Lassonde Industries Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Zond Industries 2023 fourth quarter earnings conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session open to research analysts only. To join the question queue, you may press star then one on your cell phone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. 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 today, Friday, March 22, 2024. I would now like to turn the call over to Vincent Pano, President and Chief Operating Officer. Please go ahead.

Good morning, ladies and gentlemen. Good morning, 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, 2023. Our press release reporting these results was published yesterday after market close. It can be found on our website at lausanne.com along with our MD&A and financial statements. These documents are available on CDAR Plus 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. Lassonde achieved solid performance in 2023, concluding the year with record sales and strong operating profitability improvement. Sales for the year increased 7.6%, mainly reflecting selling price adjustments in Canada and the U.S., as well as a better sales mix in our U.S. operations. These factors improve gross margin by more than 100 basis points. Meanwhile, higher gross margins and lower freight costs, due in part to a new TMS system, help produce a 32% increase in adjusted EBITDA versus the prior year, in spite of higher performance-related compensation expenses. Our performance reflects sustained market share growth momentum in Canada, including private label category growth, this in the context of declining consumer demand for fruit juices and drinks. According to industry data, the North America volume decrease was in the mid-single digit range in the first half of 2023 and slightly above that level in the latter half. While we experienced lower volume in 2023 compared to 2022, a significant portion of the decline was anticipated as part of our U.S. portfolio simplification process completed during the year. Looking more specifically at the fourth quarter, volume increased slightly as our U.S. operations were lapping a difficult period in 2022 marked by certain issues at the New Jersey facility, notably impacting cranberry sauce production. The increase is also noteworthy considering portfolio simplification. As for profitability, all divisions once again delivered higher gross profit than in the same period last year. I will now dive deeper into our operations by geographic market. Turning to slide five for an overview of our U.S. activities, we reaped further benefits from our turnaround plan. Our performance continues to improve driven by a portfolio simplification process which enabled us to free up valuable capacity by diminishing costly change over time. The important investments made at our New Jersey facility also enabled us to reduce conversion costs by improving yields and run speeds. Efficiency gains and savings continue to be unlocked from deploying new decision-making tools and technology, such as transportation management and demand planning systems, and as well as applying new processes. Going forward, we will seek to leverage the productivity, efficiency, and profitability improvements achieved thus far. As we increasingly focus on building back our U.S. volume, and in doing so, better absorbing our cost, these gains will enable us to generate growth at a better margin. We are still on schedule for the addition of an aseptic single serve line at our North Carolina facility, and our team is currently installing the equipment. As planned, We are on track to commission the new line in the second half of the year. Following a ramp-up phase, we expect full production to begin in early 2025. This new line will play a key role in providing growth opportunities in new markets across both our branded and private label businesses. Lastly, as part of our network optimization efforts in the U.S., a new high-speed juice box line has been commissioned in January 2024 in Rougemont, Quebec. to bring in-house U.S. volume previously produced by a co-packer. It will also enable us to better serve our customers, fuel future growth, and increase profitability. Turning to our Canadian activities on slide six, we are sustaining our growth momentum thanks to our diversified product portfolio, extensive market reach, and solid customer relationships. As anticipated, we continue to see a slight shift in consumer preferences in favor of private label products, and this was reflected on our volume for the quarter. Still, within the branded category, our brands continue to outperform the market. I'm also pleased to report that Oasis was voted Canada's most trusted juice brand in Canada, according to a brand spark study for the second consecutive year, which speaks highly about the strength of our brand. As we look ahead, our goal is to further strengthen our leadership position in the Canadian beverage sector through a relentless focus on innovation, channel expansion, brand marketing, and productivity initiatives. In this regard, in the latter half of the year, a second new aseptic high-speed juice box line will be commissioned in Rougemont and will allow us to progressively decommission older and smaller lines that have been in service for over 40 years, thereby improving efficiency. I now turn it over to Eric for a review of our results. Eric.

