protein business as we exited the year," said Curtis Frank, president and chief executive officer of Maple Leaf Foods. "While these are important achievements, and we are pleased with our relative performance in challenging market conditions, we acknowledge that we still have work to do to realize our full potential.

"In the fourth quarter, our meat protein results fell below our expectations, as a result of global pork market dislocations that have persisted longer and deeper than we anticipated, and a challenging consumer demand environment, plus we still have a short distance to go to bring home the full benefits from our London Poultry and Bacon Centre of Excellence projects," continued Mr. Frank. "With our refreshed strategic blueprint announced today, we are sharpening our execution focus, bringing together our meat protein and plant protein businesses to build a powerful platform from which to grow in the U.S. market, and aligning the talents of our team to leverage the strength of our portfolio of leading brands, leadership in sustainability and world-class assets."

Fourth quarter 2023 highlights:

• Total company sales growth of 0.6 per cent to $1,192.7-million, with an adjusted EBITDA margin of 10.1 per cent.
• Meat protein group sales grew to $1,159-million, an increase of 0.8 per cent year-over-year. Adjusted EBITDA was $122-million and adjusted EBITDA margin was 10.5 per cent, an improvement of 390 basis points from the fourth quarter of 2022.
• London Poultry plant and Bacon Centre of Excellence delivered approximately $25-million incremental adjusted EBITDA.
• Plant protein group sales were $36.5-million. Plant protein group adjusted EBITDA improved by $20.5-million year-over-year to a gain of $100,000, achieving the company's adjusted EBITDA target of neutral or better in the latter half of 2023.
• Capital expenditures were $40.8-million.

Two thousand twenty-three highlights:

• Total company sales grew by 2.7 per cent to $4,867.9-million, with an adjusted EBITDA margin of 8.8 per cent.
• Meat protein group sales grew to $4,736.2-million, an increase of 3.1 per cent. Adjusted EBITDA was $463-million and adjusted EBITDA margin was 9.8 per cent.
• Plant protein group sales were $147-million. Plant protein group adjusted EBITDA improved by 68.8 per cent to a loss of $32.9-million.
• Capital expenditures of $196.6-million.
• The company had net debt of $1,747.5-million and undrawn committed credit of $447.2-million as at year-end, and is focused on deleveraging the balance sheet.

Fourth quarter 2023

Sales for the fourth quarter increased 0.6 per cent to $1,192.7-million, compared with $1,185.5-million last year. Sales growth in the meat protein group was partly offset by an 8.9-per-cent sales decline in the plant protein group. For more details on sales performance by operating segment, please refer to the operating review.

Net loss for the fourth quarter of 2023 was $9.3-million (eight-cent loss per basic share) compared with net loss of $41.5-million (34-cent loss per basic share) last year. The improvement in performance for the quarter was driven by pricing to mitigate inflation, stronger pork markets, benefits from strategic construction projects and the non-repeated estimated impact of $23-million from the cybersecurity incident in 2022, combined with achieving the goal of adjusted EBITDA neutral performance in the plant protein segment. This was partially offset by higher input costs and increased interest expense. Net loss for the fourth quarter of 2023 also included start-up expenses of $29.7-million (2022: $25.8-million) associated with construction capital projects, and lower gains on biological assets mark-to-market adjustments, both of which are excluded from the calculation of adjusted operating earnings.

Adjusted operating earnings for the fourth quarter of 2023 were $57.5-million compared with $1.8-million last year, consistent with the factors noted above.

Adjusted EBITDA margin for the fourth quarter increased to 10.1 per cent from 4.7 per cent last year, consistent with the factors noted above.

Adjusted earnings before taxes (adjusted EBT) for the fourth quarter of 2023 were $16.4-million compared with a loss of $21.7-million last year, consistent with the factors noted above.

Basic earnings per share was a loss of eight cents for the fourth quarter of 2023 compared with a loss of 34 cents last year, consistent with the factors described above.

Adjusted earnings per share in the fourth quarter of 2023 was eight cents compared with a loss of 28 cents last year.

