MAPLE LEAF FOODS INC - ANNUAL INFORMATION FORM
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MAPLE LEAF FOODS INC.
ANNUAL INFORMATION FORM
February 27, 2019MAPLE LEAF FOODS INC.
ANNUAL INFORMATION FORM
February 27, 2019
TABLE OF CONTENTS
Page
Special Note Regarding Forward-Looking Information 1
Overview of the Business 3
General Development of the Business 3
Description of the Business 8
Foreign Operations 10
Intangible Property – Trademarks and Patents 11
Environmental Matters 11
Employee Relations 12
Risk Factors 12
Corporate Structure 13
Description of Capital Structure 13
Dividends 15
Market for Securities 16
Directors and Officers 17
Audit Committee 22
Legal Proceedings and Regulatory Actions 24
Conflicts of Interest 24
Interests of Management and Others in Material Transactions 24
Transfer Agent and Registrars 24
Interests of Experts 24
Material Contracts 25
Additional Information 26
Appendix “A” – Charter of the Audit Committee A-1MAPLE LEAF FOODS INC.
ANNUAL INFORMATION FORM
Unless otherwise indicated, the information in this Annual Information Form is given as of December 31,
2018 and all amounts are in Canadian dollars. Unless the context otherwise requires, references herein to
“Maple Leaf Foods” or the “Company” are to Maple Leaf Foods Inc. and its consolidated subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This document contains, and the Company’s oral and written public communications often contain, “forward-
looking information” within the meaning of applicable securities law. These statements are based on current
expectations, estimates, forecasts, and projections about the industries in which the Company operates, as
well as beliefs and assumptions made by Management of the Company. Such statements include, but are
not limited to, statements with respect to objectives and goals, in addition to statements with respect to
beliefs, plans, objectives, expectations, anticipations, estimates, and intentions. Specific forward-looking
information in this document includes, but is not limited to, statements with respect to: expectations
regarding the use of derivatives, futures and options; the expected use of cash balances; the payment of
dividends; source of funds for ongoing business requirements; capital investments and expectations
regarding capital expenditures; expectations regarding acquisitions; expectations regarding the
implementation of environmental sustainability initiatives; expectations regarding the adoption of new
accounting standards and the impact of such adoption on financial position; expectations regarding pension
plan performance and future pension plan liabilities and contributions; expectations regarding levels of
credit risk; and expectations regarding outcomes of legal actions. Words such as “expect”, “anticipate”,
“intend”, “may”, “will”, “plan”, “believe”, “seek”, “estimate”, and variations of such words and similar
expressions are intended to identify such forward-looking information. These statements are not guarantees
of future performance and involve assumptions, risks, and uncertainties that are difficult to predict.
In addition, these statements and expectations concerning the performance of the Company’s business in
general are based on a number of factors and assumptions including, but not limited to: the condition of the
Canadian, U.S., and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar,
and the Japanese yen; the availability and prices of raw materials, energy and supplies; product pricing; the
availability of insurance; the competitive environment and related market conditions; improvement of
operating efficiencies; continued access to capital; the cost of compliance with environmental and health
standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign
governments; and the general assumption that none of the risks identified below or elsewhere in this
document will materialize. All of these assumptions have been derived from information currently available
to the Company, including information obtained by the Company from third-party sources. These
assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially
from those expressed, implied, or forecasted in such forward-looking information, which reflect the
Company’s expectations only as of the date hereof.
Factors that could cause actual results or outcomes to differ materially from the results expressed, implied,
or forecasted by forward looking information include, among other things:
• risks associated with the Company focusing solely on the protein business;
• risks associated with the availability of capital;
• risks related to the health status of livestock;
• risks associated with concentration of production in fewer facilities;
• risks posed by food contamination, consumer liability, and product recalls;
1• risks associated with cyber threats;
• risks related to the Company's decisions regarding any potential return of capital to shareholders;
• risks associated with acquisitions, divestitures, capital expansion projects and integration of new
businesses;
• risk associated with climate change;
• impact on pension expense and funding requirements of fluctuations in the market prices of fixed
income and equity securities and changes in interest rates;
• cyclical nature of the cost and supply of hogs and the competitive nature of the pork market generally;
• ability of the Company to hedge against the effect of commodity price changes through the use of
commodity futures and options;
• risks associated with the supply management system for poultry in Canada;
• risks posed by litigation;
• risks associated with changes in the Company’s information systems and processes;
• risks associated with the use of contract manufacturers;
• impact of international events on commodity prices and the free flow of goods;
• risks posed by compliance with extensive government regulation;
• the Company’s exposure to currency exchange risks;
• impact of changes in consumer tastes and buying patterns;
• impact of extensive environmental regulation and potential environmental liabilities;
• risks associated with a consolidating retail environment;
• risks posed by competition;
• risks associated with complying with differing employment laws and practices, the potential for work
stoppages due to non-renewal of collective agreements, and recruiting and retaining qualified
personnel;
• risks associated with pricing the Company’s products;
• risks associated with managing the Company’s supply chain;
• risks associated with failing to identify and manage the strategic risks facing the Company; and
• impact of changes in International Financial Reporting Standards in respect of or as they may affect the
availability of capital
The Company cautions the reader that the foregoing list of factors is not exhaustive. These factors are referred
to in more detail under the heading "Risk Factors" on page 12 of this document. The reader should review
such section and other documents it references in detail. Some of the forward-looking information may be
considered to be financial outlooks for purposes of applicable securities legislation including, but not limited
to, statements concerning future capital expenditures. These financial outlooks are presented to evaluate
anticipated future uses of cash flows and may not be appropriate for other purposes and readers should not
assume they will be achieved. The Company does not intend to, and the Company disclaims any obligation
to, update any forward-looking information, whether written or oral, or whether as a result of new information,
future events or otherwise, except as required by law. Additional information concerning the Company,
including the Company’s Management’s Discussion and Analysis available on SEDAR at www.sedar.com.
