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

Thank you, Suzanne. Once again, 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 final item of business, which is the nonbinding advisory vote on the company's approach to executive compensation. May I have a motion on that, please?

My name is Jennifer Hawn, and I move that on an advisory basis and not to diminish the role of the 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 15, 2023.

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

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

No questions or comments have been submitted on this motion.

Thank you. As there's no discussion, the vote is called and the shareholders and proxy holders may vote on the motion if you haven't already done so. That is the last matter to be voted on at today's meeting. I now declare the polls closed. With voting now completed, our scrutineers will finish tabulating the votes, including those cast online during the meeting today and by proxy in advance of the meeting. While we wait for the final tabulation, I would like to thank everyone on the line for taking the time to join us today. Thanks also go out to our shareholders who cast their votes before the meeting. Your views are important to us, and we appreciate the opportunities like this to receive your feedback. With that, I understand that now we have the voting results available, and I'm pleased to share a summary of those results with you. On the election of directors, all director nominees have been elected, each with well over 90% of the votes cast. Please join me in congratulating your 2023, 2024 Board of Directors and also welcoming the 3 new directors who are joining us for the first time this year. I look forward to working with all of you over the course of the next many years. I'm also pleased to announce that both of the other resolutions have passed each receiving more than 90% of the votes cast. This means that KPMG is reappointed as the auditors of the corporation and that Maple Leaf Foods approach to executive compensation has been endorsed. Full details of the voting results will be published following the meeting and filed on SEDAR. So that brings us to the conclusion of our formal business. There being no other business, I declare the formal part of this meeting terminated, and Curtis and I will share some remarks and reflections and answer any questions that you may have. For the past 23 of my 28 years with Maple Leaf Foods, I've written a weekly personal letter to my team. It was in my own voice speaking from the heart and it was called What's Happening at Maple Leaf. I even used a few 4 letter words from time to time as I've been known to do. This morning, I wrote my final one. I began with a quote from Pericles which said, "What you leave behind is not what is engraved in stone monuments, but what is woven into the lives of others." I will come back a few times to what I said to my team on reflection as today, I seeded my role as Chief Executive Officer to an incredible person in Curtis Frank. Being my last address to shareholders as CEO, I will practice something that I've been coached to do for 25 years and failed, be brief. First, I'd like to comment on our recent financial performance throughout the post-pandemic economy, which we all know has been excruciatingly challenging for us and for our industry. The phrase that is always darkest before the dawn, is commonly true. The effects of supply chain disruption, hyperinflation and extreme dislocation in global pork markets have had significant short-term effects. Yet as these conditions persist, our understanding of them, how we navigate those challenges that they present and are confident that they won't be with us for long grows by the day. As we've shared in our annual results and earlier today in our Q1 release, through 2022 and into the first quarter of 2023, the same transitory, but significant forces continued to define our financial performance. Our adjusted EBITDA margin last year came in at 8.2%. Oddly, I've been here long enough to remember quite vividly actually when 8% EBITDA margins could have been more than double our structural loans at the time. But on a healthier note, our revenue grew by 5.2%, highlighted by some encouraging accomplishments, things like the continued momentum in our U.S. business, our prepared meats sales growth by over 10%, the resilience of our brands in Canada and our standout accomplishment in our sustainable meats business, where we had yet another year of robust growth. I'm proud to say that at the end of 2022, we delivered an impressive 7 consecutive years of quarter-over-quarter growth in this segment. We've also made excellent progress since announcing the pivot in our plant protein investment thesis, and we're well on our way to executing our plan to achieve profitable growth, starting with reaching our adjusted EBITDA neutral or better milestone in the latter half of 2023. By the end of last year, we were already 50% of the way there, and our plan is on track as we focus on key initiatives to make this a profitably growing category. You've heard me talk a lot about our London Poultry plant. It's the largest single food industry investment in Canadian history and one of the most sophisticated plants of its kind in the world. Words simply cannot do it justice as we continued to ramp up operations, you'll see the benefits from a more profitable product mix from increased operating efficiency from technology and scale and adding additional capacity to meet the demand for these higher-margin value-added poultry products for years to come. Our bacon center of excellence in Winnipeg is another example of making a sound investment to deliver sustained margin expansion on a high-growth market. It adds in-house capacity for precooked microwavable bacon and it's an incredible example of our innovation agenda, driving growth opportunities. I would tell you that bringing these 2 landmark projects online in one of the single most difficult construction environments that I can ever recall in my 45 years is no small feat and a testament to the execution skills and the resilience that defines Maple Leaf Foods. Finally, and importantly, we've never wavered in meeting our commitments to excellence in food safety and people safety, represented by our safety promise. I'm so proud that last year, we hit a new milestone, a brand-new milestone in safety performance from already world-class results. So as I see it, here's where we are right now in the moment. Number one, the post-pandemic supply chain disruption, while still a factor coming into 2023 is largely behind us now. Our people complement is at normal levels, and this stability