Maple Leaf Foods Inc. (MFI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Geoff Beattie, Chair of the Board of Maple Leaf Foods, and it is my pleasure to welcome you to our 2021 Annual Meeting of Shareholders. Joining me on our audio webcast today are Michael McCain, President and Chief Executive Officer of Maple Leaf Foods; and Suzanne Hathaway, Senior Vice President, General Counsel and Corporate Secretary as well as other members of your Board of Directors, including Bill Aziz, Ron Close, Jean Fraser, Tim Hockey, Kay Lemon, Jonathan McCain and Carol Stephenson. I would also like to take a moment to recognize John Lederer. John, who joined the Board in 2016, is retiring from the Board this year. During his tenure, he has been an incredibly valuable member of the Board. And while we will miss him around the boardroom table at Maple Leaf, we wish him all the best and look forward to staying in touch. It is hard to believe that it's been almost a year since our first virtual AGM, yet here we are hosting our second virtual meeting. While we miss the connection that an in-person meeting affords, we are embracing the opportunity that technology brings and are pleased to provide a platform that allows all shareholders regardless of where you are located to meaningfully participate in the AGM. It also gives an opportunity to engage in the management presentation and Q&A that will follow immediately after the formal portion of the AGM. Nothing is preventing the spread of COVID-19. In this moment, that means joining with you, our shareholders, on this virtual platform instead of meeting in person. And in the bigger picture, it means much, much more. As Michael will share with you in his remarks, Maple Leaf Food has responded to the pandemic with vigilance, protecting our essential frontline workers, supporting health care workers, advancing efforts to address food and security, delivering vaccines at our workplaces and sponsoring vaccination clinics for the public, all while continuing to deliver the food people need. These are unprecedented times as we all know, and I would like to take a moment to acknowledge the remarkable contributions of the Maple Leaf team. During the pandemic, your Board had several opportunities to engage with the team, and they did an absolutely incredible job during a very difficult period for them and their families. With those introductory remarks, I will officially call the meeting to order. I'll act as Chair of the meeting, and Suzanne will act as Secretary. Our agenda today will consist of 3 parts starting with the formal business of the meeting, which will cover the matters set forth in the notice of meeting and accompanying management information circular dated March 18, 2021, as amended. Once the formal meeting has been concluded, we will move into a presentation by Maple Foods CEO, Michael McCain, which will then be followed by a question-and-answer session. You are welcome to submit your questions at any time during the meeting by selecting the messaging icon at the top of your screen, typing the message in the text box and clicking send. During the formal business of the meeting, questions and comments relevant to the matters to be acted upon will be read aloud by Suzanne at the appropriate time. Questions and comments of a general nature will be read during the question-and-answer session at the end of the management presentation. In the interest of time, questions and comments of a similar nature may be grouped together. We will endeavor to respond to as many questions as we can with priority given to those logged in as shareholders or proxy holders. If we don't get to all the general questions, we are willing to follow up after the meeting on the remaining questions. Now with the consent of the meeting, I appoint Shirley Tom and Amanda Castellano of Computershare as Scrutineers. Suzanne, can you please confirm that a quorum is present and the meeting is properly constituted?

Thank you, Geoff. I can confirm that an affidavit from Computershare attesting to the mailing of the notice of this meeting and the associated meeting materials to shareholders has been received. A copy of the affidavit, together with the notice of meeting will be kept with the records of this meeting. In addition, copies of the notice of meeting and management information circular are available at mapleleaffoods.com and on SEDAR at www.sedar.com. I can also advise that the Scrutineer's report has been received, and it confirms that a quorum is present. The meeting is, therefore, properly constituted, and the Scrutineer's report will be kept with the records of the meeting. As we move into the meeting, I note that today's management presentation may contain forward-looking information. We encourage you to review the cautionary statements contained in our regulatory filings, which outline a number of factors that could cause actual results to differ. Copies of these filings are available on our website and on SEDAR. Finally, just a reminder that this is a virtual format that relies on technology as well as coordination among individuals who are not in the same room due to physical distancing considerations. While we are not anticipating any issues, we do appreciate your patience in the event that we experience any technical difficulties.

