Earnings Call: Q1 2021

May 6, 2021

Good day, and thank you for standing by. Welcome to the Premium Brands Holdings Corporation First Quarter twenty twenty one Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Our speakers today will be George Kaliologou, CEO and President of Premium Brands and Will Kaludic, CFO of Premium Brands. I would now like to hand the conference over to your speaker today, George Kaliologou. Please go ahead. Thank you, Cheryl, and good morning, everyone. I would like to welcome you to our twenty twenty one first quarter conference call. Hopefully, you had a chance to attend our AGM presentation yesterday. In case you didn't, you can find the presentation deck on our website. We are now on Slide four of the presentation. Our CFO, Will Kalubic and I, 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 are that we're making excellent progress with all platforms. We delivered record q one results despite ongoing COVID nineteen related challenges, including supply chain disruptions, logistical issues, and, of course, commodity inflation. Demand for our products remains very strong, particularly in The US, driven by economy re openings and the return of out of home dining. April sales were very strong across all platforms. For the first time in our history, our US paid sales in our specialty foods division exceeded our Canadian sales. Clearwater delivered an excellent first quarter with a nine forty 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 in North America with unique competitive advantages, leveraging best in class assets, excellent management teams, and featuring ocean to plate related attributes like premium quality, sustainability and traceability, combined with excellent social and environmental stewardship. I will now pass it to our CFO, Will Kalulic, for the financial portion of the presentation. Will? Thanks, George. Before I begin, I would like to remind you that some of the statements made on today's call may constitute forward looking information, and our future results may differ materially from what we discuss. Please refer to our 2020 MD and A and other information on our website for a broader description of the risk factors that can, in fact, affect the company's performance. Now turning to our sales on Slide seven. Our sales for the quarter were $1,009,800,000 up $74,800,000 or 8% from 2019. The key drivers of our growth were organic volume growth of roughly 79,000,000 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 were acquisitions, which accounted for about $59,000,000 of our increased sales. And then finally, selling and price inflation of roughly $16,600,000 When looking at the selling price inflation between our Specialty Foods segment and our Premium Foods 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 very quickly. Our c our specialty food segment had about six and a half million dollars of selling price inflation, roughly half of that being cost plus related, cost plus contracts with certain customers, and the other half being selling price increases put through to deal with price inflation from late in twenty twenty. Offsetting these positive drivers of our sales growth were three key challenges. The first, by far and most significant, was COVID related factors, which was a headwind of about $46,000,000 in 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 certain sandwich plants ramping up for customer demand and having some issues getting labor to ramp up for that demand. Those problems have now since been resolved, but they were an issue in the first quarter. Normalizing for COVID, our sales would have been $1,055,600,000 or roughly a 13% increase from last year. Turning to Slide eight, talking about our organic growth rates. The solid line on the slide is our actual organic volume growth rate, and the dotted line is our organic volume growth rate normalized for COVID. The key message of this slide is really how much COVID has been hiding the success of our businesses in growing their sales. If you look at the last six quarters and you strip out the impacts of COVID, you can see that our businesses have been growing in 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 nine and looking at the impact of the pandemic on our sales. You can see for the quarter, the impact was $45,800,000 Oddly, in the 2020, the pandemic actually had a positive impact on our overall sales. Our specialty food sales were up about $16,000,000 and then this was offset by some foodservice impacts in our premium food distribution group for a net impact of $6,600,000 Once normalizing for that, the impact in the first quarter of this year was roughly $39,000,000 You can see that the breakout of the impact, most of it was in the foodservice segment, dollars 34,000,000 in foodservice, 9,000,000 relating to airlines, dollars 2,600,000.0 to cruise lines, and retail again, because of the bump we saw in the $2,026 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 reopenings there and the strong demand in the foodservice channel resulting from that. But also, interestingly, we saw early in the first quarter some decent demand in our foodservice channel starting to form as there's some normalization in the environment. However, with 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 $82,500,000 an increase of $18,200,000 or 28.3% from 2020. The major drivers of this were acquisitions, and particularly the Clearwater acquisition, which generated about $9,500,000 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 strides being made in our Specialty Foods group across various plants. Other factors positively impacting our EBITDA, but in a much more insignificant way, was COVID, from a cost perspective, overall had a slightly positive impact as 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 commodities exposure perspective, it was slightly positive overall. We saw in our premium foods distribution group some margin expansion, given the inflationary environment, their their ability, their dynamic pricing models, and some decent inventory positions in forward buys, they were able to take advantage of that to get some margin expansion. But that was largely offset by margin contraction in our Specialty Foods segment as that inflationary environment hit them. And in many of these businesses, there's a thirty- to ninety 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 these. 