Andrew Peller Limited

Well, it’s actually good morning, everyone. Before we begin, let me remind you that during this conference call we may make statements containing forward looking information.

This forward looking information is based on a number of assumptions and is subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those disclosed or implied. We direct you to our earnings release, MD&A and other securities filings for additional information about these assumptions, risks, and uncertainties.

And I'll turn things over to Mr. John Peller, Chief Executive Officer.

Thanks, David, and good morning everyone. Joining you from my home here in Burlington, and also on the call is Steve Attridge, our CFO; and Randy Powell, our President.

And Steve is going to speak to some of our financial results and Randy will outline some of our -- excuse me -- major business initiatives for the years. Let me start by saying that for our year ending March 31, our fiscal 2020 was another very positive year for our company.

Our sales for the year were flat, but our earnings were up very nicely, as we continue to strengthen our product mix into areas where we're getting higher margins. And those increased earnings have allowed us to both improve our results, but also to allow us to invest more in new areas as we look to grow our product portfolio in cider and craft beer and the whiskey and distilled spirits.

So, all-in-all, it's been a very, very busy year and we're pleased with all the work that we've got done. So, our earnings rose -- our net earnings rose to $23.5 million or $0.55 a share up from $22 million in fiscal 2019.

Obviously, the last part of our fourth quarter and particularly the month of March was impacted with the onset of COVID-19. We were most fortunate that right out of the gate, our beverage alcohol category was deemed essential by the federal government.

And as a result, the main liquor stores were - across the country were kept open, and we adjusted to ensure our production facilities remained open, and as well as the retail stores that we have here in Ontario at our Wine Shop. And we had our estate winery stores open for curbside pickup.

But from a tourism standpoint, visitation and normal events and activities are -- were not open for that period. They've just opened out west now.

As you may have heard the western markets are opening restaurants and the estate wineries are just opening now under a very strict regimen of protocol. And then Ontario, as you're aware, both restaurants and our estate wineries can do curbside pickup, but they've yet to open them up more broadly to consumer traffic.

I must tell you, I'm incredibly proud of the work that our management team did. They met twice a day remotely and through the weekends for three or four weeks to ensure that we kept our employees safe and all our operations ran strong.

Our demand was particularly strong in March and particularly four-liter products were in high, high demand. And our team did a great job and as well not surprisingly our e-commerce direct-to-consumer business became very, very popular and a great deal of effort went into ensuring that we met all the demand that came through that channel as well.

If there is a silver lining with COVID for us, one of the very positive things that I think is going to come out of this going forward is that governments, both provincially and federally are going to realize that a lot of the globalization that they promoted wasn't necessarily in their long-term economic interest. And it was made clear to me through my discussions with provincial and federal politicians that they were lamenting the fact that so much of our manufacturing has left the country and that our supply chains in food and agriculture, obviously, in PPE and health were badly compromised.

And that a lot of the value that they expected by promoting globalization had not accrued to us nor protected us in ways that we should have been protected. These are themes that I've been promoting for 20 years, but I've been beaten back by kind of liberal trade messages.

And I think going forward, for us even trying to get the inter-provincial trade shipments approved, we haven't been able simple policies that they could have done to help promote manufacturing and sustainable business models here in our country, they've not been supportive. And I really do believe that that will change positively for us going forward.

The beverage alcohol industry remains strong. You've no doubt heard us say over the years that it -- in the last 20 years, whether it was 9/11 or the financial collapse in 2008 and 2009 or past recessions, we tend to power right through them and perform well.

And we expect to do the same this time around. Having -- and as I told you that the sales through our liquor both in grocery channels and our e-commerce were particularly strong in April and May.

And they offset a lot of the business that we -- that we lost because restaurants are closed. Our own restaurants are not open.

Our estate winery tourism and special event businesses down, our sales to duty free are non-existent as the airport businesses dried up. And while we've been able to offset some of that, and most of that in the first two months, we don't expect to be able to offset that for the entire year, so that -- it's likely will have some revenue impairment in the 5% to 10% through the year.

And having said that, we're really looking at investing in our business as if everything was full bore and our eyes are definitely on our future. And we're going to continue to make the investments we know that are critical for the next five to 10 years.

So, we're pleased and happy with the investments that we're making. And we're definitely excited with our prospects for our future.

