Maple Leaf Foods Inc.

Michael McCain – President, Chief Executive Officer and Director Debbie Simpson – Chief Financial Officer

Evan Frantzeskos – TD Securities Derek Dley – Canaccord Genuity Mark Petrie – CIBC World Markets George Doumet – Scotiabank Kenneth Zaslow – BMO Capital Markets

Thank you, and good afternoon, everyone. We appreciate you joining us here this afternoon.

On today’s webcast, we will review Maple Leaf Foods’ financial and operating results for the fourth quarter of 2015. The news release and today’s webcast presentation are available at mapleleaffoods.com under the Investors 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 2015 annual 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 normally is the case, I will begin with an operating review followed by Debbie Simpson, our Chief Financial Officer, will provide other financial highlights. We will then open the call for any of your questions.

I could begin on Page 2 of the presentation. The headline theme here is what a difference to your mix.

Fourth cap off a very successful year of transition after seven years of difficult transformation in our business. I’m very pleased with the earnings growth in the quarter and throughout the year.

A strategy to build structural margin expansion in our business is delivering the results that we intended and the steady improvement in our financial performance is clear evidence of this. Strong trend in our EBITDA margin expansion continued.

EBITDA margin for the quarter was 8.7%, up from 1.5% a year ago and 7.1% in the last quarter. There’s been an excellent consistency in the progression of these results.

Our adjusted operating earnings were $48 million, a $62 million improvement from a year-go. We’re making very good progress in eliminating what we consider to be normal ramp-up variances which will close the remaining gap to our 10% structural EBITDA margin target and we’re entering 2006 with exciting strong momentum on many fronts and we’re very pleased with our brand, new product development and innovation pipelines.

Turning to Slide 3, you can see our steady consistent financial progress. We drove a $62 million increase in our adjusted operating earnings compared to the prior year from a loss of $14 million to a profit of $48 million as a result of that progression.

This delivered an adjusted EPS of $0.25 in the quarter compared to a loss of $0.08 one year ago, consecutive EBITDA margin growth over the last eight quarters. We recorded an adjusted EBITDA margin of 8.7% in the fourth quarter of 2015 and we’re closing in on our 10% target that we expect to achieve soon.

I know that bakes the question of what soon means. The closing operational variances, is not a precise science.

We made excellent progress. We’re continuing to make period-over-period continuous improvement and our teams have all the right actions underway to finish the job.

Strategic financial target of 10% EBITDA margin was set in 2010. It represents a significant structural improvement in our prior baseline.

For example, between 2005 and 2012, our average adjusted margin for the same portfolio we have today was 3.5%, largely as a result of the steady rise in currency at the time with our rather antiquated supply chain. We made a significant capital investment in our prepared meets network with a goal of structurally increasing this margin, and this chart demonstrates the realization of that financial goal that sum five years ago.

We’re very proud of the progress we’ve made, but we’re more excited about what that means for the future. Turning to Slide Number 4, we have some highlights of the two major factors that drove our earnings progression this quarter, better operating efficiencies and strong commercial and marketing execution.

Let me take these one at a time. We’ve commissioned five new scale prepared facilities – prepared meets facilities, with normal ramp up in efficiencies, remaining in only one of those five, our Heritage Plant in Hamilton, Ontario.

A substantial component of profit improvement from a year-ago and over the course of 2015 reflects the gains that we are making to eliminate these inefficiencies. I’m very satisfied with the progress that we’re making and the actions that are underway.

This is a world-class facility that will deliver the expected yield and productivity gains that we plan for in the first instance. Recall just one year ago, one year ago from this time, we were operating completely duplicate supply chains.

Our bacon plant in Winnipeg Manitoba is now exceeding our original operational expectations. Bacon is certainly a category that’s in demand and we’re now investing it further enhancing this facility more on that a little bit later.

