Earnings Call: Q1 2019

May 13, 2019

Earnings release

Good afternoon. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Premium Brands Holding Corporation First Quarter twenty nineteen Earnings Conference Call. Our speakers on the call today will be George Peliologou, CEO and President of Premium Brands and Will Kalutych, CFO of Premium Brands. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I'd now like to turn the call over to George Paliovogou. You may begin your conference. Thanks, Denise, and good morning, everyone. I would like to welcome you to our twenty nineteen first quarter conference call. Our first quarter results once again show the progress we're making in becoming North America's leading specialty foods company. We stand alone as a food company that continues to execute a values based strategy that is based on the long term. Our unique strategy of partnering with talented and successful entrepreneurs in the specialty food industry and helping them to grow their businesses both through organic initiatives and acquisitions is the core to our success. For more information on the strategy and our long term plans, please see my 2018 letter to shareholders titled The Long Game, which can be found on our website at www.premiumbrandsgroup.com. I will now be turning the presentation over to our CFO, Will Kaludic, for an overview of financial results for the quarter, after which I will make a few brief comments. This will then be followed by the Q and A segment of the presentation. 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 forecast and assumptions are subject to change and actual results may vary. Please see our 2018 MD and A, which is filed on the SEDAR's 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. I would like to start out by highlighting that our first quarter is generally our weakest of the year due to the seasonality of many of our businesses and that the seasonality was further exaggerated by some of the acquisitions we made last year. Our revenue for the quarter grew by $191,700,000 or 32.8% to a record $776,600,000 Acquisitions accounted for 181,300,000 of the increase, organic volume growth for $11,000,000, and currency translation for $9,600,000. These increases were offset by $1,300,000 in selling price deflation and the impact of a late Easter holiday holiday, which was estimated to be approximately $8,900,000 After normalizing for the late Easter holiday, our organic volume growth rate for the quarter was approximately 2%. This was driven by solid momentum in a variety of protein related categories, including meat snacks, deli meats and cooked protein, as well as by our new foodservice initiative in the Greater Toronto Area. These factors were partially offset by two challenges. The most significant of these was a decrease in our wholesale business with retailers in Eastern Canada resulting from a variety of transitory factors, including the timing of product promotions and a particularly harsh winter in Quebec. The other challenge was continued lower consumer foodservice spending in Western Canada, particularly in the white tablecloth segment of the market. Overall, however, our growth for the quarter was in line with our expectations, particularly given that this is, for seasonal reasons, our weakest quarter of the year. Normalizing for the impact of the new IFRS 16 accounting standard, our adjusted EBITDA for the quarter increased by $8,900,000 or 20.6% to $52,000,000 This was driven mainly by acquisitions, efficiency improvements at a number of our production facilities and organic sales growth. Commodity costs on an overall basis were relatively neutral with wage and freight inflation having a negative impact of approximately $2,300,000 Our recently acquired Ready Seafood business also continued to be impacted by China's tariffs on U. S. Lobster products. However, looking forward, we expect this issue to largely be resolved by several initiatives launched by Ready towards the end of the quarter. During the quarter, we incurred $1,900,000 in start up and restructuring costs, which primarily related to two projects: the construction of a state of the art 105,000 square foot distribution facility in the Greater Toronto Area and the construction of a new 22,000 square foot culinary plant in Surrey, BC. Both of these facilities commenced operations near the 2018. Our adjusted earnings per share for the quarter decreased by $0.12 per share or $0.05 2 per share or was $0.52 per share due to highly seasonal nature of many of the acquisitions acquired late eighteen and to the adoption of the new IFRS '16 accounting standard. Looking forward, we are seeing solid momentum building across all of our platforms. However, due to significant uncertainties associated with an outbreak of African swine fever in China and the possible repercussions of this on global protein prices, we've expanded our adjusted EBITDA guidance range to 300,000,000 to $340,000,000 from the previous guidance range of $320,000,000 to $340,000,000 We are maintaining our 2019 revenue guidance range of $3,660,000,000 to $3,720,000,000 In terms of our financial position, we continue to maintain a solid balance sheet and very strong liquidity. Our senior debt to adjusted EBITDA ratio was 2.7 to one at the end of the quarter, which was in the middle of our long term targeted range of 2.5 to one to three point zero to one, while our total debt to adjusted EBITDA was 3.9 to one, which was below our long term targeted