SunOpta Inc. Investor Presentation February 2020
SunOpta Inc.
Investor PresentationFebruary 2020
Forward Looking Statements
This presentation may include forward-looking statements and therefore is subject to important risks and uncertainties. Actual results could differ materially from the conclusions, forecasts and projections as certain material factors and assumptions were applied in drawing conclusions and in making the forecasts or projections upon which the forward-looking statements are premised.
Additional information about these material factors and assumptions, as well as other risks, uncertainties and/or relevant factors, are set forth under “Forward Looking Statements,” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (available at www.sec.gov) as well as the Company’s press release issued February 27, 2020.
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$361.4
$349.9
$468.4
Plant-Based Foods & Beverages
Fruit-Based Foods & Beverages
Global Ingredients
SunOpta is a Healthy Food & Beverage Company with Global Reach
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$1.2 Billion Fiscal 2019 Revenues
We are a private label and contract manufacturing company with an ingredient
sourcing platform focused on a healthy products portfolio aligned with growing
consumer demand for high quality organic & non-GMO food and beverage.
Retail/Private Label
Foodservice
Co-manufacturing
Industrial & Other
We operate 3 Business Segments
We deliver innovation to our Multi-Channel
consumer products customer base
External Revenue in $ millions *
* Revenue for the years ended December 28, 2019. Excludes revenues from disposed businesses
SunOpta has a Clear Vision & Strategies for Growth
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Our
Vision
Key
Strategies
• Be a leader in the plant-based beverage
and fruit categories
• Leverage our unique organic farm-to-table
capabilities to fuel innovation and value
• Build integrated efficient supply chains
Democratize healthy eating…
Make it easier and more affordable
3.2%
5.0%
1.9%
3.4%
10.2%11.1%
5.9%
2.3%
Aseptic Broth Non-Dairy Milk Frozen Fruit Fruit Snacks
Total Category Private Label
SunOpta Operates in Attractive On-Trend Markets
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2016 2017
Organic Sales
US Food & Beverage(1)
($ Billions)
(1) Source: 2019 Organic Trade Association Survey.
2018
$42.5
5.9%YOY Growth
$45.2$47.9
(3) Source: Nielsen – TTL US XAOC – WE 1/25/2020 – Does not include Costco
Category Growth Trends(3)
Global Organic Food & Beverage MarketExpected growth nearly 15% over the next 5 years
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SunOpta is well positioned
with the capabilities to serve
this growing market
$ b
illio
n
CAGR 14.6%(1)
(1) Source: https://storebrands.com/global-organic-market-grow-nearly-15-through-2024
SunOpta has a Diverse & Impressive Base of Customers and Partners
Representative Retail and Foodservice Customer Base
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Representative Retail (P/L)
& Foodservice
Representative Co-manufacturing
& Ingredient
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SunOpta has a Clear Set of Strategic Priorities
► Portfolio Prioritization
• Recognize and resource plant-based beverage as our top priority to
drive revenue and EBITDA growth
• Prioritize assets and capabilities that are structurally advantaged
and invest to build long-term points of differentiation
• Critically evaluate and exit lines of business that aren’t positioned
for long-term success
► Speed of Customer Centric Innovation
• Bring value to customers brands through innovative plant-based
and fruit-based solutions
• Leverage our R&D capabilities, multi-channel category insights,
and ability to bring the latest trends in organic ingredients to market
to bring value enhancing innovation to our customers
► Productivity and Pricing in Fruit
• Capital investment and process refinement to lower cost of
manufacturing and supply chain
• Pricing and value enhancing innovation to drive improved revenue
per pound sold
We are focused
on delivering
sustained
profitable growth
by creating a
culture that is:
• Faster and more
agile;
• Focused on the
biggest
priorities; and
• Fanatical about
the customer
and saying “yes”
to opportunities.