To achieve operational efficiencies in our poultry network in the fourth quarter which contributed to results and lastly, we realized some benefit from the organizational streamlining that we announced last November. We are investing much of these savings to fuel product innovating and marketing as we increased our focus on growth.

We’re continuing to build a cost culture throughout Maple Leaf organization, reducing the cost of running our business. So we can further invest in growing our business.

Second major drive of our improved earning was strong commercial and marketing execution. As spoken before about our growth in sustainable protein, in the quarter, we benefitted from a higher margin sales mix, a significant component was increased sales of pork and poultry products from animals raised without antibiotics.

Our market leading physician is driving volumes in RWA products across fresh and prepared meats, more generally, we increased – we realized increased branded margins and sales across our leading brands throughout the country. Another contributor to our strong commercial results was improved performance in our value-added fresh meat business both in pork and poultry.

Our efforts in sustainable meat are adding value to this part of this business as well. I’ll only spend a brief moment on market conditions because in aggregate compared to five-year averages, they were neutral to our results.

Last year’s protein markets were weak relative to long-term averages, so there was a year-over-year improvement, but this year they were in total neutral against long-term averages. Turning to Slide Number 5, as we pass this point of inflection and implementing our strategies, centerpiece for our future journey is truly now about growth, brands, innovation and continued margin expansion.

We have clearly defined paths to maintain our cost culture. That will be the fuel to drive growth.

There’s some important highlights in our emerging growth agenda. First, we are advancing our leadership position and sustainable meat protein.

This is a very powerful growth platform as consumers increasingly scrutinized how their food is produced. We’re actively working to reduce or eliminate antibiotic usage within our supply chain through progressive farming practices.

We’re currently a leading processor of pork raised without antibiotics in all of North America and the leader in the Canadian poultry market. We are leaders in the animal welfare practices of North America.

Late last year, we announced a comprehensive commitment to animal care which details a number of actions we have or will be taking to establish best practices based on sound science. One of the main initiatives is the ongoing conversion of our sow barns from gestation creeks to lose housing.

Animal care is one of our four sustainability priorities and supports both our company and our brand strategies. We have higher penetration of natural meat products than any other major brand in North America.

In short, sustainable protein is a core growth platform for us and is yielding early results. In 2016, we are materially increasing our investment behind our marketing and innovation programs.

We will have the strongest portfolio of the new product innovation in our entire history rolling out commencing in early second quarter. And we’re re-launching one of our largest national brands, Schneider’s, with an integrated multimedia campaign and an updated look to an iconic Canadian brand.

Now that the hard work of supply chain transformation is over and successful, we’re clearly turning our attention to growth led by our powerful brands at number one market positions and our enormous product innovation capacity. It’s a very exciting transition for us.

I’d now like to turn the call over to Debbie Simpson, our Chief Financial Officer, to provide some additional financial information.

Thank you, Michael. Turning to Slide 6, I’ll discuss our cash flow, balance sheet, and recent capital allocation initiative.

Cash on hand at the end of the year was $292 million after investing $44 million in the purchase of two million shares under a normal course issuer bid in the fourth quarter. We completed purchases up to the limit of the NTIP at the end of January this year.

In aggregate, we acquired over 8.5 million shares in the last ten months for a cumulative investment of $195 million at a volume weighted average price of $22.48 per share. We now have approximately $135 million common shares issued in outstanding compared to $143 million at the 2014 year-end.

Our capital expenditures were $38 million in the quarter compared to $35 million last year and $148 million for the year compared to $216 million a year-ago. This represents a slight increase over our original estimate of $120 million at the beginning of the year, as we invested in a number of profit enhancing initiatives in our meat businesses towards the end of the year.

In the quarter, excuse me, cash flow from operations increased to $77 million from $16 million last year. And we delivered free cash flow of $39 million compared to a use of cash a year ago of $20 million.

This improvement was largely driven by our strong commercial performance and improved margins in the quarter. Our full-year restructuring cost decreased to $34 million from $68 million last year, largely driven by reduced charges related to the prepared meats network transformation.

