Good morning, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation second quarter 2023 earnings conference call. The speaker will be George Paleologou, CEO and President of Premium Brands, and Will Kalutycz, CFO of Premium Brands. I will now like to turn the call over to Will. Please go ahead. Thank you, Julie. Good morning, everyone. I'm here with George Paleologou, our President and CEO. We hope that everyone is having a great summer. Before we begin, I would like to remind you that some of the statements made on today's call may constitute forward-looking information, our future results may, may differ materially from what we discuss. Please refer to our MD&A for the 14 and 52 weeks ended December 31st, 2022, as well as other information on our website for a broader description of the risk factors that could affect our performance. In case you missed it, we have prerecorded our investor presentation, it was made available on our website this morning. Hopefully, you had a chance to listen to it. In addition, I would like to bring to your attention that George's annual letter to shareholders has now been posted on our website. I will now turn it back to Julie for the Q&A part of the presentation. Thanks, Julie. Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the two. If you're using a speakerphone, please mute your handset before pressing any keys. One moment, please, for your first question. Your first question comes from Martin Landry from Stifel. Please go ahead. Good morning, guys. Good morning, Martin. Good morning, Martin. My first question is on your distribution business. You know, your, your volumes were down a little bit this quarter, and you, you mentioned that some of the pressures are, are transitionary. I'd like to, you know, get a bit of color on the outlook for the remainder of the year for that segment, especially in terms of volumes that'd be helpful. Sure. Yeah, you know, it was sort of a mix of, you know, for the immediate quarter, second quarter, Martin, it was a mix of things that were very short term and a few things that will continue for a few quarters. You know, for instance, the, the biggest impact on the quarter was the reduced featuring of premium beef and seafood products. Some of that was timing, we do expect to see some future, some featuring in the third quarter and hopefully, back to a bit more normal in the fourth quarter. We do expect there still to be a, a reduced level year-over-year. Then similarly, we are seeing some demand pressure on premium seafood. What's happening there is, as consumers shift their buying patterns from the, the regular banners to more discount-oriented grocery banners, the discount grocery banners generally don't have the premium fresh seafood programs that we provide. You know, that we're sort of an indirect casual casualty of that shift. We do expect that to continue for the next couple of quarters. Having said all that, you know, looking at Premium Food Distribution and our growth expectations for Q3, Q4, we expect it to be fairly stable in Q3 on a relative year-over-year basis. You know, not like this quarter where it was down a bit. It should stabilize in Q3, and we should see a little bit of growth happening in Q4. The other part, Martin, to, a lesser extent, is that in general terms, a normal environment brings less trading opportunities for us. Again, that's impacting our results somewhat and may impact them in the future. Okay, that's helpful. I, I wanna switch gears and talk a bit about the commodity prices. You usually include slides on the evolution of commodity prices, such as pork, beef, and chicken. I was wondering if you could give us some color as to how these commodities have fluctuated recently, and then what kind of impact it could have on your margins in the back half. Again, Martin, it's tough to predict the direction of commodity prices. My general comment is that, you know, a lot of people are looking for solutions, looking at what's happening locally, and really to gauge the direction of commodity prices, you have to look at the global dynamics between supply and demand. Many, many factors go into these dynamics, including, of course, you know, economic activity in different parts of the world. Our view is that, you know, commodities will generally be stable. I know that that's a general statement because in our world, we don't deal with commodities in general. We deal with specific cuts. You know, for example, in the case of bellies, you know, belly prices have gone up a lot, but that doesn't necessarily mean that other cuts of pork have gone up as well. Very, very sort of general question. I gave you a general answer, but again, from our perspective, commodities, to a large extent, been returning back to normal, five-year averages. You know, the dynamics of commodities by their very nature, are not driven by local supply and demand dynamics, but global supply demand dynamics. Okay. Is there any risk that you may have to give back some price increases that you've put in recently, given that some of the commodities, like chicken, has gone down? Yeah. A company like ours, Martin, we tend to, you know, move prices up and down accordingly. It's not really about, you