Lassonde Industries Inc. announces its Q4 and fiscal 2022 results

ROUGEMONT, QC, March 31, 2023 /CNW/ - Lassonde Industries Inc. (TSX: LAS.A) ("Lassonde" or the "Corporation") today announced its financial results for its fourth quarter and year ended December 31, 2022.

"Despite a challenging year impacting our financials, we achieved an important milestone in 2022 with sales exceeding the $2-billion mark for the first time in our history, representing almost 14% growth year-over-year. This achievement reflects the important efforts of our employees in the context of severe macro-economic headwinds and industry-wide challenges. During the past year, our team worked diligently to strengthen our leadership position in the North American food and beverage sector, with a particular focus on improving U.S. operations. We anticipate that tangible results from our operational excellence efforts will gradually become apparent in 2023 and 2024, establishing a clear path towards long-term profitable growth," said Nathalie Lassonde, Chief Executive Officer and Vice-Chair of the Board of Directors of Lassonde Industries Inc.

"Throughout 2022, we actively engaged resources, including capital expenditures, towards executing our multi-year strategy and delivering on Project Eagle in the U.S. We are pleased with the progress achieved on several operational improvement initiatives to enhance production efficiency and output, that we will benefit from in the years ahead. While we anticipate certain challenges faced in 2022 will likely abate in 2023, we expect inflation to persist, especially regarding commodity prices. However, through further pricing actions, and given current industry demand as well as assuming stable exchange rates, we anticipate the 2023 sales growth rate to be in the mid to high single-digit range and overall profitability to improve," added Vince Timpano, President and Chief Operating Officer of Lassonde Industries Inc.

• Sales of $556.0 million. Excluding a $22.4 million favourable foreign exchange impact, sales were up $46.1 million (9.5%) from the same quarter last year, mainly due to selling price adjustments in both the U.S. and Canada.
• Gross profit of $123.6 million (22.2% of sales), down $10.5 million from the same quarter in 2021. Excluding a $5.2 million favourable foreign exchange impact, gross profit was down $15.7 million from the same quarter last year;
• Higher cost for all inputs, especially apple and orange concentrates and PET resin, including an increase in the cost of transporting them to the Corporation's plants;
• Increase in the Corporation's conversion costs; and
• $3.7 million loss in gross profit following a production interruption of the cranberry sauce line at the Corporation's New Jersey plant.
• Operating profit of $16.7 million, down $14.9 million from the same quarter last year;
• Lower gross profit;
• $5.3 million decrease in performance-related salary expenses;
• $3.4 million unfavourable foreign exchange impact that affected the conversion of the selling and administrative expenses of the U.S. entities into Canadian dollars;
• $2.8 million in expenses related to the multi-year strategy (the "Strategy"); and
• Higher warehousing costs.
• Excluding items impacting comparability, adjusted EBITDAi was $38.3 million, down $8.2 million from the same quarter last year.
• Profit attributable to the Corporation's shareholders of $10.5 million, resulting in basic and diluted earnings per share ("EPS") of $1.53, down $11.3 million and $1.62, respectively, from the same quarter in 2021. Excluding items impacting comparability, adjusted EPS i was $2.09 compared to $3.22 in the same quarter last year.

• Sales of $2,151.0 million. Excluding a $44.8 million favourable foreign exchange impact, sales were up $213.3 million (11.3%) from last year, mainly due to a favourable impact of selling price adjustments and by a favourable change in the sales mix of private label sales.
• Gross profit of $523.3 million (24.3% of sales), up $1.4 million from 2021. Excluding a $21.1 million favourable foreign exchange impact, gross profit was down $19.7 million from last year;
• Higher cost for all inputs, especially apple and orange concentrates and PET resin, including an increase in the cost of transporting them to the Corporation's plants;
• Increase in conversion costs, mainly related to higher raw material warehousing, energy and labour costs; and
• $5.2 million loss in gross profit following a production interruption of the cranberry sauce line at the Corporation's New Jersey plant.
• Operating profit of $81.3 million, down $37.1 million from last year;
• $32.9 million increase in transportation costs, resulting from higher fuel surcharges and base transportation rates, incurred to deliver products to clients;
• $13.9 million decrease in performance-related salary expenses;
• $11.0 million in expenses related to the Strategy; and
• $7.1 million unfavourable foreign exchange impact that affected the conversion of the selling and administrative expenses of the U.S. entities into Canadian dollars.
• Excluding items impacting comparability, adjusted EBITDAi was $157.1 million, down $23.5 million from last year
• Profit attributable to the Corporation's shareholders of $53.9 million, resulting in basic and diluted earnings per share of $7.85, down $23.6 million and $3.33, respectively, from 2021. Excluding items impacting comparability, adjusted EPSi was $9.37 compared to $11.48 last year.
• As at December 31, 2022, long-term debt, including the current portion, stood at $249.4 million representing a net debt to adjusted EBITDAi ratio of 1.57:1.
• Total dividends of $2.98 per share, paid in 2022.

