Premium Brands Holdings Corporation Announces Record 2012 First Quarter Sales and Earnings from Operations

Marketwired

VANCOUVER, BRITISH COLUMBIA--(Marketwire -05/10/12)- Premium Brands Holdings Corporation (PBH.TO), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the first quarter of 2012.

HIGHLIGHTS

 

-- Despite the first quarter historically being the Company's weakest
quarter due to seasonal factors, revenue increased by 41.9% or $64.6
million to a record $218.7 million as compared to $154.1 million in the
first quarter of 2011.

-- EBITDA for the quarter increased by 30.5% to $12.0 million as compared
to $9.2 million in the first quarter of 2011.

-- Earnings attributable to shareholders and earnings per share for the
quarter were $1.1 million and $0.06 per share, respectively, as compared
to $0.9 million and $0.05 per share, respectively, in the first quarter
of 2011.

-- Dividends declared during the quarter were $6.0 million or $0.294 per
share.

-- Rolling twelve months free cash flow was $40.0 million resulting in a
dividend to free cash flow ratio of 58.3%.

-- The Company maintained its 2012 guidance of organic sales growth of 6%
to 8% and EBITDA of $75.0 million to $80.0 million.

-- The Company's Stuyver's Bakestudio business commenced commercial
operations of its new $18.8 million artisan bakery subsequent to the
quarter in April 2012.

SUMMARY FINANCIAL INFORMATION

(In thousands of dollars except per share
amounts) 13 Weeks 13 Weeks
Ended Ended
Mar 31, Mar 26,
2012 2011

Revenue 218,724 154,098
EBITDA 12,024 9,216
Earnings attributable to shareholders 1,115 922
Earnings per share 0.06 0.05

Rolling Four Quarters Ended
Mar 31, Dec 31,
2012 2011

Free cash flow 39,977 38,225
Declared dividends 23,297 22,672
Declared dividend per share 1.176 1.176
Payout ratio 58.3% 59.3%

"Once again we are pleased to announce record sales and EBITDA for the quarter. While the first quarter of the year is historically our weakest due to seasonal factors and, correspondingly does not show the full potential of our company, our results do demonstrate the impact that a number of favourable consumer trends are having on our specialty food businesses. These trends include rapidly growing consumer demand for higher quality products, healthier-for-you products and convenience oriented products. These are all product categories that Premium Brands has, over the last several years, positioned itself to capitalize on through a combination of acquisitions and capital projects," said Mr. George Paleologou, President and CEO.

"Most recently, we are pleased to report that last month we commissioned our new state-of-the-art artisan bakery in Langley, BC. This facility uses a unique blend of tradition and modern technology to produce old world style high quality breads in a very efficient manner. We expect this facility to replicate the success of the new specialty burger patty facility we built last year, which is already two years ahead of our original sales growth expectations. It is clear to us that more and more consumers are demanding an improved food experience and we are well positioned to cater to this demand," added Mr. Paleologou.

"Overall our results for the quarter were in line with our expectations. Based on this and the declining trends we are seeing in the cost of a number of the input commodities used by our businesses, we are confident that we will meet or exceed our 2012 organic sales growth guidance of 6% to 8% and EBITDA guidance of $75 million to $80 million," stated Mr. Paleologou.

The Company also announced the release of its 2011 Annual Report which is available online at www.premiumbrandsholdings.com.

About Premium Brands

Premium Brands owns a broad range of leading specialty food manufacturing and differentiated food distribution businesses with operations in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Washington State and Nevada. The Company services over 26,000 customers and its family of brands and businesses include Grimm's, Harvest, McSweeney's, Bread Garden Go, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Harlan Fairbanks, Creekside Bakehouse, Centennial Foodservice, B&C Foods, Shahir, Duso's, Maximum Seafood, SK Food Group, OvenPride, Hub City Fisheries, Audrey's, Deli Chef and Piller's.

 

RESULTS OF OPERATIONS
Revenue

(in thousands of dollars except
percentages)
13 weeks % 13 weeks %
ended ended
Mar 31, Mar 31,
2012 2011

Revenue by segment:
Retail 134,908 61.7% 78,701 51.1%
Foodservice 83,816 38.3% 75,397 48.9%
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Consolidated 218,724 100.0% 154,098 100.0%
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Retail's revenue for the first quarter of 2012 as compared to the first quarter of 2011 increased by $56.2 million or 71.4% due to: (i) the acquisitions of Piller's, SJ and Deli Chef in 2011 which resulted in $49.1 million in incremental sales; (ii) organic growth of $6.3 million representing an organic growth rate of approximately 8.0%; and (iii) $0.8 million in increased sales due to an early Easter that resulted in most of Retail's 2012 Easter sales occurring in the first quarter as compared to the second quarter in 2011.

