Q1 2021 Premium Brands Holdings Corp Earnings Call

[music].

Good day and thank you for standing by welcome to the premium brands Holdings Corporation first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question day in day two session to ask a question during this search.

You will need to press star one on your telephone.

If you require further assistance please press star zero.

Speakers for today's will be George Kelly logo, CEO and president of premium brands and will collude each CFO of premium brands I would now like to hand, the conference over to your speaker today, George Palliative uncle. Please go ahead.

Thank you Cheryl and good morning, everyone.

I would like to welcome you to our 2021 first quarter conference call.

Hopefully you had a chance to attend our AGM presentation yesterday.

Case, you Didnt you can find the presentation deck on our website.

We are now on slide four from the <unk>.

Presentation.

Our CFO will pollute the Chennai will walk you through our Q1 results as reported this morning.

We are now on page five on slide five.

Our key messages this quarter.

We're making excellent progress with our platform.

We delivered record Q1 results despite ongoing COVID-19 related challenges, including supply chain disruptions logistical issues and of course commodity inflation.

Demand for our products remains very strong, particularly in the U S driven by the economy reopening and the return.

Well the out of home dining.

April sales were very strong across all platforms for.

For the first time in our history, our U S based sales in our specialty Foods division exceeded our Canadian sales.

So your water delivered an excellent first quarter with a 940 basis point margin improvement driven by ecosystem coordination synergies and strong price realization.

Our acquisition activity remains robust we expect to complete.

Many transactions over the course of the year.

And our PB seafood platform, including Clearwater is beginning to take shape as the only vertically integrated seafood entity North America with unique competitive.

Competitive advantages leveraging best in class assets at.

Seven management teams and featuring ocean to plate related attributes like premium quality sustainability and traceability from bind with Exxon in social and environmental stewardship.

I will now pass it to our CFO will <unk> for the financial portion of the presentation well. Thanks, George before I begin I would like to remind you that some other statements made on today's call may constitute forward looking information and our future results may differ materially from what we discuss please refer.

For to our 2020, MD&A and other information on our website for a broader description of the risk factors that it can in fact affect the company's performance.

Now turning to our sales on slide seven.

Our sales for the quarter were 1 billion $9 8 million up $74 8 million or 8% from 2019.

The key drivers of our growth where organic volume growth of roughly $79 million.

Driven by the continued solid progress we are making in all of our core categories, including meat snacks, charcuterie cooked meats artisan sandwiches and seafood.

The next major driver of our growth where acquisitions, which accounted for about 59 million of our increased sales.

And then filing selling and price inflation of roughly $16 $6 million.

When looking at the selling price inflation between our specialty foods segment, and our premium food distribution segment. Most of the inflation came from our premium food distribution segment, which has very dynamic pricing and was able to address the inflationary environment. We are in a very quickly.

Our specialty foods segment had about six and a half million dollars of selling price inflation roughly half of that being cost plus related cost.

Cost plus contracts with certain customers and the other half being selling price increases put through to deal with price inflation from late in 2020.

Offsetting these positive drivers of our sales growth for three key challenges the first by far and most significant was COVID-19 related factors.

Which was a headwind of about $46 million in October.

In our sales I'll talk a bit more about that on a later slide.

Next was the stronger Canadian dollar our average translation rate for our U S based businesses for the first quarter of this year was 1.26 versus 1.35 in the first quarter of last year and then finally, we had some labor related lost sales due to our <unk>.

Certain sandwich plants ramping up for customer demand and having some issues getting labor.

For ramp up for that demand.

Problems have now since been resolved, but they were an issue in the first quarter.

Normalizing for COVID-19, our sales would have been 1 billion $55 6 million or roughly a 13% increase from last year.

Turning to slide eight talking about our organic growth rates.

The solid line on this slide is our actual organic volume growth rate and the dotted line is our organic volume growth rate normalized for COVID-19.

The key message of this slide is really how much COVID-19 has been hiding the success of our our businesses in growing their sales. If you look at the last six quarters and you strip out the impacts of COVID-19 you can see that our businesses have been growing at high single.

Digits low double digits, so good solid traction gaining there.

Driven largely by our product categories, all being on trend and the investments we've made in capacity over the last several years.

Turning to slide <unk>.

Nine and looking at the impact of the pandemic on our sales can see for the quarter the impact was $45 8 million.

Oddly in the first quarter of 2020, the pandemic actually had a positive impact on our overall sales our specialty foods sales were up about $16 million and then this was offset by some foodservice impacts in our premium food distribution group for a net impact of $6 6 million.

Once normalizing for that the impact in the first quarter of this year was roughly $39 million.

You can see the breakout of the impact most of it was in the foodservice segment $34 million in foodservice 9 million relating to airlines.

$2 6 million to cruise lines and retail was roughly flat again because of the bump we saw in the first quarter of 2020.

Looking forward, we are cautiously optimistic that once the economy starts reopening that we should see a quick recovery in our foodservice and we base that on a couple of considerations. One is what we're seeing in the U S and Chinese.

Economies with the reopening is there and that the strong demand in the foodservice channel, resulting from that but also interestingly. We saw early in the first quarter. Some some decent demand in our foodservice channel starting to form is as you know there is some normalization in the environment However, with the.

The increase in infection rates in Canada, and the increased lockdowns associated with those we quickly saw that trend reverse.

Turning to the next slide our weekly sales trend.

Really the only point to illustrate here is we're starting Q2 very strongly.