So, at this point, I'll just turn it over to Steve and then to Randy, and if they're questions at the end, we'll be happy to address them. Over you, Steve.

Thanks, John. Good morning, everyone.

So, sales were $82.1 million and $382.3 million for the three months in the year ending March 31, 2020, was up from $79.8 million and $381.8 million in the prior year. So, once again, we experienced solid sales growth through the majority of our well established bottled wine trade channels, resulting from the introduction of new products and product categories through the year.

We did see a softness in our personal winemaking market and in our export sales through the year. As a result -- as well as increased competition from subsidized lower priced imported wines in certain markets, particularly in Western Canada.

As a result of our sales performance through fiscal 2020, we believe our share of accessible markets remain stable, a reflection of our strong product portfolio, our reputation for delivering value and the loyalty of our customer base. While our estate properties export and personal winemaking sales were affected by the pandemic, we are seeing an increase in sales through the provincial liquor store channels, as well as our retail locations.

We've also increased our emphasis on direct-to-consumer sales, leveraging the strong brand recognition at our estate wineries and we're seeing positive momentum in this channel. Our gross margin improved in fiscal 2020 to 43.5% of sales, up from 41.6% last year.

The margin for the fourth quarter also improved rising from 43.3% -- rising to 43.3% from 39.2% in the prior year. Our gross margin continues to benefit from our increased focus on higher margin products and our programs over the last few years to enhance efficiency and reduced costs.

As we discussed in the past, our acquisition of three wineries in October of 2017, we recorded an increase of $10.4 million in inventory to represent the fair value of the goods acquired. This increase is being expensed earnings as these goods are sold, thus reducing our gross margin.

Through fiscal 2020, we reported a charge of $1.7 million to the cost of goods sold compared to $5.5 million in fiscal 2019. Our sales and admin expenses were lower in fiscal 2020 due primarily to a $3.2 million reduction from the change in accounting for lease obligations adopted in April of 2019.

Partially offsetting this increase were one-time cost for consulting and professional fees related to our implementation of a new enterprise resource planning system and an increase in the allowance for doubtful accounts due to a potential impact from the COVID-19 pandemic on certain customers. Selling and administrative expenses as a percent of revenue in fiscal 2020 improved to 27.4% from 27.8% in the prior year.

With increased sales and stronger margins our EBITDA rose to $61.5 million for the year, up to $52.9 million in fiscal 2019. Adjusted EBITDA, which includes the one-time acquisition related charges also increased to $63.2 million in fiscal 2020, up from $58.3 million in the prior year.

Interest and amortization expenses increased in fiscal 2020 due primarily to the recently adopted accounting treatment for lease obligations in accordance with IFRS 16. Other expenses in fiscal 2020 include a $1.7 million in restructuring costs.

We posted a net unrealized non-cash loss in fiscal 2020, the result of mark-to-market adjustments in our interest rate swaps and foreign exchange contracts mainly due to declining interest rates. Net earnings for fiscal 2020 were $23.5 million or $0.55 per Class A share, up from $22 million or $0.51 per Class A share in fiscal 2019.

Now turning to the balance sheet. Overall debt increased to $165.2 million at March 31 from $154.8 million at the end of the prior year.

The increase is due to lower cash from operations and our regular debt repayments. Cash from operating activities in fiscal 2020 was $31.5 million compared to $49 million in the prior year.

Shareholder's equity rose to $245 million from -- or $5.63 per common share, up from $5.31 per common share at March 31, 2019. At the end -- at year-end, we had capacity on our operating credit facility of approximately $24 million with another $112 million on our investment facility.

We believe we have the management -- we believe we have the management experience and the financial resources and flexibility to meet the liquidity needs presented by the pandemic. Having said that, we're carefully reviewing all capital allocations to ensure we remain financially stable and well capitalized going forward.

In summary, as John mentioned, we're very pleased with our results for fiscal 2020 and we remain confident that our track record of solid performance will continue over the long-term. Thanks very much for your time and attention.

And I'll now turn things over to Randy.

Super. Thanks, Steve and good morning, everyone.

As we've discussed over the last number of years, our goal at Andrew Peller Limited is to increase our shareholder value through a handful of key strategies. The first one, of course, is strengthening our product portfolio John commented on it earlier.

