Acquisitive Premium Brands Holdings has its sights on becoming a CAD10bn (US$7.2bn) food business supported by a raft of factory investment.

The new five-year plan was set out yesterday (16 March) in conjunction with the Canadian company’s annual results as sales rose 22.3% to CAD6.03bn in the 12 months to 31 December. Premium Brands Holdings also aims to almost double adjusted EBITDA from last year’s CAD504.2m to CAD1bn by the end of 2027.

Premium Brands Holdings, which also serves the US market with products ranging from meat to seafood, pastries and bread, has 18 capital investments in the pipeline, 11 of which are in progress and seven are in the planning stage. The latest is a 525,000-square-foot sandwich facility being built in Cleveland, Tennessee, with construction taking part in phases through 2029.

Discussing the results with analysts yesterday, president and CEO George Paleologou noted the “well-publicised headwinds” his and other businesses had faced, including inflation, supply-chain disruptions and labour shortages.

“On a more positive note, we continued to see evidence that life and the world are normalising after three years of unusual volatility and economic and industry dislocations,” he said. “Although we did not close any acquisitions during the [fourth] quarter, we’re pleased to report the completion or near completion of several capital projects that will solve a number of capacity challenges facing our businesses.”

As has become customary with Paleologou, he reiterated “acquisitions remain a key part of our growth strategy over the next few years, and we expect to complete many more transactions in the future”.

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CFO Will Kalutycz explained Premium Brands Holdings needs extra capacity in the sandwich space with the building of the Cleveland plant to cater to a single customer, but at the same time said factory usage was underutilised in 2022 due to the economic challenges.

“We have a key customer that keeps growing like crazy. This [Cleveland] is going to provide us that capacity we need to both support that customer, as well as pursue other growth initiatives,” Kalutycz said, making reference to CAD320m of “unutilised capacity in 2022”.

“At the start of the year, our expectation was a good portion of that was going to be put to work, but for the challenges of 2022 it wasn’t. Going into 2023, everything is lined up well.”

Premium Brands Holdings on inflation

For fiscal 2023, Premium Brands Holdings is targeting sales of CAD6.4bn to CAD6.6bn, excluding any acquisitions the business might execute, and adjusted EBITDA of CAD590m-610m.

While pricing to adjust for inflation had a positive impact on EBITDA in the fourth quarter, delays in retailer negotiations shaved around CAD46m off the profit metric over the year, Kalutycz said.

“The CAD500m we did this year is a depressed number – inflation had a major impact on us,” the CFO explained during the Q&A session. “If the price increase had just gone through when we first sat down with the retailer and negotiated it, that would have right there been CAD46m to our bottom line.”

Kalutycz said the prospect of 1-2% inflation is built into the 2023 guidance, although he suggested a “bit of deflation” might be on the cards. He added the business has seen “some stability” in commodities and labour and a “little bit of deflation” in freight, “setting us up well for 2023”.

Nevertheless, he indicated falling prices do not necessarily translate to lower costs for the consumer as he explained the outlook for margins.

“Our assumption is relatively stable commodity markets in our 2023 guidance. If we see a deflationary environment, particularly in pork, which is a key raw material for our protein businesses, that generally is a margin expansion opportunity.

“Prices tend to be sticky on the way down for most products, so you have some temporary margin expansion. But then also there are certain categories, where when we go through these inflationary times, they set new consumer price points and those price points don’t change.”