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Edited Transcript of PBH.TO earnings conference call or presentation 12-Mar-20 5:30pm GMT

Q4 2019 Premium Brands Holdings Corp Earnings Call

RICHMOND Mar 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Premium Brands Holdings Corp earnings conference call or presentation Thursday, March 12, 2020 at 5:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George Paleologou

Premium Brands Holdings Corporation - President, CEO & Director

* William Dion Kalutycz

Premium Brands Holdings Corporation - CFO

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Conference Call Participants

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* David Francis Newman

Desjardins Securities Inc., Research Division - Analyst

* Derek J. Lessard

TD Securities Equity Research - Research Analyst

* Dimitry Khmelnitsky

Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training

* George Doumet

Scotiabank Global Banking and Markets, Research Division - Analyst

* John Zamparo

CIBC Capital Markets, Research Division - Associate

* Sabahat Khan

RBC Capital Markets, Research Division - Analyst

* Stephen MacLeod

BMO Capital Markets Equity Research - Analyst

* Vishal Shreedhar

National Bank Financial, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to the Premium Brands Holdings Corporation Fourth Quarter 2019 Earnings Conference Call. As a reminder, this conference is being recorded. (Operator Instructions)

It is now my pleasure to introduce your host, George Paleologou. Please go ahead, sir.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [2]

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Thank you, Nadia, and good morning, everyone. I would like to welcome you to our 2019 fourth quarter conference call. I will be turning the presentation over to our CFO, Will Kalutycz, for an overview of our financial results for the quarter, after which I will make a few brief comments. This will then be followed by the Q&A segment of the presentation. Will?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [3]

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Thanks, George, and good morning, everyone. Before discussing our results for the quarter, I would like to caution you that to the extent we make forward-looking statements during our presentation, our forecasts and assumptions are subject to change and actual results may vary. Please see our 2019 MD&A, which is filed on the SEDAR website, www.sedar.com, for details on some of the factors that could cause our actual results to differ from our current expectations.

Turning to our results. Our revenue for the quarter grew by $115.2 million or 13.7% to a record $959.1 million. The majority of the growth was driven by organic sales initiatives, which accounted for $62.2 million of the increase. Acquisitions accounted for $42.8 million and selling price increases for $11.7 million. These were partially offset by a decrease of $1.5 million resulting from currency translation.

Our organic volume growth, which excludes the impact of selling price increases and currency exchange-related deflation, was 7.4% for the quarter, which was well above our long-term targeted range of 4% to 6%. On a nominal basis, i.e., after selling price inflation and currency exchange deflation, our organic growth rate was 8.6%.

Our strong organic growth for the quarter was driven by a broad range of initiatives with most of our success being in the seafood, artisan sandwiches, premium dry-cured meats and meat snack product categories. Our U.S. seafood platform, in particular, generated strong growth driven by new procurement initiatives and the start-up of its state-of-the-art lobster processing facility in Saco, Maine. We were also very pleased with the growth in our sandwich platform as a number of the new customer and channel initiatives that we have been working on gained significant traction.

Our strong growth for the quarter was not, however, without challenges, including continued weakness in the Western Canada full service foodservice market and lower than normal promotional activity for certain pork-based products as a result of commodity cost and supply uncertainties associated with the outbreak of African swine fever in China.

Our adjusted EBITDA for the quarter increased by $12.4 million or 19.8% to $75.1 million. Normalizing for the adoption of the IFRS 16 accounting standard, our adjusted EBITDA grew by $2.7 million or 4.3%. This was driven primarily by our sales growth, efficiency improvements in a number of our production facilities and lower variable compensation accruals associated with lower year-over-year growth in our free cash flow and free cash flow per share.

These factors were partially offset by 4 main items: one, additional costs associated with investments we are making in infrastructure to support our current and future growth, including additional overhead associated with our new GTA and Saco facilities, our 2 expanded Montreal operations and our new lobster procurement initiatives; two, pork and beef commodity inflation, which was largely related to the ASF outbreak in China; three, labor cost inflation, particularly in our U.S.-based businesses, where the labor market is extremely tight; and four, additional outside storage costs, mainly associated with long inventory positions taken to help hedge against rising global pork and beef commodity costs and to prepare for new product launches.

Our adjusted earnings per share for the quarter decreased by $0.03 to $0.79 per share, primarily due to the various adjusted EBITDA challenges I outlined earlier as well as 2 structural changes, namely, one, the dilutional effects of our recent private placement as a significant portion of the new capital raise has not yet been invested; and two, the adoption of the IFRS 16 accounting standard, which represented approximately $0.02 of the decrease.