We -- you know that we rationalized in the last few years some underperforming brands, but then we brought in some and added some powerful new brands, like the three acquisitions of Black Hills, Tinhorn Creek and Gray Monk Estate, a wonderful trade that really increased the profitability of each and every one of our sales. Now the key strategy is investing in our consumer brand building, innovating at a much higher level than we didn't get done in the past and of course, entering into other beverage alcohol segments.

Other than why we have seen over the years that consumers are buying across these categories. And we want to make sure that we participate in that.

And of course, we've modernized our systems and processes. The largest of note is the work that we've been doing in replacing our ERP system.

At the same time that we've been driving them strategies, we've been very vigilant to make sure that we drive efficiencies throughout the organization and ensure that we capture sustainable cost reductions. We believe that that not only contributes to our success here in 2020, but really puts us on a strong platform as we face the COVID-19 pandemic.

So, I want to take a moment and talk about some of the key drivers in 2020 to give you a sense of what drove some of the strong performance elements of our business. From a brand perspective, the re-launch of the Peller Family Vineyards brand has continued to be very well driven by new product optimization, the differentiating marketing programs, innovative packaging, strong in store merchandising.

And I think a really strong presence on the digital, campaigns that we've put in into markets. We've seen some strong growth there.

Our partnership from day one continues to grow with Wayne Gretzky, and we've seen some real benefits associated with that of late. The sales of our brands and our spirits continue to grow.

And then, of course, we're very proud of the introduction of Wayne Gretzky 99 Premium Lager last year, that was primarily focused in fiscal 2022 to Ontario. But we have two wonderful new products we'll be adding to that portfolio 99 Session Ale and our 99 Pale Ale.

We'll be building that national distribution of all three of those products across the country this fiscal year. It's a very exciting -- another dimension to that strong Wayne Gretzky beverage alcohol brand.

Our entry into craft -- the craft side of business has been fabulous with No Boats on Sunday, very, very strong and successful from the very beginning. Sales were up, again, significantly in 2020 and with a strong roster of new product innovation, we think it will grow at same strong level, if not even stronger in fiscal 2021, Dry Rose side of cider and cans.

And most recently, we then -- under the No Boats on Sunday, we've launched some ready-to-drink products or RTD seltzers as we call them. Our own retail stores, The Wine Shop continues to be very well across all formats, including the co-located stores, which are in grocery stores.

They're doing particularly well these days. It's also always been, if it continues to prove out to be a great place to test a new product.

So, as we're getting more and more into innovation and driving new products out, what a gem to have our The Wine Shop or TWS, we call it internally, available to us to get live feedback from consumers on a very instantaneous basis. Importantly, in this COVID-19 environment, we're seeing growth, as I think both John and Steve had mentioned in our direct-to-consumer business, our wineries have always been a very important brand builder and source of profitable volume and instructed consumer business.

But we're obviously in this environment we're implementing a number of new programs that allows consumers to buy their favorite brands across our full product offering wine, beer, spirits, cider RTDs, online delivered directly to your home. From a sales perspective, Patrick O'Brien, our EVP of Sales joined us in September, where he has settled in beautifully and we're seeing him work hand-in-hand with our marketing team and our major customers and driving execution of our programs into the marketplace, and importantly, our innovation in store.

We're also strengthening our customer solutions team and really leveraging that revenue management and category management effort with our customers. I can tell you that our customers, our trade customers are thrilled with the value that we not only bring with outstanding world-class product, but also with the insights that we can bring to the customer solutions.

So, a real strengthening there and a benefit to all. Finally, looking at our operations overall, we continue to drive cost savings -- strong cost savings and operational improvements across that entire platform.

Steve had mentioned that our margins had gone up from 41.6% to 43.5% in 2020. Obviously, our ops team and the great work they're doing is one of the drivers behind that.

Also I'd like to just take a moment and note that we will be -- that we have actually consolidated our wine kit operation from Port Coquitlam that has now been consolidated into one facility nationally, which is in St. Catharines, Ontario.

That was completed the last day of the fiscal year. So, much of the work has been done, but the benefit will actually start to be realize in fiscal 2021, and we will see that business continue to strengthen its financial margins as a result of that.

So, clearly, you can see 2020 was a busy year. We laid a lot of foundation that allowed us to get the strong results that we did in fiscal 2020.

