Earnings Call: Q4 2020

Mar 11, 2021

Thank you for standing by, and welcome to the Premium Brands Holdings Corporation Fourth Quarter twenty twenty 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. Please be advised that today's conference is being recorded. Our presenters on today's call will be George Kolayelogo, CEO and President of Premium Brands and Will Kludic, CFO of Premium Brands. I would now like to hand the conference over to George Palianoglu. Please go ahead, sir. Thank you, Cheryl, and good morning, everyone. Welcome to our twenty twenty fourth quarter conference call. With me here today is our CFO, Will Kalutych. Our presentation today will follow the deck that was posted on our website this morning. Hopefully, you all have had a chance to access it. For those of you that don't have it, you can access it by clicking on the link of our press release issued this morning. On Slide five we're now on Slide five, which outlines certain key highlights. Will Kaluvich will walk you through our financial results shortly. In early twenty twenty one, we closed the acquisition of Clearwater Seafoods in a historic partnership with the coalition of Mi'kmaq First Nations. I will be expanding on our seafood platform later on in the presentation. I will also be updating you on our progress at our Sandwich and U. S. Protein platforms. 2020 was a difficult year for all of us. COVID-nineteen challenged us in ways that were unimaginable just a year ago. But despite the challenges, we entered 2021 stronger, larger and more resilient. We're very excited about where we're at, and we're very optimistic about our future prospects as our various platforms reach or exceed the 1,000,000,000 mark. I will now pass it to our CFO, Will Kaludic, who will update you on our financial results for the quarter and the year. Will? Thanks, George, and good morning, everyone. Before discussing our results for the quarter, I would like to caution you that to the extent we make forward looking statements during our presentation, our forecasts and assumptions are subject to change and actual results may vary. Please see our 2020 and fourth quarter twenty twenty MD and A filings, both of which can be found on the SEDAR website, www.sedar.com, for details on some of the factors that could cause our actual results to differ from our current expectations. Turning to our results for the fourth quarter. Please turn to Slide seven. And just starting with a discussion on our revenue for the quarter. Total sales for the quarter were $1,056,000,000 That was up about $97,000,000 or 10% from 2019 the 2019. Major drivers of our growth in the quarter were, first off, acquisitions, which contributed about $44,300,000 to our growth. And then that was followed by the success in our protein group of our meat snack, dry cured and cooked meat strategies, and in particularly, the traction we're gaining in The U. S. With our meat snack category initiatives in general and our meat sticks initiatives specifically. Also, our sandwich platform had a very good quarter, showing growth on a variety of new initiatives as well as with legacy customers. And then finally, our seafood and distribution groups also had solid performances as they leveraged recent investments in capacity new capacity, namely our new Saco lobster processing facility and our new distribution facilities in Toronto and Quebec. On the negative side of things, COVID continued to have a major impact on our business. We estimate it to be about $53,000,000 for the quarter. Consisted of about $71,000,000 of lost foodservice, airline and cruise line business, partially offset by stronger than normal retail sales of about 19,000,000 Our organic growth for the quarter was 5.2%. This was within our long term targeted range of 4% to 6%, but below our original expectations for the year due solely to the challenges of COVID. We've in the presentation, we've shown some normalization for COVID. We estimate the COVID normalized sales for us have been about $1,100,000,000 representing a 15.6% increase. And our and in terms of organic growth, a normalized run rate of about 10%, which would have been in line with our expectations at the beginning of the year. Turning to Slide eight. Looking at revenue for the year. Our sales came in at $4,068,000,000 That was up from 2019 by roughly $420,000,000 or 11.5%. Despite the challenges of COVID, our sales for the year actually came within the original guidance we gave back in March 2020 of roughly the $3,975,000,000 to $4,750,000,000 If you exclude new acquisitions that we completed in the quarter or post our announcement of our guidance last year, that would have given us sales of just a little over $4,000,000,000 so still within our original guidance range. So we're very happy with that considering the challenges that many of our businesses faced with COVID. Normalizing for COVID for the year, we have sales of about $4,300,000,000 COVID impact of a little over $200,000,000 and that would have given us total sales growth for the year of about organic sales growth for the year of about 11.6% or in total growth of 17.3%. Interestingly, the most heavily impacted quarter was the second quarter due to COVID. The impact there was about $132,000,000 on our sales. And if you turn to Slide nine, you can this slide shows you the normalization of our growth rates by quarter. The solid line is our actual growth rates, and these are all organic volume growth rates. And the dotted line is our normalized growth rates. You can see the dramatic impact in the second quarter. By the third quarter, our growth rates were getting it almost in line to the normalized level with foodservice, cruise line, airlines being the continuing impacts. And then in the fourth quarter, with some of the lockdowns, you can see that, that spread widened a little bit because of the impact on our foodservice businesses, but still nowhere near the impact that we saw in the second quarter. So overall, you can see the dotted line really was a continuation of the trends that we went into 2020 with prior to COVID impacting our business, with a lot of that growth being driven by a number of recent both organic and acquisition investments, the new plants I've mentioned earlier in our distribution and seafood groups, our new sandwich plant in Phoenix as well as several strategic acquisitions such as Alberto's in the meat snack category, Ready Seafoods in the lobster category and Concord Meats in the cooked protein category. Turning to Slide 10, discussing our EBITDA performance. So for the quarter, we came in at $87,700,000 in EBITDA. That was up $12,600,000 for twenty nineteen fourth quarter or roughly a 17% increase. There are eight major drivers in the improvement in our EBITDA, five of them positive, three of them negative. On the positive side of the ledger, organic sales growth was by far the biggest driver of our improved EBITDA. After that, we had some really solid efficiency gains in our protein group, roughly 5,000,000 to $6,000,000 driven by automation and continuous improvement. We saw a little bit of commodity benefit in the quarter, largely due to some favorable dynamics around seafood, where there was some demand destruction in the category that in the foodservice segment that created some favorable commodity prices that our businesses were able to leverage when they took those products into the retail channel. Acquisitions was a bit of a driver of the EBITDA growth as well. And then finally, COVID related costs was actually a positive in the quarter, unlike the last two quarters, where we continued to see a negative impact on our margins, gross margins as a