Executives: John Holliday - Chief Executive Officer Manon Lacroix - Vice President,

Finance
Analysts: Michael Van Aelst - TD Securities George Doumet - Soctiabank Stephen MacLeod - BMO Capital

Markets
Operator: Good afternoon, ladies and gentlemen and welcome to the Rogers Sugar Fourth Quarter 2016 Results Conference Call. After the presentation, we will conduct a question-and-answer session, which will be open only to financial analysts. Instructions will be given at that time. Please note that this call is being recorded, Wednesday, November 23, 2016,

at 5:30 PM Eastern Time. I would now like to turn the meeting over to John Holliday, Chief Executive Officer.

Please go ahead, Mr. Holliday.

John Holliday: Thank you, operator and good afternoon ladies and gentlemen. Joining me for today’s conference call is our Vice President of Finance, Manon Lacroix. In keeping with our usual format, I will start by commenting on some of the highlights for the quarter and provide some updates on our key strategies.

Thereafter, I will turn the conference call over to Manon, who will review the financials in more detail and talk briefly about the outlook for the next fiscal year. We will then open up the phone lines to answer any questions you might have. I am pleased to share the fourth quarter volume continue to show positive momentum we have experienced for most of the current fiscal year, adjusting for the extra shipping week in fiscal 2015, volume for the fourth quarter of fiscal 2016 increased by approximately 7,300 metric tons, with an improvement in all categories. Specifically, on a comparable 52-week shipping basis, we saw the following changes. Industrial sales grew by 2,900 metric tons.

Consumer sales grew by 2,100 metric tons. Liquid sales grew by 1,600 metric tons. And export grew by 700 metric tons. For the full year, the company’s total sugar shipments grew by roughly 4.5% or approximately 29,400 metric tons higher than the last fiscal year on a comparable 52-week basis. Again, by channel results on a 52-week shipping basis were as follows.

Industrial sales grew by 19,300. Consumer sales grew by 3,100 metric tons. Liquid grew by 1,700 metric tons. And finally, export sales grew by 5,300 metric tons. As we have previously shared, we maintain the view that our business does benefit from several market conditions and we continue to believe the current market conditions are attractive for Canadian value-added exporters of sugar containing products to expand production at Canadian plants, which is highlighted by our industrial volume growth.

For value-added exporters, the narrowing spread between the commodity markets between number 11 raw sugar prices and the number 16 prices have been somewhat offset by the Canadian currency weakness. Given that sugar usage of Canadian value-added exporters represents a significant portion of the total market demand, changes in trends in this segment have had a measurable impact on the industry. The second change we are observing is a trend by food and beverage companies to reformulate to simpler and more natural ingredients. We have and continue to see this trend manifest itself in the substitution of high fructose corn syrup for natural refined sugar. Traditionally, this has been driven strictly by economics.

Today, we are seeing consumer preferences influence the conversion decision and thus raising the economic threshold where companies will convert. That being said, we believe that despite significant year-on-year conversion cost margin increases by the high fructose corn syrup producers at current market spreads between high fructose corn syrup and sugar are not constructive to new business growth. The 3-year contracts signed with a Western Canadian bottler is not impacted by these changing market conditions and has started at the end of October to ship at the end of October this new fiscal year. Due to the previously mentioned additional business in Western Canada, we increased our contracted acreage with beet growers to 28,000 acres and took advantage of an early harvest clause in our contract to bring forward our campaign and increase sugar production in Taber. To-date, beet quality and processing efficiencies have been good assuming harvested beets continue to store well.

We anticipate the campaign will continue into early February. The company continues to look for incremental business that could allow us to create new sales opportunities when favorable arbitrage conditions develop between the relative price certainty of an established grower contracts for 2016, 2017 and 2018 crops versus pricing of comparable sugar in export markets. These market conditions coupled with long-term and proven relationships with existing customers have created an environment where we can quickly – act quickly to expand on our business when favorable market conditions exist. Our operating metrics for the quarter were good. All plants saw increased production and improved efficiencies on key metrics versus the fourth quarter of fiscal 2015.

