Ms. Nathalie Lassonde reports

LASSONDE INDUSTRIES INC. ANNOUNCES ITS Q2-2023 RESULTS

Lassonde Industries Inc. has released its financial results for its second quarter of 2023.

"Lassonde Industries achieved solid performance in the second quarter. I am pleased with the results that reflect improvement across each of our divisions, including our U.S. operations, where our efforts remain focused on growing capacity, improving processes and strengthening our organization," said Nathalie Lassonde, chief executive officer and vice-chair of the board of directors of Lassonde Industries. "During this quarter, we saw accelerated revenue growth, improved overall profitability and steady progress towards building long-term, sustainable value."

"We are pleased with our second quarter results and the progress of our multiyear strategy. Solid execution of our plans resulted in net sales growth and profitability gains across each of our divisions. Price adjustments and improved product mix contributed to solid top-line performance while beverage sales in Canada outpaced category performance. In the U.S., while volume is down, in part due to actions taken to simplify our portfolio, we also realized operational efficiencies and improved logistics costs that contributed to margin and profit growth," said Vince Timpano, president and chief operating officer of Lassonde Industries. "We will remain focused on driving solid execution against our priorities with a focus on delivering growth at improved margins."

Second quarter highlights:

• Sales of $579.4-million -- excluding a $15.1-million favourable foreign exchange impact, sales were up $34.8-million (6.6 per cent) from the same quarter last year, mainly due to selling price adjustments, partly offset by a decrease in the sales volume of private label products in the United States;
• Gross profit of $152.3-million (26.3 per cent of sales), up $13.6-million from the same quarter in 2022; excluding a $400,000 unfavourable foreign exchange impact, gross profit was up $14-million from the same quarter last year:
  • Higher gross profit for all of the corporation's divisions;
  • Higher cost for certain inputs, especially apple and orange concentrates;
  • Increase in the corporation's conversion costs;
• Operating profit of $41.3-million, up $19-million from the same quarter last year:
  • Higher gross profit;
  • $13.2-million decrease in transportation costs incurred to deliver products to clients, resulting: (i) from decreases in fuel surcharges and in base transportation rates; (ii) from savings related to the use of new processes and transportation management system in the United States; and (iii) from a decrease in U.S. sales volume;
  • $4.8-million increase in performance-related salary expenses;
  • $2.2-million unfavourable foreign exchange impact that affected the conversion of the selling and administrative expenses of the U.S. entities into Canadian dollars;
  • Higher warehousing costs;
  • Increase in certain administrative expenses;
  • $1-million decrease in expenses related to the multiyear strategy and its deployment;
• Excluding items impacting comparability, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $58.6-million, up $18.4-million from the same quarter last year;
• Profit attributable to the corporation's shareholders of $25.1-million, resulting in basic and diluted earnings per share (EPS) of $3.68, up $10.9-million and $1.62, respectively, from the same quarter in 2022; excluding items impacting comparability, adjusted EPS was $3.89, compared with $2.36 in the same quarter last year;
• As at July 1, 2023, long-term debt, including the current portion, stood at $236.5-million, representing a net debt to adjusted EBITDA ratio of 1.28:1;
• Dividend of 50 cents per share, paid on June 15, 2023.

Multiyear strategy

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

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

Associated incremental operating expenses

During fiscal 2022, the corporation began its strategic review, completed the diagnostic step of Project Eagle, invested in a project to optimize the current capacity of its specialty food division, and began implementing new cloud-based management systems (including demand planning and transportation management systems). During the first six months of 2023, the corporation has mainly continued its implementation of new cloud-based management systems, made various investments in support of the three pillars of its strategy and began, during the second quarter, the optimization of its production network. For this purpose, the corporation reported expenses of $11-million in fiscal 2022 and additional expenses of $2-million and $3.1-million, respectively, in the second quarter and first six months of 2023.

Associated capital expenditures

The corporation is dedicating capital expenditures aligned with its strategy to support growth, enhance productivity, and invest in innovation and sustainable development. These investments included two projects in 2022 to improve production efficiency and capacity in Canada with a third project authorized in the first quarter of 2023, continuing to upgrade the enterprise resource planning (ERP) software in Canada, along with investments in the United States to improve production efficiency and to deploy a new single-serve line in the corporation's plant based in North Carolina.