23
OVERVIEW OF THE BUSINESS
Maple Leaf Foods Inc. is a leading consumer protein company making high quality, innovative products
under national brands including Maple Leaf®, Maple Leaf Prime®, Maple Leaf Natural Selections®,
Schneiders®, Schneiders® Country Naturals®, Mina®, Greenfield Natural Meat Co.®, LightlifeTM, Field
Roast Grain Meat Co.TM and Swift®. The Company's portfolio includes prepared meats, ready-to-cook and
ready-to-serve meals, valued-added fresh pork and poultry and plant protein products. The Company
employs approximately 12,000 people and does business in Canada, the U.S. and Asia. The Company is
headquartered in Mississauga, Ontario and its shares trade on the Toronto Stock Exchange (MFI).
Following the sale of the rendering and bakery businesses in 2013 and 2014, the Company undertook a
significant reorganization of the internal leadership and reporting structure. The reorganization was
completed in 2017 and the Company is arranged as a single, focused protein company. As such, the
Company has transitioned to a single reporting segment.
GENERAL DEVELOPMENT OF THE BUSINESS
Three-Year History – General
For the three years ended December 31, 2018, the Company has been affected by a number of factors,
changes and initiatives including:
1. The Company’s acquisition of plant protein production companies, poultry plants and meat
processing companies;
2. Implementation of sustainability priorities and objectives; and
3. The impact of changes in the price of key inputs including pork, corn and fuel costs, the impact of
currency changes and the ability of the Company to adjust prices in response to these changes.
Acquisition of Plant Protein Production Companies
On January 29, 2018, the Company acquired 100% of the outstanding shares of The Field Roast Grain
Meat Company, SPC ("Field Roast Grain Meat Co."), a privately held U.S. based corporation engaged in
the production and distribution of premium grain-based protein and vegan cheese products for a purchase
price of US$120.0 million prior to transaction fees, debt settlement, and working capital adjustments.
The Field Roast Grain Meat Co. acquisition complements the plant based protein portfolio of Lightlife Foods
Holdings Inc. ("Lightlife") which was acquired in 2017.
4Acquisition of Poultry Plants
On October 22, 2018, the Company acquired two poultry plants and associated supply from Cericola Farms
Inc. ("Cericola"), a privately held Canadian company. The purchase price of the assets was $80.0 million,
with a put/call option to purchase a third processing facility for a purchase price of $40.0 million, exercisable
within three years.
Acquisition of VIAU
On November 13, 2018, the Company acquired 100% of the outstanding shares of VIAU Food Products
Inc. ("VIAU"), a privately held Canadian market leader in premium Italian cooked, dry-cured and charcuterie
meats, for a purchase price of $215.0 million. VIAU operates two plants in the Montreal area.
Poultry Facility
On November 26, 2018, the Company announced plans to build a $660 million value-added fresh poultry
facility in London, Ontario. The new 640,000 square feet facility is expected to be one of the most
technologically advanced poultry-processing plants in the world, with leading-edge food safety,
environmental, and animal welfare processes and technologies.
5Company Vision and Strategic Plan
Maple Leaf Foods’ vision is to be the most sustainable protein company on earth by pursuing the purpose
to Raise the Good in Food. The Company’s vision is based on a strong conviction that furthering its
leadership in sustainability is a point of differentiation that will not only contribute to social good but also
provide the benefit of competitive advantages to unlock significant sales and growth in profitability.
Maple Leaf Foods is committed to making better food for consumers, reducing its environmental impact,
caring for animals responsibly and strengthening communities while achieving business targets, delivering
operational and financial performance and long-term value creation.
In pursuit of its vision, the Company has established a blueprint that encompasses goals and actions to
create shared value. Six core strategies underpin this plan:
• Leverage leadership in sustainability
• Relentlessly eliminate waste and improve efficiency
• Broaden reach into new geographies, channels and protein alternatives
• Embrace a digital future across the business
• Invest in brands to build demand and consumer loyalty
• Invest in people so talent thrives
In 2016, Maple Leaf Foods achieved a step-change in profitability with its structural Adjusted EBITDA
margin reaching the 10% range. Having reached this milestone, the Company turned towards its next phase
of profitability and value creation. In 2017, through a deep understanding of market dynamics, expertise in
the food industry, strong relationships with customers and extensive consumer insights, the Company
established an Adjusted EBITDA margin target ranging between 14% and 16% within five years. The
Company maintains a steadfast focus on meeting this target through five strategic growth initiatives:
• Sustainable Meat - Sustainable meat is the most advanced of the growth initiatives and includes
the Company’s portfolio of products that combine raised without antibiotics ("RWA"), leadership in
animal care and environmental sustainability. Maple Leaf Foods' sustainable meat program aligns
with, and addresses consumers' increasing desire to know how their food is raised, what's in it and
how it's made. This provides the Company a means to address important social and environmental
issues, differentiate its offering and monetize its investments in sustainable meat. And, as a leading
provider of RWA pork and poultry products, Maple Leaf Foods has operational and competitive
advantages to meet the growing demand for RWA products. Market growth of the Company’s
sustainable meat portfolio is a key driver of Adjusted EBITDA margin accretion.
• Poultry Network - Chicken is the fastest growing segment in the meat protein market. Maple Leaf
Foods is investing in its fresh poultry network to secure its leadership position, expand its capacity
to offer value-added poultry and drive efficiencies through leading-edge processing technologies
and production consolidation. The Company is investing $605.5 million to build a state-of-the art
poultry facility to replace its aging legacy plants in Ontario, with the remaining $54.5 million being
funded by the Government. With detailed plans in place and production start-up anticipated in the
second quarter of 2021, this facility is expected to be a significant contributor to achieving the
Company’s Adjusted EBITDA margin target in 2022.