Notwithstanding the improvement, some nonstandard distribution costs were incurred to ensure our customer service levels were maintained. These nonstandard transfer costs were however $700,000 lower than the same quarter last year. And as we continue to improve our supply chain and build on the momentum of operational excellence, we expect these types of costs to further diminish over time. During the last quarter of the fiscal year, Montreal completed negotiations with two of the three remaining unions. The last agreement was concluded just last week.

All Montreal bargaining agreements were entered into at competitive rates and all will expire on May 31, 2021. The company is happy to move past this and focus on rebuilding and strengthening the relationship between the unionized and management employees in Montreal. Before handing the call over to Manon to provide more details on the financials, I wanted to provide a brief update on our key operating strategies, specifically operational excellence, market access and acquisitions. Our operational excellence initiatives are priority for the business. Efforts to reduce energy consumption through better plant efficiencies and better operating methods at all sites resulted in lower usage rates per metric ton of natural gas, which represents roughly the energy consumption requirements of an equivalent 2,000 households.

Water conservation achieved similar positive results with focused efforts in Montreal lowering our consumption representing a reduction equivalent to the annual water used by approximately 245,000 households. It has been satisfying to see these results come from cross-functional teams focused on a combination of solutions, including capital expenditure, targeted critical equipment refurbishment and discussions over shared operating practices. Capital spending for fiscal 2016 was $15.2 million roughly $3.7 million more than the prior year. We plan to continue to invest at a high level, a level higher than recent history at our historical levels to increase plant reliability and continue to update buildings and operations to reduce our operating costs. On our market access strategy, our market access strategy continues to have two legs, where agreements and/or market access exist.

We are focused on building customer relationships and trust. These efforts are critical to allow us to execute swiftly when favorable market conditions are present. Our second focus has been to support the Canadian Sugar Institute in representing industry interest in new trade agreements such as SEDAR and TPP. With the ratification process for SEDAR expected in early calendar 2017, we are now turning our attention to reviewing and analyzing the final quarter rules and working on how best to commercialize this opportunity. We anticipate limited volume in fiscal 2017.

The leadership changes in the U.S. in our view, renders the TPP ratification process to be very doubtful. Moving on during the quarter, the company continued to look at acquisitions. The business is financially well positioned to pursue strategic business opportunities that offer the right fit growth profile and risk adjusted earnings potential. Finally, I am pleased to confirm the corporation declared a dividend of $0.09 per share payable to shareholders of record on December 30, 2016 and will be payable on January 20, 2017.

Before handing the call over to Manon, I would like to take the time to thank all of our employees for contributing to a very successful year. Manon, over to you.

Manon Lacroix: Thank you, John. The overall fourth quarter results have shown a significant improvement versus the comparable period last year and allow us to conclude fiscal 2016 considerably ahead of last year, in fact fiscal 2016 represented third best fiscal year of this past decade. The best years before were fiscal 2009 and 2012, which were marked by significant U.S.

export opportunities under special U.S. quota. For this reason alone, fiscal 2016 results were exceptional. I will now go over the fourth quarter results in more detail. Adjusted gross margin was $29.6 million which represent an increase of $5.6 million versus the comparable quarter last year.

The positive results were explained by various factors. First of all, our three plants operated well during the quarter as indicated by John and we did also benefit from low beet costs. In fiscal 2015, Taber processed 2014 crop and unfortunately the factory suffered throughout the year as a result of significant beet deterioration at the end of the slicing campaign. This resulted in additional beet costs and additional operating expenses. In addition the Montreal refinery suffered from an equipment breakdown in the last quarter of fiscal 2015, which reduced throughput and therefore reduced efficiencies.

Both of these situations didn’t reoccur in fiscal 2016 which largely contributed to the improved performance for the quarter. In addition, $700,000 of fixed costs were deferred into inventories in the fourth quarter due to an early start of the 2016 beet campaign. Fixed costs are generally not deferred in the fourth quarter since the slicing campaign normally starts in October. Finally, in the current quarter, we adjusted our estimates for committed pension plan upgrades following the agreement with the Montreal refinery bargaining union which was recorded in third quarter. Therefore a non-cash profit of $600,000 was recorded.

