Maple Leaf Foods Inc.

Michael McCain - President and CEO Debbie Simpson - CFO

Irene Nattel - RBC Capital Markets Michael Van Aelst - TD Securities Derek Dley - Canaccord Genuity Mark Petrie - CIBC Ken Zaslow - BMO Capital Markets

Thank you and good afternoon everyone and thank you for joining us this afternoon. On today’s webcast, we will discuss Maple Leaf Foods’ financial and operating results for the third quarter of 2014.

The news release and today’s webcast presentation are available at mapleleaffoods.com under the Investor section. Some of the statements made on this call may constitute forward-looking information and future results may differ materially from what we discuss.

Please refer to our 2013 MD&A and other information on our website for a broader description of operations and risk factors that could affect the Company’s performance. As normal I will begin with an operating review and then turn the call over to Debbie Simpson, our Chief Financial Officer to provide other financial information.

And then open up the phone lines for your questions. I could begin on Page 2 of the presentation.

As you will recall in May 2014, we implemented pricing across our Prepared Meats portfolio. As a result of that action in the third quarter we benefited from improved margins during the period of unprecedented volatility and high cost in the pork market.

It shouldn't be lost in our view that we have in fact recovered margins in a period of record high raw material markets and we believe this is a significant observation for the business. We are actively managing the related impact on demand and expect to recover the volume at a reasonable period of time.

Throughout 2014, the PED virus has contributed to very unpredictable pork markets. This quarter it had a positive impact on our fresh meats and hog production businesses, but it has created a challenging environment for our Prepared Meats business pricing.

We continue to make important progress on our supply chain conversion, closing one more plant this past quarter and removing aggressively to complete the network conversion which will substantially reduce cost and deliver our 10% EBITDA margin run rate in 2015. Slide No.

3 summarizes the third quarter results. Adjusted operating earnings for the quarter was a loss of $20 million, the same as prior year, while adjusted EPS was a loss of $0.13 per share compared to last year at a loss of $0.19 per share.

Adjusted EPS improved even though adjusted earnings were flat, as our net interest expense declined to $1.2 million compared to $18.7 million in 2013, reflecting the change in our balance sheet. Improved results in our primary pork business were offset by lower earnings in Prepared Meats, reflecting the continued ongoing high network transition cost and the cost of the duplicate network and weaker volumes in the wake of the price increases implemented in May of this year.

The adjusted EBITDA margin for the quarter was 0.5%, consistent with a year ago and the trailing 12 month EBITDA margin was a negative 0.8%. Let's turn to Slide No.

4, where we provide a detailed break-out of the material factors and the year-over-year change in our adjusted operating earnings. On an overall basis, the two positive drivers for year-over-year improvement for the protein markets and the Prepared Meats margin expansion, these were offset by transition costs, volume and higher manufacturing cost and hog production.

In the first bar on the far left of this chart, we benefited from an $18 million improvement in the protein market conditions. A majority of this related to increased spread in the pork and poultry markets, though despite this improvement, industry pork processor margins remained still below the five year average by approximately $7 a hog.

In the second bar from the left, we realized an $11 million Prepared Meats margin improvement over a year ago, but it is very important to know that this is lapping a quarter in 2013 where we essentially were absorbing raw material price cost -- raw material cost increases at that time. In Q3 of this year we feel we have brought our margins almost in line with historic and strategic expectations.

In the third bar from the left as anticipated, the price increases in Prepared Meats has impacted demand and resulted in a short term volume decline. We're actively managing this and expect to see volumes recover over the next several quarters.

In bar number four from the left, the transition costs have increased $10 million year-over-year and I'll provide some more background on this shortly. And finally in the fifth bar from the left, operational cost in our hog production operations were $6 million higher in Q3 than the prior year.

This was a combination of a number of smaller factors. Some were one-time in nature -- for example a feed efficiency issue in the quarter.

