In 2012, we made steady progress on the implementation of our strategic plan to increase margins and shareholder returns. Our strategic capital investment of approximately $750 million over three years is among the largest single investments in the history of the Canadian food industry. It will introduce new manufacturing technologies to Canada and make our Company more competitive globally and significantly more profitable.

During 2012, our strategic capital expenditures were $212 million, focused on three major initiatives:

• $176 million in our prepared meats network
• $11 million to complete our Hamilton bakery
• $25 million on our SAP implementation

EXPANDING PREPARED MEATS MARGINS

We began a journey in 2007 to dramatically improve profitability in our Protein Group. Through the restructuring of our pork operations we increased our Protein EBITDA margins from 4.0% in 2006 to 6.6% in 2010. We are now mid-way through executing a transformation in our prepared meats business, which contributed to delivering an EBITDA margin of 8.2% in 2012, with a target to reach 12.5% in 2015.

Our strategic initiatives are expanding margins by attacking costs and creating efficiencies in two ways: increasing scale and establishing a simplified portfolio of higher margin, higher volume products.

SCALE

The expansion of our cooked sausage plant in Saskatoon was completed last summer, with commissioning and volume ramp-up continuing through 2013 with the transfer of production from other facilities in Eastern Canada. We’ve installed link sausage technology that is the first of its kind in Canada, which, in combination with the expansion, is expected to more than double productivity at this facility.

We began the process of consolidating our bacon production into a single, world-class operation by expanding our prepared meats facility in Winnipeg. The total footprint of this plant is 345,000 square feet, making it the second largest in our prepared meats network. The expansion was completed and commissioning began on schedule in late 2012.

Construction of our 402,000 square foot state-of-the-art prepared meats plant in Hamilton, Ontario, is also underway, with commissioning scheduled to commence later in 2013. This facility will consolidate the production of deli and sliced meats and wieners now being produced in five plants in three provinces. This plant has been designed to attain a silver certification under the LEED® (“Leadership in Energy and Environmental Design”) New Construction program, a green building rating system of environmental performance criteria.

We have also made substantial progress on consolidating our distribution network. We completed the transformation of our Western Canadian network with the transfer of volume into our Saskatoon distribution centre and the closure of our warehouse in British Columbia.

To serve Eastern Canada more efficiently we began construction of a new distribution centre in Ontario, which will commence operations later in 2013. We will consolidate five distribution centres into this scale facility by the end of 2014.

While these are large and complex projects, we have dedicated and highly experienced teams assigned to each one of them, using Six Sigma project methodologies to provide a high degree of rigour to each phase of execution. We are transferring production gradually to new plants to reduce risk and maintain continuous service to customers. We are very pleased at the progress of our plan to date, which is demonstrating a fine balance between growing the existing business and executing very complex change across the organization.

SIMPLIFICATION

During 2012, we continued to streamline our key categories by eliminating or standardizing more than 1,400 unique products. Streamlining the portfolio into fewer, larger volume and higher margin products is simply good business, but it is also a critical forerunner to deriving maximum benefit from the technologies and capacity at the new scale facilities. The impact on raw material, packaging and processing costs – and consequently on margin expansion – has exceeded our expectations.

When we are finished we will have standardized or eliminated approximately half of our prepared meat products – reducing downtime, line changeovers, allergens and unique recipe formulations – and shifted our focus to higher volume, more profitable products. After our network transformation, our “Simplify” plan is the biggest contributor to margin expansion in our prepared meats business, without requiring any capital investment.

Consolidating Our Bakery Volume

Commissioning of our new bakery in Hamilton, Ontario, continued throughout 2012. Opened in 2011, this is Canada’s largest commercial bakery, producing white and whole wheat breads, buns and English muffins. Additional lines were commissioned during the year as two smaller bakeries were closed. Duplicative overhead costs will continue until production at a third Toronto bakery is transferred and the facility closes in 2013. The new Hamilton facility will be accretive to results in 2013, with benefits ramping up in 2014 and beyond.

Implementing SAP

By the end of 2012, implementation of our SAP enterprise resource planning software was approximately 80% complete. Our conversion to SAP was launched in spring 2009 and we’ve had 67 go-lives since then, integrating numerous legacy systems onto one operating platform. A new deployment occurred almost monthly, a timetable that SAP acknowledges is one of the most ambitious they have seen. Even more important, the system was installed with minimal modifications to the software. This disciplined approach enforced a standardization of business processes that is an essential precursor to transitioning Maple Leaf to a shared services model, which will yield significant cost and efficiency gains. With our deployments significantly complete, we are also moving beyond implementation to mining the benefits provided by SAP through enhanced analytics and real-time information.