SunOpta is Driving Innovation in
Plant-Based Foods & Beverages
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Product Categories Financial Trend
Recent Developments
• Completed the addition of new filling &
processing capacity at Allentown, PA facility
• Transitioned all three plants to expanded
production schedules
• Continuing to add capacity and expand
capabilities via capex projects
• Aseptically Packaged:
• Plant-Based Beverages
(soy, almond, oat, etc.)
• Broths
• Teas
• Plant-Based Concentrated
Bases (extraction)
• Sunflower and Roasted
Snacks
Strategic Priorities
• Double our plant-based beverage business to
roughly $500M in revenue within 5 years
• Create and bring to market margin accretive
innovation to private label & co-man customers
• Continue to invest to fuel leadership position in
plant-based beverages
SunOpta is a Positioned to Win in
Fruit-Based Foods & Beverage
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• IQF Fruit for Retail
• Fruit Solutions for
Foodservice
• Custom Formulated
Fruit Preparations
• Fruit-Based Snacks
(bars, bits, strips,
twists)
Recent Developments
• 2019 crop shortfalls expected to negatively
impact gross profit until the 2020 harvest
• Working to create more flexible pricing
architectures with customers
• Working to meet customer demand in the
face of a significant shortfall in production
from 2019
Strategic Priorities
• Deliver improved gross margin in 2020 via
automation, direct bagging and improved
plant efficiencies
• Bring to market margin accretive innovation
• Identify and leverage sales and margin
synergies by viewing our fruit business as
one synergistic operation
Product Categories Financial Trend
SunOpta is a Leader in Sourcing
Global Ingredients
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• Citrus
• Cocoa Products
• Coconut Products
• Craft Juices & Power Shots
• Dried Fruits & Nuts
• Flavors & Seasonings
• Frozen Fruit & Vegetables
• Grains, Rice, Pulses, Seeds
• Liquid & Alternative Sweeteners
• Oils & Fats
• Plant-Based Proteins
• Superfood Powders
Recent Developments
• Completed the expansion of cocoa
processing capacity
• Completed the acquisition and integration
of new organic oil business (Sanmark)
• Opened new Ethiopian organic avocado oil
facility
Strategic Priorities
• Continue to identify and develop new
sources of organic ingredients
• Deploy a more robust lifecycle management
approach to operating the business
• Leverage new capabilities in end to end
vertical integration
Product Categories Financial Trend
SunOpta is Focused on DeliveringSustained Profitable Growth
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Our Focus Areas for 2020
• Invest in Plant-Based Beverages
• 3 planned expansion projects to
increase capacity and capabilities
across our national footprint
• Improve Profitability in Fruit
• Recovery after market-wide 2019
crop shortfall
• Continue to execute on initiatives to
improve pricing and reduce costs
• Drive Higher Margins in Global
Ingredients
o Reduce exposure to low margin
categories and reinvest in high
margin categories
Appendix
Key Financial Metrics
New Segment ReportingEffective the fourth quarter of 2019, we changed our segment reporting to reflect changes to our organization
and leadership structure to align with the operational and strategic objectives established by our Chief
Executive Officer. As a result, we established two new segments – a Plant-Based Foods and Beverages
segment and a Fruit-Based Foods and Beverages segment – based on the synergistic nature of the underlying
principal product ingredients. In addition, we realigned the Global Ingredients segment to combine our
international organic ingredients operations and our premium juice program, based on shared raw material
sourcing.
Reconciliation of Non-GAAP MeasuresThis presentation includes certain measures not derived in accordance with generally accepted accounting
principles (“GAAP”). Such measures should not be considered substitutes for any measures derived in
accordance with GAAP and may also be inconsistent with similar measures presented by other companies.
Reconciliation of these non-GAAP financial measures to the most nearly comparable GAAP measures, if
applicable, is presented on the slides that follow. The Company believes that these non-GAAP financial
measures provide useful information to investors as the measures emphasize core on-going operations and
are helpful in comparing past and present operating results. The Company uses these measures to evaluate
past performance and prospects for future performance. The presentation of non-GAAP financial measures by
the Company should not be considered in isolation or as a substitute for the Company’s financial results
prepared in accordance with GAAP.