Thank you, Suzanne. Today, we will conduct all votes by ballot. To expedite the meeting, we have asked certain shareholders who are also employees to move and second the various motions. The poll for all matters is now open for voting and voting instructions are available on your screen. Shareholders and proxy holders who have logged into the meeting using your control number are able to vote on each matter until I declare voting closed. You can vote by clicking on the polling icon at the top of the screen and completing the ballot. You may change your vote by selecting an alternative option on the ballot, or you may cancel your vote by selecting cancel. Once voting is closed, your ballot will automatically be submitted. Thank you to all shareholders who voted in advance of the meeting. If you have already voted and do not wish to change your vote, do not vote again during the online backup. If you have already voted by proxy and you vote again during the online ballot, your online vote during the meeting will revoke your personally submitted proxy. We will announce the results of all voting, including proxies deposited before the meeting at the conclusion of the formal part of the meeting. As I noted during my introductory remarks, shareholders and proxy holders may address any motion before the meeting by typing in your question or comment in the message section. If there are any discussion or questions on a motion, Suzanne will read the question aloud. We will now move to the first item of business, which is the presentation of the financial statements for the year ended December 31, 2020, together with the auditors' report on those statements. The financial statements and associated auditors' report have been mailed to those shareholders who requested them and are also available on our website and on SEDAR. No motion is required.

I can confirm, Geoff, that no questions or comments on this item were submitted.

Thank you. Based on a review of the questions-and-answers platform, I confirm that no question or comments have been submitted. And seeing no questions or comments, we will move on to the next item of business, which is the election of directors. The number of directors to be elected has been set at 9. All 9 Director nominees currently serve on the Board, and all nominees have confirmed their eligibility and willingness to serve as directors. The nominees are as follows: Bill Aziz, Geoff Beattie, Ron Close, Jean Fraser, Tim Hockey, Katherine Lemon, Jonathan McCain, Michael McCain and Carol Stephenson. May I please have a motion?

My name is Steve Elmer, and I nominate each of the 9 nominees listed in the form of proxy and management information circular for election as a director.

My name is Mike Rawle. I second the motion.

Thank you, Steve and Mike. Are there any further nominations?

Based on the review of the question-and-answer platform, I can confirm that no other nominees or discussion have been submitted.

As there are no further nominations, I declare the nominations closed. Shareholders are entitled to vote individually for each director. May I have a motion?

My name is Steve Elmer, and I move that each of the director nominees be elected as a director of the corporation to hold office for a term to expire immediately following the annual meeting of shareholders in 2022 or until their respective successors are elected or appointed or they otherwise cease to hold office.

My name is Mike Rawle, and I second the motion.

Thank you, Steve and Mike. As the poll remains open, we will move on to the next item of business, which is the appointment of auditors and authorization for directors to fix the auditors' remuneration. The Board has recommended the reappointment of KPMG LLP as auditors. This vote requires a simple majority. May I have a motion, please?

My name is Chris Bovaird, and I move that the firm of KPMG LLP chartered accountants be appointed auditors of the company to hold office until the next annual meeting of shareholders or until their successors are appointed and that the directors of the company be authorized to fix their remuneration.

My name is Mike Rawle, and I second the motion.

Thank you, Chris and Mike. Is there any discussion on the motion?

Geoff, I can confirm that no questions or comments have been submitted.

Thank you, Suzanne. Shareholders and proxy holders are invited to vote if you haven't already done so. As the poll remains open, we will move on to the next item of business, which is the nonbinding advisory vote on the company's approach to executive compensation. May I have a motion?

My name is Mike Rawle, and I move that on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, the shareholders accept the approach to executive compensation as described in the company's management information circular dated March 18, 2021, as amended.

