Afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the High Liner Foods Incorporated Conference Call for Results of the 2nd Quarter of 2021. At this time, all participants are in a listen only mode. Following management's prepared remarks, we will conduct a question and answer session.
Instructions will be provided at that time for you to queue up for questions. Quarter. Quarter. This conference call is being recorded today, Tuesday, August 17, 2021, at 2 pm Eastern Time for replay purposes. I would now like to turn the conference over to Charlene Milner, Vice President of Finance for High Liner Foods.
Please go ahead.
Quarter. Thank you. Good afternoon, everyone. Thank you for joining the High Liner Foods conference call today to discuss our financial results for the Q2 of 2021. On the call from High Liner Foods are Rod Heppenstall, President and Chief Executive Officer and Paul Jewer, Executive Vice President and Chief Financial Officer.
Quarter. In a moment, I'll pass the call over to Rod for some remarks on our performance in the Q2 before handing over to Paul, who will review the financial performance. Rod will then make some final remarks before opening the call up for questions. I would like to remind listeners that we use certain non quarter. IFRS measures and ratios when discussing our financial results as we believe these are useful in assessing the company's financial performance.
Quarter. These measures are fully described and reconciled to IFRS measures in our MD and A. Listeners are also reminded that certain statements made quarter. Today's call may be forward looking statements that are subject to risks and uncertainties. Management may use forward looking statements when discussing the company's strategy and business in the future.
Quarter. Actual operating or financial results could differ materially from those anticipated in these forward looking statements. High Liner Foods includes a thorough discussion of the risk factors that can cause its anticipated outcomes to differ from actual outcomes and its publicly available disclosure documents, particularly in its annual report and annual information form. Quarter. Please note that High Liner Foods is under no obligation to update any forward looking statements discussed today.
Earlier today, High Liner Foods reported its financial results for the Q2 ended July 3, 2021. That news release along with the company's MD and A and unaudited quarter. Condensed interim consolidated financial statements for the Q2 of 2021 have been filed on SEDAR and can also be found in the Investor Center section of quarter. If you'd like to receive our news releases in the future, please visit the company's website to register. Lastly, please note that the company reports its quarter.
Financial results in U. S. Dollars and therefore the results to be discussed today are also stated in U. S. Dollars unless otherwise noted.
High Liner Foods' common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars. I will now turn the call over to Rod for his opening remarks.
Quarter. Good afternoon, everyone, and thank you for joining us today to discuss our results for the Q2 of 2021. I would like to start today's call by welcoming Anthony quarter. As we announced a month ago, Anthony has joined High Liner Foods as our Chief Commercial Officer, bringing his extensive experience in developing, marketing and selling multinational food and snacking brands. He will work to integrate our sales and marketing functions to advance our branded value added growth strategy.
We're thrilled to have thrilled that Anthony has joined High Liner Foods and we look forward to his contributions as we advance our strategy to develop deliver profitability and growth. I would also like to recognize the resiliency of our people and our business. Throughout the pandemic, our team has come together to focus on safely meeting the needs of our customers and consumers across North America despite their own personal challenges. As a business, we have remained extremely agile, quickly pivoting to mitigate the impact of the challenges presented by COVID-nineteen and the related market conditions so that we can continue to improve our financial performance, advance our growth strategy and create value for our shareholders. Quarter.
This was the case during the Q2 of 2021 when despite the continued uncertainty related to the pandemic And volatility of the global supply chain, we delivered gross profit percentage gains on increased sales. As with the Q1 of 2021, our performance metrics quarter. In Q2 are clouded by year over year comparisons. Once again, market conditions in the Q2 of 2021 quarter. We're significantly different than the Q2 of 2020 when we saw the surge in demand in our retail business As at home food consumption increased and the significant decline in foodservice demand as COVID-nineteen restrictions affected eating away from home.
During the same period this year, consumer habits shifted in the opposite direction as consumers changed their preference from having restaurant quality seafood at home And started to dine out once again, strengthening our foodservice business. We can all relate to the desire to start eating out again and are thrilled that our frozen seafood value added offerings are on menus and doing well. The foodservice recovery is in full swing. Even though many of our key markets still had in person dining restrictions and our non commercial customers were not yet fully operational during the Q2. Quarter.
