Premium Brands Holdings Corporation

Welcome everyone to our 2023 fourth quarter conference call. With me here today is our CFO, Wilka Ludic. 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 issued this morning. We're now on slide four, which outlines certain key highlights for the quarter and the year. fourth quarter revenue came in at $1.55 billion, representing an $80.1 million decrease for the quarter. Normalizing for the extra week in 2022, sales for the fourth quarter were up $1.4 million. In general terms, our Canadian businesses underperformed during the quarter due to a difficult macroeconomic environment in Canada, as consumers traded down to lower-cost meals or shopped at discount banners where we're under-indexed. Our specialty food groups' U.S.-focused initiatives outperformed during the quarter, delivering 9.3% organic volume growth, driven by sandwich, protein, and specialty-baked goods, while our overall organic volume growth in Canada was a negative 4.3%. Despite the consumer demand headwinds in the Canadian market, which has not come as a surprise to anyone given Canada's weak economic growth numbers and the challenging microeconomic backdrop, we're very confident that we remain on track and that our progress in the U.S. validates our long-term capital allocation strategies of focusing on this important market. For the quarter, our U.S. growth initiatives generated $581 million in sales, while for the year, they generated $2.3 billion in sales, an annual volume growth rate of 10.1%. We expect our U.S. organic growth to accelerate over the next few quarters as new capacity ramps up. 2023 was our 20th consecutive year of delivering record top-line growth and adjusted EBITDA. This is despite the many challenges that we faced along the way over the past 20 years, we have evolved from a small regional company based in Western Canada into a diversified food platform with 115 facilities located across Canada, the US and Europe. Our growth and our diversification combined with our entrepreneurial culture and great people helped us to navigate the unique challenges we faced over the past 20 years, including the pandemic, hyperinflation, and COVID-related supply chain disruptions and tight labor markets, and is currently helping us to manage the challenging macroeconomic environment in Canada. Overall, we remain on plan to achieve or exceed our five-year plan of $10 billion in sales and $1 billion in EBITDA by the end of 2027, and we have never been more excited and optimistic about our future. We are now on slides five to seven. We're pleased to report that several capital projects are at or very near completion, as you can see on these slides. This new state of the art capacity is mainly focused on supporting our various sales growth initiatives in the US. We're now on slide eight. I have included here some pictures of products launched recently by Concord Meats. Concord, which is based in Ontario, joined the PV ecosystem in 2018, and has more than doubled its sales over the past five years. Concord is expertly run by the talented entrepreneurs that founded it and has incredible runway for further growth in both Canada and especially the U.S. Over the past five years, their sales in the U.S. have grown from 7.8 million in 2018 to 115 million. Many of the Concord products launched into the U.S. market in recent years have trajectories to become $100 million skews, assuming capacity availability. We are now on slide nine. As you can see, our acquisition pipeline remains very full, and we expect to complete many more transactions in the months and years to come. You will see that the active and advanced files add up to almost half a billion in sales. I will now pass the presentation to our CFO, Will Kaludich, who will update you on our financial results for the quarter. Will?

