Maple Leaf Foods Inc.

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00:46 Thank you, Michelle 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.

00:58 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 discuss. Please refer to our Q3 twenty twenty one 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 also uploaded our Q3 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 that you may have.

01:34 And with that, I'll now turn the call over to Michael McCain. Michael?

01:40 Thank you, Mike. Good morning everyone and welcome to our third quarter twenty twenty one earnings call.

So some of you might be old enough like myself to recall a very classic television soap opera as the world turns will it -- feels like that to us these days and it was almost two years ago now that we experienced the birth of a global pandemic and the havoc that it brought to all of us, and now the world keeps turning and there are two material topics that we feel we need to discuss with you today. 02:17 The first is a world under stress in the aftermath of COVID.

And the second is growth rates in plant based protein categories, which have to be frank evaporated. Both of these require our attention, I can assure you that we are disciplined and focused in executing our long-range vision to become the most sustainable protein company on earth and building long-term value for all of our stakeholders.

02:50 So let me begin with the first of these two, a world under stress. Clearly as vaccination rates continue to improve in most parts of North America, COVID related restrictions are generally subsiding.

Life seems to be slowly recovering back to some kind of new normal, but the economy is struggling to rebalance demand and supply, characterized by a rapid rise in inflation, shortages of labor and disruptions in the global supply chains. Nobody is immune to these challenges.

03:31 I'm proud of our teams and business for many reasons and near the top of the list would be their resilience, and this environment demands that. So far we've been able to navigate this dynamic environment with minimal financial impact, but candidly it's a new daily adventure.

In this environment, we believe there are three skills that rise to the top of an organization's ability to navigate the constant turmoil. First revenue management skills are required to stay ahead of the tide of inflation.

04:10 We've invested heavily in this capacity and the Maple Leaf organization demonstrated -- demonstrating it clearly in our second quarter. We indicated last quarter that we expect to the full recovery from these short-term margin compression quickly and that's how it played out.

The second is exceptional supply chain agility with very tight operations. We demonstrated that at the start of the pandemic and it will certainly serve us well in this environment also, double check.

It's a core competence of Maple Leaf. 04:54 Finally, the companies who win in this environment will have leading brands that enable market leadership, triple check.

Our stable of brands is unrivaled in the Canadian food market. We have category leaders with leading market share, as well as a suite of strong regional players.

05:17 In our third quarter, we delivered a powerful thirteen percent revenue growth and twenty two percent adjusted EBITDA growth to one hundred and forty nine million dollars, driven by a ninety basis point margin improvement over a year ago at thirteen percent. 5:37 We should pause there for one moment.

This type of sales growth is unheard of in what is often viewed as a traditional business, but typically -- with typical growth rates in line with inflation. In doing so simultaneously with margin growth is even more rewarding.

Our strategies have been built for growth, top and bottom line and it wasn't that long ago when we can all remember our EBITDA was less than one hundred and fifty million dollars for a full year. 06:15 Focusing on performance, in the last seven years we've delivered a CAGR of nearly six percent annual top line growth, with adjusted EBITDA growing at double the pace at over sixteen percent.

I don't know of many other scale food companies in North America delivering these kind of outcomes and it's a direct result of our clear, highly impactful vision of sustainability. 06:44 That leaves me with great confidence in our ability to hit our adjusted EBITDA margin target of fourteen percent to sixteen percent in twenty twenty two and the return on capital in our significant investment in the poultry business and our Bacon Centre of Excellence will be at least two hundred basis points layered on top of that shortly after.

07:11 So back to a turning world, a single most important question that shareholders have asked me over the past two years is, what would it take for you to alter your investment in plant based protein? My response to that question has been consistent, the facts underpinning our investment thesis namely growth rates would have to change.

07:42 Well that may, and I underline may be the case now. In the past six months unexpectedly, there has been a rapid deceleration in the category growth rates of plant-based protein.

Of course, our performance has suffered in the middle of this, but the more concerning set of facts are rooted in category performance, which is basically flat lined. So what does this mean for Maple Leaf and our plant based business going forward?

In short, we are taking our time to fully do our analytical homework, to deeply understand why this is the case. 08:28 To be clear, there is a fair amount of COVID noise in the market now and we can't discount that.

However, it isn't only COVID noise and we're going right back to square one with the consumer to fully understand what has changed, if anything and why? It's going to be this diagnostic, this analytical rigor that will inform our investment choices going forward because it's important for us to match the investment rate with the investment thesis.

09:08 Our goal will always be to create long-term value, make no mistake we've done that in this business to date with a materially larger business than we acquired. Our investments so far have been well placed, our teams have done a remarkable job competing in this space.

However, if the facts change, if the facts change, our forward investment thesis has to change with it. 09:37 The outcome of our work will either be to inform our direction or affirm our direction and our commitments or alter them based on a new set of facts in a new diagnostic.

In either case, we have the foundation to both win and create long-term value that we seek. We expect to complete this analysis over the next little while and we will be sharing our findings and our conclusions with you when it's appropriate.

