Premium Brands Holdings Corp
TSX:PBH
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Premium Brands Holdings Corp
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Good afternoon. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Premium Brands Holdings Corporation First Quarter 2019 Earnings Conference Call. Our speakers on the call today will be George Paleologou, CEO and President of Premium Brands; and Will Kalutycz, CFO of Premium Brands. [Operator Instructions] Thank you. I'd now like to turn the call over to Mr. George Paleologou, you may begin your conference.
Thanks, Denise, and good morning, everyone. I would like to welcome you to our 2019 first quarter conference call. Our first quarter results, once again, showed the progress we're making in becoming North America's leading Specialty Foods company. We stand alone as a food company that continues to execute a values-based strategy that is based on the long term. Our unique strategy of partnering with talented and successful entrepreneurs in the specialty food industry and helping them to grow their businesses both through organic initiatives and acquisitions is the core to our success. For more information on the strategy and our long-term plans, please see my 2018 letter to shareholders, titled the Long Game, which can be found on our website at www.premiumbrandsgroup.com.I will now be turning the presentation over to our CFO, Will Kalutycz, for an overview of financial results for the quarter, after which I will make a few brief comments. This will then be followed by the Q&A segment of the presentation. Will?
Thanks, George, and good morning, everyone. Before discussing our results for the quarter, I would like to caution you that to the extent we make forward-looking statements during our presentation, our forecast and assumptions are subject to change and actual results may vary. Please see our 2018 MD&A, which is filed on the SEDAR website at www.sedar.com for details on some of the factors that could cause our actual results to differ from our current expectations. Turning to our results. I would like to start out by highlighting that our first quarter is generally our weakest of the year due to the seasonality of many of our businesses and that the seasonality was further exaggerated by some of the acquisitions we made last year. Our revenue for the quarter grew by $191.7 million or 32.8% to a record $776.6 million. Acquisitions accounted for $181.3 million of the increase, organic volume growth for $11 million and currency translation for $9.6 million. These increases were offset by $1.3 million in selling price deflation and the impact of a late Easter holiday, which was estimated to be approximately $8.9 million. After normalizing for the late Easter holiday, our organic volume growth rate for the quarter was approximately 2%. This was driven by solid momentum in a variety of protein-related categories, including meat snacks, daily meats and cooked protein as well as by our new Foodservice initiative in the Greater Toronto Area. These factors were partially offset by 2 challenges. The most significant of these was a decrease in our wholesale business with retailers in Eastern Canada resulting from a variety of transitory factors, including the timing of product promotions and a particularly harsh winter in Québec. The other challenge was continued lower consumer Foodservice spending in Western Canada particularly in the white tablecloth segment of the market. Overall, however, our growth for the quarter was in line with our expectations particularly given that this is for seasonal reasons our weakest quarter of the year. Normalizing for the impact of the new IFRS 16 accounting standard, our adjusted EBITDA for the quarter increased by $8.9 million or 20.6% to $52 million. This was driven mainly by acquisitions, efficiency improvements at a number of our production facilities and organic sales growth. Commodity costs on an overall basis were relatively neutral with wage and freight inflation having a negative impact of approximately $2.3 million. Our recently acquired Ready Seafood business also continued to be impacted by China's tariffs on U.S. lobster products. However, looking forward, we expect this issue to largely be resolved by several initiatives launched by Ready towards the end of the quarter. During the quarter, we incurred $1.9 million in start-up and restructuring costs, which primarily related to 2 projects: the construction of a state-of-the-art 105,000 square foot distribution facility in the Greater Toronto area; and the construction of a new 22,000 square foot culinary plant in Surrey, BC. Both of these facilities commenced operations near the end of 2018. Our adjusted earnings per share for the quarter decreased by $0.12 per share or $0.52 per share -- or $0.52 -- or was $0.52 per share due to highly seasonal nature of many of the acquisitions acquired late in 2018 and to the adoption of the new IFRS 16 accounting standard. Looking forward, we are seeing solid momentum building across all of our platforms. However, due to significant uncertainties associated with an outbreak of African swine fever in China and the possible repercussions of this on global protein prices, we've expanded our adjusted EBITDA guidance range to $300 million to $340 million from the previous guidance range of $320 million to $340 million. We are maintaining our 2019 revenue guidance range of $3.66 billion to $3.72 billion.In terms of our financial position, we continue to maintain a solid balance sheet and very strong liquidity. Our senior debt-to-adjusted EBITDA ratio was 2.7:1 at the end of the quarter, which was in the middle of our long-term targeted range of 2.5:1 to 3.0:1, while our total debt-to-adjusted EBITDA was 3.9:1, which was below our long-term targeted range of 4.0:1 to 4.5:1. Furthermore, we had almost $164 million of unutilized credit capacity at the end of the quarter. Turning to our investment activities. During the quarter, we made 2 business investments totaling $47.2 million consisting of $21.4 million in cash and $25.8 million in contingent consideration, and we spent $8.1 million on project capital expenditures. During the quarter, we declared a dividend of $17.7 million or $0.525 per share, which on an annualized basis works out to $2.10 per share. Our free cash flow for the trailing 12 -- 4 quarters was a record $167.8 million as compared to dividends of $65.7 million resulting in a payout ratio of 39.1%. I will now turn the presentation back to George.