• Food Renovation - Maple Leaf Foods’ brands are at the core of the Company’s market
leadership. In 2018, the Company completed an extensive food renovation program providing its
6flagship brands with defined brand attributes that meet the most salient consumer needs. The
Company's brand portfolio addresses the spectrum of consumer demands, including: natural and
simple foods with nothing artificial; artisanal and indulgent with exceptional flavours; and quick-fix
and convenient that focus on value. With clear differentiation and delineation, Maple Leaf Foods'
brands are well-positioned to accelerate growth in prepared meats and drive Adjusted EBITDA
margin expansion.
• Plant protein - Plant protein is an attractive and rapidly-growing market that is a natural extension
to Maple Leaf Foods’ portfolio and aligns well with its vision to lead in sustainable protein. The
acquisition of the two leading brands in the fast-growing refrigerated plant protein segment,
Lightlife™ and Field Roast Grain Meat Co.™, has provided the Company an established foothold
in this innovative and expanding market. With a leadership position, a pipeline of new product
innovation and a North American supply chain network, plant protein is an important growth and
margin expansion platform for the Company.
• Cost culture - A core competitive advantage is Maple Leaf Foods’ cost culture which continually
seeks out opportunities to improve efficiencies and eliminate waste to reduce cost and fuel future
growth. The Company targets elimination of waste and improved efficiencies through rigorous
business processes of continuous improvement including, operations excellence systems, digital
technologies for real-time solutions and efficiencies, zero-based budgeting and strategic sourcing.
Changes in the Prices of Key Inputs and Changes in Currency Exchange Rates
In aggregate for 2018, the market influences for the entire pork value chain were lower than the five year
average. However, market volatility within the year was very high due to the emergence of trade disputes
between major pork importing and exporting countries. Pork industry processor margins were quite positive
compared to the five year average, though below the past two years. Producer margins were negative in
2018 and well below the five year average.
The Company uses derivatives and other non-derivative financial instruments to manage its exposures to
fluctuations in commodity prices.
Currency
A portion of the Company’s revenues and costs are either denominated in or directly linked to other
currencies (primarily U.S. dollars and Japanese yen). In periods when the Canadian dollar has appreciated
both rapidly and materially against these foreign currencies, revenues linked to U.S. dollars or Japanese
yen are immediately reduced, while the Company’s ability to change prices or realize natural hedges may
lag the immediate currency change. The effect of such sudden changes in exchange rates can have a
significant immediate impact on the Company’s earnings. Due to the diversity of the Company’s operations,
normal fluctuations in other currencies do not generally have a material impact on the Company’s
profitability in the short term due to either natural hedges and offsetting currency exposures (for example,
when revenues and costs are both linked to other currencies) or the ability in the near term to change prices
of its products to offset adverse currency movements. However, as the Company competes in international
markets, and faces competition in its domestic markets from U.S. competitors, significant changes in the
Canadian to U.S. dollar exchange rate can have, and have had, significant effects on the Company’s
relative competitiveness in its domestic and international markets, which can have, and have had,
significant effects on the Company’s financial condition and results of operations.
7The Canadian dollar, on average, strengthened relative to the U.S. dollar by 0.1% in 2018, by 1.5% in 2017
and weakened by 3.1% in 2016. These fluctuations did not have a material impact on earnings.
In the short term, a stronger Canadian dollar compresses export margins in the Company’s primary pork
processing and hog production operations. Conversely, a stronger Canadian dollar decreases the cost of
raw materials and ingredients in the domestic prepared meats business. The prepared meats business is
able to react to changes in input costs over time through pricing, cost reduction, or investment in value-
added products. However, over the longer-term, a stronger Canadian dollar reduces the relative
competitiveness of the domestic Canadian packaged goods operation, as imports of competing products
from the U.S. become more competitive. Similarly, the Company also has a greater ability to export and
expand into the U.S. market.
During 2018, the Japanese yen, on average increased in value relative to the Canadian dollar by 1.4% in
2018 and by 13.3% in 2016 but declined in value relative to the Canadian dollar by 5.3% in 2017. In
general, a stronger Japanese yen expands export margins to Japan in the Company’s fresh pork business.
The Company ultimately seeks to manage pricing to offset the impact of currency fluctuations.
The Company uses derivatives and other non-derivative financial instruments to manage its exposures to
fluctuations in foreign exchange rates.
Pricing
The Company’s profitability is dependent, in large part, on the Company’s ability to make pricing decisions
regarding its products that, on one hand encourage consumers to buy, yet on the other hand recoup
development and other costs associated with those products. Products that are priced too high will not sell
and products priced too low will not generate an adequate return. Accordingly, any failure by the Company
to properly price its products could have a material adverse effect on the Company’s financial condition and
results of operations.
Acquisitions, Dispositions and Capital Expansions
The specific acquisitions, dispositions, capital expansions and conditions that have influenced the general
development of the Company’s business over the last three fiscal years are discussed below.
The Company implemented short- and long- term initiatives aimed at building significant and sustainable
shareholder value. The longer-term initiatives include plant consolidations and strategic capital investments
in new manufacturing capacity and technology.
Starting in 2010, the Company embarked upon a multi-year plan to modernize and consolidate the prepared
meats supply chain. The Company built a 400,000-square foot fully operational scale plant in Hamilton,
Ontario that is focused on production of wieners and deli meats. The transfer of production and closure of
legacy plants was completed in 2015. During 2016 and 2017, the Company continued to eliminate ramp-
up inefficiencies. Also included in this investment are expansions and upgrades of three other existing
facilities in Saskatoon, Saskatchewan; Winnipeg, Manitoba; and, Brampton, Ontario. The Saskatoon facility
specializes in production of cooked smoked sausages and meat snacks; the Winnipeg plant consolidates
value-added ham and bacon processing; and the Brampton location focuses on the production of boxed
meats and fresh and frozen sausages.
The Company’s strategy for pork production is to supply pork for the Company’s prepared meats
operations. In 2018, the Brandon, Manitoba and Lethbridge, Alberta plants processed an aggregate of
approximately 73,000 hogs per week, down from the 74,900 hogs per week processed in 2017 and 74,800
hogs per week processed in 2016.
8During 2016, the Company sold investment properties in Toronto, Ontario and Moncton, New Brunswick.
