DEAR FELLOW SHAREHOLDERS:
It seems hard to believe that I'm sitting down to write our 30th monthly newsletter. When we started these, we were unaware of any other company that used this format to supplement communication to its shareholders. I've recently started to see several similar initiatives by other public companies so I hope that they continue to be of some value. The concept certainly seems to have caught on with others.
Our TREK® Sports Drink and Nitro Energy Drink US re-launch should get underway towards the end of this month. As indicated earlier, it is our goal to become more price-competitive with this brand while also offering the market the only 'all natural' hydration beverage and the only 'thirst quenching', non-carbonated energy drink. Stay tuned for more news on TREK®.
We are also exploring additional packaging options for TrueBlue®. We have had incredible success in schools with our blueberry brand and now want to expand our shelf presence to a take home lunch-style package for kids. We are also at a stage where it makes sense for us to explore bottling options for TrueBlue® in the East. We see ways to improve our net margins by reducing freight charges in an environment where fuel and packaging costs seem destined to stay high. We are also working to expand our listing base to include LiteBlue™ and are working on a new TrueBlue® flavor. Any guesses?
April was also a challenging month in certain respects. One of our significant suppliers had difficulty getting us enough inventory to meet our growing demand for that brand. That now seems to have corrected itself, but it can be extremely frustrating at the time. I also wasn't as pleased with our plant performance in the month as I could have been. There were some 'glitches' that shouldn't have occurred and with corrective measures shouldn't happen again. None of these are material in the grand scheme of things, but at times seem completely preventable.
Sales continue to be strong. I am extremely pleased with the job that our Canadian sales force is doing with the Hansen's products in particular. But that is not all, as sales of Fiji Water® and Stewart's® also continue their brisk growth.
To give you a better feel for what we do I thought it might be worthwhile to describe the beverage distribution landscape in the United States and how it differs from that in Canada. In the US there are multiple tiers of distribution. The most pervasive is the coast-to-coast networks operated by several Coke and Pepsi-aligned bottlers; the "Red" and "Blue" systems, respectively. The next is a group of bottlers affiliated with Cadbury Schweppes, most notably American Bottling Company, that is colloquially referred to as the "White" system. That system does not have equally effective geographic coverage. There is also a network of beer and alcohol distributors, many of whom carry non-alcoholic beverages. Finally the matrix is completed by a variety of primarily local 'new age beverage' distributors with no particular allegiance.
This way of doing business is changing, and not particularly slowly. The cost of DSD or 'direct to store distribution' is becoming prohibitive for all but the larger customers and distributors. More and more chains are insisting that their captive warehousing and distribution systems service their stores. Consequently, most beverage companies increasingly need to establish a hybrid system that takes best advantage of the optimum route to a particular market or outlet. That is what we have been doing in Canada with our Integrated Distribution System for the past eight years.
There is no "White" system in Canada. There is no pervasive network of alcoholic distributors in Canada. Most 'new age beverage' distributors are very local in reach. In fact, if I may be so bold as to say so, if you want to effectively distribute a new beverage product in Canada, you need to deal with Leading Brands. That is a position that we have scraped out over many years as we watched our competitors fall by the wayside. Keeping that position requires constant vigilance, innovation and a degree of good fortune. It is, however, something that I believe stands us in good stead as we move further into the US and other markets abroad.
You should also be able to find a better description of precisely what we do in the web-cast of our presentation at the Taglich Bros. Conference on Tuesday, May 2, 2006. Should you care to look, there will be a link on our website at www.LBIX.com.
Thank you for your continued support.
LEADING BRANDS, INC.
Ralph D. McRae
Chairman & CEO
We Build Brands™
Certain information contained in this press release includes forward-looking statements. Words such as “believe”, “expect,” “will,” or comparable terms, are intended to identify forward-looking statements concerning the Company’s expectations, beliefs, intentions, plans, objectives, future events or performance and other developments. All forward-looking statements included in this press release are based on information available to the Company on the date hereof. Such statements speak only as of the date hereof. Important factors that could cause actual results to differ materially from the Company’s estimations and projections are disclosed in the Company’s securities filings and include, but are not limited to, the following: general economic conditions, weather conditions, changing beverage consumption trends, pricing, availability of raw materials, economic uncertainties (including currency exchange rates), government regulation, managing and maintaining growth, the effect of adverse publicity, litigation, competition and other risk factors described from time to time in securities reports filed by Leading Brands, Inc.
Any non-GAAP financial measures referenced in this release such as “EBITDA”, “cash inflow from operations” or the like do not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers.