Greetings. Welcome to the Pet Valu Holdings Ltd. Annual and Special Meeting of Shareholders. At this time, all participants are in listen mode only. Registered shareholders and validly appointed proxy holders who logged into this meeting with their control numbers or usernames via the Lumi Platform can submit questions during the meeting online. To do so, please click on the Messaging tab. You can type your question in the box at the top of the page, then click Submit. Please include your name with your question so that you can be properly recognized. Participants by telephone are in listen mode only and are not able to ask questions. If you are a registered shareholder or a validly appointed proxy holder in listen-only mode and you wish to submit questions during the meeting, please log into the meeting via the Lumi Platform with your control number or username.
Please note this conference is being recorded. I will now turn the conference over to your host, Chairman of Pet Valu Holdings Ltd., Anthony Truesdale. Please go ahead, Mr. Truesdale.
Good afternoon. Welcome to the company's annual and special meeting of shareholders for 2024. We are conducting today's meeting as a virtual meeting. Our meeting will consist of a brief agenda of formal items, including the election of directors, the appointment of our auditor, the advisory resolution on the company's approach to executive compensation, and the ratification of the company's long-term incentive plan. Following the formal business of the meeting, there will be a corporate presentation and a more general Q&A session. Catherine Johnston, Secretary of the company, will begin by describing how we will conduct the meeting. I will take us through the official business portion of the meeting.
Thank you, Anthony. Good afternoon, everyone. As advised at the beginning of this meeting, if you have a question or wish to make an objection at any point, click on the Messaging tab and type your question and confirm you are a registered holder of common shares of the company or a valid proxy holder. We will read questions pertaining to the business of the meeting aloud at the appropriate time, along with the name of the person submitting the question so that all attendees can hear the inquiry. Anthony or I will address the question as we would during an in-person meeting. Although questions can be submitted throughout the meeting, I encourage you to submit your questions early and one at a time. They will be addressed at the appropriate time during the meeting. Only questions on topics relating to today's subject matter will be addressed.
As Anthony mentioned, there will be a more general Q&A session after the formal business of the meeting is completed. If you have not already voted your shares and you intend to vote at this meeting, please note that the polls are now open, and you can vote on all matters. To vote, click the Voting tab on the Lumi Platform. You'll be taken to an electronic ballot that you can fill out and submit online. Please note the only attendees entitled to vote and submit questions or objections at this meeting are registered shareholders or duly appointed proxy holders who have logged in using their assigned control numbers or usernames. We remind you that if you are a registered shareholder and you have already voted by proxy, unless you wish to change your vote, you do not need to vote again.
Votes may be changed up to the time voting is closed. The poll will remain open until the chair of the meeting declares voting on all matters closed. We will provide you with preliminary voting results for all resolutions at the end of the meeting. For specific vote tabulations, please see Pet Valu's Report of Voting Results, which will be posted to Pet Valu's SEDAR+ profile after the meeting. A simple majority is required to approve matters voted on at this meeting, with the exception of the ratification of the company's long-term incentive plan, which requires a 2/3 majority. I will now hand it back to Anthony.
Thank you, Catherine. I will act as chairman of the meeting, and Catherine will act as secretary of the meeting. Also joining us remotely are directors and members of senior management. Louise Waltenbury of Computershare Investor Services Inc, the company's transfer registrar and dividend distribution agent, will act as scrutineer of the meeting. I will now review the manner in which notice of this meeting was given. Notice of this meeting has been mailed to all registered shareholders, to the directors of the company, and to the company's auditor. A copy of the affidavit as to such mailing has been provided by Computershare Investor Services, the company's transfer agent, which oversaw the mailing. Notice of this meeting has been posted on SEDAR and is included in our management information circular.
Copies of the circular and other meeting materials are available under the company's profile on SEDAR, on the company's website, and on the Lumi platform. Absent any objection, I will dispense with the reading of the notice of the meeting. In light of the foregoing, proper notice of the meeting has been given. I will now address whether a quorum is present today for the transaction of business.
The company's articles specify that a quorum at a meeting of shareholders is one shareholder who is, or who represents by proxy shareholders who, in the aggregate, hold at least 25% of the issued shares entitled to be voted at the meeting. With respect to the presence of a quorum at today's meeting, the preliminary scrutineer's report indicates that there are 47 shareholders present at the meeting, either attending online or being represented by proxy, holding an aggregate of 67,462,312 common shares. This represents approximately 94.4% of the company's issued and outstanding common shares as of the record date March 21, 2024, on which 71,463,986 common shares were issued and outstanding. I adopt the scrutineer's report and declare that a quorum is present.