Thank you, Vince. Good morning, everyone. Before I begin, please note that most amounts have been rounded to ease the presentation. Also note that although I refer to non-IFRS measures or ratio in my remarks, mostly to ease comparability between periods, reconciliation are provided in appendix to our presentation. As you may know, we acquired a controlling interest in Diamond Estate Wines and Spirits effective November 14, 2023. Diamond's financial results have been consolidated into our financial statement as of that date. In the fourth quarter, Diamond accounted for sales of $3.8 million, gross profit of $1.3 million, and contributed to a negative EBITDA of $0.4 million. However, note that we also recognize a non-recurring gain on business acquisition, or negative goodwill, of $1.9 million for this transaction. Let's move on to slide seven with our fourth quarter sales, which amounted to $605 million, up 8.8% from $556 million last year. Excluding a favorable FX impact and the diamond contribution, sales increased 7.9%, mainly reflecting selling price adjustment coming mostly from Canada, but also from the U.S. Volume was slightly up, but I remind you that last year's fourth quarter was affected by certain production and supply chain issues. Excluding these factors, year-over-year volume was down in the fourth quarter, but we believe Lausanne still outperformed the industry. Moving on to slide eight. Gross profit reached $153 million, representing 25.2% of sales. up significantly from $124 million a year ago, or 22.2% of sales. Net of effects variation and diamond. Gross profit rose $31 million, reflecting higher sales and a lesser increase of 2.9% in the cost of sales in constant currency. The higher gross profit is mainly due to the run rate effect of prior selling price adjustments, lower conversion costs, and last year's effect on gross profit of issues that affected our New Jersey facility. These two factors were partially offset by higher input costs for apple and orange concentrates, as well as $2 million in expenses related to the various business optimization initiatives. SG&E expenses were $120 million, up from $107 million last year. Excluding nearly $2 million in expenses from the consolidation of Diamond, the increase reflects a higher performance-related compensation expense this year versus last year, as well as a higher selling, marketing, administrative, and warehousing expenses. These factors were partially upset by lower transportation costs due to lower base rates and surcharges, as well as the benefit from the new processes and system in the U.S. Excluding items that impact comparability between the two periods, adjusted EBITDA increased 37% to $53 million, or 8.7% of sales from 38 million, or 6.9% of sales last year. This variation in adjusted EBITDA doesn't consider the impact of the variation in performance-related compensation expenses. Although affecting the comparability between the periods, These expenses cannot be qualified as outside the normal course of business. Adjusted profit attributable to the corporation shareholders came in at $21 million, or $3.14 per share, compared to $14 million, or $2.09 per share last year. Year-end results are shown on slide 9. Sales reached $2.3 billion in 2023, up 7.6% from 2022. Excluding foreign exchange variation in diamond, the increase was 5.4%. Adjusted EBITDA amounted to $207 million, up 32% from $150 million last year. And adjusted profit attributable to shareholders was $90 million, or $13.18 per share, up from $64 million or $9.37 a share last year. Once again, these amounts do not reflect the effect of the variation between the two years in performance-related compensation expenses. Turning over to our balance sheet on slide 10. As anticipated, days invested in operating working capital have settled at the higher end of its pre-COVID range. I would like to take a moment to note that we made a few adjustments in the calculation of our working capital ratios. These adjustments were made to better represent what we are trying to measure by removing certain amounts that were not directly related to the collection of receivable or the payment of supplier, or by reclassifying certain amounts that should be viewed on a net basis. The details of the revised approach are available in section 18.6 of our annual MD&A. Also, going forward, we will provide you with the details required to reconcile our calculation on a quarterly basis. For this reason, I advise you not to compare this chart with the one published at the end of the previous quarter. This said, days of operating working capital, the blue line, amounted to 44 days at the end of 2023, down sequentially from 49 at the end of the third quarter, and down from 50 days at the end of 2022. The sequential improvement stems from further reduction in days of inventory outstanding, the yellow bar, which cuts back to its historical range, and from higher DPOs. Our objective remains for days of operating working capital to settle within our pre-COVID range by the end of 2024. However, we may continue to use our balance sheet to secure price and or availability of certain commodities. Turning to cash flow on slide 11. Operating activities generated $78 million in the quarter compared to $52 million in the fourth quarter last year. The improvement reflects better profitability and a $35 million cash generation from working capital this year, up from $26 million last year. Also reflecting improved profitability and working capital release. annual operating capital reached $225 million in 2023, up significantly from $24 million in 2022. Capital expenditure amounted to $43 million in Q4 2023, compared to $20 million last year. For the year, CapEx reached $106 million, up from $47 million in 2022. Looking ahead at 2024, we expect CapEx to reach up to 5% of sales large in support of our multi-year strategy. A solid cash flow generation also allowed Lausanne to reduce its debt throughout the year, as shown on slide 12. We concluded 2023 with net debt of $191 million, up marginally from $188 million three months ago, since we are now reflecting the debt of Diamond, amounting to $25 million, but substantially down from $247 million at the beginning of the year. Driven by higher profitability, our net debt to adjusted EBITDA ratio improved to 0.92 to 1 at the end of the fourth quarter versus 0.98 to 1 three months ago. Excluding the effect of consolidating diamond, the ratio would have been 0.8 to 1. Adding to the year-over-year effect of debt reduction, the ratio is down sharply from 1.57 to 1 at the beginning of the year. Before turning the call back to Vince, slide 13 brings your attention to our new dividend policy announced in February. The previous policy consisted of paying dividends representing 25% of the profit attributable to the shareholder from the prior year. The amended policy states that dividend declaration, amount, and payment will be at the discretion of the Board, which will take into consideration our financial results, our capital requirement, available cash flow, the outlook for activities, and as well as any other factor deemed relevant. In keeping with this new policy, a quarterly dividend of $1 per share was paid on March 15. Based on the recent stock price, this represents a yield of approximately 2.7%. The amount is currently expected to remain at this level, subject to the Board's ongoing review of the aforementioned factors. I turn the call back to Vince for the outlook.