range of four point zero to one to 4.5 to one. Furthermore, we had almost $164,000,000 of unutilized credit capacity at the end of the quarter. Turning to our investment activities. During the quarter, we made two business investments totaling $47,200,000 consisting of $21,400,000 in cash and $25,800,000 in contingent consideration, and we spent $8,100,000 on project capital expenditures. During the quarter, we declared a dividend of $17,700,000 or 52.5¢ per share, which on an annualized basis works out to $2.1 per share. Our free cash flow for the trailing twelve four quarters was a record $167,800,000 as compared to dividends of $65,700,000 resulting in a payout ratio of 39.1%. I will now turn the presentation back to George. Thanks, Will. Back in 02/2001, when we launched Premium Brands, we believed strongly that consumers would eventually shun sugar based highly processed foods in favor of high quality protein products made with clean ingredients by companies demonstrating good social values. Our growth since then into one of Canada's largest and most successful value added protein companies is a testament to our vision and resolve to continue to upgrade the food eating experience through regionally focused brands and platforms. This focus has propelled us to leading market positions in a number of high growth categories, including fully cooked protein and skewers, meat snacks, sandwiches, protein distribution, seafood, and cured meats. The companies that joined us over the past year are all making great progress in leveraging our ecosystem to take their businesses to the next level. We're especially pleased with progress that Oberto's is making in The US by using the expertise and resources of our best in class meat snack and deli platforms in Canada to launch new and innovative products in that market. The opportunities we're seeing in The US are even bigger than we originally anticipated, and correspondingly, we're working hard to add capacity to sustain and support this growth. Many of our plants are looking at expanding their operations as we work towards our objective of doubling the size of the company over the next five years. Furthermore, since launching our PB ecosystem project in q four two thousand eighteen, we have already had a number of significant successes and expect this initiative to accelerate our innovation pipeline and market channel development plans. The recent launch of our Italian meats offering in The US is a great example of several of our companies working together to bring about innovation to generate new growth opportunities. We're following the ASF crisis in China closely as we try to understand its potential impact on our business. We are, however, diversified across many proteins and for this, as well as other reasons, are confident that we will manage through this crisis better than others. Also, I should mention that not all possible scenarios are negative for us and that there are many factors that could largely mitigate many of the projections around global pork shortages. These include include global demand destruction resulting from higher pork prices, the substitution effect to other proteins, the timing of containment of the disease, or an escalation in trade tensions between North America and China. Looking forward, we're very excited about how we're positioned as we continue to innovate and drive growth at the unique time of disruption and opportunity in the food space. As to acquisitions, we continue to be viewed as the acquirer of choice by many of the owners of specialty food companies, and I'm pleased to report that we're still enjoying an especially robust pipeline of acquisition opportunities and fully expect to add to our portfolio of specialty food companies in the very near future. I will now turn the presentation over to Denise for the Q and A part of the presentation. Denise? Thank you. Your first question comes from George Doumet with Scotiabank. On the reduced guidance for the year, I think it was $10,000,000 at the midpoint. Should we assume most of that, most of the impact being in q two and to a smaller degree in in q three? And by when do you guys expect that fully pass through the prices? Well, it's a it's a it's a you know, we've made some approximate estimates based on, like you say, mainly q two, George. The the key is going to be how long it continues for, what happens. Like like George says, there's so much uncertainty around this issue. So if it's sort of a onetime impact, we see it steady off, then, yeah, it'll be solely a q two impact. If it falls off, it could be a, you know, a neutral q two. And and if prices continue throughout the year increasing, it'll beyond q two. Again, it sort of goes to the uncertainty of the whole situation. Okay. And on that note, maybe what what was the rationale for maintaining the the higher end of the EBITDA guidance? And I'm just wondering if is there a buffer in that guidance, maybe a general guidance, maybe built in for a rise in beef and poultry prices over the next three quarters? Yes. So so the you know, there is a chance, George, that ASF doesn't come to anything. In which case, you know, q one was on plan. A lot of our sales initiatives are are are gaining the momentum we expected. They're on plan. You know? So there's still that potentiality of if things don't go bad on the commodity side of things that, you know, there there's a lot of upside potential in the numbers still. Okay. Maybe shifting gears