Maple Leaf Foods Reports Results for Fourth Quarter and Year-End 2012

TSX: MFI
www.mapleleaffoods.com

TORONTO, Feb. 26, 2013 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the fourth quarter and fiscal year ended December 31, 2012.

Highlights for the fourth quarter of 2012 include:

• Adjusted Operating Earnings⁽¹⁾ increased 58.9% to $91.3 million
• Net earnings increased to $56.8 million from $9.2 million last year
• Adjusted Earnings per Share⁽²⁾ increased to $0.38 from $0.21 last year
• EBITDA⁽³⁾ margins were 10.6% for the company

Highlights for the full year 2012 include:

• Adjusted Operating Earnings increased 8.1% to $280.0 million following strong second half results
• Net earnings increased 40.5% to $122.7 million
• Full year Adjusted Earnings per Share was $1.06, compared to $1.01 last year (2011 includes $0.09 per share tax adjustments related to a prior acquisition)

"We are very pleased with our results for the fourth quarter and 2012 in total. They reflect steady, ongoing progress in realizing earnings growth towards our financial targets," said Michael H. McCain, President and CEO. "The challenging market conditions in primary pork processing margins and consumer bread demand were significant headwinds for the year; however, we achieved an 8% increase in operating profits for the year and 59% in the fourth quarter despite these challenges. This is a strong testament to the strength of our business and our strategic initiatives, and the extraordinary contribution of our people. The effects of food inflation driven by the North American droughts of 2012 will be felt mostly in the first half of 2013. As a result, we expect some short-term volatility in our earnings as we pass those cost increases on in the marketplace. Beyond this, our strategic initiatives will accelerate in 2013 and contribute to continued margin growth."

(1): Adjusted Operating Earnings, a non-IFRS measure, is used by Management to evaluate financial operating results. It is defined as earnings before income taxes adjusted for items that are not considered representative of on-going 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.

(2): Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate on-going financial operating results. It is defined as basic earnings per share attributable to common shareholders, and is adjusted for all items that are not considered representative of on-going 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.

(3): EBITDA is calculated as earnings from operations and before interest and income taxes plus depreciation and intangible asset amortization, adjusted for items that are not considered representative of on-going 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.

Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures at the end of this news release.

Financial Overview

Sales for the fourth quarter declined 3.3% to $1,204.8 million compared to $1,245.3 million last year, or 2.2% after adjusting for the impacts of divestitures and foreign exchange, primarily as a result of lower sales volumes. For the full year, sales were $4,864.8 million, down 0.6% from $4,893.6 million in 2011, or 0.3% after adjusting for divestitures and foreign exchange.

Adjusted Operating Earnings for the fourth quarter were $91.3 million compared to $57.4 million last year, due to strong improvements in the Meat and Bakery Products Groups. For the full year, Adjusted Operating Earnings increased 8.1%, to $280.0 million compared to $259.0 million last year due to increased earnings in the Meat and Bakery businesses.

Adjusted Earnings per Share were $0.38 in the quarter, compared to $0.21 last year. For the year, Adjusted Earnings per Share were $1.06, compared to $1.01 last year. Adjusted Earnings per Share in 2011 included $12.2 million ($0.09 per share) of tax adjustments related to a prior acquisition.

For the fourth quarter, net earnings were $56.8 million ($0.39 basic earnings per share) compared to $9.2 million ($0.06 basic earnings per share) last year. Net earnings included $12.8 million ($0.07 per share) of pre-tax costs related to restructuring activities (2011: $32.2 million, or $0.17 per share). For the full year, net earnings were $122.7 million ($0.83 basic earnings per share) compared to $87.3 million ($0.59 basic earnings per share) last year. Net earnings for the year included $47.5 million ($0.25 per share) of pre-tax costs related to restructuring activities (2011: $79.8 million, or $0.41 per share).

Several items are excluded from the discussions of underlying earnings performance as they are not representative of on-going operational activities. Refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.

Business Segment Review

Following is a summary of sales by business segment:

Following is a summary of Adjusted Operating Earnings by business segment:

Protein Group

Sales for the Protein Group, which includes the Company's Meat Products Group and Agribusiness Group, declined 3.7% to $814.2 million in the fourth quarter of 2012 from $845.3 million last year. For the full year, sales for the Protein Group of $3,298.2 million were consistent with $3,299.1 million last year. Adjusted Operating Earnings increased 44.0% to $60.8 million in the fourth quarter, compared to $42.2 million last year. For the full year, Adjusted Operating Earnings increased 6.6% to $189.7 million, compared to $177.9 million last year. Results for the Company's Meat Products Group and Agribusiness Group should be viewed in combination due to intercompany transactions and correlated factors within these operations.