In the quarter, restructuring costs of $12 million were in large part – excuse me sorry, were in large part due to organizational changes we made and announced in the fourth quarter. Finally, we announced an increase in the regular quarterly dividend by 12.5% to $0.09 per share.

This follows dividend increases made earlier in 2015 and reflects the operating and financial strength of the company. Turning to Slide 7, we estimate that our capital spending program will be approximately $175 million in 2016, which consists of three elements.

First, we estimate that our maintenance capital spend for 2016 will be in the $85 million range. Second, we expect to spend approximately $25 million to support our leadership position and sustainability a significant portion of this capital spend is supporting ongoing conversion of our sow barns from gestation crates to loose housing.

We also expect to invest in our Edmonton poultry facility to advance our commitment to animal care. If you add these two elements of capital spend together, the total $110 million which roughly equals our annual depreciation going forward.

Third, we estimate approximately $65 million will be invested in the execution of several incremental profit enhancement initiatives, a large portion of which relates to two specific projects: enhancing our bacon production facility in Winnipeg and optimizing our packaging capabilities in our Brampton pork processing facility. I will now turn the call back over to Michael for some summary comments.

Thank you, Deby. Slide 8 summarizes the key themes for what was a very strong quarter.

Our new prepared meats network is in the final phase of achieving yield and productivity gains. We identified five years ago and is driving margin expansion.

A commercial platform is strong and we believe accelerating but continuing to wait our sales mix to more natural sustainable meat proteins. The remaining GAAP to our 10% EBITDA strategic target is made up exclusively of eliminating operational ramp up variances which are declining steadily.

It’s a very strong balance sheet and positive cash flow now that provides financial flexibility and opportunity to fuel that growth and we’re pursuing some very high growth platforms investing behind our leading brands and market shares supporting this at the most exciting marketing and innovation programs that we’ve seen in many, many, many years. So we are entering 2016 with a very exciting momentum.

So, with that, I’d like to open up the call to your questions, please. Operator?

Hi, guys. It’s Evan Frantzeskos in for Michael.

Hi, Evan.

Just a few questions. You mentioned that the protein market conditions were neutral.

But if we look at the pork processing spreads, they were quite strong, and even if we adjust for the lower byproduct pricing. So what would be the offset to bring that down to neutral?

Hog production margins.

Hog production, okay, perfect. Next, in the quarter there was a 130 basis point margin gap in Q4 versus your 10% target.

But Q4 is a seasonally strong quarter and Q1 is a seasonally weak quarter; so what would you say the actual margin gap is? And what are the key items to close that?

Is it mostly yields, or mostly overtime, or mostly additional headcount reduction?

As we articulated at the last time we gathered and we didn’t reiterate it this time, there’s probably eight different buckets of contributors to those ramp-up variances that are all part of the experience of starting up a facility. They’re a combination of labor productivity, mechanical downtime, excess overhead and problem solving yield gaps, so there’s a very large number of small buckets.

They’re all part of the normal ramp up curve. And in more than the GAAP that exists is significantly less than it was at the third quarter but still constitutes more than the remaining GAAP to our strategic margin target for the quarter.

So, we’re very optimistic about the progression, and we feel very strongly we’ll close that gap soon.

Okay, great. And one last question, you raised your dividend by $1.25 which is relatively modest increase given the expected free cash flow at a 10% margin and under levered balance sheet.

I was wondering if you could give us or let us know of what you determined so far in terms of optimizing the balance sheet and return of capital. Thank you.

Well, change in the dividend, I think it has to be put in the context of what we did a year ago which was, I think, reflecting our confidence. One year ago, we made a very significant change just about doubled our dividend one year ago to put it on something of a normal trajectory and our ambition going forward is to show steady responsible increases to our annual dividend in line with peer companies.