And certainly, I'm encouraged by the strengthening even more so in Q4 of 2020. But we also believe that that this foundation puts us in very good stead.

I think John said it well, I think it puts us in very good stead as we look at the pandemic and although yes, we are doing all we can to ensure we face that pandemic, we are very, very excited within fiscal 2021 and beyond. We have a number of the products -- we typically would average a dozen or so new products that would be a fair amount to bringing the marketplace any one particular year.

This year, we're seeing kind of a fourfold increase in that with all the new products that we're bringing to market. Part of that is the great innovation we're bringing to wine.

And part of that is the new participation in some of these other bev alcohol segments where we hadn't participated before. But we really believe we're bringing a powerful bundle of innovation forward to our trade customers.

We have seen a significant surge in our online business, as my other two colleagues had mentioned. For those of you on the line, go check out the wineshops.com website.

It is a fabulous website that allows you to buy any of our products across our portfolio in the Toronto area. And this is meaningful in the Toronto area.

It's a one day -- same day or one day delivery of kind of two days elsewhere. And I will tell you the delivery is free.

So, take advantage of that. The one club is -- our wine club continue also do very well in our consumer direct-to-home business.

So, we're seeing those -- which have always been strong, see further growth in this current environment. Lastly, our production facilities are performing at record levels of efficiency.

We're very proud of the work that these people have -- that our team has done, and we're confident they will continue to drive margin improvements as they have for the last number of years. So, in closing, I just wanted to echo John's comments, which was to thank all of our people for their hard work and dedication and contribution during these really challenging times.

You can see the power of our culture and our innovation performance in times like this, and very proud of the way that they've shown up every day and allowed us to perform at this high level. I do believe when this pandemic is offset and done, and it will be offset and done at some point, that we will emerge even stronger than we went in.

We were pretty strong going in. So, with that, I'd like to thank all of you for joining us this morning.

And maybe I'll hand it back over to the operator to answer any of the questions that you might have for John, Steve or myself. Operator?

Thank you. Good morning.

Congrats on a strong quarter guys. Randy, appreciate your comments in your prepared remarks on the trends that drove, I guess, sales for 2020.

But if I'm thinking specifically for fiscal Q4, you've had a 3% jump year-on-year. After a few quarters of flattish year-on-year sales and I know you guys commented the past few quarters you were sort of impacted with the low price imports that have been an issue, I'm just wondering, what's changed for the March quarter to cause the healthy jump in sales.

Is there anything specific there? Then if you could also comments on what's driving it in terms of volume, price increases or product mix, that'd be helpful?

Sure. I'd be happy to.

I think there's -- John commented I will kind of let’s get the COVID part of it out of the -- upfront handle, but it's much more than that. As John commented, we saw some very healthy gains in parts of our business -- the retail part of our business in particular as -- the last couple of weeks as it resulted to COVID, but, of course we saw some down elevators that were fairly significant as well associated with our hospitality and our export business.

So, those two kind of - there was a fair bit of canceling out of each one of those. I would say that we have seen some strengthening in Western Canada, in particular we saw growth across the board.

I want to be clear, I don’t want to make it any one region. We saw growth across the board in the fourth quarter, but I'd say that the way that we're approaching Western Canada in our partnerships there, as well as some of the new products that we had brought into the market, I think, were the two larger contributing factors to an increase in Q4.

And I think really -- I would say slightly differently in that maybe a return to a growth rate that we're more used to.

Okay. That's fantastic.

So, that's mostly volume, I guess that drove that.

Yes.

Okay. So, if I'm looking ahead to the current quarter, the June quarter and I understand that situation is still fluid depending on the geography and the channel, but you guys like spoke to the retail channel, e-com, liquor boards being up meaningfully than obviously export businesses, soft, hospitality is obviously soft as well.

I know John mentioned 5% to 10% impact for the year. So, is that relative to fiscal 2020?

And then, are you guys assuming the bulk of that impact would be in the June quarter?

Yeah, I would a comment on the quarter and maybe let John comment kind of back up some of the thoughts you would have behind that, the year comment. But it's always -- I'll tell you April versus May versus June, all look wildly different right now.

I think the best kind of direction I can give you is that the up elevators continue to go up. Those are the ones that John had mentioned, which are retail, our own retail stores.