The world is certainly turning and I think we demonstrated that we're prepared to turn with it. 10:17 So now I'm going to turn it over to Curtis and Geert who will share more operational and financial highlights from the quarter and our outlook for the remainder of the year.

Over to you, Curtis.

10:29 Thank you, Michael and good morning everyone. As you heard in our opening comments today, it is in times like this that great companies have an opportunity to differentiate themselves and our team is doing just that.

We are operating with excellence while playing to our strengths and our blueprint is proving to be more relevant and resilient than ever. 10:52 To be clear, our world is in fact under stress.

We are experiencing inflationary pressures and supply chain disruptions unlike any of those we've experienced in the past. For example, pork prices are up fifty nine percent from pre-COVID levels, natural gas prices are up one thirty one percent and shipping container rates are up as much as six times previous levels.

11:20 Additionally the availability of labor has tightened materially. This is a daily challenge for us.

All of this said, I too I'm incredibly proud of how well our team has responded to date and I remain confident that we are very well positioned to manage through this stress that lies ahead of us. 11:42 Throughout the pandemic the strength of our portfolio of brands has shown through as consumers continue to seek out products they know, love and trust.

Our branded sales rose again this quarter, in fact our branded sales have risen every quarter for the past two years. Looking forward, we remain confident that our brands are better positioned than ever to win in this market.

12:08 The power of our leading brands along with the competency that we have built in our revenue management function positions us well to succeed in this world under stress. We have the confidence and the skill to stay ahead of inflation as we have consistently demonstrated over time.

While there can be slight lags between inflation and pricing actions, we have exhibited that we are able to maintain the structure and the margins in our business over time. 12:38 We have also demonstrated strength and resiliency in our supply chain, not only were we able to keep our operations running safely throughout this pandemic, we were able to pivot quickly to manage the change in demand from foodservice to retail, protecting the security of food supply for North Americans.

This quarter we are beginning to see the gradual reopening of the North American economy and as channel demand shifts, our plans are once again responding appropriately. 13:12 I want to turn now to our Meat Protein business which delivered exceptional performance in the third quarter.

We continue to reap the benefits of the investments we have made in our brands, leveraging our brand renovation to establish meaningful points of differentiation in consumers hearts and minds. This strategy is working.

As I mentioned earlier, we have consistently grown our branded sales and we continue to innovate into our demand space platforms. 13:40 13:40 For example in quarter three, we doubled down on our leadership in protein snacking by launching a new line of Schneiders entertaining platters, the first premium ready-to-serve platter an offering of its kind in Canada.

We also continue to build our sustainable meat portfolio, growing our position as one of the largest producers of raised without antibioticspork in North America, and poultry in Canada. 14:08 Our sustainable meat sales continued to grow at double-digit rates in the quarter.

And sustainable meats now represent over fifteen percent of our top-line sales in meat Protein. Here too, we continue to see a lot of runway for growth remaining.

14:25 Our strategy to expand in the US is also paying dividends. We are leveraging our Greenfield Natural Meat company brand that offers a suite of sustainability characteristics that are resonating with consumers and proving difficult for competitors to replicate.

Greenfields products are made from animals raised without the use of antibiotics, they're produced by a carbon-neutral company and they're mainly raise in hundred percent gestation create free environment. 14:55 Greenfield sales grew again by double digits this quarter and in total, our sales to the US grew at over fifty percent in quarter three.

Even in the face of the COVID-nineteen pandemic, we continued our pursuit of operational excellence. Just last month we announced the construction of a new seventy three thousand square feet Bacon Center of Excellence located on our Lagimodiere sites in Winnipeg.

15:24 This state of the art expansion positions us to meet the growing consumer demand for pre-cooked bacon. By building this capacity in-house, we will increase operating efficiency, while also reducing our reliance on cross border for manufacturing.

Over the coming months, we are completing our testing and startup programs and we expect to be in a position to manufacturer salable product before the end of this year. 15:53 While our Meat Protein Group continues to fire on all cylinders, we are clearly disappointed with the recent performance of our Plant Protein business.

The overall Plant Protein category and our performance along with the category has softened beyond our expectations. After achieving peak levels of growth, midway through twenty twenty, the IRI data indicate that the Plant Protein category has declines in the range of minus two percent to minus three percent in each of the last two quarters.

16:26 We have communicated earlier today, we are taking some time now to review the drivers of this category slowdown. We are doing the analytical work with the consumer to first understand why this is happening, and then to determine what if anything has changed.

Once we have these facts, you can count on us to either A, affirm our investment strategy, or B, communicate our plans to alter our investment strategy. 16:54 In the meantime, we remain focused on advancing our playbook by entrenching our market-leading brands, continuously pursuing innovation and investing in our product portfolio.

In this regard, we made meaningful progress in the third quarter. Firstly, our team added thousands of points of new distribution in the retail channel, this included expansion of distribution of items at Kroger, the introduction of our Plant Based nuggets in the club channel at Costco, and the launch of a suite of Lightlife breakfast products, including links and patents at Walmart USA.