There have been many occasions throughout the pandemic that I have felt grateful for the diversification of our business and the ability to serve consumers regardless of where they Wish Consumed Seafood. Financially, when you look past the year over year comparisons and compare our performance to 2019, We achieved a 2 year compounded annual growth rate of 1.7% on gross profit and 4.6% on adjusted EBITDA. Quarter. We also improved our gross profit as a percentage of net sales by 420 basis points from 19.2% in Q2 2019 quarter to 23.4 percent in Q2 2021. Aligned with our strategy, branded products represent 62 percent of our portfolio compared to the start of the pandemic when that number stood at 55%.
Looking at this trajectory, Along with the strength of our team, our product offering and improving performance in the Q2, we remain confident in both the resilience of our business quarter and our potential to continue to drive adjusted EBITDA growth over the course of the year. With that, I will hand the call over to Paul to walk quarter. Paul, over to you.
Thank you, Rod, and good afternoon, everyone. Please note that all comparisons provided during my financial review of the Q2 of 2021 are relative to the Q2 of 2020 unless otherwise noted. Sales volume increased in the Q2 by £1,100,000 to £50,400,000 In our foodservice business, sales volume quarter due to the impact of significantly reduced COVID-nineteen restrictions on the company's foodservice customers as compared to the Q2 of 2020. Quarter. This increase was partially offset by our retail business, where sales volume was lower compared to the same period last year due to the significant surge in demand at the onset of the COVID-nineteen pandemic a year ago.
Sales volume in the second quarter was also negatively impacted
quarter by the global supply
challenges that have resulted in shipping container availability issues and reduced raw material supply. Sales volume was favorably impacted by new business and new product sales. Sales increased in the second quarter by $24,000,000 quarter to $189,800,000 due to the higher sales volumes, pricing actions related to inflationary increases on input costs, lower promotional activity and changes in sales mix. In addition, the stronger Canadian dollar in the Q2 of 2021 Compared to the same quarter in 2020, increased the value of reported U. S.
Dollar sales from our Canadian dollar denominated operations by approximately $6,000,000 relative to the conversion impact last year. Gross profit increased in the 2nd quarter by $7,700,000 quarter to $44,400,000 and gross profit as a percentage of sales increased by 120 basis points to 23.4% quarter as compared to 22.2% in the Q2 of 2020. The increase in gross profit reflects the higher sales volume discussed above In combination with favorable changes in product mix reflected in the improved gross profit as a percentage of sales. In addition, the stronger Canadian dollar increased the value of reported U. S.
Dollar gross profit from our Canadian operations in 2021 quarter by approximately $1,500,000 relative to the conversion impact last year. Adjusted EBITDA increased in the second quarter by 2 point $5,000,000 to $19,600,000 and adjusted EBITDA as a percentage of sales remained consistent with the prior year at 10.3%. The increase in adjusted EBITDA is a result of the increased gross profit, partially offset by an increase in distribution expenses and net SG and A expenses. In addition, the stronger Canadian dollar increased the value of reported adjusted EBITDA in U. S.
Dollars from our Canadian operations in 2021 quarter by approximately $1,200,000 relative to the conversion impact last year. Reported net income increased in the 2nd quarter by quarter. $4,600,000 to $8,000,000 and diluted earnings per share increased by $0.13 to $0.23 the EBITDA, partially offset by an increase in share based compensation expense. Excluding the impact of certain non routine or non cash expenses that are quarter. In our MD and A, adjusted net income in the Q2 of 2021 increased by $5,700,000 quarter.
Our 121.3 percent to $10,400,000 and correspondingly adjusted diluted earnings per share quarter increased by $0.16 to $0.30 Turning now to cash flows from operations and the balance sheet. Net cash flows provided by operating activities in the Q2 of 2021 decreased by $26,400,000 to an inflow of $5,900,000 compared to an inflow of $32,300,000 in the same period in 2020 due to less favorable changes in net non cash working capital and higher income taxes paid, partially offset by higher cash flows from operations quarter and lower interest paid. Our cash flow position is allowing us to increase inventory to help mitigate the supply chain challenges we are facing. Quarter. Net debt at the end of the Q2 of 2021 increased by $3,400,000 to $248,200,000 quarter compared to $244,800,000 at the end of the Q1 of 2021, quarter.
