Q1 2020 Earnings Call

Good day, ladies and gentlemen, welcome to the premium brands Holdings Corporation first quarter Twentytwenty Coatings conference call.

Our speakers same would be charged for legal C O <unk> president of premium brands.

Which forgetful all premium.

This conference is being recorded.

At this time, all participants are in listen only mode.

The presentation you conduct like you would think session.

At the time parts systems, Oh, Gosh Press Star one to register for a question.

All right things starting to call. Please press star zero other touchtone phone.

Okay. It's now my pleasure to introduce your host charge for legal. Please go ahead sorry.

Thank you, Brian and good morning, everyone.

I would like to welcome you toward 2021st quarter Conference call.

We hope.

Thank you and your families are healthy and safe you in DC circuit and difficult times.

Also I would like to thank all of my 9000, P.B. associates have been doing an amazing job in producing that foods needed to nourish our fellow citizens.

Their hard work and education is greatly appreciate.

Turning to our results are strong first quarter numbers are indicative of the progress, we're making and becoming north America's leading specialty fluids company.

During the quarter, we made great progress on many fronts, including in our core categories.

How do I didn't see food artisan sandwiches meat snacks premium dried showed me and cook proteins.

Organic growth for the quarter or 14% speaks for itself.

The first quarter is however old news and it seems that didn't happen very long time ago.

19 has changed everything we know that way, we live and even the way we interact and communicate.

No one knows what their post copies 19 universe will look like and those that they tend to will probably be proven wrong.

But what do we do know is that People's lives for good food and their interest in finding healthier and more convenient ways defeat their families will continue.

Physical venue, where they enjoyed their meals or the mess it they used to source food may change.

Demand for this basic human need will not.

I premium brands, we're well positioned to get to the other side of this crisis. Please see my 2020 letter to shareholders titled Great people and great culture, our points of difference.

Details on why we're confident in making this statement.

Letter can be found on our website that doubly double your dog premium brands group Dot com.

In the latter by focusing on why we're anti fragile it term point by Mr. now seem collapse.

And by which remains that we will emerge from this formidable challenge is stronger company.

In short this is due to three factors, namely our decentralize interpret no real culture, which pushed decision making to the front line.

Our unique PB ecosystem, which provides support in resources and allows our businesses to focus on the long term and our diversified business portfolio.

Also on our website, you'll find the Powerpoint presentation use for H.M. last Friday.

In the presentation, you'll find many details on how we're dealing with a carve it 19 crisis as well as additional color on our long term financial strategies and our acquisition pipeline.

I will now be turning turning to presentation over to our CFO will college for an overview of our financial results for the quarter, which will then be followed by the Q in a segment of the presentation well.

Thanks, George and good morning, everyone before discussing our results for the quarter I would like to caution you that to the extent, we make forward looking statements during our presentation.

Forecasts and assumptions are subject to change in actual results may vary. Please see our 2019 and DNA, which is filed on SEDAR web site on SEDAR website, www dot seater dot com for details on some of the factors that could cause actual results to differ from our current expectations.

Turning to our results.

Revenue for the quarter grew by $158.4 million or 20.4% to a record $935 million. The majority of the growth was driven by organic sales initiatives, which accounted for $113.7 million of the increase.

Acquisitions accounted for $33.5 million selling price increases for $6.5 million.

Currency translation for $4.7 million.

Our organic volume growth rate, which excludes the impact of selling price increases and currency exchange related inflation was 14.6% for the quarter, which was well above our long term targeted range, 4% to 6%.

On a nominal basis, he after selling price and currency exchange inflation organic growth rate was 16.1%.

Our strong organic growth for the quarter was driven by a wide range of initiatives that we had been working on for a while and span across our five platforms with seafood artists and sandwiches meat snacks and premium dry cured meets being the product categories. We are seeing the most success.