17:35 At Whole Foods, we completed an exciting partnership to become the exclusive plant based chicken provider for all of their North American prepared foods departments. Whole Foods markets will also carry our newest plant based chicken products an unbranded plant based chicken made from P protein that is versatile for a variety of recipes.

18:00 Secondly, we started to see the benefits of a gradual recovery in the foodservice channel later this summer. Our new Lightlife chicken 2.0 version, the first refrigerated plant based chicken of it's kind launched at all five hundredand seventy five KFC Canada locations in July.

Pizza added the Lightlife plant based chicken bites and chicken sandwich at over four hundred locations in August. And our Field Roast pepperoni had a successful launch with Little Caesars in July and is now available at five hundred and twenty two Little Caesars outlets nationally across the United States.

18:40 Finally, this quarter, we continued to support our brands. In September Lightlife debuted a new breakthrough national advertising campaign reporting its recent brand renovation.

The campaign focuses on simple ingredients for a full life and highlights Lightlife's approach to producing nourishing food made of simple recognizable plant based ingredients. 19:05 We are encouraged by the sequential improvement that we experienced within the quarter as our shipments accelerated from month to months throughout July, August and September.

Additionally, both Lightlife Tempeh and Field Roast Chao Cheese, two very important growth drivers in our portfolio delivered double-digit growth in shipments within the quarter. Nevertheless our Q3 results as a whole remained below our expectations.

19:36 I'll step back to validate our strategy remains warranted. It is clear that whatever the outcome, the foundation that we have built in a leading market position, strong brands, product innovation and recent wins in the market will continue to serve us well in this category.

We will look to complete this analysis over the next little while and remain committed to share conclusion when appropriate. 20:01 With that I'll pass it over to Geert.

20:04 Thank you, Curtis, and good morning, everyone. I will begin by discussing the company's consolidated performance during the third quarter.

I will then turn to a more detailed look at both our meet and plant protein groups. I'll conclude by speaking to some key financial metrics, capital expenditures and our outlook for the remainder of the year.

20:26 Sales were one point two billion dollars, an increase of twelve percent from the prior year with higher sales in meat protein, partially offset by lower sales in plant protein. Adjusted EBITDA was one hundred and fifteen point four million dollars, up almost forty percent from the prior year.

Adjusted EBITDA margin was nine point seven percent, an increase of one hundred and eighty nine basis points from last year. 20:50 Adjusted operating earnings were sixty eight million dollars compared to thirty six point nine million dollars last year.

Net earnings were forty four point five million dollars or zero point three six dollars per basic share, compared to sixty six million dollars or zero point five four dollars per basic share last year, largely as a result of a net gain from non-cash fair value changes in biological assets and derivative contracts in the prior year. 21:16 IFRS requires the recognition of these gains and losses, but we believe they do not accurately reflect the underlying earnings of the business.

Without these non-cash changes, adjusted earnings were zero point three six dollars per share for the quarter, compared to zero point one seven dollars per share in the prior year. 21:33 Sales in the meat protein segment increased thirteen point four percent to one point one five billion dollars.

Pricing action implemented at the beginning of the quarter to mitigate inflation as well as higher fresh pork and poultry sales volumes, and a favorable mix shift towards branded and sustainable meats more than offset lower prepared meat volumes, decreased sales to China and a foreign exchange effect. 21:59 Meat protein adjusted EBITDA was one hundred and forty nine million dollars compared to one hundred and twenty two point six in the prior year, representing an increase of almost twenty seven million dollars or twenty one point eight percent.

Drivers of the increased -- of this increase included strong commercial performance and effective commodity hedges, including a favorable product and channel mix attributed to expansion of sustainable meats and other branded products. Adjusted EBITDA margin for the meat segment was thirteen percent, a ninety basis points increase from last year.

22:35 Over the next twelve months, our construction capital projects, the Winnipeg Bacon Centre of Excellence, the Indiana Tempeh facility and London poultry itself will start to come online. As planned for in the underlying compelling business cases, we will be facing startup costs for these facilities for the next twelve to twenty four months.

22:57 Any incremental costs related to the startup of these facilities or in the case of London poultry to double overhead we will be incurring as we concurrently ramp-up London and ramp down the legacy poultry plants we'll have a significant impact on our adjusted EBITDA. We will call out these costs every quarter as we view them as expected one-time expenses connected to the investment itself and others are part of the ongoing operations or reflective of the underlying health of the business.

23:26 So in this third quarter, we incurred two million dollars of the startup cost and had accumulated four point one million dollars year to date. These cost reduced our adjusted EBITDA margin for the meat segment by eighteen basis points in the quarter and by twelve basis points year to date.

The costs are predominantly related to the Bacon Centre of Excellence in Winnipeg, which we finished, as we said, constructing a few weeks ago. 23:52 Turning to plant protein.

Sales were forty eight million dollars, a decrease of six point six percent or a decrease of one point two percent in constant currency. We did see growth in foodservice volumes and -- we did see growth in foodservice volumes, but this did not offset pressure we experienced in both our core and fresh retail products.