know, raising prices or lowering prices. It is about maintaining a reasonable margin based on what we do and the differentiated products that we sell. A lot of times, if there is more margin into a product, we're more likely to promote it or feature it or do whatever we need to do to move more volume. That's really what we do. I, you know, again, I know there was doubt in the past as prices were going up immensely, that whether we could move prices up, we did. Thankfully, volumes weren't impacted that much. Similarly, as prices go down, we do give some pricing, sometimes in the form of lower prices, sometimes in the form of more featuring and more promotions. Martin, when you look at the second quarter, you know, the, in our Specialty Foods Group, you know, the commodities were relatively stable on a year-over-year basis, with the exception of chicken. Chicken was down dramatically. To the extent it was down, you know, to what George talked about, that stuff kind of happened in the second quarter with that commodity. As we go forward, you know, we expect chicken to be relatively stable. Our margins in that category for the balance of the year, assuming that stability, should be similar to the second quarter. Okay, that's helpful. Thank you, guys. Thank you, Martin. Thanks, Martin. Your next question comes from Derek Lessard from TD Cowen. Please go ahead. Good morning, guys. I'm glad to hear you both. Hey, Derek. Hey, Will. feels like you're starting to get the momentum back in Specialty Foods. Could you maybe add some context around some of the categories, like, where you feel you're getting the greatest momentum in the shift? You know, after reading your latest letter to, to shareholders, can you just share what we should expect from your innovation pipeline now that you can promote and feature in the coming quarters and years? Yeah, just again, Derek, let me start by saying that, you know, I know that, you know, a lot of people look at what's going on in the world at large, in looking for the different trends. You have to understand that, that at Premium Brands, we don't compete in categories, we create categories. So as an innovator, disruptor company, we go out there, we find the white space, and we create the demand for it. You know, looking at, at our sandwich business or our charcuterie business, our skewer business, those are good examples of what's going on. Those categories have grown substantially because demand is growing substantially. Ultimately, because we're creating the category, we usually lack capacity, right? The challenge for us is to continue to create the capacity to keep up with demand, right? You know, again, a lot of these categories that I mentioned have grown a lot. We've been an innovator to these categories. We have been for many years, and we continue to invest in their capacity, right? As those capacities come on, on stream, then we're able to grow the business, as we've shown in this quarter. In this quarter, these categories that I mentioned have grown substantially because we've added capacity. And maybe that's a good segue to sort of a follow-up question to that. Could you maybe just talk about then the strength and momentum in the Marcangelo brand? I mean, it hasn't been something you've called out historically, but clearly it's prompted, you know, a new facility i n Brampton and the consolidation of two others. You know, I think when you talk about the Marcangelo brand, again, of course, we're talking about the growth in Italian meats. Again, You know, we're doing extremely well in Canada, growing substantially in the U.S.. You know, I would say that the Marcangelo brand is one of the fastest growing brands in Italian meats in North America and in charcuterie in general, to mega trends in our view. You know, they've grown a lot in sausage and in raw skewers as well. I was traveling in the Midwest of the U.S. recently, and, you know, you go to a lot of major banners in the Midwest, and you see a lot of Marcangelo sausages, and, and fresh skewers. They keep gaining distribution in the U.S. in those categories. It's been, again, it's run by amazing partners. They've done an amazing job of building that business. You know, like some challenges around growth in terms of capacity, but as we keep adding capacity, obviously, the growth is showing up in our numbers. Thanks, George. Maybe one just final one before I reach you. I think it's the first time that you guys have provided a target, margin for Specialty Foods, and I think investors will appreciate the extra disclosure there. You know, do you have a timeline of, of when you reasonably expect to get there? And lastly, I guess if I use that target in kind of 7%-8% for Premium Food Distribution, I think you can argue for a consolidated margin in excess of, of 10%, which is maybe help, us square away the, the 10% five-year guidance with that. Yeah, so the Specialty Foods margins, you know, getting into that 12%-13% range, you know, we should see that next year in our busier quarters or getting close to that range anyways. You know, for an annual, you know, that's what's going to drive us getting to that 10% target, hopefully next year or early 2024, 2025. In terms of exceeding