My name is Chris Bovaird, and I second the motion.

Thank you, Mike and Chris. Is there any discussion on this motion?

Geoff, I can confirm that no questions have been submitted.

Thank you. As there is no discussion, the vote is called and shareholder and proxy holders may vote on the motion, if you haven't already done so. As the poll remains open, we will now move on to the final item of business, which is the vote on an amendment to the Maple Leaf Foods share option plan to increase the number of shares reserved for issuance by 3 million to 8.5 million. May I have a motion?

My name is Mike Rawle, and I move that the shareholders accept the amendment to the share option plan as described in the company's management information circular dated March 18, 2021, as amended.

My name is Chris Bovaird, and I second the motion.

Thank you, Mike and Chris. Is there any discussion on this motion?

I can confirm that no questions or discussion have been submitted at this time.

As there is no discussion, the vote is called and shareholders and proxy holders are invited to vote on the motion. As that is the final matter to be voted on at today's meeting, I now declare the poll closed. As the final votes from the online voting are processed, I would like to take a moment to thank you for joining us today and for expressing your voting preferences. With voting now completed, I am pleased to share the results with you. Based on the votes cast in advance of the meeting by proxy and online here today, I am pleased to announce that each director nominee has been elected with the majority of votes cast. Please join me in congratulating your 2021 Board of Directors. I look forward to continuing to work with all of you over the course of the next year. I'm also pleased to announce the resolution to reappoint KPMG as the auditors of the corporation, the advisory resolution of Maple Leaf's approach to executive compensation and the amendment to the share option plan had been approved by a majority of votes. Details of the voting results will be published following the meeting and filed on SEDAR. That brings us to the end of the formal part of the AGM. On behalf of Maple Leaf Foods, we thank you for joining us today and for your continued support. We are very proud of our responsibilities as an essential service and our role in the safety and security of the food system. Through these unprecedented times, our commitment to pursuing an integrated strategy that brings together our social and environmental commitments with our strategic, financial and operational objectives remains strong. We wish all of you, your families and your communities good health. There being no other business, I declare the meeting terminated and invite you to remain online with us for the management presentation and question-and-answer session. Now it is my pleasure, and please join me in welcoming Michael McCain, President and CEO of Maple Leaf Foods.