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 continue to invest in infrastructure to support our growth, both from the perspective of plants as well as SG and A. And then we saw wage inflation, albeit we're starting to lap some of the numbers from last year, some of the increases put through last 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 EBITDA as well, the translation of our U. S. Dollars, as I talked about earlier in our sales. If you normalize our EBITDA for the impact of COVID, which overall for the quarter was about $9,700,000 that consisted of about $11,000,000 of negative impact from sales lost, offset by about $1,300,000 in net COVID related savings, as I discussed earlier. Normalizing for that, our EBITDA is 92,200,000 or an increase of roughly $28,000,000 or 43% as compared to 2019. Our margin for the quarter was 8.2%, which was a nice improvement over the last few years. And then normalizing for COVID, it would have been 8.7. 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, turkey, certain species of seafood, corrugated as and and then other parts of our our raw materials, such as corrugated materials, packaging, and several other elements that we use in our manufacturing. This This slide highlights two key commodities, a 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 inflationary pressures. Turning to our earnings on Slide 13. Earnings for the quarter were $32,300,000 an increase of $11,200,000 or 53%, and this is despite COVID. The key driver of that was our EBITDA, which was up $18,200,000 as I discussed earlier. And then offsetting that were some increased taxes and some increased depreciation associated with acquisitions and recent capital expenditures. Normalizing for COVID, which had a net of tax impact on us of about $7,300,000 Our EBITDA sorry, our adjusted earnings for the quarter were $39,600,000 an increase of $18,500,000 or roughly 57%. In terms of earnings per share, our number for the quarter was $0.72 a share, up $0.19 a share from 2019 or roughly 35%, 36%. Normalizing for COVID, our earnings per share would have been up to would have been up $0.91 per share for the quarter or up $0.38 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 you'll see in a later slide. And so we do expect, as 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. Top line was relatively flat, slight downly about $6,400,000 and largely due to some Brexit related challenge for their Scotland operations, a lot of which have been dealt with and is in the rearview mirror. And then also the stronger Canadian dollars, a good portion of their sales are in US currencies. Also, interestingly, their sales were lower because of some of the the the discipline they were able to take in the selling of their products given their stronger balance sheet. 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 China and the reopening there. We saw some good demand, particularly in clams and life lobsters. In terms of EBITDA, very strong performance by the company, up $7,800,000 to $20,100,000 driven by four 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 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, the next two big drivers of the improvement in their margins were their synergies with our ecosystem. One was, as I mentioned earlier, them taking a much more disciplined approach in what they're selling, not being afraid to put product into inventory. And as a result, what they did sell was sold at higher margins. And then also leveraging the knowledge and distribution within premium brands to maximize their margins. So overall, a really solid start with Clearwater and 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 large costs. These were the acquisition costs and closing fee paid to Premium Brands. These were purely onetime costs associated with the transaction and will not be reoccurring. Turning over to Slide 15, talking a bit about capital allocation. During the quarter, we allocated $721,000,000 of capital, dollars $637,000,000 of that for acquisitions, 67,200,000.0 for major capital projects and $16,500,000 to our REIT as part of on certain properties held by the company. In terms of actual dollars spent in the quarter, we spent $682,000,000 putting to work some of that capital that I mentioned earlier that was sitting on our balance sheet at the 2020. Again, acquisitions being the big number, $637,000,000. Large capital projects, we spent roughly $17,100,000 On smaller capital projects, dollars 11,000,000 and then CAD16.5 million on the REIT, as I mentioned. Looking forward, subsequent to the quarter, we've announced another new capital project, an expansion of our Buddy Sandwich plant, roughly Canadian dollars, a $15,000,000 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 ten year plus cash flow model. So again, these are long term value drivers that will continue 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 $4.00 $5,000,000 of unused credit capacity at the end of the quarter. Our senior debt to EBITDA ratio was 2.5:one, which is at the very bottom of our long term targeted range of 2.5:one to 3.0:one. And our total debt to EBITDA ratio was 3.8:one, nicely below our long term targeted range of 4.0:one to 5.1 sorry, 4.5:one. I should mention, the only difference between our senior and our total debt to EBITDA ratios are our convertible debentures. Looking forward, we did complete the sale and leaseback transaction in the quarter. It closed on the last Friday of the quarter. Unfortunately, the funding didn't flow until the following week. As a result, the net proceeds of the sale and leaseback of roughly $152,000,000 was 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 $550,000,000 