Maple Leaf Foods Inc.

Good morning, ladies and gentlemen, and welcome to the Maple Leaf Foods Q3 2023 Investor Relations Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, November 2, 2023. I would now like to turn the conference over to Ms. Janet Craig. Please go ahead, ma'am.

Thank you, Lyra, and good morning, everyone. Speaking on the call this morning will be Curtis Frank, President and Chief Executive Officer, and Serge Farallon, Chief Financial Officer. Before we begin, I'd like to remind you that some statements made on today's call may constitute forward-looking information, and our future results may differ materially from what we discussed. Please refer to our Q3 2023 MD&A and other information on our website for a broader description of operations and risk factors that could affect the company's performance. We've also uploaded our Q3 investor deck to our website, which includes support material for the quarter. As always, the investor relations team will be available after the call for any follow-up questions you might have. With that, I'll turn the call over to Curtis Frank. Curtis?

Thank you, Janet, and good morning, everyone. It's great to be with you again here today. We've got a lot to talk about this morning, not the least of which is the continued momentum that we see building in our business today. I'm going to go ahead and jump right in with a recap of our quarterly performance. I'll then turn it over to here to walk you through a deeper dive into our financial results. And of course, we will open up the line for your questions. The headline is that overall, we are very pleased with how we performed over the last quarter. Entirely consistent with what we shared with you on our last call. Our focus has not deviated from stabilizing the financial performance of our business in the post-pandemic economic environment, while at the same time executing our blueprint to be the most sustainable protein company on Earth. And in the third quarter, we made excellent progress. As you've seen in our results that were published earlier this morning, we grew our total company sales in the quarter to over $1.2 billion. And at the very same time, we grew our consolidated adjusted EBITDA by 68% to 129 million. The momentum we are building in the business is clear and it is confidence inspiring. Let's break this down a little further, starting with our meat protein business. For the third consecutive quarter this year, we delivered a sequential improvement in adjusted EBITDA margins in our meat protein business, recording 11.4%. up from 9.3% last quarter and 8.5% last year. The sequential margin improvement as compared to last quarter was a result of pork market conditions that are improving, but important to note not yet back to normal. The contributions from our London Poultry and Bacon Centre of Excellence capital projects and a full quarter impact of the pricing actions as expected. At our largest project in London, the progress has been nothing short of outstanding. We have completed the transition of three of four legacy plants. We are processing over 1.5 million birds per week, with 88% of projected total volume now online, and we are producing over 390 SKUs. We are also delivering 97% or greater service levels, We are fully staffed with over 1500 employees on site. And we are on schedule to complete the final stage of transition in Q4 by absorbing the Schomburg facility volumes. To sustain our profitable growth momentum this past quarter, we delivered one of the most impressive single quarters of new product innovation on record. In our flagship Maple Leaf brand, our Maple Leaf natural selections three ingredient oven roasted and five-ingredient black forest ham, which were designed to meet the growing demand for simple, healthy, and quality ingredients, are now successfully growing distribution in the market. In our Schneider's brand, we introduced two new delicious schnitzel products, including a pork cutlet and a chicken cutlet, and also rolled out five new sliced meat deli items. In our Fantino and Mondello brand, a brand that we acquired as part of the Quebec-based BO Foods transaction in 2018. We launched an incredible line of eight dry-cured specialty meats and pizza toppings that bring together old-world quality, artisanal craftsmanship, and absolutely amazing great taste. And finally, we recently worked alongside A&W, one of our largest food service partners, to develop and launch three new chicken cruncher sandwiches. These delicious sandwiches are made with chicken raised without antibiotics supplied by Maple Leaf and also include a BLT option that features raised without antibiotics bacon sourced from our new Bacon Center of Excellence in Winnipeg. This level of innovation continues to differentiate us in the market with both customers and consumers and certainly sets the stage for future growth in our branded food service and sustainable meats businesses. As you can probably tell, there was a lot of really good progress and good news in the quarter that I would personally describe as progress, not