To provide clarity and orientation on the opportunities to pursue and to optimize capital allocation decisions, in early 2022, the Corporation developed a multi-year strategy. This Strategy aims to accelerate revenue growth, improve overall profitability, and drive long-term value by focussing on three strategic pillars.

• Building a growth-oriented portfolio;
• Driving sustainable performance; and
• Improving capacity to act.

During fiscal 2022, the Corporation began its strategic review, completed the diagnostic step of Project Eagle and began implementing new cloud-based management systems, including demand planning and transportation management systems. In addition, during the second half of the year, the Corporation invested in a project to optimize the current capacity of its specialty food division and to explore the addition of new capacities and growth opportunities. As a result, the Corporation reported additional expenses of $2.8 million and $11.0 million in the fourth quarter and year ended December 31, 2022, respectively.

During fiscal 2022, the Corporation dedicated capital expenditures aligned with its Strategy to support growth, enhance productivity, and invest in innovation and sustainable development. These investments included two projects to improve production efficiency and capacity in Canada, continuing to upgrade the enterprise resource planning ("ERP") software in Canada along with investments in the U.S. to improve production efficiency and to deploy a new single serve line in the Corporation's plant based in North Carolina.

Launched in the second quarter of 2022, Project Eagle is a component of the Strategy specifically aimed at revitalizing its underperforming U.S. operations, with the objective to capture growth, improve margins, and drive long-term sustainable performance. In addition to reviewing the U.S. operations' products and customers portfolio, Project Eagle also seeks to identify and address key issues hampering performance within its supply chain and manufacturing facilities, including product simplification, process realignment, employee training, capital deployment, plant performance, and supply chain execution.

After completing the diagnostic step of Project Eagle, the Corporation recently took important steps to reduce its stock keeping units ("SKU") complexity, harmonize packaging formats, consolidate formulas, and rationalize low-margin products and/or customers. The portfolio simplification should allow the Corporation to reduce execution complexity, which would limit downtime related to production changeovers and ultimately increase throughput. The Corporation also completed the first phase of the implementation of an improved cloud-based transportation management system.

The capital designated in support of Project Eagle will be deployed in three areas: (1) updating existing equipment to limit unscheduled downtime; (2) increasing throughput on existing capacity; and (3) investing in new equipment in support of increased capacity in on-trend formats. While the equipment upgrades are expected to result in short-term disruptions, the Corporation expects they will be significantly outweighed by the medium- to long-term benefits.

Finally, some of the initiatives deployed under Project Eagle will ultimately benefit the rest of the organization; for instance the deployment of new transportation management and demand planning systems are first rolled out in the U.S. and then throughout the Corporation

Lassonde continues to expect the largest factors impacting its performance in fiscal 2023 will be the financial health of consumers, the inflationary environment, and the frequency and severity of supply chain disruptions. As a result, the Corporation is employing the following assumptions for its fiscal year 2023:

• During fiscal 2022, the Corporation has taken pricing action on its branded and private label product offerings, including adjusting contracts with certain customers to recover cost increases it incurred. It expects the effects of such pricing action to be felt in early 2023. The Corporation also expects further pricing action to be implemented over the course of 2023 as inflation persists.
• For 2023, barring any significant external shocks and excluding foreign exchange impacts, Lassonde expects that its sales growth rate should be in the mid to high single-digit range, mainly driven by selling price adjustments. The Corporation is, however, closely monitoring the evolution of consumer food habits and price elasticity in a context of a contraction in demand.

• Labour and operational initiatives, together with fewer supply chain constraints, are expected to improve the Corporation's ability to supply demand and return to historical order fill rate levels, particularly in the U.S.