During 2017, the Company sold an investment property in North Battleford, Saskatchewan. In September
2017, the Company sold its Kitchener legacy plant.
In 2018, the Company closed its 80-year old Thamesford turkey processing facility as it entered into a turkey
processing agreement with a third party which will process the Company’s supply of live turkeys. In this
way, the Company will maintain its supply of fresh turkey meat for further processing.
The Company invests capital in its facilities to maintain and improve its production network.
On March 10, 2017, the Company completed the acquisition of 100% of the outstanding shares of Lightlife,
a privately held U.S.-based corporation engaged in the production and distribution of plant protein products.
Lightlife has a leading market share in plant protein products and is expected to provide the Company with
a strong position in this fast-growing product line. The purchase price was US$140.0 million prior to
transaction fees, debt settlement, and working capital adjustments.
On January 29, 2018, the Company completed the acquisition of 100% of the outstanding shares of Field
Roast Grain Meat Co., a privately held U.S.-based corporation engaged in the production and distribution
of premium grain-based protein and vegan cheese products. The purchase price was US$120.0 million
prior to transaction fees, debt settlement, and working capital adjustments.
The Field Roast Grain Meat Co. acquisition complements the Lightlife business acquired in 2017. In 2018,
the operations of these two businesses were amalgamated and now operate under the name "Greenleaf
Foods".
On October 22, 2018, the Company acquired two poultry plants and associated supply from Cericola, a
privately held company. As part of the transaction, the Company has an option to acquire a third plant within
three years.
On November 13, 2018, the Company acquired 100% of the outstanding shares of VIAU, a privately held
Canadian market leader in premium Italian cooked, dry-cured and charcuterie meats. VIAU operates two
plants in the Montreal area.
On November 26, 2018, the Company announced plans to build a $660 million value-added fresh poultry
facility in London, Ontario. The new 640,000 square feet facility is expected to be one of the most
technologically advanced poultry-processing plants in the world, with leading-edge food safety,
environmental, and animal welfare processes and technologies.
On May 1, 2017, the Company acquired specific assets, liabilities and assembled workforce from a
privately-held hog production operation for total consideration of $10.3 million. On October 6, 2017, the
Company acquired additional barns for a total consideration of $15.0 million.
Normal Course Issuer Bids
On May 22, 2018, the Toronto Stock Exchange ("TSX") accepted the Company's notice of intention to
commence a Normal Course Issuer Bid ("NCIB"), which allows the Company to repurchase, at its discretion,
up to 7.8 million common shares in the open market or as otherwise permitted by the TSX, subject to the
normal terms and limitations of such bids. Common shares purchased by the Company are cancelled. The
program commenced on May 24, 2018 and will terminate on May 23, 2019, or on such earlier date as the
Company completes its purchases pursuant to the notice of intention. Under this bid, during the year ended
December 31, 2018, 4.0 million shares were purchased for cancellation for $126.6 million at a volume
weighted average price paid of $31.82 per common share.
9On May 17, 2017, the TSX accepted the Company's notice of intention to commence a NCIB, which allowed
the Company to repurchase, at its discretion, up to 8.2 million common shares in the open market or as
otherwise permitted by the TSX, subject to the normal terms and limitations of such bids. Common shares
purchased by the Company were cancelled. The program commenced on May 23, 2017 and was
terminated on May 22, 2018 as the Company completed its purchase and cancellation of 3.6 million
common shares for $117.3 million at a volume weighted average price of $32.51 per common share. Under
this bid, during the year ended December 31, 2018, 1.3 million shares (2017: 2.3 million) were purchased
for cancellation for $39.9 million (2017: $77.4 million) at a volume weighted average price paid of $31.17
(2017: $33.25) per common share.
On May 16, 2016, the TSX accepted the Company's notice of intention to commence a NCIB, which allowed
the Company to repurchase, at its discretion, up to 8.7 million common shares in the open market or as
otherwise permitted by the TSX, subject to the normal terms and limitations of such bids. Common shares
purchased by the Company were cancelled. The program commenced on May 19, 2016 and was
terminated on May 18, 2017 as the Company completed its purchase and cancellation of 5.5 million
common shares for $163.1 million at a volume weighted average price of $29.57 per common share. Under
this bid, during the year ended December 31, 2017, 3.4 million shares (2016: 2.11 million) were purchased
for cancellation for $102.6 million (2016: $60.5 million) at a volume weighted average price paid of $30.09
(2016: $28.74) per common share.
10DESCRIPTION OF THE BUSINESS
Maple Leaf Foods believes that its portfolio of brands, product lines and selling channels provides the
Company with a diversified revenue stream.
While the primary processing operations of the meat protein product lines are somewhat cyclical, the meat
protein product lines are typically not. As a result, the results of the non-cyclical operations provide an offset
to the results of the cyclical operations. In 2017 and 2018 it added to this line of products with the acquisition
of Lightlife and Field Roast Grain Meat Co., both of which are US based corporations.
The Company’s customers are located in approximately 30 countries worldwide. While domestic sales in
Canada represent the majority of the Company’s revenues, a portion of the Company’s meat protein
products sales is derived from international markets such as the United States and Japan. Its plant protein
products sales are primarily in the United States and Canada. Maple Leaf Foods’ customers include retail
and food service outlets, and other food processors. Substantially all of the hogs produced by the Company
are transferred internally to the primary hog processing plants. The Company has a small amount of
external feed and hog sales.
For the year ended December 31, 2018, the Company reported sales to two customers representing 11.9%
and 10.9% (2017: 12.0% and 10.3%) of total sales. For the year ended December 31, 2016, the Company
reported sales to one customer representing approximately 13.2% of total sales. No other sales were made
to any one customer that represented in excess of 10% of total sales during these years.