to the the food distribution business. The margins were down quite a bit year over year. And I'm just wondering how much of that was ready seafoods, and how much of it was just maybe other categories, like, I guess, the operating leverage impact and others? Sorry. Can you say that again, George? Yeah. The the food distribution business. I'm just I'm just wondering that the margins were down year over year. So I'm just wondering, you know, the buckets. I know Ready Seafoods is in there, but, you know, you can just kind of Yeah. It's it's right there. It's the the new GTA facility contributed a bit to that, but it's primarily Ready Seafood. And and Ready, you know, Ready, Alberto's, Concord, TMF, these businesses, all acquisitions for 2018, have a a tremendous amount of seasonality in their business. And so you had Ready impacting on that basis, and then you also further compounded that with the lobster issue, the the tariff issue with China. Okay. So some of those issues we should see reverse themselves in q two. As I mentioned, Ready's now got in place a number of initiatives that will largely mitigate the tariff issue. So that should be behind us. And then also the natural seasonality will kick in in in q two with the positive results then. Okay. Yeah. Thanks for that, Will. And maybe just one last one maybe for George. In your 2019 letter to shareholders, you discussed removing guidance. So I'm just wondering, is that something we can possibly expect this year at all? Again, George, I didn't discuss removing guidance. I basically discussed the pros and cons of of guidance. Right? Right? So there's no plans to remove guidance under any circumstances. But I was just basically talking about some of the pros and cons of trying to run a business for the long term and obviously having to respond to quarterly guidance. Okay. Thanks for that clarification. Those are my questions. Thanks, George. Your next question comes from Derek Lessard with TD Securities. Your line is open. Good afternoon, everyone. I wanted to drill down a little bit further on the hamburger business in Belmont. You did call out the plant protein based burgers as one area of strength. Just wondering what your strategy is in this area and some advantages over some of the other players we've heard about recently. Yeah. It's a very good question, Derek. As you probably know, we're probably Canada's larger broker company. We're a very, significant player in Canada and and in North America as well. We over the past two or three years, we've launched a brand called Pure, which is actually doing well in the marketplace. You could find it at your at the retailer near you. These are very, very clean ingredient type of burger products. We've followed the plant protein space for a long time now, for about ten years now, because this category has been around in Europe for about ten years. And we appreciate that there is growing demand for these type of products. And and our burger platform has leveraged this know how and its manufacturing facilities to develop some very, very good products in this segment. We do significant business in this segment, and and we've spent considerable amount of time in learning about it and and in trying to come up with the right products with the right ingredients that meet our brand vision and brand specification. So so we're excited by it. There's some growth to it. I should also say that plant protein is a subsegment of the protein space. You know, the protein space is very trendy these days for the comments I made earlier. You know, consumers are shunning refined sugar. You know, there's way too much sugar in our diet in North America. People know that. And they're looking to find protein solutions for their snacks and for their dietary decisions. So so, again, protein is really on trend. Plant protein is a sub sub segment of protein that's growing. But I should also say that as Will mentioned earlier, seafood is growing as well. Organic is growing very quickly as well. Meat snacks are growing. You know, I don't want you to assume that this is the only part of a protein space that is growing. Okay. Thanks for the color on that. And maybe just changing gears here on on acquisitions. I'm just curious to get your insight as to why, again, you mentioned this in the MD and A, but why you're seeing increased interest from from larger competitors to join you guys? And and maybe if you can just talk about which platforms you're seeing the most interest from? Yeah. Again, Derek, good question in the sense that we are seeing more transactions and bigger transactions because we're a much more significant company in The US. You know, we have four very, very good platforms in The US today with excellent management teams. We're gaining a lot of traction in terms of listings and innovation. And, you know, just just the just the fact that the size of the companies in The US are bigger by virtue of the fact that, you know, it's 10 times bigger than than Canada in terms of population. So so it's a natural consequence of the traction we're getting in in The US market. Okay. I'll make you. Thanks, guys. Thank you. Your next question comes from Sedihat Khan with RBC Capital Markets. Your line is open. Thanks. Just one on the ASF issue. Can you maybe walk us through some of your bigger business lines and how quickly you can pass through pricing on each of them? I'm thinking for the food distribution businesses such as seafood versus sandwiches and maybe