Andrew Peller Limited

Good morning, my name is Eric and I will be a conference operator today. At this time, I would like to welcome everyone to the Andrew Peller Limited fourth quarter and year end results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. I will now turn the call over to David Mills. Please go ahead, Mr. Mills.

Thank you and good morning, everyone. Before we begin, this is a reminder that during this conference call, management may make statements containing forward-looking information. This forward-looking information is based on a number of assumptions and is subject to a number of unknown and unknown risks and uncertainties that could cause actual results to differ materially from those disclosed or implied. Please refer to our earnings release, MD&A, and other securities filings for additional information about these assumptions, risks, and uncertainties. And I'll turn things over to Mr. John Peller, Chief Executive Officer.

Thank you, David, and good morning, everyone. Great to be with you. And obviously, we've released our results last evening, and I'm looking forward to discussing with you all the things that are going on in our company. I think I'd like to start by just, you know, reviewing with you what I've always presented to you kind of as the three kind of phases of COVID that we've gone through in the first year fiscal 21. You know, we were actually incredibly surprised that despite all the business closures, we actually accelerated revenue and earnings in that first year. And in the second year, As the second wave came through and with the impact of significant estate winery and retail or restaurant closures, we had a significant 5%, 6% revenue drop and the beginning of cost increases that had our revenue come down, as I said, and our EBITDA fell to 39 million in that year, but largely as a result of revenue reduction. In this last year that we've just completed, our revenue has returned back up to its normal level. We had a good revenue performance of 2.5% increase, and our EBITDA has stayed flat. And while that may be modest in terms of its appearance, from a managerial perspective, it was a very significant achievement, and that's what I'm going to explain to you now. Without a doubt, the most difficult part of those three years has been this last year where we had total disruption in our supply chain. You know, the whole issue of inflation and supply chain disruption was very different depending what industry that you were in. But for us, you know, we're a global supply chain of import wine, glass, and packaging components. We definitely took the teeth of that disruption. And I'd like to explain from just a wine liquid perspective, the cost that we were purchasing the wine around the world was up in double digits. But it was the least impactful. Our freight costs in one year went up over 200% from $10 million last year. Our glass and packaging components went up $20 million, which is a 50% increase. And that's compared to no year in the last 20 years do we ever recall any of those costs going up 5%. So you can see that they were extraordinary increases. You know, due to the incredible hard work and effort of our management team, we were able to offset over 50% of that impact with pricing, sales of more premium-priced products, and cost-saving projects so that we were successful. And I know we were successful because I have a very close network with the people we compete with in our industry here in Canada and in California, and all of those other companies that I have spoken with have said they have fared much worse than us. And what all this means is, as we look ahead, is already all those costs are coming down. And they are coming down at a very good pace, although there is some stickiness in a few areas. What I have to do, you know, today in terms of managing your expectations is help you understand that all those high costs that we have had impacted us last year are now in our inventory. And they will come out of our inventory at their high cost over the next six to nine months. And already we are purchasing at lower cost levels so that we have a high, high level of confidence that those margins are coming down and that we would expect to get to our, what we would call more normal margins within two years. As I said, I'm proud of the achievement of our team. In addition to those efforts, and they are our most significant managerial focus, is cost reduction. We've had other profit improvement initiatives. Our overhead in SG&A has come down over $5 million, which you would have seen in the one-time write-off of $2.8 million in the fourth quarter. And we have cost-saving projects going in every aspect of our business from IT, hospitality, marketing, and sales. So the team remains focused and committed to further cost reductions. You know, looking at our sales numbers, last year's effort of plus 2.5% was a solid performance. We would have been up as much as 4% last year, but we were supply constrained in the first two quarters. And already in our first quarter of this year with only two weeks left, we anticipate our revenue will be up 3%, which if you compare it to the base of last year would be plus five because this year we are now paying excise tax, whereas in the year prior we weren't. So it's a very good performance. My comments on sales in the market today is that certainly we're seeing the impact of inflation on consumers. You know, as they struggle to meet their grocery bills, certainly all the sales of hard goods in the consumer markets are down considerably. Our sales remain solid. And having said that, there's a clear preference for value price markets or products, value price products in the retail store system so that's the lcbo's our wine shop stores independent retail stores across the country and and at restaurants as well so value price products are performing more strongly premium are a little soft although our premium products are selling well in our state wineries in the destination tourism areas you know as part of our company's strength in those value products $9 to $12 price, 750 bottles. You know, our Peller Family Series brand is a market leader. But this year we've also launched imported products in that segment from Chile and Argentina. We have a brand called Vivo that's been in the market two years. It's performing extremely well. We've launched an Australian product called Natural Selection and a California product called Neon Coast Oil. also doing extremely well. We have a new product that we launched called Honest Lot, which is zero grams sugar, and we're very, very pleased with its launch, and it's growing very nicely. Additionally, we launched the line extension Ice Storm Vodka to our Gretzky Spirit line. It's had a very, very successful first year in the market, and our No Boats Cider, which is a premium line, position CIDR is performing very well. On the whole, we're very happy with our marketing and sales performance, and we're looking forward to the rest of the year. Another key initiative, though, I want to draw to your attention, which we announced, was our asset-backed loan facility. This was part of an initiative that when I went to talk to my friends and competitors in California, it was made clear to me that everybody in the California wine industry has an asset-backed loan facility as opposed to a term loan that has a EBITDA covenant because it recognizes all the asset values that are a critical component to the wine business model. So, you know, when you look at our current share price now, we're trading below our net book value. And if you now adjust for the valuation the banks have put on our assets, that share price is less than double the value of those fixed assets are more than double the price of the current share price. And that does not include any value for our brands, which are by far our most valuable assets. anxious to highlight our asset-backed loan facility. First of all, we get an immediate cash savings of $5 to $6 million annually because of our lower interest rates. And secondly, demonstrates the strength and sustainability of our balance sheet, which also is critical to our being able to grow through mergers and acquisitions going forward. As part of our cash management, we've also managed our CapEx down and to conserve cash in the short term as we watch ourselves emerge from this recessionary economy. The last item I want to highlight is just our Port Moody property in British Columbia. As many of you know, we're in the process of monetizing the value of a non-core asset. Indeed, we're in the final stages of crystallizing our entitlements. We have a date of either June the 27th or July the 11th. We've filed for our development permit. All the filings, and they are considerable for a development permit, all those filings are now complete. And the city's indicated that they're pleased with what we put forward. This will allow us to receive our fourth bylaw approval on either of those two dates, and it will crystallize the entitlements and the significant increase in value of that property from its pre-zoned value. As I've said in past calls, we realize that we are not a developer, and our goal is to maximize the value, monetize the value of the property, and pay down debt. Vancouver market for condos and rental apartments is the strongest in the country. It is grossly underserved in terms of a demand perspective. You may have read in the Globe a week or two ago that the Premier is so concerned about the lack of supply for condos and rental apartments that they shamed several communities and at the top of the list was Port Moody for under delivering to their commitments. I think that will bode very positively for us going forward and the potential for increased entitlements. The interest rates are very high, as you know, for people buying houses and condos. So in the short term, the market is a little soft, but the long term, i.e. more than one year demand looks very, very strong. There's also inflation in construction costs in that market they've more than doubled and while they anticipated them to have come down by now in fact they've ticked up a little which is to say that there is some short-term you know noise in this market but the medium to long-term market for our property and its amenities is very very strong so with that operator i'm uh prepared to pass over to you paul for some comments on the financial statements