Maple Leaf Foods Reports 2007 First Quarter Financial Results



    TORONTO, April 26 /CNW/ - Maple Leaf Foods Inc. (TSX: MFI) today reported
its financial results for the first quarter ended March 31, 2007.
    "Our results for the first quarter reflect a solid improvement, with
increased contributions from both the bakery and the meats businesses," said
Michael McCain, President and CEO. "In the context of the major change
activities that we have underway, the quarterly results reflect our steady
focus on maintaining business stability and performance while aligning our
protein operations to a value-added meats and meals strategy. Our plan is on
track and we are pleased with execution to date."
    Sales for the first quarter increased 2% to $1.5 billion while earnings
from operations before restructuring and other related costs increased 18% to
$61.0 million from $51.8 million in the first quarter last year. Management
believes this is the most appropriate basis on which to evaluate operating
results, as restructuring and other related costs are not representative of
continuing operations. In the first quarter of 2007, the Company recorded
restructuring and other related costs of $13.1 million ($9.6 million after tax
and minority interest), of which $6.8 million related directly to the
Company's strategic reorganization of its protein operations to focus on
growth in the value-added meats and meals businesses. The balance of the
restructuring costs was due to the previously announced closures of a poultry
facility in Nova Scotia and a bakery in Langley, British Columbia.
    The following is a summary of net earnings and earnings per share (EPS),
before and after restructuring and other related costs:

    
    ($ millions except per share amounts)             First Quarter
                                           ----------------------------------
                                              2007         2006       Change
                                           --------     --------     --------
    Net earnings as reported                $ 10.5       $ 17.3         (39%)

    Restructuring and other related costs,
     net of tax and minority interest          9.6            -

                                           ----------------------------------
    Net earnings before restructuring and
     other related costs(i)                 $ 20.1       $ 17.3          16%
                                           ----------------------------------
                                           ----------------------------------

    EPS before restructuring and other
     related costs(i)                       $ 0.16       $ 0.14       $ 0.02
                                           ----------------------------------
                                           ----------------------------------

    (i) This is not a recognized measure under Canadian GAAP. Management
    believes that this is the most appropriate basis on which to evaluate
    results, as restructuring and other related costs are not representative
    of continuing operations.
    

    Net earnings before restructuring and other related costs increased 16%
to $20.1 million ($0.16 per share) from $17.3 million ($0.14 per share) last
year.

    Operating Review
    ----------------
    Operating earnings for the first quarter before restructuring and other
related costs increased by 18% from last year, as a result of a 23% increase
in earnings in the Protein Group and a 12% increase in the Bakery Group.
Protein Group earnings were driven by improved fresh meat margins, which more
than offset lower hog earnings due to higher corn prices, and reduced margins
in prepared meats. The Bakery Group recorded higher earnings in its fresh
bakery and U.K. and North American frozen bakery operations.
    Following is a summary of operating earnings by business segment before
restructuring and other related costs:

    
    ($ millions)                                         First Quarter
                                           ----------------------------------
                                              2007         2006       Change
                                           --------     --------     --------
    Meat Products Group                     $ 21.3       $ 13.7          56%
    Agribusiness Group                        12.1         13.4         (10%)
                                           ----------------------------------
    Protein Value Chain                       33.4         27.1          23%
    Bakery Products Group                     27.6         24.7          12%
                                           ----------------------------------
                                            $ 61.0       $ 51.8          18%
                                           ----------------------------------
                                           ----------------------------------
    

    Meat Products Group (branded value-added prepared meat products; fresh,
frozen and branded value-added pork products; fresh, frozen and branded
value-added chicken and turkey products; and global food marketing,
distribution and trading)
    Meat Products Group sales for the first quarter declined 3% to
$896 million, due principally to lower international trading sales, as certain
trading businesses were wound down as part of the Company's strategic
re-alignment.
    Earnings from operations before restructuring and other related costs
increased to $21.3 million from $13.7 million last year. Profits improved in
the Company's fresh pork and poultry operations due to improved protein
markets and primary processor margins, as well as improved operating
efficiencies. However, higher meat costs pressured margins in the consumer
foods businesses, as price increases could not be implemented quickly enough
to offset increased input costs. Price increases are being implemented in most
processed meat categories in the second quarter. Earnings were also affected
by higher promotional and advertising costs related to new product launches.
    During the quarter, the Company launched Maple Leaf Simply Fresh, a new
line of refrigerated, single-serve entrees, meal kits and soups that are
available across Canada. Manufactured at its new Brampton facility, these
products include pork, chicken or beef and vegetables, and carry the Heart and
Stroke Foundation's Health Check(TM) symbol. The products are developed using
technology that significantly extends shelf life, while delivering fresh
taste, low sodium and fat, and high nutrition. This new line reflects the
Company's increasing emphasis on product innovation and investment in
infrastructure and marketing to support expansion in the higher margin chilled
meats and meals market.