Some will continue forward though, as we more rigorously protect our bio-security protocols in an environment where we're maybe exposed to PED virus. Turning to Slide No 5; we wanted to highlight and we believe this is a very important observation, the raw material conditions that we faced in 2014 to date, simply to demonstrate how unique this year really is.

The chart illustrates the industry pork cutout, which is our raw material cost, since 2013 as well as the five year average which is the green line on this chart. For those of us operating in the industry this is an unprecedented condition, completely out of the historic norm for our business.

We clearly prefer and have experienced in history relative stability in raw material cost certainly relative to this year. But due to the extraordinary effects of the PED virus on the U.S.

hog supplies, costs were both high and as you see extraordinarily volatile relative to the norms. Most important, we do not feel these conditions will continue nor be anything of a new normal in this business.

This is an outlier year in that regard. As you can appreciate, these unpredictable markets make it very difficult to set stable pricing and retain the stable margins.

Turning to Slide No. 6; this provides an overview of the timeline of executing our Prepared Meats network transition, which is unchanged from prior versions we have discussed with you.

Our plan involves eight closers, of which five have been completed, including the recent closure of our Moncton facility in the third quarter. We have completed the consolidation of our distribution network and are realizing the benefits from that imitative.

We have also completed four plant expansions and one new build. The intensity of this entire transformation is significant as are the benefits.

We are executing against the plan that has final three legacy facilities, which includes the very small plant in Winnipeg closing by the end of this year. As we get closer to that date will make the definitive call on exact closure timing predicated on a clear line of sight on production readiness at our new Heritage facility.

We have to calibrate these closures with absolute confidence that the Heritage facility in Hamilton is ready and can seamlessly meet our customer commitments. These closure plants have already begun to ramp down production but we cannot be assured of a closure date until we are right up against the expected action.

Once the legacy plant is turned off we need to be confident in the performance of the new one. Slide No.

7 breaks our costs related to our network transition. In Q3 the cost of $25 million are largely driven by start-up costs in our Heritage facility, the largest in our network, along with the increased overhead cost related to additional resource requirements and running duplicate facilities throughout the transition.

The triggers for reduction in each of these three buckets of transition costs are number one, the start-up cost for the Heritage facility which will continue over the duration of the commissioning period. The quantum and duration of these types of costs are very difficult to precisely quantify.

We do not expect that there will be material reduction in duplicate overhead until the three legacy plants close, particularly the ones in Kitchener and Toronto. The closure of the Moncton plant in September was an important milestone but financially not material to the total.

The third and smallest bucket of transition cost is the dedicated resources that are executing the transition, which will be eliminated when we complete. Slide No.

8 provides additional color in our five major network start-ups, and shows the considerable progress we've made in this journey. Three of the five plant start-ups are substantially complete including fresh and frozen sausage production in Brampton, bacon and ham production in Winnipeg and our new distribution center in Eastern Canada.

Our work at these facilities is now focused on optimizing operations to eliminate the minor variances to the target business. Saskatoon, despite being one of the smaller expansions, we have experienced the highest level of start-up challenges.

The operating issues that we are facing there stem from the fact that we are integrating highly complex equipment together for the first time. We're executing against a detailed plan to resolve the operating issues we've identified.

We've made some progress in Q3. However this one is slower going.

We continue to make progress at our largest facility, the brand new Heritage plant in Hamilton. The transfer of all wiener SKUs have been completed, which allows us end wiener production at the Kitchener plant in the third quarter and shift our focus to optimization work.

In Sliced Meats, all four thermal or cooking lines in the facility have been installed and they are now producing salable product, and we're now fully into the volume onboarding and ramp up phase for this four Slice Meats lines. These are two distinct but independent activities and we're working on them simultaneously.

First is realizing the operational performance of individual lines and equipment, and the second is the transfer of approximately 300 individual skews or items, each one requiring a comprehensive development process. Completion of this will trigger the closure of the remaining legacy facilities.