the 10%, it's certainly on the radar. It's certainly within our expectations. We've set our goal right now just to get our consolidated margin up to that 10%. You know, hopefully, we exceed that well ahead of plan in terms of our five-year plan as a percentage, and then from there, we grow, you know, 11%-12% range longer term. Okay, that's fair. Thanks, sir. Thanks. Thanks, Derek. Your next question comes from George Doumet from Scotiabank. Please go ahead. Yeah, guys, thanks for taking my questions. Just to follow up on the consolidation, I understand the top-line benefits, are there other financial benefits there, maybe perhaps margins? More importantly, are there other opportunities in the network for us to do the consolidations as well? Well, George, this was a unique no, this was relatively unique in that, you know, Concord has grown at such a fast rate, and, you know, they were scrambling for capacity, and they were, you know, they were sort of piecemealing it together. A big part of the IRR can be justified just on the cost savings of taking these three sort of good, but not as sufficient as they can be plants. The fact that you got a lot of product moving between these three facilities, moving that all into one consolidated facility. There's a business case just around the efficiencies, and then, like George says, you know, there's going to be capacity coming on that project as well. It is a bit of unusual situation. Okay, gotcha. On slide 13 of your deck, there's a pretty notable deceleration in the top line, kind of Q3 to date. I appreciate your comments on your prepared remarks in there. I'm just wondering, I guess, first off, are you seeing a slowdown at all in specialty channel? Number two, as a clarification around featuring, is that more about intra-quarter timing featuring, or is that something that maybe pushed us to Q4? Yeah, no, you can't read too much into that chart, George. There's a variety of factors, and definitely featuring and timing is a big one. You know, that's why you saw that sort of spike down in that one quarter. You know, a couple of factors to consider in it is, you know, we are seeing quite a bit of deflation on the Premium Food Distribution side. You know, in the second quarter, lobster deflation was CAD 20 million alone in that group, lobster price deflation. You've got that hitting it, the timing, and then, as we talked about earlier, the PFD challenges continuing into the second quarter. We do expect that to kind of continue to improve as the quarter unfolds. Okay. Specialty is running in line with expectations for Q3. Oh, absolutely. Yeah. Okay, great. Just a quick follow-up, maybe on the topic of the pork belly prices. I know pork's an important commodity for the specialty channels. Just wondering to what extent that can maybe, if at all, get into the way of the margin recovery there in second half? Thanks. Well, it's kind of a interesting situation because if you look at a basket of pork commodities in North America right now, you look at the beginning of the second quarter, and you'll see it's on average down from last year, and then by the end of the quarter into the third quarter, it's above last year or in line with last year. The big fluctuation there is bellies, which we don't buy a lot in North American bellies. Most of our pork inputs are trim and legs. Most of our bellies come from Europe, so. Europe's been at a premium throughout the quarter. That trend you're seeing in North America actually works for our, us, is in our favor because it's taking the differential between North American bacon prices, belly-based bacon prices, which, you know, it's a far less, lesser quality products. Our European bellies are very specialized, very high quality. It's taking that away, so it's actually working in our favor right now the acceleration of belly prices in North America. The only other thing I would add, George, is that the belly market in North America, in particular, is a bit of a mess right now because of Proposition 12 in California, whereby they won't allow the sale of bacon from hog operations that do not have open pens for sows. It's creating a dual market for bellies. Again, it's a bit of a mess right now. Anyway, but as Will said, we bring most of our bellies from Europe, so we're not impacted as much. Great. That's very helpful. Thanks, guys. No problem, George. Your next question comes from Stephen MacLeod from BMO Capital Markets. Please go ahead. Thank you. Good, good morning, guys. Good afternoon. Good afternoon. Thanks for this new format. I think it's great. Just wanted to follow up. Just, just my first question is just specific to something, Will, that you said. Did I understand correctly that you said that margins in the PFD segment in the back half should be stable to where they were in Q2? Did I understand that correctly? Well, actually, I was talking about sales growth. In terms of- Okay. Sales growth, it should stabilize versus we saw contraction in the second quarter. In terms of margins- Right. You know, the PFD tends to be relatively stable in margins. You know, based on our outlook right now for commodities over the next quarter or two, you should see a slight hopeful appreciation in