Full year 2023

Sales for 2023 were $4,867.9-million compared with $4,739.1-million last year, an increase of 2.7 per cent. Sales growth in the meat protein group was partly offset by a decline in the plant protein group. For more details on sales performance by operating segment, please refer to the operating review.

Net loss for 2023 was $125-million ($1.03 loss per basic share) compared with a net loss of $311.9-million ($2.52 loss per basic share) last year. In the meat protein group, stronger commercial performance more than offset market headwinds and inflation. In the plant protein group, improved operational performance more than offset lower volumes. In the prior year, the plant protein group also included a $190.9-million one-time impairment charge. Interest expense increased by $94.8-million, reflecting the net debt levels associated with construction capital projects and increases in borrowing rates. Net loss for the year also included start-up expenses of $122.3-million (2022: $59.3-million) associated with construction capital projects, as well as net losses from non-cash fair value changes in biological assets and derivative contracts of $24.6-million (2022: $14-million), all of which are excluded in the calculation of adjusted operating earnings.

Adjusted operating earnings for 2023 were $193.2-million compared with $65.7-million last year, and adjusted earnings per share for 2023 was nine cents compared with loss of 26 cents last year.

Adjusted earnings before taxes for 2023 were $34.2-million compared with $4.4-million 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.

Operating review

During the year ended Dec. 31, 2023, the company had two reportable segments. These segments offer different products, with separate organizational structures, brands, and 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 profitable revenue growth, adjusted operating earnings and adjusted EBITDA, while the performance of the plant protein group in the short term is focused on obtaining adjusted EBITDA neutral results.

Fourth quarter 2023

The associated table summarizes the company's sales, gross profit, SG&A (selling, general and administrative) expenses, adjusted operating earnings, adjusted EBITDA, adjusted EBITDA margin and adjusted EBT by operating segment for the fourth quarters ended Dec. 31, 2023, and Dec. 31, 2022.

Meat protein group

The meat protein group is composed of prepared meats, ready-to-cook and ready-to-serve meals, snack kits, value-added fresh pork and poultry products that are sold to retail, food service and industrial channels, and agricultural operations in pork and poultry. The meat protein group includes leading brands such as Maple Leaf, Maple Leaf Prime, Maple Leaf Natural Selections, Schneiders, Schneiders Country Naturals, Mina, Greenfield Natural Meat Co. and other leading regional brands.

Sales for the fourth quarter increased 0.8 per cent to $1,159-million compared with $1,149.6-million last year. Sales growth was driven by volume growth, pricing action implemented in prior quarters to mitigate the impact of inflation, and favourable mix shift. Prior-year sales volumes were also impacted by the cybersecurity incident.

Gross profit for the fourth quarter of 2023 was $124-million (gross margin of 10.7 per cent) compared with $82.2-million (gross margin of 7.2 per cent) last year. Gross profit was positively impacted by pricing action to catch up to inflation, improved pork market conditions and benefits from strategic capital, partially offset by cost inflation, unfavourable product mix and start-up expenses. Prior-year results were impacted by the cybersecurity incident. Gross profit for the fourth quarter of 2023 included start-up expenses of $29.7-million (2022: $25.8-million) associated with construction capital projects, which are excluded from the calculation of adjusted operating earnings.

SG&A expenses for the fourth quarter of 2023 were $91.3-million, an increase from $80-million last year. The increase was due to inflationary pressures on base compensation, as well as higher advertising and promotional spend.

Adjusted operating earnings for the fourth quarter of 2023 were $62.3-million compared with $28-million last year, driven by the factors noted above.

Adjusted EBITDA margin for the fourth quarter was 10.5 per cent compared with 6.6 per cent last year, consistent with the factors noted above, as well as benefits from London poultry plant and Bacon Centre of Excellence.

Adjusted EBT for the fourth quarter of 2023 were $23.2-million compared with $6.7-million last year, driven by factors consistent with those noted above, as well as a $20.3-million increase in interest expense as a result of increased interest rates and higher debt, and increased depreciation expense, all related to continued capital investment.

