Andrew Peller Limited (ADWA) Earnings Call Transcript & Summary

Thank you. And I would like to declare that this meeting is formally closed. We now come to the presentation of the past year's activities and an update on our future. So moving to the next slide here, Jonathan. I'm sure this is something you are all aware of that we are living in a very, very new world and in fact, a very, very different world. The pandemic has had and will continue to have an extraordinary impact on everyone in our community, in our country and in fact, all over the world. As a management team, we've been aggressively preparing for the worst and hoping for the best. As I mentioned earlier, we are very, very fortunate, and we're very grateful for the good fortune that has come our way, and we feel for the many in our community who have struggled with significant challenges, both with health and their businesses. I've followed Thomas Homer-Dixon, a scholar in Canada, and he and people like Bill Gates have commented that they believe there's a spiritual purpose behind everything that happens in life, whether it'd be good or less kind. And in the end, I think they believe and I do as well that the coronavirus has an opportunity to change the world for the better. It's abundantly clear that pandemics and issues like climate change, these are new existential threats that should make it clear to people that going forward, we're going to need to work together. And hopefully, we'll look back at this state and COVID-19 and remember as the catalyst that spurned a renewal for hope. As a company, we have been very, very busy, and indeed, I'm incredibly proud of the great leadership from not just our management team but from everybody in our company. We were dedicated from the outset to putting our employee health and safety first. And believe me, it was a very significant challenge managing travel restrictions and sanitizing all our facilities. When our stores were originally open, we had to adjust for all the screens and safety precautions that you see today, but at no time has this not been our principal focus. We've worked hard to support people in our communities. We partnered with not just one but several companies who were dispensing sanitizer. We were -- we focused on help raising money for a lot of restaurant and bar staff who lost their jobs. And we're proud of the effort that our -- all our employees have extended to people in their communities. And we've also been able to stay focused on our consumers and our customers. We've had a lot of virtual marketing events, which are new efforts for us, that have been very, very successful. And we've had a focus on e-commerce as well that Jim will speak to shortly that was very helpful as well. I guess, in the end, I never thought the comment -- I wouldn't touch him or her with a 6-foot pole would become a national policy, but here we are. As I look -- before we tell you about all the positive things that we're looking forward to, I always like to pay proper notice to the greatest risk that our company face and this risk continues to be government disruption. And our concern really are policies of populous politicians that can recap on our tax and distribution systems. With that, we're proud to say that we feel the province and the federal governments have done a very good job, putting the health of Canadians first. And we know in the next 6 to 12 months, the focus on all governments will be to continue to manage health-related policies, hopefully, more testing, updating our travel policies, a whole new regime of vaccine policies and helping families return to work and return their children to school. There is an obvious reality that economically in the wake of all of this activity, we will be left with huge deficits. And naturally, we anticipate and are concerned for the tax responses to these issues as governments often come to us first. And we are still struggling with the fact that we were -- that cannabis was put in an unlevel playing field from a tax advantage over our products. Hopefully, one of the legacies of COVID will be federal and provincial governments realizing the value of supply chains and the value of manufacturing products in our province and our country. It was always clear to me, as we've mentioned over the years, that globalization as a political philosophy and economic commitment had gotten out of control. In other words, producing everything at the lowest cost at all costs was not serving the communities of our country or other countries. And I think in the future, it will be replaced by a balancing of the need to support global trade and at the same time, strengthening local supply chains. I believe that this will be a very positive trend for agriculture generally, for manufacturing in Canada and certainly for the wine industry. And with that, I'm happy to turn the microphone over to Steve.

Thanks, John. Good day, everyone. I'll first start by a review of fiscal '20. Revenue for the year finished flat to fiscal '19. However, momentum was building in the fourth quarter. Strong category margins and favorable mix are driving margin expansion and all this the result of -- all these results in an earnings increase of 7%. Now looking to the first quarter. Sales momentum from Q4 continued into Q1 F '21, up 3.4% over F '20. The unfavorable impacts of COVID were more than offset by strong results in our B2B, TWS and personal winemaking channels. A shift in the consumer's preference to more value products resulted in some margin compression. Cost containment and cash conservation resulted in very strong earnings, up 27.4% versus the first quarter of a year ago. Since inception, the company has been focused on creating value for its shareholders. As you can see here, total returns for shareholders have been constantly strong over the past 20 years, supported by a strong and stable track record of paying dividends every year since 1979. We've made material investments in growth, efficiency and more recently in our IT infrastructure. Our balance sheet remains strong. And we have liquidity and access to capital that provides us the means to invest in our future. And with that, I'll pass to Shawn MacLeod.