their margins going forward. You know, certainly stable to positive is our outlook for PFD's margins. Right. Okay, that's helpful. Just as I think about the pricing environment, you know, I know, you benefited this quarter from, you know, raw material and other cost and cost deflation, and you had that chart that shows the margin dollar contribution. Is it fair to assume that, like, you're gonna see a similar dynamic in, in Q3 and Q4? Like, you're not putting through a lot more price at this point. Is that correct? Well, it's an interesting chart, you know, 'cause it's quite a different story, Steve, between the Premium Food Distribution Group and the Specialty Foods. Like, overall, it was relatively stable, our pricing, right? It was $3.9 million in price inflation for the quarter. If you tear that apart, it was about $15 million of inflation in the Premium Food Distribution Group, or sorry, the Specialty Foods Group, as sort of the annualization of our price increases we've been putting through over the last few quarters continued through. The deflation that we're seeing in chicken or, sorry, in lobster, in the Premium Food Distribution, it's offsetting that. Going forward, you know, I think you're gonna continue to see that trend of deflation in Premium Food Distribution. The price inflation in Specialty Foods continuing to come down. It's been notching down steadily as we catch up on our pricing. It'll probably be a negative number in Q3, I suspect. Okay, that's great. Then just finally, we talked a little bit about sort of the margin profile for PFD. Just wondering if you can comment a little bit about Specialty Foods and sort of what you're seeing. Obviously, it sounds like the top line is holding in nicely. You expect that kind of volume growth. Then, just wondering if you can give a color on how that might flow down to the margins. Yeah, I think you're gonna continue to see, you know, for Specialty Foods Group, you know, it's kinda gonna be more of the same from Q2 to Q3. You know, unfortunately, you know, a lot of our new capacity that's really gonna accelerate the group's growth, you know, particularly our cook capacity with King's Command, our new facility with Hempler's for meat snacks and premium bacon, and our, our Shaw laminated dough facility in San Francisco, those are gonna be real significant drivers, but they're not kicking in till Q4. Q2, from a growth, is gonna be similar, and then similarly on the margins, it's gonna be a similar story as Q3 as well. Or, sorry, as Q2. Okay. Right. Okay, great. Well, thanks, guys. I appreciate it. Okay. Thanks, Steve. Your next question comes from Vishal Shreedhar from National Bank. Please go ahead. Hi, thanks for taking my questions. Hey, Vishal. With respect- Hi. Hi, good afternoon. With respect to acquisitions, you know, management indicated that in, in the, in the prepared commentary, that acquisitions, the teams were starting to look at it again. You can correct me if I've got, if I've got that wrong, but can you just talk about what the appetite is for acquisitions, perhaps once they materialize in, in this fiscal year, and how management thinks about equity for an acquisition? Yeah, Vishal, I, again, we've gone through a, a very difficult period over the last three years, as you know. You know, in that type of environment, we generally focused on our business, on making sure that we managed a lot of black swan events, like extreme inflation and supply chain issues and labor shortages. You know, the message there for us is that, you know, we're starting to feel more comfortable with regards to these issues moderating or even going away. You know, because of who we are, you know, we always have a lot of acquisitions in the pipeline or in a lot of discussions with... very good businesses. We chose to basically slow down the M&A activity. The message we're giving now is that we're starting to feel more comfortable about the future, and obviously, these issues that I mentioned have gone, gone away. It's a lot more likely now that we will advance our discussions. You know, we're kind of giving a signal that our M&A team is working really hard on advancing these discussions to the next stage. We feel very good about the pipeline. There's a lot of good companies that we're in discussions with. Some of them are fairly large, and, you know, typically for us, in the right type of environment, with the right acquisition that provides us with, you know, the right IRR and, and meets our different hurdles, you know, we're willing to issue equity to the buyer sometimes, or to you know, to use our, our credit lines, right? That's what we've done in the past, and, you know you're likely to see us do that in the future. Okay. And with respect to the upcoming converts, you know, what strike is it under that you can convert? What is your expectation on how that will go? Do you expect to convert, or do you expect to just pay that out? On our converts, our strategy is always to force conversion because, you know, I think we've talked about this in the past, it is an equity. You know, that the next convert comes due in 2025. It's got a pretty high strike price, CAD 172. We issued those, you know, sort of at a peak of