Plant protein group

The plant protein group is composed of refrigerated plant protein products, premium grain-based protein and vegan cheese products sold to retail, food service and industrial channels. The plant protein group includes the leading brands Lightlife and Field Roast.

Sales for the fourth quarter were $36.5-million compared with $40-million last year, representing a decline of 8.9 per cent, or 9.1 per cent excluding the impact of foreign exchange. Sales decline was driven by lower retail volumes, partially offset by pricing action implemented in prior quarters to mitigate inflation.

Gross profit for the fourth quarter of 2023 was $5.1-million (gross margin of 13.9 per cent) compared with a loss of $10.3-million (gross margin loss of 25.8 per cent) last year. The improvement in gross profit was driven by operational improvements and higher pricing, partially offset by lower volumes.

SG&A expenses for the fourth quarter of 2023 were $9.9-million (27.2 per cent of sales), compared with $15.8-million (39.5 per cent of sales) last year. The decrease in SG&A expenses was primarily attributable to lower advertising and promotional expenses, and lower people costs as a result of restructuring in prior quarters.

Adjusted operating earnings for the fourth quarter of 2023 were a loss of $4.8-million compared with a loss of $26.2-million last year. The improvement in adjusted operating earnings is consistent with the factors noted above.

Adjusted EBITDA for the fourth quarter of 2023 was $100,000 compared with a loss of $20.4-million last year, consistent with the factors noted above.

Full year 2023

The associated table summarizes the company's sales, gross profit, SG&A expenses, adjusted operating earnings, adjusted EBITDA, adjusted EBITDA margin and adjusted EBT by operating segment for the years ended Dec. 31, 2023, and Dec. 31, 2022.

Meat protein group

Sales for 2023 increased 3.1 per cent to $4,736.2-million compared with $4,593.6-million last year. Sales growth was driven by pricing actions implemented to reflect higher input costs, favourable sales mix and foreign exchange. These positive factors were partially offset by commodity market headwinds and lower sales volumes.

Gross profit for 2023 was largely flat year-over-year at $478.2-million (gross margin of 10.1 per cent) compared with $474.7-million (gross margin of 10.3 per cent) last year, as pricing actions were offset largely by higher input costs, market headwinds and start-up expenses. Gross profit for 2023 included start-up expenses of $122.3-million (2022: $54.5-million) associated with construction capital projects, which are excluded in the calculation of adjusted operating earnings.

SG&A expenses for 2023 were $355.4-million compared with $338.9-million last year. The increase in SG&A expenses was driven by inflationary pressures on base compensation and discretionary spending, partially offset by lower variable compensation.

Adjusted operating earnings for 2023 were $245.2-million compared with $190.3-million last year, driven by factors noted above.

Adjusted EBITDA for 2023 were $463-million compared with $378.7-million last year, driven by factors consistent with those noted above, in addition to increased depreciation expenses added back as a result of significant capital expansion, largely in London. Adjusted EBITDA margin for 2023 was 9.8 per cent compared with 8.2 per cent last year, also driven by factors consistent with those noted above.

Adjusted EBT for 2023 were $89.5-million compared with $139-million last year, driven by factors consistent with those noted above, as well as a $104.3-million increase in interest expense as a result of increased interest rates and higher debt related to continued capital investment.

Plant protein group

Sales for 2023 were $147-million compared with $169.3-million last year, representing a decrease of 13.2 per cent, or 16.3 per cent after excluding the impact of foreign exchange. The sales decline was driven by lower volumes in retail and food service products, partially offset by pricing action implemented in prior quarters to mitigate inflation.

Gross profit for 2023 was a loss of $2.2-million (gross margin loss of 1.5 per cent) compared with a gross loss of $36.5-million (gross margin loss of 21.6 per cent) last year. The improvement in gross profit was driven by operational improvements, higher pricing to offset inflation and reduction in start-up expenses, partially offset by lower volumes. Gross profit for 2023 included start-up expenses of nil (2022: $4.8-million) associated with construction capital projects, which are excluded in the calculation of adjusted operating earnings.