    Agribusiness Group (research, development and supply of quality livestock
nutrition products and services; pet food; swine production; and animal
by-products recycling)

    Agribusiness Group sales for the first quarter increased 4% to
$208 million from $201 million last quarter, primarily as a result of higher
feed prices as the prices of agricultural commodities, particularly corn,
increased.
    Earnings from operations before restructuring and other related costs for
the first quarter declined to $12.1 million from $13.4 million last year.
Although hog prices increased 8% compared to the first quarter last year,
significantly higher feed costs more than offset the benefit of higher hog
prices. Hog production earnings were also impacted by an industry-wide
outbreak of circo virus, which has impacted herds across North America and
caused higher rates of hog mortality and slower growth rates. Consistent with
the industry, the Company is experiencing success in administering vaccines
and efficiencies are expected to steadily improve throughout the year. Maple
Leaf had an effective ownership of 19% of the hogs it processed in the first
quarter.

    Bakery Products Group (fresh, frozen and branded value-added bakery
products, including frozen par-baked bakery products; and specialty pasta and
sauces)
    Bakery Products Group sales for the first quarter increased 19% to
$358 million from $301 million last year. Excluding acquisitions, sales
increased by 8% in the first quarter, with increases in both fresh and frozen
bakery.
    Earnings from operations before restructuring and other related costs
increased 12% to $27.6 million compared to $24.7 million last year, due to a
strong contribution from both the frozen and fresh bakery businesses. Price
increases implemented last year, to offset inflationary costs, and growth in
higher margin value-added categories contributed to increased earnings. These
price and mix improvements more than offset higher wheat prices and some
market volume decline. Reinforcing its leadership in the growing higher
nutrition market, the Company launched Dempsters WholeGrains Prebiotic, a
delicious bread that contains inulin, a unique prebiotic source that promotes
digestive health. Dempsters WholeGrains Prebiotic is the first major brand in
Canada to offer the benefits of prebiotics.
    The U.K. bakery operations recorded another strong quarter, benefiting
from the contribution of acquisitions, as well as improved earnings from the
bagel category. During the quarter, the Company commenced an $8.3 million
investment to further expand capacity at its Rotherham bagel facility that
will allow the business to pursue further opportunities in the frozen bagel
market in the U.K and Europe. This expansion, together with investments in
croissant capacity at the newly acquired French Croissant Company Ltd., will
position the business to continue its growth in the specialty bakery market.
The profitability of the Company's North American frozen bakery operations
increased from last year, although still below earnings potential. A strategic
realignment of this business is being developed to position it for higher
returns, and the Company has recently made a senior leadership change in the
business.

    Other Items
    -----------
    The Company previously announced the intended sale of its animal
nutrition business as a result of its new protein strategy. A process to sell
this business has commenced and was still ongoing at the end of the first
quarter.
    Effective March 31, 2007, the Company completed two transactions to sell
its Convenience and Seafood trading businesses in Germany, as these businesses
were not aligned with the Company's new protein strategy. These sales will not
have a material impact on ongoing earnings or cash flows.

    Restructuring and Other Related Costs
    -------------------------------------
    In the first quarter, the Company recorded a charge for restructuring and
other related costs of $13.1 million (2006: $nil). Including full-year amounts
charged to earnings during 2006, the following is a summary of restructuring
and other related costs incurred up to 2007:

    
    ($ millions)
                                         Full-year      Q1 2007       Total
                                            2006                     to Date
                                        -------------------------------------
    Protein value chain restructuring        47.5           4.1         51.6
    Retention payments                        2.0           3.7          5.7
    Bakery plant closure                      5.5           2.2          7.7
    Poultry plant closure                     2.3           3.1          5.4
    Impairment of a non-core equity
     investment                               7.3             -          7.3
                                        -------------------------------------
                                             64.6          13.1         77.7
                                        -------------------------------------
                                        -------------------------------------

    Cash incurred and to be incurred         25.4           8.2         33.6
    Non-cash                                 39.2           4.9         44.1
                                        -------------------------------------
                                             64.6          13.1         77.7
                                        -------------------------------------
                                        -------------------------------------
    

    The Company estimates it will incur total restructuring costs of
$140 million to $190 million over the next three years. This includes $100
million to $150 million of costs to realign its protein value chain operations
to a value-added meats and meals business, of which $56.3 million has been
recorded to date.