Q1 was a good quarter. It is our seasonally slowest quarter and you can't read too much into it as we go into Q2 and start seeing some of the seasonal demand kick in we're very excited about what we're seeing at this point.

Next slide turning over to EBITDA, our EBITDA for the quarter was $82 5 million, an increase of $18 2 million or 28, 3% from 2020.

The major drivers of this were acquisitions, and particularly the Clearwater acquisition, which generated about nine and a half million of investment income.

And sales growth, which was a major also contributor to our EBITDA growth and then finally production efficiencies, we continue to see great great debt.

Strides being made in our specialty foods group across various plants.

Other factors positively impacting the our EBITDA, but in a much more insignificant way was COVID-19 from a cost perspective.

Overall had a slightly positive impact is negative costs in our plants associated with additional PPE and production efficiencies were offset by savings in marketing and travel and a small amount of government subsidies.

From a commodity exposure perspective, it was a slightly positive overall.

We saw it in our premium food distribution group some margin expansion.

Given the inflationary environment there their ability their dynamic pricing models, and some decent inventory positions and for buys they were able to take advantage out to get some margin expansion, but that was largely offset by margin contraction in our specialty foods segment as that inflation.

Our environment hit them and in many of these businesses. There's a 30 to 90 day notice period for getting selling prices through with their larger retail customers.

Most if not all of our specialty food businesses now are in the process of putting through price increases to deal with east. So we're cautiously optimistic to some degree we will mitigate the impacts of this inflationary environment going forward.

The negative factors impacting our EBITDA for the quarter, we continued to invest in infrastructure to support our growth both from the perspective of plants as well as SG&A.

And then we saw wage inflation, albeit we're starting to lap some of the numbers from last year. Some day increases put through last year, so not as material as last year, but still a factor in the quarter discretionary compensation was up and then finally the stronger Canadian dollar continued to impact our ebitdas wealthy the translation of our U S.

Dollar since I talked about earlier in our sales.

If you normalize our EBITDA for the impact of COVID-19, which overall for the quarter was about $9 $7 million that consisted of about $11 million of negative impact from the the sales lost offset by about $1.3 million and net COVID-19 relate.

Net savings as I discussed earlier.

Normalizing for that our EBITDA is $92 $2 million or an increase of roughly $28 million or 43% as compared to 2019.

Our margin for the quarter was eight 2%, which was a nice improvement over the last few years and then normalizing for COVID-19. It would have been eight 7%.

Turning over to the next slide talking a little bit about the inflationary environment. We are seeing inflation across all sorts of elements of our business clearly most commodities that we buy as inputs pork beef chicken and Turkey.

Certain species of seafood.

Corrugated as and then other parts of our raw materials, such as corrugated materials packaging and.

Several other elements that we use in our manufacturing. This this slide highlights two key commodity some pork index and a beef index and you can see the significant amount of inflation happening in these as I mentioned earlier, our businesses are putting through selling price increases to deal with these these inflationary.

Price pressures.

Turning to our earnings on Slide 13 earnings for the quarter were $32 3 million, an increase of $11 $2 million or 53% and this is despite COVID-19.

The key driver of that was our EBITDA, which was up $18 2 million as I discussed earlier, and then offsetting that with some increased taxes and some increased depreciation associated with acquisitions and recent capital expenditures.

Normalizing for COVID-19, which had a net of tax impact on us of about $7 $3 million, our EBITDA or sorry, our adjusted earnings for the quarter were $39 $6 million, an increase of $18 $5 million or roughly 57%.

In terms of in terms of earnings per share.

Our number for the quarter was 72 cents a share up 19 cents a share from 2019 or roughly 35, 36%.

Normalizing for COVID-19, our earnings per share would have been up to where it had been up 91 cents per share for the quarter are up 38 cents per share or 72%.

You'll notice the percent increases in our EPS relative to our earnings was a bit lower and this is really a function of the equity issuances. We did in 2020, a lot of that capital was still sitting on our balance sheet and not yet put to work, which youll see in a later slide and so we do expect is that.

Capital starts to generate returns continuing improvement in our EPS relative to our earnings overall.

Turning to slide 14.

Talking a little bit about our Clearwater acquisition, the most significant in our history.

We acquired a 50% interest in them.

Very strong start as George mentioned earlier Tom.

Top line was relatively flat flat slight down about $6 $4 million and largely due to some Brexit related challenge for their Scotland operations, a lot of which had been dealt with and is in the rearview Mirror and then also the stronger Canadian dollar is a good portion of their sales are in U S currency.

Yes.

Also interestingly their sales were lower because of some of the discipline they were able to.

Take in the selling of their products, given they're stronger balance sheets. So more product went into inventory this quarter than in past quarters in the expectation that it will be sold later in the year at higher margins when those products for seasonal reasons, there's a.

Much more significant demand for them.

Offsetting those negatives on the sales was was China and the reopening there we saw some good demand, particularly in clams in life lobsters.

In terms of EBITDA very strong performance by the company are up $7 8 million to $21 million.

Driven by for key factors.

Operations, great efficiencies, both from continuous improvement, but also very high quality catches that allowed for very efficient processing.

Was a big driver of the results are stronger margins in China. The U S. In foodservice as those economies reopen and some improved demand in retail in Europe helped with the general pricing environment across a range of species and then most.

Interestingly, our next two big drivers of the improvement in their margins, where there are synergies with our ecosystem. One was as I mentioned earlier than.

And then taking a much more disciplined approach and what they are selling not being afraid to put product into inventory and as a result, what they did sold was sold at higher margins and then also leveraging the knowledge and distribution within premium brands two to maximize their margins. So overall a really.