This adjustment is expected to be the last with regards to this future commitment. The improved operating efficiencies mentioned all contributed to the increase of $33.53 per metric ton in adjusted gross margin. Overall, adjusted gross margin amounted to $158.22 per metric ton for the current quarter. Administration and selling expenses for the quarter were $1.3 million lower than the same period last year. In the fourth quarter last year the company recorded a non-cash pension expense of $800,000 regarding the settlement of the Western salaried defined benefit pension plan and no amount was recorded this quarter.

The remaining variance is mainly explained by a deduction in bad debt expense during the current quarter. The current year’s bad debt write-offs were nominal while an amount of $400,000 was recorded in fiscal 2015. Distribution costs for the fourth quarter were $700,000 lower than last year reflecting a significant curtailment of transfers between locations due to better plant performance and also lower inventory levels at the Taber factory last year. Adjusted EBIT for the quarter amounted to $21.7 million compared to $14.1 million for the same period last year. Now, turning to fiscal 2016 results, adjusted gross margin was $96.2 million compared to $85.9 million last year.

The adjusted gross margin rate amounted to $142.43 per metric ton versus $130.36 per metric ton in fiscal 2015. The improvement in the year-to-date results for both the adjusted gross margin and the adjusted gross margin rates is explained primarily by the solid performance of the last nine months of the year as a result of higher volume and byproduct revenues, lower beet costs and better efficiencies at all of our locations. On the negative side, the company suffered from a six day work stoppage at its Montreal refinery in June of this year. This required a contingency plan which included increasing inventory levels transferring products from other locations, rerouting order pickups and purchasing sugars from third-parties. The negative impact to adjusted gross margin amounted $800,000.

Finally, a non-cash expense of $1.8 million was recorded in fiscal 2016 to account for the committed future pension plan updates of the Montreal refinery union employees. Administration and selling expenses at $19.6 million were $2.8 million lower than the comparable period last year. With regards to the settlement of the Western salaried pension plan that I just mentioned something you reversed in the current year $1.2 million non-cash accrual. Excluding the impact of this pension plan settlement, administration and selling expenses were $800,000 lower than last year. The decrease is mostly explained by a reduction in consulting fees which were incurred in the first quarter of fiscal 2015 to complete the improvement process review at the Montreal refinery and also due to lower bad debt expenses.

However, the positive variation was slightly offset by higher employee benefits and $200,000 in additional costs relating to the work stoppage at the Montreal refinery. Distribution costs were $10 million versus $9.4 million last year, the negative variance is also explained by additional transfer costs between various facilities, due to strong demand and the contingency plan put in place for the work stoppage. Adjusted EBIT year-to-date was $66.5 million compared to $54.1 million last year, an increase of $12.5 million or 23%, mainly due to higher adjusted gross margin and lower administration and selling expenses. I would also like to point out that approximately $1.3 million in incremental costs relating to the Montreal work stoppage were included in adjusted EBIT for the year. Excluding the mark to market adjustment on the interest rate swaps, finance costs were $300,000 and $900,000 lower than the fourth quarter and the full year since the overall amount drawn under the revolving credit facility was lower in fiscal 2016.

During the third quarter, the company extended its revolving credit facility for an additional year and is now maturing in June 2021. During the fiscal year, the company repurchased and cancelled 178,600 common shares through the normal course of issuer bid. The shares were repurchased at an average share price of $4.07 representing a total amount of $700,000. No shares were repurchased during the current quarter. For the quarter, free cash flow amounted to $10.8 million versus $9.0 million in fiscal 2015.

For fiscal 2016, free cash flow amounted to $41.2 million compared to $37.8 million last year. The increases for the quarter and the year are mainly explained by higher adjusted gross margins, slightly offset by higher capital expenditures, pension contribution and income tax paid. I will now briefly discuss the outlook for fiscal 2017. First of all, we expect our strong fiscal 2016 volume results to carry forward into fiscal 2017 and we anticipate the industrial and consumer segment to be comparable to fiscal 2016. As we have mentioned previously, the company entered into two long-term contracts; one with a Mexican customer and another one with a liquid account in Western Canada.