    Cash Flow and Financing
    -----------------------
    Total debt, net of cash balances, was $1,280 million at the end of the
first quarter, compared to $1,214 million as at December 31, 2006. Cash used
in operations was $17.6 million compared to $18.7 million last year, as a
decrease in net earnings was offset by a reduced investment in working
capital.
    Interest expense for the quarter was $26.9 million compared to
$24.2 million last year, largely due to increased debt balances. At March 31,
2007, 74% of indebtedness was not exposed to interest rate fluctuations,
compared to 86% in the previous year.
    Capital expenditures on plant and equipment for the first quarter
increased to $55.8 million compared to $25.8 million last year, primarily
resulting from increased capital investments to support the launch of the
Maple Leaf Simply Fresh product line.

    Forward-Looking Statements
    --------------------------
    This document may contain forward-looking information within the meaning
of applicable securities legislation. Forward-looking information is based
upon a number of assumptions and is subject to a number of risks and
uncertainties, many of which are beyond Maple Leaf Foods' control that could
cause actual results to differ materially from those that are disclosed in or
implied by such forward-looking information. Maple Leaf does not undertake to
update any such forward-looking information whether as a result of new
information, future events or otherwise. Any forward-looking information in
this press release speaks as of the date of this press release. Additional
information about these assumptions and risks and uncertainties is contained
in the filings with securities regulators including the annual information
form and Management's Discussion and Analysis accompanying the financial
statements in the reports to shareholders. These filings are available on the
Company's website at www.mapleleaf.ca.

    Other Matters
    -------------
    Maple Leaf Foods declared a dividend of $0.04 per share payable on
June 29, 2007, to shareholders of record on June 8, 2007. Unless indicated
otherwise in writing at or before the time the dividend is paid, each dividend
paid by the corporation in 2007 or a subsequent year is an eligible dividend
for the purposes of the "Enhanced Dividend Tax Credit System.
    Maple Leaf Foods Inc. is a leading Canadian food processing company.
Headquartered in Toronto, Canada, the Company employs approximately 24,000
people at its operations across Canada and in the United States, Europe and
Asia. The Company had sales of $5.9 billion in 2006.

    An investor presentation related to the Company's first quarter financial
results is available at www.mapleleaf.com and can be found under Investor
Relations on the Quarterly Results page. A conference call will be held at
2:30 p.m. EDT on April 26, 2007 to review Maple Leaf Foods' first quarter
financial results. To participate in the call, please dial 416-641-6113 or
866-226-1792. For those unable to participate, playback will be made available
an hour after the event at 416-695-5800 / 800-408-3053 (Passcode 3219792
followed by the number sign).
    A webcast presentation of the first quarter financial results will also
be available at http://investor.mapleleaf.ca via a link
http://phx.corporate-ir.net/phoenix.zhtml?c=88490&p=irol-eventdetails&EventId=
1533544


    
                   Consolidated Financial Statements
                   (Expressed in Canadian dollars)

                   MAPLE LEAF FOODS INC.
                   Three months ended March 31, 2007 and 2006


    MAPLE LEAF FOODS INC.
    Consolidated Balance Sheets
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                             As at        As at        As at
                                          March 31,    March 31, December 31,
                                              2007         2006         2006
    -------------------------------------------------------------------------
                                        (Unaudited)  (Unaudited)

    ASSETS

    Current assets
      Cash and cash equivalents         $   61,564   $    8,674   $   64,494
      Accounts receivable (Note 3)         269,218      230,111      263,806
      Inventories                          465,220      432,792      427,846
      Future tax asset - current             2,947       15,896        2,321
      Prepaid expenses and other assets     14,608       11,888       11,986
      -----------------------------------------------------------------------
                                           813,557      699,361      770,453

