A Maple Leaf Food Inc is a Canadian company whose business is deals in bakery, meat and meals. This company serves the Canadian people and the North Americans in wholesale and retail. The company has presence in Canada, across the north Americas and the whole world especially Europe, Asian countries like Japan, china in franchises and through the exports in their products. The company’s operations have segments in three main groupings which are in meat, bakery and the agribusiness.
The meat products group deals in valued added fresh meats, the chilled and the ready to cook and eat products, the ready to serve chilled products and the meats. These include kits ready for lunch some of which are pork, poultry as well as turkey on a global scale. The bakery products group of the maple leaf foods deal in ethnic breads, morning goods, croissants, premium artisan and sweet products, frozen par-baked and fully baked goods. These bakery products are enjoyed by many people across the world; other products in this group are rolls, bagels, sandwiches and fresh pasta as well as sauces. The other group of products is in agribusiness which among others include rendering, biodiesel production and hog production operations. In the agribusiness group are also by-products from animals and swine production.
The Maple Leaf Foods Inc has its headquarters in Toronto, Canada employs more than 12,000 people. This company has operations in Canada, United States, Europe and Asia among the overseas countries where they have interests and markets. To emphasize the international strength of the company, the company in April 2000, announced the commencement of fresh pork processing operations in the Burlington, Ontario and Brandon in Manitoba which would process products ready for export to China. This came as a direct result of the bilateral agreements on trade between the Canadian and Chinese governments.
Financial Overview
The company sales for maple leaf foods are observed to have declined by a significant dollar amount of $28,800 or 0.6% from the posted $$4,893,600 in 2011 to $4,864,800 in 2011. According to the financial statements this is attributed to divestitures the company embarked on due to restructuring of their operations and the fluctuations of the foreign currency exchange rates. The adjusted operating income similarly increased by an amount of $71.00 million to $ 280 million in 2012 representing 8.1% and this event is attributed to the strong performance realized from meat and bakery groups between 2011 and 2012.
In the same way the earnings per share was $ 1.06 for 2012 as compared to $ 1.01 in 2011 which included the $ 0.09 per share as a result of tax adjustments. In the same way the net earnings also increased significantly to $ 122.7 million in financial year 2012 up from the figure of $ 87.3 million for the year 2011. The basing earnings per share meanwhile changed from $ 0.59 in the year 2011 to $ 0.83 for the year 2012. This is also noted to have included $ 0.25 (with $47.5 million as net earnings) perhaps due to the costs before tax relating to activities that came with restructuring that began in 2011 where the net earnings were $79.8 million (with $ 0.41 per share)
On the side of assets, the company’s total increased to $ 3,243,700,000 in 2012 up from $ 2,940,000,000 in 2011 by a whole 10.3% which had also increased by 3.7% from the sum of $ 2,834,900,000 in the year 2010. The net debt was $ 1,171,300,000 for 2012 from $ 984.0 million in 2011, a change of 19.0%. This quantity meanwhile had increased by 9.11% transiting from 2010. The long term liabilities increased by 22.6% to $ 1,742.7 million in the year 2012 which had increased by 88.0% into 2011. The debt has increased proportionally with the total assets and the long term liabilities. This can be attributed to the restructuring the company has embarked on through the year 2011.
The company’s cash dividends per share was observed to be at the same value of $ 0.16 in the three years from 2010 to 2012 and the operating activities dropped by a sizable 14.2% in 2011 and by a further drop of 10.9% in the year 2012. The return on the company’s net assets in the mean time increased sizably from 8.6% in the year 2010 to 10.0% in 2011. This further went up to 10.8% in the year 2012. Thus providing a significant indicator how the company was efficiently being managed well to point off significantly generating value on the company assets.
The gross margin: We recognize that the gross margin in the year 2012 was $ 768.0 million which was 15.8% of the sales as compared to the year 2011 when this margin was $167.2 million or otherwise 15.7% of the sales. This also can be explained by the expansion prepared meats as a result increasing the meat products, together with the full year benefits derived from the 2011 price increments, and the pricing implemented for the year 2012 that arise from the bakery products group not mentioning the activities helping in hedging that also reduce the cost of the raw materials.