24:14 Plant protein gross margin was a negative six point eight percent in the quarter as a result of lower sales and capacity utilization. As we've mentioned in previous quarters, gross margin is heavily impacted by the investments we have made in capacity ahead of volume growth.

And as a result, we would expect gross margin to recover materially with sales growth. 24:37 SG&A expenses and plant protein were thirty four point four million dollars and down significantly from a year ago, primarily due to the timing of advertising and promotional spend.

24:48 Let's have a look at the balance sheet now. As per plan, net debt increased to approximately one point one billion dollars.

As we've mentioned before, this net debt is mostly used to fund our strategic capital expenditures. About eight twenty one million dollars of our net debt is related to construction capital, and that is a term we use for investments on the balance sheet, that are not contributing to returns today, but will within the next few years.

25:15 During the quarter, we invested almost one hundred and fifty three million dollars in CapEx, including construction capital of one hundred and twenty three million dollars primarily related to the construction of our new poultry facility in London, Ontario and our Bacon Center of Excellence in Winnipeg. The Winnipeg expansion is currently commissioning and our London poultry facility is still expected to be included -- to be completed in the second half of twenty twenty two after which we will commence testing.

25:44 As we noted in our disclosures today, the London poultry plant investment is now expected to be seven seventy two million dollars, a fifty two million dollars increase primarily due to cost increases on equipment and labor, as well as productivity challenges related to COVID-nineteen. 26:02 I'll wrap up with an outlook for our business for twenty twenty one.

Our expectations are based on certain assumptions, primarily the continued normalization as COVID-nineteen restrictions subside and a poor complex in line with the five year average. 26:18 As you can see from the outlook slide in our presentation as well as our MD&A and other materials, our full year outlook for meat protein remains unchanged.

On a full year basis, we continue to expect to make progress towards our adjusted EBITDA margin target of fourteen percent to sixteen percent in twenty twenty two. 26:37 As we revisit our strategy in plant protein, we expect to maintain consistent investment in SG&A in line with our guidance at the beginning of the year.

Driven mostly by the lower than expected growth in the plant protein category, we do expect to -- we do not expect to meet our sales growth targets for the second half of twenty twenty one and we will not have a further view on near term sales growth until we have completed our category reassessment. As stated earlier today, we will come back to you with our thoughts on the plant protein business when we are ready.

27:11 On CapEx, we continue to advance construction at the new London poultry and Indianapolis tempeh facilities and are currently tracking towards the high end of our guidance range of five fifty million dollars to six sixty million dollars for the year. 27:24 I will now turn the call back to Michael.

27:30 Thank you, Curtis and Geert. So let me finish where this call began.

Our vision for Maple Leaf remains relevant, it remains enduring, differentiating and important to the world and we are delivering on the shared value creation that we aspire to. 27:49 We're very well positioned to manage these uncertain times as we've demonstrated over the last several years.

Our meat protein business is delivering results that reflect our journey of profitable growth, strong brand differentiation and our focus on sustainable meats. And in plant protein, we will be thorough in challenging our assumptions about the growth rates of this market, expected returns and the appropriate level of adjustment if changes required.

28:22 We will share our findings in that regard in our conclusions with you in due course, and I want to thank -- close by thanking all of our team who have demonstrated their skill, confidence and commitment through these times. We are an essential service and our team has continued to show up day after day, operating our facilities, protecting the welfare of our people, while ensuring we maintain the continuity of supply.

28:52 We are twenty months into this pandemic and every day, week after week, they've shown up. I've never been so proud of the commitment of our team and of our people than I am at this moment.

29:07 So with that, I will open up the line for your questions. Operator?

29:46 Hi, good morning.

29:48 Hey, Mike. How are you?

29:49 I’m great. Thank you.

And congratulations on the great meat results. But I just wanted to start off by asking a little bit more about the plant base review.

I'm kind to curious because it seems like we have two different brands that are going in different directions right now. The Field Roast brand seems to be doing well and having success more in the vegan market and then the Lightlife brand is – it seems to be doing okay on the tempeh side, but not very well on the switch market, I guess from their flexitarian type market.

So, I'm wondering if the review is going to be as granular as looking at the different brands and whether you need to be in the same category and all these categories and have all these brands possibly consolidate as well.

30:45 Well, it's a great question, Mike, and thank you for that. So to your question, is it going to be granular, the answer is yes.

But I think we need to start at the top of the iceberg here. The fundamental question in hand is, this category has decelerated across the board, it's decelerated in the fresh case, it's decelerated in the refrigerated case, it's decelerated in retail and foodservice and there is no aspect or there's no lens on that deceleration that kind of pinpoints an outcome or a strategic decision in advance of understanding.

The most important question is, why has it decelerated? To answer that question, I think where we started was, we all have lots of opinions, we can do kind of some macro outside looking in kind of diagnostics and arrive at these opinions, but we've -- we are very disciplined in our strategic thinking and we need to start with the, why the deceleration is occurring and start with -- asking the consumer.