Those tend to be our online business, our wine clubs. Those tend to continue to go up.

So the question for us that really it makes it challenging, is trying to figure out how big the down elevators are and how long they'll stay down. Will hospitality, -- which is a big part of our business and how long will that be suppressed?

We saw some regions open up in Ontario. I think they open up this Friday, tomorrow, they're allowed to open up, Niagara happens to not be one of them.

However, we're seeing our Western -- in BC we're seeing those open up. It isn't only them opening up though.

It's also consumers' interest in comfort and visiting them. So, it is a bit of an unknown.

What we do know is that where we're strong, we believe will remain strong. And not only because of the way that people, the channels that people are buying that alcohol through, but also the innovation that we bring to and strategies that we bring to the market.

So, we're quite confident there. What we don't know is the -- how low will the down elevators - how low will they be and how long will they stay?

So it's -- that's the challenging part. I can't give you any more direction.

We just had a Board meeting yesterday. I couldn't give them any further direction when I was asked that question as to how I thought the first quarter would go.

But the elements that John commented on are absolutely the right ones. It's just a matter of the quantity.

So, maybe I will bounce it over to John just to -- if he had any further comments on the year.

No, I think that's well said. We did better in the first two, three months than we expected.

But those were low contribution months from those other channels. And as we get into the summer, fall months where the other contract -- those trade channels like the estates contribute significantly more and knowing that most of them won't be open and operating at full speed.

It'll be hard for us. We'll make up some of it in other areas, but not all of it.

So, I think it's real that we're as little affected by the pandemic as we are. And we're doing well.

It doesn't change the way we're going to operate or invest, but it's hard for me to foresee, even though we did better in the first quarter, it's hard for us to foresee that we'll do escape the whole year without a small hit to our revenue as a result of those channels that are closed, but we'll update you in six months and tell you how in three months we'll be at our AGM and we'll keep an honest and open perspective on how we're doing. And we just think it's better to be straightforward upfront.

Fantastic. Fantastic.

Okay. So let's switch gears, I guess, to longer term and margins, another fantastic performance there.

When I'm thinking about your overall portfolio and look at it a few years ago, you were probably underdeveloped in premium and probably a bit over developed in value. Can you give us a sense of where the portfolio mix stands now?

And what can we sort of expect that the next, call it, three to five years, right?

Well, I can tell you we are thrilled with our portfolio as it sits today. I think that this portfolio has been built over the last number of years, 20 years where we can -- where we, as you know, we participate in the largest wine kit business in -- on the planet.

So, we are the largest in the world and all the way through to kind of the premium -- wonderful premium wines that we have in our portfolio. I think the way that, John and the team has built it over the years, really puts you in a good position because in good times, we have a much -- we have -- as you know we felt that we needed to premiumize and add to that part of the portfolio and did so very successfully with Black Hills and Tinhorn and Gray Monk.

So that really strengthen that part of the portfolio, but we are very proud and excited to have the full range. So, when you get into, in this case, it's a pandemic that was -- that has led us into recession, but our portfolio will stand up in a recession, as we've seen in the past very, very well because of that.

So, today I would say we have the most balanced portfolio that we've had probably ever, only because of the way that we built the portfolio, but feel very confident that we have the full portfolio. And we will fare well as result of that as you look forward, not only through what could be a more challenging, what's being predicted to be a challenging and deep recession, we've got a portfolio for that.

And as we -- on the other hand, we still have a wonderful premium offering for those who want it now. And definitely as we come out of that more challenging economic downturn.

Great. And then going forward like -- maybe like three, five-year perspective, would we feel like a larger premium make sure you guys happy with that current balance?

Yeah. I think that we have a -- I think we've got a strong premium portfolio today.

I think that -- I'll ask John to maybe comment, because I just want to -- I just want to make sure that we're looking at our full portfolio. We've got wine, but remember we have other segments that we're participating in now.

So, maybe I'll just ask John to be like to make any comments on that.

Well, I think you've covered it well, Randy. I mean, we're -- the one reality of the beverage alcohol industry, everyone used to stay in their lane and now everyone's trying to kick the crap out of everybody across the board, so that the spirit companies and the beer companies are coming out with seltzers insiders and spirit brands are into refreshment and wine cocktails.