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 down to 2.1:one and our total debt to EBITDA ratio down to 3.3: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 just 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 outstanding. And you can see the most that the next one that matures at the December 2023 is now well within our share price is well above the the call price of $107.25 Unfortunately, until the end of this year, the conversion can't be forced unless the share price is 125% of that price. So we can't convert it as 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 $14,200,000 to $2.00 $3,000,000 as compared to on a trailing twelve month basis as compared to 2020. And this is, again, despite COVID. From a free cash flow per share basis, we are back at, you know, our historic record of $5.08 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. And then as well, both years, there were some share equity issuances that resulted in some short term dilution until that capital was put to work. But with that capital being put to work now and the growth we continue to see in our business, we now expect to generate continued record free cash flow per share amounts. Our dividend for the quarter was $0.06 $35 per share, which works out to an annual rate of 2.54 per share. That's up 10%. We 10% increase announced during the quarter from our dividend rate in 2020. And that dividend resulted in a payout ratio based on a trailing twelve month basis of 48.3%, which is below our sort of 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 provide a detailed road map on how we expect to achieve our 2023 targeted sales and adjusted EBITDA of $6,000,000,000 and $600,000,000 respectively. I encourage you to have a look at it. With that, I will now turn the presentation over to George. Thank you, Will. We're now on Slide twenty and twenty one. Clearwater, the Clearwater transaction in partnership with, MiGMA First Nation was historic and transformational. It's, will explain the transaction closed on 01/25/2021. The deal created a global top 20 seafood company and the only vertically integrated seafood platform in North America. PB's seafood 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 trend attributes like premium quality, transparency, innovation, social responsibility, and community engagement. We are now on slide twenty three and twenty four. We're making great progress in growing and diversifying the sales of our US protein platform. Its growth during the quarter was in the high teens. If mid stick sales continue to ramp up, and we're on target to exceed 100,000,000 in mid stick sales in 02/2021. Operational and business improvement initiatives are going very well, including investments in increasing capacity at our Hamptons facility where we're commissioned we've commissioned a 50,000 square foot expansion. Our authentic charcuterie sales under the Abertus brand 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 now on Slide twenty five and twenty six. Demand for the products of our sandwich division are very, very strong with QSR channel returning to or exceeding pre product levels. Continued investment in technology and automation initiatives with two generation three lines in order and installation of a fully automated Camino line, Our investments in charcuterie and Camino tray assembly have been completed. We showed two videos yesterday at our AGM to demonstrate the reasons we're we're so excited with our automation initiatives in sandwich and in Camino 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 100,000,000 this year. And finally, our Sandwich division is projecting 2,021 revenues to exceed 1,000,000,000 for the first time. We're now on Slide 27. As you can 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. We are committed to achieving carbon neutrality, and will be disclosing targets and objectives in our upcoming ESG report. I will now pass it back to Cheryl for the Q and A segment of the presentation. Cheryl? Thank Our first question comes from John Zandaro. I wanted to start on the cost inflation 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 charts you're showing, but also commentary received across the space, that inflation could be materially higher So what's the the willingness and and ability of of your business to potentially pass through, much higher price increases? Yeah. Again, I I it's a very good question, John. I I think you have to remember that the majority of our business is either cost plus. For example, our entire sandwich platform is is always being on a cost plus basis. And and not 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, you know, as as Will mentioned earlier, sometimes inflation, is is 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 our protein group. But 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 know, if you're out there as a consumer and you wanna 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. You know, we passed on substantial increases to them in the past, and, you know, they will they continue to buy the product. So we feel very comfortable with the ability of the platform to handle, hyperinflation as we as we see right now. Yeah. And so, John, you made the comment of one to 2% inflation. You know, that that might I'm I'm not sure where that number comes from. But when you look at our protein group and you go back, for instance, to when we had the issues with ASF in 2019 or the the disruption back in 2014, '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 you've seen there. Can you elaborate on exactly what the impact you're seeing on that is and what you expect for rest of the year? Yeah. You know, I think it's it's well documented, John. There is a shortage of containers around the world. I guess world consumption has turned to goods and services as opposed to to goods as opposed to services and, you know, the shortage of containers. So there's there's a lot of delays. There's a lot of unloading type of delays because of congestion in different ports, etcetera, etcetera. Again, it's