our equity value. You know, hopefully we grow into that over the next two years, and if not, you know, it's a relatively small amount. It's only CAD 172 million, I believe, is the balance outstanding on the converts. We, we, we've got lots of flexibility and, and time to deal with that. Like I say, our hope, our expectation is to force conversion. Okay. Just changing topics here on the premium seafood and, you know, the consumers moving to discount, which is a trend we've been seeing over the last, you know, several quarters at least. Is there opportunity to move some of those products, you know, perhaps via different packaging or a different type of product towards discount, as the discount, the movement of customers towards lower priced grocers, it doesn't seem to be a big thing for the moment. I think, you know, again, for us, again, I just wanna mention that, you know, the seafood space is very global, right? In nature, most of the products we harvest, in general, through our investment in Clearwater, is sold globally, right? The seafood market is very global. There's always demand for seafood around the world. You know, the world demand for seafood is more than the world's ability to supply. There's always markets for the product. It's just a question of maximizing prices and margins, right, Vishal? Okay. appreciate that color. With respect to last quarter, I think, and this quarter as well, there was a little bit of a issue on margin and excess capacity. A nd I understand, it's difficult to assess because it's by business, by business, what the true, utilized capacity is. Wondering if that trend improved quarter-over-quarter, and you're seeing less of that pressure, and how should we expect that to evolve through the year? Yeah. I t's really, you know, a few areas right now where there's good leverage still to be had. You know, in our sandwich group, we have some nice capacity to use there as well. Still, in our bakery group, a little bit on the dry cured side, some expansion we did in Ontario. There is some sales leveraging benefits still to be gained there. You know, in terms of quantifying it, You know, it's sort of built into our margin expectations that I talked about earlier and how we're going to get there. It's, it's certainly as, as we generate organic growth, it's becoming lesser a part of the future growth margin story, but it definitely is still part of that story. The only thing I would add to that, Vishal, is that optimizing the mix is, is important to our capacity utilization. As things normalize, we're able to optimize the mix, which helps the margins as well. Okay. Thanks very much for the color. Thank you. Thanks, Vishal. The next question comes from Chris Li from Desjardins. Please go ahead. Oh, hi, George and Will. I hope your summer is going well so far as well. Maybe I'll start with a question on, on the Specialty Foods. I want to just check if I interpreted your comments correctly. Are you saying you do believe the 8% or the high single-digit organic volume growth that you achieved in Q2, do you believe that is sustainable in Q3 or into Q4? Yeah. It, that's exactly it, Chris. We, we expect it to be relatively consistent with Q2 into Q3, and then actually accelerating Q4 as our new capacity comes online, as I mentioned earlier. Yeah, Chris, again, to add to Will's comment, and again, just given my comment earlier, is that we have pretty good visibility in terms of demand, right? In this quarter, if we had more capacity in certain categories, we would have done better than the 8%. Right? That's kind of something to remember. As Will said earlier, we have capacity coming on stream in the third and fourth quarter, predominantly in the fourth quarter. The demand for us is improving. We're getting lots of distribution gains with a lot of our key products, and we will continue to gain distribution subject to capacity, right? It's capacity that's driving the organic growth more than anything, right? Because we're in new categories where we have to keep creating capacity. No, that makes a lot of sense. Is it fair to say, you know, on the Specialty Foods side, some of the pressure that you're seeing on the Distribution side, they're not being manifested in the Specialty Foods side in that then? From a demand then perspective, that's why you're, you're seeing still good visibility in terms of growth. Yeah. They're just such different businesses, right, Chris? Mm-hmm. Yep. You know, Specialty Foods, you know, it's generally retail and QSR focused, and a lot of it is in the U.S.. You know, I can't stress enough how important the US market has been to the group and how successful they are down there. As George talked about, a lot of the growth is taking these regional success stories we've had and working with our customers to take them national. You know, to do that, you need significant capacity in place, and that's what we're doing right now. Premium Food Distribution is primarily a Canadian story, like I say, there's some unique dynamics around the premium seafood category that, you know, we're working our way through to how to, you know, deal with this issue of the consumer shifting banners. Perfect. Maybe just another question on Specialty