Primarily reflecting a lower cash balance on July 3, 2021, partially offset by lower balances of long term debt and lease liabilities. Quarter. Net debt to adjusted EBITDA was 2.8 times at July 3, 2021 compared to 2.9 times at the end of the Q1 of 2021 and three times at the end of fiscal 2020. In the absence of any major acquisitions or unplanned capital expenditures in 2020, we expect this ratio to remain relatively consistent with where it is today. As a result of our strong balance sheet and cash flow, we remain confident in our liquidity position.
We do not have any impending debt maturities quarter. The company currently has no borrowings on this facility. I will now turn the call back over to Rod for some final remarks before opening up the call to questions. Rod?
Thanks, Paul. Now for a brief update on how we are advancing our branded value added growth strategy. As I've spoken about before, we are going quarter. We are putting marketing dollars behind this and are already seeing positive results in terms of both customer and consumer engagement. Take for example our pan seared 2 pack campaign on digital and social media.
We successfully educated consumers on the benefit of the product. The second The fact is it's restaurant quality ready in 20 minutes and perfect for 2 people. Paired this with a promotion and saw a 30% 40% increase in velocity and sales up on average of 30% during the month of the campaign. We also secured a major new Canadian retailer to product in Q3. We're also seeing encouraging results with our cuisine marketing campaign that I spoke about during our call our last call.
Quarter. This quarter, we kept up the momentum with sales driven in part by value added content across social media platforms. We look forward to enhanced packaging capabilities coming online to support the increasing popularity of this product. These are just a couple examples of how we are going to market differently and the opportunity that is out there for us. This is the tip of the iceberg and I'm excited to build on our early results as we integrate our sales and marketing efforts under the leadership of Anthony as our new CCO.
In foodservice, we are able to capitalize on the heightened profile of our products With our U. S. Sales team back in the field for the first time in 18 months, we are continuing to supplement with virtual selling as needed, We are taking all opportunities to deepen customer and supplier relationships and establish new ones. The foodservice rebound continues to be driven by Quick service restaurants and casual dining, many south of the border, we are optimistic that we will see non commercial customers, schools, hospitals and other institutional customers open up this fall and are ready to capitalize on this opportunity. Our product portfolio also gives us capability to support fluctuating consumer behavior across all price points.
In line with our strategy, we are selling more branded value added products than commodity products, a trend that is contributing to our overall profitability. We are optimistic that this will continue as our branded value added advantage continues to be well received by both foodservice operators under pressure and consumers who are looking for easy to prepare delicious seafood to enjoy at home. We also had success in the Q2 selling our new innovations. We are excited for the upcoming test of our Alaskan Wild Wings and a leading U. S.
Casual dining chain and feel very good about how this product has been received across the market. Quarter. We're also winning new business in the retail space and gain new listings and shelf space at major retailers during the quarter. We have aggressively advanced our branded value added strategy. We have had to mitigate against global supply chain challenges Like others in the industry, these challenges primarily relate to container availability and increased cost of container shipping.
This unfortunately impact is impacting our fill rates and our ability to satisfy customer demand. Like others in the CPG industry, quarter. It is also tailing our ability to promote our products in our usual fashion, which we expect is impacting our retail volumes. Quarter. In response to these challenges, we are taking pricing action in both retail and foodservice and continue to build our inventory, But we can expect there will be a lag before we can realize the benefits in both areas.
We also further diversified our supply base to help mitigate against challenges And are leaning on the advantages of our scale, our diversification of species within our portfolio and our integrated supply chain to help navigate through these issues. For example, we can quickly reallocate product with our system to areas of higher demand such as during the pandemic when we allocated product to quarter. Our surging retail business and now when we are reallocating product to our foodservice business as demand for eating away from home increases. Quarter. Bottom line, we are being proactive in managing the factors within our control.
The pandemic is far from over and related global macroeconomic conditions remain very challenging. We remain prepared for this to continue to impact performance and offset demand for our products and stand ready to support all of our stakeholders through the months ahead. We remain acutely aware of the importance of ensuring a steady supply of seafood to families across North America as a healthy and affordable source of protein And are working closely with our stakeholders to support them through the ongoing challenges. As our new purpose statement says, we are reimagining seafood to nourish life. This is evident in all we do from community initiatives such as our goal to provide 10,000,000 meals by 2025 to our unwavering commitment to support the health, safety and wellness of our people.