SG&A expenses for 2023 were $49.7-million (33.8 per cent of sales) compared with $92.8-million (54.8 per cent of sales) last year. The decrease in SG&A expenses was driven by lower advertising and promotional expense, lower people costs and lower consulting costs.

Adjusted operating earnings for 2023 were a loss of $51.9-million compared with a loss of $124.5-million last year. This improvement is consistent with the factors noted above.

Adjusted EBITDA for 2023 was a loss of $32.9-million compared with a loss of $105.4-million last year. This improvement is consistent with the factors noted above.

Other matters

On Feb. 21, 2024, the board of directors approved a quarterly dividend of 22 cents per share (an increase of one cent per share from the 2023 fourth quarter dividend), 88 cents per share on an annual basis, payable March 28, 2024, to shareholders of record at the close of business March 8, 2024. 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. The board of directors has also approved the issuance of common shares from treasury at a 2-per-cent discount under the company's dividend reinvestment plan (DRIP). Under the DRIP, investors holding the company's common shares can receive common shares instead of cash dividend payments. Further details, including how to enroll in the program, are available at the company's website.

Conference call

A conference call will be held at 8 a.m. ET on Feb. 22, 2024, to review Maple Leaf Foods' fourth 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: 225124 followed by the pound key).

A webcast of the fourth quarter conference call will also be available the company's website.

The company's full consolidated financial statements, and related management's discussion and analysis (MD&A) are available on the company's website.

An investor presentation related to the company's fourth quarter financial results is available at the company's website, and can be found under presentations and webcasts on the investors page.

Outlook

Maple Leaf Foods is a leading consumer protein company built on a powerful portfolio of brands, with a leading voice in sustainability and food security. The company's strategic blueprint defines how it will advance its vision to be the most sustainable protein company on Earth, while delivering on its commercial and financial objectives.

The company recognizes that macro-economic challenges and global conflict continue to define the postpandemic environment. This is resulting in higher interest rates, inflation, supply chain tensions, and pressures on agricultural, commodity and foreign exchange markets. As a result, consumers and business alike are adapting their behaviours, which contributes to shifts in demand and product mix. The company leverages its data-driven insights to stay close to these dynamics, and it is confident in the resilience of its brands, business model and strategy to manage through these transitory conditions.

In the near term, the company is realigning its organizational structure to align with the refresh of its strategic blueprint by bringing together its meat and plant protein businesses. This shift supports a clear and consistent focus on driving profitable growth in Canada, the United States and internationally across its entire protein and prepared foods portfolio.

For the full year 2024, the company expects:

• Low-to-mid-single digit revenue growth;
• Adjusted EBITDA margin expansion from 2023, supported by the benefits of:
  • The profitable growth of its leading portfolio of meat and plant protein brands;
  • Returns from investments in the London Poultry plant and the Bacon Centre of Excellence;
  • Leadership in sustainable meats;
  • Driving operational and cost-efficiency;
  • Profitable growth in the plant protein category, having achieved the target of adjusted EBITDA neutral exiting 2023;
• To achieve its meat protein target of 14 per cent to 16 per cent adjusted EBITDA margin when markets normalize;
• To generate strong free cash flow and delever its balance sheet by:
  • Improving profitability;
  • Generating the targeted returns on its capital investments at the London Poultry plant and the Bacon Centre of Excellence, including reducing start-up expenses, maximizing efficiencies and onboarding new customers;
  • Exercising disciplined capital management, with total capital expenditures this year expected to be in a more typical range of $170-million to $190-million, largely focused on maintenance capital and optimization of its existing network.

Maple Leaf Foods will also continue to advance its ambitious sustainability agenda, including leading the real food movement, advancing its animal care initiatives, seeking solutions to address food insecurity, accelerating its efforts to reduce its environmental footprint and continuing to deliver safe food made in a safe work environment.

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 United States and Asia. The company is headquartered in Mississauga, Ont.

We seek Safe Harbor.