Operator: Good afternoon, ladies and gentlemen, and welcome to the Rogers Sugar Fourth Quarter 2019 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 today, November 20, 2019

at 5:30 p.m. 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 CFO, Manon Lacroix.

Similar to our last call, I will use the call to take time to provide a broader context of the business providing some insights on trends or changes in the industry and update on the evolution of our business strategy. Please be reminded that today's call may include forward-looking statements regarding our future operations and expectations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. Please also note that we may refer to some non-GAAP measures in our call. Please refer to the forward-looking disclaimers and non-GAAP measure definitions included in our public filings with the securities commission for more information on these items.

Before getting into our results, I wanted to provide you with a brief update on our Taber crop situation and our operating plans. As you have seen in our recent news release, the premature arrival of winter conditions in Alberta this year, led to an early end to the sugar beet harvest. These adverse weather conditions caused severe snow and frost damage on unharvested crops and made them unable to be stored or processed. We expect that the crops we were able to harvest, will derive between 60,000 to 70,000 metric tons of refined sugar, as compared to our plan of 125,000 metric tons. We've already taken action to ensure we continue to service our customers.

Our first priority has been to develop supply chain solutions that support our domestic customers. To accomplish this, we have leveraged available capacity in our team, refineries and reconfigured customer supply chains to allow us to meet our customer needs. For export customers, we have found alternative supply solutions to meet our commitments and where possible deferred supply to future calendar years. While the reconfigured supply chain allows us to meet our customer needs, it will be less efficient than our typical operations. We expect that the impact of this temporary inefficiency on our cost structure, when compared to last year, will be more than offset by business improvements in fiscal 2020, related to nonrecurring Vancouver costs, low energy costs, reduced carbon tax and product mix improvements related to increased consumer sales.

Now, moving on to our fourth quarter results. Fourth quarter results were just released with consolidated adjusted EBITDA of approximately $22.2 million and adjusted net earnings of $9.9 million in the quarter. While we have made progress against our core strategies, results for the quarter did not meet our expectations. In the last half of the year, we experienced continued competitive pressure in the maple segment. However, we remained focused on optimization and cost improvement to maintain and improve our competitive advantage.

Market conditions remain positive in our sugar business with a fifth year -- straight year of volume increases. We remain confident in our long-term strategy and are well-positioned for future growth. Let's first talk about our sugar business. Volumes remain historically strong when combined with the first three quarters that we delivered an annual volume increase of approximately 21,300 metric tons, equivalent to a 3% annualized growth rate. The majority of the growth for the business was driven by the liquid segment that grew 11% in the quarter, and 13% on an annualized basis.

Industrial sales for fiscal 2019 were slightly above last year. Fourth quarter results fell short of the same quarter last year due to the absence of a nonrecurring sale to a competitor and timing of sales with certain large industrial accounts. Although consumer and promotional activity in the fourth quarter was soft, the impact of the new accounts awarded in the last half of the fiscal year delivered a strong annual volume improvement, resulting in year-on-year annual increase of 4.5%. Export sales lowered in the year and fourth quarter as we adjusted the timing of shipments for contracted sales to better align with our overall operating plans. Excluding unplanned operating costs in Vancouver, adjusted gross margins were within expected results and manufacturing costs were also within our expectations.

In the fourth quarter, the optimization project at our Vancouver refinery made good progress towards achieving its targeted refining goals. The process optimization and improved operating controls are now mostly in place. This enhancement will help unlock additional capacity and put Vancouver in a much better place to manage the new refining requirements resulting from Taber’s crop shortfall. The Montreal facility performed exceptionally well in the quarter capping off a year that delivered record volume and very good operating metrics. After 2018 campaign delivered a second year in a row a record production, the Taber facility started the 2019 sugar campaign in mid September, as planned.

The beets that were harvested have been well managed and are processing as expected. However, the impact of the adverse weather conditions in Alberta that I mentioned earlier will result in a significant reduction in production in the 2019 campaign. The Taber air emission project was completed on time and on budget. Commissioning and air emission testing is progressing as planned and should not be impacted by the shortened campaign. Commissioning should be completed by the end of the first quarter.