perfection. I've committed to be fully transparent with you in our communications, not only to highlight where we are executing well and building positive momentum in the business, but also acknowledging where we see opportunities to improve. In that spirit, the first observation that I would offer is that pork market conditions have not yet fully normalized. You can see this visually in the chart that we have shared on slide 11 of our materials. And I would also point you to the external data that is available through Bloomberg's US Vertically Integrated Pork Margin Index as an excellent point of reference. While not yet fully normalized, markets did improve in the quarter. mostly traced to a significant market move where the price of USDA bellies increased by more than 80% in less than 30 days, driving up the pork cutout and improving processing margins in the short term. At the same time, this had a short-term negative impact on our bacon margins in the quarter, which will be addressed as our formula pricing mechanically catches up in Q4. Additionally, we have work to do in Japan, a market that has been impacted by the competitive dynamics resulting from dislocated pork markets, as well as the devaluation of the Japanese yen. All in all, we believe we are approximately 250 basis points of adjusted EBITDA margin away from normalized pork and Japan markets. While these atypical market dynamics have certainly lasted longer than we would have anticipated, we continue to view this dislocation as transitory. This is supported by the evidence of supply contraction that has been underway globally, as well as the prospects for significantly reduced feed input costs heading into 2024. As we have said consistently, markets will normalize. They always do. It's important to note that in reviewing the performance of our pork business against our public peer set in North America, it is clear that our relative performance has been exceptional through these challenging conditions. which again sets us up for excellent performance once markets normalize. Lastly, we also don't want to shy away from the question of trade down and the impact that pricing has had in terms of what we had to put in place to keep up with the pace of inflation. We did experience some level of volume decline during the quarter, which is completely and fully consistent with what we would normally expect to see after pricing, especially in this kind of inflationary environment. Given the resiliency of our brands, the depth of our innovation agenda, and the runway for continued growth in sustainable meats in Canada and the US, we are confident that the volume impacts will prove to be transitory in time. Turning to our plant protein business, we made great strides again this quarter toward delivering our target of achieving adjusted EBITDA neutral by year end. We've meaningfully reduced the size of our SG&A structure and we've made the necessary changes required to resize our cost structure. We are expanding gross margins and we've narrowed our product assortment to refocus the portfolio to where we have a competitive advantage and where we see the best market opportunities to achieve profitable growth. But simply the strategy is working. Today we have a strong and growing market share in the refrigerated category and produce sets where we have maintained brand leadership We have continued product innovation and we have invested in the capacity required to support growth, specifically in our Tempe facility in Indiana. We have now delivered three consecutive quarters of stable revenue and we have improved our adjusted EBITDA by over 60% year over year. We have a clear path to break even and we will be turning the business profitable from there. Before I turn it over to here to take us through a bit of a deeper dive into the details of our financial results in the quarter, I'd like to summarize what I'm seeing in the business and where we are focused. First, we are focused on fully realizing the benefits of our large construction capital projects at London Poultry and our Bacon Centre of Excellence. I'm so pleased with how these startups have gone, and we fully expect to exit the year with these investments delivering an annualized adjusted EBITDA of 130 million. Second, we are focused on achieving our 14 to 16% adjusted EBITDA margin target in the meat protein segment. And we have unwavering confidence that we have all the building blocks in place to deliver on this goal as markets normalize. Third, we are focused on achieving adjusted EBITDA break even exiting the year in the plant protein business. Year two, we have a clear line of sight to delivering this target. And finally, we are focused on deleveraging our balance sheet. With momentum building in profits, cash flow generation from the new projects coming online, and lower capex in 2024, we are on a clear path to our target of net debt to adjusted EBITDA ratio that is in line with investment grade metrics. With that, I'll now turn the call over to Hirt to walk us through our financial results this past quarter in more detail.