Despite all of these challenges and uncertainty of the current environment, I remain confident quarter. I believe High Liner Foods is operating from a position of strength and with the right strategy and team behind it. In light of this and our continued momentum executing against our strategy, we expect quarter. We continue to deliver adjusted EBITDA growth in 2021. With that, I'll hand the call over to the operator for a brief question and answer period.
Quarter. Operator, please go ahead.
Thank you.
Question. Question. Your first question comes from George Doumet from Scotiabank. George, please go ahead.
Yes, thanks. Hi, guys. And thanks for taking my questions. Maybe this one is for Paul. Can you best estimate the lost volumes from the container shortages and the raw material supply in the quarter.
Can you give us a sense of magnitude there?
Yes. So in the quarter. George, we'd estimated would be £3,000,000 to £4,000,000 of total impact. And that is from a pure shortages, but also The impact we would see in terms of having to have some product on allocation and also we've reduced promotion in some of our retail business to reflect the fact we don't want to promote when we have supply challenges. So The combination of the 3 of those areas would have had that kind of impact approximately in the quarter.
Okay. Thanks for that. And How do our service volumes in general compared to 2019, either Q2 2019 or 2019 generally speaking, anything I guess pre pandemic?
Service levels overall? Yes. So again
Volumes, yes. Sorry.
Volumes overall, sorry. Quarter. Yes. So I mean we saw quite an increase in foodservice in 2021 compared to 2020, but it's still not back to 2019 levels. And the primary reason for that is some of our sectors in food service, school business, institutional feeding as an example Are not back to the pre pandemic levels.
In retail, we saw a decline this quarter compared to the prior year. We are not above 2019 levels, but that's more about some lost business in 2019 Than it is related to the pandemic.
That's great. Thanks. Just one last one, if I may. Just outside the supply chain, it looks like we're seeing substantial inflation in commodity costs in Q2. I think it's even gotten more pronounced into Q3 to date.
So it's a 2 part question. Like, just wondering when do you expect to have those higher input costs hit our P and L? And it looks like we're pushing price quite a bit now. So I'm just wondering is that for freight or is that more for the higher commodities we're seeing?
Yes. So the commodity cost increase is certainly much less for us than the freight cost impact. And The primary reason for that is our primary commodity as you know is seafood raw material and that we haven't seen much in the way of price inflation other than in a one particular species. So we've been fortunate in that regard. We have seen some of the ingredient costs go up to your point.
We have had to pass price to reflect that. It's a market issue. And the biggest piece for us is the international freight. We have had already passed price in that regard and there's more pricing increases to come unfortunately to reflect that higher cost environment. But that's recognized as a necessary price increase as again is impacting quarter?
All industries, all customers, all supply chains.
Okay. Thanks for your answers guys. Thanks,
George.
Quarter. Your next question comes from Kyle MacPhee from Cormark Securities. Kyle, please go ahead.
Hi, guys. Just starting with a follow-up on the foodservice stuff. So you mentioned just go below 2019 levels because of some institutional and school stuff. But what about specifically the restaurant channel. Has that fully normalized or how much below 2019 are you for the restaurant channel specifically?
Yes. Now we'd still be below in the restaurant channel a bit as well, primarily in our commodity business, our value added businesses performed there. And part of the reason for that is full service restaurants, which are more important to us than other restaurant chains still aren't back to full levels of operations. We unfortunately know many of our restaurant customers are facing significant staff shortages. So we're still seeing some impact there, but A significant recovery from where we were in 2020.
Can you quantify that all maybe as a percentage of 2019 Where you're at then?
For that sector, the restaurant spec sector specifically, I don't have that number in front of me. It would not be as significant as the K to 12 educational or industrial or institutional business that I
mentioned earlier. Can you
maybe speak to institutional business that I mentioned earlier.
Can you maybe speak to just where your total foodservice business has been as a percentage of 2019 adjusted for all The contract that you said that are done?
Yes. So I mean we would still be 15% to 20 below 2019 levels. And but that again is that's a quarter. We're 29% above 2020 levels.