The new refining competitor we saw enter the granulated refined sugar market earlier this year was not active in the fourth quarter. As we commented last quarter, we do not take our market share for granted. We are confident even in the light of the shortfall in Taber in our ability to retain our customers and compete in the conventional sugar market. History has shown as a quality, security of supply and operational flexibility are crucial to our customers. We have successively defended our market share by reliably delivering on all three factors in the past, and we will continue to compete on this basis.

General market conditions for our core sugar business remain positive. Over the last five years, we have shown strong growth in our national volumes with an increase of roughly 100,000 metric tons. This growth was largely driven by the conversion of liquid customers from high fructose corn syrup to sugar and increased export volumes. Looking forward, we continue to grow our sugar business -- we expect to continue to grow our sugar business and invest in supply chain and manufacturing solutions that align with our customer needs. Not considering this outlook is -- not considered in this outlook is the ratification of the USMCA agreement, which would add an additional 10,000 metric tons roughly to the Canadian sugar export quota.

Although, we continue to have the view this agreement will be ratified, we cannot reasonably project any timing. Turning to our maple business. You will recall we invested in this business as part of a long-term strategy to diversify our natural sweetener portfolio, add geographic reach to our sales book and include a stronger growth component to our product mix. While diversification and global reach remain important components, recent changes in the competitive environment and the lower growth expectations have led us -- led to tempered expectations for this business. The startup of a new player, two early post-acquisition losses, and a realignment of one of our key customer supply chains to align with a more made in America sourcing strategy have together resulted in lower than projected volumes and compressed margins.

In addition, our maple business was further challenged by a slowing in market growth to a rate of, we project today, at 2% to 3% compound annual growth rate. And finally, some of the integration synergies we initially expected as part of the acquisition, are taking more time to gain traction, mostly in the area of reduction in syrup costs, product overfill, and delays in manufacturing cost improvements. As a result of these changes, we have reviewed the longer term outlook for the business and taken a $50 million impairment charge to satisfy accounting principles. Given the changes in our market, our focus on optimization and cost improvement is even more important to maintaining and improving our competitive advantage. To that end, work on our footprint optimization project continued in the fourth quarter.

When complete, this project is expected to provide increased capacity for future growth and improved operational efficiencies, driving a lower cost structure and improve competitiveness. During the fourth quarter, we reduced the level of production backlogs and have moved closer to reaching our order lead times. Interim solutions to increase our short-term manufacturing capacity for both Dégelis and Granby were developed. And like many Québec manufacturers, we are working hard to overcome the challenge of significantly lower than normal unemployment rates in rural Québec. The full benefits of our improved manufacturing footprint are expected to be realized at the end of the second quarter of fiscal 2020.

Our long-term vision for the overall business is to be a leading North American natural sweetener supplier. We continue to monitor market trends to gain a better perspective on new opportunities and threats in the natural sweetener space. In addition, we remain interested in adding alternative natural sweeteners to our portfolio and are closely monitoring the sugar reduction space for sugar-based product solutions that can be engineered into our existing manufacturing capabilities. Before handing the call over to Manon to review the financial results, I want to reemphasize that our outlook for the business is positive. And we remain confident in our long-term strategies.

Despite the Taber disruption, our core sugar business benefits from good momentum. And we have a clear plan to improve our maple business by lowering costs, improving service and bringing innovation to help compete in what has become a more competitive and challenging market. We're implementing the process improvements to increase operational inefficiencies and pursuing innovative strategies to drive growth in alternative markets. Before handing the call over to Manon, I want to thank our employees for their efforts and ongoing commitments to our business.

Manon Lacroix: Thank you, John.

I will now go over the fourth quarter results in more detail, starting with the sugar segment. As John mentioned, we are pleased to see that the sugar segment delivered a fifth year in a row of volume increases. However, the fourth quarter saw a slight decrease in total volume of approximately 3,200 metric tons, or approximately 1.6% versus the fourth quarter of fiscal 2018. The liquid segment had another strong quarter with an increase of approximately 4,800 metric tons, or an increase of more than 10% quarter-over-quarter. This performance is consistent with previous quarters this year where we have been able to recapture some business lost to high fructose corn syrup, grow volume with existing customers and gain new business altogether.