just another headache. As you know, we've had a lot of headaches to deal with, over the last year. And, we're just mentioning it because, again, it's out there, and, you know, we'll manage through it. You know, we've we've always had that diversified supply chains. And, and, you know, again, it's it's another area, where we're we we need to manage. Understood. And then last one for me. On on the labor supply issue in The US, I think you said during the call that this this has been solved. This is an issue we're hearing from most of the companies in the space. So I guess how would you characterize your your level of confidence that that this isn't going to limit sales increases in in the rest of the year? Or or would you maybe see higher wage inflation that could could impact margins rest of the year in The US? Thanks. Yeah. Again, John, the the issue for us really is the demand side. As I mentioned in my prepared comments, there is tremendous demand that particularly, you know, in The States where things have opened up. We we are seeing unprecedented demand, particularly in the QSR channel. So so, again, the challenge for us is to to hire more people to to be keep up with the demand. And what we're saying is we're we're gonna grow. We are gonna see some of the benefits of that. But, you know, unless in some cases we're, we're able to find the labor, we're we're gonna walk away from business and or or we're gonna pass on some business. Right? So 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 Doumet. Please go ahead. Your line is open. Yes. Hi, guys. Good morning. I know this is a lot of moving parts to the inflation kind of debate. But can you maybe talk a little bit looking at where input costs sit today. I think, Will, you mentioned kind of double digit price increases, in the past. One more diversified, probably different commodities. But can you maybe tell us a little bit about what you're seeing in terms of order of magnitude of of those potential price increases that we're gonna put through in q two and q three? I think, George, it it varies, of course, by segment and by by commodity. And and, you know, again, George, we're gonna put whatever price increases through are necessary for us to maintain our our margins and to continue to run our business. Right? And and that's what we've always done. Again, I just wanna remind you that our product differentiated. We're not a commodity player. And, and, you know, we have demonstrated our ability to, to pass on these price increases in the past. And, thankfully, the consumer continues to to buy the products. Alright? We're we're more concerned about velocity sometimes when we raise prices than anything else. But but, again, you know, in the past, we've been pleasantly surprised by the fact that, even with higher prices, the consumer, our our low, low consumers continue to support products. Okay. And and given the magnitude, which looks to be pretty high, how confident are you that we'll get we'll get to hold on to some of these prices when, you know, inflation abates in Europe or two? You know what? You know, again, George, it's about holding on to those. It's it's really about passing on the cost today. You know, I think that a lot of times if raw materials come down, we'll we'll invest in promotions and those type of things so that we can find new markets and provide new volumes and new new opportunities for our products. Right? But but but, again, it's it's just you know, I mean, the issue for us is to maintain our margins at fair levels rather than to gouge the market, let's say, when when commodities come down. Okay. On on the Clearwater, substantial improvement in gross margins, you guys looks like it's about 940 basis points. I'm just wondering how much of that is purely due to the PV ecosystem synergy? And can you maybe quantify that for us? And also, looking at, you know, for this year and next, can you maybe call out what those PV ecosystem synergies could could be or could look like or what they are? Yeah. George, I, you know, I I think that they you were not in a position to do that at at this point, George. But but my comments would be that, you know, commodity companies are never good public companies. You know? It's it's very tough to be a commodity company in the public market. And and I think I think that Clearwater is a very, very well well managed company, tremendous assets, great quality assets, tremendous access to great resources. And there's no doubt in our in our mind that this company will be a stronger seller, and will exercise better price realization given the uniqueness of of its products. And, you know, I think that a lot of the benefits you're seeing are because, you know, Clearwater is not a publicly traded company. It's not doesn't have to report an increase in sales every every quarter. Right? So plus, again, the the benefits of of Intel from the front lines, which which Clearwater is getting, are are incredibly beneficial to to them. And I I would also like to say that, you know, there's a halo effect. You know, Clearwater is a great company, great brand, great global reputation, and they brought a they brought a halo effect effect to our PBC food business as well. And and, again, part of the reason why the PBC food division had a, you know, a record quarter. So early stages, the markets have gone with with us, which is a good thing. You know, the you know, there's great, great demand in in in China, in The US as the their economies open up and, you know, Clearwater, of of course, will benefit from some of the commodity inflation that you and John mentioned earlier. Right? So even Clearwater provides a a nice hedge for us, when, protein costs appear to be, inflationary. Okay. Fine. Just one one more if I may, maybe maybe for Will. I know in the past, you guys have done a few ad hoc kind of sales in these five transactions. It seems like you you got a nice capital unlock here. Is this something that we're gonna be doing more and more of or versus two distributors in the model? Well, it's