So, we thought it was critical that we develop brands that were strong in all categories across the board. And we're in the early phases of doing that, but we're doing them with trade brands that can command premium pricing and solid margins.

I think, our premium estate wine business and DQA premium business has a great future. It's taken us 30 years to get where we are.

And we're very confident about the positions that we have. I think in the value wine business, when I made my comments about the government's oversight of our industry, it certainly doesn't help us these days that the LCBO was selling Spanish wine for under its cost.

And when I've gone to the government and said, Hey guys, give me a break here. Spain doesn't let anybody, anybody, not even frantically anybody sell value wine into their country, and you're letting them discount and subsidize the wine and the LCBO and actually the product did well.

And similarly out West, the BC liquor board is now bringing in their own private labels and undercutting the market. And we're going to go to the government there and it will not be a pleasant conversation.

It's completely ridiculous that a local monopoly undercuts the local industry. So, I think that that's where some of the softness in our value products has come from.

And I think the governments will smarten up. Those other countries don't allow that in their country for a valid purpose, they want that manufacturing and the contribution to their economy to stay with them.

I don't know how well you followed the food industry, but there've been over 65 food companies in Ontario in the last six years closed their facilities. And now only ship their products up from the U.S.

that was a mistake for us to let that happen. The Americans would never let that happen.

And I think this is changing in view and valuing what these companies contribute to our economy requires some policy support in the same way they're being supported in other countries. We we've been totally naive and taken advantage of.

So, I think that value business will strengthen going forward. And I don't think we neither want to over rely on it or under invest in it.

We need to have a balanced portfolio. And that's why we spread out our product offerings.

We offer products in wine at value, wine kit and premium and ultra premium. And now we're into the other categories as well.

So, I think balancing our portfolio the way we have hold us in good stead going forward.

Okay. Thanks.

That's helpful. Maybe one last one for -- well, for all of you guys.

Can you perhaps give us an update, I guess, on the M&A and the landscape how it's evolving in light of COVID and what sort of opportunities you're seeing? Then maybe as well an updates on the discussions you've been having with your corporate bankers, just wondering how accommodating your balance sheet is to execute on acquisitions.

If you're going to see a period of -- even if it's temporary of later sales and earnings?

I I'm happy to address that. I mean, I think first and foremost, our balance sheet is in great shape and our debt is up slightly this year more because we built some inventory more than anything to support our ERP transition and the closing of our kid business.

But our debt at, I'd call it $100 million, it was $150 million. It's up to $165 million, it normalizes at $150 million.

That's kind of not even inventory value. And on top of that we're holding properties for sale to the market.

Right now, two properties in Western Canada that are just surplus real estate and they have considerable value. So, that unlike 2008 and 2009 where we had a fairly a much more significant level of leverage, we've gone into this in a very good shape.

And we know we have credit available to us. I think from the opportunity side, I've explained in the past that the beverage alcohol segment has been on an incredible run for the last 10 years.

There was a considerable amount of M&A activity. And especially from larger players, large brewers, large distilleries and constellation in the U.S.

and they set precedents for unbelievable EBITDA multiples and that’s why for the last four or five years, it's been very difficult to buy at reasonable values. So, I think to a large extent from my perspective, the brewery boom that roses off the bloom of it.

And I'm sure you've heard this story that the preparatory that constellation, but Ballast Point, they bid a $1 billion for the company at $80 million in revenue and $20 million in earnings, they bid $1 billion for it five, six years ago, they sold it three months ago for $32 million. And yet I'm sure every craft brewer thinks they're worth what that Ballast Point was paid.

And it's not dissimilar with a lot of the small wineries. There are lots of small wineries for sale and we're very picky about brand quality and how their wineries fit within our portfolio and with the overall competitiveness of not just the wine space, but the spirit business, it makes -- it imperative that if you do buy, you buy at good pricing.

You can pay fair prices, which are still healthy multiples. But the expectations people had were unreal.

And I suspect they'll moderate going forward. And we'll see how -- we'll see how it goes.

If we -- we feel we're in a good position and that there are good opportunities for us there, we're prepared to invest. And it's always been part of our strategy and it will be part of our strategy going forward.

So, we'll see how people fare through the next year. And I'm sure there'll be opportunities.

And if there at decent values, we'll be interested.