However, the increase in liquid segment was offset by a decrease by all other segments. The biggest reduction was in the industrial segment, with a decrease of approximately 7,200 metric ton for the quarter, of which approximately a third of this variation is explained by the non-recurrence of shipments to a competitor that took place in the fourth quarter of last year. The remainder of the variation is explained by the timing in deliveries to large customers. Export volume for the quarter was approximately 800 metric tons lower than last year, mainly explained by a reduction in shipments to Mexico, as some volume was rolled into fiscal 2020 to manage beet inventory until the next crop. During the quarter, the Company was able to take advantage of market conditions to ship some U.S.

high tier sales which helped reduce the gap from the export volume. Finally, the consumer segment was flat versus the fourth quarter of fiscal 2018. The additional volume experienced in the third quarter of the current year from additional shipments acquired from an existing customer, continued into the fourth quarter but was offset by a decrease from other customers in this category, considering lower promotional activities in the current quarter. Adjusted gross margins for the quarter amounted to $24.4 million, representing a decrease of $1.3 million, mainly explained by lower sales volume and additional operating costs. Noticeable improvements were made during the quarter with the fine tuning of the Vancouver refinery, major capital project undertaken at the beginning of the fiscal year.

However, operating costs in Vancouver and Taber were above last year, in part due to the rebuilding of inventory levels in Vancouver following the commissioning challenges encountered in the second and third quarter. Adjusted gross margin per metric done was approximately $5 per metric ton lower than last year. Higher operating costs and the most impact on adjusted gross margin per metric ton for the quarter, but in addition, the sales mix also had somewhat of a negative impact with less export sales and more liquid sales. Distribution costs were $0.6 million above last year comparable quarter due to additional transfers between locations. Additional warehousing costs were incurred in the East in a conscious effort to increase inventory levels for the fall, given additional volume gain in the consumer market.

Overall, adjusted EBITDA for the quarter amounted to $19.7 million, which is $1.9 million lower than the comparable quarter last year. For the full year, volume increased by approximately 21,300 metric tons versus fiscal 2018 with all domestic segments finishing ahead of last year, of which 18,600 metric tons were related to the liquid segment. Adjusted gross margin for fiscal 2019 amounted to $94 million, excluding non-recurring items for both fiscal years, with regards to the Vancouver commissioning issues, a $4.6 million and a non-cash pension revenue of $1.5 million last year, adjusted gross margin would have been $0.4 million above last year, representing a reduction of approximately $3 per metric ton. Adjusted EBITDA for fiscal 2019 stood at $73.1 million, which represents a decrease of approximately $1.3 million when excluding non-recurring items for both fiscal years. Now, we'll turn to the maple product segment.

Revenues for the quarter were $2.6 million lower than last year. During the quarter, the maple segment continued to experience short-term capacity constraints as a result of the footprint optimization project, which created shipment delays and are currently being addressed. Adjusted gross margins for the quarter decreased by $2.3 million when compared to last year, and it ended at 9.7% of revenues versus 13.7% last year. The adjusted gross margin reduction is mainly explained by margin contractions, as a result of an increased competitive landscape by a non-favorable sales mix and incremental operating costs as a result of production inefficiencies. Administration and selling costs were $0.4 million higher than the comparable quarter due to an increase in allowance for doubtful accounts, higher marketing expenses and some timing.

Adjusted EBITDA for the fourth quarter amounted to $2.6 million versus $4.8 million last year. Year-to-date adjusted EBITDA amounted to $14.7 million versus $18.6 million in fiscal 2019. On a consolidated basis, adjusted EBITDA for the quarter was $22.2 million or $4.1 million lower than last year. Year-to-date, adjusted EBITDA was $87.8 million or 12.1 million lower than fiscal 2018. During the quarter, Lantic extended its revolving credit facility to June 2024 and amended certain terms and conditions that did not affect covenants or borrowing capacity under the revolver.

