Plant Protein targeting neutral or better Adjusted EBITDA within 18 months
Maple Leaf Foods Inc. (“Maple Leaf Foods” or the “Company”) (TSX: MFI) reported its financial results for the fourth quarter and full-year ended December 31, 2021.
“In a challenging environment we delivered another record year in 2021 in our Meat Protein business,” said Michael H. McCain, President, and CEO of Maple Leaf Foods. “While Q4 saw an unexpected tornado of supply chain chaos driven by the Omicron COVID variant, our team is resilient and we expect this storm to pass quickly. For the year, Meat Protein sales grew 8% and we delivered record Adjusted EBITDA of $527 million.”
“In Plant Protein we have completed our analysis of both category and consumers to arrive at material new insights that are leading us to adjust our business model of investment matching a revised view of sustainable long-term growth rates. We now expect steady, but not spectacular growth in this category, and appropriately will adjust the business model to be Adjusted EBITDA neutral or better within the next 18 months,” said Mr. McCain.
Fourth Quarter 2021 Highlights
- Total Company sales grew to $1,120.5 million, with an Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”)(i) Margin of 6.8%.
- Meat Protein Group sales grew to $1,085.2 million, an increase of 8.2% on an equivalent 52-week basis. Adjusted EBITDA was $120.7 million, and Adjusted EBITDA Margin was 11.1%. Start-up expenses are excluded from Adjusted EBITDA as they are temporary and not part of the ongoing operations of the business.
- Plant Protein Group sales were $45.5 million, a decline of 3.7% on an equivalent 52-week basis and excluding the impact of foreign exchange.
- Capital expenditures were $125.0 million and consisted mainly of Construction Capital(i) of $90.6 million, primarily related to the London, Ontario poultry facility.
2021 Highlights
- Total Company sales were $4,521.1 million, with an Adjusted EBITDA Margin of 8.8%.
- Meat Protein Group sales grew to $4,366.7 million, an increase of 8.1% on an equivalent 52-week basis. Adjusted EBITDA was a record $527.1 million, and Adjusted EBITDA Margin was 12.1%.
- Plant Protein Group sales were $184.1 million, a decline of 4.7% on an equivalent 52-week basis and excluding the impact of foreign exchange.
- Capital expenditures were $629.4 million and consisted predominantly of Construction Capital of $494.0 million, the majority of which was related to the construction of the Bacon Centre of Excellence in Winnipeg, Manitoba, and the London, Ontario poultry facility.
Outlook
- Meat Protein: Expect strong mid-to-high single-digit sales growth with Adjusted EBITDA Margin expansion near the lower end of the 14% – 16% target by the end of 2022.
- Plant Protein: The Company has made significant progress in the critical review of the plant protein category announced in late 2021. While work is continuing, analysis to date demonstrates a clear slowdown in projected growth rate for the overall category compared to very high growth rates predicted in 2019. The Company will therefore be adjusting its strategy and investment thesis and is setting a new target to deliver neutral or better Adjusted EBITDA within an 18-month timeframe.
(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 December 31, |
twelve months ended December 31, |
||||||||
2021 |
2020 |
Change |
2021 |
2020 |
Change |
|||||
Sales |
$ |
1,120.5 |
$ |
1,129.2 |
(0.8)% |
$ |
4,521.1 |
$ |
4,303.7 |
5.1 % |
Net Earnings |
$ |
1.9 |
$ |
25.4 |
(92.6)% |
$ |
102.8 |
$ |
113.3 |
(9.2) % |
Basic Earnings per Share |
$ |
0.02 |
$ |
0.20 |
(90.0)% |
$ |
0.83 |
$ |
0.92 |
(9.8)% |
Adjusted Operating Earnings(ii) |
$ |
30.0 |
$ |
59.8 |
(49.9)% |
$ |
210.3 |
$ |
209.5 |
0.4% |
Adjusted Earnings per Share(ii) |
$ |
0.09 |
$ |
0.31 |
(71.0)% |
$ |
1.03 |
$ |
1.03 |
— % |
Adjusted EBITDA – Meat Protein Group(ii) |
$ |
120.7 |
$ |
137.1 |
(12.0)% |
$ |
527.1 |
$ |
510.1 |
3.3% |
Sales – Plant Protein Group |
$ |
45.5 |
$ |
52.5 |
(13.3)% |
$ |
184.1 |
$ |
210.8 |
(12.7)% |
Free Cash Flow(ii) |
$ |
40.7 |
$ |
(97.5) |
141.7% |
$ |
(295.9) |
$ |
(119.3) |
(148.0)% |
Construction Capital(ii) |
$ |
743.3 |
$ |
440.6 |
68.7% |
|||||
Net Debt(ii) |
$ |
(1,090.2) |
$ |
(645.1) |
69.0% |
(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. |
Fourth Quarter 2021
Sales for the fourth quarter decreased 0.8% to $1,120.5 million compared to $1,129.2 million last year. Favorable pricing and mix were more than offset by foreign exchange and the impact of an extra week in the fourth quarter of 2020.