Thank you, Geoff, and welcome again to our 2021 Annual General Meeting, another virtual one. You've heard of COVID time distortion. I've got it. The hours and days and weeks meld together and stretch apart all at once. There's no doubt in my mind that these months of extraordinary circumstances have challenged and changed us all. It's hard to believe that we've battled the virus that brought on this global pandemic for more than a year now. While our vigilance must remain strong, there is hope and reason for optimism as vaccines ramp up. It's not just hope that has put us to the test in these stressful times. We've also lived through heartbreaking tragedies rooted in racism. The proliferation of senseless acts of violence and the tragic stories of widespread food and security. All of these threads have come together in a kaleidoscope like no other. Our experiences over the last 15 months have truly been the test of a generation. I've been personally reflecting on how significant events like this can define a generation. Those that lived through the Great Depression and World War II [Audio Gap] and were profoundly shaped by the gripping world events they lived through. Unspeakable human tragedy. The loved ones lost the scarcity of food and essentials and the uncertainty of what might lie ahead. And while I didn't experience these times, my mother, Margaret McCain tells me stories often of what it was like living as a young girl during war time. These experiences formed an essential fabric of the remarkable people they became. In total, Canada lost 45,000 great men and women in World War II over 6 years, a staggering number. It's a sobering fact that in only 1 year, our country has lost more than 24,000 people to COVID, an invisible enemy. These are the parents, the grandparents, the siblings, children, friends and colleagues that were with us in March 2020 and are gone today. This too will shape our generation. While the weight of these events can seem heavy and at times overwhelming, they also provide pivot points for big social and economic transformation. I am inspired by the fact that in this moment, we have an opportunity. We can seek to return to normal or we can seek to create a new better normal. We have the opportunity to emerge stronger, more inclusive, compassionate, understanding and tolerant. It's an opportunity we at Maple Leaf intend to seize. Yes, the events of 2020 and now well into 2021 will leave their mark. If you're anything like me, you've already been reflecting on what that mark means for you. For Maple Leaf, it highlights our people's strength of character, reinforces our commitment to health and safety and deepens our passion for creating shared value for all of our stakeholders. When the pandemic started, we responded quickly and courageously. We moved with pace to adopt and implement our pandemic plans to protect our people and to maintain business continuity. We follow the science. We adopted strict protocols. We invested in the health and safety of our people and communities, pivoted our [Audio Gap] consumers and customers and offered financial support for emergency food relief and frontline health care workers. We flexed with each new challenge and have continued to adapt while remaining vigilant. You have often heard us say that safety is in our DNA. That mindset served us incredibly well. And our team members on the frontline and in our procurement supply chain and logistics groups met the challenge of maintaining operations. We collaborated with our customers. We listened to consumers. We shifted production to meet higher retail demand while managing reduced demand in foodservice channels due to the necessary restrictions and closures. I am genuinely humbled by the heroic efforts of all of our team members. They have executed remarkably, not only in the face of unprecedented business continuity challenges, but also while navigating the complete disruption of their personal lives. We know that the mental health challenges presented by these times are intense. We've dramatically expanded our mental health programs at Maple Leaf. We are cultivating conversations to destigmatize mental health issues in the workplace and continuing to look for innovative ways to deliver programs to support overall well-being of our people. This is truly the test of a generation. Well, I've spoken a lot about COVID and its impact on us, make no mistake about the powerful effect of both high and low-profile instances of discrimination and racial injustice. We will not allow the lightning rods we witnessed this past year to pass without making meaningful change at Maple Leaf. We began by listening intently, reflecting on what we heard deeply and taking steps forward towards meaningful change, recognizing that it was a journey. Inside Maple Leaf, we adopted a diversity and inclusion blueprint to guide our path forward. We instituted mandatory anti-racism and unconscious bias training initiatives, empowered our employee resource groups to lead discussion forums about race, racism and multiculturalism. And we are looking at all of our people processes and engagement scores through a diversity lens. We have much work to do, and we are doing the work. While all of these dynamics have placed incredible demands on our company and our people, it has not distracted us from our vision and our goals. We are intent on becoming the most sustainable protein company on earth. This isn't ESG; it's DNA. We are living our purpose, our vision and strategy to create shared value. In 2020, our team demonstrated everything you would hope for us as a stakeholder: Speed and agility, resilience, strategic efficacy, execution skill and, most important, empathy. Our #1 priority was protecting our people through comprehensive safety protocols. We worked closely with public health and CFIA to review each case that occurred as in a team member and conducted careful contact tracing. We created a stay-home-when-sick culture. Our COVID leadership team is widely regarded as best-in-class, and they are leading with heart first. Just last week, we had a milestone. We conducted 4 work-site clinics run by our Maple Leaf nurses at 4 plants in Ontario's Peel Region. We also hosted 3 mobile clinics at our plants in Montreal, Edmonton and Lethbridge. All totaled, we've vaccinated more than 1,400 team members, supplementing the growing number of team members who have obtained vaccines in their communities. Our sense of relief and optimism cannot be described. Sustainability begins with financial durability and success. In 2020, we achieved record performance in both the top line and the bottom line. That's a remarkable accomplishment in such a chaotic year. 5 years ago, the journey of Maple Leaf pivoted after a monumental supply chain reconstruction. We pivoted from fixing a business to growing a business, and we are delivering impressive results. In 2020, we recorded $4.3 billion in revenue, up 