For fiscal 2019, free cash flow amounted to $30.8 million or $17 million lower than compared to fiscal 2018. The decrease is explained by lower adjusted EBITDA, by higher interest and income taxes paid, as well as higher capital spending net of operational excellence CapEx. Excluding nonrecurring items, such as the air emission project and the Vancouver commissioning issues, the dividend paid of $37.8 million would have been more than covered by the free cash flow generated by the Company. During the quarter, the Company purchased approximately 123,000 common sense under the normal course issuer bid at an average price of $5.23 for a total cash consideration of $0.6 million. We are pleased to confirm that the corporation declared a dividend of $0.09 per share to shareholders of record on December 27, 2019 and payable on or about January 21, 2020, a total payout is estimated at $9.5 million.

I will now turn to the outlook for fiscal 2020. Once again, I will start with the sugar segment. As John mentioned, we have announced the early termination of the beet harvest, which will reduce the expected sugar to be produced in Taber facility to between 60,000 and 70,000 metric tons of refined sugar. Servicing our customers is our priority. Despite this significant shortfall, we expect to meet 100% of the needs of our domestic customers and as a result, only a decrease of approximately 6,000 metric tons is expected versus fiscal 2019.

The most important volume variation is in the export segment where contracted volume for fiscal 2020 was rolled to the end of the current contract to fiscal 2022, and no cost to us, effectively extending the Mexican shipments contracted by one year. The Canada-specific U.S. quota of 10,300 metric tons can only be delivered by refined sugar from Taber and is still expected to be exported given its attractive margins. Offsetting a portion of this volume reduction is the anticipated increase in consumer volume, given the additional volume that was achieved starting in April 2019, which should continue into fiscal 2020. A significant portion of Lantic sales volume in liquid form and comes from Taber.

With the plan we have put in place, we should be able to supply all liquid customers. And as a result, we expect that the liquid segment should be comparable to last year. Finally, the industrial segment should be also similar to fiscal 2019. A lot of changes occurred in Alberta with regards to carbon tax and it is still evolving. It remains unclear what the final income will be.

At worst, the federal carbon tax would be similar to what Lantic was paying under the NDP regime at a $1.51 per gigajoule. One thing for certain is that there will be no carbon tax until December 31, 2019. As a result of the early termination of the beet harvest, the slicing and juice campaign will be significantly reduced in fiscal 2020. Overall, we expect to realize approximately $2.7 million in savings in the first half of fiscal 2019 on carbon tax in Alberta, and energy versus fiscal 2019. Now, turning to the maple product segment.

We are putting some measures in place to increase capacity until the Granby plant has moved to its new location and the equipment is fully commissioned. Production movement between locations started in the third quarter and will continue, but it will only be optimal once the new Granby facility is truly up and running. The relocation to the new Granby facility is expected at the end of January 2020. We would therefore expect this return on investment project to start generating savings in the second half of fiscal 2020. Capital spending for the sugar segment is expected to return to approximately $20 million with the completion of the air mission project, with approximately $6 million dedicated to return on investment capital projects.

As for the maple product segment, approximately $4 million remain to be spent in fiscal 2020 to complete the footprint optimization project. There will be minimal capital requirement outside of this project going forward. With that, I would like to turn the call back over to the operator for the question session.

Operator: Thank you. [Operator Instructions] Your first question comes from the line of George Doumet from Scotiabank.

Please go ahead.

George Doumet: Yes. Hi. Good evening, guys. I just want to clarify some of your comments earlier, John.

So, I guess, in spite of the shortened beet season, you would still expect the legacy sugar gross -- adjusted gross margins to be up materially, right?

Manon Lacroix: Not materially…

George Doumet: Year-over-year.

Manon Lacroix: Yes. If you look at the, like excluding the Taber issue, we're expecting benefits coming from the consumer additional volume that we have on the consumer, which will be helpful on dollar basis and also on a per ton basis on the gross margin. And then, on the cost side, what we're saying is that approximately $4.6 million was spent in 2019 for the commissioning issues. We're expecting to save on energy $2.7 million between energy and carbon tax, and that should offset the additional financial impact that the Taber short crop would have.