General
The meat protein product lines include value-added prepared meats, lunch kits and snacks, and value-
added fresh pork and poultry products sold under flagship Canadian brands such as Maple Leaf®, Maple
Leaf Prime®, Maple Leaf Natural Selections®, Schneiders®, Schneiders® Country Naturals®, Swift®,
Mina®, Greenfield Natural Meat Co.®, Devour™, and many leading regional brands. With the acquisition
of the VIAU in 2018, the Company added the Viau®, Sila®, and Fantimo & Mondello® brands. The
Company’s plant protein lines include plant protein meats, pastas, bowls and snacks, appetizers, entrees
and vegan cheese which are sold under the brands Oh Naturel! ® and Lightlife™ and in 2018, Field Roast
Grain Meat Co.™ and Chao™.
Meat and plant protein products are sold to consumers through retailers, food service and industrial
channels. The Company also operates an international export business through a network of four offices
located in Canada, Korea, Japan and China, focused on the sale of chilled and frozen pork, by products
and value-added meats and on serving the needs of the Company’s strategic international customers.
The Company has processing plants and distribution centres for meat protein products across Canada with
a sales organization across both Canada and the United States. The plant protein products are produced
and sold primarily in the United States.
The Company routinely introduces new products for consumers and its foodservice customers under its
established brands Maple Leaf®, Maple Leaf Prime® and Schneiders® and under other established and
new brands such as Pepperettes®, Hot Rod®, Maple Leaf Natural Selections®, Schneiders® Country
Naturals®, Swift®, Mina®, Oh Naturel!®, Devour™, Lightlife™, Field Roast Grain Meat Co.™, Chao™ and
Greenfield Natural Meat Co.® The new products are derived from chicken, pork, turkey, beef and plant
protein and include fresh and frozen meat offerings, ready-to-heat refrigerated entrees, family-size deli
offerings, ethnic offerings, lunch kits and fresh protein snacks.
The Company’s hog production operations have approximately 200 production locations in Manitoba and
Saskatchewan, with approximately 64,000 sows under management at the end of 2018. The Company
11owns all of the sows in the barns which it manages and owns a number of nursery barns where weanlings
are converted to feeder pigs. The Company grows additional weanlings in nursery barns leased by the
Company. Most of the feeder pigs are converted to market hogs in third-party owned and operated finishing
barns under contracts of up to five years. The Company also owns five feed mills in Manitoba which produce
in excess of 600,000 tonnes of animal feed annually, primarily used to feed the Company’s hogs.
In 2018, the Company produced approximately 1.54 million hogs, 55% of which were raised without
antibiotics, compared to 1.61 million hogs in 2017 and 1.55 million in 2016. The Company effectively owned
approximately 41% of the hogs that it processed in its hog slaughter facilities in each of 2018, 2017 and
2016.
Principal Products and Markets
The Company’s products include bacon, hams, wieners, meat snacks, a wide variety of delicatessen
products, processed chicken products such as fully cooked chicken breasts and wings, processed turkey
products, specialty sausages, a complete line of cooked meats, sliced meats, cooked sausage products,
lunch kits, lard and canned meats. The Company produces and markets a broad line of value-added meats
and meals under a variety of national brand names such as Maple Leaf®, Schneiders®, Prime™, Swift®,
Mina®, Greenfield Natural Meat Co.®, Devour™, Shopsy’s®, Hygrade® ,Viau® and other leading regional
brands, as well as supplying private label brands. The Company’s plant protein lines include plant protein
meats, pastas, bowls and snacks, appetizers, entrees and vegan cheese under the Oh Naturel!®, and
Lightlife™ brands and in 2018 Field Roast Grain Meat Co.™ and Chao™. The Company markets its
products to major grocery store chains, independent grocery outlets, large discount stores and retail and
wholesale buying groups as well as eCommerce platforms. Its plant based products are also sold to natural-
food grocery store chains. Products are sold primarily in Asia, Canada and the United States. In addition,
prepared meats, pork and poultry products are sold to food service distributors for subsequent sale to
restaurants, institutions and other food service establishments.
The Company’s products also include fresh primal and value-added pork cuts, fresh cut-up and whole
chicken and turkey products and frozen whole birds and turkey parts. Pork is sold under the Maple Leaf®,
Lethbridge Heritage Pork™ and Greenfield Natural Meat Co.® brands. Chickens are sold under the Maple
Leaf Prime® and Mina® brands as a value-added branded line of fresh poultry products. Turkey is sold
under the Maple Leaf Prime® brand. Most of the chicken produced is sold in fresh form while turkey is sold
in both fresh and frozen formats. Primary customers are retail grocery store chains, the food service
industry, institutional buyers and other food processors. There are significant sales of pork products outside
of Canada, principally in Japan, China and the United States. The Company offers a growing selection of
protein sourced from animals raised without the use of antibiotics (“RWA” in Canada, commonly referred to
as Antibiotic-Free or “ABF” in the United States).
Raw Materials
The majority of the hogs procured by the Company are sourced through direct contracts with producers
with terms from one to five years with varying pricing mechanisms and premiums for livestock with specific
quality characteristics. The availability of hogs is limited by the size of the herds in the general location of
the primary processing plants. In 2018 the Company effectively owned 41% of the hogs that it processed
in its hog slaughter facilities, unchanged from 2017. Under its contracts with producers, producers gain
access to risk management tools managed by the Company.
Poultry processing operations in Canada function within a highly regulated environment where live supply
is controlled by marketing boards and other government agencies. All of the Company’s live chicken and
12turkey supply for its processing operation is purchased through supply marketing boards that regulate both
the supply and the cost of the Company’s primary raw material. The Company’s raw material requirements
(other than the significant amount of fresh pork produced in its own plants) are purchased as commodities
on the open market, either directly from suppliers or through brokers in Canada or the United States, with
prices fluctuating based on demand and available supply.
The Company’s plant protein products are made primarily from soy beans and wheat sourced directly from
a global network of suppliers which are subject to stringent product specifications. The input prices are
stable and not usually susceptible to commodity price swings.