The selling, general and administrative expenses: the selling, general and administrative expenses for the company decreased from the amount of $ 504.2 million in 2011 by a percentage of 1.9% to record the sum of $494.7 million in the financial year of 2012 which represented respectively 10.3% and 10.2%. This can be attributed to the lowered compensation expense and the possible reduction in the marketing expenditure as in the after math of the 2011 spending made to support the company’s re launch of the New York brand in the United Kingdom. Some savings were realized here to some extents which were offset by the advertising and spending on the business operations of fresh pasta, to enhance the same operations of the bakery products group.
With respect to other income or expense of the balance sheet, it is realized that in 2012, the sum was $9.2 million as compared to $10.3 million which show a decrease of 10.7%. this net income also include the $ 5.3 million realized to the company due the gains from the purchase of hog operations acquisition by the company, as well as the $ 3.5 million realized from the insurance revenue gained as the compensation of the fire at one of the meat processing plants within Canada. This also accounts for the $ 1.4 million realized due to the legal settlements and the $ 1.0 million gains from the sale of some of the company assets. The same figures were partly alleviated by some $ 2.0 million in the legal expenses coming due to expenses to legal team involved in the negotiations leading to the sale of hog operations.
Some of the aspects of the financials are a direct result of the effects of the company as a direct result of the company plans like the value added plans that are aimed at increasing the company’s margins and lowering costs in the prepared in each of the years of the leading to 2015 by reducing the complexity of products, closing less manufacturing and distribution operations and at the same time consolidating some of the operations into smaller number of the efficient scale facilities and or otherwise into the company centres of excellence. Enough progress has been made especially leading to 2012; for they have complexity in production, there is early closure of prepared meat plants like in places such as Berwick, nova Scotia and surrey, the British Columbia; optimizing the pricing and promotions , rationalization of prepared meat products’ network, investments in leading and advanced edge technologies. Increasing the productivity and the distribution agencies; opening the new and more efficient new Ontario fresh fish plant; the implementation of SAP as new software; the introduction of a simpler, scale prepared meats supply network in which the maple leaf foods Inc plans to reduce by about 10% of facilities in both plants and the distribution centres. Some of these restructures are expected to be completed in 2014, with expectations to save about 60% from the enhanced throughput and the large scale productivity and technology. This is also expected to improve the yield with the reduced wastes and improved packaging, lower the costs and labour due to low shipping costs. It is also estimated that the earnings before interest, tax, depreciation and amortization (EBITDA) margins will go up to around 12.5%.
Some of the other factors include the system conversion and the fact that management selected the SAP software which also brought some new capacities to the majority of the operations of the company also setting a strong foundation for or to better the company analytics and thus furthering the gains due to the company efficiency.
Risks and Uncertainties
The fluctuating prices of inputs. The company has been affected by the constant changes in the commodity prices especially for the year 2011 affecting sectors like live chicken, live hog, corn, fresh pork, crude oil and wheat. The event of the high commodity prices led to increases across the fabric of the company’s consumer facing business. This tendency of risk has been alleviated by purchasing the company commodities and raw materials using the forward price basis so that the short term fluctuations for the prices can be well managed.
The impact of the Canadian currency: The behavior of the Canadian dollar has an impact of the products that are traded into or outside of the Canadian economy. A stronger Canadian dollar has an effect on the profits of the company significantly especially in the elementary processing of pork products and operations and the reduced value of the exports. On the hand the strong position of the Canadian dollar has an effect of reducing the cost raw materials within the domestic market. However on a bigger scale, the strong Canadian dollar has a relative reduction on the competitiveness on the goods that made and packaged within the Canadian economy compared to imports as most exporting countries like the United States tend to become competitive with the Canadian economy. To remedy this, the company tries to implement strategies to bring down the costs with an aim of improving in productivity and more effectively to compete with the larger food companies in any country.
Other financial instruments and risk management of maple leaf foods activities.
