Andrew Peller Limited

Thank you, Pam, and good morning, everybody. 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.

I’ll now turn things over to John Peller, Chief Executive Officer.

Thank you, David, and good morning, everyone. It’s good to be with you.

I’m here and joined with by our CFO, Steve Attridge. And reporting on the first half of our year’s results, which we published last evening, you can see that our sales are -- for the first six months have decreased by 5.5%, when compared to the previous year.

And having said that, we’re very, very pleased with our performance, we think that we know that the company is performing very, very well. And having said that, it is most definitely a challenging and difficult time.

One second here, wait a second. Sorry about that noise, but I got a window washer banging on my window outside here.

The bottomline is that, when you compare the first six months of sales to last year, we actually grew our business in the trade channels that were open and were doing well. But we lost -- we have lost business in the trade channels that are still not open.

You’ll recall that last year we had some pantry loading at the start of the year that kind of artificially inflated our sales early on and we got if you will an updraft from the pandemic that we wouldn’t have expected. And now the consumers are returning to more normal retail shopping patterns and while they’re doing that the other channels that have been closed are kind of slower return to their normal volumes, because of closures and restrictions.

So, for example, the first -- in the first half of this year, the first quarter, we had many, many Estate Winery of our nine Estate Wineries, they were closed or partially closed in the first quarter. And as you know, restaurants are just coming back online now.

I would submit that, compared to a normal year, restaurant sales across the province are still kind of half of the nor-- half of their normal levels. And similarly trade and travel restrictions have been are still in place and our exports sales and duty free sales have been likely affected.

We’ve also had significant impact to our margins from supply chain disruptions. They’re significant.

Everything that you’re reading in the news and in terms of the bulk wine shipments we received from around the world, our glass and packaging is definitely being disrupted and creating some margin challenges, which we believe will impact us through this year and to some degree next year as well. But they’ll eventually abate and will return to normal, so that, we feel very, very positive that the recovery is well underway, and hopefully, most of it should be back next year.

We’re not going to make too much of a prediction there just because it’s hard for us to know exactly how fast everything will return to its normal state but it’s -- we should be mostly recovered next year and we know travel will lag a bit into the 2023, 2024 fiscal years, but we expect it to fully recover as it always has in the past through these types of events. We did, as you have noticed, we sold a piece of property in Port Coquitlam, which was our former blanket operation in Port Coquitlam.

We sold it for $9 million and realized the gain of $7.2 million. It’s one of the many properties that the company owns and…

Okay, I was just going to turn things over to Steve. Steve, if you’re there.

Over to you.

Great. Thanks, John.

As John mentioned, our sales and operating results through the first six months of fiscal 2022 continue to be impacted by a number of unusual factors related to the pandemic. And the pandemic was announced in the fourth quarter of fiscal 2020, consumers increase their purchases through the first six months of fiscal 2021, driven by uncertainty and concern about whether supply chains for alcoholic beverages would remain open through the pandemic.

As well the LCBO in Ontario was closed on Mondays during the majority of fiscal 2021, which helped to drive consumers to our retail outlets, increasing sales of products through our network of over 100 stores. We’re also significantly affected by government mandated closures of bars and restaurants, included our Estate Winery businesses and travel restrictions that significantly reduced our travel retail business.

And while these channels are now slowly reopening, it will take some time for them to return to normal. As a result of these factors, sales decreased by 5.5% when compared to the first six months of fiscal 2021.

When comparing ourselves so far this year, with the six months that ended September 30, 2019, which is a comparable quarter with no COVID related restrictions sales are -- have decreased 3.5%. However, if you adjust for the trade channels that remain impacted by the pandemic in fiscal 2022, namely the restaurants, hospitality and travel retail our sales have increased by approximately 4.5% in the remaining open trade channels.

Turning to margins, our gross margin was again negatively impacted by purchasing patterns and other factors related to COVID. These include revenue declines in our high margin trade channels and higher important wine costs.

In addition, we experienced costs related to the much publicized global supply chain issues due to the pandemic, as well as increased co-packing costs in our new and growing refreshment brands. However, we are seeing margins gradually returned, as the pandemic eases, rising to 42.7% in the second quarter of fiscal 2022 from 40.3% in the first quarter and 35.5% and 37.4% in the fourth and third quarters of fiscal 2021, respectively, as higher costs are partially offset by a modest increase in higher margin sales.

Over the long-term our business returns to normal operations, we expect margins will continue to improve. Our sales and admin expenses increase compared to last year as we return our staffing and marketing overheads to normal levels.

As these trade channels reopen, you’ll remember that in the last year’s first half, we laid off a significant part of our workforce due to close trade channels and conserve cash. In addition, during the first six months of this year, we encouraged certain non-recurring startup costs related to the opening of our recently acquired Riverbend Inn.

As John mentioned, on September 28th, we completed the sale of our Port Coquitlam, British Columbia property and assets for total cash proceeds of approximately $8.8 million net of transaction costs. The sale generated a realized gain of $7.5 million or $0.21 per Class A share.

Putting all of these factors, net earnings for the six months of fiscal 2022 were $16.4 million or $0.39 per Class A share, compared to $23.9 million or $0.56 per share last year. Turning to the balance sheet, our debt increased to $170.4 million at December 30th, due to debt repayments partially offset by our working capital requirements, share repurchases and increased investment in our properties and operations.

At quarter end, we have increased capacity on our revolving credit facility of approximately $180 million. As of September 30, 2021, we’ve repurchased and canceled 598,600 Class A non-voting shares under our normal course issuer bid at a weighted average price of $8.70 per share, for total cash consideration of $5.2 million.