32:06 So we need to understand the consumers' behavior in general, to address the category performance first. That will inform the choices that we make going forward.

That will inform our investment level, investment thesis, matching the growth trajectory with the investment thesis, that will inform the brand choices as you referred to, like how does that show up in the Lightlife brand, how does that show up in the Field Roast brand, that will inform our supply chain strategy. It will inform most aspects of the strategic choices that we have to make, but it has to start with analytically empirically answering the question, why has it decelerated?

Teasing it all the different influences being consumer-driven and then coming to either an affirmation of the growth rate going forward or an adjustment to be prospective growth rate going forward and then making our strategic choices. Does that make – Mike, does that make sense?

33:21 Yes, it makes sense. And just to be clear, apart from the spending side of it, is the review also going to take into consideration the potential for bringing in a joint venture partner or even divesting these assets.

33:41 No, no, that's that's not what we're doing at all. We started down this path with an investment thesis, we're not losing money in the plant based business, we are investing in this plant-based business, but it was rooted in the thesis of a sustained long-term growth rate thirty percent or greater.

We said from the very first instance, if that changed we will change with it. It's clear in the last three to six months that that has changed, the question is, is it changed for good or is this a transitional change?

And we don't know the answer to that. We need to find it out.

But no -- the other -- we're not -- we're not considering those other dimensions.

34:31 Okay. Thank you.

And then on the meat side, you have very good topline as you mentioned, and then very good margin expansion. So, within that margin expansion you talked about two opposing forces, one, the pork complex and due the challenges on poultry, can you, I guess, just give a brief fraction of those opposing forces and how they are trending so far in Q4 and how long do you expect some of these respective forces to continue in poultry and pork?

35:09 We've never made market calls. I think it's inappropriate for us to make market calls, Michael.

Here's what I would point to. We've built our business to be largely immune to these various market forces.

If you look at our performance, our quarterly performance over the last five years. I believe anybody would look at that chart and say that's astonishingly consistent, astonishingly consistent in the face of what pretty commonly is some -- it's pretty big movements in the underlying market forces.

We have a balanced portfolio, we have exposure to a number of those market forces. But we've insulated ourselves both through the balance of our portfolio and because we are a branded CPG organization focused on value-added.

36:14 So, while there were a couple of opposing forces in the third quarter. I suspect there'll be other quarters in our future that will have similar opposing forces, by and large they've all balanced out and by and large we've demonstrated astonishing consistency in our results.

And I don't see that changing in terms of the consistency as a result of market factors that we've built to be largely immune to.

36:45 Okay. Thank you.

I'll leave it there. Thank you.

37:00 37:00 Yes, hi. Just want to follow up on the meat business.

So thirteen percent growth in the quarter, obviously, very impressive as you guys noted. But can you just comment how much of that -- like what was the mix of that obviously you would have had a big price increase theat came in place in Q3?

What was the magnitude of that?

37:19 The pricing was -- obviously pricing in the -- inflation in the category was obviously a significant driver of thirteen percent. We don't aspire to maintain thirteen percent on an ongoing basis.

As we pointed out, our seven year CAGR is in and around the six percent, I think. So we've been consistent in that mid to high single-digits.

So thirteen percent is clearly abnormal and the delta there is largely the inflation in the category. 37:50 I think we did get volumetric growth not in prepared meats, it was mostly in pork and poultry.

The prepared meats business was down, but down very modestly actually because of the kind of COVID impact year-over-year. And up significantly from the pre-COVID numbers of twenty nineteen, which is an important metric for us, Derek.

So the way we -- the benefit obviously for us was, and I think where we were really satisfied in the quarter is that, we were able to increase our margin profile at the same time as we matched -- kind of kept ahead of the inflation that the category experienced as we indicated we would last time when we were together. 38:39 So modest volume growth, volumetric growth, obviously, keeping ahead of inflation more so this quarter than normal, which is probably the delta between mid-high single-digit growth rates in the thirteen percent was obviously price and inflation.

38:59 Yes. That's helpful.

So just in terms of that price. I mean, obviously, there's other inflationary forces happening that you called out earlier, but when we look at lean hogs, the pricing on lean hogs has come down quite a bit since -- I guess into Q2 when you would have thought about putting this price increase.

Have you been able to hold that pricing in the MPG?

39:25 Yes, we have. The lean hog markets come down a lot more than the cash markets have come down and it's very -- it's very cut-specific, but yes, we have.

39:34 Okay. And then --

39:36 And I would say, if you look at the underlying fundamentals of the meat markets. I think with the supply challenges, the supply chain challenges combined with the fact that the USDA is forecasting next year some pretty significant contraction in the hog supply, this decline that we're getting seasonally in the fourth quarter we don't think -- we think will be relatively to short.

40:06 Okay. That's helpful as well.

And just one more, when we looked at the US growth, obviously, very strong, I think you called out fifty percent in greenfield percent, I think think thirty percent overall for the business. Can you just talk about like where you're seeing this growth?

Is it a function of increased brand awareness? Is it more retail partnersI guess along that line?

