Maple Leaf Foods Reports Fourth Quarter and Full Year 2021 Financial Results


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)
(Unaudited)

Meat
Protein
Group

Plant
Protein
Group

Non-
Allocated(ii)

Total

Meat
Protein
Group

Plant
Protein
Group

Non-
Allocated(ii)

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 Operating Earnings.

SG&A expenses for the fourth quarter of 2021 were $80.2 million (7.4% of sales), compared to $94.2 million (8.7% of sales) last year. The decrease in SG&A was largely driven by lower variable compensation.

Adjusted Operating Earnings for the fourth quarter of 2021 were $77.8 million compared to $92.0 million last year, driven by factors noted above.

Adjusted EBITDA Margin for the fourth quarter was 11.1% compared to 12.7% last year, consistent with the factors 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 fourth quarter were $45.5 million compared to $52.5 million last year, representing a decline of 13.4%, or 10.3% after excluding the impact of foreign exchange. The sales decline was driven by the impact of an extra week in the fourth quarter of 2020, including lower retail product volumes which more than offset growth in foodservice volumes.

Gross profit for the fourth quarter of 2021 was a loss of $10.0 million (gross margin loss(i) of 21.9%) compared to a profit of $0.3 million (gross margin(i) of 0.5%) last year. The decrease in gross profit was attributed to lower sales volumes and strategic investments’ incapacity to build for anticipated demand which has resulted in increased overhead and transitory costs, as well as inflationary pressure on distribution and other input costs. Gross profit for the fourth quarter of 2021 also included start-up expenses of $2.0 million (2020: $0.0 million) associated with Construction Capital projects which are excluded in the calculation of Adjusted Operating Earnings.

SG&A expenses for the fourth quarter of 2021 were $39.8 million (87.6% of sales), compared to $32.5 million (61.9% of sales) last year. The increase in SG&A expenses was driven largely by the timing of advertising and promotional expenses.

Adjusted Operating Earnings for the fourth quarter of 2021 were a loss of $47.8 million compared to a loss of $32.3 million last year. The decline in Adjusted Operating Earnings is consistent with the factors noted above.

The full Year 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 years ended December 31, 2021, and December 31, 2020.

2021

2020

($ millions)(i)

Meat Protein
Group

Plant Protein
Group

Non-
Allocated(ii)

Total

Meat Protein
Group

Plant Protein
Group

Non-
Allocated(ii)

Total

Sales

$

4,366.7

184.1

(29.8)

$

4,521.1

$

4,116.5

210.8

(23.6)

$

4,303.7

Gross profit (loss)

$

676.8

(12.8)

(4.9)

$

659.1

$

680.3

18.3

4.5

$

703.1

Selling, general and administrative expenses

$

334.3

132.8

$

467.1

$

346.6

144.0

$

490.7

Adjusted Operating Earnings(iii)

$

352.4

(142.1)

$

210.3

$

335.2

(125.7)

$

209.5

Adjusted EBITDA(iii)

$

527.1

(127.2)

(0.4)

$

399.5

$

510.1

(111.4)

0.8

$

399.5

Adjusted EBITDA Margin(iii)

12.1%

(69.1)%

n/a

8.8%

12.4%

(52.8)%

n/a

9.3%

(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

Sales for 2021 increased 6.1% to $4,366.7 million compared to $4,116.5 million last year. Sales growth was driven by pricing action implemented in 2021 to mitigate inflation and structural cost increases, growth in branded and sustainable meats, and higher poultry volumes, which more than offset the impact of an extra week in the fourth quarter of 2020, the impact of foreign exchange, lower pork volumes and lower sales to China.

Gross profit for 2021 was $676.8 million (gross margin(i) of 15.5%) compared to $680.3 million (gross margin(i) of 16.5%) last year. The decrease in gross profit resulted from labor and materials inflation and lower sales to China, partially offset by strong commercial performance including pricing and favorable product mix, as well as effective hedges. Gross profit for 2021 included start-up expenses(ii) of $9.9 million (2020: $1.6 million) associated with Construction Capital(ii) projects, which are excluded in the calculation of Adjusted Operating Earnings. Gross profit in 2020 was also impacted by heightened operating costs in response to COVID-19 to safeguard the Company’s employees.

SG&A expenses for 2021 were $334.3 million compared to $346.6 million last year. The decrease in SG&A was largely driven by lower variable compensation.

Adjusted Operating Earnings for 2021 were $352.4 million compared to $335.2 million last year, driven by factors noted above.

Adjusted EBITDA for 2021 was $527.1 million compared to $510.1 million last year, driven by factors consistent with those noted above. Year-to-date Adjusted EBITDA Margin for 2021 was 12.1% compared to 12.4% last year, also driven by factors consistent with those noted above.

Plant Protein Group

Sales for 2021 were $184.1 million compared to $210.8 million last year, representing a decrease of 12.7%, or 6.4% after excluding the impacts of foreign exchange. The sales decline was driven by lower retail product volumes, including the impact of an extra week in the fourth quarter of 2020. This more than offset growth in foodservice volumes and pricing action implemented in the third quarter of 2020 to mitigate inflation and structural cost increases.

Gross profit for 2021 was a loss of $12.8 million (gross margin loss(i) of 7.0%) compared to a gross profit of $18.3 million (gross margin(i) of 8.7%) last year. The decrease in gross profit was attributed to lower sales volumes and strategic investments’ incapacity to build for anticipated demand, which has resulted in increased overhead and transitory costs, as well as inflationary pressures on distribution and other input costs. Gross profit for 2021 also included start-up expenses of $3.5 million (2020: $0.0 million) associated with Construction Capital(ii) projects which are excluded in the calculation of Adjusted Operating Earnings.