result of thank you bonuses, additional PPE, and production inefficiencies. But that was more than offset by marketing cost savings and travel and reduced travel costs. So overall, the COVID cost impact was a favorable $3,000,000 for the quarter, 2,900,000.0 for the quarter. The negative impacts on our EBITDA for the quarter, the largest was by far additional infrastructure spending, both in plant over overhead and in SG and A overhead. That was about $8,000,000 to $9,000,000 in the quarter. A significant portion of that being investments being made for the future of our business for our future growth initiatives. There's some sales deleveraging benefit that we have there. And then wage inflation was another factor in the quarter. It was about a $5,000,000 impact on the quarter. We do expect that number to start falling in 2021 as we're starting to lap some of the wage inflation, wage increases we put through towards the beginning of 2020. And then finally, discretionary compensation was up for the quarter as well. So overall, a very solid quarter even before normalizing for COVID. Once we normalize for the COVID impact in the quarter, which we estimate the sales impact to be about $10,600,000 negative, offset by the 2,900,000.0 positive in cost benefits that I mentioned earlier. That would give us a normalized EBITDA for the quarter of about $20,000,000 representing a 27% increase from last year. Turning to Slide eight, talking about our EBITDA for the year. For the year end, we came in at $312,600,000 in EBITDA, about a $5,000,000 increase from 2019 or about 1.6%. That was below our guidance for the year, which had a fairly wide range because of the unknown impacts of ASF about ASF in the range was about $320,000,000 to $360,000,000 So slightly below that, the bottom end of that range. But certainly, once you normalize for COVID and in fact, if you just normalize for the impacts of COVID on the second quarter of the year, which was about $50,000,000 Our normalized EBITDA would have been about $340,000,000 or sorry, got that wrong, the normalization. But the normalized EBITDA is about $340,000,000 for just Q2. So with that, you see we're nicely in the targeted range of our original guidance despite COVID having a major impact on our businesses for the third and fourth quarter of the year. Again, a good solid year driven by a lot of organic growth and with the one major negative being the impact of COVID. Turning to Slide 12, Our adjusted earnings for the quarter increased nicely, dollars 36,400,000.0 for the quarter, up $6,100,000 or 20% from 2019. The major driver of that was our EBITDA growth, and that was offset by some increased depreciation, taxes and roughly for the year, about $10,000,000 in COVID related costs to additional PPP inefficiencies and plans, thank you bonuses and a variety of other similar costs, partially offset by reduced marketing and traveling costs. On an EPS perspective, we came in at $0.86 for the quarter versus $0.79 last year, so a nice increase there as well. And similarly, normalizing for COVID, we would have been close to about $1 per share for the quarter. Turning to Slide 13, our adjusted earnings trend. For the year, we came in at $122,700,000 roughly flat over 2019. Again, with the major impact there being COVID and particularly in the second quarter of the year. Normalizing for COVID, our sales for the our EPS for our earnings, sorry, for the quarter would have been about $165,000,000 representing a $42,000,000 increase or roughly 34% increase. On an EPS basis, our EPS for the quarter came in at $3 sorry, for the year came in at $3.06 That was up sorry, down about $0.25 from 2019 or about 7.6%. Again, COVID being the major factor and particularly the second quarter of the year. The and then in addition to that, we did raise a significant amount of equity in 2020 that did create some dilution as a lot of that capital had yet to being put to work by the end of the year. And we'll talk more about that when we look at the balance sheet and some of our capital allocation decisions. Turning to Slide 14, capital allocation. During the quarter, we invested about $75,000,000 in acquisitions and project CapEx. The one acquisition completed in the quarter was Allsea Seafood, which was about $61,000,000 and then a range of capital projects, major capital projects. Our Pillars Branford meat snack capacity expansion, dry cured meats expansion is going very well, 1,000,000 spent on that in the quarter. Our Harvest Meat Snack capacity expansion, which was completed in the quarter, we spent $05,000,000 on. We launched our Montreal new cooking line in Montreal for Concord. That's proceeding well and is on track, but in early days. And then our sandwich group completed both their new Panino line as well as a second generation automated sandwich line in the quarter. Those are completed on track and are running exceptionally well. George will talk a bit more about them in a bit. And then finally, our most recently announced expansion of our Stivers Artisan bakery, which is proceeding well on plan but in early days still. Subsequent to the quarter, we've allocated about $555,000,000 of capital, the vast majority of that being to acquisitions. The three acquisitions we show there is Clearwater, which was most of that capital, roughly $450,000,000 and then the acquisition of Distribution Cote Nord, which is a foodservice distribution business in Quebec, which fit very nicely with our Vindex business. And then we also acquired Starboard Seafood, which is an Ontario and Quebec seafood distribution business. We also announced three larger CapEx projects. One was the recent or the expansion of our Hemplers premium processed meats meat snack facility in Ferndale, Washington. That's about a 26,000,000 project. The expansion of our Oblorers smokehouse capacity to help support their meat stick growth initiatives. That was about a 5,000,000 project. And then finally, our sandwich group is adding two additional automated lines, third generation automated lines, which are an improvement from the second generation we just implemented. Similar efficiencies, but more flexibility built into the line, and that's about a $23,000,000 project. So lots of good stuff in the pipeline. As most of you who are familiar with our company, our expected internal rate of returns on all of these investments is either 15% or greater. So these should be significant contributors to our earnings and cash flow in future quarters. Turning to Slide 15, our return on net assets. Just sort of walking through the line, the green line is our free cash flow, the red line, our five year average RONA and the gold line are actual RONA by year. Then we show a couple of targets. The blue line is our 15% target RONA, and the black line is our weighted average cost capital of about 11%. So for 2020, our RONA was 10.2%, so below our target and slightly below our weighted average cost of capital. Three main factors contributed to this by far: COVID the impacts of COVID and recent capital expenditures that are works in progress. And I'll come back to those and normalize for those on a later slide. And then also, over the last two to three years, we've made some significant investments in both acquisitions and capital projects. Those projects and initiatives are just 2020 was a key year. They showed tremendous traction. They're just gaining traction. And we expect as they their longer term business plans play out that we will not get back only get back to that 15% target, but we'll exceed that 15 target. Turning over to Slide 15 is just the normalization I referred to earlier. So our actual RONA for 2020 was