With our fourth quarter results, we also released our sales and adjusted EBITDA guidance for 2020. For sales, we are projecting a range of $3.975 billion to $4.075 billion, representing a growth rate range of 8.9% to 11.7%. The main drivers of our growth this year are expected to be: one, a full year sales from acquisitions completed in 2019 and earlier this year; two, continued traction in our North American seafood, artisan sandwich, meat snack and premium dry cured expansion strategies; and three, leveraging a variety of capacity expansion projects we've completed over the last couple of years.

For adjusted EBITDA, we have provided 2 ranges for our 2020 outlook: one based on a relatively normal protein commodity cost environment; and the second based on an inflationary environment, similar to what we experienced in 2019. There were several reasons for doing this, including highlighting the significant amount of uncertainty associated with the short- to medium-term ramifications of the ASF outbreak in China, which has resulted in a loss of approximately 25% of the world's pork production.

Under our relatively normal commodity environment assumption, we are projecting an adjusted EBITDA range of $335 million to $360 million with our year-over-year growth being driven primarily by sales increases and production efficiency gains resulting from both continuous improvement initiatives and higher production volumes.

Under our bad case scenario, we are projecting an adjusted EBITDA range of $320 million to $345 million, which essentially reflects $15 million in transitory margin impacts resulting from inflationary pork and beef costs.

Turning to our financial position. We continued to maintain a conservative balance sheet and strong liquidity. Our senior debt-to-adjusted EBITDA ratio was 2.2:1, which is well below our long-term targeted range of 2.5:1 to 3.0:1; while our total debt to adjusted EBITDA was 3.6:1, which is also below our long-term targeted range of 4.0:1 to 4.5:1. In terms of liquidity, we had approximately $350 million of unutilized credit capacity at the end of the quarter.

During the quarter, we invested $36.5 million in businesses and growth-related capital projects. Our business acquisitions consisted of Maine Coast seafood, a Maine-based lobster distributor and Multi-Task, an Ontario-based cold storage provider. Both of these transactions were made within our existing platforms as part of their value-creation strategies. Our project capital expenditures for the quarter included $2.3 million for the completion of our seafood group's new lobster processing facility in Saco and $1.7 million for the completion of the expansion of our protein group's cooked protein facility in Montréal.

Turning to dividends. During the quarter, we declared a dividend of $16 million or $0.525 per share, which on an annualized basis, works out to $2.10 per share. Our free cash flow for 2019 was a record $177.8 million as compared to dividends of $76.7 million, resulting in a payout ratio of 43.1%. Subsequent to the quarter, we increased our dividend rate by 10% to $0.5775 per share, or on an annualized basis, $2.31 per share.

I will now turn the presentation back to George.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [4]

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Thanks, Will. 2019 was another successful year for Premium Brands as we made significant progress towards our objective of becoming the leading specialty food company in North America. We're particularly pleased with the progress made by our U.S.-based value-added seafood, sandwich and protein platforms in executing their growth plans. All 3 had record years, driven by excellent commercial execution, robust innovation and leveraging PB Ecosystem opportunities. Thanks to their success, our U.S. sales have grown to $1.4 billion and now make up approximately 40% of our total sales.

Over the past year, we also made great progress in expanding our distribution platform in Québec with a 45,000 square foot expansion of our seafood facility in Montreal and the acquisition of Québec City-based Viandex. Our Québec-based distribution platform, under the leadership of C&C Packing, is now very well positioned for top and bottom line growth with a new state-of-the-art capacity and a best-in-class management team.

Looking forward, we remain very confident about our unique business model, growth strategies and correspondingly reaching our 2023 objectives of $6 billion in sales and $600 million in EBITDA. The 10% dividend increase we announced today, which is our sixth consecutive annual double-digit dividend increase, reflects this confidence.

We were pleased to see that Premium Brands was ranked as one of the top 10 best-performing stocks in the TSX over the past decade with a total return of 1,000%. We're very pleased that our long-term shareholders were rewarded handsomely for their support.

During the past decade, we faced many challenges. We faced trade issues, ultra-tight labor markets, virus epidemics, competitive threats, supply chain disruptions, capacity constraints and a myriad of other headwinds. At times, these forced us to delay or adjust our growth plans, but they never changed our resolve to pursue our core strategy of partnering with passionate, talented food entrepreneurs and management teams then giving them access to the resources they need to accelerate the growth of their businesses, all the while respecting their unique cultures and traditions.

Our decentralized business model and unique culture and passion for making or distributing on trend great-tasting foods made with wholesome ingredients is the reason that we remain confident that we will continue to execute well, and that our shareholders will continue to be rewarded over the long term despite the headwinds.

In terms of acquisitions, we're pleased to report the recent closings of 3 transactions: Inform Brokerage, Bavarian Sausage (sic) [Bavarian Meats] and La Felinese. All of these businesses bring with them exceptional brands and great people and will play a key role in helping us execute our various specialty food-focused strategies. We expect 2020 to be another very busy year for acquisitions, driven by a very robust deal pipeline, both at the PB level and at the business level.