And then, finally on distribution costs, we expect that it would be slightly over. However, we incurred some costs in fiscal 2019 as well because of the Vancouver commissioning issue of about 800,000. So, that will help offset the impact. So, overall, if you're looking at the gross margin, the consumer will be beneficial and then the rest should be relatively offset by the commissioning and the carbon tax regime.

George Doumet: Okay.

So, on an apples to apples, like how would you expect adjusted gross margins to trend fiscal in ‘20 versus fiscal ‘19?

Manon Lacroix: It should be better.

George Doumet: Okay. And are you able to quantify how much?

Manon Lacroix: No.

George Doumet: Okay. Can you -- I guess, maybe just looking at the impacts of the shortened beet season.

Is it more of an impact to gross margins or is it more of an impact to distribution costs?

John Holliday: It's going to add to our distribution costs, largely in the last half of the year, more so than the first half. First half of the year, it's more business as usual in the first quarter, and then we'll start to roll into the new supply chain solutions at the beginning of -- beginning of the calendar year.

Manon Lacroix: Yes, on a per metric ton basis, the Taber facility is the facility that is the most expensive to produce on a per metric ton basis versus the other plants. So, on a per metric ton basis, that should be beneficial as well.

George Doumet: Okay.

And can you guys quantify, like, maybe ballpark how much you expect the distributions to cost to rise via because of the shortened beet season?

John Holliday: Probably, we don't really want to provide any specific answer in that area. I think, you could imagine, we're still working through the details of the plan and we're working with customers, as we speak today and we have been already. So, I don't think it's the right time to give you any specificity on that.

George Doumet: Okay. And just one last one if I may, kind of shifting gears to the maple syrup business.

I noticed that you guys didn't provide any guidance in terms of, I guess EBITDA. I'm not sure that was a plan anyways, but can you maybe give us a sense of, it looks like this kind of -- you called continued competitive pressures on to be ongoing, and I think there's also some talk about second half recovery and improved efficiency. So, maybe anything to talk to in terms of the cadence and the EBITDA margin recovery, I think, we’re the mid 7s. Can you talk a little bit about the puts and takes there that should improve kind of the margins and at what point you expect them to improve?

John Holliday: So on the -- I'll give you, on the market growth side, we've shared that we've seen a deceleration in growth from when we acquired the business. We've done a lot of due diligence on that.

It was growing at 7% to 8% compound annual growth rate, 7% to 8%; today probably 2% to 3%. We continue to be active in trying to grow the business and we have been growing the business but at a slower rate. Not fully evident, because some of the losses we had it in the early days of the business. All that being said, we are growing the business. In terms of the competitive situation, there's a new player in the marketplace, we talked about that.

We talked about kind of their behaviors, which were largely price related at the beginning. We can't speculate on what that looks like in the future. We can share with you that we haven't had any losses in the quarter. So, that's in some context good news. From an operating footprint perspective, we have a lot of work underway to complete the optimization and that will drive lower cost.

We talked about that in the past. We said we're going to be spending in the neighborhood of $6 million in CapEx, and that CapEx is put together on a return on investment basis. And we use typically 4 times, 5 times for ROI. So, you can kind of see the financial benefit that will come out of that once we have that completed in operating as planned.

Operator: Your next question comes from the line of Michael Van Aelst from TD Securities.

Please go ahead. Michael

Van Aelst: Just to start off, if I -- I might have missed this, but your -- for the Vancouver and Taber cost inefficiencies in Q4, did you quantify the number?

Manon Lacroix: No.

John Holliday: Taber in Q4, we didn't -- you said Taber and Vancouver. We had nothing…
Michael

Van Aelst: I thought I heard that. That's why I was…

John Holliday: No.

So, maybe if we -- if you heard that, then we misspoke. Taber is ran -- we started the campaign midway through September as we planned. And we continue to run what would appear to be at the moment a normal campaign. It’s just going to be shortened. And then we'll probably end in the middle of December.

But, it's normal operating conditions in…
Michael

Van Aelst: Something about rebuilding inventory, was that just at Vancouver?

Manon Lacroix: Yes. I think, what you're referring to is the additional costs on the sugar side. It's not relating necessarily to the commissioning. The commissioning is largely behind us, although it's not like 100% perfect, like we would hope. But, yes, we were rebuilding inventory.