about 10.2%. We show on this slide the COVID impact of about $50,000,000 and the capital projects under construction, which was about $15,000,000 Normalizing for that, our RONA for the year would have been 12.4%, which was which is above our weighted average cost of capital but still below our 15% target. On a five year rolling average, we normalized to be at about 14.1, so not far off from our long term target. Turning to Slide 17, talking about liquidity, our balance sheet. We finished the year in an incredibly strong position. We had almost $900,000,000 of excess credit capacity at the end of the year. And that compares to about $700,000,000 at the end of the third quarter. That was driven by an equity issuance we completed during the quarter. And our total debt to EBITDA ratio was 2.2:one, down from 3.0:one at the end of the third quarter. And our senior debt to EBITDA ratio, which is the critical metric that we use in managing our balance sheet, was down to 0.6:one from 1.4:one at the end of Q3. Now normalizing for those capital allocations that I outlined on an earlier slide, which roughly the $600,000,000 of announced acquisitions and projects that are actually hitting the ground right now. Our senior debt to EBITDA ratio would be about 1.9, which is still well below our targeted long term range of 2.5 to three to one. And our total debt to EBITDA ratio would be about 3.2:one, again, well below our long term targeted range of four:4.5:one. Turning to Slide 18, free cash flow. Our total free cash flow for the year was a record $188,800,000 We paid out a record number declared a record number of dividends, roughly 92,000,000 That resulted in a payout ratio of just a little under 49%, 48.7%. Our free cash flow per share for the year came in at 4.87¢. That was down about 2% from 2019 and, again, driven primarily by COVID, but also, we we did raise a significant amount of equity during the year, which hadn't gotten put to use until 2021. So that also impacted our free cash flow per share. And then the final comment I want to make, we did announce with our fourth quarter results a 10% increase in our dividend, bringing the annual dividend rate to $2.54 per share. With that, I will pass the presentation back to George. Thank you, Will. We're now on Page on Slide 20. As you can see, our seafood platform has grown a lot over the past ten years, both organically and by acquisition. Our run rate, including our share of Clearwater sales, is about 1,200,000,000.0 to 1,400,000,000.0 This positions us as a top 20 seat company globally and the only vertically integrated player in North America. Slide 21 demonstrates our vertical integration across the board with unparalleled access to some of the best wild seafood species in the world. We're uniquely positioned to bring seafood solutions to our customers by leveraging our ocean to place capabilities. Slide 22. In addition to Clearwater, as Will said, we were pleased to recently welcome the AllSeas and Starboard teams to our ecosystem. We're ready to disrupt and innovate the seafood space in North America by leveraging our access to best in class products, combined with our expertise in packaging and branding. On Slide 22, we provide you with some examples of value added seafood products like our salmon and tuna skewers to be launched this year, which leverage our proprietary skewering technology. Slide 23 outlines our various priority initiatives as we begin to work closer with Clearwater and its management team. The picture show examples of value added products that will make it easier for consumers to enjoy these healthy and great tasting proteins. The seafood shower soup in the middle is made by our company, Global Gourmet, using clams purchased from Clearwater, while the lobster grilled sandwich lobster grilled cheese sandwich shown on this slide will be assembled by our sandwich group. We believe that all three products shown here in this slide will not only be popular in North America but also in Europe and Asia. The case for seafood consumption in North America is very compelling. Demographics in health and wellness are already driving exciting sales growth in this category. For example, in 02/2020, sales of frozen seafood in retail in North America were up 71%. And 59% of consumers that eat seafood twice a week said that they do so because they're trying to eat healthier and to boost their immune systems. I should also note that seafood consumption per capita in North America trails those of other developed countries. For example, the average North American eats 16 pounds per year as compared to 25 in France, 36 in Norway, and 39 in South Korea. We believe strongly that this gap will narrow over the next few years, and we also believe that the pandemic has accelerated this trend. Our innovation and value added efforts plan to focus on making it easier for consumers to enjoy seafood. Our branding and innovation efforts will focus on seafood nutrition, meal ideas, transparency and sustainability while emphasizing our unique Ocean to Plate capabilities. We're now on Slide 24. Our U. S. Protein platform made tremendous progress through 2020 and is well positioned for growth in the future. Slide 25. We made great progress in diversifying our sales in categories other than jerky. Our meat steak sales in The U. S. Grew by 45% in 2020 to USD 52,000,000. Dollars For 2021, we're budgeting sales of mint sticks in The U. S. To exceed $100,000,000 driven by innovation and new launches focusing on younger Hispanic consumers under the well known Takis brand, which is under license. We also launched several authentic Germanic stick products under the newly acquired and iconic Bavarian meats brand. The very popular and best in class Bavarian meat, Lanjager, has potential to be rolled out nationally in the future. As the picture show on Slide 25, we're also excited to continue to launch Italian themed charcuterie trays and cooked chicken skewers in snack format, leveraging our best in class proprietary skewing technology. Slide 26, Our Sandwich platform finished with another year of record sales despite severe demand destruction in QSR during the 2020. As you can see on Slide 27, the Sandwich division assembles much more than sandwiches. More specifically, we're pleased to see that our investments in charcuterie and panino assembly are starting to gain traction in all channels. We also invested in capacity to produce single serve meals at our Burnsville facility in Minnesota. During 2020, we launched a number of plant based breakfast sandwiches with a number of user customers. Sales of these products are projected to reach $100,000,000 in 2021. As Will mentioned earlier, we are investing in two generation three assembly lines that will combine automation with operational flexibility. The new lines will be in operation in Q4 twenty twenty one. This platform finished the year very strongly, delivering record sales for the year despite COVID related demand destruction in Q2 twenty twenty. Slide '28. As you can see, our acquisition pipeline remains active and robust. We expect to continue to bring more companies under the PP umbrella in the future as we execute our various growth and value creation strategies. Slide 29. We're very proud of our progress over the past year in this very relevant and important area. As the slide shows at Premium Brands, we're committed to all stakeholders and not just our shareholders. We also recognize that being good to all stakeholders is not just about managing risks, but it is also good for our business. We're committed to our ESG action plan and road map, and we look forward to reporting and updating you on