And I think we’ve done that, 12.5% increase is a – when you consider that a year ago we’ve doubled it, there’s a 12.5% increase. I think it’s very respectable and responsible adjustment for this year, but what you should expect is ongoing consistent changes to improvements in that dividend in line with the improvement in our results.

Thank you. That’s it for me.

Thank you.

Yes, hi, guys congratulations on a great quarter. Just a couple of questions.

One on the capital allocation going forward, I mean have your thoughts changed surrounding a combination of return of capital to shareholders through dividends and NCIBs along with smaller bolt-on acquisitions? And what are some of the criteria that you may be looking at for that growth agenda as it relates to acquisitions?

First of all, I think it is important to note that it is a priority for the board to continue to assess the optimal deployment of capital that has been for years and will continue to be our priority for the board. Although other than dividend changes which I think is a responsible move, there has been no other decisions made at this time.

Having said that, we constantly now are looking at potential acquisition opportunities. The criteria that we’re focused on are growth opportunities that fit into us one of the strategic platforms that are important to us.

We’ve identified those pretty clearly in the past. Certainly they would be headlined by things that contribute to our sustainable meat platform, support our brands, support margin accretion and/or have better growth prospects.

Obviously you have to be able to buy them or acquire assets at responsible prices. We’re not elephant hunters nor are we going to overpay for assets.

So we have to be responsible in our valuation and that’s no small challenge. Obviously that needs to be represented in something that in our hands significantly exceeds our cost to capital.

So I think strategically in line with improving our business mix and brands and margins in the business at the same time as properly valued would be the primary criteria Derek.

Okay, great. In terms of the slight volume decline that you saw in prepared meats, was that similar to last quarter, where it was mostly due to exiting unprofitable businesses?

Or did it have to do with some of the price increases that you guys implemented in Q4 and Q1? Can you give us an idea of the magnitude of that decline?

Yes. So overall, the volume was down slightly in the quarter.

It is important to note that our branded retail volume actually increased. The decline was slightly in our food service business as we did choose to exit some lower margin business and improve – which improved our sales mix.

I would also point the fact that there was some very, very short term transient softness following the release of the report on meat if that occurred in November but it was to as just for a matter of weeks and then recovered. So it’s highly transitory.

But at the end of the day, I think we really it was slightly soft mostly in food service but we weren’t concerned about it. We had an improvement in our mix in the quarter and we really don’t think that there’s anything of concern or any story there.

Okay. Just one final housekeeping one if I can.

When do you guys expect to start paying cash taxes? Would it be in 2017?

No I don’t believe. So I think we’re good through 2017 Derek.

Okay. Great.

Thank you very much.

Hi. Good afternoon.

Hi, Mark.

Good afternoon. Hi.

Sorry, so just coming back to the volume issue, I guess more broadly speaking, do you feel like you need volume growth in prepared meats in order to be successful in your growth agenda?

Do we need volume in our prepared meats to be successful in our growth agenda?

Do you need volume growth in prepared meats, I mean, as opposed to the fresh value added meats? I mean, can you drive growth in fresh and effectively offset flat or slightly declining volumes in prepared meat?

You might be able to but that’s not our ambition. We do expect to be able to grow the prepared meats business, some in Canada, some in the United States.

Our business in the U.S. is growing, particularly around our sustainable meat platform.

So, we would expect to have some balanced growth across the whole portfolio. So, we fully expect to see growth in our prepared meats business, yes.

Okay. And you touched on my follow-up which is with regards to the export business and specifically the U.S., how should we think about that over the next couple of years and how important is FX, foreign exchange to that growth agenda?

When we built the new supply chain, we did it on the assumption of a long-term parity currency. That was a good thing to – a good assumption to make when you’re spending the capital subsequent to the capital being laid on the ground.