With the appropriate notice of the meeting having been given and a quorum being present, I declare the meeting is duly constituted and ready for the transaction of business. In accordance with the company's articles, no motion at the meeting needs to be seconded. After preliminary votes, results are announced. Following the conclusion of the voting, the chairman will announce the results of each motion. At this time, I'd like to advise that Jeffrey Glassford, the representative of our auditor, has joined us remotely. The first item of business is to receive the company's audited consolidated financial statements for the year ended December 30th, 2023. A copy of the financial statements and auditor's report for the company's financial year ended December 30th, 2023, was mailed to those registered and beneficial shareholders of the company who requested them.
Copies of these documents are available for review on the Lumi platform. They are also available for review on the company's website and on SEDAR. These documents are now placed before the meeting. No vote is required for the reception of these documents. Accordingly, I declare that these documents have been received. As previously noted, there will be a Q&A session after the formal business of the meeting is completed, and management will be available to answer any questions. The next item to be voted on is the election of directors. The circular for this meeting set out the details of the nine individuals nominated for election to the board. The investor rights agreement also provides that the principal shareholders are entitled to nominate a set number of directors in proportion to their collective percentage holding of the company's common shares.
As a consequence, therefore, pursuant to the circular, the following 9 individuals are the nominees for election to the board for the ensuing year: Anthony Truesdale, Danielle Barran, Sarah Davis, Clayton Harmon, Patrick Hillegass, Kevin Hofmann, Richard Maltsbarger, Lawrence Molloy, and Erin Young. Under the company's advance notice provisions, shareholder nominations for director must be made not less than 30 days prior to the date of the annual general meeting of the shareholders. As no further nominations were made in accordance with the advance notice policy, and management has proposed 9 nominees, I declare that the nominations be closed. I move that the 9 nominees just announced to be elected to the board for the ensuing year. Are there any comments or questions on the motion?
No.
As there are
No, there are no comments or questions on the nominations.
As there are no further comments or questions, we will now proceed. We will tabulate your votes as we progress through each matter to be voted on, and we will announce the preliminary results of all the votes immediately after we close the polls at the end of our agenda. The next item to be voted on is appointment of the company's auditor. The company's current auditor is Ernst & Young. Management proposes to appoint Ernst & Young as the auditor of the company and to authorize the directors to fix the remuneration payable to the auditors. I now move that Ernst & Young LLP be appointed as auditor of the company until the next general annual meeting, and that the directors of the company be authorized to fix the auditor's remun-remuninate. Blah. Remu-remun... Okay. Catherine?
Remuneration.
Remuneration. Are there any comments or questions on this motion?
No, there are no comments or questions.
The next item to be voted on is the non-binding advisory resolution on the company's approach to executive compensation. This approach is set out starting on page 28 of the circular, along with the full text and the advisory resolution, which is set out on page 23 of the circular. This vote is advisory only and non-binding on the company and the board. However, the board will consider the outcome of the vote as part of its ongoing review of executive compensation. I move on the advisory basis, and not to diminish the role and responsibilities of the board of directors, that the shareholders accept the approach to executive compensation disclosed in the circular delivered in advance of the meeting. Are there any comments, questions on the advisory vote of executive compensation?
No, there are no comments or questions.
As there are no further comments, we will now proceed. The final item of business to consider is the ratification of the company's long-term incentive plan and continued granting of unallocated entitlements issuable thereunder. The circular sets out these details on the motion on page 24. Along with the full text of the resolution, which is set out in Appendix A of the circular. This vote is approve a special resolution authorizing the renewal of the company's long-term incentive plan and the continued granting of unallocated entitlements by the company pursuant to its for the next 3 years. I move that all unallocated entitlements under the company's long-term incentive plan be approved and that the company be authorized to continue granting entitlements under the long-term incentive plan until May 7, 2027, being the date that is 3 years from the date of this meeting.
Are there any comments or questions on the motion?
No, there are no comments or questions.
As there are no further comments or questions, we will now proceed. This completes the matters to be voted on at this meeting. The poll will close in 1 minute. If you have not yet voted on the matters, please do so immediately. While we are waiting for the polls to close, let me advise you that immediately after they close, our scrutineer will provide me with a preliminary tabulation of the results on each matter voted on, based on proxies received in advance of the meeting and votes cast at this meeting. I will announce those results presently. Full ballot results for each item submitted to shareholder vote at this meeting will be posted on the company's SEDAR+ profile following the meeting. The polls are now closed and I have received the scrutineer's preliminary report. The preliminary results are as follows.