our progress in the near future. Back to Cheryl for the Q and A segment of the presentation. Cheryl? Thank Our first question comes from George Doumet. Please go ahead. Your line is open. Yeah. Good morning, guys, and congrats on a solid quarter. I know it's early days, but I just want you to talk on how the integration is going at Clearwater. Maybe share with us the low hanging synergies. Maybe quantum quantify some of the more ambitious longer term ones that you guys are planning on capturing. Yeah. Joe George, you know, first of all, there there is no such thing as integration. Right? Right? Like, this is not a situation where, we are going to integrate, Clearwater. Clearwater is a great company. It is very well run, and it is, world class in harvesting and processing at sea, resulting in exceptional quality products. On slide 23 of the presentation, I outlined the four areas that we're working with them in terms of, as you say, low hanging fruit. First of all, of course, is to leverage the PB distribution business, particularly in Canada. This will enable us to create programs, branding, and take advantage of the ocean to plate opportunities that we will able and and solutions we will able to give to our customers. Secondly, we are working to develop a branding and packaging format formats, as I mentioned earlier, to make it easier for consumers to enjoy these amazing proteins. Thirdly, we have a focus on value added. I gave you three examples of value added products that that that we are either marketing, currently developing, or doing the r and d on. And, again, we're we're getting good traction on all of them. And thirdly, operational synergies, you know, particularly in in lobster. You know, we have a very, very large business in lobster based in The US. And, obviously, we're working with Keylor to find ways to optimize our supply chain, to optimize the various opportunities that we see in the lobster space. Again, this is not an integration play for us. Clearwater is an exceptional company. They do what they do very, very well. And, you know, again, by combining Clearwater and the premium brand seafood assets, you've got you know, the the only vertically integrated company in this space in North America, and we're we're excited with that. Yeah. Thanks for that, George. And maybe just staying on the topic of of seafood. I did find interesting that on Slide eight, guys have put together with advanced discussions. You're pretty sizable company. So maybe can you maybe talk about certain areas within the seafood complex that you feel like you'd like to to fill in or or expand in or maybe have a presence in? Yeah. Our perspective, George, is we we look at the seafood space generally by on a species by species basis. And, ultimately, we wanna be in a position where we have significant market share, in each area, that we're in, in each species we're in. That, you know, effectively being vertically integrated, being able to develop value added branded products with in conjunction with Clearwater, of course, and our and our partners. They make my First Nations. And and, you know, a good example of that is is is Lobster, of course. And and Lobster, now we're by far the biggest player in North America. I think we probably have 35% market share in that in that space. And and and so we have a a similar vision with regards to some other species as well. Okay. Thanks. Understand that you guys don't wanna give any guidance for twenty one be because of all your uncertainty around the pandemic, but it seems that there's a lot of CapEx initiatives here that we're undertaking. So I'm just wondering, is it fair to assume that maybe the organic growth for this year would be anywhere between kind of our historical four percent to six percent range and this year's eleven percent ex COVID? Yes. So George, again, a lot of that CapEx that we announced, that won't start benefiting us until 2022, 2023. In in terms of this year, you know, we we we've got two major headwinds going into the year. One is COVID, the continuing impacts of COVID. Clearly, it'll be a a challenge in the year first quarter, which last year, in the first quarter, COVID was actually a positive impact on our sales. And then we also have for the translation of our US operations. You know, our our US operations are growing quite significantly. And and, you know, last year, we had an exchange rate of about $134 to $1.35 This year, we're probably looking at $1.27 $1.28 So where those factors play out are going to be the big determinators. Outside of them, if it had been a normal situation, yes, we would have expected sort of similar growth rates that we expected for 2020 sort of in that high single digit, low double digit range. But it's it's just the uncertainty around those two factors, and particularly on our food service and the exchange that, you know, we're not, at this point, giving any specific guidance. Our next question comes from Marshall Landry. A follow-up on on the Clearwater acquisition synergies. You know, it was helpful for you for us to for you to walk through some of the initiatives. You know, I'd like to get, you know, maybe a bit more details on the timing of of the realization of these synergies. You know, is is this the majority of these synergies, are are they to be realized near term, or or are they more longer term in nature? I think that the before I mentioned, Martin, are are basically part of our long term plan. And and, really, as I mentioned earlier, the businesses are very complementary. They don't overlap each other. They're they're very complementary. Clearwater was basically a best in class harvester of of amazing wild shellfish species and a processor at sea and then a seller of these products in container loads around the world. And we're more on the distribution and the value added side. And, again, we're we're excited to have access to to supply, of course. You know, in globally, there is more demand for wild seafood than supply. And so access to supply is very, very important in the process of developing, you know, value added products, which I gave you some examples today. So so, again, this is a long term plan. You know, the the we're really excited. We're having excellent discussions with the Clearwater Management Team. I hosted our first seafood summit. It was a two day event, and we've identified a number of areas to work together to leverage the vertical integration that we have to provide best in class seafood products to customers and consumers. That's all we could say at this point, Martin. Okay. Okay. That's helpful. Last earnings call, you talked about labor shortage being a challenge and that, you know, it prevented you from capturing some some some sales opportunities. You know, wondering how that's evolved and and and if it had any impact on q four sales. Yeah. Similar trends, Martin, as as in the third quarter. I would say that is in The US, they've rolled out vaccinations. You know, the situation with labor has become a little bit easier for us. I mean, we're we're eagerly waiting for vaccinations in Canada as well. And, again, we're doing better in The US, you know, across the board with regards to to managing our labor challenges. It's part of the reason why the The US part of our business had a pretty good quarter in the fourth quarter. Not as good in Canada, but as I said, we're we're anxious to get the the vaccinations and get on with things. Yeah. The only thing I'd add to that, Martin, is the fourth quarter is a slower quarter for us seasonally, so you're not pushing the production facilities as hard. You're you're you know, the the volumes are much smaller. So, you