    Investments in associated companies     13,235       48,262       22,110

    Property and equipment               1,204,283    1,151,116    1,187,398

    Other long-term assets                 290,633      268,097      282,091

    Future tax asset - non-current          36,377       39,881       23,464

    Goodwill                               907,715      848,032      902,663

    Other intangibles                       87,291       86,350       87,547

    -------------------------------------------------------------------------
                                        $3,353,091   $3,141,099   $3,275,726
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Accounts payable and accrued
       charges                          $  653,061   $  629,275   $  665,886
      Income and other taxes payable        24,971       18,803       20,457
      Other current liabilities
       (Note 1(a))                          27,220            -            -
      Current portion of long-term debt     89,593      102,584       91,490
      -----------------------------------------------------------------------
                                           794,845      750,662      777,833

    Long-term debt                       1,251,651    1,037,077    1,186,538

    Future tax liability                    28,003       55,172       29,475

    Other long-term liabilities            208,188      196,130      197,201

    Minority interest                       83,754       91,147       90,237

    Shareholders' equity (Note 10)         986,650    1,010,911      994,442

    -------------------------------------------------------------------------
                                        $3,353,091   $3,141,099   $3,275,726
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.


    MAPLE LEAF FOODS INC.
    Consolidated Statements of Earnings
    (In thousands of Canadian dollars, except share amounts)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                            2007         2006
    -------------------------------------------------------------------------

    Sales                                            $1,461,437   $1,425,951

    -------------------------------------------------------------------------

    Earnings from operations before restructuring
     and other related costs                             61,007       51,802

    Restructuring costs and other related
     costs (Note 2)                                     (13,119)           -
    -------------------------------------------------------------------------
    Earnings from operations                             47,888       51,802

    Other income (Note 4)                                   529        1,969
    -------------------------------------------------------------------------

    Earnings before interest and income taxes            48,417       53,771

    Interest expense                                     26,940       24,215
    -------------------------------------------------------------------------

    Earnings before income taxes                         21,477       29,556

    Income taxes                                          9,470        9,829
    -------------------------------------------------------------------------

    Earnings before minority interest                    12,007       19,727

    Minority interest                                     1,544        2,455

    -------------------------------------------------------------------------
    Net earnings                                     $   10,463   $   17,272
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share - basic (Note 7)              $     0.08   $     0.14

    Earnings per share - diluted (Note 7)            $     0.08   $     0.13

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of shares (millions)          127.2        127.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.


    MAPLE LEAF FOODS INC.
    Consolidated Statements of Retained Earnings
    (In thousands of Canadian dollars, except share amounts)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                            2007         2006
    -------------------------------------------------------------------------
    Retained earnings, beginning of period           $  204,415   $  231,807

    Net earnings                                         10,463       17,272

    Dividends declared ($0.04 per share;
     2006: $0.04 per share)                              (5,091)      (5,100)

    Premium on repurchase of share capital (Note 6)           -       (3,456)

    -------------------------------------------------------------------------
    Retained earnings, end of period                 $  209,787   $  240,523
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.


    Consolidated Statements of Comprehensive Income
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                            2007         2006
    -------------------------------------------------------------------------
    Net earnings                                     $   10,463   $   17,272

    Other comprehensive income (Note 11)                  4,437          764
    -------------------------------------------------------------------------
    Comprehensive income                             $   14,900   $   18,036
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.


    MAPLE LEAF FOODS INC.
    Consolidated Statements of Cash Flows
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                            2007         2006
    -------------------------------------------------------------------------
    CASH PROVIDED BY (USED IN)

    Operating activities
      Net earnings                                   $   10,463   $   17,272
      Add (deduct) items not affecting cash:
        Depreciation and amortization                    38,140       35,522
        Stock-based compensation                          3,672        2,591
        Minority interest                                 1,544        2,455
        Future income taxes                              (3,411)      (2,854)
        Undistributed earnings (loss) of
         associated companies                                 -         (137)
        Gain on sale of property and equipment             (493)        (566)
      Other                                               3,187        3,097
      Change in other long-term receivables              (2,311)       1,587
      Decrease in net pension asset                     (16,425)     (12,441)
      Change in restructuring provisions                  3,721         (545)
      Change in operating working capital               (55,708)     (64,697)
      -----------------------------------------------------------------------
                                                        (17,621)     (18,716)