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Key Financial Metrics
Income Statement
($ millions, except per share amounts)
Fiscal
2019
Fiscal
2018
Revenues (1) $1,190.0 $1,260.9
Gross profit (2)
As % of Revenue
115.39.7%
116.29.8%
123.59.8%
135.610.8%
Operating income (loss) (3)
As % of Revenue
(2.8)(0.2%)
1.40.1%
3.90.3%
8.80.7%
Adjusted loss (4) (32.4) (24.5)
Adjusted EPS (4) $(0.37) $(0.28)
Adjusted EBITDA (4) 47.3 52.9
(1) Revenues for the year ended December 28, 2019 decreased by 5.6% to $1,190.0 million from $1,260.9 million for the year ended December 29, 2018. Excluding the impact on revenues of the sale of
the soy and corn business, the exit from flexible resealable pouch and nutrition bar product lines, and the acquisition of Sanmark (a net decrease in revenues of $91.0 million), a profit-neutral change to
a co-manufacturing agreement with a customer (a decrease in revenues of $9.8 million), and changes in foreign exchange rates (a decrease in revenues of $9.6 million) and commodity-related pricing
(a decrease in revenues of $6.5 million), revenues increased by 4.0% in 2019, compared with 2018.
(2) As a percentage of revenues, gross profit for the year ended December 28, 2019 was 9.7% compared to 9.8% for the year ended December 29, 2018, a decrease of 0.1%. The gross margin
percentage for 2019 would have been 9.8% excluding plant expansion and contract manufacturing transition costs of $0.9 million. For 2018, the gross profit percentage would have been 10.8%,
excluding equipment start-up and product introduction costs ($5.3 million), a non-cash foreign exchange loss on U.S. dollar-denominated raw material purchase contracts within our international organic
ingredients operations ($4.9 million), and inventory write-downs for certain frozen fruit inventory items ($3.1 million), partially offset by the recovery of $1.2 million of previously-incurred product
withdrawal costs from a third-party supplier.
(3) Operating loss for the year ended December 28, 2019, excluding the operating results of the soy and corn business and flexible resealable pouch and nutrition bar operations, as well as SG&A costs
incurred and expensed related to the Value Creation Plan, the segment operating loss would have been $1.4 million in 2019, compared with operating income of $8.8 million in 2018.
(4) Adjusted Earnings/Loss, Adjusted EPS and Adjusted EBITDA are non-GAAP measures. Refer to slides 20-21 for a reconciliation to the most comparable GAAP measure.
Note: Included in the balances presented above are the following amounts related to our specialty and organic soy and corn business that was sold on February 22, 2019:
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FY2019 FY2018
Revenue 10.3 104.4
Gross profit 0.2 8.3
Adjusted EBITDA (0.2) 4.6
Adjusted Adjusted
($ millions)
As at
Dec 28, 2019
Working Capital (1) $ 331.3
Total Assets 923.4
First Lien DebtSenior secured asset-based revolving credit facility maturing March 31, 2022 in the maximum aggregate
principal amount of $360.0 million, subject to borrowing base capacity.
241.7
Second Lien DebtSenior Secured Second Lien 9.50% Notes due October 9, 2022 in the amount of $223.5 million,
presented net of debt issuance costs of $5.1 million.
218.4
Other DebtSmaller credit facilities, lease and other financing arrangements.
30.6
Total Debt 490.7
Key Financial Metrics
Balance Sheet & Debt Capital
(1) Working capital is defined as current assets less current liabilities, excluding cash and cash equivalents, bank indebtedness, and current portion of long-term debt.
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New Segment Reporting
Quarterly Financial Information
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The following table presents re-casted quarterly historical financial results under our new financial reporting segments.