Project Eagle

Launched in the second quarter of 2022, Project Eagle is a component of the corporation's 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 customer portfolio, Project Eagle also seeks to identify and address key issues hampering performance within its supply chain and manufacturing facilities, notably through product simplification, process realignment, employee training and capital deployment.

After completing the diagnostic step of Project Eagle, the corporation took important steps to reduce its stock-keeping unit (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 a cloud-based transportation management system. Early benefits from both initiatives began materializing in the performance of the first six months.

The capital designated in support of Project Eagle is deployed in three areas: (1) updating existing equipment to limit unscheduled downtime; (2) increasing throughput on existing equipment; 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-term 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 United States and then throughout the corporation.

Outlook

The corporation is making the following forward-looking statements for fiscal 2023.

Sales growth rate

During the first quarter of 2023, the corporation has taken additional pricing action on its branded and private label product offerings, including adjusting contracts with certain customers to recover as much as possible the cost increases it incurred. It expects the run rate effects of such pricing action to be felt during the balance of the year. 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 demand elasticity in a context of price increases.

Productivity and service level

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

Key commodity and input costs

The corporation has recently noticed some stabilization in the inflation trend of most of its input costs and is expecting this trend to continue until the end of fiscal 2023. However, the corporation is still closely monitoring the price of orange concentrate since the price for this key commodity has been at an elevated level over the last 12 months, even reaching a new historical peak of US$3.18/lbs sol. in July 2023. The corporation is also monitoring the price of cranberries and sweeteners.

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.

Expenses, including expenses related to the Strategy

In 2022, the corporation had experienced a $13.9-million decrease in performance-related salary expenses, whereas in 2023, all other things being equal, these expenses should return to levels seen in the past.

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 upgrade its U.S. ERP. Spending in support of its Strategy is expected to reach up to $10-million in 2023.

Higher interest expense is anticipated given higher rates on floating rate debt as well as a higher average indebtedness level compared to 2022.

Effective tax rate

Effective tax rate should be about 26.5 per cent for fiscal 2023.

Working capital

As supply chain challenges appear to be dissipating, the corporation has revised its inventory accumulation strategy and it expects to progressively reduce its inventory levels. As a result, its Days Operating Working Capital1 should trend towards the upper end of its historical levels (pre-COVID-19) during 2023 and within its historical range by the end of fiscal 2024. However, this strategy might be impacted by (i) opportunistic decisions to secure inventory cost ahead of potential price increases from suppliers, (ii) the objective of ensuring an adequate service level, or (iii) the identification of new potential supply chain disruptions.

Capital expenditures The corporation's overall capital expenditures program for 2023 is estimated to reach up to 4.5 per cent 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. The corporation expects this ratio to return to a range of 2.0 per cent to 3.0 per cent 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.

Dividend

In accordance with the corporation's dividend policy, the Board of Directors declared today a quarterly dividend of $0.50 per share, payable on September 15, 2023 to all registered holders of Class A and Class B shares on August 22, 2023. This dividend is an eligible dividend.

Conference Call to Discuss Second Quarter 2023 Financial Results

OPEN TO : Investors, analysts, and all interested parties

DATE: Thursday, August 10, 2023

TIME: 1:30 PM ET

CALL: 604-638-5340 (for international participants)

1-800-319-4610 (for North American participants)

A live audio broadcast of the conference call will be available on the corporation's website, on the Investors page or here: https://www.gowebcasting.com/12644. A replay of the webcast will remain available at the same link until midnight, August 17, 2023.

Investor Day Invitation

Lassonde will hold an Investor Day on Tuesday, September 19, 2023, in Rougemont. The event, open to institutional investors and analysts only, will feature presentations by senior management and division leaders as well as a plant tour.

The event is scheduled to begin at 9:30 AM and end at approximately 3:00 PM. Return transportation from downtown Montreal to Rougemont will be provided. Details to come at a later date.

Please register at the following address: IR@lassonde.com

About Lassonde

Lassonde Industries Inc. is a leader in the food and beverage 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 also imports and markets selected wines from several countries of origin and produces apple cider and cider-based drinks.

The corporation operates 16 plants located in Canada and the United States and produces its superior quality products through the expertise of over 2,700 employees. 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.

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