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Maple Leaf Implements Value Creation Plan

by 5m Editor
7 October 2010, at 11:28a.m.

CANADA - Maple Leaf Foods has developed a strategy plan that it says will deliver substantial earnings growth in each of the next five years.

Specifically, the company expects its plan approved by the board this week will increase EBITDA margin by more than 75% over the next four to five years - from a current level of 7% to 9.5% in 2012, and 12.5% in 2015.

The plan includes several initiatives that are expected to increase margins in the near term, of which several require little or no capital investment.

Many of these near-term initiatives are well underway, including pricing and normalization of trade promotional activity, simplification of bakery and meat products formulation and manufacturing, early facility rationalization, and the implementation of an integrated SAP system that will provide a base to enhance business performance and further reduce administration and processing costs.

The plan also contemplates a series of plant consolidations, coupled with strategic capital investments in new manufacturing capacity and technology.

This will include construction of two large scale facilities: a bakery in Hamilton, Ontario that is planned to be commissioned in mid-2011; and a new prepared meats facility, with construction planned to commence in 2012.

These investments are expected to materially increase the profitability and competitiveness of Maple Leaf's manufacturing facilities and its distribution network.

Mr. James Hankinson, Chair of the Governance Committee of the Board, said, "After a thorough review of management's plan and other alternative value creation opportunities, the Board concluded that this plan is the best path to deliver substantial earnings growth and shareholder value. It is achievable and measurable, with well-defined performance milestones. The Board will remain deeply engaged, working with management to ensure we realize that value."

"Maple Leaf Foods has a clear and achievable plan to deliver significant earnings growth now and through the next five years, yielding a very substantial return to shareholders," said Michael H. McCain, President and CEO.

"The primary driver of this earnings growth will be increased efficiency throughout our manufacturing network, which represents the largest portion of our total cost structure. We expect to achieve this by reducing complexity, consolidating plants and investing in scale and technology. We intend to finance these initiatives through internal cash flow and debt capacity without issuing equity, while maintaining an investment grade balance sheet throughout the process."