compared to your products that are sold into the retail channel? Just any directional commentary there. In in general terms, you know, two two thirds of our business would be distribution and and sandwiches, and those businesses have cost plus business models. So generally speaking, they pass on price increases on a very dynamic basis. So that leaves the other third. You know, that's you know, our our protein businesses are in there. Our meat snack business are in there, and and obviously, deli and and fully cooked protein. It is about 11% of our sales pork today. Many years ago, it was probably closer to 50, so it's come down a lot. You know, as Will mentioned earlier, the it's there is some uncertainty there as to the extent of the issue in China. The story is changed a few times out of China. They're going to be pork deficient, for the remainder of this year. We don't know how much. They'll reach out to, procure, pork all over the world. They have to to to to a large extent already. But again, we don't know the extent of the problem in China at this point. In overall terms, we think that we are looking at a relatively inflationary environment for all proteins, because of the substitution effect. You know, we think, if pork prices double, for example, not as many consumers are going to consume as much pork and consumers will switch to other proteins like chicken, for example. So there is some uncertainty there as to what the behavior will be. But as I mentioned earlier, for us, we've we've already passed cost increases through on a thirty day notice basis. And and it's really the only part of our business that that we have to give notice notices. And and, you know, our notices usually are thirty to ninety days. In this particular case, though, we're going for thirty days. Okay. And then just on one on the outlook for the rest of the year. As you look towards the seasonality of your sales, is there a ramp up we should expect in some of the programs for the rest of the year, for the meat snacks and the sandwiches programs that you've talked about in the past? Or should we expect sort of a full quarter of contribution from your newer programs starting in q two? Yeah. No. Definitely a ramp up, Derek. A lot of the initiatives, particularly in the sandwich group are kicking in sort of mid to late second quarter. So the way we look at the balance of the year is is q two is ramp up. All the initiatives are pretty well in full full gear for q three. And then you should see in q four a little less seasonality in our business because some of the newer initiatives are less seasonal, particularly, again, in the sandwich group. But that that's the way we're looking at the balance of the year. Okay. And then just one last one for me. And I guess as these programs ramp up, how should we think about margin? I guess these programs aren't necessarily tied to, I guess, new facilities coming on, but rather you're servicing them out of existing facilities. So is there some sort of a margin ramp up there as well? Exact yes. That that that is a big factor contributing to what we see as the expansion of our our margins margins over the course of this year is the higher contribution margin on incremental sales. Okay. And then just one more if I can squeeze it in. On the food distribution side, you talked a little bit about the seafood side. I guess, what are you seeing on the Western Canada weakness? Does that look to be moderating at all, do you expect that to be a headwind for the rest of the year? We are cautiously optimistic that it's going to be better in the second half of the year. We think q two will continue to be a bit of a headwind, but oil prices seem to have stabilized. General sentiment seems to stabilize a little bit. So you're cautiously optimistic on the second half of the year. Especially with Alberta, I think we're seeing a little bit more excitement out of the Alberta market, which has been has been slow in the last couple of years. Thank you. Your next question comes from David Newman with Desjardins. Your line is open. Hi. Good morning, gentlemen. Hey, David. If you look into your outlook for the entire year on organic volume growth. I think you previously flagged for around 10% in Specialty Foods and foodservice distribution being around 8% to 9%, if I'm correct. So you held your your revenue guidance intact, but I would assume that within that, that there would be price increases embedded on the back of the African swine fever. So I'm just kind of getting a sense of what you think the volume outlook might look like for the remainder of the year for the full year. So so, you know, our guidance is a range, and those rates you you quoted are in that range. So the way we looked at any inflate inflation coming through from African swine fever is, yeah, it'll probably push us to the top of our range given sort of an average level of assumptions. So we didn't feel we needed to increase the range because of that. But you're absolutely right. That would be a factor that would push us towards the higher end of that range. Okay. And and you've you've you've nailed down a 100,000,000 captured out of the one thirty five and and minus that means you may have Walmart in as well starting June 1. So if you kinda look out beyond that, there was another 100,000,000 that you're kinda looking at with seven Eleven, Couche Tard and and and those sort of guys in the C store channel. And you did note in your your press release that there is