Our growth rate was also positively impacted by an unusual spike in demand in the retail channel in the last two weeks of the quarter that was tied to consumer concerns around the cold It 19 outbrain.

This factor was however, partially offset by cobot 19 related decreases in our sales to foodservice focused businesses and as a result, the net impact on our sales in the quarter of the code at 19 crisis was relatively small at 6.6 million.

Dollars.

Normalizing for the Cobot 19 impact our organic volume growth rate for the quarter is still us very strong 13.8%.

A key factor to note about our growth is that this is the fifth quarter in a row, where we have increased our quarter over quarter growth rate.

From a 2% rate and the first quarter of last year to 14.6%. This quarter, we have consistently increased our growth rate each quarter as many of the initiatives that we've been talking about over the last one plus years gained traction.

In terms of our adjusted EBITDA for the quarter increased by $4 million or 6.6% to at first quarter record of $64.3 million.

Which we were pleased with given that our first quarter. He says is historically, our weakness of the year due to the seasonality of many of our businesses.

The growth in our adjusted EBITDA was driven by our strong sales performance offset by investments that we've been making we've been making in production and best DNA infrastructure to support our continued growth.

Well as some labor inflation additional upside storage costs associated with several inventory strategies, which while we'll come back to in a moment an extra costs incurred in relation to the cobot 19 crisis.

The increase in or outside storage costs, which was about $1.7 million for the quarter was the result of increased inventories and many of our businesses as they implemented a number of hedging at risk mitigation strategies to deal with commodity cost inflation and supply chain disruption risks associated with.

Both the African signed fever related challenges that we have discussed in the past and the followed effects of Cowen 19.

Our adjusted earnings per share for the quarter deep increased by one cents to 53 cents per share due to a variety of factors, including the improvement in our adjusted EBIDA lower boring costs and the reversal of $2 million of contingent consideration relating to a past acquisition.

These factors were partially offset by additional amortization and depreciation associated with recent investments.

In acquisitions and capital expenditures as well as the dilutive effects of arc equity offering from the third quarter of last year. That's a significant portion of the new capital raise has not yet been invested.

In terms of our outlook for 2020, while the first quarter was a great start to the year.

As George mentioned earlier, it seems like eons ago, and the world has changed dramatically.

The Kogan 19 crisis and its followed effects are impacting almost all areas of our business.

On the sale side, we have seen our foodservice airline convenience store cruise ship and export customers all hit hard.

Our production facilities and supply chains are also experiencing a significant amount of destruction through these turbulent times.

And while we are confident in our abilities in the abilities of our dynamic and entrepreneurial management teams to navigate through these trying times in the do near term the crisis is having a negative impact on our performance.

While these disruptions are not expected to affect our long term objectives, the extent and specific timing of their impact is highly uncertain and cannot be predicted.

Correspondingly, we are not able at this time to forecast with reasonable accuracy our results for the balance of 2020.

As a result, we have withdrawn our revenue and adjusted EPS guidance for the year.

In the meantime, we are actively managing the situation and where appropriate airing on the side of caution in terms of what's best for our employees communities and customers.

Furthermore, our decentralized business model, which includes a large number of regional production facilities, rather than one or a few centralized facilities.

Provides us with flexibility and redundancy and better positions us to services service customers without disruption.

Turning to our financial position, we went into the coal that 19 crisis with a very strong financial position and continue to mean incomes maintain a conservative balance sheet and strong liquidity.

Our senior debt to adjusted EBITDA ratio at the in the quarter was 2.8 to one which is within our long term targeted range in 2.5 to one to 3.0 to one.

And we had approximately $214 million unutilized credit capacity at the ended the quarter.

Looking forward, we have stress tested our financial position using a variety of bad case scenarios and are confident in our ability to weather the storm.

We have however, other than abundance of caution temporarily suspended the closing of any new business acquisitions and deferred certain capital expenditures until we have better clarity on the length in impacts of the coven 19 pandemic.