As a result, we expect liquids volume to be approximately 20,000 metric tons higher when compared to fiscal 2016. As for the export segment, we expect it will grow by approximately 500,000 metric tons, so long-term Mexican contract represent an increase of approximately 10,000 metric tons. However, the company sold in fiscal 2016 approximately 500,000 metric tons of opportunistic sales which are not expected to reoccur in fiscal 2017. We will continue to aggressively pursue export opportunities in order to capitalize from favorable market conditions. During the year, the Alberta government announced the introduction of a carbon tax on natural gas starting on January 1, 2017, representing a levy of $1.011 per gigajoule.

As a result, we expect energy costs for Taber to increase by approximately $0.5 million in fiscal 2017. We expect the financial impact to be greater in the subsequent years since the rate per gigajoule will increase to $1.517 on January 1, 2018 and Taber’s whole slicing campaign will be subject to the new carbon tax. With that, I would like to turn the call back over to the operator for the questions session.

Operator: [Operator Instructions] Your first question comes from the line of Michael Van Aelst with TD Securities. Your line is open.

Michael

Van Aelst: Hi, congratulations on strong results.

Manon Lacroix: Thank you, Michael.

John Holliday: Thanks Michael. Michael

Van Aelst: So a couple of questions, first of all, hopefully easier one is on the volumes, in the past you had I think said that the Mexican volume would be closer to 13,000 metric tons next year, was any of that called into Q4 of this year?

Manon Lacroix: The Mexican volume what we had mentioned previously was around 20,000 tons and so this year we had approximately 10,000 tons of Mexican volumes, so that’s why we are saying that it’s going to be an increase of tons. And it was pretty broad spread out for the year.

Michael

Van Aelst: Okay. And I guess that was my modeling, I had to split out in half, okay. And then same thing for the liquid, I think in the past you had mentioned there was going to be about 22,000 tons – metric tons I believe for those two agreements, was any of that in Q4 – did any of that started earlier?

Manon Lacroix: No, in fact it started slightly later than we expected, so that’s why we have rounded it down slightly. Also our volume for liquids for the year was stronger than we last expected. Michael

Van Aelst: Okay, alright.

So last that’s it for the easier questions. Now on the gross profit per ton, trying to understand the I guess a better sense as to the magnitude of some of the benefits and how much of that is sustainable in the coming quarters, because how much of these benefits that you saw were actually in there in Q2 and Q3 and maybe even in Q1, but just more magnified in Q4 because of higher volumes and how much of that was – just ticked in Q4 and we still have to cycle through it going forward?

Manon Lacroix: Yes. It was definitely magnified in the back half of the fiscal year. At the beginning of the year in Taber, we are still selling off the previous crop that was basically more expensive. So we are definitely in the second half with more costly.

Michael

Van Aelst: Okay. So, if we look at the growth – the reasons behind the $33 per metric ton improvement in gross profit, some of the – one, the first one you mentioned was the lower beet costs, this is the second year of your new beet costs or beet contracts, so how did the beet costs go down?

Manon Lacroix: Well, the issue is that last year at the end of – especially at the end of the campaign the beets were deteriorating so much that we were not effective at all when we were finishing the last of the beet. So our campaign lasted much longer than it normally does. The number of days of slicing, were significantly reduced this year versus last year for more tonnage, so it has an impact on the per ton basis. Also it was the bigger crops they also help fund the – on the efficiency in Taber, but also elsewhere when you look at that at our volume that’s why we have like a big chunk of fixed costs that when you like automatically higher volume will reduce your cost per ton.

Michael

Van Aelst: Okay. So the deteriorating beet crop that affected – that would have affected I guess Q4 last year, but also actually what it affected Q1 and particularly in Q2 now?

