Maple Leaf Foods Inc.

Thank you, Joanna, and good morning everyone. Speaking on the call this morning will be Michael McCain, Chief Executive Officer, Curtis Frank, Chief Operating Officer and Geert Verellen, Chief Financial Officer.

Before we begin, I would like to remind you that some statements made on today's call may constitute forward-looking information and our future results may differ materially from what we discussed. Please refer to our Q1 2021 MD&A and other information on our website for a broader description of operations and risk factors that could affect the company's performance.

We have uploaded our Q1 investor deck to our website, which includes support material for the quarter as always; the Investor Relations team will be available after the call for any follow up questions or any detailed modeling questions you might have. And with that, I'll now turn the call over to Michael McCain.

Michael?

Thank you, James. And good morning, everyone.

Welcome to our first quarter 2021 earnings call. I'm joined today by Curtis Frank, and Geert Verellen.

As we crossed the one-year mark of COVID-19 in North America, I'm heartened by our ability to keep our people safe and continue to supply our customers with minimal disruption. This is a testament to our people.

We've transitioned almost seamlessly to online work and our frontline staff who operate in our facilities. We've taken extraordinary measures to safeguard them, most recently through rolling out on site vaccination.

We've maintained constant diligence and adherence throughout this to our protocols and commitment to putting our people first. Now turning to our business, we're balancing some near term performance, while advancing our vision to lead in sustainable protein.

We continue to deliver profitable growth in our meat protein business and we are investing for growth in our plant protein business. We positioned our brands and our products to fuel this growth, including being leaders in two high growth categories sustainable meat and plant protein.

We've grown them at a 25% compound growth rate. And these two categories now represent over 20% of our portfolio.

It's important to note that over the past three fiscal years, we've grown our meat protein adjusted EBITDA by 53% and we've grown in that same three year period, our plant protein business top-line sales by 52%. These are remarkable achievements.

And I'm incredibly proud of the results so far. This quarter, we continued to make progress; we delivered top-line growth in the meat production business of over 3% in the quarter.

And our adjusted EBITDA margin was 12.2%. We're steadily and confidently moving towards our 2022 target of 14% to 16%.

Short-term results in our plant protein business were soft starting out this year with sales growth below our strategic target. Curtis is going to unpack that later in the call.

We expect to see a material improvement as the year progresses following the abatement of COVID-19 restrictions. Most importantly, though, we have unwavering confidence in the potential of this business and the investments that we're making in plant protein.

We've built our organizational structure invested in brands, brand strategies, and product innovation that we've made strategic investments to strengthen our manufacturing base. We have a strong number two market share and we're well positioned for growth.

So with that, I will now turn it over to Curtis who's going to review the operations. And Geert will cover the financials.

Curtis, over to you.

Thank you, Michael and good morning everyone. First and foremost, I would like to reiterate Michael's thoughts and take a moment to acknowledge and thank all of our dedicated Maple Leaf employees through this pandemic, that maintained an unwavering focus on protecting the health and safety of our people, on ensuring the continuity of our business and in supporting the communities in which we operate.

And they've done this all while producing the nutritious food that people need. Together, we are collectively working to do our parts to bring the COVID pandemic to an end.

To further this cause last week, we were afforded an opportunity to host our first on site vaccination clinics at seven of our facilities in close collaboration with regional public health authorities. We were happy to assist approximately 1400 of our team members who voluntarily received vaccinations.

We hope to continue these efforts as vaccine availability continues to improve while also supporting local clinics within the communities in which we operate. Turning to our Q1 results, we'll provide some further context across our two segments.

Starting with our meat protein business, we once again delivered profitable growth as sales grew by 3.3%. While adjusted EBITDA margin expanded by 90 basis points to 12.2%.

As Michael mentioned, these are remarkable achievements given we were lapping a strong quarter last year that benefited from the COVID induced pantry loading we saw in March of 2020. We also had very limited access to China in the first quarter of this year, which as you know, proved to be a very lucrative market for us at the same time a year ago.

The success in our meat protein group was a direct result of the continued execution of our blueprint and also the strategic drivers that underpin it. Sustainable meats sales grew at double digits, contributed sizably to margin expansion.

We continue to see branded sales growth in our prepared meats business, with notable market share expansion in our leading Schneider's branch. We also grew at double digits in the U.S.

where we continue to leverage our sustainable meat brand greenfield. Another contributing factor in our results was the continued strength of our supply chain.

Despite the challenges and the clear complexities related to COVID for several quarters now, our network has delivered significant operational efficiencies. During this first quarter, our prepared meats facilities reduced direct product costs through higher product deals, particularly in high volume skews such as deli and wieners.

In primary processing, improved labor efficiency and raw material utilization also contributed to margin expansion. We believe there is further runway in capturing additional efficiencies, which will be a key facet towards reaching our 14% to 16% adjusted EBITDA margin target in 2022.