a tool we quite often use with acquisitions when the, you know, the owner of the business has a piece of real estate that, you know, they bought way back when they founded the business. And, you know, there's a tremendous amount of value tied up in the real estate. So it's it's a nice way for us to unlock that value while continuing to control the real estate. So, you know, these pieces of properties were all related to our Convent acquisition that we announced in the quarter as well. So generally, it's around that. You know, it's it's very rare. It's occasional, but rare that we'll take sort of legacy legacy assets enrollment to the REIT. But having said that, here and there, that does happen. And our next question comes from Martin Landry. Please go ahead. Your line is open. Hi. Good morning, George and Will. Good morning, Martin. My first question is your comments on April being a record month for you. I would love to get some color as to what's the breakdown in terms of sales growth between Canada and U. I would assume that The U. S. Has seen really good growth, and Canada is probably more muted given lockdown measures in Ontario. So I'd like to hear a little bit more that front, if you can. Yeah. I think you've you've certainly captured it, Martin. I you know, we've talked a lot about our our Sandwich group, of course, our our protein platform in The US and and and our our seafood platform in The US. And and, you know, a number of states have opened up their economies, and and, you know, all I could say is that we're just seeing amazing demand, in those areas. And, you know, to the point, as I said earlier, we're you know, given some of the logistical challenges, we are you know, we have to, you know, walk away from business. But but, again, for for opportunities. But but, again, a lot of growth or or, you know, the the the great majority of the growth for us is coming out of The US. You know, again, Canada, fine. We're doing well. As Will said, we were getting good traction in food service in the early part of the quarter. And then, you know, with the lockdowns in March, of course, things slowed down. And, I mean, that 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 tied on capacity right now? I would assume the sandwich platform is probably one of them. And maybe talk about 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, you know, across various platforms, our, you know, our sandwich group. We just announced the the Buddies initiative as well as the Gen three land lines last quarter. So, you know, investing in capacity in the sandwich group, the protein group, similarly in meat snacks. We announced the investments at at at Alberto's and in Hempler's. So those are two key areas we're investing in. Dry cured is another area where we're doing the Branford expansion with Pillars. So, you know, it essentially goes across all our key categories. Seafood, you know, nothing major planned right now, but, you know, we continue to invest in the infrastructure to support the distribution. But, you know, that that infrastructure is one of the things that a lot of capacity is freed up with the demand destruction in food service. And then the the the last major area, artisan breads. We're investing in our new Stryver's facility. We announced that a couple of quarters ago. And, that that, you know, that business is, again, a US expansion story, tremendous opportunities down there and lacking the capacity to execute on them. So it really you know, this project's across all the major categories pretty well, Martin. Okay. And is it possible to perhaps quantify how much sales these expansion projects could support once fully ramped up? Yeah. I I don't have that number. You know, that's part of what we built into our five year model in supporting that growth. You know, it it varies, you know, quite significantly from project to project, but it it's certainly in the, you know, 200 to $300,000,000 range when you add up all the projects as a minimum. Yeah. The one one comment I'll add, Martin, is that in the past, we've also leveraged co packer capacity to support our growth. Right? That's always been a part of our playbook. And, you know, again, not all of our products are made by our companies. Right? And, for example, now we are in the process of of working with a few co packers to to support our growth. Okay. That's helpful. Thank you. Thank you, Mark. Thanks, Martin. 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 on the on the commodity inflation, I'm very confident you guys can get it through. You have done it in the past. Obviously, you can get it through. But is there any short sort of short term timing difference here in terms of thirty, ninety day lag in in 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 forward buy positions that you can leverage in the inflationary environment? Yeah. That you know, we do have some inventory positions to carry us through and and help mitigate. So really, David, it's one of tracking what happens in the market. You know, if if if continue or costs continue to accelerate like they have, then certainly, they'll they'll you know, that the inventory is only gonna Our forward buys are only gonna take us so far, and and there will be some margin pressure, but, in the short term. But, again, it it's gonna be a function of what happens, you know, over the next two months. Anybody here Heather, the other Go ahead. Two others. Yeah. The the other comment I'll make, David, is you you shouldn't make the assumption that all of our commodities have bought always at market prices. Right? There's there's cases where, you know, we we entered into long term commitments with with our suppliers and and and and, like, on on based on fixed pricing, etcetera, etcetera. Right? Right? So that's just just just just a comment. Okay. Well, hopefully, they hedged it. I guess the second thing is you've done a great job of of, you know, keeping your doors open, keeping your customers happy, and you made a comment that you're seeing some opportunities arise out of that in