2018 2019
($ millions) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
ConsolidatedRevenues
Gross profit
Operating income (loss)
312.7
33.7
1.7
319.3
34.3
4.6
308.4
34.2
4.5
320.5
21.3
(6.9)
305.3
28.2
0.3
293.0
27.3
(2.5)
295.9
26.3
(3.5)
295.8
33.4
3.0
Plant-Based Foods & BeveragesRevenues
Gross profit
Operating income
81.2
10.2
3.1
76.4
12.1
4.7
71.3
8.8
2.0
85.1
9.4
0.9
81.3
10.5
2.5
81.9
12.1
4.5
91.8
16.3
8.7
106.4
19.9
13.7
Fruit-Based Foods & BeveragesRevenues
Gross profit
Operating loss
88.5
7.0
(2.3)
91.6
8.2
(1.0)
95.1
8.4
(1.5)
90.3
(1.8)
(11.2)
89.2
3.0
(5.6)
90.2
3.1
(6.0)
90.8
(2.0)
(10.6)
79.7
2.3
(4.7)
Global Ingredients (1)
Revenues
Gross profit
Operating income
143.0
16.5
5.7
151.3
14.1
4.1
142.0
17.0
8.2
145.1
13.7
5.3
134.8
14.7
6.5
120.9
12.1
3.7
113.4
12.0
3.4
109.7
11.2
2.4
Corporate ServicesOperating loss (4.8) (3.2) (4.2) (1.9) (3.1) (4.7) (5.0) (8.4)
(1) Included in the Global Ingredients balances presented above are amounts related to our specialty and organic soy and corn business that was sold on February 22, 2019.
Reconciliation of GAAP Results to Adjusted Loss and Adjusted EPS
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(a) Reflects the gain on sale of the soy and corn business, net of transaction costs and post-closing adjustments, which was recorded in other income.
(b) For fiscal 2019, reflects employee retention and relocation costs of $2.2 million, and professional fees of $1.4 million recorded in SG&A expenses; and employee termination costs of $8.6 million (net of the reversal
of $4.1 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees), CEO and CFO recruitment costs of $1.3 million, and facility closure costs
of $0.3 million, all recorded in other expense. For 2018, reflects the write-down of inventories of $0.1 million recorded in cost of goods sold; professional and consulting fees, and employee recruitment and
relocation costs of $0.6 million recorded in SG&A expenses; and asset impairment, facility closure and employee termination costs of $1.7 million recorded in other expense, all related to the Value Creation Plan.
(c) Reflects costs related to the expansion of our Allentown, Pennsylvania, plant-based beverage facility and start-up of our new organic avocado oil facility in Ethiopia, which were recorded in cost of goods sold.
(d) Reflects costs to transition premium juice production activities to new contract manufacturers, which were recorded in cost of goods sold and other expense.
(e) Reflects product withdrawal and recall costs that were not eligible for reimbursement under insurance policies or exceeded the limits of those policies, including costs related to the recall of certain sunflower kernel
products initiated in 2016, which were recorded in other expense.
The following table presents a reconciliation of adjusted earnings/loss from net earnings/loss, which we consider to be the most directly comparable U.S. GAAP financial measure. In addition, in recognition of the
sale of the soy and corn business (as described above under the heading “Sale of Soy and Corn Business”), and our exit from flexible resealable pouch and nutrition bar product lines and operations (as described
above under the heading “Value Creation Plan”), we have prepared this table in a columnar format to present the effect of the disposal of these operations on our consolidated results for the current and comparative
periods. We believe this presentation assists investors in assessing the results of the operations we have disposed of and the effect of those operations on our financial performance.