We continue to make consistent progress with our supply chain transition. As we've said in the past, the startup and commissioning curve at the Heritage facility continues to be our most significant variable for the balance of the year and the timing associated with hitting our 10% EBITDA margin target.

We expect it to be complete in the first quarter of 2015, but the unpredictable nature of startups of this nature is such that it could result in a delay of one or two quarters. In Slide No.

9, we're updating the path from where we are to where our margin target was set. We think this is one of the more important perspectives for share owners and analysts to pay attention to.

The largest contributor here obviously is representing over half of the improvement from 0.5% to 10%, is 5.4% or roughly a $170 million on an annualized basis increase in operating earnings which is the completion of the network transition. This has two components.

Representing two-thirds of that bar is the elimination of the transition costs. The second component is realizing the full benefits of our new streamlined low-cost manufacturing network.

In essence, this is the delta between full added cost and contributing benefits from the capital spend. The slot [ph] increased in the third quarter compared to the second quarter by 0.4%, as the cost to ramp up Heritage grew faster than the cost we could shed at the closing plants as production of Sliced Meats at Heritage was relatively small in these initial stages.

During the last few quarters, we've incurred indirect costs in our legacy Prepared Meats facilities while executing the transition. These costs are primarily caused by disruptions in our manufacturing and distribution networks as production shifts and people transition to the new plants.

We've introduced a significant amount of change in our supply chain in a very short period of time. These costs represent 0.9% of this bridge or approximately $27 million of operating earnings on an annualized basis.

Our definition when the three legacy plants close, this burden goes away. The next bar is restoration of Prepared Meats margins, which has decreased to 0.9% this quarter and is worth approximately $27 million on an annualized basis.

Now there are two reasons our margins were not fully restored in the third quarter due to the pricing actions we implemented last quarter. First, input prices, primarily pork and beef continued to rise in Q3, beyond our expectations; and second, a shift in mix from branded to private label, which typically follows a price increase contributed to that result.

We see both of these impacts as short-term. We believe that the input prices will drop over the next few months.

Indeed we're experiencing that now and we're more optimistic that our traditional branded private label mix, Prepared Meats will be restored. The fourth bar represents volume.

This is worth 2.5% of EBITDA margin or approximately $75 million on an annualized basis. There are two components here.

First is the volume reduction triggered by our recent price increases in Prepared Meats. As already discussed, we expect this to recover within a reasonable period of time.

Second, over the last few years as we've discussed in the last several times we've been together, we opted to shed some volume in our Prepared Meats business, because it was either unprofitable or added complexity to our plant network plans. We have concrete plans that are focused on recovering that volume in 2015.

We've a high confidence level that we will reach the target in 2015 in total, but cannot offer any more certainty around the timing than we have to date at this point. Turning to Slide No.

10, it’s very important that we start turning our minds and our sales and marketing teams are certainly focused on bringing excitement and innovation to our categories that provides value and growth to consumers and drives growth in our business. Our market insight helps focus us on these areas where we see the greatest growth opportunities and this manifests itself in new products, new categories and new ways of reaching consumers.

The one area of focus continues to be the changing demographic landscape in Canada where we've already seen our MINA Halal portfolio grow by generating strong retailer support, grassroots marketing in a targeted print campaign, along with new frozen products. We're doing TV advertising in Cantonese and Mandarin and we will be expanding into new categories to address this rapidly growing community and marketplace.

There are considerable opportunities in this country in targeting these changing demographics. Looking at the snacking category, Maple Leaf Meat Snacks have grown by 21% over the prior year, outpacing our -- the category which grew 18%.

Our Natural Selections PROTINIS offerings were the key driver for us in this category and earlier this month, we started shipping our newest innovation, PROTINIS Skewers launched with five-time Olympic Gold Medalist Hayley Wickenheiser as our spokesperson. We expect to see continued growth in this category as well.