• Lassonde's input, conversion and transportation costs began to increase significantly in fiscal 2021 given an inflationary environment that extended through fiscal 2022, and it now expects the volatile cost environment to continue throughout fiscal 2023. More recently, the price of orange concentrate remains an area of focus since the price for this key commodity has been at an elevated level over the last six months, reaching a historical peak of US$2.79/lbs sol. in February 2023.
• In addition, during fiscal 2022, the U.S. dollar strengthened compared to most foreign currencies. Given that a large portion of the raw material purchases made by Lassonde's Canadian operations are in U.S. dollars, a strengthening of this currency against the Canadian dollar could result in a higher cost for products sold in the Canadian market. Furthermore, the Corporation is expecting an unfavourable foreign exchange impact for 2023 when considering its hedged positions. Lassonde plans to continue managing inflation risk, including the impact of foreign currency movements.

• The Corporation's performance-related salary expenses are expected to return to normal levels in 2023.
• During 2023, Lassonde plans to continue deploying its Strategy, revitalizing its U.S. operations, and upgrading its technology infrastructures. It also plans to continue implementing new cloud-based demand planning and transportation management systems, the aim being to improve customer service and lower overall distribution costs. It also intends to start exploring the upgrade of its U.S. ERP. Expected spending in support of its strategic transformation is expected to reach up to $10.0 million in 2023 compared to $11.0 million incurred in 2022.
• Higher interest expense is anticipated given higher rates on floating rate debt as a higher average indebtedness level compared to 2022.

• Effective tax rate should be about 26.5% for fiscal 2023.

• As supply chain challenges appear to be dissipating, the Corporation has revised its inventory accumulation strategy and expects to progressively reduce its inventory levels. As a result, its Days Operating Working Capitali should trend towards historical levels over the course of 2023. However, this strategy might be impacted by (i) opportunistic decisions to secure inventory ahead of potential additional price increases from suppliers, (ii) the objective of ensuring an adequate service level, or (iii) the identification of new potential supply chain disruptions.

• The Corporation's overall capital expenditures program for 2023 is estimated to reach up to 4.5% of its sales as it continues to deploy capital in support of its Strategy. This estimate depends on the timing of disbursements for certain large capital projects and on the evolution of the macroeconomic environment. As indicated in Section 11 – "Financial Position" of the Corporation's MD&A for the year ended December 31, 2022, the Corporation's 2023 commitments, as of December 31, 2022, with regards to capital expenditures, are already more than $23 million with an additional $4 million already earmarked for 2024. The Corporation expects to return this ratio to a range of 2.0% to 3.0% of its sales (including a maintenance component and a certain growth component) by 2025. The new capital assets will be financed, to the extent possible, using the Corporation's operating cash flows, although the Corporation may also turn to borrowing if interest rates and conditions prove advantageous.

The above forward-looking statements have been prepared using the following key assumptions: the currently observed geopolitical situation and macroeconomic trends, including employment, inflation and interest rates; the strength of the U.S. dollar (compared to the Canadian dollar); the continuity of recently observed consumer behaviours and market trends for the Corporation's products; no material disruption to the Corporation's operations (including workforce availability) or to its supply chain; the effectiveness of the Corporation's selling price adjustment initiatives; the limited impact of the Corporation's selling price adjustment initiatives on product demand; the continuity of observed trends in the competitive environment and the effectiveness of the Corporation's strategy to position itself competitively in the markets in which it competes; limited additional cost increases from suppliers; adequate availability of key inputs; the continuity of recently observed normalized trends in the throughput capacity of key U.S. plants; expected lead time for new manufacturing equipment; and adequate contractor' or consultant' availability to progress the Corporation's capital expenditures. The Corporation cautions readers that the foregoing list of factors is not exhaustive. It should be noted that some of these key assumptions, including those related to the geopolitical situation and macroeconomic trends, are volatile and rapidly evolving. In preparing its outlook, the Corporation made assumptions that do not consider extraordinary events or circumstances beyond its control. The Corporation believes the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Refer to Section 2 – " Forward-Looking Statements" of the Corporation's MD&A for the year ended December 31, 2022 for additional information.

A live audio broadcast of the conference call will be available on the company's website, on the Investor relations section's home page or here: https://www.gowebcasting.com/12497. The replay of the webcast will remain available at the same link until midnight, April 14, 2023.

The financial measures or ratios described below do not constitute standardized financial measures or ratios in accordance with the financial reporting framework used to prepare the Corporation's financial statements. Comparing them to similar financial measures or ratios presented by other issuers may not be possible.