Retail's strong organic growth for the quarter, which was at the top of the Company's targeted range of 6% to 8%, was due to a range of factors including: (i) a variety of new product and customer sales initiatives; (ii) price increases across a broad range of products; and (iii) relatively mild weather as compared to unusually poor weather in the first quarter of 2011.

Looking forward (see Forward Looking Statements), the Company is maintaining its guidance for Retail's organic growth at 6% to 8% despite Retail exceeding this range in the quarter.

Foodservice's revenue for the first quarter of 2012 as compared to the first quarter of 2011 increased by $8.4 million or 11.2% due to: (i) organic growth of $6.4 million representing an organic growth rate of 9.1%; (ii) $1.1 million in unusual trading volume in its Hub City Fisheries business resulting from the sale of excess inventory relating to the 2011 salmon fishery; and (iii) increased sales in its Worldsource food brokerage business of $0.9 million due to improved trading opportunities.

Foodservice's strong organic growth, which was also above the Company's targeted range of 6% to 8%, was driven by a range of factors including: (i) higher sales to its core hotel, restaurant and institutional customers as a result of several factors including overall improved consumer spending in this channel, mild weather conditions relative to the first quarter of 2011, and the success of its recently completed fresh burger patty production facility; (ii) increased wholesale seafood sales resulting partially from a competitor in the Greater Toronto Area shutting down its business in 2011; and (iii) improved concessionary product sales due to the relatively mild weather in the quarter.

Looking forward (see Forward Looking Statements), the Company is also maintaining its guidance for Foodservice's organic growth at 6% to 8%, despite the fact that Foodservice exceeded this range in the quarter. This is based on the first quarter being Foodservice's weakest and not necessarily indicative of how Foodservice's businesses will perform in the busier summer months.

 

Gross Profit

(in thousands of dollars except
percentages)
13 weeks % 13 weeks %
ended ended
Mar 31, Mar 26,
2012 2011

Gross profit by segment:
Retail 29,228 21.7% 21,113 26.8%
Foodservice 15,058 18.0% 13,955 18.5%
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Consolidated 44,286 20.2% 35,068 22.8%
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Retail's gross profit as a percentage of its revenue (gross margin) for the first quarter of 2012 as compared to the first quarter of 2011 decreased primarily due to: (i) the acquisitions of Piller's, SJ and Deli Chef in 2011 as these businesses generated lower average gross margins as compared to Retail's other businesses. In particular Deli Chef's gross margin was impacted by promotion related product selling discounts and costs as well as inefficiencies associated with the restructuring of the Company's DSD networks; (ii) a change in selling terms whereby certain customers now receive their products FOB the Company's plant versus FOB the customers' warehouses. This resulted in the elimination of freight being billed to these customers and corresponding decreases in gross profit and selling expenses; and (iii) lower gross margins on certain products sold on a cost-plus basis due to a combination of customer volume related discounts and price increases put through over the course of 2011.

Normalizing for the above factors Retail's margin for the quarter was 26.3% as compared to 26.8% in the first quarter of 2011. The balance of the decrease in Retail's gross margin was due to a variety of factors including: (i) changes in sales mix relating to lower margin Easter related sales; (ii) general sales mix changes; and (iii) continued historically high costs for certain input commodities, particularly at the beginning of the quarter.

Foodservice's gross margin for the first quarter of 2012 as compared to the first quarter of 2011 was down slightly due to: (i) continued record high costs for input commodities, in general, and beef products, in particular; and (ii) normal fluctuations in Foodservice's gross margin.

Looking forward (see Forward Looking Statements), for 2012 the Company is maintaining its guidance for Foodservice's gross margins to be the same or slightly higher than the 18.8% gross margin it generated in 2011.