Most of the Company’s raw materials for further processing are sourced internally for pork and poultry with
the balance of supplies required to meet demand purchased externally at market prices. Some finished
products are purchased through co- manufacturing agreements with outside suppliers. Subject to the
comments above regarding live hog and poultry supply, the raw materials necessary for the production of
the Company’s primal and prepared meats products are readily available.
The Company purchases breeding stock, feeds and medication, each of which is readily available at
competitive prices. The Company owns five feed mills in Manitoba which are used primarily to service the
internal animal feed requirements of the hog operations. The mills purchase grains and pre-mixes to
manufacture finished feed rations, both of which are readily available.
Markets and Competition
The Company’s meat protein products currently hold the number one or number two national market share
position in almost all of its core product lines. In the United States, the plant protein product lines hold
number one or number two national market share positions. While the number of competitors and the
degree of competition varies by product and region, the meat industry in Canada is highly competitive and
includes competition from foreign manufacturers. Major competitors include several multinational food
companies, and national and regional manufacturers. The market for plant protein is growing rapidly and
new competitors are entering the market. The markets for fresh pork are international, and the Company
competes with large pork processors located in the United States and throughout the world. The Company
is a significant purchaser of live hogs in Canada and competes with both Canadian and United States
processors for hog supply. In the fresh pork and poultry operations, the Company’s financial results are
influenced by market prices for live hogs, chickens and turkeys.
The Company is continuing in its efforts to minimize the influence of underlying commodity prices by
focusing on value-added products, and by increasing operating efficiencies to improve its competitive
position. The Company also attempts to minimize the overall impact of these commodity prices through its
balanced portfolio of production and processing operations throughout the pork and poultry value chains.
The Company is sufficiently large and diversified, with a balanced portfolio, that seasonal factors within
various parts of its operations tend to offset each other; therefore, in isolation, they do not have a material
impact on the Company’s consolidated earnings. For example, in general, margins on fresh pork products
tend to be higher in the last half of the year when hog prices historically decline which in turn depresses
earnings from raising hogs, maintaining balance within the Company's pork complex. Strong demand for
grilled meat products positively affects categories such as wieners and fresh sausages in the summer, while
back-to-school promotions support increased sales of sliced meats and lunch items in the fall. Higher
demand for turkey and ham products occurs in the spring and fourth quarter holiday seasons.
The hog growing operations face competition from other hog production systems for nursery and finishing
barn spaces.
13FOREIGN OPERATIONS
Revenues earned outside of Canada for the year ended December 31, 2018, were $913.6 million (2017:
$865.4 million). Of the total amount earned outside of Canada, $363.5 million (2017: $294.7 million) was
earned in the U.S. and $343.4 million (2017: $344.7 million) was earned in Japan. Revenue by geographic
area is determined based on the shipping location.
The Company operates an international export business through a network of offices located in Canada,
Japan, Korea and China that are focused on the sale of chilled and frozen pork and value-added prepared
meats and meals and on serving the needs of the Company’s strategic international customers. The
Company markets a number of products that are produced in Canada to customers outside of Canada
including value-added prepared meats, pork and poultry products. There are significant sales of pork
products in Japan, the United States, Mexico, China and Korea. The majority of the Company’s plant based
protein production facilities and sales are in the United States. The Company’s performance is affected by
global market demand, prices and foreign exchange fluctuations as well as trade barriers.
14INTANGIBLE PROPERTY – TRADEMARKS AND PATENTS
As a food products company, Maple Leaf Foods relies heavily on brand recognition and loyalty, and places
a great deal of emphasis on its established range of trademarks. The Company believes its brands are
recognized by consumers for quality and reliability.
The Company’s key trademarks in its meat protein and plant protein product lines are presented below.
Maple Leaf® Larsen®
Maple Leaf Prime® Cappola™
Maple Leaf Natural Selections® Holiday®
Schneiders® Ready Crisp®
Schneiders® Country Naturals® Klik®
Greenfield Natural Meat Co.® “Kam”®
Mina® Burns®
Lightlife™ Field Roast Grain Meat Co.™
Lunch Mate™ Olympic®
Top Dogs™ Parma®
Shopsy’s® Sunrise®
Mitchell’s Gourmet Foods™ Pepperettes®
Swift® Hot Rods®
Mère Michel® Devour™
Maple Leaf Canadian Craft™ Oh Naturel!®
Big Stick!™ Chao™
Hygrade® Fantino & Mondello®
Viau® Sila®
The Company holds Canadian hatching egg producers’ quota which permits it to hatch eggs. The Company
also holds plant supply quota for its chicken processing plants in Ontario and Quebec under which it is
permitted to acquire live chicken for processing. Patents and other forms of intellectual property such as
industrial designs and copyright are of less importance to the business activities of the Company.
ENVIRONMENTAL MATTERS
Maple Leaf Foods is committed to maintaining high standards of environmental responsibility and positive
relationships in the communities where it operates. It operates within the framework of an environmental
policy entitled “Our Environmental Sustainability Commitment” that is approved by the Board of Directors’
Safety and Sustainability Committee (the "Committee"). The Environmental Sustainability Commitment can
be found on www.mapleleaffoods.com/sustainability.
The Company’s environmental program is monitored on a regular basis by the Committee, including
compliance with regulatory requirements and the use of internal environmental specialists and independent,
external environmental experts. The Company continues to invest in environmental infrastructure related
to water, waste, and air emissions to ensure that environmental standards continue to be met or exceeded,
while implementing procedures to reduce the impact of operations on the environment. In the fourth quarter
of 2018, the Company announced the closure of its St. Marys, Brampton and Toronto poultry plants. All
environmental assessments required to ensure that potential matters are appropriately addressed during
decommissioning will be completed.
15Expenditures related to current environmental requirements are not expected to have a material effect on
the financial position or earnings of the Company. However, it is possible that events could occur causing
environmental expenditure to be significant and have a material adverse effect on the Company’s financial
condition or results of operations. Such events could include, but not be limited to, additional environmental
regulation or the occurrence of an adverse event at one of the Company’s locations. The Company currently
has a provision of $4.8 million related to expected environmental remediation costs. Please refer to Note
12 of the Company's 2018 audited consolidated financial statements for additional information.