The following table contains a list, description and quantification of items impacting the comparability of the financial performance between the periods:

EBITDA is a financial measure used by the Corporation and investors to assess the Corporation's capacity to generate future cash flows from operating activities and pay financial expenses. Adjusted EBITDA is a financial measure used by the Corporation to compare EBITDA between periods by excluding items impacting comparability. EBITDA consists of the sum of operating profit, the "depreciation of property, plant and equipment and amortization of intangible assets" item shown in the Consolidated Statement of Cash Flows, and "(Gains) losses on capital assets," if applicable. Adjusted EBITDA is calculated by adjusting the EBITDA with items considered by the management as impacting the comparability between periods.

Adjusted profit attributable to Corporation's shareholders and adjusted EPS are financial measures used by the Corporation to compare profit attributable to Corporation's shareholders and EPS between periods by excluding items impacting comparability. They are calculated by adjusting them with items considered by management as impacting the comparability between periods.

Net debt to adjusted EBITDA is a financial measure used by the Corporation to assess its ability to pay off its existing debt and to define its available borrowing capacity. To calculate the net debt to adjusted EBITDA ratio, net debt is divided by the sum of adjusted EBITDA from the last four quarters. Net debt represents long-term debt, including the current portion, less the "Cash and cash equivalents" item, as they are presented in the Corporation's Consolidated Statement of Financial Position.

Days operating working capital is a financial efficiency measure used by the Corporation to represent the amount of sales tied up as operating working capital. To calculate this financial measure, operating working capital is divided by the last quarter's sales, as they are presented in this press release, and multiplied by 91 days. Operating working capital is the sum of accounts receivable and inventories, less accounts payable and accrued liabilities, as they are presented in the Corporation's Consolidated Statement of Financial Position.

Lassonde Industries Inc. is a leader in the food and beverages industry in North America. The Corporation develops, manufactures, and markets a wide range of private label and national brand products, including ready-to-drink beverages, fruit-based snacks as well as frozen juice concentrates. It is also a leading producer of cranberry sauces and specialty food products such as pasta sauces, soups and fondue broths and sauces.

The Corporation produces its superior quality products through the expertise of more than 2,700 people working in 17 plants across Canada and the U.S.. To learn more, visit www.lassonde.com

The Corporation is active in two market segments:

• Retail sales consist of (i) sales to food retailers and wholesalers such as supermarket chains, independent grocers, superstores, warehouse clubs, major pharmacy chains and (ii) online sales; and
• Food service sales consist of sales to restaurants, hotels, hospitals, schools, and wholesalers serving these institutions.

This document contains "forward-looking information" and the Corporation's oral and written public communications that do not constitute historical fact may be deemed to be "forward-looking information" within the meaning of applicable securities law. These forward-looking statements are based on current expectations, estimates, projections, beliefs, judgments, and assumptions on the basis of information available at the time the applicable forward‑looking statement was made and considering the Corporation's experience combined with its perception of historical trends. Such statements include, but are not limited to, statements with respect to objectives and goals, in addition to statements with respect to beliefs, plans, targets, goals, objectives, expectations, anticipations, estimates, and intentions. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "endeavor", "expect", "may", "will", "project", "should", "could", "would", "believe", "plan", "intend", "design", "target", "undertake", "view", "indicate", "maintain", "explore", "entail", "schedule", "objective", "strategy", "likely", "potential", "outlook", "aim", "propose", "goal", and similar expressions suggesting future events or future performance in addition to the negative forms of these terms or any variations thereof. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict.

By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Various factors or assumptions are typically applied by the Corporation in drawing conclusions or making the forecasts, projections, predictions, or estimations set out in the forward‑looking statements. These factors and assumptions are based on information currently available to the Corporation, including information obtained by the Corporation from third-party sources. In this document, forward-looking statements include, but are not limited to, those set forth in above "Outlook" section which also presents some (but not all) of the key assumptions used in determining the forward-looking statements.

