Andrew Peller Limited

Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Andrew Peller Limited Second Quarter Fiscal 2024 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 1 on your telephone keypad. If you would like to withdraw your question, please press star two. Thank you. I will now turn the call over to David Mills. Please go ahead, Mr. Mills.

Thanks, Jenny, 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 known and unknown risks and uncertainties that could cause actual results to differ materially from those disclosed or implied. Please refer to the company's earnings release, MD&A, and other securities filings for additional information about the assumptions, risks, and uncertainties. I'll now turn things over to Mr. John Peller, Chief Executive Officer.

Thank you, David, and good morning, everyone. It's lovely to be with you. It's a gorgeous, sunny day here in the Niagara Peninsula, very reminiscent of the fall that we've enjoyed through September and October. You know, we had a difficult... August this year with kind of rain and we didn't get as much sun as we wanted. But, you know, our crop was rescued by the beautiful fall that we've all enjoyed. And in fact, we're still out harvesting as we speak. We have a couple thousand tons to bring in in the next couple of days and that will complete our harvest. But we're super pleased with both the harvest in Niagara and BC, although we're experiencing a bit of a shorter crop in BC because of the freeze we had last Christmas. We did end up getting as good a crop as we could have hoped for, and things look better for next year. Obviously, we feel we've had a very good start to the year. Both the first and second quarter results are strong and are inspiring to us because we know we've got even better things to come. But before I talk about results, I'd like to make a few comments on the leadership transition plan that was part of our press release yesterday. We realized that it's some considerable changes, but we're really excited that the opportunity to add some new perspectives and experiences and skill sets to the company in a very thoughtfully planned and orderly transition. that we've been focusing on for some time now. So while it's news to you, we've been working on our succession in the CEO role and in my role for the last year, and we're way down the track. And though I will retire within the year, I will still stay engaged in the board, on the board, and continue to bring, you know, leadership to to both the company, my family, and the industry, because we've got lots of work to do. And I'm as excited as I've ever been at the prospects of our company and our industry. You know, I think one of the most important points that I would stress is that within the last year and a half, we've completely strengthened our executive management team. you know, business is a, is very much a human team sport and you're, you're only as good as the team around you. And, you know, both with Paul, uh, Dubkowski, our CFO joining us this year and, and executive management and leadership in sales and marketing with Patrick O'Brien and Jose Salgado, you know, uh, we've promoted Craig McDonald to the head of operations and, uh, He's as capable a winemaker, operator, and viticulturalist as there is in the world. And with Sarah Pasuto helping us with our human resources, people and culture, we have, in my opinion, the best executive management team we've ever had. And I think it shows in the way they're working and managing and supporting us through what has been a very, very, very difficult time. transition with with covet and and the kind of so-called recessionary environment that that we're in um so with that i mean i realized as well we have are looking to refresh our board of directors as well you know we felt that it would be best if we were you know working through a ceo succession that it made sense to optimize the refreshment of the board throughout the transitionary process. You know, several of the directors had been long serving and the others were looking forward to transitioning in the near term in any event. So we just felt it would be good to complete the refreshment of the board, you know, and at the same time we complete the succession process and Gus and I will stay on the board and continue to provide that continuity there. And we're well into the recruitment of our new directors. In fact, it's relatively complete. So we'll be announcing the replacements of some very strong, diverse, capable candidates in the next few weeks. But on the whole, we're excited with everything. And it's been well planned. And it's transitionary so that we can help onboard people while we complete this process. And it'll work very well for us going forward. So commenting on just our results, as I said, the second quarter was a very strong quarter. You know, I'd like to point out, as I'm sure some of you are aware, you know, beverage alcohol in North America right now is soft across all categories. So whether it's spirits, I notice all the top five distilleries, spirits companies rather, the top global spirits companies have all experienced negative volumes and soft to negative volumes. revenues for the year. I think the beer's down the most in the 5% to 7% volume range. I think 15 of the top 25 North American beer brands are experiencing moderate decline right now. Similarly, in the wine category, volumes are down in the 3% to 5% range across the board. And while people have been able to offset with some price increases, You know, the performance of us at FLAT, the slight growth, is really in the top quartile of the performance of beverage alcohol companies. And we're very proud of that and think that this speaks to the strength of our brands and our sales and marketing capabilities. I'm sure the highlight of our performance is a 30% increase in our EBITDA for the second quarter. This is the result of all the efforts that we've been putting into what we told you was our four-point focus plan around margin enhancement, profitability, cash flow, and strengthening our balance sheet so that these savings have come back. You'll recall on our last call, I highlighted that we through a year and a half of 22 and 23, we lost almost $42, $43 million of margin as a result of the hyperinflation that was in the freight logistics and glass cost of goods area. We were able to offset $20 million of that decline in the first years. This year, we're picking up another almost $10 million of cost savings, and we have clear visibility on improving another 10 million in next year's plan so that all our efforts and focuses around cost recovery, margin enhancement, profitability improvement are coming to bear. And they'll guarantee that we have a very positive year this year and then have an equally incremental increase in our earnings next year. There was some softness in terms of revenue, you know, somewhat surprising to us at the estate winery level this year. It looks like every Canadian that I know has taken a vacation in either Italy or Greece. But after two successive years of plus 25% revenue growth in our estate winery group, this year we were experiencing about a 15% decline overall. which, um, we've adjusted to, and it's, we're still performing at levels above where we were pre COVID. But, um, I, I think that this area will bounce back in, in the next year, but our team has, uh, has done a great job. We, we were also negatively impacted, you know, with the, with the fires in the Okanagan in the month of August, but everything has recovered nicely there. And, um, people are focused and looking forward to a good season next year. I mean, similarly, we've had a good pickup in our export business, which was decimated, you know, through the COVID period. And, um, we've almost recovered 80% of our export sales and that's without the benefit of having the return of, of, of Chinese travelers to Canada who were by far our largest consumers of, of ice wine. And, uh, We're confident that as these travelers are going to be allowed to return to Canada in the next year or two, that we'll end up significantly increasing our export presence. I think next year is going to be another year of kind of transitionary recovery and all plans are in place and focused to ensure that the momentum behind what we're doing will continue. But with that, I'll turn things over to Paul before some closing comments. Paul, over to you.