Solid start with clear water and a great improvement in their EBITDA well ahead of expectations for the quarter.

If you look at the statement on the left hand side of the slide you'll see down below highlighted in gold. Some some a large cost. These were the acquisition costs and closing fee paid to premium brands. These were purely one time costs associated with the transaction and will not be reoccurring.

Turning over to slide 15 cap talking a bit about capital allocation.

During the quarter, we allocated a $721 million of capital $637 million of that for acquisitions.

$67 $2 million for major capital projects, and 16, and a half million dollars to a REIT as part of a sale and leaseback transaction on certain properties held by the company.

In terms of actual dollars spent in the quarter, we spent $682 million putting to work some of that capital that I mentioned earlier that was sitting on our balance sheet at the end of 2020 again acquisitions being that big number $637 million.

Large capital projects, we spent roughly $17 1 million on smaller capital projects $11 million, and then $16 5 million on the read as I mentioned.

Looking forward subsequent to the quarter, we've now stay a another new capital projects and expansion of our Buddy Sandwich plant roughly are in Canadian dollars for $15 million project.

Again, as we've talked many times in the past about our base expectations around any capital. We invest is a minimum 15% internal rate of return based on after tax Unlevered and generally on a 10 year plus cash.

Cash flow model. So again these are long term value drivers that will continue to to help us create value at premium brands.

Turning to slide 16, and looking at our balance sheet at the end of the quarter. Despite the capital allocations I mentioned earlier, we continued with a very strong balance sheet, we had about $405 million of unused credit capacity at the end of the quarter, our senior debt to EBITDA ratio was two five to one.

Non which is at the very bottom of our long term targeted range of two five for one to 3.0 to one.

And our total debt to EBITDA ratio was three eight to one.

Nicely below our long term targeted range of four points euro to 1% to 5.1, our search for five to one.

And I should mention the only difference between our senior and our total debt EBITDA ratios or our convertible debentures.

One looking forward, we did complete the sale and leaseback transaction in the quarter a closed on the last Friday of the quarter. Unfortunately, the funding in flow until the following week as a result, the net proceeds of the sale and leaseback of roughly $152 million.

Sitting as a receivable on our balance sheet.

When you normalize our our financial position for that cash flow that would increase our unused credit capacity to 550 million clearly positioning us well to continue to execute on our acquisition and capital projects initiatives and it would drop our senior debt to EBITDA ratio.

So down to two point for $2, one to one and our total debt to EBITDA ratio down to three three to one. So again, we continue to have a very strong balance sheet.

Next slide Slide 17, just a couple of comments on convertible debentures.

Again, our convertible debentures is an equity strategy for us.

The concept that we're raising equity ultimately at a premium instead of a discount by issuing shares directly so correspondingly our strategy is always to force conversion with our converts as soon as we can we've done nine debentures. So far six of them have been fully converted three are still out.

Tanning and you can see the most that the next one that matures at the end of December 2023 is now well within our share price is well above the call price of $107.25.

Unfortunately until the end of this year the conversion can't be force unless the share price is 125% of that price. So so we can't converted as to debt today, but again as soon as we can we will be forcing conversion of that convertible debenture as well.

And then my final slide slide 18 on our free cash flow.

Nice improvement in our free cash flow for the quarter up $14 $2 million to 203 million as compared to on a trailing 12 month basis as compared to 2020 and this is again despite COVID-19.

From a free cash flow per share basis, we are back at our historic record of $5 eight per share. The last couple of years, our free cash flow per share has been impacted by a couple of challenges in 2019. It was the outbreak of African swine fever.

In China that disrupted global protein markets, and then 2020 was COVID-19 and then as well both years there were some share equity issuances that resulted.

<unk> resulted in some short term dilution until that capital was put to work, but without capital being put to work now and the growth. We continue to see in our business. We now expect to generate continue.

Our record free cash flow per share amounts.

Our dividend for the quarter was $63.05 per share, which works out to an annual rate of $2 54 per share that that's up 10%. We are 10% increase that we announced during the quarter from our dividend rate in 2020.

That dividend resulted in a payout ratio based on a trailing 12 month basis of 48, 3%, which is below our sort of general general targeted range.

As my final comment to the presentation I would like to make aware to everyone who has not seen our AGM presentation. Then in it we provided detailed roadmap roadmap on how we expect to achieve our 2023 targeted sales and adjusted EBITDA of $6 billion and $600 million respectively.

I encourage you to have a low cabinet with that I will now turn the presentation over to George.

Thank you we are now on slide 22.

'twenty one.

Yes.

Yeah.

Yes.

Yes.

Clearwater, the Clearwater transaction in partnership with make my first nation for historic and transformational.

<unk>.

We'll explain the transaction closed on January 25, 2021 the day.

<unk> created a global top 20 seafood company and the only vertically integrated seafood platform in North America.

PBC for Division also delivered record growth and record EBITDA during the first quarter leveraging best in class products combined with favorable consumer trends and strong retail demand.

Our ocean to plate branding initiatives are beginning to take shape in the north American marketplace, leveraging on trains attribute like premium quality transparency innovation, social responsibility and community engagement.

We are now on slide 23.

And 24.

We're making great progress in growing and diversifying the sales of our U S protein platform its growth during the quarter was in the high teens.

Mystic meets the sales continue to ramp up and we're on target to exceed the $100 million in Neath sales in 2021.