Could you comment on how many stores you're selling your products, and now in the US?

40:30 Yes, Curtis maybe you'd want to kind of provide the color on that one.

40:35 Yes. Hi, Derek.

Good morning. Our growth in the United States was actually over fifty percent in the third quarter, fifty two percent.

And I think what you saw in the materials we put forward was, it's really been driven by our Greenfield brand and our sustainable meats portfolio in Unites States. We've now got a six hundred million dollars book of business in RWA overall.

We had our eighth consecutive quarter of double-digit growth in sustainable meats. And as I mentioned in my comments, sustainable meat is now fifteen percent of our portfolio.

So what's happening in terms of our ability to deliver growth is, there are a number of levers that we're seeing positive momentum. 41:18 And the first is, we are expanding the distribution of our products retailers in United States.

So bringing on more retail customers and we did that in the third, we did that in the third quarter as well. The number of items that each individual retailer carries in the United States has also growing and we're putting new products and new innovation into the market, including some pretty significant uptick in our kids and protein snacking business in the United States.

41:48 So it's a combination of those factors. Where we're really excited it is, we continue to see a long runway for growth.

And we see that because, number one, category penetration remains low. It's about three percent in Canada, four percent in United States for sustainable meats and its own penetration in the category.

We know that consumer demand continues to grow. This segment in the category is growing at double digits.And we have security of supply.

We have availability of supply and I think I've talked about this in previous calls, our ability to utilize the whole animal and utilize the entirety of the carcass in terms of innovating into new products in the portfolio and expanding items is also beneficial to us. 42:31 So we've got lots of momentum in the US and continue to be really bullish on the runway that we have for growth in the future.

42:38 That's great. Sounds great.

Thank you.

42:50 Thanks and good morning everyone. If you will start with -- Good morning, Michael.

Just starting with plant, a follow-up question please. On prior calls you've noted that the level of support can kind of be dialed up or dial down in response to what you're seeing in the market.

Given the slowdown that you called out and the rate of growth, should we be expecting perhaps a decline in the magnitude of support as you build through your analysis?

43:25 No. We've -- we're going to -- let's touch the headlines.

I don't think it's a wise decision to alter your thesis until you've altered your thesis so to speak. And that would -- I think that would be kind of dangerous and it's potential outcome to start, stop, start, stop, that's just -- I think we need to be more disciplined on that.

43:56 Understood. Any sort of early thoughts as to what's going on?

And also how long that will take you to go through the analytical process?

44:09 Curtis, take that one.

44:12 Hi, Irene. Good morning.

Yes, sure. I'll start with your -- I'll start with your second question in terms of how long.

I think you heard Michael will talk about this earlier, we're going to start with -- we're going to do the analytics and our diagnostics properly. And that starts with the view of the category, the consumer, taking a honest view of our own execution and then assessing our strategic options in response.

I expect that that will -- that work will continue here over the next number of weeks and I think it would be fair for you to expect that at our next earnings call we have a very meaningful update. But it will not be in advance of that.

I don't see it being I going to answer that. So over the next two or three months I expect we'll be able to conclude our work.

45:02 I'm sorry, you had a part two to that question. Irene you two of parts of that question, could you just repeat the second one for me?

45:11 Yes, it was around any early, thoughts or ideas around what might be going on.

45:20 Yes, but none that I prefer to share. And the reason for that is, I think opinions right now not dangourous and this is an organization that relies on facts and data to drive decision making and I think it would be premature for us just to put opinions and points of view forward.

The easy thing for us to do Irene is just pin it on COVID. And we mentioned in our comments that there's more going on than just the COVID experience, but we really need to get the facts to understand exactly what it is that's happening and build confidence in our outlook for the future.

45:58 So I think it's more important that we assess the facts than it is that we share point of view and opinion right now. I hope you're okay with that.

46:05 Yes, fair enough. And then just when one final question if I may.

You called out, I think eighteen basis points of margin headwinds in Q3 just around the early commissioning of Winnipeg. As we look forward in twenty twenty two and I recognize that the answer is, there is no way of knowing for sure.

But presumably in your budgets, you have some sort of idea of a range of start-up costs as you commission London. And as you know, Winnipeg gets dialed up.

So would you be able to share that with us just so the market has an understanding of what's reasonable?

46:50 Geert, do you want to take?

46:54 Sure. Hello, Irene.

Good morning. I mean we are actually in the process of gathering all that data and we expect to be able to tell you more about that in our next call we wanted to start flagging it now because we believe that this first plant already have an impact as you saw twenty basis points or eighteen basis points in this quarter, but it's too early for us to start anticipating for next year because we're still finalizing our budgets for next year.

And I want to make sure that we got the right information pulled together so stay tuned.

47:30 All right. Thank you, Geert .

47:31 The only thin I add is -- what I would add is that, you have experienced with us many plant start-ups, and they are all challenging, one hundred percent of them and to some degree unpredictable whatever -- in that whatever number we said today would be the start-up costs will be wrong, could be wrong -- could be wrong high, could be wrong low. It will be wrong.