terms of being a a good supplier to some of your key customers. You know, is there can you kind of point to a few things that you're you're really seeing where that's really kinda gaining traction? Yeah. I think we've mentioned it earlier, David. And and, again, it it you know, particularly in in with respect to our US platforms, the the demand with respect to all of our US platforms is is unprecedented because our our, you know, our three partners in The US have done an incredible job with regards to business continuity and and providing a steady supply chain to their customers. You know, I I can tell you on it perfectly that demand and opportunities in The US are are not lacking in any way. You know? So so the issues for us, of course, is to figure out the the, you know, the labor situation and and some of the logistical issues we talked about. But but this is the The US platform's growth is a very good example of what we just said and how we are benefiting from the fact that we've 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 of improvement coming out of COVID, as an example, obviously, demand, we're seeing I think some of the cruise lines are sold out in the in the fall. We're seeing resurgence in, you know, bookings, etcetera. So that's one area where you kinda got hit coming in not only just full service restaurants, but obviously airlines, cruise lines, all all that area. So do you think there's a possibility coming out of this that you could over index versus more normalized conditions as people are, you know, caged animals. They wanna get out and and and and go go south or go on a tour or go on a cruise line or whatever. Do you think there's a possibility we could actually over index? Yeah. Our general expectations are for you know? Again, based on what we've seen happening in The US, David, and in China and that little glimpse we saw at the beginning of the first quarter, you know, we are bullish that once things open up, there is going to be that surge. And, you know, our biggest food service exposure today that has yet to normalize from COVID is in Canada. So that that's gonna be a big factor in the turnaround that. You know, getting into some of the specifics, though, you know, cruise lines, you know, we're we're slightly bullish that, yeah, we'll see some pickup towards the end of the year. But, again, you know, there's a lot of risk there, and and what happens is gonna be really a function of international markets. Airlines were fairly bearish, you know, although I think you're going to see much more travel. We're we're we're not quite sure how the food element is going to work at this point, so we're being conservative there in 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 and and I guess the only bearish comment on the foodservice segment is, you know, a big driver, and you saw this. There was that earlier chart in my presentation on the COVID 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 the last part of the year. Mhmm. And, you know, that's a large gatherings of people. And, you know, there's, you know, tremendous uncertainty how that's gonna unfold for this year. So that that's probably the only bearish element in there. Okay. If I could squeeze one one minor sub question to that one. Are you seeing the potential for staycation 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 gonna resonate this summer? Well, I I think that, and, again, we have to be careful whether we're talking about Canada and The US. Right? US is in opening up, you know, nicely, and, you know, we are expecting unprecedented demand in C store and QSR, David. We're already seeing it. And and, you know, as I as I said as I said earlier, our issue is not demand. You know? And and, you know, I think a lot of people will still take driving holidays as opposed to flying holidays. You know? So, again, we're expecting substantial demand in those in those two channels. Excellent. Thanks, guys. Very helpful. Thank you, David. Thanks, David. Thank you. And our next question comes from Michelle Shreedhar. Go ahead. Your line is open. Yes. Thanks for taking my questions. So I I understand the commentary that PDH is seeing substantial demand for its products, which is nice to hear. I want to focus in a little bit on the the the mood stick category, you you know, which is a a focus category that management indicated that there's a lot of opportunity in. And and one of the the lines was that there was opportunity to grow market share for for the meat stick brands, because of the quality and and the success in other markets. Wondering how the market share is doing, in that particular category. Do you see expansion there? Yeah. I think we have to be careful, when we talk about the miss the meat stick category. Right? Because, again, you know, we're the lead, meat stick company in in Canada by far, but I'm not sure we've ever taken taken anybody's market share. We we simply found white space. We felt strongly when we acquired the Gordo's that the meat stick category was very underdeveloped, in The US, mainly because the the main brands of meat sticks were very low quality. So so, again, we launched a lot of very high end premium products just like in Canada, and we're gaining great traction with regards to those products because those products are finding that white space. Right? So it's not about taking somebody's market share. It's it's opening up new markets for a product. The premium brands never never looked at the market in terms of going after somebody's market share. That is a silly equation. Right? We try to find new opportunities and new white space for a certain product. When you look at our cooked products in The US, for example, our our cooked pure 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 it's well over a $100,000,000 category for us, maybe close to 200,000,000. But but, again, that is the PV approach. Right? Right? Right? Not about market share. Thanks for that color. And just switching gears here, you talked about the traction in the in the sandwich sandwich platform