As a large food company there are health, environmental, and social issues that go beyond short-term
profitability that Management believes must shape its business if the Company is to realize a sustainable
future. Increasingly, moving beyond compliance to materially reducing the Company's environmental
footprint is critical to addressing mounting environmental issues and realizing increased operating
efficiencies and cost reductions. The Company is committed to reducing its environmental footprint by 50%
by 2025, encompassing the three areas where Maple Leaf Foods has the largest environmental impact:
climate change (energy usage and emissions), water usage and waste.
The Company has developed environmental sustainability action plans at every operation to deliver on its
environmental goals. In 2018, the Company has made significant progress towards the implementation of
these plans and reducing the Company’s environmental footprint. Details on this environmental
performance can be found in the annual sustainability report available on the Company's website
(www.mapleleaffoods.com).
EMPLOYEE RELATIONS
As of December 31, 2018, the Company employed approximately 12,000 people of which about 8,878 were
covered by some 18 collective agreements. These agreements are normally negotiated for varying terms,
and in any given year, a number of these agreements expire and are renegotiated; most renew without
significant issue. However, if a collective agreement covering a significant number of employees or involving
certain key employees were to expire leading to a work stoppage, there can be no assurance that such
work stoppage would not have a material adverse effect on the Company’s financial condition and results
of operations.
Key collective agreements to be negotiated in 2019 include: the pork facility in Brandon, Manitoba and the
Courtney Park poultry facility in Ontario and the prepared meat facility at Walker Drive, Brampton.
RISK FACTORS
The Company operates in the food processing and agricultural businesses and is therefore subject to risks
and uncertainties related to this business that may have adverse effects on the Company’s results of
operations and financial condition. Further, through the normal course of business the Company is exposed
to financial and market risks that have the potential to affect its operating results.
These risk factors, along with other risks and uncertainties not currently known to the Company, or that the
Company currently considers immaterial, could materially and adversely affect the Company’s future
operating results and could cause actual events to differ materially from those described in forward-looking
information, including any financial outlooks, relating to the Company. The identified risks and uncertainties
are described under the headings “Financial Instruments and Risk Management Activities” and “Risk
Factors” in the Company’s Management’s Discussion and Analysis (“MD&A”) for the fiscal year ended
16December 31, 2018 and incorporated by reference herein. The Company has filed the MD&A with the
Canadian securities regulators and it is available on SEDAR at www.sedar.com.
17CORPORATE STRUCTURE
Name, Address and Incorporation
Maple Leaf Foods Inc./Les Aliments Maple Leaf Inc. is incorporated under the Canada Business
Corporations Act. It was incorporated on August 13, 1927, although portions of the business originated
before 1900 and most recently underwent a short-form vertical amalgamation on January 1, 2010. The
Company’s registered and principal office is located at 6985 Financial Drive, Mississauga, Ontario L5N
0A1.
Intercorporate Relationships
As at December 31, 2018, no operating subsidiary of the Company had total assets that constituted more
than 10% of the consolidated assets of the Company, or total consolidated sales and operating revenues
that exceeded 10% of the consolidated sales and operating revenues of the Company.
DESCRIPTION OF CAPITAL STRUCTURE
The authorized share capital of the Company currently consists of an unlimited number of common shares,
an unlimited number of non-voting common shares (the “non-voting securities”) and an unlimited number
of preferred shares issuable in series. As of February 21, 2019, the issued capital of the Company consisted
of 124,371,726 common shares. There are no non-voting securities and no preferred shares issued and
outstanding.
Holders of common shares are entitled to one vote per share at all meetings of shareholders. In addition,
holders of common shares are entitled to dividends if, as and when declared by the board of directors of
the Company and, in the event of the liquidation, dissolution or winding-up of its affairs, to a pro rata share
of the assets of the Company after payment of all liabilities and obligations of the Company. There are no
pre-emptive, conversion or redemption rights attaching to the common shares.
On February 21, 2017, the Company entered into an amended and restated governance agreement with
McCain Capital Inc. and Michael H. McCain that limits their ownership in the Company and ensures that
the Company’s board of directors will consist of a majority of independent directors nominated by the
Corporate Governance Committee of the Board. As a result of entering into the amended and restated
governance agreement and changes in securities law, the shareholder rights plan agreement that had been
in place since 2011 (as amended and restated, the “rights plan”) was allowed to expire in accordance with
its terms at the termination of the Company’s annual meeting in 2017. The text of the amended and restated
governance agreement is available under the Company’s profile on SEDAR at www.sedar.com. A
description of the amended and restated governance agreement is found starting on page 25.
The non-voting securities carry rights identical to those of the common shares except as hereinafter
described. Except as required by law, the holders of the non-voting securities as a class are not entitled as
such to vote at any meeting of the shareholders of the Company. Further, the holders of the non-voting
securities are not entitled to vote separately as a class, and are not entitled to dissent, upon a proposal to
amend the articles to (a) increase or decrease any maximum number of authorized non-voting securities
resulting from a subdivision or consolidation respectively; (b) increase any maximum number of authorized
shares of a class or series of a class having rights or privileges equal or superior to the non-voting securities;
(c) effect an exchange, reclassification or cancellation of the non-voting securities; or (d) create a new class
or series of a class of shares equal or superior to the non-voting securities, unless the holders of non-voting
securities are being affected by such amendment in a manner differently from the holders of common
18shares. The non-voting securities may be converted at any time by the holder or holders thereof into fully-
paid common shares on the basis of one common share for one non-voting security. In addition, if, at any
time, a current holder of non-voting securities transfers all or a portion of the non-voting securities held by
such holder to another person, the shares being transferred shall be automatically converted upon such
transfer into fully-paid common shares of the Company on the basis of one common share for each non-
voting security. The conversion will occur simultaneously upon the completion of such transfer, without any
further action by the Company or any other person, so that the transferee will be a holder of common shares
equal in number to the non-voting securities transferred by the transferor. The holders of the non-voting
securities have no express right to participate in a take-over bid made for the common shares of the
Company. Such holders, however, may convert their non-voting securities into common shares and
participate in a take-over bid in that manner. These non-voting securities may be considered “restricted
securities” under National Instrument 51-102 – Continuous Disclosure Obligations, as the common shares
of the Company which are publicly traded carry a greater vote per security relative to the non-voting
securities (described above).