know, that there's a natural sort of easing off on the labor requirements because of that. So that also helped to address the issue. Okay. Okay. And and my last question was on, you know, wondering if you can talk about your your innovation pipeline. You know, we we like numbers. So I don't know if you can discuss, you know, the number of new SKUs that you expect to launch this year across all your platforms, and then and then how that would compare with with previous years. Again, all I could say, Martin, is that innovation is part of the PBDNA. This is something that is is ingrained in our in our various meetings with our different teams. As you know, we're a very diversified company, and we expect all of our companies to be driving innovation. Innovation is what keeps us obviously ahead of the game and and what's given us traction. And all I could say is that we've got an exciting pipeline of an an amazing, exciting pipeline of of innovative products, and I look forward to updating your notes. I do I did mention some on our call today, and I will do so, obviously, on future conference calls. And it it should you know, 2020 was a year where, you know, one of the impacts of COVID was an inability to do a lot of new product innovations. A lot of retailers just put things on hold, stuck to sort of core legacy listings. So so the there's there's a backlog of opportunities in our pipeline right now, and and, you know, that that whole process is just starting to get somewhat normalized. So, yeah, like George says, it's a very full pipeline right now of things that'll be coming out in 2021. Okay. That's good to hear. Thank you. Thank you, Mark. Thank you. And our next question comes from David Newman. Your line is open. Good morning, George and Will. Congrats on the queue and excellent traction. Thank you, my first question would be, you know, the pandemic's weighed, but you've been very nimble, and you you were able to win new business. And I guess maybe just talk about the magnitude of that and how much you expect to stick around and, you know, and and let's say we have a second half recovery, what the delta might be just related to that. Like, how much do you think you can carry forward? Maybe some examples too. Well so, you know, you're talking about in the retail channel then, Dave? Yeah. I you've you've just you've done a lot. Right? You guys you have the school programs and things like of that nature. Like, how much of this how much of this incremental business new business that you want because of COVID might actually stick around? We I talked a little bit earlier on George's question in terms of our growth outlook. We've been very conservative in that number in the sense that when we talk about the COVID impact on our business, we do sort of net a lot of the retail growth off that we see as unusual. So all those numbers are kind of the core long term strategies we've been pursuing, investing To the extent that we are able to retain some of this new business that is kind of been a result of gaining traction in certain areas from COVID, that that's upside. That that would be you know, we're not counting on it. We're hopeful that we can continue to keep it. It certainly created new opportunities, but, you know, that that would be even, you know, greater numbers than what I I mentioned earlier. Okay. And then the second one, just, you know, margins look good in the quarter, posted or and normalized. If you take into consideration sort of raw materials, a little bit more benign. Labor, it sounds like things are easing off and you're automating a few things. Your fixed capital and just the scale, you know, you you set a target of, like, twenty twenty three of 10%. Is there a kind of a road map forward in terms of what you anticipate the progression will be towards that target? Yeah. Sales deleveraging is a significant component of that expansion. You know? So this year, if you normalize for for the impact of COVID, we would have been at about nine point one percent. So not far off. And, you know, roughly, to get to that ten percent, it's probably two thirds, sales deleveraging and a third other factors. K. Good. And then for '21, you're calling for a better year. But if you strip out just m and a, what what areas are you really starting to see come together overall? I mean, just it you looks like you've invested for a number of years. If I look back on Premium Brands' history, there's been a year where there's gestation period where you invest, you invest, you develop new programs, and then you kinda hit your stride, and it goes. And it seems to me like you're kind of in that zone again where you've invested a lot, and then you're sort of hitting your stride. May may just sort of talk about other than m and a, where you're seeing you're kinda hitting, you know, critical mass. Oh, yeah. No. Absolute you know, you know, the Sandwich group is the best example. Right? We built the Phoenix facility back at the 2017, early twenty eighteen, and it's taken some time to gain traction there. But that group is just hitting it out of the park now. And you saw it in the fourth quarter. The sandwich group was a major contributor to our growth. So that's a great example where it's taken some time to gain traction as they've entered new channels like retail, C store, and that traction is just gaining hold. The unfortunate part is in that group, it is hidden a bit by their loss of the airline business. The airline was a nice piece of profitable, substantial business for the group. But that's one example. Another which is our GTA initiative. We built in 2018, 2019, we built that new 100,000 square foot distribution facility to expand our strategy around the foodservice, expanding our seafood distribution into other proteins using the model we used in Western Canada. That has continued to make good progress despite its core foodservice business being so hard hit. So once we start seeing the foodservice element coming back, you're really going to see the traction of that investment. Another one is our investment in the C and C facility, friend and seafood business in Quebec. Again, despite the impact on its core foodservice business, it has started to gain amazing traction in the retail channel, leveraging that new capacity. And then once the foodservice business comes online, you're going to see that traction accelerate. And then finally, the last one I would point out is the Saco facility for the Ready Seafood group. That's been a tremendous win this past year. And that, again, is despite COVID. Cruise line business has historically been a big customer of their processed products, and that entirely evaporated in 2020. So lots of things that were growth drivers in 2020 despite COVID. And as that bell comes off, that hindrance comes off, you should see that continue to accelerate in 2021. You're absolutely right in your comment, David, about we've made those investments. We're leveraging now to get the benefits, the returns, the cash flow, all that stuff going. 