The currency has declined, so that’s obviously a little bit of a tailwind for us and I think that will certainly, nobody is projecting the currency to go back to parity anytime soon. But we’re trying to build a platform of U.S.

business that would survive any kind of currency assumption primarily by focusing on really high values, sustainable meat propositions with unique customer needs and in some cases, our own brand. So, we are focused on building a long-term prepared meat business platform that can sustain any currency assumption.

Okay; that’s helpful. Thank you.

I guess last, just on your outlook in terms of SG&A and operating expenses, clearly you’ve been very successful at netting some savings from your efficiency and rightsizing programs. But it sounds like you’re reinvesting a significant portion of that in growth and marketing and innovation, etc.

How should we think about SG&A dollars over the next year?

I think probably the best way to think about them would be ratio of SG&A would probably be best thought to be flattish. So, I don’t think you should be modeling any material decline in the SG&A ratio as a percentage of sales.

But there’s very important shifts inside that which we think is a strategically very appropriate thing to do. As we lean out the organization across every segment of our SG&A structure, we’re reinvesting that back in growth and marketing and advertising activities behind our brands.

We really think that’s a wise trade off.

Good stuff. Okay; thanks very much.

Hey. Good afternoon guys.

Hi, George.

George.

Michael, you mentioned entering 2016 with momentum on many fronts. Can you provide a little bit of color there on what you’re seeing?

Should we read into that as being another triple-digit basis point sequential improvement for that quarter?

I would not go out on a limb and make any forecast for you George, I haven’t to date and I don’t intend to start. I think all I will say is that we expect to hit our double-digit margin target in some time in 2016 on the run rate basis.

We are making continuous improvements, steady improvement which I’m very happy with in the last remaining ramp-up facility which is Hamilton the Heritage Plant. But more importantly we’re seeing momentum in our commercial performance primarily around some of the things that we’ve invested in the last number of years in addition to our supply chain, namely our innovation pipeline and really importantly the sustainable meat platform for the company where we now have ourselves a lead, we are in a leadership position in all of North America, in the sector.

So that’s I think if you combine all those ingredients, this is the first year where we’ve come in to the year where we didn’t transformational headwind, the very first year in seven years. And our entire organization is kind of viewing that as something of an unleashing some tremendous capacity to take advantage of what we’ve done and drive growth.

It’s refreshing, there’s an energy and buzz in the organization that is palpable. And we’re seeing all of these initiatives show up in the performance of the business.

So, that’s what gives us some cause for optimism in the momentum coming into 2016.

Great. On the $65 million profit enhancement component from the 2016 CapEx plan, how much of that is considered – is that to be considered mainly margin enhancing?

Or will there be a volume growth component to that?

It would be mostly margin enhancing.

Okay, great. One last one if I may, on to the housekeeping question.

What should we look at in terms of restructuring costs for 2016?

George, we aren’t putting a number out there. I don’t think it’s really – at this time, I guess we look at our year ahead.

We don’t have anything in mind that’s going to cause immediate restructuring event. So all we’ve got now is the run-off of things that we’ve done previously and the numbers really aren’t that significant.

I appreciate that. Thank you very much.

Hey. Good afternoon, everyone.

Hi, Ken.

Hey, I just have a couple of questions. Can you talk about the difference in the margin profile for prepared foods and the rest of the portfolio?

You’re talking about the difference in the margin profile?

Yes, of prepared foods versus the rest of the portfolio. Because I’m just trying to get a sense of if there was a mix benefit of restoring prepared foods volume.

I’m assuming there would be a margin enhancement to that. Is that not the way to think about it?

So, the margin of our prepared meats business as a baseline is higher than obviously it is in fresh meats but not all fresh meats because we do have a significant portion of our fresh business is value added, very value added fresh meat and would be comparable to package meats return. The improvement mostly in prepared meats was from the decline in our negative operating variances, Ken which is basically the improvement in our plant supply chain costs, right.

So, that’s where the margin enhancement largely came from. Not a significant contributor from volume shifts one way or another.