is showing up in the normalization of factory performance and customer service into the second quarter. Number 2, we are executing this quarter what we hope and what we believe will be our last hyperinflation pricing initiative. The performance of our brand stable throughout this has been exceptional, which is an outstanding long-term health green-- health indicator, and we feel this is completely a green light. Number 3, while the persistence of the pork market dislocation is rather obvious, we are now seeing substantial green shoots of change occurring almost weekly. Agricultural markets correct, they always do. Number 4, the shift to profitability in our plant-based business is on track. And finally, our new plant startups are going exceptionally well, which will add a much anticipated $130 million of new EBITDA annually. At this point, it's clear -- crystal clear to us that when the pork markets normalize, and our new plants start up by the end of this year, we will be structurally performing with EBITDA margin levels at the high end or above our 14% to 16% goal that we established several years ago. I believe that we've provided all of the facts, all of the insights and the data for our shareholders to arrive at that conclusion as we have. While our balance sheet, obviously, in this pivotal moment appears on the surface to be under some stress, I would highlight that this short-term mathematical illusion is taking place. We have over $1 billion of construction capital financed, which we're carrying yet is simply only months away from start-up. When we complete that startup, the $130 million of cash flow will materialize. And if you reasonably pull that out of the math, our position is considerably more comfortable. So 2023 is our year of inflection, and confidence for us is growing by the day. Now as I stand here before you today and reflect in almost 3 decades, I'm incredibly proud of what we do, how we do it and what we will do next. It was April of 1995 when my father, my brother, Scott, and I first walked into the doors at Maple Leaf Foods on St. Clair Avenue. What a transformational journey that's been from then to now for our company but also for me as well, personally and professionally. We've taken Maple Leaf from an underperforming collection of diverse businesses into a focused world leader in sustainable food production. Grounded in our deeply embedded leadership values and our commitment to creating shared value, we are constantly striving to deliver on our promise to raise the good in food and our vision to be the most sustainable protein company on earth. In the reflections with my team in this morning's letter, I said to them, there's nowhere on this path of decades where meaning became more relevant than when we galvanized this journey around that clear, that one clear purpose to raise the good in food. Maple Leaf is more than a company to me. We've created a culture and an ethos that I believe is second to none. The work that we've done over years to build a foundation, reshape our business portfolio, rebuild our supply chains, invigorate our brands and deliver on a value proposition that reflects the interest of all stakeholders is something that will forever make me proud. Yet I'm even more proud of how we brought our sustainability vision to life. At Maple Leaf, we've always gravitated to bold things. Becoming the first large-scale food company in the world to be carbon neutral now beginning in 2019 was an enormous pivot point. The global climate crisis has never been more real and our industry's role never more clear. But also the leadership we've shown in sustainable food production in animal welfare and in social justice or critical work in social justice, specifically targeting the plight of Canadians who are food insecure through the Maple Leaf Center for Food Security. All of this has distinguished Maple Leaf globally. Every Maple Leaf team member is proud of this. Every Maple Leaf team member is proud of this. Looking at the longer term, this year marks an inflection point. After years of major capital investments and optimizing our network, we will turn our attention to accelerating and elevating our vision, while also digesting the significant investments that we've made to deliver an attractive return. In 1998, my first annual report as Chief Executive Officer, had on its front cover a single word. That word was leadership. The essence of my time as CEO at Maple Leaf has been rooted in nurturing that leadership, enabling direct personal leadership to show up at every level of the organization, demonstrated by each person on the team. That's why I signed those notes every week, just like I did this morning, Leadership Edge, representing the team of thousands, thousands of exceptional people who gain a competitive edge through the power of personal leadership. My note always centered on the real heroes of Maple Leaf, whom I encountered that particular week. These are the people who accomplished so much giving of themselves to others with passion, incredible skill and the conviction for our journey that only a hero can exhibit. These people have been my inspiration for 28 years, and they have the success behind this multi-decade transformation. They nourish the powerful culture described by the Maple Leaf leadership values. They are the secret sauce for generations ahead. Being surrounded by talent better than myself has always motivated me. I pushed them. They pushed me harder. At this moment, I reflect on those people, people like Richard Lan, Scott McCain, Michael Vels, people like Gary McSimmitts, he's colleagues left over time, new talent joined. And I feel like now I'm leaving the single best leadership team I've ever worked with in my 40-plus-year career. They're all exceptional and none of them are more so than the incoming Chief Executive Officer, Curtis Frank. Here's how I described Curtis this morning in my final letter to my team. They already knew all of this. I said Curtis Frank is a remarkable leader. He stands out in every dimension of our leadership values and has a track record of success delivered through his extraordinary skill in connecting with people. He has the unwavering commitment of my entire family who will continue to be deeply connected to Maple Leaf Foods as owner-operator shareholders for at least another generation. Curtis and I have executed a meticulous transition, and he knows every inch of this company. He has earned this role and will carry forward our purpose with passion. I know that Curtis Frank's extensive tenure at the helm of Maple Leaf Foods will be astonishing in its achievements. So now it's time for you to hear from our next Chief Executive Officer, Curtis Frank.