    Financing activities
      Dividends paid                                     (5,091)      (5,100)
      Dividends paid to minority interest                  (251)        (655)
      Increase (decrease) in long-term debt              73,664      (13,045)
      Increase in share capital (Note 6)                  2,215        2,943
      Shares repurchased for cancellation (Note 6)            -       (6,229)
      Other                                               8,106        2,057
      -----------------------------------------------------------------------
                                                         78,643      (20,029)

    Investing activities
      Additions to property and equipment               (55,752)     (25,814)
      Proceeds from sale of property and equipment          746        3,439
      Proceeds on disposal of business (Note 8)           5,470            -
      Purchase of net assets of businesses -
       net of cash acquired (Note 8)                    (10,803)      (5,323)
      Purchase of Canada Bread shares                    (6,521)           -
      Change in other investments, net                        -       (5,265)
      Other                                               2,908         (120)
      -----------------------------------------------------------------------
                                                        (63,952)     (33,083)

    Decrease in cash and cash equivalents                (2,930)     (71,828)

    Cash and cash equivalents, beginning of period       64,494       80,502

    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period         $   61,564   $    8,674
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.


    MAPLE LEAF FOODS INC.
    Segmented Financial Information
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                            2007         2006
    -------------------------------------------------------------------------

    Sales
      Meat Products Group                            $  895,735   $  923,527
      Agribusiness Group                                208,197      201,081
      Bakery Products Group                             357,505      301,343
    -------------------------------------------------------------------------
                                                     $1,461,437   $1,425,951
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings from operations, before restructuring
     and other related costs
      Meat Products Group                            $   21,364   $   13,727
      Agribusiness Group                                 12,064       13,344
      Bakery Products Group                              27,579       24,731
    -------------------------------------------------------------------------
                                                     $   61,007   $   51,802
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Additions to property and equipment
      Meat Products Group                            $   36,718   $   11,028
      Agribusiness Group                                  5,967        4,367
      Bakery Products Group                              13,067       10,419
    -------------------------------------------------------------------------
                                                     $   55,752   $   25,814
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and amortization
      Meat Products Group                            $   17,386   $   16,993
      Agribusiness Group                                  7,935        6,952
      Bakery Products Group                              12,819       11,577
    -------------------------------------------------------------------------
                                                     $   38,140   $   35,522
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                             As at        As at        As at
                                          March 31,    March 31, December 31,
                                              2007         2006         2006
    -------------------------------------------------------------------------
                                        (Unaudited)  (Unaudited)

    Total assets
      Meat Products Group               $1,595,010   $1,502,768   $1,551,502
      Agribusiness Group                   670,324      692,870      702,534
      Bakery Products Group                821,038      706,094      810,940
      Non-allocated assets                 266,719      239,367      210,750
    -------------------------------------------------------------------------
                                        $3,353,091   $3,141,099   $3,275,726
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes to the consolidated financial statements are an
    integral part of these statements.


    1.  SIGNIFICANT ACCOUNTING POLICIES

        The unaudited interim consolidated financial statements should be
        read in conjunction with the annual consolidated financial statements
        for the year ended December 31, 2006. These unaudited interim
        consolidated financial statements have been prepared in accordance
        with Canadian generally accepted accounting principles using the same
        accounting policies as were applied in the consolidated financial
        statements for the year ended December 31, 2006, except for the
        following:

        (a) Accounting changes

            Effective January 1, 2007 the Company prospectively adopted the
            guidance presented in CICA Handbook Sections 1530 "Comprehensive
            Income" ("Section 1530"), Section 3855 "Financial Instruments -
            Recognition and Measurement" ("Section 3855"), and Section 3865
            "Hedges" ("Section 3865").

            On January 1, 2007 the Company recorded the following
            transitional adjustment to the consolidated balance sheet as a
            result of the adoption of the new standards:

            -----------------------------------------------------------------

            Increase in other current assets                        $  1,167
            Increase in future tax assets - long-term                 12,409
            Increase in other current liabilities                     (3,085)
            Decrease in long-term debt                                 3,123
            Increase in other long-term liabilities                  (37,101)
            Accumulated other comprehensive loss -
             cash flow hedges                                         23,487

            -----------------------------------------------------------------

            (i)   Comprehensive Income

            In accordance with Section 1530, the Company has presented
            comprehensive income and its components as part of the financial
            statements to show unrealized gains and losses that are not
            included in GAAP income. Comprehensive income is the change in
            equity during a period resulting from transactions and other
            events from non-owner sources. It includes all changes in equity
            during a period except those resulting from investments by owners
            and distributions to owners. In accordance with the new standard,
            $9.8 million relating to unrealized losses resulting from the
            translation of self-sustaining operations which had previously
            been classified as unrealized foreign currency adjustment within
            shareholders' equity is now presented within accumulated other
            comprehensive income.