Yes. Kyle, if I may add, one of the things that certainly is contributing to The performance versus 2019 is to Paul's point earlier, we have a very dynamic market happening between whether it be provincial or different states, Restrictions on in person dining, certainly restrictions on capacity with the restaurants and labor. So So we could literally go province by province or certainly state by state and provide you some level of impact. Again, very, very dynamic and I think we're going to be A bit before we see wide open dining across North America, particularly in the key sectors that we're in. And again, we index very heavily in We'll call the healthcare and the school industries and many hospitals and other long term care are not back to normal visitation And or elective surgeries where we see certainly in hospital feeding on a significant basis and certainly we're very optimistic about return to school this fall.
Got it. And on that return to school, for the schools that you're specifically serving, do you expect them to all open?
Well, optimistically, I'd love to say yes. I think that is a case by case basis across municipalities in North America, But we're certainly very optimistic. I can say, as we monitor the largest school districts across North America, we certainly anticipate many of the kids being back with Particular restrictions, but we're certainly very optimistic about that portion of our business.
Got it. Okay. Thanks for that color. And then Just following up on the supply side issues, you said you lost £3,000,000 to £4,000,000 of sales opportunities. Was it weighted to a specific type of product or channel?
I'm just trying to get a feel for what it translates into in dollars or even what the margin mix impact would have been?
Yes, I would say it's slightly more skewed Kyle to our commodity product than our value added product. But I think using our representative margins as an organization and overall And applying those percentages to that lost volume, it would probably be a reasonable estimate of the bottom line impact on that volume impact.
Got it. Okay. And then on pricing, you said that you've increased pricing as expected. Can you help us understand how large the pricing gain was? And maybe even more important, based on what your cost inflation was, did it kind of net out to a neutral impact or there's some drag or maybe even a benefit?
Yes. So I don't want to give any particular percentages because it obviously varies by segment and product in terms of the percentage increase. But overall, we believe that we have sufficiently been able to cover the cost increases. There's always some lag as you can imagine in that. But With time for the price increases to take hold, knowing what we know today about cost increases, then we feel good about what we've been able to do To manage the profitability of our business.
Obviously, we'll continue to monitor what may continue to happen on supply chain cost increases as we look forward.
Got it. And last quick one. Other than supply chain cost inflation, is your actual do you foresee any material issues with respect Access to supply or is this lost sales opportunity going to be snowballing in the coming quarters?
It's more of a timing issue than species not being available. But with the challenges with containers, with the challenges with some of the primary processing in other countries around the world, It extended the length of our supply chain, which was already long. So we're confident we'll have the ability to recover. We've seen a significant recovery already over the course of the last month and a half compared to where we were when we were in Q2. And we're going to continue to work on that.
As Rod mentioned earlier, the team has done a wonderful job of leveraging the diversity of our supply chain to come up with contingency plans and find options for us.
Quarter. Got it. Okay. That's it for me. Thanks, Jordan.
Thanks, Rob. Your next question comes from Jonathan Lamers from BMO Capital Markets. Jonathan, please go ahead.
Good afternoon.
Hi, Jonathan.
On the
supply chain and container shortage challenges. Ocean freight rates have only increased since June as you pointed out, Paul. So are you seeing the impact of the shortage challenges worsening into Q3 or improving? And How is your inventory build out address this in terms of your ability to satisfy demand for the second half?
Yes, Jonathan, maybe I can take a shot at that here. I would say, we are monitoring the global positioning of containers, Certainly, ships available in our access to that. So I think from the data we have today, I think we would A bit of time. But that said, we are very focused on building the right inventory levels, getting as much product As we would term it on the water as possible and we've been fairly successful with that over the last several weeks. So we believe Certainly that we're managing a quarterly through the situation.
That said, this is a very, very dynamic and global issue That we all have to manage through from a whether you're in the CPG business or certainly any other business out there.
Quarter. Thanks.
And we talked thanks about foodservice volumes quarter versus 2019. Could you update us on where retail volumes were versus 2019 either for Q2 or the first half?
Yes. I think I mentioned for Q2, we're slightly below volumes for 2019, Less about pandemic impact there more about some lost customer business in 2019 Versus 2020, retail is down more significantly because as you can imagine, we had Quite a bit of freezer loading in the early part of Q2 2020, which didn't repeat in 2021. Having said that, we still believe the increased traffic that we saw in the category in 2020 is an opportunity that We're going to continue to work on exploiting as we go forward.