And finally health and nutrition continues to drive consumer behavior and we’re seeing that on a number of fronts, from a shift in protein consumption to poultry and fish to a concern about the use of antibiotics. We see these areas as is offering incremental growth opportunities little aggressive [indiscernible].

In short it's imperative for this business to migrate from the restructuring that we’ve been engaged in for the last seven years to driving growth through innovation, which we have clearly on our radar screen. With that I’ll turn it over to -- turn the call over to our Chief Financial Officer, Debbie Simpson to discuss the other financial matters.

Debbie?

Thank you, Michael. If I can ask you to turn to Slide 11, at the end of Q3 there were $510 million in cash on our balance sheet.

Cash provided from operating activities during the quarter were $31 million, compared to $118 million in 2013. We now consider our working capital balances to be at more normalized level.

Our net interest expense for the quarter was $1 million, compared to $19 million last year, reflecting the fact that we take diner debt [ph] in Q2 2014 after the sale of Canada Bread close. The Transition Services Agreement relating to the sale of Canada Bread remains in place and we are supplying services to Grupo Bimbo for up to two years from the closing date of the sale.

The largest component of these transition services is information technology support and the agreement is on a cost recovery basis. If I can ask you to turn to Slide 12, we recorded $42 million in capital expenditures for the quarter, compared to $96 million in 2013.

Of this amount $18 million was strategic capital supporting our Prepared Meats network transition. You can see from the graph that our capital spending has been reducing significantly, reflecting the tail end of our strategic capital spending program.

On a net basis our strategic capital spending is almost complete and largely in line with our initial estimate to complete this program. This amount is however made up of the remaining funds then netted against some expected capital inflows, and there is a potential for disconnect in the timing between these cash flows.

Moving onto Slide 13, in the third quarter the Company recorded $14 million in restructuring costs on our income statement, of which approximately $10 million relates to future cash cost and $3 million to non-cash costs that charged accelerated depreciation. This included $7 million of restructuring charges related to the prepared meats network transition.

This is primarily employee retention, severance cost and accelerated depreciation for facilities that are expected to close later this year. In addition, there were $7 million in severance costs related to the reorganization of our SG&A structure following the sale of the bakery business.

For the remainder of 2014, we anticipate an additional $10 million in cash restructuring. I’ll now turn the call back to Michael.

Thank you very much Debbie. Let me conclude briefly with a few summary remarks.

In the quarter, we accomplished improved margins in our prepared meats portfolio, which was a major focus and we believe major accomplishments in the quarter. While we’re experiencing anticipated softer demand in volume, we have initiatives in place to restore this and we believe patience is the most important response.

We accomplished major milestones in our network transition this quarter, including a further plant closure and we’re well into commissioning our largest and most complex Prepared Meats facility, being one of the finest in North America. Once completed the transition in our Prepared Meats supply chain is going to dramatically transform our cost structure, increasing our competitiveness and the profitability of our business.

Building blocks to the 10% EBITDA margin target are in place and we have plans to deliver on them as these markets and the network stabilize. So now I’d like to turn the call over for your questions and welcome anything that you have in your mind.

Michael, I was wondering if you could just please share with us the Board's current views on return of capital, capital structures, timing, magnitude, et cetera?

As I said in the last quarter, the Board was very clearly focused on not acting on that question until we had clear line of sight from what we define as job number one, which is completing the network transition and realizing our strategic targets which we’ve well described. There is basically no change to that position.

So we have really nothing to report of any consequence that would be different than what we’ve discussed over the last quarter.

And just to clarify, Michael, and I know I'm splitting hairs here, but when you say clear line of sight, does that mean really the other services up and running -- the other plants have been decommissioned, and we know that we’re on solid ground or could it possibly be a little bit before of that?