Manon Lacroix: Well, it gets confusingly its fiscal 2015 – sorry the 2014 crop that was harvested and processed in fiscal 2015, so the more expensive costs were incurred throughout fiscal 2015 and carried into the first quarter of fiscal 2016 to basically deplete the remaining crop in 2015. Michael

Van Aelst: Okay, alright. So I guess on that front that the – assuming this is a good beet crop like you are saying it is for fiscal ‘17, we should actually see even lower beet costs given that the volume – better volume efficiencies?

Manon Lacroix: Yes, so our volume is going up in Taber. Michael

Van Aelst: Okay.

And then the second component, what was the next biggest component to your – to the high margin in Q4?

Manon Lacroix: Well, we had – it’s the adjustment of – the two biggest adjustments are really the fixed costs that were deferred in inventory that is unusual, but occurred this year. Michael

Van Aelst: That was 1.7, wasn’t it?

Manon Lacroix: Yes, it was. Yes. And then $600,000 for the pension. Michael

Van Aelst: Okay.

So like if we forget about those, because those were only about $7 a metric ton or I think so actually $7 a metric ton between the two of those, I am still trying to understand the difference the other $26 per metric ton, so the improvement year-over-year, so part of it was the beets and then…?

Manon Lacroix: And also the – you have got mix that is impacted in your gross margin – adjusted gross margins, but also any volume that we sell out of Taber is subject number 11 prices. So obviously, the price that we paid to growers is a fixed price plus or minus say an adjustment to take into consideration some of the market increase, but not all of it. So we did have a pickup because of that. Michael

Van Aelst: Okay. So I am just trying to understand then like that’s the biggest quarter you have had for the fourth quarter gross profits were done in the last 5 years, I mean fiscal ‘12 was close to that, but since then you have been coming very close to 158, so I guess I am – what I am trying to understand is how much of the benefit that you got in Q4 and how much of that lift in margin that you got in Q4 will also be present in Q1, Q2 and Q3 next – in fiscal ‘17?

Manon Lacroix: I think it would get – this quarter was definitely a bit exceptional.

I would not trend the line at this level for going forward, it will go back to like more in line with the full year. Obviously, depending on the quarter, the first quarter is always stronger because of the mix of products and the second quarter being lower. But overall, I don’t foresee any huge difference. Michael

Van Aelst: Okay. So if you look at the fiscal ‘17 versus fiscal ‘16 and I know you are not giving any specific guidance for gross profits, but other than the small non-recurring numbers there really – there is really nothing that shouldn’t continue in fiscal ’17 and more so you should see it efficiency since you have got higher volumes you should see actually better COGS per metric ton, so your gross profit per metric ton should still increase in fiscal ‘17?

Manon Lacroix: Well, it should be at – it should be similar.

John Holliday: Similar levels. Michael

Van Aelst: Okay. And that’s because you are getting some back elsewhere…?

Manon Lacroix: We can’t give any forward-looking statements, so I cannot go into too much details, but there is a lot of pluses and minuses that overall and there are many things that could often over the course of a year, but ballpark, I am comfortable to say they will be comparable. Michael

Van Aelst: Okay. What’s your preferred pay-out ratio for the dividend?

John Holliday: Well, we don’t have kind of a line in the sand exactly of preferred.

I mean, obviously, we want to be below the 100. And as you probably know from my comments, we are going to continue to spend higher capital. So, we don’t want to shortchange our ability to support what the business needs are for looking after regulatory, looking after sustained business spending and also investing in ROI. So, obviously, we are pretty comfortable with what we got this year, but we don’t have a bright line saying this is the target. Michael

Van Aelst: Okay.

And then finally for me on the carbon tax, I would assume that’s tough to pass along given that it’s only an Alberta thing and you are the only one producing there?

John Holliday: Yes, true enough. I mean, the other comment we should make on that is I mean, that’s the – if you want to call that’s the baseline number that’s not after we have got to look at hard and fast. What we can do to impact that through the way we run the plant or do we want to invest now because of those sorts of costs to mitigate that sort of expense. So, it’s unadulterated. That’s what it would be, but we will obviously be focused on what we can do to reduce it.