During the quarter, we invested 22.6 million in capital projects.

All of which are expected to generate at 15% or more return.

These included a recently announced 41000 square foot expansion of our artist and bakery in Langley BC.

Several meat snacks capacity expansions.

Additional she kudu retreat capacity, it or Reno sandwich plant.

And newly installed automated sandwich production lines in our Phoenix Phoenix Sandwich platter.

Earlier in the quarter, we also invested $32.2 million in new businesses, consisting of PC based food broker in distributor informed brokerage, Washington based needs that producer varying needs and our first European investment, Italy based dry cure.

Needs producer last feeling knees.

Turning to dividends during the quarter, we declared a dividend of $21.7 million or 57.75 cents per share, which on an annualized basis works out to $2.31 per share.

Our free cash flow for the trailing 12 months with was a record $182.2 million as compared to dividends at $80.7 million, resulting in a payout ratio of 44.3%.

We'll now turn the call over to the operator for the Q any segment.

Good luck.

If you like to ask a question. Please press star one other kind of phone keypad, if you're using their speakerphone. Please make sure that your mute function is turned off to though your fingers to reach our equipment again in that want to ask a question. We pause for a brief moment hello, everyone an opportunity to signal for questions.

Once again as a reminder of data that want to ask a question and take a flush question.

George to me.

Scotia Bank. Please go ahead your line is open.

Hi, guys.

George you mentioned in Europe.

Mdna, you're starting to see some green shoots in demand can you maybe talk a little bit about that what channels, you're seeing that it.

Yes, George I'm actually.

If you had asked me that questioning in April you would have gotten a very different answer, but we're very encouraged by the some of the trends we're seeing in the QSR channel. There's no question that.

Consumers are out in about and our order book with regards to QSR.

Looking much much better.

To the point, where some QSR accounts are and it's unbelievable really they're back to pre covered 19 levels. So so again, we're very very encouraged to to see those type of trends in in May.

Okay, Great news moving over to obviously the.

Slight inflation, that's been catching on holidays, when on beef pork and on the protein cutouts.

Can you maybe talk a little bit about how we navigate that in terms of pricing actions.

Also wondering if you've seen any kind of to date I know, it's early but if you're seeing any negative volume response from from our price increases.

Yes.

The pricing inflation that you're seeing more recently George is is really only in regards to two fresh meat fresh beef and fresh pork.

And.

It's mainly impacting the a lot of the retail cuts.

Cuts that you will find in the retail store.

Now I just want to remind everybody that leads to very high prices.

We're preceded by the lowest prices.

In history, almost well below five year averages.

A lot of our company's effectively by forward, if they see opportunities like that.

They will buy they will commit again, we saw some historically very low pricing.

Now from our perspective, a lot of the primary plants are having issues of course.

I think this a lot of noise about some of the should they are having.

You know the media industry is an essential service industry in both Canada and the U.S. I believe that the secretary of agriculture into States announced on Friday that you expect most primary plants to be Bakken production in about a seven to 10 days again short term gas there.

Just a lot of inflation with regards to some retail cuts no question about that we were leading that we're going into mother's day weekend, which which makes sense, but again, we don't expect that to be.

Long term in anyway.

Okay.

Just one last one if I may I know you guys remove the guidance I know, what you're very pretty pretty fluid situation, where margins are volatile, but can you maybe talk a little bit about.

Organic volume, but we're seeing maybe in.

After quarter to date and both of our operating segments. Maybe you can maybe help us with just the volume side of things.

I think George.

Everything about what we do today is really really needs to be looked at by channel channel demand.

And really what I'm going to say is not going to surprise anybody I think in in North America. There's a lot of demand thats coming from the retail channel in general which includes club as well.

When you look at some of the supply chain issues some of the issues that both primary and value added.

Producers have had in North America, you can expect to that.