Honestly -- to try and put a fine point on that Irene I think would be a mistake for us or for you; because it’s one of those things where you’ll know it when you see it and I think that’s the Board’s perspective. It’s a topic that it gets discussed certainly quarterly if not monthly and it’s one of those things where are in a very important state of transition that has just inherent unpredictability and volatility attached to it.

We’ve known that for years and years and this is very normal and we’re all extraordinary confident in what we’re doing in managing through that unpredictable and volatile period, but yes it’s very prudent for the Board to take it one step at a time and evaluate it constantly. So to put a fine point on does that mean a certain trigger has to be met or a financial trigger has to be met, it really is too unpredictable or undefinable to be able to do that.

That’s very helpful. During your remark cycle you mentioned that simultaneously the shift is returning somewhat, or sorry -- the focus is somewhat returning to thinking about growth as we come closer to the end of this sever year process.

In the past you’ve alluded to acquisition and I was just wondering if you could share your current thoughts on that?

I don’t think it’s changed any from where we’ve been in the past. We certainly believe that there's lots of opportunities, both organic and inorganic growth in our domestic footprint today, longer term and I underline longer term.

Longer term I would expect that we would look at other footprint opportunities, but that’s well down the road. So domestically the organic growth would be -- and things like filing out our category, there are some holes in our portfolio where the market shares are lower than others and we would likely seek to fill that in and it can grow or be accomplished in some form with a combination of organic and inorganic and there is many opportunities.

Obviously it’s not prudent for me to discuss any one individual element of that, but there is always opportunity in this market to accomplish that.

First question is just about the competitive behavior out there right now and I'd like to get a sense from your, how your competitors are reacting to the drop in the hog costs of late and whether or not they are reversing any of the price increases taken in May?

So if you look at the charts Michael on Page No. 5 of our deck, which shows the history of these markets in 2014, what you see is some pretty extraordinary volatility of ups and downs throughout the year.

I don’t believe that any competitor in this market, anywhere in North America has overreacted to this because what they’ve experienced is what has gone down -- in least three occasions have gone dramatically back up in very short order. So the more recent drop that you’re referring to is only a few weeks old and it’s highly -- just say not clear yet exactly how that will unfold in the marketplace, but I think the answer -- ultimately if it’s sustained lower levels, the answer is --depends on the category.

Some categories we would expect and can absorb, right because they would tend to track more closely to the market, a category like bacon for example; whereas other categories tend to be stable in their pricing and track consumer response. Overall the markets coming into this fall are higher than we expected, than most people expected.

We fully expected when we established our pricing for the raw material cost that come down this fall and so we have to see how this all unfolds through this quarter, see where our margins should end up. If your question is, where will our margins be in the context of these markets, we're highly confident that we will be at or above our strategic margin targets for 2015 in these declining markets.

And when you look at the futures out there for the hog price and you see it forecasting some big drops, is that -- what kind of confidence level do you have in those future markets?

It’s beyond my skill capability or good judgment to try and second guess futures markets or the USDA and their projections in the marketplace. So I can’t give you insight other than to say that they are what they are, Michael.

All right. And you mentioned that you had 300 SKUs to be transferred to the new plant.

Is that what’s remaining or is that in total and you're already part way through there?

That’s in total. And in our SKU moves, we are probably somewhere in the 20% to 25% complete.

Just following up a little on those last questions; what have you guys seen in your export markets in terms of your pricing and volume effects. Was the price increased as you passed through on the export market similar to what we saw domestically?

Yes that would be specifically Derek around the Japanese marketplace. And I think what we've experienced in that market is an improvement in the results, although not a full restoration to where we would like to be or think it’s going to be.

But our experience in the Japanese market is that we learnt things happen slowly and deliberately and we have a long-term position in that market and following the very difficult conditions of 2013 in Japan, we have been slowly and deliberately improving them and they are improving but not back where they need to be. Except that, I would highlight that separate and distinct from what we've experienced in our domestic packaged goods market.

That’s a fresh meat condition that is attached just to the Japanese market.

