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Financial review
Overall, the product recall, combined with dramatic increase in commodity prices earlier in the
year, had a material impact on our financial performance - all in an environment of economic
turmoil and tightening credit. We track our balance sheet strength as a company using several
ratios, but mainly by our ability to generate cash flow compared with debt, our funded debt to
EBITDA ratio. At the end of September, that ratio was 3.7x - higher than our internal target of
between 2.5x and 3.5x.
We took steps to reduce our expenditures by curtailing capital projects, reducing discretionary
spending and improving working capital management. We also issued new share units, raising
$70 million from investors, which was structured to provide a significant amount of flexibility
as Management has the option to return the proceeds in August 2009, or issue shares if we
need the added liquidity. This innovative financing minimizes dilution to shareholders and
provides the financial resources we need to meet our financial requirements through these
difficult economic times. By the end of 2008, our funded debt leverage ratio had declined to
less than 3.5x - a remarkable achievement given the challenges we faced during the year.
We continued to invest in streamlining and improving our operations in 2008, and invested
$206 million to:
- Complete upgrades in Brandon and add ham-boning operations in Winnipeg. Brandon now
processes 4.3 million hogs annually, and the Winnipeg plant has expanded capacity to
process the increased ham production from Brandon.
- Expand our U.K. bakery specialty bread and bagel capacity and warehousing at our Roanoke,
Virginia frozen bakery plant;
- Construct a new world-class warehouse in Saskatoon, which, together with our expanded
Vancouver warehouse, now efficiently handles almost all of our western distribution of meat
and fresh pasta; and
- Begin construction of a new product innovation centre that will step-change our culinary
knowledge and drive growth.
Our overall capital spending for 2008 was less than we had originally estimated, as we deferred
some projects so we could better allocate resources to support our recovery from the recall and
to help restore margins. This included some planned network optimization initiatives and product
innovation that required significant dedication of resources. These projects will resume in 2009.
Building a world-class consumer packaged goods company
Maple Leaf Foods can trace its roots back well over 100 years. In the past 10 years alone, we've
made over 30 acquisitions to build the company we have today: an organization with strong
brands, leading market shares, and clearly defined values that shape every decision we make.
The most secure aspect of about being in the food business is that there is always demand for
food. The challenge is to grow with the changing needs of the people who consume our products
and the customers who sell them, in a way that makes us profitable and creates value for our
shareholders. We recognized in late 2006 that we would need to change from a business that was
overly exposed to commodity and currency volatility to a more stable, more profitable consumer
packaged food company. We are meeting our goals and have made steady progress toward our
new business model based on world-class scale operations, strong brands and market shares,
and innovation to drive growth and competitive advantage.
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