Inundated with orders and inundated with demand in that channel that's not to say that we're taking a lot of those orders in many cases would turn them down because we're in a situation, where we don't want to over stress our order distress workforce. So again there is other dynamics in north.

Decision, making other than demand no question that demand.

In the retail channel in the club channel.

He is very very strong.

Now with regards to QSR I commented on QSR.

QSR was.

Not in very good shape in April, but we're definitely seeing a comeback in demand.

For the Truest QSR channel, which is there is significant for us and again, we're very encouraged by what we're seeing there.

For us the only channel really that you know we are concerned about at this point as will said is the airline channel.

Which will take a longer time to come back it's not a significant for us, but we feel that it'll come back at some point, but not anytime soon.

Okay. Thank you Patrick.

Thank you George.

Next question, we've got there aside from TD Securities. Please go ahead.

Yes, Thanks, gentlemen, and hope you both for our staying safe I just wanted to ask you how do you expect to balance.

The increase supply side for the sandwich business, particularly as one of your bigger clients starts to open up stores with.

Somebody I got the.

Supply side issues, that's going on in the industry.

Derek do you mean supply chain issues.

Yes, sorry.

Yeah, we.

Again, we've done business in the QSR channel for a long time.

We've got very well established relationships with the entire supply chain.

We don't expect any issues I told with regards to the ramping up of that all of that particular channel.

And.

You know things have been going very well in regards to our sandage group.

We did not layoff anybody we took on some lower margin business.

In gain trim just to make sure would keep everybody employee to so part of our concern was that we would have to be higher lot of people and retrain a lot of people, but but we haven't had to do that that was our major concern.

So we're very well positioned to.

Take on the.

The.

You know the coming back of demand in that channel and Derica.

To that is as you know those programs are generally frozen and that was a key area, where we did in anticipation of possible supply chain disruptions build a lot in inventory. So we're well positioned on that side of things as well.

Okay. That's very helpful. I was just wondering how much of your.

Your end products.

Meat snacks.

Wars from some of the bigger Packers.

I would say our supply chain with regards to that category tends to be very very international Derrick.

Okay.

And one last one for me as you get that you expect it to the first certain Capex, we gained Claire greater clarity on co bid.

Could you maybe just talk about some of the impacted projects, we should be expecting for capex in 2020.

Yes, so so.

In the M&A, we outline of the projects underway. So we'll continue with those projects as as outlined.

We had some bigger projects, we were looking at potential both capacity related as well as efficiency related.

We shall those for the time plan that newer projects until I can say, we get a little more clarity on me the impacts of pull that.

So I would suspect at this point Derek is a rough number to be close to where we were last year, maybe a little bit lower overall for the year.

Okay.

Gentlemen.

Okay next question from so that kind of look from RBC. Please go ahead. Your line is open.

All right. Thanks, and good afternoon, just let's get a little bit of color from you on your outlook commentary.

I think there was indicated that you're expecting from significant impact, particularly in Q2 I think some of the earlier commentary indicated that you are seeing some improvements some channel. So just wanted to understand kind of with terminal you're seeing the weakness in that this outlook commentary relates to or have things kind of gotten better relative to theirs.

Thank you.

Yes, I think if I have to look at the quarter sequentially I would say that.

The second quarter will probably be the trough the.

The the bottom let's say.

Tickle early in April I think that.

May will be much better than than April basically because of the ramp up of.

Demand in the QSR channel and depending on the speed at wheat, which provinces and states will panopticon again, if we are to use.

Some optimistic assumptions.

We should be.

Back to some relative normal in the third and fourth quarters.

I think at the third quarter will be ramping up and then.

We should have a strong fourth quarter that thats the way we're seeing.

The demand return in terms of each channel.

Okay, and then when we look at the Foodservice channel should we assume based on the commentary that their strength in QSR is offsetting any weakness and the color casual dining space or is there are still going to see the foodservice channel.

Still expected to be I guess or net negative through Q2.