Meat Products Group
Includes value-added prepared meats, lunch kits; and fresh pork, poultry and turkey products sold to retail, foodservice, industrial and convenience channels. Includes leading Canadian brands such as Maple Leaf ®, Schneiders ® and many leading sub-brands.

Meat Products Group sales for the fourth quarter declined 5.3% to $740.8 million from $781.8 million in the fourth quarter last year. After adjusting for the impact of a stronger Canadian dollar, which decreased the sales value of pork exports, sales declined 4.6%, primarily due to discontinuance of lower-margin accounts in the prepared meats business.

Adjusted Operating Earnings for the fourth quarter increased 75.2% to $48.1 million, compared to $27.5 million last year, driven by stronger earnings growth in the prepared meats and fresh poultry businesses, which was partly offset by lower earnings in the primary pork processing operations. The prepared meats business benefited from price increases to manage higher input costs, an improved sales mix driven by higher margin product innovation and the discontinuance of lower-margin foodservice business. Other positive effects impacting earnings for the quarter included cost reductions from simplification of the Company's product portfolio and $5.9 million in provisions related to re-assessments of environmental remediation costs on facilities planned for closure. These benefits were partly offset by lower volumes.

Sales of higher value products, such as the Maple Leaf Prime chicken brand, combined with improved sales mix in higher value channels contributed to higher earnings in the fresh poultry operations. Earnings in primary pork processing declined from last year due to continued weaker industry margins, although improved from earlier in the year.

For the full year, Adjusted Operating Earnings in the Meat Products Group increased 26.3% to $121.3 million compared to $96.0 million last year, largely driven by the same factors noted in the quarter.

Agribusiness Group
Consists of Canadian hog production and animal by-product recycling operations, including biodiesel manufacturing and distribution.

Sales in the Agribusiness Group increased 15.6% to $73.4 million for the fourth quarter compared to $63.5 million last year, as higher volumes in biodiesel and rendering operations were partly offset by lower biodiesel selling prices.

Adjusted Operating Earnings in the fourth quarter declined 14.1% to $12.7 million compared to $14.7 million last year. Hog production earnings were impacted by a combination of higher feed costs and lower market prices for hogs. Earnings in the by-products recycling operations were impacted by higher payments for raw materials and lower biodiesel selling prices, partly offset by stronger export volumes.

Adjusted Operating Earnings for the year declined 16.4% to $68.4 million compared to $81.9 million last year, as a result of lower results in both hog production and by-product recycling operations.

Bakery Products Group
Includes fresh and frozen bakery products, including breads, rolls, bagels, specialty and artisan breads, sweet goods, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's®, Tenderflake®, Olivieri® and New York Bakery Co^TM, and many leading regional brands.

Bakery Products Group sales for the fourth quarter declined 2.4% to $390.6 million compared to $400.0 million last year. After adjusting for the closure of a bakery in the U.K. and currency translation on sales in the U.S. and U.K., sales were consistent with the prior year. Higher volumes in the North American and U.K. frozen bakery businesses were offset by lower volumes and unfavourable sales mix in the fresh pasta operations. Fresh bakery volumes were consistent with the last year.

Adjusted Operating Earnings for the fourth quarter increased to $31.4 million from $16.1 million last year. Earnings growth in the fresh bakery and North American frozen bakery businesses was partly offset by lower earnings in the fresh pasta business, while earnings in the U.K. bakery operations were consistent with prior year.

The Company benefited from efficiency gains resulting from the closure of its bakery in Delta, British Columbia, in late 2011 and the transfer of production to more efficient bakeries, and from reduced input costs as a result of positive hedging activities. In the fourth quarter of 2011, the Company was impacted by higher costs resulting from its SAP installation in Western Canada that were not repeated in 2012. Higher duplicative overhead costs were incurred last year as the Company continued to operate three bakeries while transferring production to a new, more efficient bakery in Hamilton, Ontario. During 2012, two of these facilities were closed, with associated reduction in costs. The closure of the third Ontario bakery is planned for the second quarter of 2013.

Adjusted Operating Earnings for the full year increased 13.1% to $97.6 million compared to $86.3 million last year, as the earnings improvements in the fresh bakery, North American frozen bakery and U.K. bakery businesses were partly offset by lower earnings in the fresh pasta business.