 

Selling, General and Administrative Expenses (SG&A)

(in thousands of dollars except
percentages)
13 weeks % 13 weeks %
ended ended
Mar 31, Mar 26,
2012 2011

SG&A by segment:
Retail 19,228 14.3% 13,587 17.3%
Foodservice 11,594 13.8% 10,811 14.3%
Corporate 1,440 1,454
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Consolidated 32,262 14.8% 25,852 16.8%
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Retail's SG&A in the first quarter of 2012 as compared to the first quarter of 2011 increased by $5.6 million primarily due to: (i) the acquisitions of Piller's, SJ and Deli Chef in 2011 which resulted in an increase of $5.9 million; and (ii) a variety of items consisting primarily of variable selling costs associated with Retail's organic sales growth. These increases were partially offset by a decrease in freight costs of approximately $0.8 million due to a change in selling terms whereby certain customers now receive their products FOB the Company's plant versus FOB the customers' warehouses. This

resulted in the elimination of freight being billed to these customers and corresponding decreases in gross profit and selling expenses.

Normalizing for acquisitions and the impact of the change in selling terms for certain customers, Retail's SG&A as a percentage of revenue for the quarter was approximately 16.5% as compared to 17.3% for the first quarter of 2011.

Foodservice's SG&A in the first quarter of 2012 as compared to the first quarter of 2011 increased by $0.8 million due to a variety of items consisting primarily of variable selling costs associated with Foodservices organic sales growth. Foodservice's SG&A as a percentage of revenue for the quarter was 13.8% as compared to 14.3% for the first quarter of 2011.

 

EBITDA

(in thousands of dollars except
percentages)
13 weeks % 13 weeks %
ended ended
Mar 31, Mar 26,
2012 2011

EBITDA by segment:
Retail 10,000 7.4% 7,526 9.6%
Foodservice 3,464 4.1% 3,144 4.2%
Corporate (1,440) (1,454)
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Consolidated 12,024 5.5% 9,216 6.0%
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The Company's EBITDA for the first quarter of 2012 as compared to the first quarter of 2011 increased by $2.8 million or 30.5% primarily due to: (i) acquisitions; and (ii) organic growth in a number of the Company's legacy businesses. These increases were partially offset by a variety of factors including continued historically high costs for certain input commodities, particularly at the beginning of the quarter.

The Company's EBITDA as a percentage of revenue (EBITDA margin) decreased to 5.5% primarily due to the acquisitions of Piller's, SJ and Deli Chef in 2011 as these businesses as a whole generated a lower average EBITDA margin as compared to the Company's legacy businesses. In particular Deli Chef generated an EBITDA loss of approximately $0.9 million primarily due to: (i) the impact of seasonal factors on its sales and, in turn, its ability to achieve critical mass in its plant and distribution network; (ii) promotion related product selling discounts and costs; and (iii) inefficiencies associated with the restructuring of the Company's DSD network.

Normalizing for acquisitions, the Company's EBITDA margin for the quarter was 6.1% as compared to 6.0% in the first quarter of 2011.

Looking forward (see Forward Looking Statements), for 2012 the Company is maintaining its EBITDA guidance of $75.0 million to $80.0 million based on its EBITDA for the first quarter being in line with its expectations.

Interest

The Company's interest and other financing costs for the first quarter of 2012 as compared to the first quarter of 2011 increased by $0.9 million primarily due to an increase in the Company's net funded debt partially offset by lower interest rates on the Company's senior credit facilities due to negotiating a lower credit spread on these facilities late in the third quarter of 2011.

Restructuring Costs

Restructuring costs consist of costs associated with the significant restructuring of one or more of the Company's businesses. In the first quarter of 2012, the Company incurred $0.7 million in restructuring costs consisting of:

 

-- $0.3 million in charges relating to the Company's restructuring of its
direct-to-store distribution network (DSD network) for the convenience
store channel. This restructuring involves the merging and
rationalization of the following three DSD networks:

-- The Company's Direct Plus DSD network, which operates primarily in
western Canada;
-- The DSD network acquired as part of the Deli Chef acquisition in
2011. This network operates in Ontario and Quebec; and
-- The independent distributor network controlled by the Company's
recently acquired Pridcorp business. This network operates in
various markets across Canada, including the Maritimes.     Once complete, this initiative will: (i) create Canada's only national
convenience store DSD network in the sandwich, meat snack and pastry
categories; (ii) gain efficiencies by eliminating overlaps where two of
the above three DSD networks are servicing the same customer sites; and
(iii) further improve the profitability of the DSD delivery routes
serviced by the Company's own fleet by adding products to these routes
that were previously distributed exclusively by the Pridcorp Network.