Okay, that’s very helpful. And with the Canadian dollar having weakened materially here against the U.S.

dollar, do you see more potential for stronger export business into the U.S. now that your products become increasingly competitive?

100% and absolutely true. It takes time for that to expect itself in the marketplace.

We see that actually in two dimensions, Derek. The first is the impact on pressure from imports and the second is in opportunities for exports.

And very clearly on our radar screen we think there's an opportunity there. There's certainly an opportunity to utilize not only the capacity that we had planned for in our current network but also in opportunities to improve the utilization year around, the excess capacity we have seasonally in some of our facilities.

So we do think it’s actually a very good opportunity but the caveat is that to develop those opportunities take a rather lengthy lead time. So it’s not something is going to impact us in the next few months but I think one and two years, it would be a very positive impact.

Okay, thanks. And just one more if I can.

Can you guys just give us some color on the magnitude of the volume declines domestically following your price increases? Have you seen volumes come back from their initial declines when you first implemented the price increases?

Like in all charts of that -- it was a very good question Derek. It's one that we micromanage on a weekly basis.

I would tell you that we had a very steep decline, well over double-digits in the first month following the price increase, which was June. That’s long in our history books now.

More recently it’s been stabilizing down in the mid-single-digits range, I would say 4% to 6% in total but it bounces around quite a bit period-to-period; and largely because we are trying to exhibit both discipline and patience as we see that, as we worked that [indiscernible], very focused on the components. If you double click on that, components of the year-over-year shift which is very different category-by-category, channel-by-channel, even customer-by-customer.

And so we think it’s much wiser to be patient and to work that back at a granular level like that than it is to try and overreact. So it’s probably steeper than what we'd like but certainly the price increases that we experienced in spring were bigger than we'd ever executed in our history -- in my personal history.

So having volume recovery, that stretches between one and three quarters following a large price increase is not abnormal. And this is only the first quarter after that price increase.

So that’s largely -- we're experiencing this -- first quarter posted a price increase. We expect to manage that back to full recovery into starting in the next year.

I just wanted to clarify some of the commentary about the closure of the legacy plants, the full ramp up of Heritage, and it sounded like that was still on track by year end, but then there was commentary about Q1 and also a potential delay of a quarter or two. So I just want to clarify what you're referring to specifically around the timing of the plant closures and the ramp up.

And then the achievement of the 10% margin run rate.

Sure, that's a great question. And let me begin Mark by being very clear, that our prospective today is no different than what it's been for the last couple of years actually, which is that the highly unpredictable nature of plant startups like this don't allow us to pinpoint a specific time with any degree of confidence or accuracy.

We have a baseline plan and we still are focused on that plan. But I've said for a long, long, long time that we expect to be on run rate in our base case in the first quarter of 2015, but the volatility of plant startups and the unpredictability of plant startups like this could result in a delay of a quarter or two very easily and that position is no different today than it was -- has been over the last year plus.

Drilling down on that to look at the specifics of the Heritage start up and the legacy plant closures, one of the paradoxes of this is it's a wholesale network transition from old to new, particularly with these two large facilities, the Courtland Road facility in Kitchener and the Bartor Road facility in Toronto, that we were really unprepared to turn off that old capacity, which burns a supply bridge until the very last moment and we see that the new capacity is stable, predictable, secure and able to handle even at peak capacity, the full demands of our customer base. And it's the kind of thing where we can be on track today and off track tomorrow and back on track the day after and we won’t really know till just prior to the time when we flick the switch.

And that switch could be delayed a week, a month, a quarter and as I've tried to be clear with, even up to and including a couple of quarters, and it's highly dependent on how that equipment all performs at full load, now how it performs at 20% load but at full load and in a predictable stable manner and it won't be until we make that decision at the last minute that we're prepared to turn off the old capacity, because that's when we start taking customer risk that we're unprepared to take. I am not sure if that explains the nature of this type of a transition and why it's so difficult to predict, but it is.