Foods. I think, Will, you mentioned earlier that you expect a similar story for EBITDA margin, you know, in Q3, similar to the story in Q2. Did you mean in terms of, like, margin percentage, a similar Q3 versus Q2, or do you mean that the margin growth, the year-over-year growth that you achieved in Q2 will continue? The absolute margin percentage. Okay. Absolute margin. Okay. Yeah. Perfect. then the other thing- It's really. We can't stress... Sorry, Chris. We can't stress e nough how wonderful it is to be in a somewhat normal and market normal operating environment again. That's what you're seeing in the Specialty Foods. You're seeing stability. With that stability, you're seeing, you know, nice margins and margin expansions as they leverage capacity, as they generate plant efficiencies. Plant efficiencies was a nice contributor to our margin profile this quarter. Specialty Foods, it was almost CAD 10 million of efficiencies in that group. Lots of progress being there. It's just stability and continuing on into the next quarter with that stability. Perfect. Maybe another topic that I wanted to quickly cover is, is your balance sheet. Will, I think in your prepared remarks, you reiterated that you do expect your leverage to return to kind of the, your, the target range by the end of this, of the year. I just wanted to maybe get a bit more precise from you. Do you mean you expect leverage to be back to around 4 times by the end of this year? Is that still the target you're aiming at? Yeah. Yeah. No, no. You know, our We look more at the senior debt to EBITDA ratio. It's the critical one we track or focus on. You know, we were at 3.3 for the quarter. We expect to be in our 2.5-3 zone by year-end. Really, there's two factors there, Chris. One is just the natural growth in our EBITDA that we're expecting over the next two quarters. The second is our working capital. We, we made significant progress bringing our inventories down this quarter. You didn't see that in our working capital because Q2 is a very intensive working capital quarter. As we go down, you know, the next two quarters, winding down our working capital is a natural process, so you will see some cash coming from that. Then we also have some more work to do on our inventory. You know, our days purchases and inventory is still higher than we like, so we feel there's still some opportunity to bring our inventories down. Perfect. My last question may be related also to the balance sheet. I'm just wondering, are there any levers you can other levers you can pull to improve your leverage? I'm thinking in particular, any non-core asset you can sell or any changes in the Clearwater capital structure that could happen that will help you get to your leverage as well, or reduce your leverage? Yeah, we're working on a number of initiatives at this, Chris, at this point, Chris, but they're all speculative at this point. Okay. Perfect. Thanks, guys, and all the best. Thanks, Chris. Thanks, Chris. Your next question comes from John Zamparo from CIBC. Please go ahead. Hey, thanks. Good morning. Good morning, Will. Good morning, George. Hey, John. Hey, John. Morning. I wanted to start on lobster. It seems like this is a really peculiar part of your business at the moment. You'd said, I think it was CAD 20 million in price deflation, but there was also a comment in the press release about a run-up in prices from speculative buying, and I was hoping you could add some more color to what you're seeing in your lobster business. Yeah, it's a very strange situation. You hit it on the head of the nail, John. What is happening is lobster prices in t he retail side of things, the selling of it, are definitely down. If you look at any chart, they're back to five-year average levels from, you know, record highs in the last year. You've seen that price deflation on the selling side year-over-year. Now what's happening is there was a Canadian fishery, and a number of players went into that fishery and started speculating on there being some price inflation in lobsters, which we're not big fans of, so they started buying up the price to purchase the lobsters, to inventory it, to put it away for future sales. We're well positioned on inventory, that's not part of our strategy. If we were went into that market, was purely to service opportunities in the current market. We just couldn't justify that speculative price relative to the current selling prices, we just decided to not participate in that market. It's a real anomaly. We've never seen anything like this before. That's interesting. That's good color. Thank you. I want to go back to the topic of grocery and the shift to discount from conventional, and I wonder if you can say anything to, to quantify or to frame your overall exposure within your, your grocery customers, how much of your sales would go through conventional versus discount, whether it's in seafood or, or more broadly? Any more color there would be helpful. Yeah. Starting on the Specialty Foods side, it's. You know, our Specialty Foods businesses, they, they cater to all the banners. It's really whether we sell it in X or Y, it's, it doesn't matter, and the margins on our products are very similar. It's