I will now turn the presentation over to Nadia for the Q&A part of the presentation. Nadia?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll first go with Derek Lessard from TD Securities.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [2]

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I was just wondering in the context of the COVID-19 impact, particularly in Italy and obviously the investment that you just made there, how should we be thinking about your ability to either import or access your commodity inputs from there and/or your inventory positions over the next, call it, 3 to 6 months?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [3]

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Yes. A couple of comments there, Derek. One is that the food industry in Italy has been deemed to be an essential industry effectively. So the food industry and the health industry are basically the only industries that are open and operating as we speak.

In the case of La Felinese, there's been absolutely no disruption in terms of production, and we are importing record number of containers from the company into North America and we're doing well. That segment is growing very nicely for us and we expect it to continue to grow.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [4]

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Okay. So no -- so as of now, there's been no impact even from a labor standpoint?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [5]

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Absolutely not. We've had some kind of a temporary disruption in that we had a few containers caught up in the blockade with our railroads, but that's been resolved now. But in terms of the operations of La Felinese, they were operating very well. All their 5 facilities have had absolutely no disruptions. And again, it's one of the industries that obviously has been deemed essential by the government there and is still operating as usual.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [6]

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Okay. And another one for me. It seems like you are being -- or presently, you're seeing little impact from the coronavirus on the supply chain. Is there anything you can talk to for those businesses that are maybe closer to the immediate hotspots, and I'm thinking, like Alberta who's on the West Coast side, from a supply or a demand perspective?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [7]

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Yes. I think, in general terms, obviously, for everybody, their situation is changing daily. But we've seen extremely robust demand from the retail and club channel, I would say. In many circumstances, we're actually having difficulty keeping up with the demand for obvious reasons. I think there's good consensus, but there's been some stockpiling, et cetera. Our businesses even in Canada that service retail and club are extremely busy. And I think in general terms, we're seeing, obviously, a slowdown in certain channels. Thankfully, they're not large for us. No one would be surprised to hear that the airplane channel for us has slowed down or even the part of our business that services Chinese restaurants in Toronto, in particular. These are not large segments for us. But again, they've obviously slowed down.

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Operator [8]

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(Operator Instructions) We'll go next to Sabahat Khan from RBC Capital Markets.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [9]

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You provided some color in the outlook section around taking into account the potential commodity exposure. Just want to get an understanding of what have you baked in, I guess, from your perspective, into your outlook with regards to sort of revenue? Are you -- did you sort of have a revenue outlook and then moderate it based on current headwinds? I just want to understand, you provided some sense on EBITDA, if there's some built into revenue as well?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [10]

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Yes. In terms of our sales outlook, Saba, we took a fairly conservative approach on the impact of COVID on the basis of what we're seeing today. So as George mentioned, we've seen some impacts in the airline industry, our Asian restaurant business in Southern Ontario, some of our lobster Chinese exports, all those impacts are sort of known and been incorporated. And on the other side, some of this most recent activity, such as the club buying, the stockpiling by consumers, we actually haven't incorporated that upside. So we've -- based on what we've known today, we've taken a fairly conservative look at our approach with COVID-19.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [11]

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Okay. And are you able to share how much, whether it's your PFD business or total, just trying to get an understanding of what's the exposure to Western Canada, kind of going forward, at least for 2020?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [12]

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Sorry, in Foodservice?

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [13]

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Yes. Just kind of the food distribution segment, what the split for that business is kind of west versus east?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [14]

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Yes. We don't break that out, Saba. But in general terms, because our Western Foodservice business, which is primarily Centennial, has operations across the country, but a real rough general ballpark is a $300 million to $400 million.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [15]

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Got it. Yes. That's helpful. And then you indicated that you've taken some, I guess, impact from the COVID-19 into account, is that sort of just based on current visibility? And is that mostly sort of supply chain related? Just want to understand what you've baked in. I think you mentioned from sales into China and the GTA impact. Is that more supply chain related? Or is that more sales related when you're thinking about it?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [16]

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It's sales related, and it's based on our current visibility.

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Sabahat Khan, RBC Capital Markets, Research Division - Analyst [17]

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Okay. Great. And then just one last one for me. I guess, a lot of the growth seems to be coming from -- recently and going forward from the sandwiches side. Is this largely sort of programs that you've already talked about, those are progressing as expected? Is there any sort of new news on the sandwiches front as we head into 2020 at all?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [18]

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Yes, it's really what we've been talking about to date. And it's taken us a little while, but we are gaining that traction that is resulting in the positive sales trends. There's a few -- the team is constantly working on and developing new initiatives. And so there are always new things coming to the forefront. But the results you're seeing currently is driven by everything we've talked about in the past.