Yes, Jonathan, maybe I can even add. What we've seen is a pretty rapid path back to what I would say is historical consumer spend dollars, back to almost a fifty-fifty Consumers have shifted back to foodservice and what we've been able to do certainly with the strength of our foodservice business is capture Those incremental dollars in our foodservice business, although still a bit below 2019, again, that's because the segment is not opening. But we believe certainly as consumers become much more fluid in where they choose to have restaurant quality seafood, We're really well positioned with both the retail and foodservice businesses we have.
Thanks. And Paul, on past calls, you've been able to share with us the value add mix of sales for the quarter. Would you happen to have that nearby for Q2 versus last year?
Yes. So for Q2 this year, it's 62% value added. That's Down slightly from 66% a year ago, but it's consistent with where it was in 2019. So What that reflects is we've seen thankfully some of our unprocessed commodity business come back as we've seen some recovery particularly in foodservice.
So the encouraging point on that, Paul, is you've really been able to hold your gross margin percentage through this shift back toward non value add products. Is that
That's a yes. That's
a yes.
That's a yes. That's a yes.
That's a yes. That is a dynamic that we've been very pleased I think the team's kind of done a good job of managing gross margin even as we've seen some of that lower margin business come back. We're pleased with the mix as it sits. And Rod mentioned this in his prepared remarks. We've also maintained a branded percentage that's higher than 2019 as well, which of course helps with the sustainability of our business, but also the profitability of our business.
And the last question, if I may. Could you remind us what non restaurant or institutional Food service customers represented as a share of sales pre pandemic.
Yes. So just to give you a High level breakdown. Healthcare is the biggest institutional segment. It's almost a quarter of our volume. Full service restaurants are very similar in size to healthcare, followed by QSR and educational, which would be both in the sort of mid teens as a percentage.
And then there's sort of A long list of smaller percentages that make up the balance.
Thanks for your comments.
Thanks, Jonathan.
Question comes from Sabahat Khan from RBC Capital Markets. Please go ahead.
Quarter. Great. Thanks and good afternoon. I guess just following up on the retail discussion there. I guess with the uptick that happened last year during the pandemic.
Were you able to identify specific segments of the market that came to this category that weren't there before? And has there been an opportunity to keep some of them and at a higher level are you able to sort of comment on the ability to maintain some of those consumers within the category? Has there been success with that? Are you seeing some of those folks stick around?
Yes. I would say the there's a number of things that happened in the category in Q2 specifically last year. Number 1, we saw The category as we know it's slowed and that would be all the way through from the value product up to premium product offering. So our product portfolio stretches the range unlike many others in the industry. So we were able to capture the value again all the way up to the premium.
But where we have seen some extreme benefits to us would be in our products like Seq cuisine as an example. Seq cuisine is up by year over year 6%, a year over 2 years, it's up roughly 35%. And so the premium offering of our products saw many new consumers As you recall, we've talked previously, seafood was the number 2 item reference consumers missed eating out. So they turned to the retail channel to get the restaurant quality type meals. Now we did see significant consumers come into the category in 2020.
Some of those consumers have left again as we've seen the normalization of food dollars spent at home versus away from home. But we feel very confident in the digital and direct to the consumer campaigns that we've had that have supported the continued growth as an example within Speak Cuisine. Quarter. We're much more targeted. And as we've talked about, we are much more aggressive in our approach, significantly more marketing dollars than we've historically spend in order to certainly communicate the benefits of High Liner branded product in the marketplace, but also keep those consumers in the channel.
Okay. Thanks for that color. And then I guess with that growth in seafood or the consumer demand at least, has retailer support generally been there, whether it's with regards to, I guess, freezer space or just focusing on the category?
Yes, we've seen a great partnership from our customers without question. We deal with the leading retailers across quarter. North America, they certainly want to deal with leading brands and certainly companies of scale like us that can manage through the dynamic market. So we would anticipate continued support from them. And as we look at their emphasis as dollars have shifted away from retail back into foodservice, They're taking the necessary steps as well to keep the traffic coming into their individual location.
So we view this as a great partnership with our major customers and An opportunity again to continue to expand seafood at Hope. And we think we're now in a position, Saba, where we've got more opportunity as we look ahead on the innovation front, because the reality is during the pandemic, many of our retail customers had to focus on executing the business that
they were already in, Rather than looking at opportunities to expand or grow the category. We believe that we'll be able to work with them on category expansion and growth More now as we look forward.