Excluding
disposed
operations
Disposed
operations Consolidated
Excluding
disposed
operations
Disposed
operations Consolidated
$ (32.3) $ 31.7 $ (0.6) $ (111.5) $ 2.3 $ (109.1)
(0.2) - (0.2) (0.1) - (0.1)
(8.0) - (8.0) (7.9) - (7.9)
(40.4) 31.7 (8.8) (119.4) 2.3 (117.1) - -
Adjusted for:
Gain on sale of soy and corn business (a) - (44.0) (44.0) - - -
Costs related to Value Creation Plan (b) 9.6 - 9.6 1.7 0.7 2.4
Plant expansion costs(c) 0.6 - 0.6 - - -
Contract manufacturer transition costs (d) 0.4 - 0.4 - - -
Product withdrawal and recall costs(e) 0.3 - 0.3 1.5 - 1.5
Other(f ) (2.5) - (2.5) 0.3 - 0.3
Net income tax effect(g) (0.1) 12.1 12.0 0.7 (0.2) 0.5
Goodwill impairment(h) - - - 81.2 - 81.2
Inventory write-downs(i) - - - 3.1 - 3.1
Equipment start-up costs(j) - - - 2.9 - 2.9
New product commercialization costs (k) - - - 2.7 - 2.7
Reserve for notes receivable(l) - - - 2.2 - 2.2
Fair value adjustment on contingent consideration(m) - - - (2.8) - (2.8)
Recovery of product withdrawal costs(n) - - - (1.2) - (1.2)
Reversal of stock-based compensation(o) - - - (0.2) - (0.2)
(32.1) (0.3) (32.4) (27.3) 2.8 (24.5)
(0.37)$ (0.00)$ (0.37)$ (0.31)$ 0.03$ (0.28)$
($ millions, except per share amounts; totals may not sum due to rounding)
Net (earnings) loss
Add: loss attributable to non-controlling interests
Less: dividends and accretion on Series A Preferred Stock
Earnings (loss) attributable to common shareholders
Adjusted earnings (loss)
Adjusted earnings (loss) per diluted share
Fiscal 2019 Fiscal 2018
Reconciliation of GAAP Results to Adjusted Loss and Adjusted EPS (cont’d)
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Continued from previous page.
(f) For 2019, other includes gains on the settlement of certain legal matters and a project cancellation, partially offset by losses on disposal of assets, insurance deductibles, and business development costs, which
were recorded in other income/expense. For 2018, other included the accretion of contingent consideration obligations, gain/loss on the sale of assets, severance costs unrelated to the Value Creation Plan, and
settlement of a legal matter, which were recorded in other expense/income.
(g) Reflects the tax effect of the preceding adjustments to earnings and reflects an overall estimated annual effective tax rate of approximately 27% for 2019 (2018 – 27%) on adjusted earnings/loss before tax.
(h) Reflects the impairment of goodwill that arose from the acquisition of Sunrise in 2015.
(i) Reflects the write-down of certain frozen fruit inventory items in the fourth quarter of 2018, due to a change in expected use of aged stocks, and reduced sales pricing and high production costs, which was
recorded in cost of goods sold.
(j) Reflects costs related to the start-up of new roasting equipment for grains, seeds and legumes at our Crookston, Minnesota, facility, as well as the start-up of a second processing line at our cocoa facility in the
Netherlands, which were recorded in cost of goods sold.
(k) Reflects costs for development, production trials and start-up costs, incremental freight charges, and employee training related to the commercialization of new consumer products, which were recorded in cost of
goods sold ($2.3 million) and SG&A expenses ($0.4 million).
(l) Reflects a bad debt reserve for notes receivable associated with a previously sold business, which was recorded in other expense.
(m) Reflects a fair value adjustment to reduce the contingent consideration obligation related to a prior business acquisition, based on the results for the business in fiscal 2018, which was recorded in other income.
(n) Reflects the recovery from a third-party supplier of $1.2 million of costs incurred relating to the withdrawal of certain consumer-packaged products due to quality-related issues, which was recorded in cost of
goods sold. Costs incurred related to this withdrawal were recognized in cost of goods sold in 2016.
(o) Reflects the reversal to SG&A expenses of previously recognized stock-based compensation related to performance share units granted to certain employees as the performance conditions were not achieved.