new listings. Any any color you guys can share? Well, again, David, I can't tell you how excited we are with all the new listings that we we've got and and in executing those listings. As I mentioned in my prepared comments, Albertus has made incredible strides in, in terms of their innovation pipelines. They're having almost a 100% success in presenting, new, items to their customers and getting listings for those customers. And I just can't tell you how excited we are to to be working with them in terms of growing their platform and their their business in in The US market. Another area is our fully cooked kebabs, skewers, and other proteins. We got a lot of new listings in in that particular area in The US. You just have to remember that the size of the market in The US is 10 to 11 times bigger than Canada. So a lot of times with us, our innovation gets us the listing. But we have to figure out the the the the capacity and and the way we can execute it. So so lots of very, very exciting initiatives with a lot of well known customers, some of them of which you've mentioned in your question, and and we're just exciting to be executing them. Okay. So just connecting the dots and back to the organic growth question then. I would assume then if you nail down some of these other ones of the 135, that kind of gets you to the 10% organic growth on volume in specialty food? Absolutely, David. Okay. And just some other quick ones. The weather in the in certainly, in the second quarter here has been pretty sloppy. I'm not sure what it's like in the West Coast, but it's pretty pretty horrible in in Toronto. So we've got a a terrible spring. Does that weigh into your your second quarter as well, being a sloppy spring here in terms of weather, flooding, etcetera? It's a little early to tell at this point, David. You know, the the real barbecue season, the real outdoor season doesn't really kick into high gear until May. So, you know, we're a week into it now. You know, if it continued throughout the the month, then it may start to become a factor, but I wouldn't say it is one today. The other point, David, is that, again, you've commented about weather in Central Canada, you know, our businesses now are truly North American. So you have to look at weather patterns across North America. Sure. Sure. West Coast has had a great great spring so far, and the South and the Northeast of The US not bad. You know? So so you you just have to look at the entire weather patterns in North America, not just one part of it. Yeah. No. For sure. And then just the last one for me is just well, I know we talked about this in the past, but your working capital has been creeping up. And you you mentioned there's some some initiatives that you have underway just other than, obviously, the puts and takes of these programs kicking in, which is obviously evidence that there is programs kicking in because of the working capital building on inventory. But is there other things that you're focused on on inventory in terms of managing it? Yeah. So I I I yeah. I can't emphasize enough. You know, a a big part of that inventory bump is our businesses planning for this summer. Sure. You know, it's a lot more advanced building of inventory. There's a little bit of building of inventories as well associated with, you know, the global protein situation. But, yeah, you know, we feel there's it can always be managed better. And, you know, one of the things we are implementing now where we are directly tying our our senior executives compensation to specific metrics around working capital. And so we're we're trying to bring more focus to it as well to make sure that it is at an ideal level. But certainly, a large part of that increase this quarter is planning for the summer. Again, David, it's planning for the sum summer as Will mentioned, but but there's also a little bit of planning for a worst case scenario under the ASF situation as well. Right? That that that's very significant. Makes sense. Thanks, guys. Thanks, David. Your next question comes from Steven McLeod with BMO Capital Markets. Your line is open. Thank you. Good afternoon, guys. Hey. Hey, Stephen. I just I just wanted to follow-up a little bit on the price increases that you put through. You said you you put through, I guess, a thirty day price increase request or demand. I'm not sure how to phrase it. But can you talk a little bit about what you're seeing or what you're hearing? I I know it's still early days, but what you're hearing in terms of the willingness to accept price increases? I mean, if you put them forward, do do your customers have to take them? Well, again, Steven, what what's happening with ASF is not new. It's not unique to us, of course. And the retailers are are already seeing increased input costs in terms of some of the fresh pork cuts that they they sell. Right? So it's not it's not a surprise to them in terms of what's going on in the in the marketplace. Right? Right? So Right. So again, you know, our business model is is one that's always been dynamic when it comes to pricing. We are having very good communications with our customers. Obviously, if the situation improves, we'll we'll pass on decreases as well. But we have a very unique situation here. They know about it. And, you know, in some cases, some customers basically even notified us and said, you know, what are you gonna do in this situation? So so so again, there's nothing new here in terms of in terms of, you know, this