Operational and business improvement initiatives are going very well, including investments in increasing capacity at our hampers facility, where commission, we've commissioned a 50000 square foot expansion.

Our authentic charcuterie sales under the <unk> brands are going well, particularly in the C store segment, where demand is projected to be particularly strong.

And we're also in advanced discussions to acquire further capacity to support the growth of this exciting platform.

We're announced slide 25.

And 26.

Okay.

Demand.

For the products or Sandwich Division are there is very strong with choice, our channel returning to or exceeding pre COVID-19 levels.

Continued investment in technology, and automation initiatives with two generation free lines in order and the installation of a fully automated <unk> lines.

Our investments in Charcuterie and Panino tray Assembly have been completed we showed two videos yesterday at our AGM to demonstrate the reasons. We're so excited with our automation initiatives and sandwich.

Assembly.

We have invested in capacity to produce single serve meals and sales in this area are going well.

Our plant based breakfast sandwich sales are tracking to exceed 100 million this year.

And finally, our Sandwich division is projecting 2021 revenue to exceed $1 billion for the first time.

Yes.

We're now on slide 27.

As you could see our acquisition pipeline remains very strong and we expect to complete several transactions during the remainder of the year.

Slide 28.

Our first comprehensive ESG report is due to come out in June of this year, we are committed to achieving carbon neutrality and we'll be disclosing targets an objective in our upcoming ESG report.

I will now pass it back to Sheryl for the Q&A segment of the presentation Cheryl.

Thank you if you would like to ask a question at this time. Please press star one on your telephone handset.

We will pause briefly to compile the Q&A roster.

Our first question comes from John <unk>. Please go ahead your line is open.

Thanks, Good morning, I wanted to start on the cost inflation side contemplation side, how should we think about your ability to offset this and.

I mean, if we look historically, you've been able to get 1% to 2% price increases, but it does seem as though based on the chart that youre showing but also commentary received from across the space that inflation could be materially higher this year. So what's the willingness and ability of your business is essentially pass through a much higher price increases.

Yeah again.

It's a very good question, John I think you have to remember that.

Majority of our business is either cost plus.

For example, our entire sandwich platform has always been on a cost plus basis.

And.

And a lot of our business is always passing on price increases and price decreases, particularly.

On the distribution side right the pricing on the distribution side of our business is very very dynamic.

In fact that as will mentioned earlier, sometimes inflation.

It's beneficial because we're always holding very large inventory positions in that area. So really the only part of our business that has some exposure to.

Inflation with regards to commodities is a protein book.

You have to remember that our protein group is really.

The most premium products in the market and the products don't sell on price.

You're out there with the consumer and we want to buy the lowest quality out there in the low at the lowest price you don't buy premium brand products right. So our consumers are very loyal we passed on substantial increases to them in the past and.

Well they continue to buy the crop.

So we feel very comfortable with the ability of the platform to handle high.

Inflation as we as we see right now yes.

Yes, So John you made the comment of 1% to 2% inflation.

Mike.

Not sure where that number comes from but when you look at our protein group and you'd go back for instance to when we had the issues with ASF in 2019 or the disruption back in 2014, and 15 with a range of issues. They were double digit price increases they were putting in place over the course of the year.

Got it thanks.

Maybe we can move to the comment in the press release about global shipping networks and the disruptions <unk> seen there can you elaborate on exactly what the impact youre seeing on that is and what you expect rest of the year.

Yes, I think it's well documented John there is.

The shortage of <unk>.

<unk> around the World I guess.

World consumption has turned to goods and services as a force to two.

It's a good discipline for the services and.

For the shortage of containers, so theres a lot of delayed.

There's a lot of unloading type of delays because of congestion in different parts et cetera et cetera, again, it's just another headache as you know with other headaches to deal with.

Over the last year end debt, we're just mentioning it because again it's out there.

We'll manage through it.

We've always had diversified set.

Supply chains and and.

Again, it's another area where we.

Here, we need to manage.

Understood and then last one for me on the labor supply issue in the U S. I think you had said during the call that this has been solved.

This is an issue we're hearing from most other companies in the space. So I guess, how would you characterize.

Your level of confidence that this isn't going to limit sales increases in the rest of the year or would you may be see a higher wage inflation.

Could impact margins rest of the year in the U S.

Yeah again John.

The issue for Us really is.

The demand side as I mentioned in my prepared comments, there is tremendous demand, particularly in the states where things have opened up we are seeing an precedented demand.

Particularly in the <unk> channel. So again the challenge for us is to.

To hire more people.

To be able to keep up with the demand and what we're saying is we're going to grow.

No.

See some of the benefits of that back.

And less in some cases, where we're able to find the labor we're going to walk away from business or are we going to pass on some business right. So really the focus here is not the labor shortage, it's really the robustness of the demand.

Okay, that's great I'll pass it on thank you very much.

Thank you and our next question comes from George to Bank. Please go ahead. Your line is open.

Okay.

Yes, hi, guys.

And I know, there's a lot of moving parts to be to be inflation kind of debate.

Maybe talk a little bit where we are looking at where input costs for today I think you mentioned kind of a double digit price increases in the past.

We're more diversified across different commodity, but can you maybe tell us a little bit about where you.

Good thing thinking in terms of order of magnitude of book.

Price increases that you were going to put through in Q2 and Q3.

I think George it varies of course by segment and by by commodity and again, George we're going to put whatever price increases through.

Are necessary for us to maintain our our margins to continue to run our business right and that's what we've always done.

Again, I just wanted to remind you that our products differentiated we're not a commodity player.

And and.