Reconciliation of GAAP Results to Operating Income/Loss and Adjusted EBITDA
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(a) For 2019, stock-based compensation of $11.6 million was recorded in SG&A expenses, and the reversal of $4.1 million of previously recognized stock-based compensation related to forfeited awards
previously granted to terminated employees was recognized in other income.
(b) For 2019, reflects employee retention and relocation costs of $2.2 million, and professional fees of $1.4 million recorded in SG&A expenses. For 2018, reflects the write-down of remaining flexible
resealable pouch and nutrition bar inventories of $0.1 million recorded in cost of goods sold; and professional and consulting fees, and employee recruitment and relocation costs of $0.6 million
recorded in SG&A expenses.
(c) Reflects costs related to the expansion of our Allentown, Pennsylvania, plant-based beverage facility and start-up of our new organic avocado oil facility in Ethiopia, which were recorded in cost of
goods sold.
(d) Reflects costs to transition premium juice production activities to new contract manufacturers, which were recorded in cost of goods sold.
(e) Reflects the write-down of certain frozen fruit inventory items in the fourth quarter of 2018, due to a change in expected use of aged stocks, and reduced sales pricing and high production costs,
which was recorded in cost of goods sold.
(f) Reflects costs related to the start-up of new roasting equipment for grains, seeds and legumes at our Crookston, Minnesota, facility, as well as the start-up of a second processing line at our cocoa
facility in the Netherlands, which were recorded in cost of goods sold.
(g) Reflects costs for development, production trials and start-up costs, incremental freight charges, and employee training related to the commercialization of new consumer products, which were
recorded in cost of goods sold ($2.3 million) and SG&A expenses ($0.4 million).
(h) Reflects the recovery from a third-party supplier of $1.2 million of costs incurred relating to the withdrawal of certain consumer-packaged products due to quality-related issues, which was recorded in
cost of goods sold. Costs incurred related to this withdrawal were recognized in cost of goods sold in 2016.
The following table presents a reconciliation of segment operating income/loss and adjusted EBITDA from net earnings/loss, which we consider to be the most directly comparable U.S. GAAP financial
measure. In addition, we have prepared this table in a columnar format to present the effect of the disposals of the soy and corn business, and flexible resealable pouch and nutrition bar operations on our
consolidated results for the periods presented. We believe this presentation assists investors in assessing the results of the operations we have disposed and the effect of those operations on our financial
performance.
Excluding
disposed
operations
Disposed
operations Consolidated
Excluding
disposed
operations
Disposed
operations Consolidated
$ (32.3) $ 31.7 $ (0.6) $ (111.5) $ 2.3 $ (109.1)
(8.7) 12.0 3.2 (6.3) 0.9 (5.4)
34.7 - 34.7 34.5 (0.1) 34.4
4.0 (44.0) (40.0) 2.1 0.8 2.8
- - - 81.2 - 81.2
(2.3) (0.4) (2.8) 0.0 3.9 3.9
33.8 0.1 34.0 31.9 0.8 32.8
11.6 - 11.6 7.9 - 7.9
3.6 - 3.6 0.7 - 0.7
0.6 - 0.6 - - -
0.3 - 0.3 - - -
- - - 3.1 - 3.1
- - - 2.9 - 2.9
- - - 2.7 - 2.7
- - - (1.2) - (1.2)
$ 47.5 $ (0.3) $ 47.3 $ 48.2 $ 4.7 $ 52.9
Other expense (income), net
Total segment operating income (loss)
Provision for (recovery of) income taxes
Adjusted EBITDA
Depreciation and amortization
Costs related to Value Creation Plan(b)
Stock-based compensation(a)
Interest expense, net
Plant expansion costs(c)
Contract manufacturer transition costs (d)
Goodwill Impairment
Inventory write-downs(e)
Equipment start-up costs(f )
New product commercialization costs (g)
Recovery of product withdrawal costs(h)
Fiscal 2018
Net (earnings) loss
Fiscal 2019
2233 Argentia Road
Suite 401, West Tower
Mississauga, Ontario L5N 2X7
www.sunopta.com