Touching quickly on the pork commodity backdrop, the first quarter saw hog markets and pork byproduct prices, surge well above the five-year average. On the surface, these dynamics imply 160 basis point tailwind to our meat protein margins.

However, this benefit was nearly fully offset by two important factors. First, we sold forward our hogs as we commonly do in our risk management programs.

And this limited the benefit of higher hog prices. And secondly, our restricted access to China meant that we were unable to fully participate in a robust byproducts market.

As a result, we experienced only a slight benefit of pork markets. We have said that our strong skew towards value added products together with our risk mitigation processes, limit our exposure to raw material and raw commodity markets.

But simply we do not experience the low lows or the high highs. And the first quarter was a prime example of that.

As we look forward, we do anticipate moderate but very importantly temporary margin pressure in the second quarter, as the rapid and unexpected surge in green and hog prices have driven up meat costs. We are currently reflecting this new reality within our pricing.

And we expect a full recovery starting in the third quarter. With that context, we continue to expect to achieve our meat protein targets for the full year of 2021.

In our plant protein group as Michael mentioned, we had a soft start to 2021. This was driven by several market factors.

Firstly, COVID-related market disruptions that we experienced at the tail end of 2020 carried over to the start of 2021. In essence the intensity of the third wave, together with related government restrictions, that heavily impeded food service activity, delayed fresh innovation and impacted the timing of retail shelf resets.

Second, the overall plant protein market has begun to lap the retail surge that we experienced together in late March of 2020. And this resulted in lower year-over-year growth in the month of March.

Despite this market backdrop, we did see encouraging results within our portfolio. POS sales for our core retail product lines once again, outpaced growth in that market sub-segment, highlighted again by our Lightlife tempeh and field roast chao cheese products.

For a retail fresh product line was stable relative to Q4 of 2020 that's velocities and distribution were largely unchanged. In addition, we continued to advance our strategic agenda in the quarter, putting the pieces in place to set up the business for long-term success.

We've completed direct repositioning of our leading brands. In field roast, our new brand messaging and packaging is now in market.

While in Lightlife, we rolled out the second phase of product reformulation this time to the entire smart product line. The brand new innovation to the market with our Field Roast Signature Stadium Dog, and plant based pepperoni.

We signed up some very strong food service partners like Wienerschnitzel, and Pizza Nova to help us bring these products to market. And we have received super positive reviews from customers and consumers.

That are the first products of their kind in the market, we believe there's tremendous opportunity for growth in our innovation set of products. We have recently expanded distribution for a number of Lightlife and field roast products at Whole Foods.

We continue to lower our supply chain costs as a result of the actions we took in late 2020. And finally, we have closed on the acquisition of our Indianapolis sites and building which will be converted into a world-class tempeh facility to support the rapid growth in the exciting tempeh category.

Factoring these positive catalysts and our expectation of a gradual reopening of the economy, our full year outlook in plant protein also remains unchanged. We continue to expect full year sales growth broadly in line with our 30% strategic target with the pace of growth reaccelerating as we move throughout this year.

With that, I'll pass it over to Greet.

Thank you, Curtis and good morning, everyone. I will begin by discussing the company's consolidated performance during the first quarter.

I will then turn to a more detailed outlook at both our meat and plant protein groups. I'll conclude by speaking to some key financial metrics, capital expenditures and our outlook for 2021.

Sales were approximately 1.1 billion, an increase of 3% from the prior year with higher sales in meat protein partially offset by lower sales in plant protein. Adjusted EBITDA was approximately 98 million, an increase of 9% from the prior year.

Adjusted EBITDA margin was 9.3%, an increase of 40 basis points from last year. Adjusted operating earnings were $50 million, compared to $45 million last year.

Net earnings were $48 million or $0.39 per basic share, compared to a loss of $3.7 million, or $0.03 per basic share last year largely as a result of non-cash changes in the fair value of bile acids and derivative contracts that resulted from the surge in hog and pork prices. Aside from these non-cash changes, net earnings were further supported by stronger operating and commercial performance in meat protein.

Without these non-cash changes, adjusted earnings were $0. 26 per share for the quarter compared to $0.21 per share in the prior year, an increase of 24%.

Looking at the meat protein segment, sales increased 3.3% to $1 billion, benefiting from pricing taking in the fourth quarter last year to offset cost pressures, a favorable mix shift towards sustainable meats and branded products and higher fresh pork sales related to an increase in hogs processed. These factors more than offset an unfavorable impact from a stronger Canadian dollar against the U.S.

dollar, lower prepared meats compared to last year's COVID retail surge and lower sales to China. Meat protein adjusted EBITDA grew an impressive 11% to $123 million benefiting from strong operating performance and make shift towards branded and sustainable meats and pricing action taken in the fourth quarter.

These more than offset the impact of ongoing port trade restrictions into China. Adjusted EBITDA margin for the meat segment was 12.2%, a 90 basis point improvement over last year.

