Premium Brands Holdings Corporation

Hello, and welcome to Premium Brands Holdings Corporation's fourth quarter 2021 earnings conference call. Our speakers will be George Paliologo, CEO and President of Premium Brands, and Will Kaludich, CFO of Premium Brands. 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, press the pound key. Thank you. I would now like to turn the call over to Mr. George Pellio-Logo. Please go ahead, sir.

George Pellio- Thank you, Lisa. Welcome, everyone, to our fourth quarter conference call. With me here today is our CFO, Will Kaludich. Our presentation today will follow the deck that was posted on our website this morning. You can also access it by clicking on the link off our press release. The deck was just posted this morning, about two minutes ago, I believe. We will give you 50, 60 seconds to retrieve it starting now. We're now on slide five, which outlines certain key highlights for the quarter. Despite the various headwinds facing our industry and the world in general, we're pleased to report another quarter and year of record results. I'm pleased to mention here that this is our 18th year of record financial results. Our CFO, Will Kaludich, will give you more color on our quarter and on our annual results later on in the presentation. Unprecedented commodity cost inflation, persistent supply chain disruptions, and acute labor shortages continue to challenge our industry. We're managing these issues proactively and deliberately and our record results for the quarter and the year are a testament to the resilience, agility, and ingenuity of our team members and the diversification we have built into our unique business model. For the past 20 years, we have grown from a regional pork processor based in Western Canada into a much larger diversified food company with operations across North America and Europe. Four of our six platforms, namely seafood, protein, distribution, and sandwiches have grown to or are very near to the billion dollar revenue mark with multiple facilities selling to a variety of channels including retail, club, QSR, food service, airlines, cruise lines, and exports. Our product, channel, and business diversification play the key role in helping us navigate the many challenges we face during the pandemic and are currently helping us to manage the current inflationary environment. More specifically, and in this regard, during the fourth quarter, We have taken approximately $125 million worth of price action, with more pricing to be taken in 2022. Retail demand remained strong during the quarter, while food service demand, while strong during October and November, was negatively impacted by the onset of the Omicron variant in December. Our seafood group delivered record results for the quarter and the year, driven by strong demand in all channels, combined with excellent commercial execution. Clearwater Seafood continues to perform ahead of plan, driven by very strong price realization, combined with disciplined inventory and cost management. We remain very encouraged by what we see in terms of seafood-related consumer trends, and we're very well positioned to capitalize on these trends in both retail and food service in North America and globally. We're pleased to announce the closing of four transactions after the end of the quarter. Although these transactions are small relative to the size of premium brands, they're strategic to our various platforms and will contribute to their growth for many years to come. We're also investing heavily in capacity, expansion, technology, and in automation. For example, in January 22, I was pleased to attend the commissioning of our first generation three fully automated sandwich assembly line at our Phoenix facility. A similar line will be installed at our Reno, Nevada facility shortly. We're now on slides six to nine. We have included here some pictures of products made by newly acquired Leonetti's. We're very excited to add these iconic handmade and delicious products to our snacking and entertainment portfolio. I have also included pictures of several value-added seafood products here on slide seven. including lobster bisque and clam chowder soups that will be launched in several Asian markets later this year, and several lunch and appetizer-sized value-added seafood products we're currently launching in the retail and food service channels. With our unique access to scarce, best-in-class seafood inputs, combined with our passion for innovation, we're very confident that we will continue to offer consumers and customers new eating seafood experiences for many years to come. We're now on slides eight and nine. We continue to make great progress in growing our charcuterie, cooked protein, and specialty bakery platforms, with the only issue being the constant outselling of our capacity. While we're investing in more capacity as we speak, we're pleased to report that the delicious products you see here are getting excellent traction in the marketplace. We're now on slide 10. As you can see here, our acquisition pipeline remains very full, and we expect to complete many more transactions, both in the near term and in the future. The three columns on the left of this slide are the most relevant here, as we're in multiple discussions with interested sellers. However, the exact timing of transactions tend to be driven by them and not us. I will now pass the presentation to our CFO, Wilke Ludic, who will update you on our financial results for the quarter.