Innovation has been a key part of our strategy to build brands at APL. Innovation by staying close to the consumer, identifying emerging trends, developing breakthrough insights allows us to build a stronger base business and enter into new categories. The past year has allowed us to build on our strong brands, our high potential brands across the portfolio with new benefits in the area of convenience, size, flavors as well as better for you. We've also been able to build on the new categories that we've entered into, refreshing beverages, in the areas of craft beer and cider and RTDs. Over the past couple of years, we've been working to accelerate our internal capacity for innovation and have transformed our processes to increase consumer appeal, organizational capacity and speed to market. Turning to the next slide. Looking at the impact on mass retail. Mass retail has been very strong, particularly over the past quarter, where Andrew Peller was the fastest-growing wine supplier in Canada. We've had big wins in the area of field sales execution behind some new initiatives despite the COVID restrictions. And we've also seen a broad category and customer acceptance of our 60-plus new SKUs and innovation, which is a record for the company. With that, I'll pass it on to the next speaker. Jim?

Good evening, everybody. It's hard to talk about our retail stores in the first quarter without discussing the impact of COVID-19. The early days were certainly a precarious time. We had roughly 10% of our stores closed that were located within malls and strip plazas. And for the majority of the first quarter, we operated with reduced hours and a reduced number of days in almost all our stores. These initiatives were undertaken to make the best use of our labor force. Sales were extremely good in our retail stores in the fourth -- in the first quarter. The majority of our stores are located within grocery environments, and consumers took full advantage of looking to reduce the number of shopping trips and create a one-stop shop for food and wine. The customers were so thankful that we remained open. Particularly in the early days of COVID, there was fear that alcohol would close, which resulted in numerous days with Christmas-like sales. Another major factor in the Q1 success of our retail stores is the fact that the LCBO has been closed on Monday since late March. This added business on what is traditionally our slowest day of the week has been significant. As of today, the LCBO still remains closed on Mondays. However, we are unaware of their timing to reopen. At the other end of the spectrum on our state business is really the negative impact of COVID-19. At all our properties, we stopped wine sampling at wine tours. Our full-scale restaurants at 4 of our properties were forced to close. We kept our retail stores open and tried everything we could, including curbside service. But at the end of the day, consumers were not interested in traveling to wine country just to visit the retail store. The impact in Q1 was significant. We lost our concert series, which is a big draw to wine country and also lost our group business. However, on the positive side, we are bouncing back much quicker than I expected. Consumer demand for winery tours, tastings and wine and food on the patio has been very strong. I say this in the context of social distancing, however, meaning we are fully occupied under patios but with less tables due to consumer safety precautions. For sure, the summer weather has been an outstanding benefit to the patio season this year. The team has done an incredible job on creating a safe but outstanding environment. So I encourage everyone to travel to wine country and visit our properties. The other positive impact of COVID-19 has been our e-commerce business, which you can see from the slide, has had an over 400% increase in the first quarter. Particularly early on when consumers were housebound, we needed to reallocate our labor force just to keep up with the demand. We have since completed updates of our e-commerce sites, resulting in a first-class user experience. We now have a national e-comm platform to build from. And we do see e-commerce as an underdeveloped in Canada in the wine space, and we're actively building our capabilities in this space. Thank you. And now for a quick update on our Global Vintners business, our Vice President, Gavin Hawthorne.

Thank you, Jim, and good afternoon, everyone. Fiscal 2020 was a very significant year of change in our wine kit business, which operates under the corporate name Global Vintners. We completely reinvented our product portfolio by updating our packaging, improving the quality of our kits, reducing the number of SKUs and generally making our brands much more appealing to consumers. We completed this transformation in Q1 of this year, and the changes have been extremely well received by our retailer network and consumers alike. One of the major benefits of this portfolio change is that it has enabled us to consolidate 2 production facilities into one. This involved a major upgrade and expansion at our St. Catharines facility, which you can see in the current slide. The vast majority of that construction is now completed. And we're now starting to enjoy the benefits of producing all our wine kits under one facility. In addition to these major projects, we continue to invest in innovation. This included the launch of our very first all-in-one wine kit called My Wine Co., which is targeted towards attracting new consumers into the category with a very attractive price point. Fiscal year 2021 has started strongly for Global Vintners. In addition to the investments we've made, changing consumer preferences during the pandemic, such as people spending more time at home, looking for new hobbies and of course, wanting to save money, have all benefited the wine kit industry. We anticipate strong continued financial growth from Global Vintners for the remainder of this fiscal year and beyond. I'll now hand you over to Craig McDonald, our VP of Winemaking.