It's important to highlight that this is the sixth consecutive quarter of adjusted EBITDA margin expansion as we progress towards our 22 target. Turning to plant protein sales were $43 million, a decrease of 8.1% or a decrease of 2.5% in U.S.

dollars. As was noted earlier, COVID-19 restrictions have disproportionately impacted this market.

Overall sales growth was impacted by lower volumes and fresh retail product, which more than offset higher volumes and core retail products and pricing taken in the fourth quarter of last year to offset inflation and structural cost increases. Plant protein gross margin was 0.3%, impacted by lower sales volumes and lower than expected capacity utilization, which more than offset improved distribution costs, and pricing action taken last year.

As SG&A expenses in plant protein were 29 million in line with our plan, and down slightly from a year ago due to the timing of advertising and promotional expenses. As a percentage of sales, SG&A were broadly similar to last year.

Turning to our balance sheet, we have a very stable financial position with $845 million of net debt and over $1 billion in undrawn committed credit. As you know, about $580 million of this debt is related to construction capital, which is carried on the balance sheet.

While this is not currently generating a return, it will within the next three years as these projects come online. During the quarter, we invested $185 million in CapEx, including construction capital of 152 million, primarily related to the construction of our new poultry facility in London, Ontario.

I will wrap up with an outlook for a business for 2021. Our expectations are based on certain assumptions, primarily return to some normalcy as COVID-19 restrictions subside.

As you can see from the outlook slide in our q1 presentation, as well as our MD&A and other materials. Despite some weakness in the front half, our full year outlook remains unchanged.

While we do expect some short-term pressure on meat margins in the second quarter, this is a timing lag as we are passing through pricing to adjust for higher pork prices. And in plant protein, we anticipate sales to increase as COVID restrictions ease.

In the context of these actions and expectations, we remain confident in our full year outlook. I will now turn the call back to Michael.

Thank you, Geert and Curtis. Considering that we are operating within the significant constraints and costs imposed by this pandemic.

We're really pleased with our results especially in our value added meat business. The strong team that we have in place the asset base, the brand portfolio, the differentiation in sustainable protein are all collectively delivering shared value as we expect.

This quarter we moved the puck a little closer to the goal line. In meat protein we're well along the journey and our '22 target is within reach.

The plant protein business we're building a strong business backed by an integrated supply chain, well differentiated brands and brand strategies and the broadest product portfolio on the marketplace today. For a broader view of the year and our progress against these strategies, I would encourage everyone on the line please to tune into our virtual AGM which is being held at 11am Eastern time this morning.

So with that, now Joanna open the line up for questions.

I wanted to ask just on the meat side. Just in terms of pricing, given what we've seen here with lean hog prices, almost doubling to start the year.

Can you just talk about I guess two things one, the cadence of pricing and volume and the impact on the 3% growth rate this quarter. And then, how you expect that to the impact may be going forward recognizing the pricing increases likely going to come in the back half of the year as opposed to q2.

Curtis, do you want to address that?

Sure. Hi, Derek.

So just I'll start Derek with the first quarter and answer your question maybe in two parts. So in the first quarter, we were as Michael said, pleased with our sales growth all pricing, mix and volume all contributed to our to our top-line performance.

You'll recall from a pricing point of view, we did move as we normally do for normal inflationary pent up costs in Q4 last year, we moved our pricing forward. And obviously, that had an impact in the first quarter, we continued to see favorable mix in the first quarter as well, predominantly, through the execution of our strategies, frankly, we saw growth in both sustainable meats and a shift toward brand new products which were favorable in the quarter.

And then, finally, our volumes were stronger. We saw higher fresh pork volumes that more than offset a little bit softer prepared meats volumes, keep in mind, our prepared meats volumes were down slightly year-over-year but that's predominantly based on the month of March, Derek.

We had a really great start to the year in P one and two from a volume performance point of view. And then, as you would expect, there was a pretty significant impact when we hit the kind of timing of the COVID loadings from a year ago.

So that's basically a summary of Q1. Looking forward, I think the best way to think about our outlook on sales, looking forward would be just simply to take you towards where we kind of guided you, which is mid-to-high single digit outlook for the year on a 52-week basis.

Our view on that remains unchanged and we do expect to increase prices as a result of the market impacts that you have clearly outlined, that will happen kind of late in Q2. And we're very confident that we'll fully recover those costs in Q3 and Q4.

And the very reason we've got it towards a range of mid to high single digits is for that purpose. And keep in mind, we would have planned as part of our annual pricing rhythm to reflect any inflationary costs that we would have incurred in the fall anyway.

So we're basically just pulling that forward for this year.

Okay, great. That's really good color.

Just to follow up a little bit on your commentary just on that, that pull forward in retail that you signed in March at the start of COVID. And I guess, looking forward, hopefully, I suppose we get some relaxation in some of these restrictions and things start to improve on the COVID front, that would lead me to believe we'd see some food service, determine the food service business returning, so can you just comment on any impacts that might have on one revenue in two margin?