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Operator [19]

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We'll next go with George Doumet from Scotiabank.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [20]

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I just have a follow-up on, obviously, COVID, given the fluidity of the situation. But can you maybe talk a little bit about maybe mitigation plans so -- or ability to kind of maybe move production from one place to another as it relates mainly, I guess, to the higher-growth sandwich and the deli meats platform?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [21]

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Yes. Very good question. And again, we've spent a lot of time internally, effectively trying to gain the situation with COVID-19. We are in a very good position in the sense that Premium Brands does not operate very large central facilities. We have 65 facilities across North America. We have built a lot of redundancy in our system. We have 7 sandwich plants effectively in different parts of the country. We have various deli and meat snack plants, et cetera. So again, we've done a lot of work trying to coordinate the effort and obviously get the ecosystem to cooperate with each other. We're -- we feel that we are on -- one of the very, very few companies that we can go to our customers and offer them redundancy with respect to a number of products that we manufacture. So if we do have a problem in one facility, we should be able to continue the majority of our production and goods and services to key customers.

I would also like to say that, as I mentioned earlier in speaking to a lot of our companies, a big part of our situation today is actually just keeping up with demand. In a lot of our businesses, we've actually stopped taking new orders from new customers because our focus today is to service our existing customers.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [22]

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Okay. No, that's helpful. And Will, on your guidance, it looks like you guys are expecting about, at the midpoint, at least $15 million of an impact on ASF this year. I think it looks like we're seeing some signs of deflation out there, I guess, with COVID and everything that's happening. I guess, in the past, we're able to kind of hold on to price that we've taken already. So I'm just kind of wondering maybe some color around that number? And what your thoughts are, I guess, for inflation in this environment, at least?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [23]

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Yes. Sure. So on your first comment, in respect to the $15 million, you're right, that's what we have factored into that second range. What -- again, I can't stress enough, though, George, that is really an unknown impact, like for all we know, and what's happened over the last couple of months is a great example is when we weren't going into the fourth quarter -- when we're in the fourth quarter going into December, we saw a significant amount of inflation in our pork and beef costs, our protein group. And that was driven in part by the opening of trade with Canada opening to China and the U.S. tariff situation with China easing somewhat. So we started the year with a pretty inflationary trend.

That carried through for much of January and then toward mid -- towards end of February, we did start seeing some deflation as a result of the COVID situation and what that's been doing to supply channels in China. So it's been incredibly volatile around the commodity costs. I mean, in that environment, it's really tough for our businesses to set their pricing strategies. So that's why we've got this great uncertainty about what the balance of the year looks like. It's -- that $15 million is not our projection. It's just an indication that it's a really uncertain environment.

Now in terms of the current deflationary market, you're absolutely right. We will hold prices, particularly on our more differentiated items, as we've talked about in the past. And if that continues, then we should be in that upper scale of our 2 ranges. If that doesn't, then -- and inflation kicks in, then we'll go back to our standard strategy, our businesses will put through price increases as needed. But there is always a delay in that process and that creates some short-term margin impact.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [24]

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Okay. That makes sense. And just one last one, if I may. On the leverage, we're seeing in the mid-3s. I guess, in the context of maybe expectations out there that there will be some foreign economic contraction, are you guys going to be prudent? Or should we expect kind of the pace of M&A to continue?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [25]

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Again, first point, though, George, is, and I always have this discussion with many of our shareholders is, our senior debt-to-EBITDA ratio, which is our key ratio for managing our balance sheet, especially in the short to medium term, is our senior debt-to-EBITDA ratio and that's running at about 2.2:1, well below our banking requirements of 4:1. So we have a tremendous amount of flexibility if something does go wrong. Our convertible debentures, which make up the total debt, that's fully subordinated. No principal payments, no covenants associated with them. So it's pretty patient debt, so -- and nothing comes up to do on that until 2023, I think, is our first issuance that comes up. So we've got a lot of flexibility on that side.

In terms of our level of our activity, we always manage our balance sheet prudently and we will continue to do so. And you're right, given this environment, we will probably be a little more prudent than we've been in the past. But it's certainly top of mind and something we will manage very closely.

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Operator [26]

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We'll next go with David Newman from Desjardins.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [27]

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So if you look at the year, it's almost like a tale of 2 guidances here as I see it where you've got the front end of the year impacted residually by ASF and then COVID-19 kind of kicking in. So if I had to look at it, I would say, it's almost going to be your more optimistic guidance for the back end of the year and maybe the lower guidance for the front end of the year. But maybe you can just kind of give us a sense of what you're thinking throughout the year in terms of how this -- how the EBITDA could pace into -- throughout the year based on what you see?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [28]

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Yes. Again, this goes to my earlier comment, David, it just -- it's going to depend on so much on how things fallout. So if we walk through COVID-19, the reason why it's having such an impact on commodities, global commodities, right now is because it shut down the supply channels in China. And as a result, product is not flowing and it's backing up -- product that was destined to be exported from North America is backing up in North America and creating downward pressure on prices or costs for us.