As it may be for any company in business and especially the competitive market, not mentioning its attempts in venturing to markets being the beyond the borders of Canada, maple leaf foods is prone to market and business risks. Some of the risks have to do with prices and others have to do with cross border trade involvement. The company therefore involves in some sort of hedging to mitigate the price and other associated risks with the sound operating exposures and as policy they do not associate in any speculative activities. The company has a risk management committee which regularly meets to have discussion about the hedging programs and consider any trading activities they may need to approve or otherwise not approve.
The company capital risks: The Company’s main goal is to maintain a very stable distribution of dividends to keep their shareholders happy and satisfied. The company even buy shares for the sole purpose of cancellation in pursue of the normal course of issuance of bids to the satisfaction of awards under the share incentive plans. For instance the company bought close to the worth of $0.8 million of shares in 2012 in the respect of the awards under the compensation plan. In the 2012 year, the total equity thus increased by $27.9 million to around $ 958.0 million and with the same period, the total debt for the company dropped from $ 187.4 million to $1,171.3 million.
Credit risks: these risks emanate basically due to failure by the company customers to come good on their payment obligations to the company. These can remedied when the company performs a continuous and ongoing credit evaluations of their customers to authenticate their new or potential customers who need credit to establish their financial positions.
Liquidity risk: These are risks associated with the financial liabilities that the firm has involvement in as the course of business progresses. The liquidity risks can be managed by the company’s monitoring of the projected and the actual cash movements, the attempts to reduce the over reliance on any given single credit source, as well as attempting to maintaining very sufficient and undrawn committed facilities of the bank as well as the management of maturity profiles of the financial assets and or the company liabilities so as to minimize the risks due to financing.
Markets risks: As and in the course of business and trading transactions, maple leaf foods as any other big company that desires to have involvement in big businesses, desiring for expansion, there are surely market risks in the course of the same operations. These risks are known to include interest rate risks, foreign exchange risks, and commodity prices risks among the many risks.
Foreign exchange risks: These risks are due to values of company financial instruments or the cash movements that are pegged to the instruments that fluctuate as a result of changes in the foreign currency exchange rates. These risks are known to basically arise from the transactions due in currencies other than the Canadian dollar. These risks are mainly due to the United States denominated sales and any borrowings, the Great Britain British Pound Sterling and the Japanese yen in relation to the Canadian dollar. The Chinese RMB Yuan does not have an effect at this point because it is not directly exchange to the Canadian dollar but through a third currency, one of these mentioned. This sort of risk is mitigated by the company entering into the currency agreements for derivatives so as to manage the prevailing or current and the anticipated exposures in the foreign exchange markets. They can similarly enter futures and forwards contracts with their international business partners so that the unexpected fluctuations in the exchange rate do not affect their revenues significantly.
The interest rate risks: these risks arise from the long term borrowings which may be issued at fixed interest rates which may create a fair value and reasonable value in interest rate risk and the variable borrowing rate that bring about the cash flow risk of the interest rate. To mitigate such a market risk, the company actively monitors the market to ensure that the desired funding rate on the overall, as well the proportionate targeted fixed to variable debt mix can be achieved to some short and long term basis.
Commodity price risks: In fact the company is directly exposed to these commodity risks because the raw materials are the backbone of the operations of any industry besides the fact that it was what keeps maple leaf foods in business. These come as there are changes in prices of wheat, live hogs and costs of fuel and due to purchase of other agricultural commodities used as raw materials such as feed grains. To minimize the effect of such risks to insulate the operating results, the company tries to use fixed price contracts with its suppliers, the exchange –traded futures and some time options.
The company derivatives that may be designed as hedging the anticipated and so forecasted transactions may be accounted for and by the cash flow and the fair value hedges or managed within the company’s portfolio. This can help the normal purchases section that is made for the sole purpose of finding the raw materials for production.
Time to time, the company can enter interest swaps for the purpose of managing the current and any anticipated markets exposure risks in order to achieve their desired rate of borrowing.
The cross currency interests swaps play a role to alleviate the company exposure to changes in the market that are related to the united states dollar denominated debt. These swaps may also be used to convert the foreign currency denominated notes payable to the fixed rates notes that are denominated in the domestic Canadian dollar accounted for by the cash flow hedges. The forward contracts the company gets can be used to manage risks that arise from products sales overseas like the Japan, European and the United States markets.
