Expanding Bakery Group EBITDA Margins Richard Lan, Chief Opera@ng Officer, Food Group March 29, 2012
Bakery Group 90% ownership of Canada Bread Company Ltd. Fresh bakery: Fresh breads, rolls, specialty and ethnic breads; leading Dempster s and POM brands. 20 bakeries across Canada. Olivieri: Fresh flat and filled pasta and sauces. 2 manufacturing facili@es in Canada. Frozen bakery: Par@ally and fully baked breads and bagels; Tenderflake frozen pastry. 7 bakeries in Canada and United States. UK bakery business: Bagels, croissants and specialty Italian breads; New York Bakery brand. 3 bakeries across England. 2 Maple Leaf Foods
A Great Business... Leading Brands Leading Market Shares Category Rank Branded $ Share (Approx.) Commercial Bread #1 30% Wheat Bread #1 40% Grain Bread #1 40% Fresh Pasta #1 55% Fresh Sauce #1 45% Bagels (UK) #1 80% Frozen Pie Shells #1 70% Source: AC Nielsen, latest 52 weeks ending 12/17/2011 for bread & bagel categories; 01/14/2012 for fresh pasta & sauce; 12/18/2010 for frozen pie shells. 3 Maple Leaf Foods
A Look Back at 2011 Some major accomplishments Increased prices to manage rise in wheat costs Fresh Reduced SG&A Opened new Hamilton bakery on @me and on budget Olivieri Grew volumes and market share Broadened the Olivieri brand into new categories Launched new marke@ng campaign Make Any Day Special Frozen Closed Laval bakery, resul@ng in greater efficiency and cost reduc@on Passed through pricing, which par@ally offset rising input costs Launched new specialty bagels in foodservice UK Bakery Re- launched New York Bakery bagels, driving 40% growth in category Consolidated six bakeries into four Reduced overhead costs 4 Maple Leaf Foods
Historically Strong Margins; Recent Pressure Adjusted Opera;ng Earnings (1) and EBITDA Margins C$ in Millions 10.1% 12.1% 11.1% 11.4% $119 9.1% 9.5% 9.3% 8.7% $89 $101 $101 $83 $102 $94 $86 2004 2005 2006 2007 2008 2009 2010 2011 Adjusted Operating Earnings EBITDA % (1) Adjusted Operating Earnings measures are defined as earnings from operations before restructuring and other related costs and associated gains, other income and the impact of the change in fair value of non-designated interest rate swaps, unrealized gains or losses on commodity futures contracts and the change in fair value of biological assets. 5 Maple Leaf Foods
Reasons Why... External and internal factors affecting profitability Commodity and inflationary costs Wheat prices increased 45% year- over- year in 2011; over 90% since 2006 Rate of commodity/infla@onary increases outpaced pricing windows Industry wide volume decline Overall volume sofness in the commercial bread category (down 2% in 2011) Factors include gluten free trend, changing demographics and pricing Increased overhead costs SAP implementa@on and duplica@ve costs related to Hamilton bakery commissioning Recession in the United Kingdom and its impact on our business 6 Maple Leaf Foods
Four Key Actions to Restore Margins 1 Selec@ve pricing 2 Increase profitable volume 3 Reduce costs 4 Complete Hamilton bakery commissioning 7 Maple Leaf Foods
Selective Pricing Price increases implemented in the Frozen and UK Bakery businesses in Q1/2012 to manage higher input costs Fresh Bakery price increase on hold; pricing in 2012 based on compellve and commodity factors 8 Maple Leaf Foods
Increase Profitable Volume Deliver volume growth through strategic customer partnerships 9 Maple Leaf Foods
Increase Profitable Volume Innovation in Fresh Bakery Focusing on premium health brands and growth categories Execu@ng comprehensive marke@ng campaign communica@ng health benefits Innova@on targe@ng growth categories Dempster s Smooth Multigrains launch Dempster s Rye bread expansion Dempster s Bagel re-launch Boulangerie Campagnards Artisan launch Whole wheat sales up 6% since launch Jan/12 Rye bread sales up 28% Bagel category up 7% Hearth/artisan category up 2% A.C. Nielsen; last 52 weeks ending February, 2012 10 Maple Leaf Foods
Increase Profitable Volume Innovation in Olivieri, Frozen and UK Extend Olivieri into new categories Leverage the strong Tenderflake brand Expand New York Bakery brand sales in exislng and new categories Launching Olivieri Fresh Cooking Sauces Through expanding in exis8ng and new categories Expanding bagel produc8on at Rotherham by 30% New York Bakery muffins in market in early May 11 Maple Leaf Foods
Reduce Costs Fresh Bakery Closed a fresh bakery in BC in Q4/11 and consolidated produc@on into other western bakeries Closed 4 distribu@on centres in 2011; iden@fying further opportuni@es Frozen Bakery Contribution from Laval bakery closure in 2011 Further improvements in plant, freight, storage efficiencies in frozen bakery Iden@fying addi@onal opportuni@es for frozen bakery plant consolida@on UK Bakery Closed Walsall bakery in March/12; consolidated specialty bread produc@on into London bakery 12 Maple Leaf Foods
Cost Reductions Contributing to Results Continued Improvements in UK Bakery 2010 2012 Rotherham Rotherham Maidstone Premier Park Maidstone Cumbria Park Royal Premier Park Walsall Bagels Croissants Specialty In-Store Bakery Sliced Bread 13 Maple Leaf Foods
Complete Hamilton Bakery Commissioning 385,000 sq ft bakery, among the largest in North America Eight lines producing white and whole wheat breads, buns, English muffins, rye breads, and tor@llas Employs 320 people (260 hourly) when fully opera@onal Consolidates production from three older plants First two bakeries closed in Q1/12; third scheduled to close in Jan/13 Net reduc@on of 186 posi@ons 14 Maple Leaf Foods
Complete Hamilton Bakery Commissioning DuplicaLve costs will decrease to less than $4 million in 2012 AccreLve to earnings beginning in Q1/2013 33% reduclon in cash overhead costs Lower direct product costs Lower speed/increased throughput Reduced waste Improved automalon delivers greater product quality and consistency Automated ingredient system/batching Improved ambient temperature and humidity control Increased produclon control through Supervisory Control & Data AcquisiLon systems Provides footprint to support innovation and growth 15 Maple Leaf Foods
Summary 2010 2011 2012 2015 Bakery EBITDA 9.3% 8.7% 11.5% 12.5% Great business with leading market shares and brands Historical margins in line with targets Recent profitability impacted Ac;ons underway to restore margins 16 Maple Leaf Foods