Yes. I think it would be fair to say that maybe in two parts of our business, because that's okay.

I think the way to think about the forward view here would be to say in our meat protein business, the impact will be relatively neutral. So, at the most at the highest level, I don't see any impact in our ability to deliver to the 14% to 16% range by 2022, no impact at all, so neutral and meat and probably slightly positive to the plant protein business.

Now, the reason I think it's neutral in meat is the timing of the return to normality and the channel mix between retail and food service, that will be gradual, and it won't certainly won't be an event. And we've seen incredible strength in both the penetration of our brands, as well as the growth in our margin accretive sustainable meats business in both the U.S.

and Canada. And I think those will continue to give us positive benefit moving forward.

And when you combine that with kind of some of the skills and that we've built in our revenue management function and our ability to manage inflationary costs, I think we're incredibly well positioned for the back part of the year. So I think just keeping that guidance intact is important.

When you think about the plant protein business, the reason I say that it may be slightly positive is number one, we expect that will accelerate our food service relationships and partnerships, particularly with some of the innovative products that we have coming to market. As the year advances and the many retailers in North America haven't taken the time to reset their shelves in a meaningful way.

And once we see an abatement of COVID, I think we'll start to see shelf resets and when we expect positive news, again from distribution and innovation point of view. So I think neutral and meat are kind of positive to plant if that's helpful.

The other thing I would add, Derek, the only thing I would add to everything that Curtis very articulately outlined, is that as vaccination rates come on and as society in North America normalizes we would also see some not full but some abatement in our cost structure that's related to COVID, which we'd anticipated we didn't and we priced in what we felt were the sustainable, kind of permanent infrastructure components of that COVID protection -- operating structure. Clearly as vaccination rates and society opens up some that will move back which is margin accretive, right?

So which we would expect. So I think, we're highly confident that we can maintain our guidance.

So just getting back on to the plant based protein, can you help us get some confidence in that 30% growth, number getting or close to 30% growth, now considering the tough start to the year, Q2 has a very tough comp as well 40% growth last year? So are you seeing any growth in Q2 to start or what gives you the confidence to get to that -- close to that 30% in the second half of the year, given that, if you don't get growth in the first half, you're going to need 50% plus lift in the second half?

Well, for starters, Michael, and first of all, good morning, and some great question. The comp in the second quarter is strong, but the comp in the third and fourth quarter, not so much so that, you put that into balance, the confidence that we have is based on, the composition of building blocks, those building blocks are, the normalization due to COVID.

And innovation pipeline that we're really, really excited about. And Curtis will be, as described a bit of that, but maybe Curtis, you could add some color.

Yes, thank you, Michael. I think there's maybe four things that I would outline that will be accelerants in the back part of the year.

The first is just to keep in mind that the core health of the business remains intact and the core is very healthy. And that's led by our tempeh business and our Chao cheese business, field roast, so Lightlife tempeh and Chao cheese, those businesses remain healthy growing, and we expect to see very strong performance in both of those businesses as the year progresses.

The second as you mentioned Michael appropriately as we have some very, very strong innovation coming over the balance of the year. The first is in our field roast stadium dog, which is the first I think North America's first P based hotdog.

The second is in a pizza pepperoni platform that we're just thrilled with. And we think it's got tremendous opportunity in the food service channel as well as a retail application, also a P based product.

And the third is in a chicken product that we're bringing to the meat department that we're also really excited about. So of course healthy, we've got innovation coming.

COVID we will see an abatement throughout the year and expect to see both retail benefit to that but also an up tick in the food service channel. And then, finally, we do expect that the proceeds from our brand renovation work that we've done in Lightlife and field roast will benefit as the products take hold and repositioning takes hold in the market, as well as our advertising campaigns to support them over the balance of the year.

So I think those are the four most important factors to keep in mind as we look to accelerate growth in the back half. And we have tremendous confidence.

That's helpful, Curtis Thank you. And just to clarify something, so the delays in resetting, or adjusting the shelves at retailers.

How does that differ between the adding new products like impossible is that 1000s of new doors in the last six months versus resetting of the shelves to allow for innovation.

The fresh department tends to be a little bit more accordion like and ebbs and flows. And the standard departments like say produce or the prepared meats department where there's fixed space merchandise in the store tend to move broadly not every retail is the same, obviously.

But broadly in one or two planogram window changes per year. And many retailers have pushed them off or delayed them just because of the resourcing constraints and frankly, the demand that they've experienced in dealing with the COVID serve.

So we kind of see that getting back to normal in the back part of the year. And the benefit will be an opportunity to open up more space, we think for innovative products in the retail channel in particular over the balance of the year.

That's interesting. Would you be willing to give us the split between the core and the fresh from a sales perspective and the growth in those two?

We'll take that and we'll think about that Michael. We have not typically segmented that doesn't, I think we should take that under advisement and think about it.