9.0%. Notably, 20% of that revenue was in 2 categories that were immaterial 5 years ago. Sustainable meat and plant-based protein. These 2 categories have delivered a 3-year growth rate of 25% per year. Yes, 25%. Maple Leaf has become a growth engine. Yet of equal note last year, we also achieved record operating margin, a margin of 12.4%, getting ever closer to our 2022 target range. Our meat business, representing 95% of our revenue, grew market share and accelerated top line results up 9%, while delivering a record adjusted EBITDA of $508 million. These results were only possible due to our brand strength and our supply chain's incredible performance. We kept up with rising retail sales demand driven by the pandemic while unlocking new levels of efficiency and effectiveness in our network. These strengths enabled us to overcome the challenges in foodservice, in international trade, in market volatility and rising operating costs associated with our COVID-response efforts. In our Plant Protein business, after a very strong start to 2020, our growth waned in the back half of the year due in part to COVID impacts and supply disruptions. Annual growth rates came in at 20%, which is below our strategic target of 30%. While we are unsatisfied with that outcome, I am incredibly proud of the heavy lifting we completed in this fast-growing business. We infused new life into our Lightlife and Field Roast brands, renovating formulations, logos, packaging and marketing to amplify their brand promises. We continue to advance strategies to increase production capacity, finding creative, capital-efficient solutions to improve agility and efficiencies for the long term. And while COVID impacted our ability to move forward on our innovation plans at the pace that we had planned, we are very excited about our innovation team's incredible work, delivering on world-class taste and texture that will set the bar in the years to come. Financially, our Plant Protein business is experiencing negative EBITDA. It's essential for our stakeholders to see the lens that we apply to this. It is not a loss through our lens. This is an investment, an investment in growth, an opportunity of a lifetime and a strategic choice. It reflects our long-term orientation and the willingness to rise above the noise, which can sometimes be distracting. I have confidence in this exciting investment over time. When faced with the test of a generation, Maple Leaf has stood up to that test, and we're doing our part to create that new and better normal coming out of adversity. We've made substantial progress towards our vision in the face of extraordinary circumstances. We advanced our aggressive carbon management strategy by maintaining carbon neutrality while also acting to meet our science-based targets for emission reduction. When we adopted these aggressive targets, our road map to achieve them wasn't actually fully clear. We accepted our responsibility to find a way. Since then, I'm really excited to share that we now see pathways, which have the capacity to overachieve on our aspirations. Technologies like regenerative agriculture and anaerobic digestion have the capacity for seismic shift in our industry from a damaging source of the problem in a climate crisis to a critical source of a solution. The world was unprepared for a pandemic crisis, and we paid a significant price. Now we recognize we cannot afford to be equally ill prepared for an even more devastating and pending climate crisis. Our collective time to act is right now. As you know, Maple Leaf Foods has a deep and long-standing commitment to reducing food insecurity in Canada by 50% by 2030. COVID amplified the food insecurity issues, and we rose to the challenge with increased emergency food support, innovative projects to reduce food insecurity through a systems approach, encouraging our employees to engage and tirelessly advocating for policies and programs intended to create lasting change. More than ever, we are committed to finding long-term solutions to this troubling societal problem. We are also significantly advancing our animal care agenda, including implementing controlled climate transportation in our poultry operations. And reaching our goal of a 100% gestation crate-free housing in our hog barns by the end of 2021. The foundation of Maple Leaf always has been and always will be extraordinary people who commit their professional lives to this company and bring life to the culture, which inspires us each and every day. To that end, we are introducing the next phase of our people strategy, and it has a diversity and inclusion blueprint as the foundation. We believe that fostering workplace policies and programs that allow diversity and inclusion to thrive will translate into tangible, broader societal progress on these fronts. But it does require change, micro change, macro change, and it's a journey that we have embraced. Finally, we are carefully planning our workplace of the future at Maple Leaf, building on our understanding of how best to facilitate connection, collaboration and our desire to facilitate new flexible ways of working. This will be a new hybrid model of the workplace, part virtual, complemented by purposeful time spent in collaborative efforts at our office, and we'll design our workspaces to suit this new approach. As we emerge from this remarkable time, we need to make our mark in history. We won't be waiting for others. We are leaders of bold plans. Our beliefs are in shared value. Our vision of the sustainable enterprise, our commitment to a more inclusive society, our culture of leadership, I believe this, this will help create the better place for our children and grandchildren. What I've learned coming out over the last 15 months is the power of our collective strengths and talents and determination that is incredible. And that brings me back to where I started with the shaping of our greatest generation. We tragically have lost more than 24,000 Canadians and 3 million people globally to COVID, this invisible enemy. We must honor their memories by becoming better people, a better company and a better society. I'm inspired by the Poet Maya Angelou, who wrote, " I can be changed by what happens to me, but I refused to be reduced by it," she said. Stand up straight and realize who you are, that you tower over your circumstances. This, my friends, is the portrait of resilience. While we seek to create our new normal, we are forever changed by what we've experienced, we won't be weighed down by the burden of that experience. We will draw from the learnings and be inspired by the potential of what we can create. I'm infinitely proud of the company we have built together that's continuing to deliver on the promise of shared value and the vision of becoming the most sustainable protein company on earth. We are embracing this future. Thank you for your time today. And I'd like to open the floor up for questions.