It will be net negative overall, but the trending will be will be favorable.

Certainly beginning with.

Again, the slowdown in the sharp slowdown in April.

I think we've mentioned before that that.

That.

Business.

Services QSR as well as.

Direct to home.

Meal services as well as specialty retail.

We've seen good growth in that part of the business, we believe that fine dining I will probably take longer to come back.

Because of the difficulty of of.

Ensuring social distancing bad, but certainly all aspects of foodservice outside of.

Fine dining are looking very good right now.

Okay. Thanks, and then on the sandwiches side, there's some commentary and the mdna around.

Additional or most or a lot more of the growth was coming in the specialty foods that from sandwiches, which are a bit of a margin drag so I'm going a bit more color was that.

Normal course sort of sales you're expecting in Q1 bid or maybe some of your customers maybe pull forward. Some orders into Q1, just as a precautions will understand what drove a lot of that growth then the sound, which is sort of during Q1.

The growth.

First I just want to comment on the margin side of things. So so the sandwich categories is you're correct.

Drag on gross profit, but it also has a lot less SG any so it's actually relatively new neutral on on EBITDA margin.

In terms of the growth in the quarter. It was a combination of factors. We've got a lot of new initiatives out there with several new specialty in the retail channel and then in the QSR side of our business.

Some special some featuring done by some customers.

As well some good organic growth. So it was kind of a whole range of factors that drove drove the number in the sandwich group.

Okay, and then RMB just one of the commodity side and I think you indicated that when prices were lower your pre purchase some and I think that led to some of the storage costs, but there has been general inflation metric knowledge I guess, how should we just think about the although slow due to cost you know how long.

To the future quarters, where you're able to pre buy do you expect sort of some near term benefit and then you were like some of the higher costs. Just wondering are sent and over the coming quarters, how I should cycled through.

At this point, we don't expect an impact for many many reasons some of them I met mentioned earlier the other.

Side of it as well is that in this type of environment, it's not that difficult to to get.

You know some price increases from customers they understand what's going on.

They're looking for solutions. So you know many of them are looking at empty shelves right right. So again, if we're to play a role in terms of giving them. Some solutions then we pass on some of that.

That inflation.

So in general terms at this point as we look at it we don't expect an impact.

But also we don't expect it to be long term either because.

Clients will come back there's all kinds of indications that.

Governments in Canada, and the U.S. want one piece plants to be back online.

Okay. Thank you.

We'll go next question.

Chime in some parts.

BCS. Please go ahead your line is.

Thanks, Good afternoon guys.

You mentioned you have to incur some higher costs to maintain employee safety I just like in a sense of the magnitude of these maybe.

Terms, what you've seen so far or what you expect either per quarter or on annual basis.

Yeah, we're still refining our expectations going for John There's just too many too many changing variables at this point in terms of the quarter those about $1.2 million in what we fly slated as coal that related costs.

Idle labor time additional sanitation additional pp those type of costs.

And those have gone up materially in the second quarter.

Okay. That's helpful. Thanks, and then.

Follow up on on inflation I, just wanted to get a sense of what the impact you expect cost inflation to be on gross margin coming quarters was obviously a lot of.

The moving parts at this point when you capture higher cost inflation your ability to increase prices the hedging positions are.

Higher than usual inventories that you took how should investors think about gross margins over the next few quarters easy you would kind of as a net positive or negative.

Again, John we're not giving any guidance for the balance the year, just because theres. So many floating variables.

A big part of what drives our margins is our sales volumes on the contribution margin concepts. So there's so much uncertainty around that.

With how this all plays out that I really can't answer that question at this time.

Okay understood.

More of a housekeeping question what percent of sales come from either airlines or cruise ships, you call that both of those and in the press release.

Hi airline sales in total our CFO.

Roughly 50 million across the company.

And cruise line sales.

Bubbly.

$20 million to $30 million range.