Subsequent Events

On January 4, 2013, the Company sold its potato processing product facility and related assets in Lethbridge, Alberta to Cavendish Farms Corporation for proceeds of $57.8 million, resulting in a pre-tax gain of approximately $44.5 million.

On January 30, 2013, the Company announced plans to close a bakery in Grand Falls, New Brunswick and a bakery in Edmonton, Alberta in the first half of 2013. The Company expects to incur approximately $6.3 million before tax in restructuring costs, of which approximately $4.2 million are cash costs.

Other Matters

On February 25, 2013, Maple Leaf Foods declared a dividend of $0.04 per share payable March 28, 2013 to shareholders of record at the close of business March 8, 2013. Unless indicated otherwise by the Company in writing on 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".

An investor presentation related to the Company's fourth quarter financial results is available at www.mapleleaffoods.com and can be found under Investor Relations on the Quarterly Results page. A conference call will be held at 2:30 p.m. EDT on February 26, 2013 to review Maple Leaf Foods' fourth quarter financial results. To participate in the call, please dial 416-340-8018 or 866-223-7781. For those unable to participate, playback will be made available an hour after the event at 905-694-9451 / 800-408-3053 (Passcode 9670637).

A webcast presentation of the fourth quarter financial results will also be available at http://investor.mapleleaf.ca via a link: http://www.media-server.com/m/p/hub8k8pe.

The Company's full financial statements and related Management's Discussion and Analysis are available for download on the Company's website.

Reconciliation of Non-IFRS Financial Measures

The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted Earnings per Share. Management believes that these non-IFRS measures provide useful information to both Management and 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 Operating Earnings, a non-IFRS measure, is used by Management to evaluate financial operating results. It is defined as earnings before income taxes adjusted for items that are not considered representative of on-going operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings infuture periods when the underlying asset is sold or transferred. The table below provides a reconciliation of net earnings as reported under IFRS in the audited consolidated statements of earnings for the three months and twelve months then ended to Adjusted Operating Earnings. Management believes that this basis is the most appropriate on which to evaluate operating results, as they are representative of the on-going operations of the Company.

Adjusted Earnings per Share

Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate on-going financial operating results. It is defined as basic earnings per share attributable to common shareholders, and is adjusted for items that are not considered representative of on-going 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. The table below provides a reconciliation of basic earnings per share as reported under IFRS in the audited consolidated statements of earnings for the three months and twelve months then ended to Adjusted Earnings per Share. Management believes this basis is the most appropriate on which to evaluate financial results as they are representative of the on-going operations of the Company.

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, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to objectives and goals, as well as statements with respect to beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Specific forward-looking information in this document includes, but is not limited to, statements with respect to the anticipated benefits, timing, actions, costs and investments associated with the Company's Value Creation Plan, expectations regarding Net Debt to EBITDA ratios during the implementation of the Plan, expectations regarding the use of derivatives, futures and options, expectations regarding improving efficiencies, the expected use of cash balances, source of funds for ongoing business requirements including renewal of existing securitization facilities, capital investments and debt repayment, expectations regarding acquisitions and divestitures, the timing of new plant openings and old plant closures, job losses and LEED® certification, expectations regarding the impact of new accounting standards, expectations regarding sufficiency of the allowance for uncollectible accounts and expectations regarding pension plan performance and future pension plan liabilities and contributions. Words such as "expect", "anticipate", "intend", "attempt", "may", "will", "plan", "believe", "seek", "estimate", and variations of such words and similar expressions are intended to identify such forward-looking information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict.

In addition, these statements and expectations concerning the performance of the Company's business in general are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, U.S., U.K. and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar, U.K. British pound and the Japanese yen; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies whether as a result of the Value Creation Plan or otherwise; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign governments; and the general assumption that none of the risks identified below or elsewhere in this document will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward-looking information, which reflect the Company's expectations only as of the date hereof.

Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by forward-looking information is discussed more fully in the Company's Annual Management's Discussion and Analysis for the period ended December 31, 2012 including the section entitled "Risk Factors", that are updated each quarter in the Management's Discussion and Analysis, and are available on SEDAR at www.sedar.com. The Company does not intend to, and the Company disclaims any obligation to, update any forward-looking information, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law.

Maple Leaf Foods Inc. ("Maple Leaf" or the "Company") is a leading Canadian value-added meat, meals and bakery company committed to delivering quality food products to consumers around the world. Headquartered in Toronto, Canada, the Company employs approximately 20,000 people at its operations across Canada and in the United States, Europe and Asia.

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SOURCE Maple Leaf Foods Inc.