Thank you, Michael, for the kind words, and good morning, everyone. Michael, you once told me that when you first took the helm at Maple Leaf Foods, you set a single personal goal, and that was to make an impact. And that you intended to do it through people and culture. Well, it's clear that you have accomplished that goal and so much more. You've inspired us all with your bold vision and under your leadership, Maple Leaf Foods has established itself as an iconic Canadian food company and one that is admired on the global stage. You are a visionary CEO, a passionate leader, a respected mentor, a compassionate philanthropist and a cherished friend. And you have never wavered in putting your family first. The impact you have made in leading Maple Leaf Foods has been nothing short of extraordinary. And knowing you as I do, I have no doubt that the impact you'll make in your next chapter will be even more remarkable. The road has not been easy, but you have built something special, and I fully intend to honor your legacy. Standing here today, it's hard for me to describe the emotions I'm feeling. I'm proud, nervous, excited. But most of all, I'm grateful. When I joined this company 23 years ago, I could have never imagined the opportunity it would provide for me and for my family. And through my career, Michael, you have given me the ultimate gift. Sharing a lifetime of experiences, reflections, stories and knowledge. And in return, please know that you and all of the Maple Leaf stakeholders have my commitment that I will do my very best to make my own mark, carrying on what I've come to learn matters the most, the best people working together in an amazing culture with the courage to set big bold goals and the passion to deliver on them. It is an axiom that the culture of a company determines its success regardless of how effective its strategies might be. Having built my career at Maple Leaf Foods, I believe this in truth. And I can say that to work in this kind of environment to lead this team of people is without question the privilege of a lifetime. In some respects, I've been preparing for this role most of my life, growing up on a mixed family farm in Saskatchewan, provided me with real hands-on understanding of the food and the agriculture business. And after more than 2 decades learning our business through progressive roles within the company, including working alongside Michael on this transition, I feel as prepared and ready as I can possibly be, while at the same time, acknowledging I have so much yet to learn. A few things maybe you should know about me. I am in my bones attuned to the details of the business. I'm a roll up my sleeves leader, and I pride myself on being authentic. What you see is me. I'm a big believer in servant leadership. This includes developing and elevating the teams and the talent around me. I spent a good chunk of my career in sales. I covet understanding the market, our customers, our consumers, and I'm committed to channeling this understanding and to delivering profitable growth. I love to solve complex problems, and I see opportunity in finding solutions that can deliver immense value not only for Maple Foods, but for all of our stakeholders. And lastly, I'm fiercely results driven, and I plan to set the full weight of my energy behind delivering on the enormous potential that exists within our great company. As you can probably tell, I'm energized and I'm excited to step into this role and lead us into our next chapter. With iconic brands, world-class assets, a culture rooted in people and values and a purpose that is creating both business and social value. We are taking the absolute best of Maple Leaf Foods with us into the future. And while our purpose, vision and values will be constant, like all things in life, we too will evolve. Throughout the balance of 2023, our focus will be set squarely on stabilizing the financial performance of the business in a post-pandemic economy. This includes restoring the health of our supply chain, which is nearing completion, pricing for inflation, which is now on track, and positioning ourselves to maximize the benefits that will materialize following a return to more normal pork market conditions. By the time we turn the calendar to 2024, we will be in a position to fully realize the benefits of the major capital investments we've made at our London Poultry and precooked bacon facilities. We know that our investors have been patient and we are set to reward that patience. And currently, we are also on track to pivot our plant protein business back to profitability as we turn the page to next year. As we put these large-scale start-ups behind us and our investments are fully contributing, we will be entering an incredible inflection point, leaving behind the foundation building, transformation and fixing chapters and turning our attention to capitalizing on the platform that we've built together. In the quarters and years ahead, we will further adapt our Blueprint strategies as we accelerate our innovation agenda and elevate our deliverables to customers and consumers. We will drive growth not only within but also beyond our borders, accelerating organic growth while also demonstrating discipline in contemplating strategic acquisitions that will deliver concrete synergies. We will entrench operational excellence throughout our network, leveraging our supply chain as a source of competitive advantage, while at the same time, strengthening our connection to our frontline team members. This will also involve expanding our capabilities through digital technologies, including manufacturing automation. And most importantly, we will leverage our point of difference in sustainability as we create shared value for all of our stakeholders. Thank you, Michael, the entire McCain family, our Board, and my colleagues for your confidence in me and our shared conviction toward becoming the most sustainable protein company on earth. We and the thousands of people behind us have set the stage for great things to come. Thank you.

