Lassonde Industries Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LaSonde Industries 2022 fourth quarter and year-end earnings conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at the time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by zero for the operator assistance at any time. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Friday, March 31, 2023. I will now turn the conference over to Vince Timpano, President and Chief Operating Officer. Please go ahead.

Good afternoon, ladies and gentlemen. I am here with Eric Jem, Chief Financial Officer of Lausanne Industries. Thank you for joining us for this discussion of the financial and operating results for our fourth quarter and fiscal year ended December 31st, 2022. Our press release reporting these results was published earlier today. It can also be found on our website along with our MD&A and financial statements. These documents will be available on CDAR as well. We also posted a presentation supporting this conference call on our website. Let me remind you that all figures expressed on today's call are in Canadian dollars, unless otherwise stated. Now let's turn to slide four. Despite a challenging year impacting our financials, Lausanne nonetheless achieved important progress on many fronts in 2022. Annual sales exceeded the $2 billion mark for the first time ever, showing our ability to adjust selling prices in response to rising costs, albeit with a normal lag in the midst of macro, economic, and industry-wide challenges. Eric will provide additional details on our performance in a few minutes. But first, let me discuss our market dynamics. The entire Lausanne team worked hard and with discipline to strengthen our position in the North America food and beverage sector. While we focused on all parts of our business, particular emphasis was put on improving our U.S. operations through Project Eagle, which I'll provide an update on shortly. At the beginning of 2022, we shared our multi-year strategy aimed at accelerating revenue growth, improving overall profitability, and driving long-term value by focusing on three key pillars listed on slide five. Those are to build a growth-oriented portfolio, drive sustainable performance, and improve our capacity to act. Moving to slide six, let me mention certain key initiatives put forward to achieve these goals. To build a growth-oriented portfolio, we invested in a project to optimize the current capacity of our specialty food division and to explore new capacity and capabilities for its expansion. Although we have not discussed this division much in the past, it is performing well and it represents an important growth platform for us in the future. We will continue to explore promising opportunities in this market over the coming months. Driving sustainable performance is closely related to operational excellence. In this regard, we are increasing investments in our manufacturing network with productivity and growth initiatives, including a new single serve line in the United States and higher speed juice box lines in Canada. We are also implementing new processes and systems. Improving these essential elements will optimize resource utilization while also delivering on our ESG commitments. Finally, We also began implementing a new operating model that enhances our capacity to act as an organization. In addition to fortifying our capabilities with new equipment and new tools and technologies, we have established three new centers of excellence with a focus on innovation, manufacturing, and supply chain. This has resulted in strengthening our leadership and will enable us to capture long-term synergy, accelerate our innovation agenda, and leveraged best practices across our entire North America network. As a result, Lassonde reported incremental operating expenses associated with this strategic plan of $2.8 million and $11 million, respectively, in the fourth quarter and fiscal year. Turning to slide seven to focus on Project Eagle, which is the essential component of our strategy aimed at revitalizing our U.S. operations. After completing the diagnostic phase earlier in 2022, we have been taking important steps to simplify our product portfolio. In doing so, we have and will continue to reduce skew complexity by harmonizing package formats, consolidating formulas, and rationalizing low margin products. These initiatives will allow us on to reduce execution complexity. which would significantly limit downtime related to production changeovers and ultimately increase throughput. In addition, we continue to invest in our plans to optimize productivity. A minute ago, I mentioned a single-serve line, which will be commissioned in North Carolina, and we are also installing a new filler in New Jersey. While we anticipate some short-term disruptions associated with these upgrades, We firmly believe they will be largely outweighed by mid to long term benefits. More importantly, we believe the initiatives deployed under Project EGLE will over time benefit the entire organization. As an example, new transportation management and demand planning systems are initially deployed at our US operation. But the rollout is also planned throughout our North American network commencing in 2024. Overall, We are pleased with the progress that we achieved on the operational improvement initiatives, and we look forward to leveraging these benefits in the future. With that, I turn the call over to Eric for a review of our quarter four results.