Net Earnings for the fourth quarter of 2021 were $1.9 million ($0.02 per basic share) compared to $25.4 million ($0.20 per basic share) last year. The decrease in net earnings reflects rising labor and production expenses and the impact of an extra week in the fourth quarter of 2020. Net earnings for the fourth quarter of 2021 also included start-up expenses of $7.7 million (2020: $0.5 million) associated with Construction Capital projects, which are excluded in the calculation of Adjusted Operating Earnings.
Adjusted Operating Earnings for the fourth quarter of 2021 were $30.0 million compared to $59.8 million last year, consistent with the factors noted above.
The full Year 2021
Sales for 2021 were $4,521.1 million compared to $4,303.7 million last year, an increase of 5.1%, driven by favorable pricing, mix-shift towards the branded product, and growth in sustainable meats, partially offset by foreign exchange and the impact of an extra week in the fourth quarter of 2020.
Net earnings for 2021 were $102.8 million ($0.83 per basic share) compared to $113.3 million ($0.92 per basic share) last year. The strong commercial performance was more than offset by a reduction in net gains from non-cash fair value changes in biological assets and derivative contracts (2021: net loss of $4.9 million; 2020: net gain of $4.5 million), both of which are excluded in the calculation of Adjusted Operating Earnings. Net Earnings in the year were also impacted by start-up expenses of $13.4 million (2020: $1.6 million) associated with Construction Capital projects, which are also excluded from Adjusted Operating Earnings.
Adjusted Operating Earnings for 2021 were $210.3 million compared to $209.5 million last year, and Adjusted Earnings per Share for 2021 were $1.03 compared to $1.03 last year.
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 several measures in its business and operating practices that include heightened safety policies and procedures, as well as close communication and collaboration with public health authorities, including hosting 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 labor, personal protective equipment, sanitation, and other expenses associated with the pandemic. Continuing COVID-19 structural costs were 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, including adopting a vaccination mandate in 2022. 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.
COVID-19 continues to have an impact on the global economy, leading to increased inflation, labor shortages, and disruptions in the global supply chain. To date, the Company’s leading brands, revenue management capabilities, and robust supply chain have enabled it to manage these impacts. Maple Leaf Foods continues to monitor the ongoing environment and believes it is well-positioned to face these headwinds.
Operating Review
During the year ended December 31, 2021, the Company had 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 segments: 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 selling, general and administrative (“SG&A”) investment levels, which generate high revenue growth rates.
Fourth Quarter 2021
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 fourth quarter ended December 31, 2021, and December 31, 2020:
Three months ended December 31, 2021 |
Three months ended December 31, 2020 |
|||||||||||
($ millions)(i) |
Meat |
Plant |
Non- |
Total |
Meat |
Plant |
Non- |
Total |
||||
Sales |
$ |
1,085.2 |
45.5 |
(10.2) |
$ |
1,120.5 |
$ |
1,080.3 |
52.5 |
(3.6) |
$ |
1,129.2 |
Gross profit |
$ |
152.2 |
(10.0) |
0.1 |
$ |
142.3 |
$ |
185.7 |
0.3 |
(5.7) |
$ |
180.3 |
Selling, general and administrative expenses |
$ |
80.2 |
39.8 |
— |
$ |
120.0 |
$ |
94.2 |
32.5 |
— |
$ |
126.8 |
Adjusted Operating Earnings(iii) |
$ |
77.8 |
(47.8) |
— |
$ |
30.0 |
$ |
92.0 |
(32.3) |
— |
$ |
59.8 |
Adjusted EBITDA(iii) |
$ |
120.7 |
(43.9) |
(0.4) |
$ |
76.3 |
$ |
137.1 |
(28.7) |
1.3 |
$ |
109.6 |
Adjusted EBITDA Margin(iii) |
11.1% |
(96.6)% |
n/a |
6.8% |
12.7% |
(54.7)% |
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, snack kits, 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®, Maple Leaf Natural Selections®, Schneiders®, Schneiders® Country Naturals®, Mina®, Greenfield Natural Meat Co.®, and other leading regional brands.
Sales for the fourth quarter increased 0.5% to $1,085.2 million compared to $1,080.3 million last year. Sales growth was driven by pricing action implemented in prior quarters to mitigate inflation and structural cost increases, and favorable mix-shift including growth in sustainable meats, more than offsetting the impact of an extra week in the fourth quarter of 2020 and foreign exchange fluctuations.
Gross profit for the fourth quarter of 2021 was $152.2 million (gross margin(i) of 14.0%) compared to $185.7 million (gross margin(i) of 17.2%) last year. The decrease was driven by labor and material availability, inflation, lower volumes due to lapping fourth quarter 2020 which had an extra week, and market headwinds. The fourth quarter of 2020 was also impacted by heightened operating costs in response to COVID-19 to safeguard the Company’s employees. Gross profit for the fourth quarter of 2021 also included start-up expenses of $5.8 million (2020: $0.5 million) associated with Construction Capital projects which are excluded in the calculation of Adjusted Oper