But we're still working towards the run rate in the first quarter, but it very easily could be as I've said for years a quarter or two delayed from that just due to the nature of these types of startups.

That's helpful. How long would you need to see a stable sort of full production at the Heritage facility under full load before you felt confident about shutting off and Kitchener and Bartor?

That depends on the condition. Without giving you a very technical answer, I think that depends on the conditions and the nature of the gaps.

So bluntly, you have to be able to demonstrate it under various loads and we do burst tests and we do sustainability tests. There's a whole range of very technical equipment testing that we do to satisfy ourselves that we are taking limited to no risk in cutting off the supply chain, the old supply chain before operate the new one.

So it very much depends on the outcome of those tests and not so much the length of time.

And I know it’s not a key market for you guys -- a key export market for you guys but can you just talk about the market reaction in terms of supply and pricing to Russia's decision to [indiscernible] Canadian?

I don't -- I think the global markets have been relatively stable for us and we're not just focused on the Russian market. Obviously it has an indirect impact on it but certainly we have seen robust demand in our, in the markets that we are focused on, which is mainly Japan.

And as I said our margins are improving. So we don't see that as being an enormous influence on either our business or the marketplace.

And does the agreement with South Korea open things up for you?

It does but it's not particularly material. WE think on the margin it has some -- it's a benefit to us.

We think it's a good thing for the industry in Canada but we've said both the government officials and industry participants, it's not -- it's a positive but for us we would like that outcome. It's good for the industry, but it's not particularly material to our [indiscernible].

A couple of questions. How is Maple Leaf's availability of input?

Are you guys having any issues sourcing or getting supply on the front end?

No.

What is the expected transition cost in the fourth quarter and first quarter next year? Are we starting to see some sort of tapering off near that $25 million level?

Yeah I think in the fourth quarter this year it's probably roughly the same. Again there's a high level of unpredictability in that forward-looking statement but at the end of the day that's roughly what we would think is a reasonable expectation and I think you can expect it -- again assuming a success that we'd see that start to taper off dramatically starting in the first quarter.

I know you said the cadence of getting to your 10% EBITDA margin is unknown and it could be off a by a quarter or two. Can you give any color -- are you more confident -- you are closer now -- you're kind of getting closer to that cliff.

It's going to happen I guess. Is there a level of more confidence, is there is a level of more anxiety related to it?

Like where do you stand on your ability to actually get there, now that you're starting to see a little bit more into the future? You started this process several years ago.

Now you're several quarters away. Can you give some color to that?

Totally. There is two components to your question, my confidence in the target in the end game and my confidence in the timing.

The confidence in the target, honestly we can see every individual brick, we can see every grain in the brick, in terms of the of the building blocks that are required to go from where we are to where we need to be, and we have very high confidence in that target. Our confidence on the timing, whether it's January, February, March or in a difficult situation well into the third quarter, honestly, it's just so incredibly difficult to predict I can't tell you, largely because it traces to things like tell me how that piece of equipment is going to perform relative to its performance guarantee in January as a new piece of equipment.

Honestly it's just too hard to predict here.

But the timing has nothing, the delay in the timing has nothing to do with the operating environment that you're working within. It has more to do with your ability to actually just get that brick, one brick at a time on to the building and do type of stuff.

So it has nothing to do with the actual operating environment. Is that a fair point?

Well, with one exception Ken and I would highlight this exception. We still are in the eye of the storm with respect to volume recovery at very high pricing and we're counting on the pace of that recovery.

Based on experience, I've a very high confidence level that volume is going to recover and then some and we'll be able to fill in any blanks that we have in the marketplace particularly with the $0.90, $1 heading into the United States.

And my very last question is, if I fast forward 12 months from now, there seems to be at least in the U.S. we could potentially swimming in hogs, which would obviously lead to lot lower input cost for you.

Yes.