Will? Thanks, George, and good morning or afternoon, everyone. Before I begin, I would like to remind you that some of the statements made on today's call may constitute forward-looking information and our future results may differ materially from what we discussed. Please refer to our MD&A for fiscal 2021 as well as other information on our website for a broader description of the risk factors that could affect our performance. I'll now flip over to slide 12 and our quarterly sales performance. You can see our sales for the quarter were $1.345 billion, up $289 million or 27.4% from 2020. The major drivers of that were acquisitions, which accounted for $119 million of the increase, selling price inflation, which was $111 million, Over the last two quarters, we have put in place over 230 million in selling price increases. Next driver of growth was our organic volume growth of about $44 million. COVID sales recoveries of about $31 million. Most of that came up from the food service channel where we saw about $44 million in sales improvement. And then in our airline and cruise line businesses, we saw some small increases, about $2 million of recovery. And then that was offset by about $15 million of normalization in the retail channel. Those increases were offset partially by the impacts of a stronger Canadian dollar, which resulted in lower translated values for our U.S. businesses. And that was about a $19 million negative impact on our sales for the quarter. Turning to slide 13 and just looking at our growth rates for the quarter, the solid line shows you our actual organic volume growth rate and the dotted line shows you our organic volume growth rate adjusted for the impacts of COVID. You can see our total organic volume growth for the quarter was about 7.1%, so above our normalized or long-term target of 4 to 6%, but our normalized organic volume growth rate was about 4.1%, so at the bottom end of our target. The reason for the lower normalized organic growth rate really is three major factors. The first and most significant were supply chain and labor-related disruptions that resulted in lost sales of about $40 million, most of that being not filling customers' orders fully, so customer order shorts, and then the balance being exports to Asia that were hindered by a lack of access to air travel. The next major factor impacting our organic volume growth rate was less featuring by our protein businesses. This was a strategy used to counter the impacts of extreme cost inflation in the quarter while they were putting through selling price increases to address that cost inflation. And then the final factor is in the food service segment, we're still not seeing a return to historic growth patterns due to the lingering impacts of COVID. and corresponding our food service sales are still below 2019 levels. Turning to slide 14, you can see this is a listing of all the major growth initiatives we have in place today. The ones highlighted in yellow are those that drove our growth in the quarter. You know, meat snacks, cooked protein, charcuterie and artisan sandwiches were the key drivers. But as we go forward to 2022, we see all of these being major contributors to our growth in 2022. Turning to slide 15, just a little color around the ongoing impacts of COVID on our business. You can see in the chart on the left the continuous improvement we've seen from Q2 2020 when the COVID impact was most severe to Q4 2021. which is our smallest impact yet at about $21.5 million. And that breaks down about $10.5 million of food service-related impact, $7 million of airline channel business, and about $4 million of cruise line business. All of those sales are slowly recovering, and we do expect a full recovery as the pandemic falls behind us. Turning to slide 16 and looking ahead to 2022 a little bit, you can see we've started the year with a strong sales trend and continuing to nicely exceed the prior year sales. Turning to slide 17, talking a little bit about the year. For 2021, we completed the year with $4.932 billion in sales. That was an $863 million increase, so 21.2% from 2020. Looking forward to 2022, we are providing guidance for the year of $5.6 billion to $5.85 billion in sales for the year. We show here on the chart the midpoint of that guidance, which is $5.725 billion, which would represent an increase from 2021 of about $793 million or 16.1%. Big factors driving that growth are organic growth initiatives, some inflation, as well as the annualization of acquisitions completed in 2021-2022. Turning to slide 18 and our EBITDA. EBITDA for the quarter was $113.4 million, an increase of $25.7 million or 29.3% as compared to the fourth quarter of 2020. The major drivers of the increase were selling price inflation, acquisitions, organic sales growth, incentive-based compensation and production efficiencies. These were partially offset by extreme cost inflation in commodities, wages and freight. In total, those represented about $125 million of cost inflation in the quarter. Also, we had some additional plant overhead and outside storage costs that are supporting our growth, as well as our inventory strategies we put in place to mitigate the impacts of the current supply chain disruptions we're seeing. Also, we saw a reversal of some of the COVID cost reductions from 2020, some of the subsidies we received in 2020, as well as some additional investment in SG&A staff. Turning to slide 19, there were five major challenges in the quarter. Inflation, labor shortages, supply chain disruptions, ongoing impacts of COVID, and then the stronger Canadian dollar and its impact on the translation of our U.S. businesses. This slide normalizes for the first four of those five challenges. So we've pulled out what we see as the estimated impact of COVID, the $21.5 million in sales, translating to about a $5 million impact on EBITDA. Some ongoing COVID costs that we expect to reverse in 2022, that's about a half a million. And then selling price delays, what we looked at was selling prices we put through during the quarter to address inflation in the quarter. But because of the timeline delays in getting those price increases to take effect with some of the major retailers, that