That makes sense. And then I think Paul, you're or I think there's a question earlier on just being able to secure just inventory, kind of, on the shipping constraints. But I guess maybe a broader question, With some uncertainty on pricing and freight, I guess, how far ahead were you guys able to maybe secure supply or maybe is there an opportunity to maybe lock in prices quarter inflation goes high. I just want to understand how willing suppliers are to lock into the contracts to provide product few quarters out?
Well, I think the bigger issue there is we'll buy the inventory earlier if we can't. And we've done some of that because we've recognized It takes longer for the raw material to make its way through the supply chain today than it did before. And that's why you've seen Our working capital performance versus a year ago, we've utilized some cash there. I expect we will continue to do that as we move through the back half of the year. We're in a fortunate position to be able to do that.
And so if we see opportunities to get volume, priority number 1 at the right price, then we'll do that to make sure we're in the best position we possibly can be Going into lent and the balance of 2022.
Okay. And then just last one for me. With the balance sheet kind of below your target range job three times on the leverage side. Any thoughts as we head into 'twenty two, if the background does normalize, any thoughts on capital allocation and how you're thinking about Now deploying that improved balance sheet position?
Sure. Yes. As we've identified in our prepared remarks, we've spent more in capital than we have Historically, we see an opportunity to continue to do that in the near term. We will continue to show support for the dividend. We've done a small amount of share buybacks over the course of the last month and a half, but pretty insignificant there.
And at some point we hope that we'll have the opportunity to deploy the balance sheet further to support any accelerated growth opportunities. But in the meantime, we'll continue to improve our financial performance. We'll continue to invest in our business and you'll see Leverage to continue to improve until we see more of those accelerated growth opportunities.
If I could just squeeze in one more, I guess, on just last comment there. Has there been opportunity, I guess, to capture market share? How have the smaller players on the I I guess particularly on the retail side where maybe contract share and things like that. How's the industry dynamic been there? I guess, in the context of the larger scale on the retail side.
Yes, nothing I identify significantly in terms of a change in the landscape In retail or foodservice, the one thing I would say is we have seen unfortunately some in the industry have struggled even more than we have from And we've tried to be there whenever we can to support our customers in those cases. Quarter? I think it'll still take a little bit of time as we continue to see the full recovery from the pandemic to see how things may settle out in The industry overall. Okay.
Thanks very much.
Quarter. We have a follow-up question from Kyle McPhee from Cormark Securities. Kyle, please go ahead.
Hi, guys. Just a follow-up on the CapEx. It looks like you upped it a bit. I'm just wondering what the added CapEx is for? And then maybe can you comment on how much of that $22,000,000 guidance for this year is No, true growth CapEx as opposed to maintenance.
Yes, the majority of it is maintenance CapEx to your point, Kyle. I would say Less than $5,000,000 would be growth pure growth CapEx. It's up a bit and that reflects the opportunity Q1 projects where we can, the willingness to invest in the business. And we have seen not unlike most areas, Some cost increases we've had to deal with even on the capital side of the business.
Got it. Okay. And last one, I appreciate all the comments and all your new product and innovation and how it seems to be increasing momentum. But much like in past quarters, can you kind of Encompass that in an overall growth contribution just isolated at these new products and innovation?
Yes. So there'd be approximately £3,000,000 of new product or new customer business in the quarter. And we're pleased that that would contribute in the neighborhood of a couple of $1,000,000 of contribution.
Got it. Okay. And correct me if I'm wrong, but you I think you had a similar that's building on a similar contribution from a year ago. So the kind of 2 year stack would
be about double that, am I thinking about it right?
Yes, it's a similar trend this quarter versus Previous quarters. We haven't really seen it accelerate at this stage. We would hope that that, as I mentioned earlier in the comment, hope that we have some opportunity for that to be the case as We continue to recover from the pandemic.
Got it. Okay, thanks. That's it.
Call. There are no further questions at this time. I'll turn it back to Ron for closing remarks.
To close, I want to thank you for joining our call today. Quarter. We look forward to updating you on our results for the Q3 of 2021 on our next conference call in November. Please stay safe and well.
Quarter. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.