Michael

Van Aelst: By reducing energy usage or by reducing other costs?

John Holliday: By reducing energy efficiencies more along the line of efficiencies, correct.

Manon Lacroix: Yes. And looking – pursuing more return on investment projects in Taber specifically previously could beet as we have looked at projects, but the payback was not good enough, but with this additional carbon tax, they may become very attractive. And also, I would just like to clarify that BC and Quebec also has some kind of carbon tax regime, but it’s definitely not in the same magnitude of the one in Taber. Michael

Van Aelst: Yes, thank you very much.

Manon Lacroix: Thanks, Michael.

Operator: Your next question comes from the line of George Doumet with Soctiabank. Your line is open.

George Doumet: Yes, good evening.

Manon Lacroix: Hi, George.

John Holliday: Hi, George.

George Doumet: Just a follow-up on the gross margin discussion, how should we think of the incremental gross margin contribution from I think 20,000 metric tons of additional liquid volumes next year?

Manon Lacroix: It would definitely be on the lower side. It’s more opportunistic that we sold that. So, you shouldn’t be comparing it to, for example, export opportunities [indiscernible] quota. Those are margins that are much more healthy, but they are still good margins that allow us to reduce our fixed cost.

George Doumet: Okay, great. Some healthy gains in the consumer industrial volumes for the quarter, so maybe some color there, is it timing related, is it market share gains, I am just looking for some visibility above and beyond I guess the secular trends that you guys spoke of earlier?

John Holliday: Okay. On the industrial side, I mean we are basically seeing the benefit of strong growth of our existing customers. So, it’s coming through their efforts to grow their business and that’s largely what it’s been. And on the consumer little bit timing, but we have also seen some good results with the consumer businesses or customers that we partner with in their performance in that quarter as well.

So, it’s not – it’s basically coming if you want to call that from the organic customer base we have today as opposed to brand new customers that we have on-boarded.

George Doumet: Okay, great. Just one last one if I may. Just general in terms of the capital allocation just wondering you guys have been talking about CapEx going towards efficiency projects and it seems to be a little bit less book on M&A in general. Just wondering if I am reading into it properly or maybe it’s in general the capital allocation decision of M&A versus CapEx and what you are seeing there in terms of the pipeline?

John Holliday: Well, we want to do both clearly.

We are spending more capital, I think we need to when we look at some of the business kind of where we have invested in the past. So, we think it’s time to augment some of the investment. We anticipate and everyone else spoke to the fact that we might get some benefits of ROI projects in Taber with some changing economics, but we are also starting to see more operational excellence or ROI projects present themselves. So, that could augment some spending – some additional spending that we haven’t seen much of even in the last fiscal year. And as we are trying to comment on acquisitions here absolutely a vital part of our business plan, our strategies.

I use this term and I got it from somebody I know we can kind of say we are like a duck on the water, don’t look like there is much happening, but our feet are moving rapidly during the year. We have been looking at businesses. We have entered into some due diligence on two businesses actually and some – there is significant due diligence, but in each outcome, while the outcomes have been – we found that the opportunity to warrant the final step, but we will continue to look, because we think that’s important for the long-term future and growth of the company.

George Doumet: Okay, that’s very helpful. Thank you very much.

Manon Lacroix: Thanks, sir.

Operator: Your next question comes from the line of [indiscernible] with National Bank Financial. Your line is open.

Unidentified Analyst: Thank you. Just coming back to the acquisitions, how would you characterize your current pipeline of opportunities versus let’s say where it was earlier this year in terms of number of opportunities and the size of potential targets?

John Holliday: We have said we put the pause button when we obviously enter and start looking at acquisitions when they occur, because we can’t just kind of manage one and then entertain and do other things in parallel.

So, we focus on those. We haven’t had a shortage of them. So, we have enough I would say opportunities out there to continue to keep us encouraged that the strategy we have is a reasonable strategy. It’s not something that we are hoping will happen and we haven’t seen – the remains opportunities that are worth investing in and looking at, so….

Unidentified Analyst: Okay.