But none of them is the difference material to the investment decision basis theses, they all have great outcomes, every single one of them, regardless of whether that start-up period takes twelve months, six months, eighteen months. 48:29 And as long-term shareholders and value creators, we think it's important to look beyond that, but what Geert is going to do over the course of next year or more is isolate what those anticipated and actual start-up costs are so so that our investor -- partners can kind of pull that out and look at it as part of the investment and the investment returns is not underlying operations.

49:06 It's. Fair enough.

Okay so then let me just going to ask one more question, which is, as you think conceptually about the start-up challenges and start process of Winnipeg and London, how would you compare those two, let's say, Hamilton for example.

49:26 Materially less. The Hamilton start up important to recognize was, it was a very complex construction process in and of itself because it was time constraint followed by the fact that it was a very complicated supply chain strategy going from multi plant to center of excellence kind of plant architecture, multi category, I should say multi category plants in two Centers of Excellence.

And so, the phasing was challenging, there was all new processes applied in the Hamilton facility. So each product had to be reengineered actually.

So every new individual SKU was a new startup. 50:18 That's not the case in London poultry, for example.

London Poultry is like we're closing plants, yes, but there's no SKU reengineering. For example, there's no new processes, there's some mechanical challenges, there's some technology challenges, but there's no fundamental reengineering of product on new process equipment.

50:37 So combination of those factors, I would say, it's materially less, but plant startups are -- they're always a bear, always. And it's -- they're like SAP installs, right?

They're all tough, it's just question of some tougher than others. But we built that into our investment returns.

Like we build reasonable, in fact, conservative estimates our returns calculations and we still get double digit unlevered returns on capital and inclusive of the startup costs and so we expect that, just we have to run those through the income statement during that startup period.

51:27 Understood. Thanks, Michael.

51:37 Thanks. Good morning.

Going back on the review you're undertaking for the plant based business. It sounds like from your commentary what you'll be doing is, you really want to get out why the category has slowed to no growth.

And so, I assume that's going to be utilizing a lot of consumer research. But I'm wondering also, should your review and study not also extend to a consideration of your brands.

And in particular, the Lightlife brand. What does the brand stand for?

How much brand equity is there? How does it -- how does it stack up against the other major brands that are in the category?

So if you could just talk a little bit whether or not your reviews is going to -- like the scope is going to extend to really thinking hard about your brand?

Yes Absolutely, yes, Peter, well as Curtis highlighted, it'll start with the view of the category and the consumer. It will also include our execution inside the category and then what the implied strategic choices out of that.

So the answer is, yes.

52:51 And just thinking about the Lightlife brand, I'm just wondering, like my understanding is -- and I'm just wondering what your thoughts are on the brand, Michael. Is that the Lightlife brand has been around for a long time and has very strong brand positioning with vegetarians and vegans.

And I'm just wondering, if the boundaries of the brand and what it stands for don't extend to a meat substitute product, because it's been so entrenched with vegans and vegetarians. Is that something you've ever thought about?

And do you think that's been an obstacle for the brand?

53:30 No, I don't think it's an obstacle for the brand. Peter, it's -- it has lived in the produce section as opposed to meat section.

But that obviously makes it free disposals to the vegetarian and vegan community, but most of the growth has been in flexitarians and produce as well as well as meat. That's where the growth is.

And their business is basically meat alternatives targeted at one of those consumers. So we've had some -- we've had some executional success, we've had some executional failures.

54:14 We'll be assessing all of that. don't want to pre judge what the outcomes are going to be either in terms of the category assessments or the executional assessments, but we have – we are going to undertake that and that will inform our choices.

54:30 Okay. And then just lastly on this topic.

Like you had this ad campaign, which -- I forget what the campaign was call, but it was very hard hitting aggressive campaign, we really went after your competitors and call them out because they don't have the clean ingredient profile that you have, I've only seen it in print, so I'm just wondering how that campaign has worked out, were you happy with it and are you still continuing with it?

55:04 It's hard to tease out, the performance of a campaign in the middle of category that is fundamentally changing and that's where that's some of the work that we have to do and we continue to believe that the anecdotally that the positioning is a solid one, I still think it's a solid one. And I think there execution is pretty good but was a perfect.

No, of course not. But I thought it was pretty good.

But at the end of the day, we want to be informed by facts in these things. Peter not our opinion outside looking in when there's lots of conflicting things going on.

55:41 Okay. And just the last question, sorry, over to the Meat Protein Group.

Can you just talk about like the cadence of price increases, like, what is the timing of when you normally put through price increase. I believe it's in -- its later in the year that you normally do.

And what is your ability to put through price increases outside of the normal cadence given this all these inflationary pressures that we have.

56:10 Curtis, would you like to speak to it.

56:15 Sure. Our normal -- just to start with the direct answer to the question.

Our normal cadence is to change our pricing in the fall of each year on an annual basis, just to reflect the inflationary environment and capture the forward-looking view of the inflation. If you think back over the past little while, we took a cost increase last fall, Peter, to embed the structural components of COVID related costs into our business and into our operating plans for twenty twenty one.