not much of a story on our Specialty Foods side. In fact, you know, I think we've talked about this in the past, we find recessionary downturns to be beneficial to our Specialty Foods Group. As consumers stop eating out as much or spending money on large ticket items, they'll spend a little bit more on their groceries. They'll treat themselves to some more premium products, and we, in the past, have tended to benefit from that. In the Premium Food Distribution Group, again, premium seafood is what they do, and that's really been focused on the mainstream or premium banners. In terms of exposures, I think you've seen the extent of it in our Q2 numbers. You know, it's certainly not gonna get any worse. We don't, you know, specifically track or quantify the difference in banners in that group. The other thing I would add, John, is that as we always talk about, we don't really focus on the banner. We focus on the consumer, right? The question is, where does the consumer, who is willing to pay more for quality, shop at? Right? So again, that consumer doesn't tend to downscale their purchasing in a recession, for example. So again, as Will said, we're very diversified in terms of the channels we sell to, and we cater to a consumer who at that, when they go to the store, they don't buy the cheapest. They buy a product because they like it, because of its attributes, and generally, they're willing to pay a little premium for it, right? That's our consumer. Right. Okay. That's helpful. I want to move to the inventory levels, and I think last quarter, the target was CAD 100 million this year in inventory reduction. I wonder, is it fair to say that that's also the expected cash flow benefit from working capital as a whole? Or do you look at that as offsetting other factors, and working capital is a fairly neutral item to your cash flow this year? Yeah. Our inventory goal over the year was CAD 100 million-CAD 150 million. We did CAD 30 million improvement in Q2, so, you know, we still think there's, you know, probably CAD 70 million+ of opportunity there of improvement. That's cash coming in. Now, in Q2, you saw a tremendous run-up in our receivables. A chunk of that was just because of general growth, but a chunk of that was just a timing of sales being weighted more towards the end of the quarter relative to the earlier in the quarter, which just naturally drives up the working capital cycle. That's cyclical, that's seasonal. That'll unwind, so, you know, as we go down through the course of the year, you should see AR becoming neutral to a cash positive, and then that inventory being pure cash flow. Got it. Okay, that's useful. Then lastly, on Clearwater, I know there's a significant amount of seasonality in this business, and earnings are not cash flow but Clearwater is at a year-to-date loss of around CAD 35 million, so run rate loss is CAD 70 million. Does, does Clearwater still have reasonable access to capital in order to keep paying the distributions to PBH? Yeah, oh, again, this is volatility we expected in their business. You know, we set up the structure to account for that, the short answer is yes. Now, in terms of the next quarter or two, again, you know, as they work through some of the issues they've been facing, particularly, you know, they work through the snow crab, the delays in one of their ships has really hurt their cash flows. You know, we're gonna have to be a little more patient on our expectations around interest received from them while they work through those issues. You know, those are short-term issues that don't impact our long-term outlook of the cash flows in Clearwater. Got it. Okay, that's helpful. I'll leave it there. Thank you very much. Thanks, John. Your next question comes from Sabahat Khan from RBC Capital Markets. Please go ahead. Great. Thanks, and good afternoon. You provided a lot of color on the margin outlook for the rest of this year. If I just understand correctly, I guess the working assumption is that the margin for Q3 and Q4 will be kind of at or above Q2 levels for you to hit your full-year guidance. Is that kind of your working assumption at this point on the guidance? In terms of Specialty Foods, they should be relatively consistent as the year plays out. Like I said, Premium Food Distribution, we expect maybe a little bit of a benefit there. Okay. I guess, 'cause this quarter, I think, you know, the mix of Premium Food Distribution, just in terms of sales, was down quite a bit year-over-year, so that might have helped the margin. I guess, as that comes back up, I'm just wondering if there's, like, a bit of a dilutive effect on the margin from the mix, you know, in terms of getting to that kind of low 9% EBITDA margin for the full year. Yeah, there, you know, that's the thing with Premium Food Distribution, it, which is very dissimilar to Specialty Foods in that their contribution margins are close to their gross margins. You don't see that variability in their margin as much with variability in their sales. Their, you know, the EBITDA margin tends to be relatively stable. Okay, great. Just one, I guess, one on some of the overall demand environment and the consumer. I guess, does your outlook for the sales for the