Great. Thank you.

Thank you. I'll pass the line.

Good morning and congrats on a strong quarter. A couple of questions for me.

The first is, in your press release you indicated that alcohol consumption has been relatively stable. I am just wondering if that's in terms of dollars or volume?

Yeah. I don't mind just giving my perspective is, the news channels kind of exaggerated the sale of beverage alcohol, because they were just quoting that -- grocery was up 20%, 30%.

So naturally when all the restaurant channels were closed, you'd expect that volume to migrate to those other trade channels. And I think having read many sources, not just in Canada, but in the U.S., the general feeling is that overall beverage alcohol trends are up slightly and consistent with their past trend and maybe a little bit more.

In other words, there is a sense that in-home consumption, people are entertaining their families and themselves more at home, that they think it may have been a small pickup, but I think if you're referring to the fact that they were reporting these huge increases in alcohol consumption, that's not true. They're at least equal to what they were, maybe up slightly from the previous year.

And that sounds like is in terms of volume, in terms of dollar amount, can you see any indication whether it's being flat or slightly up?

No. That's a fair question, because I think that's driven by volume.

If anything -- pricing is -- consumers are migrating to more value pricing, and I think that's just a reaction to recession and so that total dollars -- now that you mentioned that are likely to be closer to flat, but I haven't seen anything reliable, Randy. I don't know if you've seen anything more current.

No. What we see right now is exactly what John saying.

I'd say the dollars are up slightly, volume is up more. So your lead -- you're leaning a bit more towards the value proposition, total dollars were up, but just a slightly whereas volumes up at a more regular run rate.

Okay. That's great.

And then maybe just shifting to your portfolio. What have you seen early on in the crisis compared to maybe going through Q1 in terms of consumer preference?

Like -- it sounds like early on in the crisis they have migrated towards more value based as they move back towards more premium or has it been fairly constant?

No, I think that what you'll see in the portfolio -- we'll see across everyone's portfolio. And John had mentioned it earlier is, there's COVID -- but let's remember that it's also leading us that we're now into a recession.

So, I think we're seeing a consistently from when it started, a more of a leaning towards the value part of the portfolio. I don't want to, in any way say that, premium is empty, but you're definitely seeing it on the value part of portfolio.

And I don't think this is a secret that you're seeing it definitely in the -- say the bag-in-box side of the portfolio. So, you're seeing some really strong -- that’s great value wine in bag-in-box.

We've always been very proud of the quality that we put out there. And so you're seeing across all bag-in-box a significant lift in volume in particular that one has taken -- that one takes the lead.

But I would say that that's been true from the beginning with that jump with both COVID going into the recession. I suspect that you will -- I know that you will see that as we worked our way through the recession.

And then how should we think of that in terms of the impact it could have on overall margins going forward?

The wonderful thing about our portfolio is, as we said earlier, is it's a balanced portfolio. So, you will -- we have worked hard.

The efficiency that we've driven through operations will allow us to have a strong performance on margin. Without misleading you though, we all know that the premium associated with the smaller volume, but higher premium the margins are higher.

However, from a dollar perspective, bag-in-box has got a much stronger dollar ring.

Okay. Great.

And then I'm just wondering what conversation you maybe had with the provincial governor. And I know they'd be talking about opening up -- access to alcohol across the province.

Do you think online because potentially still the gap that they can try to get from increased access points through convenience stores?

I mean, that is a $64 question still. And I'm trying to figure a way to answer it.

Honestly, I don't really think the government understands the complexity and the challenge of making significant changes to their current beverage alcohol system. I mean, the whole thing started with this notion of a bucket beer and somehow migrated to Caroline Mulroney met with Korean convenience store owners and made this commitment.

And then on top of that, there's the reality of a beer agreement that the liberal government made with the large brewers that the government struggles with. But I think the best thing that's happened is, is Rod Phillips coming into the ministry of finance role.

He's very thoughtful and all of a sudden they're listening and they're realizing that they have quite a few interests to balance. The most important one being their own revenue base, because one of the greatest ironies in all of this is -- this originally started eight years ago with their efforts to privatized the LCBPO.

And now, they've decided they're not going to do that and they're going to make the changes everywhere else. So, I think the priority of this has fallen considerably.