With respect to the election of directors, each of the nominees has received a sufficient number of 4 votes to be elected to the board until the next annual general meeting, and that for each nominee for the number of withheld votes is less than the number of 4 votes. With respect to the appointment of the company's auditor, a majority of the common shares voting on this motion voted for appointing Ernst & Young LLP as the auditor of the company until the next annual general meeting and for authorizing the directors to fix the remuneration payable to the auditors. With respect to the advisory resolution on the company's approach to executive compensation, a majority of the common shares voting on this motion voted for adopting the advisory resolution.
With respect to the ratification of the company's long-term incentive plan and continued granting of unallocated entitlements thereunder, a two-thirds majority of the common shares voting on this motion voted for approval of all unallocated entitlements under the company's long-term incentive plan and the continued granting of entitlements thereunder until May seventh, 2027. I declare that each of the motions submitted to a vote of the shareholders at this meeting has been approved. We have completed the formal business for which this meeting has been called. I now ask that if anyone has any other business they would like to bring before the meeting. If you wish to bring any other motion or objection before this meeting, please click the messaging tab and type your question. I'll pause now to allow any attendees to submit comments.
There are no motions or objections.
There being no other business or objection, I now declare the meeting terminated. I'll now hand the proceedings over to Richard Maltsbarger, President and Chief Executive Officer of the company.
Thank you, Anthony. On behalf of the board, our franchise owners, our leaders, and our aces across Canada, I would like to thank you for attending the meeting and for your ongoing support of Pet Valu. I would like to now share with you a short presentation on Pet Valu's 2023 accomplishments and our expectations for this year before opening up the call for Q&A. Please take a moment to review the caution regarding forward-looking statements and non-IFRS measures provided on your screen. Overall, our business delivered strong results in 2023, on top of two very strong years for Pet Valu in 2021 and 2022, as we benefited from the lasting impacts of heightened pet adoption through the pandemic, together with perennial humanization and premiumization tailwinds.
Together with our franchisees, we held our market share, growing system-wide sales 10%, fueled by a combination of same-store sales growth of 5% and 39 new store openings. Exceptional focus and agility by our people enabled us to convert this robust network performance into strong revenue and profit growth. We grew revenue by 11% to surpass CAD 1 billion and delivered 8% growth in adjusted EBITDA, even as we navigated FX headwinds and normalization of the promotional environment back to pre-pandemic levels. I'm especially proud of the efforts from all our team to quickly adapt their priorities to meet the evolving demand environment and needs from our customers as the year progressed. At the same time, we achieved key milestones on strategic priorities, such as initiating our supply chain transformation, which will serve to provide a platform for continued profitable growth for many years to come.
As you've heard me say many times, the key ingredients to this success and our growth engine are our people and our Four Paws Culture. It's our people who bring a healthy balance of safety, compassion, expertise, and efficiency to work every day and deliver on our Four Paws Promise. It's our people who either directly or indirectly help form meaningful and lasting connections with devoted pet lovers across Canada. It's to our people that I say thank you again for all that you do to help continue to build our company. Equally as important as our people is our franchise network, composed of the hundreds of franchisees and their ACEs who collectively operate over 560 Pet Valu, Chico, Bosley's or Paulmac's Pets locations across Canada.
As average franchisee tenure surpasses a decade, we are grateful for the ongoing trust they place in us as their franchisor of choice, helping them foster enduring bonds with their customers and help provide the best lives for the beloved pets in their communities. Through my coast-to-coast store visits and regional meetings, I continue to be amazed by the passion and entrepreneurial fire our franchisees bring to their stores and communities every day. A great example is Jennifer Pegg, one of our Pinnacle Award-winning franchisees in 2023 for her commitment to community and inclusion, the standards of her stores, and her team's overall great performance. Jennifer is our second-generation owner in Bradford, recently transitioning the store from her parents who operated our store there for over 25 years.
Another great example is Michael Skipper, who purchased his first store in January 2021 in partnership with Marilyn and David Godfrey, his family members, and some of our longest-tenured franchisees. Last September, Michael opened a new store less than 2 km away from his first store to great success, helping to show just how closely we can locate our stores in metro areas to serve our devoted pet lovers. Yet another great example are Arty Patel and Sukdeep Singh, who just this past month opened their fourth store in one of our newest locations on Lakeshore Boulevard in Etobicoke. We look forward to continue to support our franchisees like Jennifer, Michael, Arty, Sukdeep, and hundreds of others in growing their successful businesses. We welcome more entrepreneurs to join us as we grow our franchise store network.