back half of the year, that includes any sort of promotional activity that you might have to put in place to respond to the consumer environment? Or is there a certain amount of that you, that you decide in quarter based on how things are going? Just trying to understand what portion of your planned promotional activity is preset versus things you may do, you know, in quarter. Yeah, as Will said, Sabahat, we're back to normal activities, right? That includes promotions and featuring, et cetera. Again, I just want to comment, and I, in my prepared remarks, I talked a little bit about some of the inroads we're making in selling soups, for example, t o Asia, and we're getting lots of new listings there. The only reason we're getting traction there is because now we have capacity to service that market. We have a lot more demand for other products other than soup in Asia, in places like Japan and South Korea and China, which now we're pursuing because in certain areas of our business, we have capacity now, right? Right. Again, you know, as I mentioned earlier, you know, we've proven demand in a lot of these areas of the value-added food space, and as capacity comes on stream, then we're able to realize the growth, right? That's generally what we see. You know, the market seems to have a tough time understanding that, but if you look at our growth over the last 20 years, it's very consistent. As capacity come on stream, we grow the business. Great. Just one last one, maybe a bit of a broader question. It sounds like, you know, you're looking into a new sandwich facility. Can you maybe talk about channels and the type of customers that you still see a runway with as you try to grow that business? Just trying to understand where that opportunity stands now that we're sort of a year or two past the pandemic, and the type of customers that are showing interest in your offerings. Yeah. I think in general terms, we've been a disruptor and an innovator in the QSR channel in Canada and in the U.S.. Because of the growth we've had from certain parts of the QSR channel, we historically haven't had the capacity to grow in the C-store channel. I would say we're gonna see more growth in C-store and in club as well. We do some business in, in club. They're not national business because we haven't had the capacity to do national business, but as capacity come on stream, we're gonna grow in club and in C-store, I would say. There's still some growth in QSR as well. Great. Thanks so much for the color. Thank you. Thanks, Sabahat. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Derek Lessard, from TD Cowen. Please go ahead. Hey, guys. Just a few follow-ups for me. You did notice, you did note in the MD&A about a $2 million inventory write-off due to the, the bankruptcy of a, of a customer. Just curious if you're seeing any material, change in sort of the credit risk of your client base. No. If you look at our receivables, Derek, they're in fantastic shape. You know, our day sales and receivables is about 34. That's down from 37 days last year. You know, overall receivable is very good. This was a sort of, not a mainstream client, a little bit sort of off the mainstream. You know, it happened earlier in the quarter, so its sales are pretty well reflected on a run rate basis in the quarter. Yeah, no, you know, no, is the ultimate answer. Your next question comes from John Evans from IntraFish. Please go ahead. Good afternoon. I, I missed a little bit of the call at the start, I'm afraid, so maybe I could just do a recap, one or two things. Just on your net losses, $12.3 million and $12.8 million, is any of that linked to the actual acquisition of Clearwater, in terms of you paying it off, or is that the, down to the issues that you mentioned a little bit earlier? Sorry, John. When you say net losses, you're talking about? We just need a little, Premium Brands overall. What do you mean by net? Sorry, on Clearwater. On the Clearwater, sorry. Oh, okay. On the, yeah. On Clearwater. Yeah. You kno w, Clearwater's core operations continue to be profitable. The big hit that they're taking is when we structured the transaction, all of the equity component went in as a subordinate debt structure, paying 10% interest, and it's that, that interest component that is creating their losses. That's, that's all coming to us, and that's, that's where we talk about, we know there's gonna be variability in their business. You know, we'll just defer the interest until they work through their issues, and then when they catch back up, they'll have excess cash flow to catch back up on their payments. You know, we expect this up and down kind of nature within Clearwater's business and the cash flows we receive from it. The, the reason we structured the deal like this, John, was to basically accommodate the volatility in their numbers due to the seasonal nature of the business, right? That's basically what you're seeing there in terms of the reported numbers. There are no further questions at this time. George, please proceed with your closing remarks. I would like to thank everybody for attending today. Enjoy the rest of your summer. Thanks, everyone. Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.