Okay. Thanks, and then last one from the or have a broad question, but how would you describe premium brands ability to transition products that we are destined for foodservice into the retail channels.

Exceptional actually and really really proud of.

How some of our teams have have transition their capacity to.

To service find you know capitalize on opportunities in the into retail channel.

To the extent possible they move mountains to define new new sales opportunity.

Okay, that's great thanks very much.

Thank you.

Your next question.

Newman.

From the shut ins. Please go ahead your line is open.

And George will pay doing David Hey, David How are you guys are hanging in English just as you look at your typical Q2, what is your typical monthly volumes in April May and June 9th I know, it's kind of graner, but just trying to get a sense of.

Coal, that's impacting April and kind of get some green shoots in May and June what would be a typical pattern that you'd seen month by month.

It's it's our normal seasonal pattern David So April is the weakest month of the quarter and then it ramps up over the course of the quarter with the June month being the strongest right.

As are built into them.

Exactly okay, and you've had some offsets here he won some some business.

Obviously in your in your foodservice.

Side and.

Ladies and some your your capacity for things like co packing and school lunch programs now if business comes back.

Do you retain that in other words are are you deserve potential here that you will coming out of this be better positioned to get you will have won some incremental new business.

I think so David I think we.

There is been situations, where weve had new business opportunities that.

We've turned down.

Mainly because of some of the production issues that.

The rest of the industry has has been having we've kind of sat back and we said listen what what business opportunities.

Our sustainable then and possibly a will continue once things normalize and so we've taken on some business.

That we feel we'll we'll we'll remain they will not go away when when things get back to normal. So so again, we've been picky.

And we feel that whatever business, we pursue we pursued I will remain.

After things normalize Okay, and then and then on pricing George the price increases that you're putting through how sticky are the how long can you think you can keep them.

I think in today's environment David.

I can tell you that.

Really it's not a normal environment, it's not what were you still everybody's focused on producing food.

At any cost, sometimes and making sure that.

Shall do not go empty you know there is.

This is.

And in this quarter were making decisions that are really driven by.

Our wish to do our best for the common. Good then I think that applies to retailers as well that applies to all of our customers.

So so again everybody recognizes that this is not in normal type of environment.

This is about putting foot on under shouts and giving people the opportunity to have sought to buy when they go to the story.

You know again this is not a normal.

A way of doing business.

You know if we have incremental costs.

Then.

There is a better conversation around our ability to pass them on.

Immediately at times right, but but again this is just the nature of the situation. We're in right now yeah and last lessons from you guys I'm just on the costs and I recognize you want to retain your your core employees.

Had some temporary layoffs and things like that temporary closure. So some of your facilities, but any anything you can point out in terms of the offset on the cost side in like DNA that you might in that in a low environment month, furloughs and things like out be able to kinda.

Keep some of the profitability and cash flow retain retained some of it.

Oh, yes, there's certainly been some of that David we're.

In our distribution businesses that have been hit the hardest theres been some some layoffs and cutbacks on fleet size, but really we have taken the approach that this is temporary and we want to witness turns were ready and able to service our customers. So.

There has been some of that but not a lot.

And I would say David that we've taken and we've we've asked our partner companies to take a very long term approach to lay offs.

We feel strongly that the economy will come back most of our competitors have made major late lay offs, especially in the food service channel. We have not we are ready to go and.

We are actually seeing some of the benefits of that.

Today.

Because our.

People are have been out there calling on customers supporting them in our view is that we're in this for the long term and you know we noticed we noted that that some customers are having issues and we're not going to abandon them.

And that's helping us get more business as things open up again.

In the last one for me is on the seafood side I think we're coming into sort of a peak season on on lobster scene and in May June I mean, what's the set up for that in terms of restaurants and exports and obviously cruise ships is gone too. So some of that business will go away, but at the same time, you've got sacco working now so what.