We have demonstrated our ability to two.

To pass on these price increases in the past and thankfully the consumer continues to buy our products are right, where we're more concerned about velocity, sometimes when we raised price has been anything else back but again.

In the past we've been pleasantly surprised by the fact that even with higher prices.

Consumer.

Our loyal consumers continue to support our products.

Okay, and given the magnitude which looks to be pretty high.

How confident argue that will will get to hold onto some of these prices.

Inflation abates and in Europe.

Yeah.

Again, George its not about holding on to those it's really about.

Passing on the cost today, I think that a lot.

Other times, if raw materials come down.

Testing promotions and those type of things so that we can find new markets and.

Provide new volumes and new opportunities for our products right.

But again, it's just.

The issue for us is to maintain our margin side fair nipples rather than two.

Gouge the market, let's say when when commodities come down.

Okay.

On the Clearwater substantial improvement in gross margins you guys. It looks like it's about 140 basis points.

Just wondering how much of that is really due to the PB ecosystem synergies.

Can you maybe quantify that for us and also.

Looking at for this year index can you maybe call out what those PB ecosystem synergies could be or it could look like from what they are.

Yes George.

I think that day.

We're not in a position to do that at this point George.

My comments would be that.

Commodity companies are never good.

Public companies.

It's very tough to be a commodity company in the public markets.

I think that clear water.

It's a very very well managed company tremendous.

Assets, great quality assets tremendous access to great resources.

There's no doubt in our in our mind that this company will be a stronger seller.

And we will exercise better price realization given the uniqueness of its products and.

A lot of other benefits youre seeing are because.

Clear what it is not a publicly traded company.

It doesn't have to report.

And sales every every quarter right, so plus again the benefits of.

For Intel from the front lines, which.

Which clearwater is getting our incredibly beneficial to them and I would also like to say that.

There is a halo effect Clearwater is a great company great brands.

Great global reputation and the products they've brought a halo effect to our.

PBC for business as well and again part of the reason why if PBC for division had a.

A record quarter.

So.

Early stages, the markets have gone with without which is a good thing.

And all day.

Great great demand.

In China, and the U S as the economies open up and <unk>.

Clear weather of course will benefit from some of the commodity inflation that you and John mentioned earlier right. So even Clearwater provide day.

A nice hedge for us when.

Protein costs appear to be inflationary.

Okay.

One more if I may maybe for will.

For the past you guys have done a few AD hoc sales and leaseback transactions.

It seems like we got a nice capital unlock here is this something that we're going to be doing more and Moreover vs. Three industry. This is a one off.

Well, it's a tool we quite often use with acquisitions when the owner of the business has a piece of real estate debt they bought way back when they founded the business.

And there's a tremendous amount of value tied up in the real estate. So it's a nice way for us to unlock that value while continuing to control the real estate. So these pieces of property were all related to our confetti acquisition that we announced in the quarter as well so generally it's around that.

It's very rare occasional but rare that we'll take sort of legacy assets enrollments for the REIT, but having said that here and there that does happen.

Okay. Thanks for your answers guys. Good luck.

Thanks, George Thanks, George.

Thank you and our next question comes from Martin Landry. Please go ahead. Your line is open.

Hi, good morning, George and will.

Alrighty.

My first question is on.

On your comments on April being a record month for you.

I would love to get some color.

As to whats the breakdown in terms of sales growth between Canada and U S I would assume debt.

The U S has seen.

You know really good growth in Canada is probably more muted give.

Given the lockdown measures in Ontario, So I'd like to hear a little bit more on that front. If you can.

Yes, I think certainly captured it.

<unk>.

We've talked a lot about our sandwich.

Sandwich group of course, our protein platform.

In the U S.

And our seafood platform in the U S.

A number of states have opened up their economies.

All I can say is that we're just seeing amazing demand in those areas.

To the point as I said earlier, where given some of the logistical challenges.

Sure.

We have to.

<unk> from business, but but again or opportunities, but again a lot of growth or.

The great majority of the growth for us is coming out of the U S.

In Canada.

Fine we're doing well.

As will said we were getting good traction in foodservice in the early part of the quarter and then.

With the Lockdowns in March.

Things slowed down and I mean.

That shouldn't surprise anybody.

Yeah.

And maybe that's a good segue into my next question on capacity utilization.

Can you talk to us about which platforms are you tight on capacity right now I would assume to sandwich platform is probably one of them and maybe talk about you know what kind of capacity expansion is coming up near term to alleviate that.

Yes, so we have announced several projects over the last couple of quarters.

Across various platforms are our sandwich group, we just announced.

<unk> initiative as well as the Gen three land lines last quarter. So <unk>.

Investing in capacity in the Sandwich group the protein group Similarly in meat snacks, we announced the investments it at at <unk> and <unk>. So those are two key areas. We are investing in dry cured is another area, where we are doing the brand for an expansion with pillars.

So.

Essentially goes across all of our key categories.

Seafood.

Nothing major planned right now but.

We continue to invest in the infrastructure to support the distribution, but that infrastructure is one of the things that a lot of capacity was freed up with the demand destruction in foodservice.

And then the last major area artisan breads were investing in our new Stripers facility, we announced that a couple of quarters ago and that that business is.

Again, our U S expansion story tremendous opportunities down there and lacking the capacity to execute on them. So it really.

Projects across all the major categories pretty well market.

Okay and is it possible to perhaps quantify you know how.

How much sales these.

Pension projects could support once fully ramped up.

Yeah, I don't have that number you know that's part of what we built into our five year model and supporting that growth.