One key investment we are making to support their growth, together with the growth through our corporate store network and e-commerce channels, is through our supply chain transformation. This CAD 110 million investment, primarily spread across four years, will see us optimize our legacy distribution network into three semi-automated distribution centers in the key hubs of the GTA, Vancouver, and Calgary, further supported by smaller regional cross-dock centers where needed. Once complete, we believe we will operate Canada's strongest pet specialty supply chain, doubling our capacity to support growth over the next decade while employing leading-edge technology to deliver enhanced productivity, efficiency, and flexibility. In 2023, we reached key milestones in this multi-year journey.
Last summer, we officially opened our new built-for-purpose 670,000 sq ft GTA DC, representing the largest of its kind in Canada, servicing the pet specialty industry and creating hundreds of jobs in the city of Brampton. We also took possession of our new 350,000 sq ft Vancouver DC in November and commenced fit-out. While taking moments to celebrate our accomplishments, our distribution and supply chain teams remained hard at work towards delivering on key milestones for 2024, including activation of our goods-to-picker automation at our GTA DC and transition into our new Vancouver DC. Another highlight from 2023 was our targeted expansion of our proprietary brand offering.
Often priced at a 5%–20% discount to comparable national brands with equivalent quality and ingredients, our proprietary brands complement our broad selection of premium national brands to provide a key value alternative if and when our devoted pet lovers want. At Hard Lines, we continued our multi-year journey to broaden our good, better, and best proprietary offering across categories, highlighted by the introduction of over 200 new Jump toys last summer, and tapped further into humanization trends with the expansion of our Bailey & Bella Celebrations apparel line. In consumables where our proprietary brands have a deeper heritage, we doubled the size of our Performatrin Ultra freeze-dried raw portfolio, introduced new protein alternatives with Performatrin Ultra Kangaroo, and expanded our treats offering through Performatrin Ultra raw coated cow ears, collagen, and bully alternative chews.
As we turn to 2024, we are thrilled to elevate our proprietary brand lineup even further with the launch of Performatrin Culinary, our first entry into the freezer category. Together with freeze-dried raw, the culinary pet food category is one of our fastest-growing categories, with a three-year CAGR of over 30%. Our initial lineup will include 15 frozen raw meals and gently cooked recipes. From the products we sell, the workplaces and environments we've established, to the relationships we've fostered, our mission, values, and strategy are all anchored in the belief that utilizing sustainable business practices across Pet Valu will help deliver profitable growth and create value for our shareholders and other stakeholders. We've captured this essence in our first environmental, social, and governance report, which we released last November.
The report discusses how we manage key ESG factors important to our business, including fostering strong relationships with our franchisees, providing a welcoming and engaging work environment for our ACEs, managing energy and emissions to deliver efficiencies, responsibly stewarding our operations, and selling safe and high-quality products to our customers. We look forward to updating this report later this year. All these investments and actions continue to position Pet Valu to deliver our mission of being Canada's preferred pet retailer as we deliver the products, care, expertise, and memorable moments in stores and online to millions of devoted pet lovers across Canada. Through the differentiated retail platform we operate, together with the exciting strategic initiatives set to roll out this year, we expect to deliver another year of solid growth in 2024.
First unveiled back in March and reaffirmed today, we expect Pet Valu to drive 5%–8% revenue growth and 7%–10% adjusted EBITDA growth this year, while holding our adjusted net income per diluted share roughly flat as we absorb CAD 20 million pre-tax or CAD 0.20 per share of incremental depreciation and interest expense associated with our new distribution centers. Additionally, we expect to see an inflection in our free cash flow growth later this year as we stabilize our working capital and complete our largest year of supply chain investments. Together, our ACEs, our franchisees, and our leaders are always building and improving the strongest foundation for long-term profitable growth in the Canadian pet industry. Together, we will continue to be the place Canadians turn to for the most challenging and most rewarding parts of being a devoted pet lover.
This is Pet Valu, and we love what we do. This concludes my prepared remarks, and I'd be happy to respond to any questions. Team, are there any questions on the Lumi platform? Seeing as there are no further questions, this concludes our presentation. Thank you for joining us today via webcast or over the telephone and for your continued support of Pet Valu.