where management's targeting a billion dollars or I I don't know if it's greater than a billion or a billion dollars this year for for sales, which which is, you know, impressive given the challenges with COVID. Just wondering what is the runway for that platform? I mean, this is a fairly sizable growth over the years. I'm just wondering how when you look out several years, are you seeing a six substantial demand for that product continuing, and could this business double again? Yeah. You know, again, we refer to it, of course, as as as a sandwich division, but it's it's really an assembly business. Right? And, you know, it's it's sandwich business. It's grown well over 20% over ten years. But, you know, now they're, you know, in charcuterie assembly, and the charcuterie category is growing, you know, nice, you know, nice. It's one of the fastest growth growth categories in in retail today. And and and, you know, they're getting into Camino assembly, which is a healthier type of meat snacks and and, you know, single serve meals, which we we think is a high growth category. If you look at the growth of the category in Europe, for example know, anyway, so it goes back to my comment with regards to finding white space and and and trying to create markets, not trying to steal somebody's market. Right? So they're they're, you know, again, they're diversifying their assembly capabilities very nicely. They have a lot of so they're getting a lot of traction in in area in areas that I wouldn't call sandwiches. And and, again, we're really, excited by the growth growth prospects of of some of these new skews 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 the the lobster business with Clearwater and and and Reddish Seafood and maybe some of the wins and opportunities that you're seeing there? Yeah. You know, I would say that the word, Derek, is not integration. It's coordination. You you know, the the the management teams of of both companies are working extremely closely, on supply chain type of synergies, and also on 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. You know, we're working on on several value added type of of initiatives with regards to lobster. You know, Clearwater was was never focused on the value added part of the the business. And, again, all I could say is that we're extremely pleased with the coordination type of activities between the the two the two companies. Great, great management teams, great initiatives, great coordination. Okay. Thanks for that. And my last one is, I I guess I'm wondering where you are in in the the automation of the sandwich plants and if, you know, you're expecting that to maybe perhaps alleviate some of the labor pressures you're seeing there. Yeah. Derek, I don't know if you saw the AGM presentation yesterday, but it actually showed videos of our generation three lines that we're installing. And it's it's very exciting. It's it's complete automation, the use of eye technology with robotics. And, anyway, yeah, we're yeah. It it'll give us it'll give us more capacity, and, also, they'll be a lot more efficient. Okay. Thanks, George. Yes. Thanks, Derek. Thank you. And our next question comes from Stephen MacLeod. Please go ahead. Your line is open. Thank you. Good afternoon, guys. Hi, Steve. Hi. 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 shutdown set. And I'm just curious if you could give a little bit color on what growth rates looked like before things began to slow down in Ontario and other markets in Canada. Yeah. We we don't have a specific growth rate to to discuss, Steve. You know, what we did see was a good sort of week to week improvement, but, not you know, we never came to the point of actually coming to a full sort of normalization of the growth rate. You know, again, know you know, again, the the the you know, in in in general terms, if if lockdowns are announced, which impact restaurants, we get we get impacted. Right? And and that that's generally in our distribution group. But but, you know, again, we March was a a lockdown month again in in in in many parts of Canada. BC, Alberta, Ontario, and Quebec mainly. And and, you know, our our our sales to that segment were were impacted materially. Okay. Okay. Yeah. That that makes sense. And then I just wanted to, you know, make sure I'm I'm I'm, or see if you have any color incremental color around kind of the cadence for sales growth through the year. I mean, I think I would expect to see maybe the top line based on the demand trends talking about accelerating Q3 or Q2, sorry. Q3, you'd probably begin to see minimal COVID impacts on a year over year basis. And then do you expect to be in a more normalized environment by time you get to q four? Know, Steve, that that's the very reason we're not giving any guidance for the year at this point is it it all depends on how COVID rolls out. So you make a couple of key COVID assumptions, and and you change those, and our outlook will change. You know, it it it it's it's gonna be so much a function of how the economy opens up and and particularly with food service in Canada. And and and, Steven, you you you saw you saw the April numbers, right, that we've disclosed the April numbers. Right? And and, again, you can sort of deduce that we're still in lockdowns in Canada, and we've been impacted greatly in the distribution group. But that was by far the best April on record, you know, followed by a very challenging April, obviously, last year. So so that just shows you the robustness of the demand in markets where things are opening up, obviously, in The US. Right? So if you if we make the the the same assumptions with regards to when Canada is going to open up, then, you know, again, all bets are off and, you know, we're we're gonna see substantial demand. Yeah. Okay. That's that's great. Thank you so much, guys. Yeah. Thank you. Thank you. And our next question comes from Sabahat Khan. Please go ahead. Your line is open. Okay. Thanks very much. Just, I guess, on the following up on the commentary from the last question. I