Thank you, Curtis. I'm very, very proud of you. Before we wrap things up, I'll turn it over to Suzanne, who will entertain questions that we may have gathered online. Suzanne?

Thank you. If you have any questions, please feel free to drop them in the message forward. We've got a couple. So starting first with Michael, your shift in this role must be bitter-sweet, practically speaking, what role will you play at Maple Leaf going forward?

That's a great question. Curtis and I, along with the Board of Directors of Maple Leaf have been planning this transition for years. And over the last 2 years, Curtis and I, again, with oversight from the Board, co-created a specific role definition for the executive chair as expressed at Maple Leaf Foods. There are 5 things that I will be engaged in. I would underline engaged, not leading, but engaged in. Those include the strategies and direction of the enterprise, the top-level C-suite appointments, the balance sheet risk. And I think that's -- those are the -- there is one more missing. -- balance sheet risk -- and M&A. So those are the big 5, again, engaged in, not leading. Curtis will lead the enterprise, including those areas, but as Executive Chair, I'll play that role. Then there's the additional components of the role that is engaged with the Board and the interface between management and the Board of Directors, and I'm looking forward to working at a different -- in a different way with my Board than I have for the last 25 years. Thank you for the question.

Okay. We have one more question. Curtis, you're stepping into the lead role today. What can we expect in the near term? And what will your priorities be?