is not new or unique to to premium brands. Mhmm. Okay. Yeah. That makes sense. And then just just in terms of of the guidance, you know, I I know you you you already referred to it in response to previous question, but what kind of leeway does the low end of guidance give you in terms of the you know, if ASF is a is a long drawn out pronounced issue? So our estimates at this point, Steve, are based on kind of what we've seen so far in the markets and a reasonable extrapolation of that. So, you know, if things get really crazy, then we're gonna have to go back and and reexamine the numbers. But it it's sort of based on what's happened to date and the best outlooks as to what's going to be happening go forward. Think, Steven, there's probably 10 assumptions in in or or or many, assumptions in how we estimate the impact of of of of this crisis. Right? So it's not one assumption. It's not two. It's many. Mhmm. But what we've done is we've gone back and looked at what's happened historically in similar situations because our industry has had similar situations in the past. So that's what we're basing our projections at this time. Right. Okay. That makes sense. And then I just just wanted to clarify, you mentioned pork was 11% of sales. Just so I understand, is that is that a percentage is that the the your your pork costs are 11% of your sales? Yeah. That's correct. Cost divided by the sales. Right. Okay. Okay. That's that's helpful. And then just finally, you know, well, you you mentioned some of the initiatives that Ready has has has put into place in the market to offset some of the some of the challenges you've seen in on the left in the lobster market. Can you just elaborate a little bit on what those are? Yeah. No. I I I can't. There's sort of a proprietary nature to them. But, essentially, it's it's you know, a big part of it is opening new markets and and getting product into new markets. But Mhmm. Yeah, it's not something we wanna share. But they've they've also invested in in a Canadian operation as well, Steven. Right. Okay. Okay. Okay. Yes, that's great. Thank you. Your next question comes from John Zamparo with CIBC. Your line is open. Thanks. Good morning, guys. Good morning, Harm. Just a couple of housekeeping questions to start. Is it fair to assume the I think it was the $8,300,000 impact from IFRS 16. Can we assume that is likely going forward per quarter? Yes. It's on an annual basis, it's about 31,000,000, John. Okay. That's great. Thanks. And then I just want to confirm, the previous EBITDA guidance of $320,000,000 to $340,000,000, that did not include the IFRS benefit, and then the current EBITDA guidance does include IFRS 16. Is that right? Oh, no. No. It's it's all pre IFRS 16. Okay. Okay. That's good. Thank you. And then as a follow-up to the last question, within within the EBITDA guide, you mentioned there's a lot of assumptions as it relates to ASF. And granted, there's so much uncertainty here. But what's the embedded net impact of ASF in your current guidance? We haven't disclosed that, John. It's it's just it's one of you know, it's a range of factors on different scenarios, and that's what's brought us to that range. So we don't have one specific number. Okay. Understood. Sticking with ASF on on the pricing side, can you comment on the magnitude of the of the dollar increase you're gonna get on pricing versus cost? I mean, is this is it an attempt at a pure pass through, or do you try to get some margin expansion through these price increases? Just the pure pass through, John. Okay. And then just one more ASF one, I promise. You call it the impact of a of a few items. I'm just I'm trying to get a sense of I'm gonna try to frame this. I I guess part of the fear on ASF is that it passes through to other proteins. So have you seen so far any cost inflation on your other main proteins, in particular beef and seafood? Beef in general terms has been a little bit inflationary, but nothing material. Wouldn't say there's the other proteins have been impacted at this point, although there is a lot of talk out there that it they will be impacted depending on the on the on the size of the the the problem in in China, of course. Right? Right? So there's a lot of speculation right now, and I I wanna emphasize that a lot of it is speculation. There's a lot of misinformation and disinformation about this subject out there. And and, you know, I I think that, you know, people forget that, you know, as as prices for for pork, let's say, go up in China, there is a substitution effect there. There's there's a lot of demand destruction there and people go to chicken and and other proteins. Right? Right? So there's a lot of linear type of estimates out there and and and so we're we're being cautious. Okay. Understood. And then last one for me. Towards the end of last year and I suppose mid last year, you called out impact of US labor rates and and to a lesser extent, I'm just trying to get a sense of how you expect these costs to progress throughout the year. Yeah. So so far, as I mentioned in the the comments, you know, freight and labor was about a $2300000.02400000.0 dollars impact on the quarter. That was in line with our budget, our expectations, and and that's sort of the rate we expect going throughout the year. And, again, since we've ramped up, our Phoenix plant, our Phoenix sandwich plant, we are, as as Will mentioned in his prepared remarks, we're getting better efficiencies out of out of that facility