If COVID-19 and its impacts on the supply chain are relieved in China and that opens up and you have a lot more North American product flowing into China, well, that's going to strengthen prices for commodities in North America. But then even going down that road, the fact is storage facilities in both North America and China are just chockablock full of protein at this point. So...

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [29]

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Yes. It can get...

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [30]

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Yes. It's another variable that, okay, how long is it going to take for that product to flow through the system and relieve pressures? So I wish I could give you more clarity, but that's the reason we've taken this approach is there's just so many variables in this and how it plays out creates that uncertainty that if it plays out favorable, we'll be in that top end of that guidance. And if it's not, then we'll be in the bottom end.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [31]

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I think, David, it's safe to say that when we put together the budget, we were facing -- for 2020, we were facing a very inflationary environment with respect to protein. It's no longer the case. I mean, there's been demand destruction, obviously, in China and COVID-19 in North America also -- will also cause demand destruction. So that situation has changed as of today currently. We don't see that changing any time in the near future. So anyway, that's sort of our view today.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [32]

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And if you look at ASF, there was a lot of somewhat manipulation going out into the market with the Chinese ahead of the Lunar Year and things like that, which seems to have subsided a little bit. But that certainly must have added to the volatility that's going on in the market on the ASF as well, would you not say?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [33]

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Well, yes, it certainly was taking supply out of the system because our read of the situation is a lot of suppliers, a lot of processors were putting away product in anticipation of a strong Chinese New Year. Well, as we all know, that did not happen because of COVID-19. Yes, they got caught and that fed into some of the weakness we're seeing now.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [34]

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Don't also forget, David, that a lot of the proteins exported to China are consumed traditionally in the Foodservice segment. And then the Foodservice segment in China has been impacted immensely by COVID-19 as well. So there's been some demand destruction in the Foodservice channel, in particular.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [35]

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And if you look at North America, I mean, the restaurants are looking -- thinning out for sure. At the end of the day, people have to eat. And you kind of alluded to it, George, where you might see a pickup in people staying indoors with your specialty food side whereas your premium foodservice distribution could be impacted. I mean do you think there's enough balancing in puts and takes that as this broadens out to a more insidious situation, that you'll still see people going out and obviously buying at the grocery or whatever, right, or club or whatever?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [36]

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Yes. David, first of all, even what we report as distribution business for PB, it's not just to Foodservice. There's -- that division distributes a lot into specialty retail and retail in general. It's just a distribution type of business rather than branded manufacturing. So as a company, we are much more developed in the retail and club segment. We've seen situations where we've got customers in Canada and the U.S. retail and club customers were -- our sales to them are up to -- they're up by 40% even -- up to 40%. Again, whatever is not consumed historically in the foodservice channel will be consumed at home and will be purchased in the retail or club service channel. As you say, people have to eat ultimately and that's what we're seeing. I mean, it's early stages, but that's what we're seeing right now.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [37]

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Okay. And last one for you guys.

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [38]

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Certainly, I'd add to that, David, just we've gone through this for different reasons, the cycle of consumer spending timing shifting from foodservice to retail. So we've seen this many times in the past. And like George says, that's exactly what happens. And I'll add to it is the thing with Retail versus Foodservice, our margins are better on the Retail side. So we might not capture all of those sales, but we certainly capture the cash flow.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [39]

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Again, if you look at the situation that took place in the last couple of years in Alberta, David, with the oil patch. Yes, our Foodservice business did slow down, but our overall business in Alberta, including Retail and club have actually grown, right? So we are strong believers that people will eat somehow. It's -- if they don't eat in foodservice, they will consume food at home. So -- and that's generally what we're seeing at the early stages of COVID-19.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [40]

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Very good. And last one from me guys. Just on the growth CapEx, you provided maintenance CapEx guidance. But any thoughts on growth and CapEx and specific projects in mind above what's already announced?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [41]

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Yes. We've got quite a few projects in the works right now. But we don't announce them until we've gone through our capital allocation process and they've been approved. As a preliminary guidance, I'd say, probably 2020 will be similar to 2019, but we'll see how it plays out as the year goes.