Great. Thanks, Gavin, and good afternoon to all. I was given 3 minutes to talk about operations and winemaking. And it's virtually impossible when I look back, just the amount of work that we've done to try and expedite. You'll see on the graph here on the chart there, rather, the expedite, expedite, expedite. It's really been a theme and really has been raining supreme since February hit. We've all worked extremely hard, as you've heard from our sales and marketing colleagues that delivered on the promise, and we've met that unprecedented demand for our e-commerce platform, which has been great. But also, obviously, the acknowledging consumers are voting with their wallets and looking for value in our bag and box program. So driving all of that in short order, it hasn't been easy. Never have we been busier, and I'd like to personally thank everybody for their assistance with that, but never have been safer. If you look at the bottom there, leading the COVID charge, I think those 3 themes, the expedite, the innovation, and the COVID charge has been really integral to what we've been doing in the last 6 months. So yes, we've been working very hard, and we've been delivering on the promise, keeping the stocks on the shelves and expediting from all over the world to make sure the consumer gets what they're asking for in short notice, but also very safely. So we've not had anyone test positive in our winemaking and operations team, and we've been working around the clock, working in separate pods, doing all the things that we should be doing, and it's been a real pleasure to be working with our people and culture departments to facilitate that and truly being one team over the last 6 months. So a big shout out to everybody for really amazing work they've done. And of course, this is all in the midst of harvest. So there's never a dull moment. We're right into harvest, as John mentioned. Sparkling wine is starting to trickle in, British Columbia. Ross and Sandy are really happy with the quality out there. A cooler summer has given beautifully balanced whites and very crisp, fresh aromatics that are starting to come in. And of course, it's always up to the last 6 weeks, we say, for the reds. And in Ontario, incredible year. What can I say, John called it out and said it's going to be one of the best ever, and I'd have to echo that exceptional quality so far. M is working hard today, and we're bringing in Pinot Gris. We're bringing in all the aromatics, all of the red hybrids. We're virtually 24 hours now. So it's going very quickly. Going to be a short and quick harvest but very high quality. So very happy to announce that that's underway. And also that the fire is under control in D.C. as well. So we're off to a great start, folks. The wines have never looked better. There's always -- we always say there's always room to keep nudging forward. And I know M, Ross and Sandy are very excited about what lies ahead. So back over to you, John. I think that I can talk forever, as you know, but I better hand back over to you.

Thanks for that, Craig. So at this point in time, I would like to pull to see if anybody has any questions. So if you have a question, please type it in.

Mr. Chairman, we have one question in. When do you think the estate and hospitality business will be back to 100%?

Obviously, that's a tough question for us to answer. And as Jim mentioned, we had been indexing in the low 25% to 30% of our normal business flow earlier in the year. And now that the wineries are more open and people are coming for tourists that they book in advance, we've had good patio restaurant business. We're past the halfway point. And so that I think a lot depends on how well we do with the vaccines in the first quarter of next year. It will be a quiet fall. And then hopefully, if things worked out very, very well, we could be back up and running close to full steam by late spring, early summer next year. That's our hope.

At this time, there are no more questions.

So thank you, everyone, for your presentations. And I do want to thank again all of our employees for their loyalty and dedicated efforts. They are an inspiring group of people, and we're very, very proud of them and grateful for all that they've done for all of us. I want to thank the members of my Board of Directors who serve our company so well and my family for all your love and support. We are excited about our future. And with the investments that we've made in the last 3 years, which is more than we've ever made in our company, we're excited about our -- and confident about our prospects for growth. The next time we will catch up with you will be on November 11 when we have our next Board meeting and we release our second quarter results for the year. So hopefully, look forward to connecting with you all then. And we wish all of you good health and good fortune through the fall. And I want to promise and assure that next year, we are going to throw one hell of a party in Niagara-on-the-Lake following our returning to a normal Annual General Shareholders Meeting. So with that, I declare this meeting finished, and I thank you all for your attendance.