and in general out out of our entire sandwich platform. So so we are getting some good good traction in in in capturing some efficiencies. Okay. Great. That's all for me. Thank you very much. Thank you. Thanks, John. Your next question comes from Rob Wells with TD. Your line is open. Good morning, George and Will. Hey, Rob. How are you? The question about labor with The US unemployment rate at 3.6%. How do you see that impacting the business, you know, over the next year or so? Do you do you have a big challenge there as, you know, with with hiring people? Yeah. Well, like, again, Rob, it's it's a good question. This has been the case obviously for us for about a year now. A lot of our US operations have had challenges with respect to accessing labor. But as I've mentioned in the earlier question, we have made some great progress with respect to efficiency and automation and and coming up with programs to be able to to hire people and to hold people. But the other side of the equation is actually a a positive for us because we have Canadian based operations. Our Canadian based operations are not having as many challenges accessing labor. So so we're getting a lot of opportunities right now to bid and and and win business that in The US to that that that that are made manufactured in Canada. So so there is a silver lining there as well for us. Okay. And what do you see as the biggest challenge for the company over the next year that is within your control? Well well, like, again, I you know, we're very, very excited with everything that's going on in the company, Rob. You know, I'd say, you know, we need to manage ASF as best we can. And as we've mentioned on the call, there's a lot of uncertainty to it. We feel that we need to manage it better than everybody else. It's an industry problem. It's not a PB problem, but we need to come up with the right strategies and the right scenarios to manage it better than everybody else. Okay. Thanks. Thanks, Rob. Your next question comes from Dmitry Klimitsky with Veritas. Your line is open. Thank you. Thanks very much for taking my question. What portion of the 11,000,000 in specialty foods organic growth this quarter came up from the new initiatives? It's a mix, Dmitry. I I don't have the specific blend. You know, off the top of my head, I would probably guess 50% sort of range. But the reality is a lot of the new initiatives are seasonal products and aren't kicking in until q two. But but in in It's it it wasn't a big driver anymore. In general terms, Dimitri, the star of the show for us is is was meat meat snacks and deli. Getting a lot of traction in meat snacks and deli in in The US market. Mhmm. I see. And and just to confirm, I I I understood it right from the prior call. At this stage for 02/2019, out of the new initiatives that should contribute $135,000,000 on an annualized basis, you expect in 02/2019, they will contribute somewhere around, I guess, 98,000,000 to 100,000,000 this year in terms of incremental growth? That that's correct, Dimitri. I see. And and the last question is, you you haven't highlighted sandwiches, in specialty foods organic growth, during the quarter. And so does that suggest suggest that that sandwich business delivered less than 3% organic growth in the segment during q one? Yeah. No. It was a situation where there were just less LTOs, so it wasn't a big driver of our growth in the quarter. Because LTOs can be a a very kind of choppy element in in that segment of our business. And sorry. By LTOs, mean limited time offers by key customers. Mhmm. I see. Okay. Thank you very much. Go ahead. Sorry. Yeah. Yeah. A lot of the growth in in that category is determined by by the limited time offerings of and the promotions of of the customer base, Dimitri. Right? So there weren't very many. Again, those are usually dependent on weather patterns and and other factors, and and there weren't that many in the quarter. So worse than which is substantially less than than the headline organic growth and 3% organic growth for that segment during the quarter. It was relatively flat, Dimitri, once you normalize for for some of the LTO issues. K. Okay. Thank you very much. Okay. Your next question comes from Bob Gibson with PI Financial. Your line is open. It will so let me just get this clear. The guidance you're giving is pre IFRS 16? Correct. Yeah. Everything is yeah. Both so the numbers we gave last year are completely comparable to the numbers we just gave. So are you gonna give us post IFRS 16 guidance numbers? Yeah. Roughly $31,000,000 is the annual impact of IFRS on our EBITDA. Okay. Great. And and looking below the EBITDA number, the the impact of IFRS, is it pretty much smooth, or or is there anything else I should look at? No. It it it's it's it's you can isolate the specific line items in the statement below. But overall, for the quarter, it was about a almost a $04 negative impact on our EPS net. So the positive EBITDA offset by the increased accretion and amortization was a negative. Okay. Great. Thank you. Okay. Your next question comes from Derek Lessard with TD Securities. Your line is open. Thanks, guys. I just want to follow-up on previous question. I mean, you talked about capacity being the biggest hurdle to growth. Maybe if you could just talk about some of the initiatives you got going on there. Well, again, Derek, I would say just about every facility we have in the system is undergoing some sort of expansion right now. We're working really