Our strengths, however, have been overshadowed in recent years by currency shifts that have significantly impacted our profitability and threatened the long-term viability of the business model in the protein side of our operations.

This vulnerability, along with a difficult year in commodities, weakened our 2006 financial performance. Since 2002, Maple Leaf Foods – along with other Canadian manufacturers who compete internationally – has been affected by a 38% rise in the Canadian dollar versus the U.S. dollar. This significant currency shift extracted more than $100 million annually in our cost competitiveness between 2003 and 2006, and impacted earnings accordingly. Put another way, we estimate this currency shift has decreased our earnings by roughly $0.50 per share annually for each of the last three years. The headline story of 2006 is that at the start of the year, we had a $100 million hole to fill, but by the end of the year, we had a plan to recover it and actions were well underway.

Overall, our financial performance in 2006 looked like this:

• Sales decreased 4% to $5.9 billion
• Earnings from operations before restructuring and other related costs declined 15% to $224 million
• Earnings per share declined to $0.04 from $0.74
• Cash flow from operations declined to $132 million from $265 million
• Capital expenditures increased 11% to $170 million
• Return on net assets was 6.5%, compared with 8.2% in 2005
• Share price at year end was $12.34, underperforming the S&P Food Products Index by 36%

Our Protein Value Chain operations, and particularly our hog production and fresh pork operations, took the brunt of the currency exposure because hogs are valued in U.S. dollars, and fresh pork competes globally in pricing denominated predominantly in U.S. dollars and Japanese yen. In these parts of our business we are price takers, not price makers. When the U.S. dollar or the Japanese yen declines in value relative to the Canadian dollar, we feel that in the form of compressed margins throughout the protein value chain and related segments due to the global nature of the business.

Operating earnings in our Meat Products Group increased by 24% to $74 million in 2006. We offset some of the currency impact with gains in processing efficiency, innovation, and better sales execution. The good news is that our brand focussed, consumer-oriented, packaged meats and meals businesses performed extremely well and will shape our new protein strategy. Our Agribusiness Group, and notably hog production, suffered the most from the currency changes, with a 52% decline in operating earnings from 2005.

In the Bakery Products Group, where we are less exposed to currency fluctuations, we recorded operating earnings of $101 million, despite dramatic flour and energy cost increases. Our fresh bakery business continues to benefit from strong market shares, leading brands and new product innovation that delivers consumers premium nutrition and freshness. Our fresh pasta business in Canada also had a banner year, buoyed by increased consumer demand for pasta and product innovation that delivers healthy product options. Higher distribution costs in our U.S. frozen bakery business, combined with a 10-year high in wheat prices, resulted in lower profits for the year as we were unable to completely pass on price increases. Higher U.K. bakery earnings resulted from increased production at our new Rotherham bagel plant, and acquisitions that have established us as a significant player in the value-added bakery business in the United Kingdom.

Our Company continues to generate good cash flow, with $132 million in operating cash flow in 2006. We invested approximately $170 million in capital in 2006 to improve existing plants or increase future profit potential, and spent roughly $80 million on new business acquisitions. We ended the year with a strong balance sheet, reflected in a Net Debt/EBITDA ratio of 3.2.