Thank you, Vince. Good afternoon, everyone. Let me begin on slide eight with our fourth quarter top line review. Sales reached $556 million, up 14%, from $487 million last year. Excluding a favorable foreign exchange impact, sales increased by 9.5%, mostly due to selling price increases in both the US and Canada. By brand type and net of foreign exchange, private label sales increased 11.1%, while national brand sales increased by 7.3%. Overall, Sales contracted slightly as the impact from the U.S. production disruptions and supply chain related issues was partially upset by increased volume in Canada. Conversely, we benefited from a favorable effect from shifts in sales mix, primarily for private label products in the U.S., demonstrating early benefits from the portfolio transformation resulting from Project Eagle. On slide nine, gross profit amounted to $124 million. or 22.2% of sales, down from $134 million, or 27.5 million of sales a year ago. Net of the foreign exchange impact, gross profit was down $16 million due to higher input costs, mainly apple and orange concentrates and PET resin. An increase in our conversion costs and a $3.7 million loss in profitability from the cranberry sauce line interruption in our New Jersey plant. During the quarter, we also incurred incremental expenses of $2.8 million directly related to our strategic transformation. Excluding these expenses and the profit loss due to the production interruption, both of which impact comparability between periods, adjusted EBITDA totaled $38 million compared to $46 million last year. Adjusted profits attributable to corporation shareholders came at $14 million or $2.09 per share compared to $22 million or $3.22 per share last year. Briefly looking at annual results on slide 10, sales exceeded the $2 billion mark for the first time ever, reaching $2.2 billion versus $1.9 billion last year. Excluding foreign exchange variation, sales growth was 11.3%, essentially driven by selling price adjustment and a more favorable sales mix, mainly from our US private label division. Gross profit total $523 million or 24.3% of sales versus $522 million or 27.6% of sales last year. Excluding items impacting comparability, adjusted EBITDA stood at $157 million in 2022 versus $180 million last year. Adjusted profit attributable to corporation shareholder totals $64 million or $9.37 per share compared to $80 million or $11.48 per share last year. On slide 11, we highlight the days operating working capital ratio, which represents the amount of sales tied up as operating working capital. As you see, the number of days represented by the blue line move up for most of 2021 and 2022, peaking in the third quarter of 2022 because of higher inventory. However, with the cash flow from operating activity generated in the fourth quarter, the ratio improved at year end. Our objective is to progressively converge towards historical levels over the course of 2023 by reducing our DIO and by closing the gap between DIO and DPO. Turning to cash flow on slide 12. Cash flow from operating activities total $52 million in the fourth quarter of 2022 versus $19 million last year. The year-over-year variation is mainly attributable to positive changes in non-cash working capital requirements, mainly cash generated by a higher level of accounts payable and accrued liabilities. For the year, cash flow from operating activities amounted to $24 million, compared to $94 million a year ago. The decrease mainly reflects negative working capital requirements, mostly related to increased inventory, and the decreased operating results. Slide 13 shows capital expenditure of $48 million for 2022, a figure below our target set at the beginning of the year. As a disbursement on certain projects, including those related to multi-year strategy, were deferred. For 2023, we expect CapEx to reach up to 4.5% of sales as we deploy further funds in support of this strategy. At the end of 2022, we had over $23 million committed for 2023 CapEx and an additional $4 million already earmarked for 2024. As of 2025, we expect to spend between 2% and 3% of sales on CapEx, including maintenance and growth investments. Looking at our financial position on slide 14, net debt amounted to $247 million as of December 31, 2022, compared to $175 million at the end of 2021. Excluding the foreign exchange impact, the year-over-year increase reached approximately $61 million, reflecting a draw on our Canadian revolving credit facility to finance higher inventory and a draw on our US revolving credit facility to repay pay term loan. With a higher debt and lower profitability, our net debt to adjusted EBITDA ratio stood at 1.57 to one at the end of 2022, compared to slightly below 1 to 1 a year earlier, still well within our objective of maintaining the ratio below 3.25 to 1. This should provide us with sufficient flexibility to finance our capital expenditures and profitable expansion opportunities that may arise. I turn the call back to Vince for the outlook.