Thank you, Michael. We got one question here. [Audio Gap] How we've been changed by the pandemic? Do you anticipate that this change will translate into long-term changes in food consumption and purchasing patterns?

Long term, I do not believe so. I think there will be a little bit of a medium-term tail on the migration back from the food -- from the retail channel back into the foodservice channel. It will be -- it will be awhile until we get a full restoration of all of the foodservice channels, but probably dealing with 1 to 3 years. So -- but long term, I would say no. The only exception to that, I think, is that I believe the strength in the e-commerce channels in grocery and in food consumption, will -- which was a trend that predated the pandemic experience and was accelerated during the pandemic, will likely be sticky long term, but that's an acceleration of a trend that had already existed. Most of the other macro trends that we had seen around brands and consumerism, the growth in plant-based protein that was interrupted during COVID, the value-adding that's occurring in the marketplace focus on health and nutrition, on convenience and taste. Most of those trends, I think we will see continue unabated post-pandemic.

Thanks, Michael. And there's one other question. You spoke about some of Maple Leaf's initiatives on your journey to creating shared value. What do you see as the next most important priorities for Maple Leaf going forward?

Our journey to become the most sustainable protein company on earth is powerful and enduring, and I think that's a journey that will carry us at least for the next 1 to 2 decades, if not beyond. So that's an enduring vision and a powerful vision and one that will take us decades to execute against. Having said that, the management team at Maple Leaf are so vested in this direction, in this vision, in this commitment. We are so vested in this that our rallying cry, our mantra in 2021 is asking ourselves the provocative question of how do we accelerate and how do we elevate that vision. That's a statement of conviction and a statement of embracing what we're doing, but it will likely mean more and faster and better execution of initiatives that drive that vision. Possibly, we can advance, for example, the time lines around our science-based targets initiatives. Possibly, we will find pathways to not just meet those targets for emissions reductions, but actually and materially overachieve those goals. Possibly, we will find ways to accelerate our change initiatives in food security in this country. Possibly, we will find ways to go well beyond our commitments in our food portfolio around raising animals without antibiotics, antibiotic-free and sustainable meat. Possibly, we'll find ways to elevate and accelerate our animal welfare strategies. That's our mantra for 2021. It doesn't change our direction. But I think further embeds it in the DNA of the organization.

Thank you, Michael. Those are all the questions that have been submitted, which brings us then to the end of our AGM here today. Thank you, everybody, for joining us, and we hope you all stay safe.

Thank you.