Maple Leaf is targeting higher EBITDA margins from bakery and prepared meat

Maple Leaf is targeting higher EBITDA margins from bakery and prepared meat

Maple Leaf Foods president Michael McCain today (6 October) stood by the Canadian food group's plan to drive down costs and improve efficiency, insisting the business was facing increased competition from the US.

McCain said the strength of the Canadian dollar had meant US food makers had gained share in the company's sectors and he pointed to the prepared-meats category, where US manufacturers had doubled their market share from 4-8%.

The Maple Leaf chief said the company's "value creation plan", in which the business will simplify production, consolidate manufacturing and implement SAP, would reduce the company's costs.

"Eighty five per cent of the money we spend goes straight out the door from our plants and that's where we have to be competitive," McCain told analysts.

The plans include some C$755m (US$747.7m) of capital investment across the business for "a series of plant consolidations" including the construction of a new bakery and a new prepared-meats facility.

The bakery and meat processor expects its plans to enable the business to boost its EBITDA margin from its current level of 7% to 12.5% in 2015.

Maple Leaf estimated that its current EBITDA margin from its protein division stood at 6.2%, with the EBITDA margin generated by its bakery business at 9.2%. The company wants both divisions to reach 12.5% in five years time.

The company's EBITDA margin targets would take it beyond the levels of competitors in both sectors - from Hormel Foods in the protein industry to Aryzta and Flowers Foods in bakery.

McCain said he was confident of surpassing the EBITDA margin levels of the likes of Hormel due to the strength of the company's brands and the fresh manufacturing assets it will enjoy.

"We have spent a lot of time on the reasonableness of that outcome. It's a reasonable expectation. We have leading market positions in Canada. [Hormel] is number three in the US. McCain said. He added: "It is also important to recognise we will have ostensibly all new assets."

Much of the improvement in margins will come from gains in efficiency when the bakery and prepared-meat facilities are up and running. The bakery is expected to be commissioned next year, while construction on the meats site will start in 2012.

However, McCain said Maple Leaf's margins would benefit immediately from "near-term" actions, including the "normalisation" of its trade spending, which rocketed in the wake of the 2008 listeria outbreak at the company.

McCain, part of the McCain family that owns around 31% of Maple Leaf, added: "I am personally the largest shareholder and I have a significant stake in the success of this plan."

Shares in Maple Leaf initially rose when the Toronto Stock Exchange opened but, by 12:38 ET, they had fallen back and were down 2.3% at C$12.10.