We don't want to distracted by segmentations in these things. We have a portfolio and broadest portfolio in the marketplace.

And there will always be some measure of, puts and takes across that the various sub segments. I wouldn't I would add to Curtis's perspective, which gives us the optimism of the accelerating growth rates as the year progresses that at the end of the day, Michael, the strategic perspective on this, the lens that we apply most commonly is, is rooted gives us confidence in a number of different ways.

The first is that, while on one hand, we are disappointed, of course, in a decelerating growth rate through the COVID experience. On the other hand, we're not going to be guided, or pushed aside based on a COVID experience.

And all of the implications that that I had, or the vagaries of quarter-to-quarter competitive skirmishes, there are three, participants today in this category three, we are number two of the three, right. And interestingly, if you chart out the last two years of quarterly growth rates, in fact, in the last two quarters and continuing the growth rates between our growth rate and the number one in the category have actually converged, plus or minus a few percentage points of each other.

So in aggregate, and there's put some takes in all of these portfolios, but in aggregate, the growth rates in the category have actually converged over the course of the last six months, and that gives us a look, that gives us some confidence actually, maybe, we had to manage that confidence carefully. But that gives us some good confidence.

We're focused on the long-term. The performance in the category, it's has shaken out to three investing category -- investing participants, yes, we're continuing, this is not a loss.

These are investments, they're investments in growth, we have a long-term view. We're making the choice to invest and we have the confidence in our brands and our long-term brand strategies, as these counter -- as the performance between these players has converged.

We're confident that our strategies will have a very lucrative outcome over the long-term. And so, we feel very good about it in total, disappointed, obviously, in the COVID experience, but overall long-term, we feel very good about it.

A very interesting discussion so far. A couple of questions, first of all, on sort of the pricing action, that you're planning on taking what's been the tone of discussions with the grocers?

I know, they're never easy, but I think there's also a recognition as to what's going on out there. So just kind of wondering what you're seeing and I guess, the receptivity of your core clients to these discussions?

Well, I think the discussions are the same as all discussions with the retail community there's always the friction attached to that in the marketplace has been forever, always has been, always will be. I don't think there's anything here that's out of the norm Irene, and at the end of the day, the facts prevail.

And all you need to do is pull up a chart that shows grains over the last three months and lean hog prices over the last three months. And the facts are compelling.

They're just uncompelling, they affect everybody. And they actually affect the inflation rates in the entire food complex.

So at the end of the day, the friction is normal. The discussions are constructive.

And the facts are beyond compelling.

Yes. I was actually wondering, in the other sense, Michael, whether because it is so clear and compelling, whether perhaps the friction had been sort of diminished a little bit.

Never.

I know wishful thinking on my part, okay. Also kind of wondering, as we're seeing the U.S.

start to open up. It may be that it's too early, but have you seen any kind of shifts in behavior or any shifts in sort of, perhaps a step up in or the beginning of some of these?

opening these sort of resets in markets in the U.S. where we have seen -- yes.

So can you walk us through that…

What you're seeing is, what you're seeing is channel normalization in the U.S., Irene. And I mean, some of the largest QSRs in America are reporting actually sales rates and velocities that are growth over pre-pandemic numbers.

So which I think is a reflection of the fact that they many parts of the U.S. seem pretty solid economic recovery, and then normalization.

So yes, very much so in the U.S., less so in Canada, but more in the U.S., yes.

No, definitely. And presumably, that sort of easing some of the discussions that you're having with them around product innovation?

Yes, it does. There's always lag, there's always a lag attached to that.

But yes, that's an very exciting things in the pipeline.

Okay. And just finally to cover off this subject Michael, you haven't because from your answer, would I be wrong to interpret that you haven't yet seen that flow into retail?

And sort of some of the resets begin in retail or that starting in certain markets?

I'm not sure I'm fully understanding your question.

Well, the discussion that you had with Michael is just around some of the restricts, some of the resets, that you're waiting to see or that you're waiting to have in the retail channel. And so just wondering whether in…

Implants you are looking. Curtis you want to address on that?

I think the short answer there would be it's far too soon, number one, and typically, you wouldn't see that happen over the summer, that would more be a fall rhythm. And we expect that hopefully to return as a normal fall rhythm in grocery resets.

Sorry, back on the plant phase, when we see the point of sale data, you see, like impossible, really growing quite rapidly as it entered the U.S. grocery channels.

So like you have much better access to point-of-sale and market share data than we have. So I'm just wondering, like, what do you think is happening there?

Do you think that they're taking share from yourself and beyond? Or are they expanding the category?

Or is it a bit of both in your eyes?

Well, it's a bit of both, I'm going to speak to it in the context of the last six months, because that's when the competitive skirmishes have occurred. They have gained a couple of percentage points, Peter, it's not massive, it's a couple of percentage points.

