Maple Leaf Foods Inc. unveiled 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.
"It's hard to argue that I'm not aligned with shareholders when I own a third of the company."
------------------
The Restructuring Plan
Meat Processing Plants
Where: Moncton, New Brunswick
What: 45-year-old distribution centre and plant that processes sliced meats, smoked meats, sausage and bacon.
Employees: 461
Timeline: Plant will be closed in late 2014.
-----------
Where: Kitchener, Ontario
What: A former Schneiders meat processing plant and distribution centre that dates back to 1890. It has undergone numerous renovations and sits on 24.5 acres of land. The plant produces wieners, sliced and deli meats and kitchen goods under Maple Leaf, Schneiders and Shopsy's brands
Employees: 1,200
Timeline: Distribution centre will close in early 2013 and plant will close in late 2014
-------------
Where: Hamilton, Ontario
What: Leased since 1994, plant makes wieners, corned beef brisket and breakfast sausage.
Employees: 247
Timeline: Plant will close in first half of 2014
--------------
Where: Weston, Ontario
What: 55-year-old plant was the original Shopsy's facility, which now makes sliced meats, bologna, deli meats and cooked sausage.
Employees: 324
Timeline: Plant will close in late 2014
------------------
Where: Winnipeg, Manitoba
What: A former Schneider Foods plant that is more than 40 years old, makes hot rod meat sticks.
Employees: 27
Timeline: plant will close in late 2014
-----------------
Where: North Battleford, Saskatchewan
What: Bacon processing plant and warehouse built 24 years ago.
Employees: 332
Timeline: Plant will close in early 2013
-----------------
Distribution Centres
Where: Coquitlam, B.C.
What: Packaged meat distribution centre
Employees: 37
Timeline: Closure in early 2012
-------------------
Where: Burlington, Ontario
What: Refrigeration and distribution centre
Employees: 87
Timeline: Closure early 2013
-------------------
New Investments
Where: Hamilton, Ontario
Investment: $395-million
What: A new continuous flow deli and sliced meats and wiener processing plant.
Employees: 670 new jobs
When: Completion 2014
-----------------
Where: Brampton, Ontario
Investment: $25-million in new equipment and technology
What: Meat and chicken food processing plant, built 20 years ago.
Employees: Increase from 153 to 240
When: Completion in 2013
-------------
Where: Saskatoon, Saskatchewan
Investment: $45-million
What: Upgrade wiener, sausage and lunch meat processing equipment and add snack sticks and packaging operations.
Employees: Remain at current level of 400
When: Completion in late 2013
-------------
Where: Winnipeg, Manitoba
Investment: $85-million
What: Expand and upgrade ham, bacon and sausage plant
Employees: Increase from 926 to 1,260