2020 was the year we expected that to happen. Obviously, for reasons we all know, it didn't. And now 2021 is in our gun site, but we'll we'll see how it flows with COVID. Again, great great question, David. And I I would add to that that another example would be our US based protein platform. You know? The acquisition of Alburtis was transformational to that platform. That was mainly a beef jerky company, a national beef jerky brand. And today, they're a lot more than that. And then I gave you some numbers in terms of our growth in in in, you know, the the stick area and charcuterie and others. And, you know what, again, they've they've there's been a lot of innovation taking place there. We found them many, many capacity solutions, some tuck in acquisitions. Again, they're they're evolving very nicely now, and they're growing. They're accelerating their growth. Right? So, again, the the thing about premium brands is that, you know, we are we think about the long term. We don't buy a business to sell it, you know, three years from when we buy it. That's not our style. We buy and we invest it. And, you know, sometimes it takes three to five years for for us to get to critical mass and to get the the returns that that, you know, we're expecting. But, you know, there's many, many areas. Distribution is another one, David. Again, we've we've invested in in being the number one coast to coast protein distributor in in Canada, and and that takes time and effort. And we've built facilities to do that, and, you know, we're we're just about there now. So that's another area where we expect to see progress, particularly when foodservice comes back. Perfect. Great run through. Thanks, guys. Appreciate it. Thank you, David. Thanks, Dan. Thank you. Our next question comes from John Samparo. Please go ahead. Your line is open. Thanks. Good morning, guys. I wanted to start with the plant based space. And if I'm not mistaken, you were maybe a bit more cautious on this in the past, but it sounds like you're thinking it's evolved on this subject. Just would like to get a sense of where you see this going for PVH over the next couple of years, either on M and A or organic investments. And on one observation in the presentation, that $100,000,000 you cited, sales, does that include your largest customer, or would that be an incremental opportunity to that? No. That that includes all of our customers. Yeah. Okay. Understood. And and broadly, is this an area you'd like to invest in more? Do you feel you have sufficient assets in place to to address the client base category? You know, again, John, I ultimately, we allocate capital and we make investments in in in areas where we think we can generate a return for our shareholders. And and, you know, we understand that the plant protein space will grow. It is a trend, and and and it it seems to be growing. There seems to be a lot of players and a lot of capital entering this space, so we made a conscious decision not to invest in capacity to make these products. We believe that was the right thing to do given the amount of capital that's chasing this this, this category. Having said that, that's not to say that we don't leverage on it, our expertise in certain areas and take advantage of selling and marketing opportunities, and that's what we're doing. Right? I think if you sort of looked at the evolution of premium brands, we tend to be very cautious with our capital. Once we develop, this segment, and let's say we develop it to 2 to 300,000,000, that's not to say that we won't be feel comfortable to go buy somebody, that gives us capacity. So that that's the way we view the segment at this time, John. Okay. That's very helpful. Thanks. And then a few housekeeping questions, starting with Clearwater. I know you're booking the interest, for the subordinated debt this year, but there's the one year interest holiday on on a payment basis. Does that mean, does that mean interest is accrued and paid one year later every year, or do you essentially receive two years' worth of payments, in 2022? Just wondering what the difference is on accounting versus cash basis for that. Yeah. It's it's the latter, John. It it's not a holiday incentive forgiveness. The interest is payable. We're just deferring it in the first year, and then it becomes due in the second year. So you're right. In the second year, we'll get two interest payments. Although, again, I think we've talked about this in the past. We are a patient, long term shareholder in Clearwater, and it will depend on their ability and uses and needs of capital on how we will draw interest payment out. But ultimately, it is due in the year two. Okay. That's great. Thanks. And then what's the obligation of the Mi'kmaq First Nations Group when it comes to purchasing the stake of your $450,000,000 of subordinated debt? I get there's some variability depending on what the free cash flow is at the Clearwater level. But is there a minimum amount they have to repurchase from you either from their licensing payments or their management fee per year? Yeah. Essentially, the cash flow they're receiving from the structure of our transaction and the license fee associated with our transaction, the excess cash flow from that, they are obligated, and they want to participate in the sub debt or buy the sub debt. Got it. Okay. And then last one for me. Did you see any impact from ASF in Q4? And is there any anticipated impact for 2021? Yes. When we talked Q4 last year, that was the big cloud on the horizon that was causing us concern. And it really hasn't been the issue that we were concerned about for 2020. In terms of Q4, we did have some pork and beef commodity challenges, but they were North American based. They were problems with labor in these big facilities and their inability to value add products to the specifications that we require. So that was creating some inflation. So, yeah, no, ASF was not much of a factor. Maybe a little bit on beef as a substitute protein because China has been importing more beef. 2020, ASF is still out there. It's still an unknown, but China has done an incredible job in growing their production levels, they're much more sophisticated in how they manage their hog production. So we don't expect it to be, but it's still a factor out there. Okay. That's very helpful. That's all for me. Thank you. Thank you, John. Thank you. And our next question comes from Stephen MacLeod. Please go ahead. Your line is open. Thank you. Good afternoon, guys. Hey, Steven. Hey, Steve. Lots of great color on the call so far and certainly in the slide deck, so thank you. But I just had a few follow-up questions that I wanted to ask about. You talked a lot about sort of your five strategic initiatives and gave some great color in the slides, each sort of on its way or at $1,000,000,000 plus. I know you gave a little bit of color on the seafood platform. Can you just give a little bit of color around where you are at in terms of sales for some of the other platforms when you think about those five strategic initiatives? Well, again, our I would mention the five, Steven. Our Canadian protein platform is is already there. About about a billion dollars in in sales is all value added, by the way. Then, of course, we have, sandwiches. And and we we expect, our sandwich group, again, we call it a sandwich group, but we are assembly group. And as I shown on this, on the slide, we're making a lot of progress in assembling other products other than just sandwiches. So we expect that platform to reach that level in in 02/2021. And, you know, our our distribution business, you know, in in Canada, that that that exceeds a billion dollars now across the board. It includes our seafood distribution companies and our other protein distribution companies. So so so and that platform continues to to grow. We spoke about, you know, our US protein business, which is about halfway there, I would say. It includes three main businesses, Alberto, Hamblers, and and Asernias, all based in Washington state, but with a national reach in terms of marketing programs and and brands. And, again, we're getting exceptional traction there. And, again, our our our seafood group, as I mentioned earlier, in terms of if you if you take our seafood group and you add our