So, we had additional over time and additional operating costs, and also other fixed costs that were higher than the previous quarter, which is just timing. Michael

Van Aelst: You mentioned looking at acquisitions, but your balance sheet seems a little bit stretched right now. Is it? Can you just talk about your leverage and what your covenants are?

Manon Lacroix: Yes. When we're looking at our covenants, if you were looking at it from the revolver only. So, the covenants are more long term.

So, on the line of credit, we have worked at 2 times the EBITDA right now. Typically, we prefer to be like more like around the 1.5 or below that. So, our next priority will be to deleverage the business.

John Holliday: And I think maybe that was misunderstood or maybe miss spoken when we read it. We continue to look at, but we are not in a position right now that we're pursuing acquisitions.

We just want to maintain our awareness of what's happening in that market, more than an interest in acquisitions. I think, we mentioned that in the last call that we’re largely in the pause mode and I think our immediate focus needs to be on working through the integration, getting the footprint right in the maple business. That's where we're at. That's what we're focused on. Michael

Van Aelst: And just to finish on the M&A.

You said -- did you say sugar-based reduction products?

John Holliday: We tend to -- we look at that as well. That’s a space that we think we need to be aware of to understand what's happening and what the developments are in that space. And we are looking at and continue to look at solutions that rely on modifying sugar itself and the functionality of sugar and opportunities to investigate or invest in those types of solutions for. That would allow us to participate in that market at a future point in time.
Michael

Van Aelst: What is a sugar based reduction product?

John Holliday: What is a sugar based reduction product? It would be a product that uses sugar as a base that change -- and that sugar has modified functionality to enhance its sweetening capacity and allow customers to reformulate to reduce sugar in their recipes.

And then, parallel with that, they need to backfill or fill the absence of sugar with other fillers such as inulin or other soluble fibers. Michael

Van Aelst: Okay. All right. On to the maple side. So, you say in the outlook statement that the you expect the pressure to continue on margins, I guess, as long as the competitive activity stays like this.

And the new competitor seems to have a brand new facility, automated from what I gather with the potential to increase it fivefold long term. How do you -- like how do you gauge how long you think the competitive activity is going to continue in a scenario where you have a competitor that's aggressive and that has ambitions to be substantial market share player.

John Holliday: Yes. I think, it'd be speculative for us to kind of determine what their objectives are and exactly how they're going to manage their fares over time. Our response to that is we have in short order a brand new facility, will be a low cost producer.

We have a significantly larger volume of product that they do, so that advantages us. We have a second asset as well that is very modern, maybe not brand new, but is very-automated. And we think we have the right kind of footprint to compete in that market, and we’ll compete like we have in the sugar market in the past. If necessary, we’ll drive to be low cost, will focus on getting our reliable -- into a reliable supply situation and will protect and defend our business. And that's our stance.

And it's worked for us in the past. And we believe it will continue to work for us. How that competitor behaves, I can't respond to that. Michael

Van Aelst: And how are you basing your assumption that your plant will be the low cost producer? Do, you know the specs of the new plant or the new competitor?

John Holliday: I know the throughputs of our facility and I have a rough idea of the throughput to their facility, and I know there's efficiency and scale on line speeds and packing and automation. So, we believe we have -- we'd have an advantage there.

I guess, it's not going to be public knowledge, but we're going to work on that basis. Michael

Van Aelst: Okay. All right. And how much excess capacity will you have, once you've optimized your footprint?

John Holliday: Once we have the footprint optimized, we will -- as we stated all along, we have the ability to double our output. Michael

Van Aelst: So, given the growth is now 2% to 3% from 7% to 8%.

Like if you were asked to make this decision all over again, with perfect foresight that now it's the growth rate slowed, would you still -- would you have still made this decision to increase capacity?

John Holliday: The answer to that is we would have made the decisions that we made. Because when we acquired the business, we acquired an asset that was leased that was suboptimal in our view on terms of delivering efficiency and the quality of the facility that we would want to have. So, it was the right thing for us to do at the time, we would have done it regardless. It's disappointing that the growth rate is what it is. But, things change over time.