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Operator [42]

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We'll next go with Vishal Shreedhar from National Bank.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [43]

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I just wanted to reference an investor presentation that management put out where they noted margin expansion potentially associated with lapping the 2019 challenges, including ASF and the seafood margins. Is it fair to say that this margin normalization is more of a benefit in 2021? Or how should we think about that?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [44]

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Yes. So that would be the margin normalization for our upper -- the upper end of our guidance range. That's what that reflects is a normal commodities market results. So if that's how we proceed, we should see in 2020, but ultimately, if we end up in the bad case scenario then it would be a 2021.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [45]

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Okay. So in your disclosure here when you -- when the company notes that the 2020 guidance is predominantly being driven by sales growth and also some production efficiency gains, the upper end would reflect that normalization and that's more of a base case, right?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [46]

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Sorry. Say that again, Vishal.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [47]

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When management notes the EBITDA is predominantly -- in 2020 being predominantly driven by sales growth, that's more of a base case assumption and the upper end would include some margin benefit associated with normalization. That's a fair characterization?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [48]

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Well, I think what you're going to see is you're going to see the EBITDA growth from the sales volumes and the efficiencies, that's the plan. We don't expect the variance from that. But then under the bad case scenario, it's offset by the impact of the ASF. So you'll still see contribution margin coming from the sales growth, it will just be at a lower rate because of the ASF impact -- lower margin to the ASF impact.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [49]

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Okay. Understood. Yes. Looking at -- switching gears here. Earlier in the conference call, it was noted that if there is deflation in the commodity backdrop, we try to hold prices on differentiated products. I was wondering if there's any way for us to estimate what percentage of your products are, in fact, differentiated.

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [50]

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Yes. That's a tough question, Vishal. The best way to understand the potential of that is if you look at the trend in our EBITDA in our Specialty Foods segment in 2014 through 2017, that kind of gives you some sense of the potential. We do not break out our product categories at the level of detail you're looking for. The ones that stick out is the premium, differentiated ones would be things such as our dry cured charcuterie products, premium dry cured charcuterie products, our meat snacks. And those are the 2 instances that come to my mind. And the sales of those 2 categories, I would, off the top of my head, estimate at about, maybe what, $400 million, George, or $500 million?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [51]

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Yes. I think that the -- a better way to look at it is to look at the fact that the majority of our Foodservice and QSR business is generally cost-plus. And so I would probably say, to answer your question, about 50% probably we would consider differentiated. It's just the level of differentiation that we might need to think about. But I would say 50-50 probably cost-plus versus differentiated.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [52]

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Okay. I appreciate it. And I recognize it's a tough question, so I just wanted to get a ballpark sense. Okay. And this is -- maybe we can take this all off-line, but I was trying to figure out what percentage of your business is more of the traditional staples type? And I appreciate there's a switch between distribution and grocery depending on different economic backdrops and whatnot. But the [ISR] category, what predominantly constitutes that category? Is it predominantly specialty retailers? Maybe give a few examples.

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [53]

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Yes. So it would be -- yes, for out here, a chain comes to mind would be choices or I guess, farmers -- what's the chain in Ontario?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [54]

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Farm Boy.

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [55]

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Farm Boy would be a sample. Things such as convenience stores, we include in there as well. It's a whole variety of channels outside essentially the big 5 or 6 names that will come to your mind, the Loblaws, Costcos, Walmarts.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [56]

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Yes. It's predominantly retail, butcher shops, (inaudible) delis. It just so happens that this segment has been growing quite a bit. And again, it's one of the segments that's benefiting a lot from what's going on right now with regards to COVID-19.

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Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [57]

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Okay. And maybe I'll just squeeze one last one in here. Just in terms of having to ask this question, but COVID-19, do you anticipate any facility closures looking forward?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [58]

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Well, as I mentioned earlier on the call, we've spent a lot of time with our different teams trying to gain the situation, trying to prepare, trying to understand. Again, there might be closures. We are one of the few companies, in my view, as I mentioned earlier, that we have a lot of redundancy in our system and we're able to have plans to help each other with respect to capacity. We have plants all around North America. It's not likely that all of them are going to close at the same time. So again, we've talked about that. A closure may take place because of a supply chain disruption or because the health authorities team deemed or dictated a shutdown for a few days. All of those things are possible. We've obviously looked at what happened in places like Italy, let's say, or Japan or other places where they have been impacted earlier by the virus. I'm happy to say that our partners in Italy have not had any disruptions to this point with respect to any of their plants even though they've been hit pretty hard.

So yes, it's a possibility, but we feel comfortable that we could manage through that.

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Operator [59]

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We'll next go with John Zamparo from CIBC.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [60]

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I wanted to follow up on an earlier question about the decentralized business model and the advantage of having that. And I guess I'm trying to ask, how flexible are your products? Can you easily switch to produce them at different locations? Or is there something unique about individual plants that they're not able to be shifted?