share of the Clearwater revenues, we're we're about 1.2 to 1,400,000,000.0 in in revenue. Okay. That's that's great. Thank you. And I know I know you you stopped short of giving 2021 guidance, and I understand you've already given some color on the outlook. But can you just talk a little bit about how you expect kind of the cadence of growth in 2021, with Q1 being a difficult comp and then Q2 being less so, being an easier comp? And then how do you think the back half of the year might evolve with foodservice and things like that opening back up? Yes. So our working assumption, Steve, is Q1 sort of is a continuation of the Q4 trend. We do expect to continue to show year over year sales growth given a lot of the stuff happening, particularly in our specialty foods group. And then certainly an acceleration of growth in q two just from the normalization from COVID. We do also expect the, a slow, opening over the quarter two, as vaccinations are executed on, and, you see some reopening of the economy. Q three, we we continue to expect some COVID impact, again, even lesser than from q two. And, you know, our expectation is by q four, we should be in a fairly normalized environment with the one major exception being airlines. We we don't see a recovery from that until well into 2022, possibly 2023. Okay. Okay. That that that makes sense. Thanks, Will. And then maybe just finally, with respect to a couple of modeling questions, can you give a little bit of color around your expected tax rate for the year? And then with these most recent acquisitions that you did, Starboard and distribution at Code Nord, could you give a little bit of color around I think you gave revenues in the MD and A, but maybe a little bit of color around margins? And I assume both of those businesses will sit in the distribution business. Is that right? Yeah. So in terms of tax rates, no no major changes at this point from what we've given in our prior guidance. You know, I I I get off the top of my head, I think it was, 27 to 29%, something around that range. So Okay. We we should should continue to be within that range. You know, there's so many moving parts in that, Steve. And, you know, depending on where the income falls and which jurisdiction because we have quite a wide range of tax rates. But but but that should be a fair assumption going forward. In terms of the margins on the recent acquisitions, you know, both AllSeas and Starboard are are, you know, typical seafood type margins in line or maybe a little bit higher than our premium food distribution margins. And Cote d'Inoire is it it's exactly the same as well. Same as PFD or same as? Yeah. PFD. Yeah. They're they're they're all PFD acquisitions. Right. Okay. So And they're all And they're all sort of a little bit above the average for the group. They're all kind of got niches in their biz business that give them a a a one step up. Okay. So they're sort of and they're a bit higher than the PSP business is what you're saying? Yeah. Yeah. Yeah. Okay. Okay. That's well, that's great. Thanks so much. That's all for me. Thank you. Thank you. Our next question comes from Vishal Shreedhar. Your line is open. Hi. Thanks for taking my questions. Hey, Vishal. Just a little bit good afternoon. Just a little bit of a a follow-up on some of that color you gave on how you think the year is going to unfold. So in q four, you know, you high you hypothesized that that maybe that's gonna look more normalized next year. And and so the way you think about it, we we take, like, kind of your your normal expectation for organic growth, and then we add the amount of, like, sales that you lost due to COVID on top? Or or are there capacity constraints or other reasons why you're gonna gain back the sales lost in in this current q four that you printed plus the the normal run rate of the economy or or your business? No. No. It it should be the former, Michelle. Again, you know, when you go back to that chart that showed the the normalization of the growth rates, you know, the reality is that was all just, you know, that's lost foodservice business, yeah, primarily. And so that, you know, we expect that to come back and then by q four to be above that as the traction of these different initiatives come into play. Okay. Okay. That makes sense. And just switching gears here, there there were media reports that there was a outbreak in some of your facilities, I think, particularly in Toronto, which led to temporary closures. Just wondering if how material are the impact of these closures, and are those all behind us at this current moment? So the the the major one, again, it it was a terrible situation. I you know, it's been addressed. You know, we we we thank goodness the the facilities are back up and running, and and the the outbreaks have been dealt with. In terms of the impact, though, not much of an impact. You know, it it impacted our Belmont business, which is a burger business. And, you know, 80% of their sales are in the summer months, So minimal impact on them because of the timing of the outbreak relative to the seasonality of the business. And then the other one was on our Concord business. And although not as seasonal, it was a sort of a similar factor as well as they were able to access sister company capacity. So, again, not a material factor. Okay. And and, with respect to the Clearwater acquisition, just on the deferred interest, does that that when you deferred, does that is that not show up as a benefit on the P and L? Or do I record that in the P and L and just record that? Oh, yeah. It it will be in the P and L. So we will be creating, starting in the first quarter, a new segment. We'll be calling investment income. And so that will include the interest and management fees from Clearwater as well as we've always had some interest income from non controlled income interest that have been netted in the corporate expense. So we'll move that into that. So so that will be recognized, and it will be segregated in that segment. Okay. So so you recognize even though it's deferred and then then in the p and l, and then the cash flow statement will get kinda double up in the following year if that's the way it works out? Correct. Correct. Got it. And maybe just lastly, if you can give us some thoughts on the acquisition market. You've obviously provided us some color on that. But in terms of the quality of the deals that you've been shown and if there's any changes that COVID has precipitated on that front. Yeah, Michelle. No no no changes, really. Again, the type of acquisitions we look for are are generally in the pipeline for a long time. There's a lot of conversations that take place between us and and the owners. And, you know, I would say that the activity is normal for us. We look at a lot of opportunities. We probably get to look at a possibly a deal a week and but we kind of tend to buying companies that we know that we built the relationship with over the years. And when the sellers decide to to sell, then then they come to us. You know, we've shown you the schedule, of course, and it it shows that there's a lot going on and and a lot in in our pipeline. You know, we've got a an extensive m and a group here at corporate, and and they're extremely busy right now. Thank you for that color. Thank you. And our next question comes from Derek Lessard. Please go ahead. Your line is open. Yes. Thanks. Good afternoon, gentlemen, and congratulations on on on a great quarter. I guess most of my questions have been answered. The one I do have is I was wondering if there's any difference between profitability or the margin profile between foodservice and retail