            (ii)  Financial Instruments

            In accordance with Section 3855, the Company has classified all
            financial assets as either held for trading, available for sale,
            held-to-maturity or loans and receivables. All financial
            liabilities are classified as either held for trading or as other
            liabilities. Financial assets and liabilities classified as held
            for trading are measured at fair value with changes in fair value
            recognized in net income in the period in which they arise.
            Financial assets classified as available-for-sale are measured at
            fair value with gains and losses recognized in other
            comprehensive income until the underlying financial asset is
            derecognized or becomes impaired. Held-to-maturity investments,
            loans and receivables and other liabilities are measured at
            amortized cost. Gains or losses on financial assets and
            liabilities carried at amortized cost are recognized in earnings
            when the financial asset or financial liability is derecognized
            or impaired. All derivative instruments, including any embedded
            derivatives that are required to be separated from their host
            instruments, are recorded at fair value with changes in fair
            value being recorded in income unless the derivative is
            designated as a cash flow hedge or a hedge of a net investment in
            a self-sustaining foreign operation. The Company completed a
            detailed review of its financial instruments and its contracts
            and determined that the fair value of embedded derivative
            instruments which required separation from their host instruments
            was not significant.

            (iii) Hedge Accounting

            The Company's existing hedging relationships continue to qualify
            for hedge accounting under the new standard. The Company
            continues to designate hedges as either fair value hedges, cash
            flow hedges or hedges of a net investment in a self-sustaining
            foreign operation. For a fair value hedge, changes in the fair
            value of the hedging derivative are recognized in income together
            with the offsetting change on the hedged item attributable to the
            hedged risk. For cash flow and net investment hedges, changes in
            the fair value of the hedging derivative, to the extent
            effective, are recorded in other comprehensive income (loss) and
            are subsequently recognized in income when the hedged item
            affects income. Any ineffectiveness in hedging relationships is
            recognized in income immediately.

            On adoption the Company recognized an increase in other current
            assets of $1.2 million, an increase in other current liabilities
            of $3.1 million, an increase in other long-term liabilities of
            $37.1 million, a decrease in long-term debt of $3.1 million and
            an increase in accumulated other comprehensive loss of
            $23.5 million (net of future taxes of $12.4 million) to recognize
            the fair value of financial instruments designated to hedge the
            Company's commodity, interest rate, and foreign currency
            exposures. On adoption of the new standard, there was no
            significant ineffectiveness in these hedging relationships. The
            following table illustrates the fair values of financial
            instruments by type of hedging relationship:

            -----------------------------------------------------------------
                                                       As at January 1, 2007
                                             Other                     Other
                                           Current      Current    Long-term
                                            Assets  Liabilities  Liabilities
            -----------------------------------------------------------------

            Futures contracts to hedge
             commodity price exposure     $  1,112     $    203     $      -
            Cross currency interest rate
             swaps to hedge U.S. dollar-
             denominated notes payable(i)       55       25,324      100,037
            Interest rate swaps to hedge
             interest rate exposure              -            -       12,471
            Foreign currency contracts to
             hedge transactions denominated
             in foreign currencies               -          880            -

            -----------------------------------------------------------------
            Total                         $  1,167     $ 26,407     $112,508
            -----------------------------------------------------------------
            -----------------------------------------------------------------
            (i)  The fair value of the cross currency interest rate swaps
                 recorded in the accounts includes a loss of $98.7 million
                 which had been recorded prior to adoption of the new
                 standard related to the loss on currency translation that
                 was previously recorded in the accumulated foreign currency
                 adjustment account.