And just can you remind us, are there any particular plants or platforms you have that are at or near capacity?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [61]

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Well, it depends on seasonality, of course. I would say that in the summer months, there's not a lot of capacity available throughout the system. In that case, we even leverage partner facilities and a number of facilities that we don't necessarily own that are part of our ecosystem. So -- but this time of the year, there is capacity in the system. There is some redundancies, I mentioned earlier. And in many, many key areas of the business, we're able to manufacture products interchangeably between facilities. So yes, we think that's a strength. And it's something that we are talking to our customers at this time, given some of the uncertainty. If you are running a business in the food space and you have one facility, it's not a good time right now and there's a lot of risks associated with that.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [62]

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Okay. That's helpful. And then on labor availability, this has been a challenge for, I guess, the past 18 months or so, particularly in the U.S., and in light of COVID and the potential for labor shortages, I know it's a small sample size. But over the past couple of weeks, have you seen any uptick in, I don't know if you want to call it, absenteeism or just general challenges in finding people to properly staff plants? Or is that not an issue at this point?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [63]

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Not an issue at this point.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [64]

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Okay. And then on ASF, so you built in $15 million as your expected impact, granted there's uncertainty there. But can you give a sense of color on the cadence of that impact? And can you remind us what the impact was of ASF in 2019?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [65]

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Yes. So the impact in 2019 was roughly $15 million, and that was for 3 quarters. But it also in core included a sales impact, which we have not factored in. So it's kind of an annualized commodity impact from 2019.

In terms of the cadence for 2020, we do know there was some impact early in the first quarter. We've taken that into our thinking in both ranges, though, so it's really a lot of the cadence is in, if it does play out, is second, third quarter.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [66]

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Okay. And then last one for me. Can you give a sense of magnitude as to the declines that you have seen on the GTA restaurants you mentioned in the lobster export business?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [67]

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At this point, in terms of the restaurant industry in Southern Alberta, -- sorry, Southern Ontario, it's relatively small dollars, like on an annualized basis, we're talking sort of $3 million, $4 million. And in terms of the Chinese exports, that one has a fair degree of visibility to it. And again, it's not a huge number. We're looking at USD 6 million, USD 7 million impact.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [68]

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And sorry, that's in the quarter or that's like what you expect?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [69]

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No. That's for the year. That's for the period of our visibility. So it's really kind of the first half of the year.

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Operator [70]

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(Operator Instructions) We'll next go with Stephen MacLeod from BMO Capital Markets.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [71]

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So lots of my questions have already been answered, lots of ground you guys have already covered, which was great. I just wanted to see if I can get some color around the acquisitions that you announced with the quarter. So I guess, Inform Brokerage, Bavarian Meats and La Felinese. Could you give color around revenue and EBITDA from those acquisitions?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [72]

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We have, and they're relatively small acquisitions. So overall, La Felinese will be an equity investment, so it doesn't even impact our sales or EBITDA.

Inform Brokerage and Bavarian. Inform is roughly a $25 million-plus sales business all in Canada, Canadian dollars. It'll form part of our Premium Food Distribution group.

And then Bavarian, it's a relatively small brand. It's got about USD 5 million to USD 6 million in sales, and it will form part of our Specialty Foods division.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [73]

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Okay. Okay. That's helpful. In terms of -- in the past, you've talked about the sort of sales pipeline of the new product listings that was previously talked about to be $130 million. Can you talk a little bit about how that run rate has moved, whether you've experienced at all? How much you expect to experience in 2020? And then, I guess, if that has actually ticked a little bit higher with new contract wins?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [74]

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Well, certainly, most of those initiatives are well underway, Steve, and they were contributors to our growth this past quarter and they're factored in. But obviously, based on our outlook for the year, we're -- we've got a lot more irons in the fire today than we did when we first talked about that $135 million.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [75]

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Right. Okay. So it sounds as though there's really no change to the top line and demand outlook, it's more just the disruption in the outlook for 2020 with respect to ASF and COVID-19. Is that a fair way to characterize it?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [76]

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Yes. And we kind of -- again, we've reflected our current visibility around COVID-19 in our numbers and in our outlook around our sales. So it is really -- assuming there is no major meltdown in the situation, it's really the asset and the margin impacts that is our greatest uncertainty at this point.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [77]

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But certainly, with regards to COVID-19, some channel disruption, some channels positive, some channels negative.

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Operator [78]

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We'll next go with Derek Lessard from TD Securities once again.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [79]

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Sorry for beating a dead horse here. But I was just wondering, back to the COVID-19, if you anticipate or have any of the -- your customers or clients come back to you in terms of delays to the big snack -- big sandwich and snacking programs you've got going on?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [80]

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No. We have not seen any delays. I think that in terms of our efforts to do better in the retail and club channel with regards to sandwiches, meat snacks, et cetera, it's the opposite. We've got tremendous demand in those segments because of the reasons that we've discussed today.

