MEAT PRODUCTS GROUP

Meat Products Group sales for 2012 declined 1.2% to $3,003.4 million from $3,039.5 million in 2011. Adjusted operating earnings increased 26.3% to $121.3 million compared to $96.0 million last year. Although pork margins in the North American industry were the worst in a decade, we more than offset the impact through gains in our prepared meats and poultry businesses. Prepared meats earnings grew steadily throughout 2012, despite higher input costs. This was partially achieved through price increases implemented in 2011 and early 2012 to manage rising input costs.

More important, we fuelled growth and margin expansion through innovation and brand building. We listened to consumer concerns about healthier eating and rising food costs and developed products made with natural ingredients and packaged for convenience and value, most notably through further extension of our Naturals line of products. As a result we increased our market share across our core prepared meats categories for our flagship Maple Leaf® and Schneiders® brands. We also achieved strong results in our poultry business as we channeled more products into value-added sales. Volume growth of branded Maple Leaf Prime chicken was driven by the success of product and packaging innovations such as Maple Leaf Prime Naturally Portions™.

Also contributing to higher earnings were benefits from our network transformation initiatives, including the closure of three facilities and consolidation of production at other plants. We also realized significant benefits from continued simplification of our prepared meats portfolio.

BAKERY PRODUCTS GROUP

Bakery Products Group sales declined 1.7% to $1,566.6 million compared to $1,594.5 million in 2011. Adjusted operating earnings increased 13.1% to $97.6 million compared to $86.3 million last year.

While earnings increased in 2012, lower volumes, particularly in the fresh bakery business, challenged us throughout the year. There are several reasons for weaker demand including consumer concerns about gluten and carbohydrates, tighter family budgets and changes in consumer shopping patterns.

The fresh bakery team is successfully tackling these challenges through a number of initiatives. We are proactively working with industry partners through the Healthy Grains Institute, a not-for-profit organization launched in 2012 that is reaching out to consumers and nutrition and health professionals with factual information about the importance of grains in our diet. We are also executing integrated social media, promotional and television campaigns that reinforce health, convenience and great taste. Supporting this, we are offering consumers even more healthy choices.

But bread is also about fun and a little indulgence. We’ve re-launched Villaggio®, one of our strongest brands. Driven by new consumer-preferred packaging, strong in-store displays, coupons and advertising, Villaggio® sales and market share have increased significantly. We have programs in place to continue this growth in 2013.

All these initiatives have had an impact on stemming the decline in volume experienced in the first few months of the year. But this is a longer-term challenge affecting the entire industry, and we are continuing to step up our efforts to drive growth.

Our North American frozen bakery business improved throughout the year, delivering earnings that were significantly ahead of 2011. We delivered new business and higher sales volumes; protected margins through price increases; and reduced selling, general and administrative expenses. Our ability to partner with customers that lead their market channels has solidified this business and helped create a myriad of new innovative products. We are very pleased with the momentum in this business.

Our U.K. bakery business has benefited from a tighter focus on our core categories of bagels, croissants and specialty breads and our decision to exit less profitable categories. We closed our bakery in Walsall, U.K., and focused production in our facilities in Rotherham, London and Maidstone, reducing operating costs and establishing a higher value sales mix. We are installing a third bagel line at Rotherham to support the launch of a new campaign around the extraordinarily popular line of New York Bakery Co.® bagels. We also secured a significant new customer account in our U.K. croissant business, which will expand capacity utilization at our Maidstone facility.

Performance in our fresh pasta business was very disappointing last year and impacted results in the Bakery Products Group. We experienced supply chain issues coupled with higher costs that were not offset through pricing. Actions are underway to restore historic levels of profitability in this business.

AGRIBUSINESS GROUP

Sales in the Agribusiness Group for 2012 increased 13.5% to $294.7 million in 2012 from $259.6 million in 2011. Adjusted operating earnings declined 16.4% to $68.4 million compared to $81.9 million last year. Lower earnings largely reflected higher feed costs and lower market prices for hogs. Earnings in the by-products recycling operations also declined year-over-year as raw material and operating costs increased.