Maple Leaf Foods Inc. MFI-Tunveiled a sweeping $560-million overhaul that will see it close most of its aging meat-processing factories in Canada in a bid to slash costs as it fights with more efficient global rivals.
Facing increased competition from U.S. meat suppliers and pressure from shareholders to improve the financial results, Maple Leaf chief executive officer Michael McCain pledged in an interview to significantly boost the company’s profits by closing eight plants and distribution centres, building a massive new factory in Hamilton and upgrading plants in Brampton, Ont., Winnipeg and Saskatoon. But the plan also comes with a human cost: It will cut 1,500 jobs, or about 12 per cent of the work force in the meat division, Maple Leaf’s largest unit.
The radical remake of Maple Leaf, one of the country’s largest food manufacturers, underscores the challenge facing Canadian manufacturers that can no longer rely on a weak Canadian dollar to help them compete. Canadian factories are “starved for capital,” Mr. McCain said, because a low Canadian currency during the past two decades has allowed them to make gains internationally without investing in more efficient technology. Now that the loonie is close to par with the U.S. dollar, he said, Maple Leaf Foods and other food processors are struggling to compete against larger, more productive U.S. companies.
“We are to some degree the poster child for the productivity gap between Canada and the United States,” he said. “Maple Leaf and the Canadian industry must change to be globally competitive.”
In recent years, Maple Leaf has struggled to raise its profit margins and boost earnings. Last year, it earned $49.8-million before taxes on revenues, or just one cent for every dollar in sales. Maple Leaf shareholders have earned no return over the past 10 years, even when dividends are included.
The centrepiece of the strategy, which Mr. McCain said is the largest investment ever in the Canadian food processing industry, calls for a new $395-million prepared meats factory in Hamilton. Another $155-million will be spent to upgrade the Brampton, Winnipeg and Saskatoon plants. Those enhancements will create about 1,000 new jobs.
The investments will come at the expense of eight sites, including six factories, that will be shuttered by 2014, eliminating 2,500 jobs. The closings include factories Maple Leaf acquired long ago from some of industry’s best-known families, including the Schneiders and the Shopsowitz’s, creators of Shopsy’s deli products. The biggest is in Kitchener, Ont., where 1,200 workers will lose their jobs.
The planned overhaul is the third and final leg of a multiyear restructuring of Maple Leaf’s business, which also includes its Canada Bread subsidiary and a primary meat processing division.
It is also marks the first major strategic initiative since the summer of 2010, when Toronto activist investor West Face Capital Inc. acquired a 10 per cent stake in the company. West Face was initially critical of Maple Leaf Food’s governance practices and high costs, but Mr. McCain said the hedge fund’s CEO, Greg Boland, who is now a Maple Leaf director, has been a “constructive” and “positive” influence.
Maple Leaf appointed a special committee of directors to conduct a detailed review of the company’s restructuring plan this summer. Mr. Boland, a member of the committee, said that as a result of what he quipped was “unreasonably intrusive and critical” questions by his team at West Face, management and directors at the company are more focused on reducing costs and improving shareholder returns.
“To their credit, we have seen a change in the way Michael and the board thinks,” he said.
Mr. McCain has earned additional respect from company shareholders by staking his personal fortune on the company. After his father Wallace McCain died earlier this year, Mr. McCain reshuffled his personal assets in a way that dramatically increased his own financial stake in Maple Leaf and made him the company’s largest single shareholder.