The preferred shares are issuable in one or more series. As of the date hereof, no series of preferred shares
has been created and no preferred shares have been issued. Each series of preferred shares is to rank
equally with any other series of preferred shares in respect of redemption, the payment of dividends, the
return of capital and the distribution of assets in the event of the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary. Each series of preferred shares shall have priority over the
common shares, the non-voting securities and any other class of shares of the Company ranking junior to
the preferred shares with respect to redemption, the payment of dividends, the return of capital and the
distribution of assets in the event of the liquidation, dissolution or winding up of the Company.
The preferred shares of any series may also be given such preferences, not inconsistent with the general
provisions of the class, over the common shares, the non-voting securities and over any other class of
shares of the Company ranking junior to the preferred shares, as may be determined by the board of
directors of the Company. The holders of each series of preferred shares shall be entitled to receive
cumulative dividends as and when declared by the board of directors of the Company at a rate per share
per annum as determined by the board of directors of the Company, acting in good faith, provided such rate
per annum does not exceed by more than 2.0% the yield to maturity of an unsecured bond with a
comparable credit rating issued by a “comparable issuer” on the date the rights, privileges, restrictions and
conditions attaching to the shares of such series of preferred shares are determined or such other date as
close as practicable to such date, such bond having the same or as close as possible term to maturity as
is equal to the period until the series of preferred shares are first redeemable in whole or in part. A
“comparable issuer” refers to an issuer selected by the board of directors of the Company as being
comparable to the Company in terms of industry focus and whose outstanding unsecured long-term debt
securities have a comparable credit rating (being a credit rating that is the same or that is the closest as
possible to the credit rating of the outstanding long-term debt securities of the Company). No series of
preferred shares shall be convertible into any other class of shares of the Company. Each series of preferred
shares shall be redeemable by the Company on such terms as determined by the board of directors of the
Company. Holders of preferred shares shall not be entitled to receive notice of, to attend or to vote at any
shareholders’ meeting of the Company except as provided by law, or upon an event of default by the
Company where the board of directors of the Company has not declared the whole dividend on the
particular series of preferred shares in any period and in that event, such holders shall be entitled to receive
notice of, to attend and to vote at the shareholders’ meetings (with one vote for each share held), which
voting rights shall cease upon payment by the Company of the dividend to which holders are entitled.
Whenever a share of any series of preferred shares is to be issued, the total number of such series of
19preferred shares to be issued shall be limited such that the aggregate value of all preferred shares of all
series issued and outstanding, including the value of the preferred shares of such series to be issued (based
on the issuance price per share of each preferred share) shall not exceed 25% of the market capitalization
of the common shares (the aggregate value of the common shares and non-voting securities issued and
outstanding calculated based on the volume weighted average trading price of the common shares on the
TSX for the five (5) trading days immediately preceding 5:00 p.m. on the date on which the board of directors
of the Company determines the issuance price per share of the series of preferred shares to be issued).
The holders of preferred shares may not have an express right to participate in a take-over bid made for
the common shares of the Company.
The Company has various government loans on specific projects, with interest rates ranging from non-
interest bearing to 2.9% per annum (2017: 2.9%). These facilities are repayable over various terms from
2022 to 2024. As at December 31, 2018, $8.6 million (2017: $9.2 million) was outstanding. All of these
facilities are committed.
On November 7, 2018, the Company entered into a new one year $250.0 million unsecured committed
revolving credit facility with a Canadian institution. This unsecured facility can be drawn in Canadian or U.S.
dollars and bears interest payable monthly, based on Banker's Acceptance and Prime rates for Canadian
dollar loans and LIBOR for U.S. dollar loans. The facility, together with the $400.0 million facility below, is
intended to meet the Company's funding requirements for general purposes, corporate development
activities, and to provide appropriate levels of liquidity. As at December 31, 2018, the Company had drawn
$80.0 million on this new facility.
On October 19, 2017, the Company amended its existing $400.0 million unsecured committed revolving
credit facility by extending the maturity of the facility to October 19, 2021, under similar terms and conditions
using the same syndicate of Canadian, U.S., and international institutions. This unsecured facility can be
drawn in Canadian or U.S. dollars and bears interest payable monthly, based on Banker's Acceptance and
Prime rates for Canadian dollar loans and LIBOR for U.S. dollar loans. The facility, together with the $250.0
million facility above, is intended to meet the Company's funding requirements for general purposes,
corporate development activities, and to provide appropriate levels of liquidity. As at December 31, 2018,
the Company had drawn $216.0 million in U.S. dollars (CDN$294.8 million) and letters of credit of $6.3
million (2017: $6.4 million) on this existing facility.
The revolving credit facilities require the maintenance of certain covenants. As at December 31, 2018, the
Company was in compliance with all of these covenants.
The Company has additional uncommitted credit facilities for issuing up to a maximum of $125.0 million
(2017: $120.0 million) letters of credit. As at December 31, 2018, $72.2 million of letters of credit had been
issued thereon (2017: $67.8 million).
DIVIDENDS
The declaration and payment of dividends is at the discretion of the board of directors of the Company. The
board of directors of the Company intends to maintain a stable dividend and, where appropriate, change
the dividend on the basis of the stability of the Company’s earnings and stock price appreciation.
On February 29, 2016, the board of directors increased the quarterly dividend to $0.09 per common share
($0.36 per annum) commencing with the dividend payable on March 31, 2016.
On February 21, 2017, the board of directors increased the quarterly dividend to $0.11 per common share
($0.44 per annum) commencing with the dividend payable on March 31, 2017. Certain portions of the
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