resulted in about a $14 million lag in those price increases. So we've normalized for those. And then finally, the $40 million in supply chain disruptions I mentioned earlier, which was about an $8.7 million impact on our EBITDA. So normalizing for those factors, you can see for the quarter, we would have had sales of $1.420 billion. and EBITDA of about $141 million and EBITDA margin of about 10%. Turning over to slide 15 and looking at our EBITDA for the year, we came in at $430.7 million for the year, representing an increase of about $118 million or 37.8% as compared to 2020. We've also provided guidance for 2022 on our EBITDA, our adjusted EBITDA. Our guidance is 510 million to 530 million. We've shown on the chart the midpoint of that guidance, which is 520 million. Based on that number, that would represent an $89 million increase from 2021, or about 20.7%. Turning over to slide 21, The next five slides illustrate two key messages. The first is the extreme level of cost inflation we experienced in 2021 in all the major proteins that we buy. The second is that 2022 is starting off to be just as inflationary as 2021, with the cost of many commodities continuing to hit new seasonal highs. As George mentioned earlier, we are addressing these latest challenges with further selling price increases. Our general expectation for 2022 is that the cost of most protein commodities will stabilize later in the year, and as our selling price increases catch up, so should we see our specialty food segments margins normalize. Correspondingly, we are expecting to see the year-over-year improvement in our results in 2022 to accelerate over the course of the year with the first quarter showing the weakest improvement. I should also point out an anomaly on slide 22, which shows the trend in commodity port costs. The slide shows a deflationary trend in the fourth quarter of 2021. However, this is somewhat misleading when looking at our business as the chart shows USDA reported primal cuts, while our business generally buys value-added cuts that are not reported on, which continued to experience inflation over the course of the quarter due to labor issues at major primary processors. Turning over to slide 26. Our adjusted earnings for the quarter were 52.2 million, representing a 16.9 million or 47.9% increase as compared to the fourth quarter of 2022. The major driver of the increase was our EBITDA growth, with a little bit of interest benefit from the conversion of some convertible debentures during the quarter, as well as lower overall interest rates. These were partially offset by some increased income taxes due to the improved profitability of the company and some increased depreciation and amortization permanently associated with acquisitions. Our EPS for the quarter was $1.19 per share, which was a $0.33 per share or 38.4% increase for 2020. Turning over to slide 27 and looking at our earnings for 2021, we came in at $194.8 million, which represented an increase of $76.3 million or 64.4% as compared to 2020. On an EPS basis, our EPS for 2021 was $4.48 per share. representing an increase of $1.43 per share or 46.9% as compared to 2020. Turning over to slide 28 and looking at our five-year targets, this one is for our sales, which would be for 2023. In this slide, we've taken our fiscal 2021 actual results. normalize them for the ongoing impacts of the pandemic, which we fully expect to normalize over the coming quarters, and then annualize for acquisitions completed partway through 2021 or in 2022, coming to a normalized run rate for sales of about $5.5 billion. Then we looked at some nominal growth rates for 2022-2023 of about 6%, which is very conservative to the 7% to 12% we've been running at for the last two years, and that brings us to projected sales of about $6.1 billion, so in excess of our target, excluding the impact of any potential acquisitions we do going forward. Turning to slide 29 and our five-year targets for adjusted EBITDA, doing a similar calculation for sales, we came up with a normalized run rate of about $495 million, and then reflecting organic growth expectations or conservative organic growth expectations over the next two years. That brings us to an adjusted EBITDA of about $630 million. So again, well above our 2023 target of $600 million. So overall, you'll notice in both our MB&A and our press list, we talk about being very confident about exceeding our targets for 2023. Turning over to slide 30 and looking at the liquidity, we continue to have a solid balance sheet and strong liquidity. Our senior debt to EBITDA ratio came in at 2.7, so just slightly below the midpoint in our targeted range of 2.5 to 3. And our total debt to EBITDA ratio came in at 3.6, so at the bottom end of our targeted range of 3.5 to 4. We ended the quarter with available credit facilities about $485 million. I should also note during the quarter, as I mentioned earlier, we redeemed our 4.6% convertible debentures. 105 million of the debentures were converted into shares and 8 million of the debentures were repaid. Turning to slide 31 and looking at our free cash flow, free cash flow for 2021 came in at $263 million. an increase of $74.5 million or 39.5% as compared to 2020. Our free cash flow per share for 2021 was $6.05 per share, an increase of $1.18 or 24.4% from 2020. Our payout ratio for 2021 came in at 42.3%. And looking forward, we announced with our fourth quarter results a 10.2% increase in our dividend rate, which will bring our annualized dividend rate to $2.80 per share. Looking at capital allocations for the quarter, we allocated $210 million to acquisitions in the quarter and $36 million to Project CapEx. For 2021, in total, we allocated $714 million to acquisitions and roughly $111 million to project CapEx. I should remind you that all of these investments are stated expected return is 15% IRR on an after-tax, unlevered basis, generally based on 10-year plus models. Turning to slide 33, looking at capital locations post-2021, as George mentioned, we completed four acquisitions so far this quarter for a total allocation of capital of roughly $50 million. With that, that completes the financial presentation. I will now turn it back to the moderator. Lisa?