-- $0.2 million in costs associated with the restructuring of Deli Chef's
sandwich operations. As previously announced the Company expects to
incur $6 million to $7 million in capital and restructuring costs
relating to this restructuring project. As at the end of the first
quarter these costs totaled $2.7 million consisting of $2.3 million in
restructuring costs and $0.4 million in capital expenditures.     As part of the restructuring of Deli Chef's sandwich operations, in the
first quarter of 2012 the Company initiated construction of a new 20,000
square foot sandwich plant in Laval, Quebec. The new plant is budgeted
(see Forward Looking Statements) to cost $3.4 million and is expected to
be completed in the third quarter of 2012.

-- $0.2 million in redundant lease costs associated with the Company's new
artisan bread facility.

FREE CASH FLOW

The following table provides a reconciliation of free cash flow to cash flow from operating activities:

 

(in thousands of
dollars) 52 weeks 13 weeks 13 weeks Rolling
ended ended ended Four
Dec 31, 2011 Mar 26, 2011 Mar 31, 2012 Quarters

Cash flow from operating
activities 29,524 (3,086) 9,641 42,251
Changes in non-cash
working capital 6,050 8,209 (2,737) (4,896)
Deferred revenue 1,118 - - 1,118
Acquisition transaction
costs 1,594 191 48 1,451
Restructuring costs 2,819 271 739 3,287
Capital maintenance
expenditures (2,880) (398) (752) (3,234)
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Free cash flow 38,225 5,187 6,939 39,977
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FORWARD LOOKING STATEMENTS

This discussion and analysis contains forward looking statements with respect to the Company, including its business operations, strategy and financial performance and condition. These statements generally can be identified by the use of forward looking words such as "may", "could", "should", "would", "will", "expect", "intend", "plan", "estimate", "project", "anticipate", "believe" or "continue", or the negative thereof or similar variations.

Although management believes that the expectations reflected in such forward looking statements are reasonable and represent the Company's internal expectations and belief as of May 9, 2012, such statements involve unknown risks and uncertainties beyond the Company's control which may cause its actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward looking statements.

Factors that could cause actual results to differ materially from the Company's expectations include, among other things: (i) seasonal and/or weather related fluctuations in the Company's sales; (ii) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (iii) changes in the cost of raw materials used in the production of the Company's products; (iv) changes in the cost of products sourced from third party manufacturers and sold through the Company's proprietary distribution networks; (v) risks associated with the Company's conversion from a publicly traded income trust to a publicly traded corporation, including related changes in Canada's income tax laws; (vi) changes in the Company's relationships with its larger customers; (vii) potential liabilities and expenses resulting from defects in the Company's products; (viii) changes in consumer food product preferences; (ix) competition from other food manufacturers and distributors; and (x) new government regulations affecting the Company's business and operations. Details on these risk factors as well as other factors can be found in the Company's 2011 MD&A, which is filed electronically through SEDAR and is available online at www.sedar.com.

Unless otherwise indicated, the forward looking information in this document is made as of May 9, 2012 and, except as required by applicable law, will not be publicly updated or revised. This cautionary statement expressly qualifies the forward looking information in this document.

 

Premium Brands Holdings Corporation
Consolidated Balance Sheets
(Unaudited and in thousands of dollars)

March 31, December 31, March 26,
2012 2011 2011

Current assets:
Cash and cash equivalents 4,755 4,860 2,410
Accounts receivable 72,313 78,830 55,240
Other assets 103 103 192
Inventories 92,158 79,977 67,800
Prepaid expenses 6,195 13,455 7,830
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175,524 177,225 133,472

Capital assets 175,226 167,982 81,821
Intangible assets 75,628 77,087 55,209
Goodwill 154,577 150,417 139,139
Other assets 2,733 2,250 3,111
Investment in associate - - 233
Deferred income taxes 35,227 39,952 44,701
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618,915 614,913 457,686
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Current liabilities:
Cheques outstanding 2,236 2,504 3,656
Bank indebtedness 14,513 18,061 4,269
Dividend payable 6,001 5,958 5,376
Accounts payable and accrued
liabilities 81,095 80,162 63,196
Puttable interest in subsidiaries - - 2,084
Current portion of long-term debt 20,608 20,536 19,352
Provisions for contingent
consideration 2,924 2,924 -
Other 300 - 490
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127,677 130,145 98,423