I’d like to thank you for your time this morning. And I’ll turn things back over to John to wrap up.

Thank you, Operator. Exactly it was.

Thank you, Steve. And as I said earlier, the company is performing well and we’re very positive and confident about our prospects going forward.

I’m sure like many companies we have -- we’re very proud of the fact that our company has definitely focused on the health and well being of our people. It’s been a very difficult time for them as, I’m sure it has been for you and your families and your companies.

But a company is only as good as its people and its culture and I’m incredibly humbled and proud of the fact that, that our company has done such a great job caring for each other, including that we’re implementing a mandatory vaccination policy. We’re anxious to get people back to work.

We know people work better when they’re together. And why we’ll have a -- we will have a hybrid work model going forward, we will encourage and ensure that people spend more time together as soon as possible.

So we have a lot to get done and we want to benefit from the energy that we get from working with each other. For the last five years, we’ve invested more than $100 million in our facilities and our people and our technologies.

We put together a new ERP system, which we’ve told you about, which is the largest CapEx we’ve ever had as a company. We’ve invested in our cooperage, our capacity, our crush capabilities.

We’re making sizable investments in new plantings and new vineyards to grow. We’ve made a lot of investments in our Estate Wineries, which are all performing very, very well.

We have a very unique business model and it’s -- we have an incredible network of diverse businesses, that all are supported by and leveraged by a very significant asset supply chain capability. We’re looking to grow not just in premium and ultra premium wine, but we’ll grow our value wine business.

We’re going to grow our spirits business that we’ve entered in the last two years or three years and it’s doing very well. We’re going to grow in refreshment beverages as well.

We know that, as we come out of the pandemic, we’re going to be a stronger, more capable company and we’re very excited about our prospects for growth going forward. So, with that, Operator, I’m happy to turn things back to you for questions.

Good morning and congratulations on the strong quarter.

Thank you, Nick.

Are you seeing any increasing your input costs and have you been able to take any price today?

A very popular question these days, Nick. I mean a lot of the impact of the supply chain restrictions and challenges have yet to hit our sheet.

And we’re kind of doing a lot of reengineering of product mix and alike to offset it. In simple answer, though, we have not taken any major price initiatives at this point in time.

We’re watching it closely. And as an industry, our price increases can delay other categories and other businesses, just because of the impact of foreign trade into our markets and whether or not that they’re going to take increases as well.

We do know that the European wine industries are under even worse pressures than we are from a cost perspective and that it’s incomprehensible to me that they won’t take increases in prices. But we’ll watch that and monitor it closely.

Where we can in our premium products, we will take some pricing up for sure and on the value and products, we’re evaluating it and waiting to see how the markets going to react.

Good color. And can you provide any update on the Port Moody, how should they have been working?

I was in Vancouver twice in the last month and I think that the, first and foremost, that the real estate market in Vancouver is very active and hot, if you will. I think hot is the only word you can use, it’s a very strong, healthy and increasing market.

So, and more importantly, the develop development industry that was kind of very on its hands and quiet through the COVID pandemic years for the last year and a half, they’re now becoming much more active. We’ve had lots of discussions with people.

We are very confident in our opportunity to realize value with our investment and we’re speaking to more than several groups. I’m sure you are aware that the property is 5 acres, the plan that’s been approved is over 750,000 buildable square feet.

So that it is a very, very complex and large mixed use development. It has everything from residential housing and condominiums to a hotel and a lot of retail.

It has a senior’s home and a cancer clinic. It’s an impressive development project and it required the coordinated investment of many groups.

And we’re -- I’m confident that there’s great discussions underway and that things are moving now in the right direction at a much better pace.

Is that something we could see transact in this fiscal year or would it potentially in the following year?

I’m not trying to be evasive in any way, but it’s one or the other. I don’t think it’ll go beyond that.

But it’s really about getting the right team and there will be several players in terms of developers and financers. And I’d like to think it’s going to be sooner.

The irony about the delays that have happened up till this point over the last kind of even, call it, two years have been disappointing. But at the same time, they’ve increased the value of our assets through the process.

So every time this thing has been delayed, it’s just increased the value of the asset. I do believe now there’s clean runway ahead of us and I think the one-year to two-year timeframe is the appropriate.

We’re applying for the development permit right now as we speak. So it’s not like things aren’t happening.

It’s a very, very active trial. And I think more than anything that the focus is on getting the right team together and putting a great plan to realize value for us in the future.

And you’ve applied for the development permit. How long do you expect until you get approval for that?

I think so not mistaken just because I’m trying to go. I think the development permit comes in the next four months -- the next four months or five months.

It’s at a stage of transportation and engineering drawings across a wide punch list of preparations for a construction permit. So it’s with architectural firms and consultants.

I believe it five months that it will be completed.

Thanks. That’s all for me.

Thanks, Nick.

Thanks, everybody. I definitely want to thank you for your support.

I’ve had great conversations with many of you over the last month or two that we’ve and -- we’re planning to get out into the community in the next couple of months to meet with different shareholder groups and provide as much opportunity for you to ask questions and understand our business model and our aspirations for growth and development going forward. So, that if you’re interested in meeting with us and just connecting and receiving a short presentation on the company, please don’t hesitate to give us a call, and on top of that, we’ll follow up with you in the normal course after our third quarter.

So, wishing you all good health and success in your own business and look forward to following up with you soon. Thank you.