Would that not see a major benefit to how you're pricing because I am assuming you are not going to give back the pricing to the same degree. Is there something I would be and missing is there -- I guess this is going the other way, is there a reason not to believe that your 10% EBITDA margin in a year or two years from now is way too low?

Goodness, Ken how -- how would [indiscernible].

Let's say if we're swimming in hogs next year, would your input cost go down? Would you be able to capture that profitability on that?

Certainly declining markets for us are a benefit, but there is a natural -- there are natural economics in this business, where we -- for a short period of time, we probably might witness just as we absorb these things on the way up sometime. I do think that there is natural economics that work with that with that equilibirates at a certain level.

So I think the best thing to model if you're a long term shareholder and you want to focus on long-term shareholder value, we believe that in declining markets, we will be at or above our strategic margin targets in the business. And I don't think I would be modeling the prospect of windfall, although certainly declining markets are helpful to us.

All right great. I will follow it back because I think Hillshire and the guys in the U.S.

tend to enjoy a big benefit from it. So -- but I appreciate the honesty thank you.

Well I mean at the end of the day, we'll always do our best as well but I just -- I don't want -- right now we're focused on meeting the target that we've set. And I hope it would be prudent for us to discussing overachievement.

Although I think -- I do think and I said this a number of times, as a long term investor who has set a strategic target seven years ago of 10% EBITDA margin targets, we're now completing that journey and highly confident that we will achieve that on a run rate basis in 2015. We're now turning our attention to what that environment's going to look like between 2015 and 2020 and for the next five years we're viewing 10% as a floor, not a ceiling.

And we think that there is steady opportunities for us to continue to improve the profitability of the business on a step by step basis, not quite so dramatic as what we've experienced in the last number of years but significant capital spend but through the good work of innovation and growth and continuous improvement from a cost structure, anybody who is experienced in manufacturing Ken will always tell you that when you invest in a brand new plant, you achieve your baseline returns on a brand new plant once you get it running to target. Then you spend the next five years trying to optimize it beyond what your expectations were in the first instance and the incremental add-ons are worth considerably more sometimes than even the first investment.

So it's just -- that's a normal response to significant manufacturing investments like new kits and new equipment. So we do have -- we are starting to formulate growth plans between 2015 and 2020 that would give us that perspective but we don't -- it's very hard to pin what that looks like.

What that doesn't do is answer the question tell me specifically when this network will be in transition in 2015 and that's the hard part to predict because we're still in the [indiscernible].

Just really wanted to follow up on one thing as it relates to shipping production. Is there any learnings that you guys have had from the shift and selling other plants that you can apply to Toronto, Kitchener moving into Hamilton or are these more individual type of issues where every plant is different?

Probably the one learning was when we regionally closed the North Battleford facility in favor of our bacon production in Winnipeg, we had not done probably retrospect adequate statistical load testing to be a 100% certain that at peak loads -- at peak seasonality that we wouldn’t have short term production issues. So that makes us a little bit more cautious and a little more knowledgeable in doing some of that peak load testing which I referred to earlier for the remaining plant closures.

And the good news is, in retrospect we worked away through it in bacon a year-ago. All of this occurred a year-ago.

And I think that has colored our services in making sure that before we burn the bridge of old capacity, that we're really confident and certain in the peak load and peak capabilities to service our customer needs in the new capacity. So that’s probably a headline, Derek and there's always a 100 others that would behind that.

Thank you. I appreciate your engagement and your questions.

And we do have a very interesting if not challenging time period in our history that gives us confidence in the end game but certainly working through the issues of timing and startups. There is lot that’s gone very well and there is obviously some challenges that we are working away through.

At the end of the day we think we're going to end up with a stronger, more profitable, growth focused business when this is all done and that excites us for the long term health of the business. So thank you for your support and your engagement and we appreciate [indiscernible] and we look forward to updating you for the end of fourth quarter results.

Have a great day.