As the number three player in the marketplace. We've lost a little bit not much, actually, if you look at our market shares, in the last six months, they've been super stable actually lost a little bit, most of it has come from, interestingly all other category, because there's the three big ones and then there's this very long tail of a whole bunch of other participants.

And long tail of other participants has contracted most of the share loss in the last six months, has been in the all other category and the number one position, the number one player was relatively flat, we lost a tiny little bit, most of the loss came from all other in advantage -- to the benefit of number three. But if you look at the charts of the SPINS data in market shares and the category over the last six months, plus or minus a percentage point they've been quite stable -- very stable, actually very stable in historical terms.

And what are the pricing and promotion backdrop, then in the U.S. and the Canadian market.

So for example, like we've noticed that your competitors have been introducing value packs, which seems to be well priced. And I noticed Metro when in its flyer had a very strong promotion.

I believe it was on Lightlife. The other week, so can you talk a little bit about the -- like the promotional and pricing backdrop?

Like it seems it had just looking at flyers and things?

Yes, no, I don't think there's any insight there beyond the normal activity of -- promotional activity is just part of the food industry in all categories. And you're trying to create value impressions, no matter what product or category you're operating in.

But I don't think there's any, competitive intensity, they're expected in the category that would be on the -- outside the norm, if you will. There certainly lots of theater attached to some of these things, but we have probably the lowest cost supply chain marketplace.

So if there ever was, undue competitive activity competition is not something that we're shy about, but I don't see any fundamentals that are going to lead to that outcome.

Okay. That's good to hear.

And then, just lastly, the benefits that you're hoping to see from the brand renovation and also the major innovations, which seem to be the field roast hot dog in the pizza product, can you give us specific timing, be a little more specific timing on when those innovations and when those brand renovations actually hit the Shelton in the U.S. grocery chain?

Yes, Curtis will give you some detailed timing on those. I would highlight Peter that, the growth in this category is going to be driven by -- the engine here is going to be constant innovation.

So there are a couple of examples that Curtis cited. We have a portfolio that is of innovation -- in the pipeline that is very deep today.

And so those are two immediate in the marketplace examples. There are dozens of examples like that right behind it, not in the marketplace yet that we're continued to be excited about.

So what's important, beyond the next quarter to recognize is that this has been and will continue to be across all of our portfolio and innovation led growth rate. There is lots going on with the consumers.

But there'll be an innovation, led growth rate. Curtis, maybe you just speak to some of the timings.

Yes. Sure, of course, the Hillsborough stadium dog is actually now hitting the market.

And we have distribution confirmed at a number of customers. But when we appropriately list them all off, but a number of customers are starting here in the second quarter.

So we're excited there, obviously, the Lightlife chicken products are going to be launching the middle of May, and we've got a -- we're starting with a national customer that we're bringing on board and then we'll be expanding distribution from there. The pizza pepperoni is -- we'll be starting in the second quarter of 2021, as well.

And then of course, we launched our line extensions in Chao cheese last year from the third quarter continued to build a distribution rapidly within the retail channel as well. So and then, we've got some kind of important customer inroads that we've made in the club channel as well.

So I think it would be fair to say that the balance of the products are launching throughout the second quarter. And we'll continue to build distribution in stores from there.

And Curtis, when did the lightlife and field roast brand renovations like actually turn up on the shelf.

Most of the work in the formulation components of lightlife was completed through January or so, they're really, it would be fair to say the products themselves are really rolling out in full, they rolled out throughout the first quarter, obviously. But we're really only now getting the fulsome benefit of having the products, the packaging and the formulations on shelf here.

And field roast is really just March and April, the new packaging rolling out and then the early read in terms of kind of pickup in POS has been really positive reception to the field roast, or repositioning and repackaging.

So I just want to follow up on this whole sort of plant sales split. I think Michael asked about it, with regards to -- between core and fresh and I know you don't want to get into it.

But is it fair to say that the ad and promo investment between those two buckets is relatively balanced and matches sales or would one be getting a bit more?

For most the admin promo investment is brand focused. And the brands actually span both categories.

So, because it's brand focused or not category focused. I'd say both.

Okay. And with regards to the gross margin and performance, I mean, can we assume that fresh is a bit of a drag just given the competitive intensity in that category?

Or are they relatively comparable as well.

It's not driven by the competitive intensity, as I articulated with Peter a moment ago, Mark, but I do, I think they're relatively balanced across the portfolio, we obviously have, -- we have invested for growth that has been slower coming than we expected in the fresh side, which impacts obviously, those near term gross margins. But beyond that component is relatively comparable across the portfolio.

Most of the investments again are people and infrastructure and innovation pipeline and R&D and advertising that is brand strategy focused, et cetera.

Okay, thanks. And you call that new customer wins for greenfield in U.S.?

Is that been a pretty consistent driver of the growth? Or can you just give us a bit more context in terms of how much of the growth in Q1, or maybe even in 2020, more broadly, is sort of sell through versus new listings or new customers?

Curtis? We haven't we haven't distinguished that or segmented that yet.