SG&A expenses for 2021 were $132.8 million (72.1% of sales) compared to $144.0 million (68.3% of sales) last year. The decrease in SG&A expenses was driven by foreign exchange and lower advertising and promotional expenses.

Adjusted Operating Earnings for 2021 were a loss of $142.1 million compared to a loss of $125.7 million last year. The decline in Adjusted Operating Earnings is consistent with the factors noted above.

(i) 

 Gross margin is defined as gross profit divided by sales.

(ii) 

 Refer to the section titled Non-IFRS Financial Measures in this news release.

Other Matters

On February 23, 2022, the Board of Directors approved a quarterly dividend of $0.20 per share (an increase of $0.02 per share from the 2021 quarterly dividends), $0.80 per share on an annual basis, payable March 31, 2022, to shareholders of record at the close of business March 8, 2022. 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 “Enhanced Dividend Tax Credit System”.

Conference Call

A conference call will be held at 8:00 a.m. ET on February 24, 2022, 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: 000880#).

A webcast of the fourth-quarter conference call will also be available at: https://www.mapleleaffoods.com

The Company’s 2021 audited consolidated financial statements (“Consolidated Financial Statements”) and related Management’s Discussion and Analysis are available on the Company’s website.

An investor presentation related to the Company’s fourth-quarter financial results is available at www.mapleleaffoods.com and can be found under Presentations and Webcasts on the Investors page.

Outlook

Maple Leaf Foods is a leading consumer protein company, supported by an iconic portfolio of brands, a solid balance sheet, and a capital structure that provides financial flexibility. Over the last several years, the Company has developed a foundation to pursue compelling growth vectors across its business and to create value for all stakeholders.

Meat Protein Group

In Meat Protein, the Company’s strategy is to drive profitable growth. In 2017, Maple Leaf Foods articulated its target to reach an Adjusted EBITDA Margin of 14% – 16% in 2022.

Based on the current operating environment, Maple Leaf Foods expects that its Meat Protein Group will achieve the following in 2022:

  • mid-to-high single-digit sales growth, driven by continued momentum in sustainable meats, leveraging brand leadership, and growth into the U.S. market.
  • Adjusted EBITDA Margin expansion, reaching the lower end of the 14% – 16% target by the end of the year, driven by mix-shift benefits in prepared meats resulting from growth in sustainable meats and brand renovation, as well as operational efficiencies, and assuming pork complex conditions evolve in-line with the 5-year average.

Plant Protein Group

  • In late 2021, the Company announced that it was re-evaluating its outlook for the Plant Protein Group and launching a comprehensive review of the overall plant protein category. This decision was driven by a pronounced slowdown in growth rates in the category, particularly in the second half of the year, which fueled the Company’s imperative to identify and thoroughly assess the causes, near and long-term trends, and overall implications. While the Company’s analysis is ongoing, the results to date confirm that the very high category growth rates previously predicted by many industry experts are unlikely to be achieved given current customer feedback, experience, buy rates, and household penetration. Based on this new information, the Company believes that the category will continue to grow at more modest, but still attractive rates. Current estimates suggest that the category will grow at an average annual rate of 10% to 15%, making it a $6 to $10 billion market by 2030. Accordingly, the Company is pivoting its strategy and investment thesis for the Plant Protein Group and is setting a new goal to deliver neutral or better Adjusted EBITDA within the next 18 months. Work is ongoing to build out the strategy to support this pivot, as the Company recalibrates the investment to align with the market opportunity.

Capital

  • The Company currently estimates its capital expenditures for the full year of 2022 will be in the range of $400 million to $500 million, with approximately 50% to be comprised of Construction Capital mainly attributable to the construction of the London, Ontario poultry facility as well as other projects to add growth and capacity in the prepared meats business and to expand hog production.
  • The Company expects the London Ontario poultry facility to start to deliver approximately $100 million annually of additional Adjusted EBITDA once fully ramped up which is expected to be by the end of 2023. Additionally, the Company expects the Bacon Center of Excellence to contribute approximately $30 million annually of additional Adjusted EBITDA once fully ramped up which is expected to be in the second half of 2023.

The ongoing effects of COVID-19 are unpredictable and may impact several factors that drive growth in the business, including:

  • Pork and poultry commodity and foreign exchange markets.
  • Inflationary cost pressures.
  • Disruptions in the global supply chain.
  • Availability of labor.
  • The balance between retail and foodservice demand.

For more information on the impact of COVID-19 on the business and the associated risks, refer to section 5. Response to COVID-19 and section 27. Risk Factors of the Company’s 2021 Annual Management’s Discussion and Analysis and for more information on the factors that may influence our future performance, see the section titled Forward-Looking Statements in this news release.

The execution of the Company’s financial and operational priorities are embedded in a commitment to deliver shared value for the benefit of all stakeholders. 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:

  • Better Food – leading the real food movement and transitioning key brands to 100% “raised without antibiotics”.
  • Better Care – further advancement of animal care, after achieving our transition of all sows under management to open housing systems in 2021.
  • Better Communities – investing approximately 1% of pre-tax profit to advance sustainable food security.
  • Better Planet – continuing to amplify its commitment to carbon neutrality, while focusing on eliminating waste in any resources it consumes, including food, energy, water, packaging, and time.

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 c