Of the puts and takes kind of the in the in the lobster side.

I think if you take a look at some of the slight seen the ATM presentation. David again, you could see the exceptional retail packaging or some of these lobster product said the real focus right now for that group is is really retail.

And club of course, there's not a lot going on in fine dining and and index for channel, but there is lots of activity with regards to.

Value added.

Brand that.

Product into the retail and club channel, So thats, where all the focus in right now okay very good thanks, guys. They say.

Thank you David you too.

When those maker next question.

Michelle She's out from National Bank. Please go ahead.

Hi, Thanks for taking my questions I think I I know the answer is thought to validate and one that caused you to reevaluate.

Away, even in an incremental fashion the way that you're looking at business in terms of the market segments, you want to participate in geography as you want to focus on or the types of businesses you want to want to acquire.

Yeah.

It hasn't changed the way, we view our business either collectively or on our individual basis.

As you know again, it's we've shown it in different presentations were building six platforms.

With that growth plans and expansion plans across Canada, and the U.S. and that continues to be to be the case.

Okay. Thank you Paul with respect to see retail demand that you're seeing.

Obviously, there was a big Spike would panic bond.

In March call. It the early part of March in its tend to have tapered off the categories that you participate on.

Could you give us some perspective on the type of retail demand out there in Q2, maybe versus the end of Q3 at the tapered off significantly.

Quite elevated relative to trend.

A historical.

Yes, I would say, yes, we did see.

On an uptick in demand in the latter part of March effectively people pre bought some of their April purchases.

And then we saw that being the drop of demand being the first two weeks of April and then again that demand and moist come back. So that's really what happened.

Okay. Thank you for that armed with respect to lie in inflation and.

The incremental charges.

Costs are incurring because of coated.

Thank you that's through this call you've been noting that.

You do see ability to take pricing if it's needed and this is an exceptional time. So I'm wondering why why management would flag the incremental costs associated with pull that if there is in fact such.

Is your opportunity to take price.

To offset these challenges how should we think of the net benefit between taking price and the actual incremental cost assessment cooking.

I think the best way I can explain it is that you know our view is that we're in a in our country and our country's here accounted in the U.S. sorry in a very very difficult situation a lot of people that lost their jobs of course and.

Yeah, we're going to take a hit in our margins were not going to pass everything on two to the customer we don't want to being a situation where you know were being accused of gouging anybody that's not who we are.

Well, we are taking a hit it we want to keep prices reasonable for us for our customers and the consumer.

Well, we think.

Things settle down and.

We begin to see the economy open up again, so again, we're making cost conscious decisions like that and we feel good about those decisions and Michelle I would add that when we are businesses take pricing.

It's generally based on longer term concepts and what are the things that we don't understand fully at this point is how much of the coal that costs are permanently theres a chunk in there that are just.

Onetime idle labor things of that nature that you're not going to go to a retailer and recover or onetime costs is it's more if theres a permanent change of our cost structure. That's what ultimately we would put forward and the pricing.

Okay and that would lead me to the next question. So in terms of the extra sanitization.

Don't have a view, whether that's going to be a year long thing or two years or or would have been cases, it's too early yet.

Yeah that the sanitation cost I would guess that a lot of that will be permanent but that's not that big component of it the big opponent at this point is been.

The labor.

Plants were by we've slowed lines down because of physical distancing will that be necessary going forward, we're not sure.

Plants, where we have.

For safety reasons instead of.

Laying people off sent them home paid them, while the plant was idle for a day or two and then brought them back.

It's those sort of onetime costs that are most about 1.2 million in the quarter plus plus in the second quarter. The wage premiums that the we're paying for some of the frontline workers.

Okay.

I just love to hear a quick one accounts receivable.

Do you have any comment on the health of your customers and whether we should anticipate and internal problems.

Yes, we are tracking that very closely we we understand or exposure the grand scheme of things, it's not very large.

