Maple Leaf Foods has described the weekend cyberattack as “comprehensive” as the Canadian protein business enacts “workaround” contingencies.
Following the system outages the company reported on Sunday (6 November) “linked to a cybersecurity incident”, executives were pressed on a third-quarter results call with analysts on Tuesday for more information on the impact on the business.
“There are some functions affected more than others of which I won’t get into the granularity of that, but it is comprehensive,” CEO Michael McCain responded when asked if payrolls and accounts systems, for example, were also hit.
Prior to the Q&A session, CFO Geert Verellen had set the scene, noting Maple Leaf’s “business and operations teams are doing a remarkable job finding manual workarounds to keep our operations going to try to minimise the impact”.
He added: “And while we expect the full resolution of the outage will take time and result in some operational and service disruptions, we will continue to work through this with our customers and vendors.”
CEO McCain was unsurprisingly reserved in not revealing too much detail but added: “This is not something that is unexpected in industry today, as much as it’s a scourge of modern technology,” he said. “But I feel very confident in the team of people that we have in place to ensure the continuity of the business in this situation and the technology teams focus on recovery. So steady as she goes.”
Pressed again on the possible impact on production, he added: “Our facilities all ran yesterday [Monday]; I don’t think we ran optimally for sure on day one, I can guarantee that. We’re continuing to operate and expected to operate, that was our plan, and has been our plan all along, as any responsible company prepares for this.”
Maple Leaf: Plant protein will be “highly profitable”, long term
In Maple Leaf’s third quarter, which ran to 30 September, attention was focused on the decline in adjusted EBITDA across the company’s meat and alternative-protein divisions.
Adjusted EBITDA for the group dropped to CAD76.7m (US$57m) from CAD118m a year earlier, while the margin fell 270 basis points to 6.2%.
The meat-protein segment lost more than CAD50m of adjusted EBITDA during the quarter to CAD100.9m, while the margin plunged 470 basis points to 8.5%.
Plant protein, meanwhile, posted a CAD24.3m EBITDA loss, narrowing from a CAD33.4m loss in the corresponding period. The margin remained negative at 55.6%, compared to a negative 69.6% a year earlier.
However, Maple Leaf’s plant-protein business is moving through a transition period. The company launched a review of the operations last year and pared back expectations amid the general perception growth in the category is not as robust as previously envisaged.
“Current estimates suggest that the category will grow at an average annual rate of 10% to 15%, making it a CAD6bn to CAD10bn market by 2030,” Maple Leaf said in the results commentary.
Maple Leaf is working toward achieving “neutral” EBITDA for the plant-based business by the end of the fiscal year.
“We hope that you take away, with the same confidence that we have in our plant-based business, that we will not only meet our commitment to adjusted EBITDA neutral or better by the end of 2023. As we transition the business model, we are now even working on initiatives that we feel could exceed this target,” McCain said in his call remarks.
He added: “And long term, after this transition is complete, this category, and remember, it is just a food category, not a revolutionary new concept, will give us reasonable steady growth and be highly profitable as well.”
Sales of plant-protein products – namely the Lightlife and Field Roast brands – fell 9.1% in the third quarter to CAD43.6m.
COO Curtis Frank said Maple Leaf is progressing in the “pivot from investing for revenue growth to delivering profitable growth” in plant-based meat. To achieve the objectives, the company has set goals to change its SG&A advertising and promotional expenses for the category and also the manufacturing footprint, and to get the “revenue management right in this inflationary environment”, Frank explained.
In meat, sales rose 3.8% to CAD1.19bn but Curtis described the margin depreciation as “disappointing”, adding “we continue to see margin compression as short term and transitory in nature”.
He cited four transitory factors: Maple Leaf raising prices in the inflationary context; a labour shortage; “an unusual degree of margin compression” in Japan; and profitability in pork markets that Frank said was 80% below the five-year average.
“All four are quantifiable. All four are directly connected to a post-pandemic and war-torn economy which can only be described as abnormal,” he said. “They all add up to a whopping CAD66m, or 560 basis points of EBITDA margin in terms of the impact to Q3.”
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