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
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%
Category
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.
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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
 Grew volumes and market share Olivieri
 Broadened the Olivieri brand into new categories
 Launched new marke@ng campaign “Make Any Day Special”  Closed Laval bakery, resul@ng in greater efficiency and cost reduc@on Frozen
 Passed through pricing, which par@ally offset rising input costs
 Launched new specialty bagels in foodservice  Re-­‐launched New York Bakery bagels, driving 40% growth in category UK Bakery
 Consolidated six bakeries into four  Reduced overhead costs
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Historically Strong Margins; Recent Pressure
Adjusted Opera;ng Earnings(1) and EBITDA Margins
C$ in Millions
12.1%
11.1%
11.4%
10.1%
$119
$101
9.5%
9.3%
$94
$86
$83
2005
2006
8.7%
$102
$101
$89
2004
9.1%
2007
Adjusted Operating Earnings
2008
2009
2010
2011
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.
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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
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Increase Profitable Volume
Innovation in Olivieri, Frozen and UK
Extend Olivieri
into new categories
 Launching Olivieri Fresh
Cooking Sauces
Leverage the strong
Tenderflake brand
 Through expanding in exis8ng and new categories
Expand New York Bakery brand sales in exisLng and new categories
 Expanding bagel produc8on at Rotherham by 30%
 New York Bakery muffins in market in early May
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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
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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
13 | Maple Leaf Foods
Croissants
Specialty
In-Store Bakery
Sliced Bread
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
Bakery EBITDA
2010
2011
2012
2015
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