We've seen growth rates on our sugar business that were declining years, and we've now enjoyed five years of growth. Probably didn't anticipate it, much as we didn't anticipate that we were going to go from 7% to 9% or 8% that we had seen traditionally to 2% to 3%. So, I don't think these things are permanent. And we're in this business for the long term, not the short term.

Operator: [Operator Instructions] Your next question comes from the line Endri Leno from National Bank.

Please go ahead.

Endri Leno: Hi. Good evening. Thanks for taking my questions. I just wanted to start a little bit in terms of recovering the volumes that are lost at Taber.

Are they all going to come from Vancouver or some from Vancouver and some from the Montreal refineries?

John Holliday: They're going to come from both.

Endri Leno: Both? And do you mind quantifying how much income from each or whether you'll be able to satisfy that whole loan volume or will you need to be -- or will you need to acquire some in the market?

John Holliday: We're going to bring from both facilities. At this point in time, as I said earlier, we're looking at this in great detail. So, we started a high level. We've gone deeper and deeper and we're looking at optimizing our cost solutions right now.

So, we've solved the problem and now we are looking at what is the optimal way to solve for the problem, and we’ll be able to talk about that as we move probably into the end of the next quarter and will be of the reflect back and say these are the things we've done, where we have more certainty and more awareness, obviously within the guidance that we’re not going give away a lot of competitive information either. But, at this point in time, that's where we're at.

Endri Leno: Okay, great. Thank you. And looking at the refineries in those two cities, so Vancouver, you already completed the optimization program and I'm assuming it will be done by the end of calendar year.

But, how does optimization and equipment look in Montreal? I mean, does this extra capacity that you put in there or extra production postponing any project, will it weigh on the equipment that is already there and like a little bit of color there please?

John Holliday: So, as you said, for Vancouver, the work that we’ve done sets us up -- we’re in better position now than we were prior to doing that work to support some of the additional demand that we are going to have. In Montreal, we continue -- we’ve been investing in Montreal on an ongoing basis. The facility is running well. This additional capacity doesn't interrupt any plans that we had in the short-term with respect to the investment. So, we're comfortable in the capabilities of the plant, has a great track record in the recent -- last fiscal year.

So, we’re good to go.

Endri Leno: Okay, great. And one more question on the sugar side. Just in terms of looking at the margins and potential high cost side. Just two quick ones there.

First of all, is there a margin differential between selling in Mexico and in Canada? Number one. And number two, are you able to secure labor in both Vancouver and Montreal, given the tight labor market there? I mean, have you talked to your unions or really need to hire part-time or what is the plan for those two?

John Holliday: So, Manon, maybe, if you want to answer this or not, margin question? And then, I’ll talk about the labor situation.

Manon Lacroix: Yes. The Mexico margins are typically lower than Canada and in particular lower than in the consumer. So, on that front, that's why it’s going to be positive.

John Holliday: Okay. And on the labor side. In the Montreal, we're very comfortable with our capabilities and availability of labor. And in Vancouver, we’ve had open discussions with our labor and we're very comfortable that we're working together and collaborating on solving what's important to all of us, which is our customers. The issues of our customers are priority number one for Vancouver as they are for Montreal and it's easy to get alignment on that with our labor -- with our unions.

Endri Leno: Okay, great. Thank you. And last question for me, it’s on the dividend side. So, as you mentioned, I mean there were number of one-time costs during this fiscal year, and those one-time costs will be offset -- or you won’t to see actually again next year, it will offset some of the headwinds from the beet concerns. So, then where does that leave your payout for the next year? I mean, even if we remove $7 million from CapEx I mean we're still at very near to 100% payout for next year.

Just kind of your views on how you are thinking about that for next year and where is your target payout ratio? Thanks.

Manon Lacroix: Yes. We're expecting to be fully covered on the dividend for next year. Endri Leno : Okay. And what is your target payout?

Manon Lacroix: Well, typically 85ish, in that range.

Operator: And there are no further questions. At this time, I'll turn the call back over to the presenters for closing remarks.

John Holliday: Okay. Thanks everybody for your questions. And we will talk to you at the end of the next quarter.

Manon Lacroix: Thank you.

Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.