Puttable interest in subsidiaries 15,244 15,210 10,883
Deferred revenue 1,814 1,943 1,318
Pension obligation 1,377 1,345 827
Provisions for contingent consideration 8,569 8,360 -
Long-term debt 173,922 162,661 79,434
Convertible unsecured subordinated
debentures 87,665 89,396 90,770
Other - 100 -
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416,268 409,160 281,655

Equity attributable to shareholders:
Accumulated earnings 134,485 133,370 122,174
Accumulated dividends declared (136,498) (130,497) (114,134)
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Retained earnings (deficit) (2,013) 2,873 8,040
Share capital 200,150 198,057 163,880
Equity component of convertible
debentures 1,916 1,916 1,916
Reserves 1,083 1,442 845
Non-controlling interest 1,511 1,465 1,350
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202,647 205,753 176,031
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618,915 614,913 457,686
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Premium Brands Holdings Corporation
Consolidated Statements of Operations
(Unaudited and in thousands of dollars except per share amounts)

13 weeks 13 weeks
ended ended
March 31, March 26,
2012 2011


Revenue 218,724 154,098
Cost of goods sold 174,438 119,030
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Gross profit before depreciation and amortization 44,286 35,068
Selling, general and administrative expenses before
depreciation and amortization 32,262 25,852
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12,024 9,216

Depreciation of capital assets 3,619 2,384
Amortization of intangible assets 1,242 755
Amortization of other assets 3 1
Interest and other financing costs 4,076 3,166
Amortization of financing costs 110 50
Acquisition transaction costs 48 191
Change in value of puttable interest in subsidiaries 180 515
Accretion of provisions for contingent consideration 209 -
Unrealized loss on foreign currency contracts 300 270
Unrealized gain on interest rate swap contracts (500) -
Restructuring costs 739 271
Equity loss in associate - 182
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Earnings before income taxes 1,998 1,431

Provision for (recovery of) income taxes
Current 628 957
Deferred 209 (529)
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837 428
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Earnings 1,161 1,003
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Earnings for the period attributable to:
Shareholders 1,115 922
Non-controlling interest 46 81
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1,161 1,003
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Earnings per share
Basic 0.06 0.05
Diluted 0.05 0.05

Weighted average shares outstanding (in 000's)
Basic 20,226 18,102
Diluted 20,323 18,146

Premium Brands Holdings Corporation
Consolidated Statements of Cash Flows
(Unaudited and in thousands of dollars)

13 weeks 13 weeks
ended ended
March 31, March 26,
2012 2011

Cash flows from operating activities:
Earnings 1,161 1,003
Items not involving cash:
Depreciation of capital assets 3,619 2,384
Amortization of intangible assets 1,242 755
Amortization of other assets 3 1
Amortization of financing costs 110 50
Change in value of puttable interest in
subsidiaries 180 515
Gain on disposal of capital assets (32) -
Accrued interest income (7) (24)
Unrealized loss on foreign currency contracts 300 270
Unrealized gain on interest rate swaps (500) -
Equity loss in associate - 182
Deferred revenue (129) (24)
Accretion of convertible debentures 362 337
Accretion of long-term debt 177 203
Accretion of provisions for contingent
consideration 209 -
Deferred income taxes 209 (529)
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6,904 5,123
Change in non-cash working capital 2,737 (8,209)
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9,641 (3,086)
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Cash flows from financing activities:
Long-term debt - net 11,285 (33,114)
Bank indebtedness and cheques outstanding (3,816) (572)
Convertible debentures - net of issuance costs - 54,600
Dividends paid to shareholders (5,958) (5,368)
Other - (18)
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1,511 15,528
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Cash flows from investing activities:
Capital asset additions (11,232) (3,314)
Business acquisitions - (7,000)
Repayment of share purchase loans and notes
receivable 69 26
Promissory note from associate - (300)
Net proceeds from sales of assets 88 -
Payments to shareholders of non-wholly owned
subsidiaries (146) (191)
Other - (107)
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(11,221) (10,886)
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(Decrease) increase in cash and cash equivalents (69) 1,556
Effects of exchange on cash and cash equivalents (36) (14)
Cash and cash equivalents - beginning of period 4,860 868
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Cash and cash equivalents - end of period 4,755 2,410
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Contact:

Premium Brands Holdings Corporation
George Paleologou
President and CEO
(604) 656-3100
Premium Brands Holdings Corporation
Will Kalutycz
CFO
(604) 656-3100
www.premiumbrandsholdings.com

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