hard to find and and grow capacity in the system. We have a number of plants that have that have expansions that are that are just about completed. Again, these are not major projects in general, but their capacity expansion initiatives Our our two cook skewer plants have just they've they've they've both finished capacity expansions. We have three seafood plants that are either just completing major expansions as well, including a new facility by Ready Foods to value add lobster. Our deli meat snack plant in Western Canada are all undergoing capacity expansions. And and and also a lot of the non sandwich plants in the in The US are are going expansions are are going through expansions as well. So there's a lot going on in with respect to to increasing capacity in the system. As I mentioned earlier, that's part of our plan to to double the size of the company over the next five years. Okay. And maybe just a follow-up on that. The the CapEx is is running at roughly $60,000,000,000 annually. Is this still a reasonable assumption for the year? Yeah. So a a lot of what George talked about are are smaller projects, but there are some larger projects in there, Derek, that are in the planning stages that we have not sort of finalized and therefore not included in our guidance yet. But at this point, what's in our MD and A is what's approved and we're proceeding with. And but I would give you a heads up that there could be some bigger projects coming down the pipeline subject to going through our approval processes. Okay. Thanks for that. Thanks, Eric. Your next question comes from Steven McLeod with BMO Capital Markets. Your line is open. Thank you. I just had one quick follow-up question. Are you able to quantify what your sales are for plant based proteins? I don't think we've disclosed that numbers, Steven. You know, it's in the single digit million millions of millions of dollars. Okay. And most importantly, we've got a lot of initiatives coming to market shortly. A lot of launching is coming to market shortly. It's a lot of noise in this category, and we are getting lots of inquiries about it. And as I said, we we do have production capacity and expertise in the segment. Mhmm. So you you you you specifically have plant based protein launches coming to market? Absolutely. Absolutely. We have plant based protein burgers on the market as we speak. We've had them for quite a while now. Some under our brand, some under private label, and we have more coming to market. Right. Okay. That's great. Thank you. Thank you. Your next question comes from David Newman with Desjardins. Your line is open. Hi, guys. Just a couple of quick follow ups here. You called out on SG and A. Obviously, you had increased discretionary promo spending and whatnot ahead of the launches. So if look at SG and A just more holistically on a 30,000 foot level, Do you think this is going to level off at some point? Is this gonna be the new level, but you're gonna get better absorption on it? Or, like, how are you thinking about the SG and A? Yeah. That that's a fair comment, David. You know, the the problem with the first quarter, it being so slow, it doesn't take a lot of extra cost in that line to really throw the margins out. So that that's one of the factors you've got going against us. So there was some increased discretioning discretionary spending in the quarter, but it wasn't huge. Okay. It was just sort of laying the the the platform for some of the new new products. And and like I say, the impact of that because of the lower sales dollars was more meaningful on a percentage basis. Got it. And then just on the the sandwich expansion down at Phoenix. I noticed it was a in the in the filings, it was said q one twenty twenty now, and I think it was previously q three two thousand nineteen. So anything going on there in terms of roll over those lines? Yeah. We we we ran into some issues with the supplier and the specifications around the product. And and that in these automated lines, it's incredibly important to have a a consistent components going into them. Yeah. So we had to work our way through that. We've worked through it now. It's all settled. But now we've got had to get back in the queue with the supplier. So it's just a question of, you know, the supplier had gone on to other projects. Now we're working with them. We're back in the queue. And so that that should be a hard date now. And can you leverage those learnings in terms of automation into your other plants? I mean, you must have learned quite a bit through this whole process, I would imagine. Well, it it's it's kinda automation is an interesting one. This is a sandwich automation project, so it's quite unique to sandwiches. But where we are getting a lot so there there's not a lot of leverage going from that into, say, our protein businesses. But Right. Within our protein businesses, we're seeing some tremendous gains by leveraging some of our recent acquisitions. And and in particular, a small company we bought up in Northern BC called Country Prime Meats and their use of robotics and automation. So we are leveraging a lot of lessons they've learned and bringing that to our other protein plants. Okay. Very good. Thanks, guys. There are no further questions queued up at this time. I'll turn the call back over to George Palagu. Sorry. Thank you, Denise. And I'd like to thank everybody for attending today. Thank you so much. This concludes today's conference call. You may now disconnect.