TORONTO — Challenging meat protein markets, inflation, an impairment charge against its plant-based protein business and a cyberattack all combined to generate hurricane-force headwinds that undermined Maple Leaf Food, Inc.’s profitability in fiscal 2022.
For the year ended Dec. 31, 2022, the company recorded a loss of C$311.9 million ($226.1 million), which compared unfavorably to fiscal 2021 when the company earned C$102.8 million, or C83¢ per share, on the common stock.
Annual sales were C$4.7 billion ($3.4 billion), up from $4.5 billion the year before.
Items affecting profitability ranged from a C$190.9 million ($138.4 million) impairment charge against Maple Leaf’s Plant Protein business group, weaker results in pork processing and hog production and the impact of a cyberattack that is estimated to cost the company at least C$23 million ($16.7 million).
The company was equally challenged during the fourth quarter of fiscal 2022, recording a loss of C$41.5 million ($30.1 million). During the same quarter the year before Maple Leaf Foods earned C$1.9 million, equal to C2¢ per share.
Quarterly sales rose to C$1.19 billion ($863 million) from C$1.12 billion the year before.
“First, this was clearly the cyber quarter,” said Michael H. McCain, president, chief executive officer and executive chairman of the board, during a March 9 conference call to discuss the company’s results. “(The) cyber incident was insidious — impacting our business in multiple ways. In real-time, we had to pivot the business from a highly efficient network of operations, one that is highly automated from orders to manufacturing planning to inventory picking receipts and payment to a business that had to run entirely on a manual basis.
“The cyber incident impacted our adjusted EBITDA by at least C$23 million or 200 basis points and (had) further knock-on effects in delaying the resolution of the many supply chain inefficiencies that we've been facing and are working to stabilize.”
Adding to the pressure were 10-year lows in global pork market conditions, most notably in Japan, according to the company.
For the year, Meat Protein Group sales increased 5.2% to C$4.59 billion ($3.33 billion). Business unit gross profit fell to C$474.7 million ($344.1 million) from C$676.8 million the year before. Besides the cyberattack and global pork market dynamics, other issues affecting the business included labor and supply chain disruptions and inflationary cost increases.
Annual sales for Maple Leaf’s Plant Protein Group were C$169 million ($122.5 million) compared with C$184 million. The sales decline was driven by lower retail product volumes, which more than offset pricing action implemented throughout 2022 to mitigate inflation and structural cost increases, according to the company.
The unit’s annual loss widened to C$36.5 million ($26.5 million) from C$12.8 million the year before.
“ … At this stage, we have rightsized our organizational design and added promo investments to reflect the current size of the business,” Mr. McCain said. “And if we continue to see declines, we will have to take further steps to ensure that we are on track and we are prepared to do that. I for one, just given the consumer sentiment here, I feel — and we have continued given the research we have done, feel confident that the category will at some stage return to moderating growth.“We have said over a long-term horizon that would be likely in the 10% to 12% range, which is what the category was growing at well before the COVID situation. But at this stage, we continue to see declines. If we need to make further moves, we will. And, at the same time, we do expect that there will be some growth return to the category in the future.”