And we've actually seen as George mentioned as.

More of these restaurants start to open up and do Curbside service and take out service that had previously been shut down we're gaining even more confidence around our exposure there. So.

There may be something in the future it's hard to say at this point who's going to survive and who's not but the reality is it will not be a big number.

Thank you.

No take or next question.

Lastly owed.

From BMO capital. Please go ahead your line is open.

Thank you your opinions.

Steven.

Okay.

I just wanted to sort of run on the picture of the site.

The positive commentary around the QSR business, and how that's performing relative to sort of the casual dining or or and maybe more white table top line.

Give a sense of what the breakdown there would be pushing some markets.

How much of that is is made up by the QSR business.

Well, Steven QSR is a substantial part of our of our business, we do business with most major banners I think that.

Bob I believe the world knows our larger customer, but but QSR is the majority of our what we call our foodservice business the great majority.

On the Pacific given that number welfare.

Yes, well you know the numbers Stephen in terms of our largest customer percentage of sales, yes, our foodservice groups that you can figure out what the percentage of and that's just the one and then like George says, we do deal with a number of the large banners.

Uh huh.

So so.

You extract from that you can come back to some sense.

The reality in the street sales.

Yep, Okay. Thanks, that's helpful.

And then yes, the new launches that.

You had in place.

Positive for the for the front ended the quarter can you talk a little bit about how those performed.

In Hum.

Well, the 19 backdrop, one sort of depend a kit.

Well, it's a real mixed bag, Steve you know some some categories, where we saw tremendous success in the first quarter.

Such as sandwiches component that was driven by the QSR segment. So that clearly has gone away other categories, such as the dry cured and the meat snacks.

Well, let dry cure it has been a positive overall given the strength of the retail channel meat snacks is kind of a mixed bag because one of the channels that has been hit really hard is the convenience store channel and my guess a lot and meat snacks gets sold through that channel. So, whereas meat snacks is doing strong in the retail it.

Is struggling in C store, so it's sort of a whole bunch of different stories in there.

Okay. That's all that's great and then maybe a slightly in terms of acquisition you talked about.

Sort of pausing the pipeline.

Can you just talk a little but where your acquisition pipeline sort of SAP once said before things slowed down and when you might expect that to pick back up.

In the.

HM presentation, Steven which is posted on our website at the very end. There was this slide that even breaks down our acquisition pipeline in terms of.

The ones that are likely to happen the ones that are.

This likely they.

Probable loans et cetera, we've given a lot of color on the pipeline, it's a substantial pipeline.

I think it's the first time, we've done that I mean, you may want to take a look at that in terms of acquisitions I get us our official position is that of course, where we're.

In a number of discussions and and.

We have a lot of.

Possible transactions into pipeline at this point, where wait and see and we're trying to assess the.

The market and what the environment is set is doing and when things are going to get back to normal at this point.

Okay. So that's what I'm thinking institution. Thank you.

We'll take your next question from.

The Waskom from RBC capital markets. Please go ahead your line is open.

Thanks, So just a quick one on the working capital here I think you indicated that there is some inventory build up in Q1, I'm just thinking about the rest of the or what should we expect for Q2 should there be a bit of recovery of any comments on the full year.

Our working capital just balance.

Yeah, we do expected to come back to normal levels. So if you map out sort of the trend from last year and we haven't done a lot of acquisitions since last year that should give you a good signal for Q into Q2 going into Q3.

Really is expected to be a one time spike at the end of Q1 now having said that we'll see how things fall out over the course in the next several months because there are so many uncertainties, but based on the scenario of.

Some normalcy coming back to the market then you should see a decrease in I'm a material decrease in or networking capital.

Thank you.

I would like to kind of the conference back to you for any additional are closing remarks.

Yes. Thank you, Brian we hope everybody stays healthy and Safin. Thank you for attending today.

This concludes today's call. Thank you for your participation you may now disconnect.

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