I don't think there's any agreement inside the government on what the best way for them to go forward. And I think that they have way bigger fish to fry right now, and their policies are naturally focused on the pandemic and the economic follow-up from it.

So that I think temporarily it's been pushed aside. It will come back and we're there working as hard as we can on this file.

And I expect our position in the process to improve going forward. So, it's not clear to me at what point they're going to want to start making changes.

But I think to the extent that they do make changes going forward, they will be far more sensitive to the impact on local industry than they were going to be a year or two ago.

Great. And maybe just outside a different way.

Are there any regulations that might be impacting the growth of your online business right now, or do you think that the government policies in place are allow for growth for that business?

I think, they're okay with that. There aren't a lot of restrictions.

There are inter-provincial trade restrictions now that are completely absurd. But I think fair to say that, most people in the industry don't even pay attention, they ship anyway.

So that -- even though there's a lot of banter about them opening up the markets, I think most people are just getting on with business and as they should, right, they should be able to sell their products freely in their own country And I think anybody who steps in front of that will get shamed. So I think the biggest interesting one is that, the government has allowed restaurants now to sell beverage alcohol with their takeout orders to help them.

And I think restaurants are going to want to maintain that type of a privilege. They -- in U.S.

markets, there are some jurisdictions that support that. And I'm sure there'll be a push around that, but I think it'll have to get dealt within the context of all the other changes in terms of where they're headed.

And I think that's going to take a lot more time and thoughtful effort on government, so that they're careful about what they do. And I was terrified a year or two ago because they were talking about making decisions where they didn't even, they weren't even mildly informed.

Now they're quite a bit more informed and I think there'll be more thoughtful going forward.

That’s helpful. Thanks a lot.

Thank you.

Good morning, John.

Good morning, Berry.

I've watched with interest the developments that have gone on in the last two or three months and I think wine tourism, which sort of spells out one of our interest that, we'd like to go to Niagara on the Lake and -- do you see the wine tourism getting back in the near future?

I know that it seems logical that if people can't leave the country that they're going to want to support local efforts more. And so, I think that'll be a positive factor for us.

And having said that, if the protocols they're putting in place for the next six months about -- when people come on the property, how many people can be together in the same room and how we manage all that? I mean, we're not going to have any of the large events like we've had in the past years, which were significant impacts on our business.

So, I do believe -- I'm a big believer in the value of that business for the long-term. And that -- I believe that millennials and younger consumers appreciate the value proposition of spending a great day and weekend down in the Niagara region more than ever and in the Okanogan.

And I think we'll get some pickup from people's interest in the short term, but it will be offset by those restrictions. I mean, until we get a vaccine, those businesses won't -- like sporting events and theatres and alike.

So, they'll be open, but there'll be some restrictions on, that'll hold them back a bit.

Well, the fallback position for me or for middle class with Andrew [ph] maybe an opportunity for you, would be that an aliens all could be members of your wine club?

Well, in fact, that's happening. So, where we -- we feel very encouraged with the support that we've had in our eCommerce and wine club business, Berry.

It's been very positive.

Well, thank you. And I continue to be a -- you have a wonderful story from the time of, I guess your grandfather coming over.

And I think that, you're a great example for what can happen in Canada.

Thanks. So, thanks so much for that.

We've got through next generation family members in the business, my son, Jordy, and my brother Gustus and Joey. And I definitely tell our people we got where we are because we plan for next generation and we're making investments to strengthen our business going forward for the next generation.

And hopefully, we'll have the same good fortune.

All right.

Thanks for the comments.

Yeah, guys. Just a quick follow-up.

John, you mentioned a couple of properties for sale out West. Do you have another property outside of Port -- maybe you guys are selling because Port Coquitlam or is it something else?

Yeah. That's the location of where our wine kit facility was.

So, it's actually very close to our Port Moody facility and it's a -- I think it's a couple acres in an industrial park, it's very attractive property and there's a strong market for industrial property in the GVA, the Greater Vancouver Area. And, it -- it's definitely surplus property that'll sell in due course.

Great. Thank you.

Yeah. Okay.

All right. Thank you again everybody for joining us this morning.

Always great to be able to talk to you about the business where -- what we've done and where we're going. If you have any further questions, as always please don't hesitate to call us at any time.

Thanks again, and have a wonderful day. Goodbye.