Finally, there was improvements to the overall mix of our products in both our fresh and prepared meats business. And if you’re looking for themes in that mix probably the biggest theme would be you’re starting to realize benefits from our sustainable meat platforms.

Okay. In this environment my understanding is the fresh margins are – and I heard what you said about the hog production margins.

But I’m assuming that the fresh margins are somewhat inflated – not as a negative to you guys; but it seems like you’re in a very good position in the prepared – in the fresh margins. But I would assume that the prepared foods – the prepared meats business is more sustainable.

And as the fresh margins come back to normal levels you’ll make that up in the prepared foods – or prepared meats side. You don’t think of it like what the differential in margin structure is?

I just have heard that with other companies, so I’m just making sure that I understand that you think that they’re all similar.

No, I don’t think they’re similar. We do make more money on our branded retail prepared meats business than we do in our fresh business.

I mean that’s I think relatively clear, Kenneth consistent with what’s going on in the marketplace. I think what’s – but if you look at the – inside the quarter, the influences on the portfolio, yes, there was robust primary processing margins.

There was an offset in hog production. There was also – there are parts of that primary processing which are highly integrated to the margin structure of prepared meat specifically in categories like bacon where you have long margins and primary processing, you can have compression in your margins in something like bacon, for example, for a very short period of time.

So, at the end of the day, all of those influences were neutral to us. In the quarter, there’s no – we can’t – we couldn’t walk through them and say listen, we have any interpretation of anything other than neutral when you compare to five-year averages.

And that’s the important consideration here. When you compare it to a year ago, there was a – last year’s results were depressed.

So, in total, if you’d look at all of those indicators, so we something of an improvement last year but not relative to five-year average.

Okay. You said in your comments that the improvement in operational excellence has improved.

I was wondering if you could give some anecdotal evidence or some stories about the labor, the throughput, at the Heritage that you guys have found. Last time we saw the facility there were some improvements to be had.

I didn’t know – you didn’t indicate that things are getting better. Can you talk about labor improvements or some sort of measures to say: Hey, look, we’re doing a better job on these metrics.

Or these stories kind of tell you that we reduced production inefficiencies by X% or something to give some color to what you’re saying.

So, the number of metrics that go into that Ken would probably exceed 20 or 30 different individual components and…

I think two, I think two metrics.

Well honestly I’m struggling to figure – I’m struggling to figure – to find one in my head that hasn’t improved. Virtually, every one of them are improving.

Our yield is improving, our labor variances or productivity is improving, our overhead spin is improving, our production rates are improving, virtually, every one of them are improving. We were very clear at the last quarter, at the end of the end of third quarter that the aggregate of all those inefficiencies was 320 basis points I recall.

Yes.

And this year it’s – and this quarter, I should say in the fourth quarter, it was in and around 200 basis points or something like that. So we had a full 120 or more basis points improvement but it’s a composition of all of those, all of those factors and we expect that to continue.

Okay. My last question is what is the magnitude of investment that you plan on making both in marketing and innovation?

Like, what’s the order of magnitude as either a percentage of sales or absolute dollars? How do you think about that?

And I’ll leave it at that.

We’ve increased, we’ve increased our ad promo spending in the marketplace, a slightly over 40% and honestly, we think that’s a very material adjustment.

Thanks. I appreciate it.

Thank you very much. We appreciate all your support.

This is a very gratifying progression through 2015. 2015 was a transition year for us and I think we’ve demonstrated through the progression of our financial results quarter-over-quarter as the year unfolded delivered on that expectation.

So, we’re entering 2016 both with momentum and some clean air in terms of the transformational activity being behind us. And that through it all, we appreciate the support of our shareholders, the analyst community and all the other stakeholders that have participated in this journey for the last seven years.

So, thank you for that and I look forward to visiting with you I believe next time following our annual meeting in April or May slightly in May. So, thank you for that and I look forward to chatting to you next time.

Have a nice day.