guess, 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? Or, like, just trying to understand, you based on the conversations you're having with your customers, which areas may be more uncertain as we look to the back half of this year and into next year. Sorry. Sorry. Saba, can you repeat the last part of that? You cut out on us. Yep. Just on the in terms of the outlook, obviously, you're not providing outlook just given the operating backdrop. But based on the conversations you're having with your customers, know, what is more of a uncertain area for you? Is it the premium food distribution side, or is it the specialty food side? Where does it you know, where where are you less certain on the outlook? Oh, yeah. No. Certainly, you know, in the specialty food side, you know, the the key area being impacted is really the airline business. There's a little bit of foodservice exposure there, but it's the airline business. And, you know, we like I mentioned earlier, we're pretty bearish on that. We don't hold up you know, you know, that is probably the impact's gonna be relatively consistent for the rest of the year. So it's it's more in the premium food distribution side. Well, that's where the heavy heavy food service exposure is. The food service and the specialty food side tends to be in the QSR segment. And as George has talked about, you know, we've seen a significant rebound there already, both at towards the end of 2020 and and certainly in 2021. So it it it most certainly is the premium food distribution group. And just in terms of the cruise and airline stuff, is the airline exposure really sort of times the exposure quite a few years ago, or has that been or is it 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 kind of 2022 and onwards, you know, there's a little bit of tailwind, obviously, for food retail as an industry through COVID. You know, how are you thinking about that as you go into 2022? You know, you have enough initiatives or other programs in place to sort of start to comp against those strong numbers that, you know, the industry benefited from over the recent years? Or based on what you're seeing now, is that demand, you think, gonna be more sustained as you move forward even as the kind of economy reopens? Yeah. We again, when you sort of look back, I mean, we never really had the, you know, 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 but, really, you know, 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, you know, I wouldn't say we took full advantage of the opportunity. May maybe because some of the other other challenges. So so we're expecting a return to normality of of lifestyle. The question is when, of course, as as Will said. And, again, I, you know, I wouldn't say that we've benefited immensely from the fact that that demand in private retail was so strong. Yeah. We're we're we're hoping to sell it that there's is some sort of longer term sustainable benefit is our premium food distribution group. You know, the food service business is in that group. You know, we've got a slide in our AGM presentation that talks about how they performed relative to some of the other peers in their their segment of the food industry. And and they've done an amazing job of developing new sales channels, particularly in retail, new relationships. So we really are, you know, bullish that there are some good sustainable opportunities in that channel. So when the food service comes back, you should see some really good solid growth if they can maintain those sales as well as then get back to food service. And then the one thing that's been lacking in all the growth numbers we've been talking about is food service in Canada was a key growth market for us. We made major investments in Quebec and Ontario in growing our sales in those segments, and none of that growth is built into the organic normalized 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, you know, if you think about the sandwich business, you know, the target that you're laying out of the outlook for a billion dollars of sales, can you maybe help us think through the composition of that billion dollars? You know, many, many years ago, it was primarily one customer. You've gone into other channels. Can you maybe give us some context on, you know, whether it's mass or c store, how big a portion of your sandwich business or new channels could be in a few years? Yeah. You know, it's exciting the what's happening in our sandwich group. There's so many growth growth initiatives within that group. You're you're right. You know, they they sort of built their business around a core customer. But I can tell you that they had amazing growth in c store this quarter, in retail, both mass and and general grocery. Like George talked about earlier, they're getting into other types of assembled products like charcuterie, which has been a big growth driver. Also, their assembled meals is is another growth driver for them. There there's just so many areas they're expanding, and and you're seeing that. You know, that that major customer is is becoming a a much less significant overall customer to their their platform. Okay. And then just one last one for me. I guess there's one customer you were doing some trials with, and that was picking up. And I guess through the pandemic, presumably, that program got put on hold to slow down. Is that, you know, is that something that's picking back up, or, you know, is that we'll just wanna get an update on where that program is at this point. All all I'll say again is that, you know, C Store will will see tremendous growth for us this this year. We are as Will said, we're getting excellent traction in in both our sandwich and our protein division in The US in the seafood channel, And, you know, we're really excited by that. Great. Thanks very much. Thanks, Carlos. Thank you. And this concludes our question and answer session. I'll now turn the call back to George Paliologou for closing remarks. Thank you, everybody. I'd 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.