            The fair value of the Company's financial instruments used to
            hedge commodity, interest rate, and foreign currency exposures as
            at March 31, 2007 are as follows:

            -----------------------------------------------------------------
                                                       As at January 1, 2007
                                             Other                     Other
                                           Current      Current    Long-term
                                            Assets  Liabilities  Liabilities
            -----------------------------------------------------------------

            Futures contracts to hedge
             commodity price exposure     $     72     $      -     $      -
            Cross currency interest rate
             swaps to hedge U.S. dollar-
             denominated notes payable(i)        -       26,126      102,901
            Interest rate swaps to hedge
             interest rate exposure              -        1,094        6,224
            Foreign currency contracts to
             hedge transactions denominated
             in foreign currencies           1,391            -            -

            -----------------------------------------------------------------
            Total                         $  1,463     $ 27,220     $109,125
            -----------------------------------------------------------------
            -----------------------------------------------------------------

            (i)  The fair value amount includes a currency revaluation loss
                 of $104.0 million which has been recorded in the accumulated
                 foreign currency translation adjustment, a component of
                 accumulated other comprehensive income.

        (b) Comparative figures

            Certain 2006 comparative figures have been reclassified to
            conform to the financial statement presentation adopted in 2007
            and the year ended 2006.

    2.  RESTRUCTURING AND OTHER RELATED COSTS

        During the first quarter of 2007, the Company recorded restructuring
        and other related costs of $13.1 million ($9.8 million after tax).
        The majority of these costs related to the sale of the Company's
        European seafood and convenience businesses, further costs related to
        the closure of a poultry plant in Nova Scotia and the closure of a
        fresh bakery in British Columbia.

        During 2006, the Company recorded restructuring and other related
        costs of $64.6 million ($50.4 million after tax). These costs related
        to the protein value chain reorganization, the closure of the
        aforementioned poultry plant in Nova Scotia, the closure of the
        aforementioned fresh bakery in British Columbia, the write-down of
        certain hog investments and the costs to exit certain non-core
        businesses and investments.

        The following table provides a summary of costs recognized and cash
        payments made in respect of the above restructuring initiatives in
        2007 and the corresponding liability as at March 31, 2007, all on a
        pre-tax basis:

        ---------------------------------------------------------------------
                                                   Asset
                                              impairment
                                     Site  & accelerated
                       Severance  closing   depreciation  Retention    Total
        ---------------------------------------------------------------------
        Balance at
         December 31,
         2006            $14,172  $ 5,031        $     -    $ 3,015  $22,218
          Charges          2,560    1,931          4,893      3,735   13,119
          Cash draw-
           downs          (1,395)  (2,242)             -       (484)  (4,121)
          Non-cash items       -        -         (4,893)         -   (4,893)
        ---------------------------------------------------------------------
        Balance at March
         31, 2007        $15,337  $ 4,720              -      6,266   26,323
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    3.  ACCOUNTS RECEIVABLE

        Under revolving securitization programs, the Company has sold certain
        of its trade accounts receivable to financial institutions. The
        Company retains servicing responsibilities and retains a limited
        recourse obligation for delinquent receivables.  At March 31, 2007,
        trade accounts receivable being serviced under this program amounted
        to $226.2 million (March 31, 2006: $238.0 million; December 31, 2006:
        $241.5 million).

    4.  OTHER INCOME

        ---------------------------------------------------------------------
                                                 Three months ended March 31,
                                                           2007         2006
        ---------------------------------------------------------------------
        Gain on sale of property and equipment       $      493   $      566
        Earnings from associated companies                    -          137
        Dividends received                                    -           32
        Earnings (loss) from real estate operations         (65)       1,178
        Other                                               101           56
        ---------------------------------------------------------------------
                                                     $      529   $    1,969
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    5.  PENSIONS

        During the quarter, the Company recorded income of $3.9 million
        related to net benefit plan income, including post-retirement benefit
        costs (2006: $2.9 million).

    6.  SHARE CAPITAL

        The following table sets forth the continuity for treasury shares
        issued and outstanding during the quarter and the corresponding
        value:

        ---------------------------------------------------------------------
                               Number of shares            Share capital
                          ------------------------- -------------------------
                                 2007         2006         2007         2006
        ---------------------------------------------------------------------
        Opening balance   127,135,866  127,704,812  $   769,696  $   765,666
        Exercise of
         options              210,687      252,767        2,215        2,943
        Repurchased for
         cancellation (i)           -     (461,900)           -       (2,773)
        ---------------------------------------------------------------------
                          127,346,553  127,495,679  $   771,911  $   765,836
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i) During the first quarter in 2006, the Company repurchased for
            cancellation 461,900 common shares pursuant to a normal course
            issuer bid at an average exercise price of $13.48 per share. The
            excess of the purchase cost over the book value of the shares was
            charged to retained earnings.