It varies.

Quite significantly from project to project, but it's certainly in the.

$200 million to $300 million range, when you add up all the projects as a minimum.

One comment on that Martin is that in the past we've also.

Leverage co.

Co Packer capacity to support our growth right. That's always been a part of our play.

Playbook.

Again, not all of our products are made by our companies right and for example, now we are in the process of working with a few co.

Co Packers to to support growth.

Okay. That's helpful. Thank you.

Thank you Mark Thanks Martijn.

Thank you. Our next question comes from David Newman. Please go ahead. Your line is open.

Good morning, gentlemen, great set of results and including Clearwater out of the chute.

Not to beat a dead horse, but on the on the commodity inflation.

Very confident you guys can get it through you had done it in the past obviously you can get it through but is there any sort of short term timing difference here in terms of 30 to 90 day lag and in retail in the protein and should we be cautious about the second quarter margins on that front until you can get it through and cover the nut.

Or do you have enough inventory or for buy positions that you can leverage in the inflationary environment.

Yes, we do have some inventory positions to carry us through and help mitigate so really gave it its one of tracking what happens in the market.

If prices continue our cost continue to accelerate like they have then certainly that the inventory is only going to take us. So far our forward buys are only going to take us so far and there will be some margin pressure, but in the short term, but again, it's going to be a function of what happens.

Over the next two months any other year.

The other go ahead for 200, yes.

The other comment I would make.

David.

You shouldn't make the assumption that all of our commodity stock bought all Luis at market prices right.

In cases, where we entered into long term commitments with <unk>.

With our suppliers in.

Based on fixed pricing et cetera, et cetera, right. So that's.

Just to come okay, well hopefully they hedged it.

I guess the second thing is you've done a great job.

Keeping your doors open keeping our customers happy and you made a comment that you are seeing some opportunities arise out of that in terms of being a good supplier to some of your key customers.

Is there can you kind of point to a few things that you're really seeing where that's really kind of gaining traction.

Yeah, I think we've mentioned it earlier.

David.

Again.

Particularly with respect to our U S platforms the.

The demand with respect to all low for U S platform CSR is unprecedented because.

Our our St Patrick's day.

Done an incredible job with regards to business continuity and.

And <unk>.

Providing.

Steady supply chain to their customers.

I can tell you unequivocally that.

Demand and opportunities.

Or are not lacking in any way.

So the issues for us of course is to figure out.

The.

The labor situation and some other logistical issues, we've talked about but this is the U S platforms growth. It's a very good example.

What you just said and how we are benefiting from the fact that.

We've had very good execution in those platforms.

Okay, and then the last one the sort of the how the quarter shake out here in terms of the cadence of improvement coming.

Coming out of COVID-19 as an example, obviously travel demand we're seeing I think some of the cruise lines are sold out in the fall we're.

We're seeing a resurgence in bookings et cetera. So that's one area, where you kind of got hit coming in not only just full service restaurants, but obviously airlines cruise lines all of that area. So do you think theres a possibility coming out of this that you could over index.

Ah versus more normalized conditions as people are caged animals, and they want to get out and go go south or go on a tour or go on a cruise line or whatever do you think there is a possibly we could actually over index.

Yes, our general expectations are for.

Again based on what we've seen happening in the U S, David and in China and that little glimpse, we saw at the beginning of the first quarter.

We are bullish that once things open up there is going to be that Serge.

<unk>.

Our biggest foodservice exposure today that has yet to normalize from coal that is in Canada. So that's going to be a big factor in the turnaround that getting into some of the specifics, though cruise lines.

We're slightly bullish that yes, we will see some pickup towards the end of the year, but again, there's a lot of risk there and what happens is going to be really a function of international markets Airlines were fairly bearish, although I think youre going to see much more travel.

We're not quite sure how the food element is going to work at this point, so we're being conservative there and our outlooks and then foodservice absolutely when it comes back it'll come back with a vengeance, but the question is when does that happen.

And I guess, the only bearish comment on the Foodservice segment is a big driver and you saw that there was that earlier chart in my presentation on the COVID-19 impact by quarter and you saw a bigger impact in the fourth quarter and a lot of that is because of all the event type business that happens towards the last part.

Of the year.

<unk>.

That's a large gatherings of people and there's tremendous uncertainty how that's going to unfold for this year. So that's probably only bearish element in there. Okay. If I just squeeze one one minor sub question to that one are you seeing the potential for Staycations. This summer.

As people really make travel plans to hit the road in terms of meat snacks and sandwiches and things like that do you think that's really going to resonate this summer.

Uh huh.

I think that.

And again, we have to be careful whether we're talking about Canada and the U S right.

Net.

Opening up.

Nicely and.

We are expecting unprecedented demand.

Cease during Q Istar, David we're already seeing it.

Okay.

As I said earlier, our issue is not demand.

<unk>.

I think a lot of people will still take driving holidays as opposed to flying holidays.

So again, we're expecting substantial demand and those share in those two channels.

Excellent. Thanks, guys very helpful. Thank you David Thanks, David.

Thank you and our next question comes from Michelle Michelle Schroeder.

Go ahead your line is.

Good.

Yeah, Thanks for taking my questions.

So I understand the commentary that PVH.

<unk> seen a substantial demand for its products, which is nice to hear.

I wanted to focus in a little bit on the <unk>.

The meat snacks category.

Which isn't a focus category that management.

Indicating that there was a lot of opportunity and one of the lines was that he was opportunistic low market share for.

For the meat snack brands.