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Operator [81]

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We'll next go with Dimitry Khmelnitsky from Veritas.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training [82]

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So I have a few questions. The first question is that how much revenue related to new initiatives? And I'm talking in respect of the $135 million worth of new initiatives related to Specialty Foods segment. So how much of those revenues were recognized in Q4 '19?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [83]

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We haven't broken out that specifically, Dimitry. Again, our growth in the quarter, I think, what was it, $115 million, most of that organic. I think there was roughly $62 million, $63 million was organic. A good portion of that was that -- $135 million was a good amount of it in our sandwiches and our meat snack components. And you take that $135 million divide that by 4, it's a reasonably significant portion of that $62 million.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training [84]

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So just to clarify, the -- so the growth in Specialty Foods, organic Specialty Foods growth was $30 million in Q4. And so essentially, are you saying that all of this growth in Specialty Foods in Q4, all came organically, all came from sandwiches and meat snack initiatives?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [85]

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In the Specialty Foods segment, absolutely.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [86]

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Mainly, yes. Mainly.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training [87]

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Okay. So that means that the flip side of that is that organic growth in the base business would have been negative then in Q4, excluding $135 million in the new initiatives on an annualized basis, right?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [88]

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No, no. The base sales were relatively flat, and you're right. And a lot of that was that reduced promotion resulting from us pulling back from things associated with -- because of the ASF issues. But you're absolutely right, that business was impacted by ASF.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training [89]

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Okay. And the -- how much worth of the new initiatives revenue was embedded in the 2020 guidance? So going back to early 2019 as well as later part of 2019, you were talking about the fact that $135 million worth of the meat snack and sandwich are initiatives that was secured very early on in 2019 as well as late 2018, but since then, much more have been secured in new programs. So that would suggest a probably substantially higher number than $135 million in Specialty Foods initiatives in new sales going into 2020. So I was just wondering what is roughly the amount that we're talking about. That will be included in the (inaudible) right now.

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [90]

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I'd have to go through the math with you on that, Dimitry, off-line.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training [91]

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Okay. Sure. The other question is, based on the guidance, it seems that organic revenue growth for the 2020 year should come, excluding the acquisition -- the impact from the acquisitions, should come at about 4.5%. And I'm wondering how does that reconcile with your guidance -- or guidance is probably not the right word, but you strongly implied in your recent Investor Day organic revenue growth of about 8% per year going forward, between 2020 and 2023 years. So I'm just trying to reconcile 4.5% with 8%.

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [92]

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Yes. I'd have to go through the math with you. Something is not adding up in your math, Dimitry. Acquisitions, run rate from acquisitions impacts about $100 million and the rest is organic. So that would put you in the range that you're expecting. So -- and so we can go through that math off-line.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training [93]

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Okay. Sure. And then a question on the Starbucks business. Based on the disclosures, it seems that Starbucks business grew about -- it slowed down to about 1% growth in 2019. And I was just wondering how you think in terms of Starbucks business growth going forward. Should we expect a substantial acceleration in that rate? Or any other thoughts would be appreciated.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [94]

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Listen, Dimitry, we never comment on our business with any particular customer for obvious reasons. But I'd just like to say that over the past year or so, we've made tremendous progress in terms of growing our sandwich platform in all channels from other QSR customers to retail and club as well. So again, that's part of the reason why we've grown the specialty business so much, and we continue to make good progress in growing those channels. We've got excellent capacity, best-in-class in the industry. We make excellent products, the most food-safe, high-quality sandwiches in the business. And we have a lot of demand in all channels, of course, including the QSR channel that you mentioned.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training [95]

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Okay. And now turning to the c-store, convenience store channels -- channel related to meat snacks and sandwiches, so I recall back to our discussion in 2019 on one of the earnings calls, you mentioned essentially that, in the longer term, the revenue potential from the convenience store on meat snacks and sandwiches is over $100 million. So I was wondering where you're standing at right now in terms of your 2020 guidance? How does that compare to $100 million or more potentially related to convenience stores?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [96]

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Yes. We're basically ahead of plan there, Dimitry. And we do own the fastest-growing brand in the c-store channel in North America, in U.S., in particular. So the Cattleman's Cut brand is the fastest-growing brand in c-store in the United States as we speak.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training [97]

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And would you able to -- would you be able to disclose dollar-wise how much revenues have been already achieved out of this $100 million overall potential in convenience stores?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [98]

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Will, have you disclosed that?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [99]

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No, no. And again, it's not just meat snacks, too, right? We've gotten some good traction with sandwiches in that category. So it's across a couple of different platforms.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - Head of Accounting & Special Situations and Head of Training [100]

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Right. Yes, yes. On those both categories, would you be able to provide us with some number on where are you standing at in terms of 2020 revenue on these meat snacks and sandwiches from the convenience stores?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [101]

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I don't have that detail in front of me right now, Dimitry.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [102]

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Again, our meat snack segment in the U.S., Dimitry, had a record year, had the best year in their history. In the first full year under the PB umbrella, they had the best year in their history.

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Operator [103]

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This concludes today's question-and-answer session. I'd like to give the floor back to Mr. Paleologou to conclude the call.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [104]

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I'd like to thank everybody for attending today. Thank you very much.

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Operator [105]

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This concludes today's call. Thank you all for your participation. You may now go ahead and disconnect.