But I'll give you just some general -- maybe just some general color. We're getting support in both areas, both from a velocity improvement and also from an expansion of distribution of the brand up to more retailers.

I think we're excited about our sustainable needs business, is that we continue to be as you can imagine, relatively small, in the context of the United States market, with tremendous wide space for opportunity for growth, both in terms of expanding items where we have existing relationships with retailers in the U.S., but also expanding the brand itself to more retailers within the United States. So significant upside and potential for growth.

And then also, the utilization of the animal I think we've talked about in the past, offers us an opportunity to continue to introduce more products into the market, as well. So lots of growth potential left in the sustainable meats business in the U.S., and we're getting kind of growth in both areas.

Okay, great. And how should we think about capacity of those animals and your ability to continue to fulfill the growth?

Our growth rate can be sustained through a couple of sources. Number one, we continue to grow our own in-house production of our own production of animals, live hogs raised without antibiotics.

We have growth potential driven by our increased utilization of the meat, both in poultry and in pork. So the utilization rates continue to grow as you -- as we've discussed in the past, that's an important metric.

And then, once we tap on those two supply lines, we also have the option of converting the balance of our non-Maple Leaf hog supply to some portion of raised without antibiotics and we just have to, we would then find pathways to share the IP that we have in raising those animals without antibiotics with others, which we were prepared to do, which can sustain the growth rate beyond that. So we've got lots of opportunity to very methodically maintain that supply line for the foreseeable future.

Okay. And then just one last one, Curtis, could you expand on the efficiency improvements that you've achieved in processing and primary production?

I mean, you call that out in your script? And it would be helpful if you could just give us some context on the sort of materiality of that and how much sort of further opportunity still exists here.

Are you halfway through or what's the relative sort of progress?

Yes. I don't want to get too much internal to disclosing detailed specifics.

But here's what I would say. We've been clear that in our path to achieving our 14% to 16% margin target, we will drive efficiencies in our business, both from an operational point of view, but also from a kind of a cost mitigation point of view and have been pretty successful the past two years at doing both.

We would say often that we're not -- in our ZBB process maybe isn't quite as intense as others but I think we've been from a budgeting and cost containment and management point of view, pretty effective. And we continue to see costs being a material driver, or a driver at least to our ability to achieve our 14% to 16% target and we're well on the path to accomplishing that.

Our plants and our operational performance is an area that we're really quite proud of. We've made significant headway, obviously since the transformational years.

We've made steady progress in our operations and even in a COVID environment we continue to see strength and we're managing our direct protocols very, very efficiently and very effectively within our operations. So I think the color would be super positive results, we expect them to continue and the transformational challenges are well in the rearview mirror and we're all on our path of achieving the targets cost management in both of these components.

I would add Mark that these types of efficiency gains are game of inches, it's just we happen to have 1000s of those inches, right. And that's how they accumulate.

And it's an ongoing process, it's not a project or a program with a beginning and an end. It's an ongoing benefit.

There are any number of operational efficiency opportunities that we see in the runway in that game of inches ahead of us up to an including, as our volume progresses, finding very creative and new ways to optimize the asset utilization across the platform, which is probably the next and newest frontier. So just, hard to describe that game of inches when there's 1000 of them, but there -- but it's -- we see that as being, an ongoing effort.

I wanted to ask about the SG&A spend in plants that was about $145 million last year. Can you guys maybe give us a sense of how much of that was headcount versus promotion?

And within that, I guess that promotion kind of bucket. Can you talk a little bit about how much we spent on rebranding and reformulation?

Any context around that would be appreciated.

Geert, you want to take that SG&A question?

Sure. George the overall bucket of 145, so there's two components, you've got AMP, and you've got the -- what we call supporting the structure or the organizational development of the company of the segment.

The bulk, I would say it's probably roughly 75:25, last year was AMP. As we scale up this business, obviously, the proportion of brand investments is going to go down and on the other side, the SG&A support for the organization is going to go up.

But that's the thinking around us. When we think about this long-term, nominally, for the first number of years, we would stick up around the same amount of dollars, but the proportion of AMP would gradually go down as we scale up the organization with more sales force with more R&D force, etc.

So that's the first part of your question. Can you repeat the second part, please?

Yes, I just in general, I guess within that 75%, like, how much do we spend on rebranding and reformulating lightlife and field roast?

That is more of an R&D question, I think.

Yes. That would have shown up George mostly in the non-AMP components in terms of our infrastructure investments in R&D.

Inside the brand, the advertising -- the AMP budget, we try and focus all of that on our kind of new brand strategies. So the vast majority.

You guys spent quite a bit of time on giving us the innovation for plants. Well, thanks for that.

Can you maybe give us a sense of how much growth is left in new doors for us, in retail be in the U.S. or in Canada?

In which please?

In [indiscernible] distribution and for plants, how much growth is left for that?