Because of the quality.

Our success in other markets I'm wondering how the market share is doing.

In that particular category, you're seeing expansion there.

Yes, I think we have to be careful when we talk about that.

The meat steak category right because again, we're the lead meets the company in Canada by far, but I'm not sure we've ever taken taken anybody's market share, we simply found white space.

We felt strongly when we acquired disorders that it meets the category was very under developed.

In the U S mainly because the the main brands have mistakes were very low quality. So again, we've launched a lot of very high end premium products, just like in Canada, and we are gaining great traction with regards to those products because those products are finding.

The vast white space right. So it's not about.

Taking somebody's market share it's opening up.

New markets for our product at premium brands never never looked at the market in terms of going after some of it is market share that is silly equation right, we try to find new opportunities and new white space for a certain product when you look at our coke products into the <unk>.

U S. For example R R.

Cook Skewer products.

That is a substantial category and.

And that was.

Completely new space, we never took anybody's market share in that space, it's well over $100 million category for us maybe close to other mills.

But again that is the <unk> approach right right right not about market share.

Thanks for that color and just switching gears for just talks about the traction.

And the sandwich.

Sandwich platform with management's targeting.

$1 billion or I don't know, if that's greater than a billion or it doesn't dollars for.

For for sales, which are which is <unk>.

You know impressive given the challenges with COVID-19 just wondering.

What is the runway for that platform.

Besides book growth over the years and wondering how when you look out several years or anything.

The demand for that product is continuing.

Business double again.

Yeah again, we referred to it of course, it's a sandwich division, but it's really an assembly business right.

It's a sandwich business has grown well over 20% over.

10 years, but now they are <unk>.

Jewelry assembly in nature.

The category is growing.

Nice nice zone of the fastest growth categories.

In retail today and they're getting into.

<unk> Assembly, which is healthier type of.

Meat snacks and and.

Yeah.

Sort of meals, which we think it's a high growth category. If you look at the growth of the category in Europe for example.

So it goes back to my comment with regards to finding white space and trying to create markets not trying to steal somebody's market right. So they're again, they're diversifying the euro.

Assembly capabilities very nicely to have a lot of.

They are getting a lot of traction in.

In EMEA or in areas that I wouldnt call sandwiches and again, we're really really excited by the growth.

Growth prospects.

Some of these new.

Skus that they're in.

Thank you for the color.

Thank you and our next question comes from Derek Lessard. Please go ahead. Your line is open.

Yes, good morning, or sorry, good afternoon, everybody.

I just wanted to take the Clearwater integration, maybe a step.

Further.

Could you talk about the integration of the lobster business with Clearwater and.

And ready seafood and maybe some of the wins and opportunities that youre seeing there.

Yeah, I would say that the word.

Garik is not integration is coordination.

The management teams of both companies are working.

Streamlet closely on supply chain type of <unk>.

Synergies.

And also on marketing and sale synergies as well and and really it relates to price realization opportunities more than.

More than anything and again, we're really pleased with the way the.

The two management teams are working together and as you know lobster is a big segment for us.

We're working on several value added type growth.

We have initiatives with regards to lobster Clearwater.

<unk> was never focused on day value added part of the.

For the business and again all I can say is that we're extremely pleased with the.

Coordination type of activities between the two companies great Great management teams great initiatives great coordination.

Okay. Thanks for that and my last one is I guess I'm wondering where you are in the automation of the sandwich plants.

And if you're expecting that to maybe perhaps alleviate some of the labor pressures you are seeing there.

Yes, Derek I don't know if you saw the AGM presentation yesterday, but you actually showed videos of our generation three lines that we're installing and it's very exciting.

Is complete automation the use of.

I technology with robotics and anyway, yes, yes, it will give us that will give us.

More capacity and also there'll be a lot more efficient.

Okay. Thanks George.

Yes, I think there.

Thank you and our next question comes from Stephen Macleod. Please go ahead. Your line is open.

Thank you good afternoon guys.

Hey, Casey.

Lots of lots of great color so far.

But I just wanted to circle around on two things one was.

You mentioned that in Canada, particularly you saw you were off to a great start in Q1 before the shutdowns here and I'm. Just curious if you can give a little bit color on what growth rates looked like before things began to slow down in Ontario, and other markets in Canada.

Yes, we don't have a specific growth Blake to discuss Steve what we did see was a good sort of week to week improvement.

But we.

We never came to the point of actually coming to a full sort of normalization of our growth rate.

Again.

Again.

Steve.

<unk>.

In general terms.

If lockdowns that are announced which impact.

Restaurants, we get we get impacted right and Thats generally in our <unk>.

Distribution group.

Again, we March was a and lockdown month again.

In many parts of Canada, BC and Alberta.

Ontario, Quebec, mainly in <unk>.

Our our sales to that segment were impacted materially.

Okay, Okay that makes sense.

And then I just wanted to.

Make sure Im on.

Or if you had any color incremental color around kind of a cadence for sales growth.

Through the year.

I mean I think.

I would expect to see maybe that the top line based on the demand for it youre talking about accelerating Q3, or Q2, sorry, Q3 would probably begin to see minimal COVID-19 impacts from the year over year basis, and then do you expect to be in a more normalizing for environmental the time you get to Q4.

Steve that's the very reason, we're not giving any guidance for the year at this point is it all depends on how COVID-19 rolls out.

So you make a couple of key COVID-19 assumptions and you change those in our outlook will change.

No.

It's going to be so much a function of how the economy opens up and particularly with foodservice in Canada.