And then in prepared meats we pulled our fall increased forward into July. So I think that answers maybe your question with respect to what's our ability to move outside of that window.

We pulled forward our what would normally have been our fall increase into July. And we are obviously forced to do that with respect to rapidly escalating meat markets and meat costs and we had committed that we would recover in Q3 and that's exactly what you've seen happen.

So we moved forward our increase. 57:15 We do -- here are many ways to change.

We often talk about regular price as the only lever to change price. And reality is in a high-functioning revenue management capacity there are many levers that we can pull on a consistent basis to optimize the outcome with the consumer.

And one of them is regular cost, but there are things like [Technical Difficulty] costs of pack size architecture, promotional depth and frequency. And again it's really -- when you get this right, it's really about optimizing the offer to the consumer.

57:53 Tactically we have moved pricing even this fall. So there would be areas where beef, for example, we saw a pretty significant escalation in the fourth quarter and we've adjusted our pricing.

Ham would be another example for festive seasons heading into the Christmas period. And then in poultry, we've moved twice actually this year in response to a rapid fee markets escalating very quickly.

58:22 So the net of all that is to say, yes, we've pulled our increases forward. We've done a great job of staying ahead of inflation.

We feel like we're really well positioned today, but at the same time in our comments, we mentioned things are changing literally daily and if we need to change along with that, we're also well positioned to do that as well.

58:43 That's good. Thanks, Curtis.

58:54 Good morning, guys. I want to talk a moment about the the poultry market.

So, maybe you could talk a little bit about the headwind there or not. You have the margin impact anything that's been happening.

Obviously, if feed prices are up, anything on the volume side. I'm just kind of wondering if that pressure is continuing into Q4?

59:14 Curtis, do you want to take that.

59:17 Yes. From a market conditions point of view with the challenges in the third quarter were strictly driven by the fact that we're in a situation where feed grains drove the cost for live chicken to what was essentially a record or an all-time high.

And we responded with pricing actions in the value-added and branded components of our business, as I've just outlined. Actually, as you would expect that we would.

And we did see commodity market value strengthen, but they didn't fully offset the run-up in live market costs. So, as a result what we saw as poultry margins trail what would've been a five-year average or the equivalent on a five-year average.

So that's really what happened within the third quarter.

60:06 Okay. Into the fourth quarter, I guess the margin pressures kind of subsided as the commodity values recovered?

60:18 60:17 I think our response that earlier was appropriate in the sense that there are two things that are important in looking to the fourth quarter. One, I don't think it's appropriate for us to provide an outlook or guidance to share our view of market conditions in the fourth quarter.

And secondly, if you look at the consistency of our margins over time. We've built -- we're very proud of the fact that we've built a balanced portfolio that's less -- far or less exposed than it once was to market conditions and we're in a situation where we've got a value-added CPG branded portfolio that's far or less exposed to market conditions, then then maybe others are, we have been many, many, many years ago.

61:00 Okay and thing within the ,eat segment and maybe taking a step back that business has consistently delivered kind of that mid to high single-digit growth cadence in the revenue line. Anything maybe stopping it from doing that next year?

61:19 We have a -- George, I think we've got a six or seven years in the mid high single-digit growth rates, we're really pleased with that. When you benchmark that against other food companies in North America of any size, I think you'd find that's two times to three times what their growth rates are experiencing.

And it's been experienced over a longer period of time like over the last five, six, seven years. The key drivers of that have been sustainable meat and certainly our plant based protein on the total company but sustainable meat, but also a few underlying value-added growth levers like our kids business, like the poultry business it tend to continues to grow and so on and so forth.

62:15 Those underlying growth drivers are not changing. We don't expect those to change next year.

We don't expect them to change. The only caveat to that is, as we're living in some pretty uncertain times right now with a pretty unstable world and we think we're managing that relatively speaking incredibly well, incredibly well.

But as I said in my remarks, it's a daily adventure. So, the underlying drivers are consistent and we don't see those changing for the foreseeable future.

Just not the next year, we think those are -- have gotten -- they've got legs for many, many years ahead of us. But we are living in an unstable world

63:06 63:06 Okay. Got it.

Last one for you Michael.On last conference call you mentioned plant -- that you're hoping for profitability a path to profitability by twenty twenty three and twenty twenty four kind of time period, do you think that's still possible under the reassessment that you guys are currently undergoing.

63:23 Yes, yes, for sure. Yeah, I don't think that changes, I just think what that path is and the strategic choices that we make or move to that path is there is no different.

63:34 Okay. Got it.

Thank you.

Thank you. Thank you, Michelle.

And I want to thank everybody. I would like to just reiterate our pride and confidence in our meat platform and the consistency by which we’ve delivered on the vision for the organization to become the most sustainable protein company on earth.

And our discipline that we're applying to the plant based category, as we said, we would under these circumstances. So, thank you for your engagements and your questions and I look forward to updating you on all of these matters the next time when we are together in I think February.

So thank you and we'll look forward to the next time.