Maybe question for Manon, the $0.7 million fixed cost that was deferred in the quarter, just trying to understand the mechanics of that. Is that going to be expensed in Q1 or how should we think about that?

Manon Lacroix: Well, it’s really like a normal process when we do our slicing, we capitalize all our variable and fixed costs and the slicing occurs between this year, I guess mid-September to probably early February. So, all of the costs relating to the slicing would be capitalized and then we will be flushed through as we sell the inventory throughout the year.

Unidentified Analyst: Okay, that’s helpful. And then you mentioned timing in terms of the volumes for Q4 in the consumer and liquid categories, is that something that should reverse in Q1 in your opinion or was that Q3 versus Q4 or more Q4 versus next year’s Q1? What’s your view on that?

Manon Lacroix: Well, there is – it was more – yes, it’s the timing is probably between more Q3 to Q4.

I think going into next year, especially on the liquid side, it’s more bringing on our new contract that would move the needle for the volume. Consumer, like John said, it’s promotion and some timing, but it’s hard to say there is timing versus Q1 and there is timing versus Q3.

Unidentified Analyst: Okay. Last question on the carbon tax just to get an idea on the impact beyond 2017 what is your current usage of natural gas in Alberta specifically?

Manon Lacroix: It’s quite a precise question, but I could tell you that to 40% approximately of our gas consumption for the company is Alberta driven at the current level of production.

Unidentified Analyst: Great, thank you very much.

Manon Lacroix: Thanks, [indiscernible].

Operator: Your next question comes from the line of Stephen MacLeod with BMO Capital Markets. Your line is open.

Stephen MacLeod: Thank you. Good evening.

Manon Lacroix: Hi, Stephen.

Stephen MacLeod: Hi. So, I may ask really quickly, I missed the comment you made about the percentage of natural gas usage, was it 20%?

Manon Lacroix: 40%.

Stephen MacLeod: Okay, that’s great. Thank you.

And then just coming back to the adjusted gross margin per metric ton and also the pension expense, just wondering would you expect that given the quality of the beet – expected quality of the beets for this year, would you expect that inventory charge does not recur, in other words, you would recognize those costs more evenly throughout the year for 2017?

Manon Lacroix: Yes, I would expect that, but the issue with the crop 2015 really started showing up in the second quarter. So, until we are done our crop are slicing, it’s really hard to say, but early indications are that it should be spread out through the year.

Stephen MacLeod: Okay, that’s helpful. And then can you talk a little bit about the product specific margins and what you are seeing across like consume liquid export in terms of the selling margins? Are there any major changes, any compression, any opportunities for expansion?

Manon Lacroix: Sorry, the sugar – what did you say?

Stephen MacLeod: Yes, the refined sugar margins by segment just if you are seeing any material compression or potentially opportunities for expansion?

Manon Lacroix: I would say, no, I would say it’s comparable. I think it’s very competitive market in Canada.

It’s always been the case and it will always continue. So, I would view them as fairly stable.

Stephen MacLeod: Okay. I think that’s it for me. Thank you very much.

Manon Lacroix: Thanks, again.

Operator: [Operator Instructions] Your next question comes from the line of Michael Van Aelst with TD Securities. Your line is open. Michael

Van Aelst: Thank you. Just one more question, you talked about the strength of your retail consumers, can you just remind us which major retailers you are in, what your bigger retailer customers are?

Manon Lacroix: Yes.

We don’t typically give our – in the name of our customers. Michael

Van Aelst: Well, those are pretty public. I mean, I just – I don’t have my notes with me as I am traveling, but I just walking into the store as you can kind of see it, right. So, there you are not willing to disclose the ones that are obvious?

Manon Lacroix: Yes. No, we have never disclosed them.

Michael

Van Aelst: Okay, thank you.

Manon Lacroix: Thanks.

Operator: There are no further questions in queue. I would like to turn the call back over to the presenters.

John Holliday: Okay.

Well, thank you for the questions and we look forward to talking to you next quarter.

Manon Lacroix: Thank you.

Operator: This concludes today’s conference call. You may now disconnect.