And Stephen you saw you saw the April numbers right. We've disclosed April numbers, right and again, you can sort of deduce that we.

We are still in Lockdowns in Canada, and we have been impacted greatly in the distribution group, but that was by far the best April in record volume.

Those are.

For a very challenging April obviously last year.

So that just shows you the robustness of the demand in markets, where things are opening up obviously in the U S right.

If we make the same assumptions with regards to when Canada is going to open up then again all bets are off.

We're going to see substantial demand.

Yeah.

Okay. That's great. Thank you so much growth.

Yes. Thank you.

Thank you and our next question comes from the South African.

Please go ahead your line is open.

Okay, great. Thanks very much.

Just I guess on the following up on the commentary from the last question I guess in terms of the uncertainty looking ahead.

Are you seeing or are you more concerned about the food retailers specialty foods channel or is it more premium food distribution are really just trying to understand based on the conversations you're having with your customers.

Jerry is maybe more uncertain as it looks for the back half for this year and into next year.

Sorry, sorry.

But can you repeat the last part of that you cut out on us.

Just on the in terms of the outlook, obviously youre not providing outlook just given the operating backdrop, but based on the conversations you're having with your customers.

What is more of a certain area for you is it the premium food distribution side or is it for specialty food side, where does it where.

Are you less certain on the outlook.

Yes, certainly.

In the specialty foods side, the key area being impacted is really the airline business theres, a little bit of foodservice exposure, there, but its the airline business.

Like I've mentioned earlier, we're pretty bearish on that we don't hold up.

It's probably the impacts going to be relatively consistent for the rest of the year.

So it's more than the premium food distribution side.

That's where the heavy heavy foodservice exposure is.

The foodservice in the specialty foods side tends to be in the <unk> segment and as George has talked about we've seen a significant rebound there already both that towards the end of 2020 and certainly in 2021. So it most certainly is the premium food distribution group.

And then just in terms of the crews and airline stuff for the airline exposure really sort of exposure you have quite a few years ago is that those are more business lines that are exposed to that side of the business.

It's primarily our sandwich group.

Okay, and then I guess, just looking ahead into 2022 and onwards.

A little bit of tailwind, obviously for food retail as an industry through COVID-19. How are you thinking about that as we go into 2022, you know do you have enough initiatives or other programs in place to sort of start to comp against the strong numbers.

For the industry benefited from modems in years or.

Based on what Youre seeing now is that demand and I think I'd be more sustained as you move forward even.

Kind of the economy reopens.

Yeah.

Again, when you sort of look back I mean, we've never really had.

<unk>.

Access to the labor or the.

A lot of capacity to take advantage of opportunities there were a lot of opportunities obviously to sell through to these channels during the pandemic, but really.

We were more focused on.

Business continuity, and obviously, making sure that we didn't overstress, our workforce right. So so again, we did fine in those channels of course, but but I wouldn't say, we took full advantage for the opportunities maybe because some of the other challenges. So so we're expecting a return to normal.

<unk> of <unk>.

Lifestyles that question is one of course is well set and again.

I wouldn't say that we've benefited immensely from the fact that.

Demand in club and retail was so strong.

Yes, we're hoping to sell it that there is some sort of longer term sustainable benefit as our premium food distribution group.

The foodservice businesses in that group, we've got a slide in our AGM presentation that talks about how they performed relative to some of the other peers in their segment of the food industry and they've done an amazing job of developing new sales channels, particularly.

<unk> in retail new relationships. So we really are bullish that there are some good sustainable opportunities in that channel. So when the foodservice comes back you should see some really good solid growth that they can maintain those sales as well as they can get back there.

Foodservice and then the one thing thats been lacking in all the growth numbers. We've been talking about is foodservice and Canada was a key growth market for us we made major investments in Quebec, and Ontario, and growing our sales in those segments and none of that growth is built into the organic nor.

<unk> growth rates, we've been talking about so yeah, you could see some really strong numbers from premium foods group once everything comes back.

Okay, and then if we think about the sandwich business target that you're laying out what the outlook for $1 billion in sales can you maybe help us think through the composition of that $1 billion. You know many many years ago. It was primarily one customer <unk> gone into other channel can you maybe give us some context on no other its mass or C stores, how big a portion.

Of your sandwich business, those new channels could be in it for years.

Yeah, you know it's exciting.

What's happening in our Sandwich group.

So many growth growth initiatives within that group Youre right.

Their business around our core customer.

But I can tell you that they had amazing growth in C store this quarter in retail both mass and general grocery like George talked about earlier for getting into other types of assembled products like <unk>, which has been a big growth driver also there assembled meals.

<unk> is another growth driver for them.

So many areas that are expanding and youre seeing that that that major customers.

Is becoming a much less significant overall customer to their platform.

Okay, and then just one last one for me I guess it was once he is for a customer you were doing some trials with them that was picking up.

Through the pandemic, presumably that program got put on hold or slowed down.

Is that is that something that's picking back up or is that just.

With that update on where that program is at this point.

All I'll say again is for that.

C store, we'll see tremendous growth for us.

This this year.

We are as will said were getting excellent traction in both our sandwich in our.

Protein division in the U S indices through channel.

And we're really excited by that.

Alright, thanks very much.

Yeah.

Thank you.

This concludes our question and answer session I will now turn the call back to George Kelly logo for closing remarks.

Thanks for everybody would like to thank you for attending today and.

Have a great summer.

Thank you for joining US today. This concludes our call you may now disconnect.

Yes.

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Good day.

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