So the question was what are the near-term priorities in the business. I mentioned in my comments that our short-term priorities are very, very clear. We are recovering in the near term from a post-pandemic economy, which means we're focused on solving our supply chain challenges that we faced over the course of time. Those will be fully resolved coming out of the second quarter. We're quite proud of the accomplishments and work and effort our team has done. We're pricing for inflation, which will also be complete by the end of the second quarter. And of course, we see the prospects of more normal market conditions in our pork business on the horizon, which we're very much looking forward to. Beyond that, as we look towards the end of 2023, we have some very, very important work in terms of, again, near-term priorities. That includes getting our London Poultry facility fully up and contributing, which will contribute $100 million of adjusted EBITDA on an annualized basis to Maple Leaf, getting our precooked bacon center of excellence up and running completely by the end of this year, which will contribute $30 million of adjusted EBITDA to Maple Leaf. And of course, turning our Greenleaf business profitable before the end of this year in the plant protein category, which we're really excited about the progress we've made. So near-term priorities are very, very clear inside the company. We've got the right team of people focused on implementing and executing them, and we're really excited to turn the page to 2024.

And we have one final question and that is in relation to London Poultry. How is the startup going?

The startup of the London facility is going exceptionally well, relatively speaking. I underline relatively speaking, start-ups of new plants, particularly ones of this magnitude. This is a facility that is 660,000 square feet in dimension and chockablock full of the latest technology and equipment. And start-ups of that nature are always challenging. It's only being measured in degrees of difficult-- degrees of difficulty. But relatively speaking, it's going incredibly well. We are sadly having to close 4 facilities to close and move the production into the London plant, and we are -- we have 2 of them now closed and the plant is operating fully on a single shift today. The balance of our effort through the end of 2023 is to close the additional 2 facilities, roll the production into that plant, stabilize the yield and efficiency metrics over the next 6 months and then do so on the second shift for London Poultry. So relatively speaking, I'd say going incredibly well, and we're very confident in that we'll deliver fully on the business case by the end of this year.

With that, there are no further questions that have been submitted. And so Michael, back to you to close this out.

Well, thank you, Suzanne, Curtis. I appreciate it, for what you've done and what you do for the company, and thank you all, those that are here with us today in person and specifically all those of you on the line. People ask me often these days how I'm feeling. Well, here you go. As I step out of the CEO role to focus on my role as Executive Chair, I feel proud of our company. I feel even more proud of the people who power it. I feel anxious about change and about aging, of course, you will have to grant me that change in aging always seems to have that individual effect. But mostly, I feel at peace because it's time. I'm now embracing my role as Executive Chair of Maple Leaf Foods as the largest shareholder, my family and I are committed to the future of this company. I wouldn't have reached this point, and I wouldn't be here today if it were not for the people before me, and I specifically think of my father Wallace, who lent his experience and his legacy to Maple Leaf Foods. He was my constant, my most vocal champion, and he also kept me and others on my team grounded. I believe he would be as proud and content as I am today. Everyone who knows me knows that there's nothing more important than my family. And to my family, I don't know where to begin. My mother is an inspiration, strong, collaborative, a visionary are just a few other words that I'd use to describe her. She has joined us today by video, and I'm very proud of that. And my children who sacrificed so much for us to do what we did over the last 25 years. I say thank you, and I love you. I know you'll continue to support this journey as shareholders of Maple Leaf and as Board members from time to time. I am proud of each of you in ways that very few people can appreciate. And to my partner, Jill, who's been at my side at some of life's most vulnerable to thank you we have a lot of life to live. I may well be the most fortunate man in Canada to be surrounded by this family, and I can tell you I am grateful. And to all of you who are joining us today online on behalf of Curtis, the newly elected Board of Directors, and the entire team here at Maple Leaf Foods, thank you for your support as we continue to raise the good in food. This morning in my weekly letter, I signed off as CEO with my team. But I'm not signing out of Maple Leaf Foods. We have too much left to do and under Curtis's leadership now and with the family unwavering support, we continue on the journey. So thank you for being here, and we look forward to next year.