Such forward-looking statements relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated. Readers are cautioned that the assumptions considered by the Corporation to support these statements may prove to be incorrect in whole or in part. Factors that could cause actual results to differ materially from the results expressed, implied, or projected in the forward-looking statements contained in this document include, among other things, risks associated with the following: the availability of raw materials (including as a result of climate change, extreme weather, global or local supply chain disruptions, loss of key suppliers or supplier concentration, impact of pandemics, geopolitical developments, military conflicts, and trade sanctions) and related price variations; fluctuations in the prices of inbound and outbound freight, the impact of oil prices (and derivatives thereof) on the Corporation's direct and indirect costs along with the Corporation's ability to transfer those increases through higher prices or other means, if any, to its clients in competitive market conditions; failure to maintain strong sourcing and manufacturing platforms and efficient distribution channels; disruptions in or failures of the Corporation's information technology systems, including the ability to access and implement technology necessary to achieve the Corporation's targets, commitments and goals, as well as the development and performance of technology; cyber threats and other information-technology-related risks relating to business disruptions, confidentiality, data integrity, and business email compromise-related fraud; the scarcity of labour in North America and the related impact on the hiring, training, developing, retaining and reliance of qualified and/or key personnel together with their productivity, employment matters (including compensation), compliance with employment laws across multiple jurisdictions, and the potential for work stoppages due to non-renewal of collective bargaining agreements or other reasons; the successful deployment of the Corporation's health and safety programs in compliance with applicable laws and regulations; serious injuries or fatalities, which could have a material impact on the Corporation's business continuity and reputation and lead to compliance-related costs; the successful deployment of the Corporation's Strategy (defined in above "Multi-Year Strategy" section), including components such as Project Eagle; climate change and disasters causing higher operating costs and capital expenditures and reduced production output, and impacting the availability, quality or price volatility of key commodities sourced by the Corporation; disputes with significant suppliers; the increasing concentration of clients in the food industry, providing them with significant bargaining power that could limit the Corporation's ability to raise its prices to offset inflationary pressures; major events, such as systems and equipment failure, pandemics and natural disasters, or increased frequency or intensity of extreme weather conditions (including as a result of climate change), leading to unanticipated business disruptions at the Corporation's facilities or those of certain suppliers; the implementation, cost and impact of environmental sustainability initiatives, as well as the cost of remediating environmental liabilities; changes made to laws (including tax and tariffs), regulations, rules and policies that affect the Corporation's activities as well as the interpretation thereof, and new positions adopted by relevant authorities; failure to adopt to changes and developments affecting the Corporation's industry, including customer preferences, tastes, concerns or perceptions and buying patterns, market conditions and the activities of competitors and clients; crisis management and the execution of the business continuity plan; failure to maintain the quality and safety of the Corporation's products, which could result in product recalls and product liability claims for misbranded, adulterated, contaminated, or spoiled food products, along with reputational damage; damage to the reputation of the Corporation and its brands, including as a result of its inability to meet stakeholders' ESG expectations or to realize expected benefits in that respect; risks related to fluctuations in interest rates, currency exchange rates, liquidity and credit, stock price and pension obligations; deterioration of general macroeconomic conditions, including international conflicts, which can lead to negative impacts on the Corporation's suppliers, customers and operating costs; the incurrence of restructuring, disposal, or other related charges together with the recognition of impairment charges on goodwill or long lived assets, particularly in a context of challenging performance and rising cost of capital; the sufficiency of insurance coverage; expected future cash flows and the sufficiency thereof, sources of capital at attractive rates, future contractual obligations, future financing options, renewal of credit facilities, and availability of capital to fund growth plans, operating obligations and dividends; pension plan performance, including the adequacy of pension contributions, assets, and potential pension liabilities; the implications and outcome of potential legal actions, litigation and regulatory proceedings to which the Corporation may be a party; and innovation and the future use and deployment of technology and associated expected future outcome, ability of the Corporation to protect its intellectual property and the costs incurred to do so.

The Corporation cautions readers that the foregoing list of factors is not exhaustive. Readers are further cautioned that some of the forward-looking statements in this report, such as statements concerning sales growth rate, productivity and service level, key commodity and input costs, expenses (including Strategy-related expenses), effective tax rate, working capital and capital expenditures, may be considered to be financial outlooks for the purposes of applicable securities legislation. These financial outlooks are presented to evaluate potential future earnings and anticipated future uses of cash flows and may not be appropriate for other purposes. Readers should not assume these financial outlooks will materialize.

More information about risk factors can be found in Section 19 - "Uncertainties and Principal Risk Factors" of the Corporation's MD&A for the year ended December 31, 2022. Readers should review this section in detail.

All forward-looking statements included herein speak only as of the date hereof. Unless required by law, the Corporation does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained herein are expressly qualified by this cautionary statement.

SOURCE Lassonde Industries Inc.

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