Well, it depends -- if you look at new doors and distribution of the new items and innovation, whether it's the -- Curtis put down a few of the examples, the stadium dogs or the work that we're doing and in the cheese platform, or the pepperoni or chicken platforms that we've the pizza toppings and chicken platforms, it's all new distribution. So if you're looking at from an item perspective, obviously we've still got a long ways to go in the fresh platform to expand our distribution.

So from an item perspective, George I would think that's most of it comes through new distribution and those new items, right, and that's, I think that's normal. I'm not sure that's addressing your question.

Maybe from an ACV standpoint, or something like that in terms of just getting a sense of how penetrated we are in U.S. retail.

Well, we've historically -- the brands are penetrated 60, lightlife and field roast are present in 65% to 70% ACV. Now, the question is, as you double click that and say, well, do you have told me about this by category?

And that's where, so you got a range of answers to that. The 65%, 70% is kind of the portfolio -- is kind of portfolio average, but you got to say, for example, lightlife, smart dogs would have, I don't have the data in front of me, but it be well in excess of 80.

Field roast core items, same thing, but then you've got some of the new innovation items, whether it's fresh, or the field roast items, and stadium dogs or some of these other platforms, they would be in the 20s. And so it's a combination of all those things.

The challenge with a brand ACV number, is that the [indiscernible] in the details there of how does it break out shakeout by category or subcategory and new innovation.

That's helpful. Thanks for the color.

I appreciate that. And it seems that we're focusing quite a bit on food service more and more, can you maybe talk to how you see our mix, evolving, like our food service to retail mix evolving maybe, as we get to 2022?

Curtis, you want to address that?

Yes. Sure.

I think we're talking about food service lots in the context of -- in the sense that we're starting to see a more gradual reopening in the United States. We're excited about the prospects of some of our innovation products lining with our food service customers.

And frankly, we're excited to be back at the table with food service customers who are more optimistic now about the future. And we're having some great conversations so and we expect to make meaningful progress.

So that's the reason why we're talking about food service, that doesn't diminish the fact that we have a wonderful retail business and we're going to grow it. And it continues to be the most material component of our portfolio.

I don't expect the material early and I guess it depends on your definition of material. But I don't expect a material mix shift in early 2022.

But I do expect positive momentum coming out of the food service channel in the short-term, but with no negative material mix.

Okay. Thanks for the answer.

And just last one, if I may, topic that probably doesn't get a much of your time. But on M&A in general, like just wondering if you guys -- was the appetite is there for M&A?

Is that something you guys are looking at actively?

There's nothing we would speak to looking at actively today. I think we've got our hands full right now from a capital perspective on completing the task at hand, which is a major project in London in our poultry business, it's not insignificant at $720 million.

Having said that, we fully expect that to be behind us as 2022 unfolds and coming into 2023. And so, of course, we need to be looking forward on what the growth prospects for use of cash will be beyond the London poultry investment.

And, we are constantly looking through the strategic lens of what those opportunities might be. So, I suspect once we get through this capital intense period that you'll see us being much more active in M&A over the course of the subsequent in five years.

Can you just give us an update on the poultry business? I think around this time last year is when we saw the food service sales fall off and the supply have to get cut a few months later.

And then, I guess from what I understood, what I recall your business stabilized after that and margins went back to normal, but with lower revenues. Can you talk about where you're seeing it now?

Are we starting to see it come back and is the industry supply coming back?

Well, the headline is might lose that the -- in the first quarter, the third wave of COVID was not cutting to the poultry business that is I think we've been clear about that. But it's not as acute as it was a year ago.

And largely because I think everybody was well prepared for the fact that it wouldn't be as kind and so I think the reactions were not as acute. And late in 2020, in late in the fourth quarter of 2020, the industry proactively and aggressively reduced supply.

So we are seeing now at the end -- near end of Q1 coming into Q2, right sizing of that supply. And so the markets are right now as we speak more closely tracking, coming into the second quarter in the back half of 2021.

More closely tracking what you would expect in five year average. So last year in as COVID emerged, it was really challenging period.

In poultry, it got better, third Wave, hits us and tightened up, but not nearly as acute. And we're starting to see some recovery.

Okay. And I guess a food service starts to recover, you would expect that poultry supply just start ramping up again.

Well, yes, I think there'll be a lag time in that. But right now, we're just -- the industry is concentrating on keeping the supply and demand and relative balance through what is very difficult to forecast because as you know, this COVID experience in the first quarter was on again, off again on again off again.

That makes it incredibly hard to forecast. All right and but I think we've managed through it reasonably well.

And there's not like kind of a shock therapy that we experienced in the second quarter of last year.

Okay. Well, thank you very much.

We're very excited about how this is all unfolding for us in both of our platforms. Obviously, excitement comes with challenge and disappointment.

But we've got our eye on the prize and the long-term and we appreciate all of the support. So we look forward to updating you in the next quarter and thank you for your time this morning.

Have a wonderful day.