Thanks, George. 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 the 13 and 52 weeks ended December 30, 2023 results, as well as other information on our website for a broader description of the risk factors that could affect our performance. Turning to slide 11, as George mentioned earlier, after adjusting for an extra week of sales in the fourth quarter of 2022, our sales increased slightly by $1.4 million. The components making up this increase were organic volume growth in our specialty food segment of $26.6 million, selling price inflation of $5.2 million, a favorable translation of our U.S.-based businesses' sales of $2.9 million due to a weaker Canadian dollar, and business acquisitions, which contributed $1.5 million in incremental sales. These factors were partially offset by a $34.8 million sales contraction in our premium food distribution segment. The organic volume growth in our specialty food segment was driven entirely by its U.S. market-focused initiatives. Turning to slide 12, as George mentioned earlier, you can see that these generated organic volume growth of $53.4 million, representing a growth rate of 9.3%. Our protein group generated volume growth of 9.8%, while our sandwich group generated 7.9%, and our bakery group 27.6%. Furthermore, if you adjust for the impacts of delays in new capacity coming online in our protein group and a temporarily lower growth rate in our sandwich group due to a major customer implementing a new product display strategy to reduce food waste, the fourth quarter adjusted organic volume growth rate for our U.S. market-focused growth initiatives is 12.5%. On slide 13, we show our organic volume growth rate for the last 20 quarters. For the quarter, we had a small contraction with our specialty foods generating organic volume growth of 2.6% and our premium foods distribution experiencing volume contraction of 5.9%. As I mentioned earlier, specialty foods growth was driven by its U.S.-focused growth initiatives. These were partially offset by the impacts of a challenging consumer environment in Canada as outlined by George earlier. Premium food distribution sales contraction was primarily the result of two factors. The most significant of these was the challenging consumer environment in Canada that impacted sales of premium beef and seafood products. The other was continuing lobster supply challenges resulting from the poor Maine fishery last quarter, followed by a poor South Nova Scotia fishery this quarter. Looking forward, we view all the challenges experienced in the quarter as temporary. In the case of the Canadian consumer environment, we expect the situation to improve as inflation and interest rates normalize over the course of 2024. And in the case of lobster supply availability, the poor fisheries were due solely to unusually poor weather that prevented vessels from harvesting. The underlying lobster biomasses remained very healthy. On slide 14, we show our organic volume growth rate for the last 20 quarters. For the quarter, we had a small contraction with our specialty foods generating organic volume growth of 2.6%, and premium food distribution experiencing a volume contraction of 5.9%. As I mentioned earlier, specialty foods growth was driven by its U.S.-focused growth initiatives. This was partially offset by the impacts of a challenging consumer environment in Canada, as outlined earlier by George. Premium food distribution sales contraction was primarily the result of two factors. The most significant of these was the challenging consumer environment in Canada that impacted sales of premium beef and seafood products. The other was continuing lobster supply shortages resulting from the poor Maine fishery last quarter, followed by a poor South Nova Scotia fishery this quarter. Looking forward, we view all the challenges experienced in the quarter as temporary. In the case of the Canadian consumer environment, we expect the situation to improve as inflation and interest rates normalize over the course of 2024. And in the case of lobster supply availability, the poor fisheries were due solely to unusually poor weather that prevented vessels from harvesting. The underlying lobster biomass has remained very healthy. Turning to slide 14, our sales for the year came in at a record $6.26 billion, up 5.3% once normalizing for the extra week in 2022, and well ahead of the five-year target of $6 billion we set back in 2018. You can see from the chart that over the last 13 years, we have grown our sales at a compounded annual growth rate of over 20%. With the release of our fourth quarter results, we provided a sales guidance range for 2024 of $6.65 billion to $6.85 billion. This slide shows the midpoint of this guidance of $6.75 billion. I should note that this guidance does not include any of the potential acquisitions George mentioned earlier. Turning to slide 15, Our adjusted EBITDA for the quarter was $137.2 million, representing an increase of $0.8 million as compared to the fourth quarter of 2022, or $3.2 million after adjusting for the extra week in 2022. Our EBITDA was positively impacted by improved plant efficiencies, reduced bonus accruals, and the recovery of our margins as selling price increases continue to catch up with cost inflation. These factors were partially offset by higher plant overheads relating mainly to investments being made in increased capacity. Slide 16 shows our adjusted EBITDA margin for the last 20 quarters. For the fourth quarter, which normally has lower than average margins due to seasonality-related factors, we reached a recent history fourth quarter record of 8.8%, driven by the continued recovery in specialty foods margins, which improved by 100 basis points in the quarter. This was partially offset by a 90 basis point contraction in premium food distributions margins, largely due to the contraction in its sales. Turning to slide 17, Our adjusted EBITDA for the year came in at a record $559.1 million, up 10.8% or 11.4% after normalizing for the extra week in 2022. This is a bit below the five-year target of $600 million we set back in 2018, largely due to the inflationary and other carry-forward challenges associated with the global pandemic. You can see from the chart that over the last 13 years, we have also grown our adjusted EBITDA at a compound annual growth rate of over 20%. For 2024, we have provided an adjusted EBITDA guidance range of $630 million to $650 million, with the slide showing the midpoint of $640 million and an expected adjusted EBITDA margin of 9.5%. Based on this midpoint, we are projecting our adjusted EBITDA for 2024 to increase by $80.9 million, or 14.5% as compared to 2023, driven largely by expected sales growth in our specialty food segment, which is product contributions from 20% up to as high as 45% on certain highly differentiated products. Turning to slide 18, our earnings for the quarter were $37.9 million, representing a decrease of $15.0 million from 2022. The main reasons for the decrease were increased interest depreciation and amortization associated with recent investments made to drive both the current as well as future quarter sales growth, and higher income taxes resulting from a variety of factors, including the timing of certain tax adjustments. Our adjusted earnings were also impacted by higher interest rates, albeit this impact at $6.2 million was much smaller than in previous quarters. Turning to slide 19, for the quarter we had $131.6 million in capital expenditures, consisting of $120 million in project CapEx and $11.6 million in maintenance CapEx. For the year, we invested $353.7 million on Project CapEx, $335.5 million, or 95% of which related to supporting the growth of our high-margin specialty food businesses. Looking forward, based on our approved capital project pipeline, we expect to invest another $380.7 million in or $125.7 million after planned sale and leasebacks on project CapEx over the next six to seven quarters. I should note that we expect to generate an unlevered after-tax return of 15% or greater on all of these projects. Slide 20 shows some of the key metrics we use to assess a financial position. Our debt leverage levels remain stable as compared to the previous quarter, with our senior debt EBITDA ratio holding at 3.1 to 1, and our total debt EBITDA ratio, which includes our subordinate debentures, holding at 4.1 to 1. In terms of liquidity, we finished the quarter in a strong position with $734 million in unused credit capacity. The next and final slide shows a variety of our free cash flow and dividend metrics over the last 18 years. For 2023, our free cash flow per share decreased to $5.70 per share from $6.41 per share in 2022 due solely to higher interest costs. Excluding the impact of these, our free cash flow per share increased by almost 7%. Looking forward, we are increasing our quarterly dividend for 2024 by 10.4% or $0.85 per share. This will be our 10th consecutive year of increasing our dividend rate by 10% or more. That concludes our formal presentation. Please join us on our Q&A conference call later today at 10.30 a.m.

Vancouver time or 1.30 p.m. Toronto time. Thank you.