    7.  EARNINGS PER SHARE

        The following table sets forth the calculation of basic and fully
        diluted earnings per share:

        ---------------------------------------------------------------------
                                     Three months ended March 31,
                                 2007                          2006
        ---------------------------------------------------------------------
                                Weighted                     Weighted
                                 Average                      Average
                         Net   Number of              Net   Number of
                    Earnings   Shares(ii)   EPS  Earnings   Shares(ii)   EPS
                   ----------------------------------------------------------
        Basic        $10,463       127.2  $0.08   $17,272       127.7  $0.14
        Stock
         options(i)        -         2.2      -         -         2.4  (0.01)
        ---------------------------------------------------------------------
        Diluted      $10,463       129.4  $0.08   $17,272       130.1  $0.13
        ---------------------------------------------------------------------

        (i)  Excludes the effect of 11.6 million options and restricted stock
             units (2006: 11.3 million) to purchase common shares that are
             anti-dilutive
        (ii) In millions

    8.  ACQUISITIONS AND DIVESTITURES

        -  On February 26, 2007 the Company acquired 100% ownership of the
           shares in Pâtisserie Chevalier Inc. ("Chevalier") for
           $7.9 million. Chevalier is a leading producer of single-portion
           snack cake products in Quebec. As at March 31, 2007 the Company
           has not yet finalized the purchase price allocation.

        -  During the quarter, the Company completed the sale of its European
           seafood and convenience businesses in Germany. The sales of these
           businesses will not have a significant impact on ongoing earnings
           or cash flows.

        -  During the quarter, the Company completed some buy and sell
           transactions related to the realignment of its hog production
           business. These transactions did not have a significant impact on
           the financial position of the Company.

        -  On January 16, 2007, the Company purchased 122,900 additional
           shares in Canada Bread for $6.5 million, increasing the Company's
           ownership interest in Canada Bread from 87.5% to 88.0%.

    9.  SUPPLEMENTAL CASH FLOW INFORMATION

        ---------------------------------------------------------------------
                                                 Three months ended March 31,
                                                           2007         2006
        ---------------------------------------------------------------------

        Net interest paid                            $   15,207   $   12,141
        Net income taxes paid                            11,890       27,438

        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    10. SHAREHOLDER'S EQUITY

        Shareholders' equity consists of the following:

        ---------------------------------------------------------------------
                                                 Three months ended March 31,
                                                           2007         2006
        ---------------------------------------------------------------------
        Share capital                                $  771,911   $  765,836
        Retained earnings                               209,787      240,523
        Contributed surplus                              33,811       22,346
        Accumulated other comprehensive loss
         (Note 11)                                      (28,859)     (17,794)
        ---------------------------------------------------------------------
                                                     $  986,650   $1,010,911
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. ACCUMULATED OTHER COMPREHENSIVE LOSS

        Accumulated other comprehensive loss consists of the following:

        ---------------------------------------------------------------------
                                                 Three months ended March 31,
                                                           2007         2006
        ---------------------------------------------------------------------

        Balance at the beginning of the period
         (Note 1(a)) - net(i)                        $   (9,809)  $  (18,558)
        Transition adjustment as of January 1,
         2007 (Note 1(a))                               (23,487)           -
        ---------------------------------------------------------------------
        Adjusted balance at the beginning of
         the period                                  $  (33,296)  $  (18,558)

          Change in accumulated foreign currency
           translation adjustment - net(i)                 (886)         764
          Change in unrealized derivative gain on
           cash flow hedges - net(ii)                     5,323            -
          -------------------------------------------------------------------
          Other comprehensive income for the period  $    4,437   $      764
        ---------------------------------------------------------------------
        Accumulated other comprehensive loss as at
         March 31, 2007                              $  (28,859)  $  (17,794)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        (i)  Balance at the beginning of the period is net of tax of
             $9.1 million. The change in accumulated foreign currency
             translation adjustment is net of tax of $nil.
        (ii) Unrealized derivative gain on cash flow hedges is net of tax of
             $2.9 million in the quarter. The Company estimates that
             $0.3 million of net unrealized derivative gain included in other
             comprehensive income will be reclassified into net earnings
             within the next twelve months. During the quarter, a loss of
             approximately $3.0 million was released to income from
             accumulated other comprehensive loss, which is included in the
             net change for the period.
    





For further information:

For further information: Lynda Kuhn, Vice-President, Public & Investor
Relations, (416) 926-2026, www.mapleleaf.com


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