channels. Well, it depends, Derek. If you look at you have to look within the segment and the type of products they're selling. So if you're looking in our our premium food distribution segment and you're looking at our food service businesses that have pivoted from their traditional fine dining customers to the retail segment, that's definitely lower margin business. You know, as I think it was David asked earlier, hopefully, we we do hope to keep some of that business post the pandemic on the basis that it still provides critical mass to their distribution network. So it's profitable business, but it's definitely lower margin business. But if you compare that retail business or that their foodservice business with the retail business and our specialty food business, then, no, you know, that that that's a higher margin business, by all means. But then there are also are other costs associated with that businesses in terms of marketing and and those types of costs. So net net in those businesses, you end up a little bit more ahead than you would in Food Service or QSR? Well, net net, if you look at it on a global basis, really, our Specialty Foods segment is primarily focused on retail and our Premium Foods Distribution segment mainly focused on foodservice as a really rough gauge. And you can compare the EBITDA margins in those two segments. Okay. Yes, that's helpful. And maybe just one last one. Obviously, 2020 was a pretty big year for you, a huge year in terms of M and A. Just, like, how are you I I know you said the pipeline is busy. It's it's full, and everyone's working hard on on deals. But I was I was just wondering how you're thinking about it in terms of strategicness. And, like, is 2020 more of an integration 2021 more of an integration year for you guys, or, you know, is it full steam ahead? Again, Derek, it depends on the platform. Right? I I think in the case of seafood, of course, we're very busy with with, you know, the the large deal we've done and a couple of other deals we've announced weekly. And, again, we look forward to extracting and optimizing the vertically the vertically integrated platform that we've we've created. So probably you shouldn't be expecting massive transactions in the in the Caesar space. There'll be some tuck ins. There'll be some add ons, etcetera. But but in general terms, we're, you know, we're gonna be working on optimizing the vertical vertically integrated entity that that we created. With regards to the other platforms, we all have their own plans. We all have their own expansion initiatives organically and by acquisition. So so, you know, don't be surprised if we make an acquisition in one of the other platforms. That's that's relatively on the bigger side. Okay. And, actually, maybe one final one for me. Thanks for that, George. In terms of of of capacity in in the sandwich business, Are you guys bumping up against any given given the growth, are you bumping up against any capacity constraints? It it depends on on the items. Again, we refer to this as a sandwich division or sandwich platform, Derek, for for legacy reasons. I would say on the Sandwich side, we we know we're probably about three three years away from from needing to add another facility to the to the group based on how we project our our sales to grow. Again, you know, we we we've we've built capacity, and and, again, we're in good shape, and we're getting more, out of the, the new lines or more productivity out of the new automated lines that we're investing in as you as we told you guys, today. With regards to some of the other, products that we make, you know, we we might have to add capacity in those in the in the future. Okay. Thank you. Thank you. Our next question comes from Sareha Khan. Please go ahead. Your line is open. Great. Thanks, and good afternoon. Just a quick follow-up on the the question earlier around Clearwater and the rolling up the interest payment. I guess, with this new segment where you will be reflecting the interest and the management fee, is there any addition to corporate overhead or anything, or is it just flow through on an annualized basis of 52 a year and obviously cash coming in the year after? Yeah. No. It's the latter, Saba. It's just the interest and management fees. Okay. Great. And then, just looking ahead at there's a couple of questions on the sandwiches side earlier, but now as we think about demand ramping up, you know, I guess, are you hearing from your both the retail as well as the food service, like, food service and the restaurant customers on that? You know, are you seeing sort of a sequential pickup in demand as they're planning for the next year? And, also, is there any difference between the restaurant channel versus the initiatives you need to put on that platform in terms of the demand that you're seeing? Can you please repeat the question? You broke up, and I I I couldn't hear it, Sabahat. Sorry. No problem. So just on the sandwiches platform, just in terms of your conversations you're having with your retail and restaurant customers, is there any difference in the recovery you're seeing across the channels? And how are you generally seeing the demand set up for '21 as the food service and just eating out improved as a channel? Yeah. In in regards to sandwiches, the demand is very, very strong. So what we're being told from our customers in general is is that, you know, we will need to allocate them more capacity for 2,021. And a lot of it, Sadhgad, is driven by the fact that a lot of QSR is doing really well in their drive throughs. And when a consumer basically goes to a drive through, he's more likely to purchase a handheld sandwich. And that's kind of benefited with that that category, the sales in that category to all of our QSR customers. You know, again, I I don't know when things are gonna open up, but the consumer that goes to a drive through tends to be more likely to buy a handheld sandwich, breakfast sandwich, let's say, and coffee than than the consumer that walks in the store. So so that that that's driving a lot of growth in in in that segment. Okay. And I know you don't talk about specific customers, but if we just look at your restaurant customers or quick service customers for sandwiches, and what would you say demand is directionally as we exit 2020 relative to, you know, a year ago? Are we closer to normalization, or are you expecting a big recovery through this year to get that back to run rate levels? You know, again, Sadhgad, it really depends on the customer. Let's say we have a customer that has a lot of downtown stores. They're not doing that well, right, for the reasons that you you know, of course. Right? If if we've got a customer that that has a lot of stores in suburbia and no stores downtown, you know, they're doing extremely well. It just depends on the geography and the location. It's a very different world today than than we know, and and and a lot of it is driven by some of the the the the trends and events that you already know. You know? So, generally, you know, if you if they've got airport kiosks, you know, they're very slow for for reasons that we know. If they've got downtown stores, they're not doing well. But but, you know, suburbia and cottage country are doing amazing. You know? And it's it's just, you know, things that are logical. Great. Thanks for the color. Thanks, Sarah. Thank you. And this concludes the q and a portion. I'll now turn the call back to George Palinologo for closing remarks. I'd like to thank everybody for attending today. Back to you, sir. Thank you very much, ladies and gentlemen. This concludes our call, and you may now disconnect.