Thanks, Will. Back in 2001, when we launched Premium Brands, we believed strongly that consumers would eventually shun sugar-based highly processed foods in favor of high-quality protein products made with clean ingredients by companies demonstrating good social values. Our growth since then into one of Canada's largest and most successful value-added protein companies is a testament to our vision and resolve to continue to operate the food-eating experience through regionally focused brands and platforms. This focus has propelled us to leading market positions in a number of high-growth categories, including fully cooked proteins and skewers, meat snacks, sandwiches, protein distribution, seafood and cured meats. The companies that joined us over the past year are all making great progress in leveraging our ecosystem to take their businesses to the next level. We're especially pleased with progress that Oberto's is making in the U.S. by using the expertise and resources of our best-in-class meat snack and deli platforms in Canada to launch new and innovative products in that market. The opportunities we're seeing in the U.S. are even bigger than we originally anticipated. And correspondingly, we're working hard to add capacity to sustain and support this growth. Many of our plants are looking at expanding their operations as we work towards our objective of doubling the size of the company over the next 5 years. Furthermore, since launching our PB Ecosystem project in Q4 2018, we have already had a number of significant successes and expect this initiative to accelerate our innovation pipeline and market channel development plans. The recent launch of our Italian meats offering in the U.S. is a great example of several of our companies working together to bring about innovation to generate new growth opportunities. We're following the ASF crisis in China closely as we try to understand its potential impact on our business. We are, however, diversified across many proteins and for this as well as other reasons are confident that we will manage through this crisis better than others. Also, I should mention that not all possible scenarios are negative for us and that there are many factors that could largely mitigate many of the projections around global pork shortages. These include: global demand destruction, resulting from higher pork prices; the substitution effect to other proteins; the timing of containment of the disease; or an escalation in trade tensions between North America and China. Looking forward, we're very excited about how we're positioned as we continue to innovate and drive growth at the unique time of disruption and opportunity in the food space. As to acquisitions, we continue to be viewed as the acquirer of choice by many of the owners of specialty food companies. And I'm pleased to report that we're still enjoying an especially robust pipeline of acquisition opportunities and fully expect to add to our portfolio of specialty food companies in the very near future. I will now turn the presentation over to Denise for the Q&A part of the presentation. Denise?
[Operator Instructions] Your first question comes from George Doumet with Scotiabank.
On the reduced guidance for the year, I think it was $10 million at the midpoint, should we assume most of that -- most of the impact being in Q2 and to a smaller degree in Q3? And by when do you guys expect to have fully passed through the prices?
Well, it's -- we've made some approximate estimates based on, like you say, mainly Q2, George. The key is going to be how long it continues for and what happens. Like George says, there's so much uncertainty around this issue. So it's sort of a onetime impact. We see it steady off, then, yes, it will be solely a Q2 impact. If it falls off, it could be a neutral Q2. And if prices continue throughout the year increasing, it will go beyond Q2. Again, it sort of goes to the uncertainty of the whole situation.
Okay. And on that note, maybe what was the rationale for maintaining the higher end of the EBITDA guidance? And I was just wondering is there a buffer in that guidance maybe a general guidance maybe built in for a rise in beef and poultry prices over the next 3 quarters?
Yes, so there is a chance, George, that ASF doesn't come to anything. In which case, Q1 was on plan. A lot of our sales initiatives are gaining the momentum we expected. They're on plan. So there's still that potentiality of if things don't go bad on the commodity side of things, that there's a lot of upside potential in the numbers still.
Okay. Maybe shifting gears to the food distribution business, the margins were down quite a bit year-over-year. And I'm just wondering how much of that was Ready Seafoods? And how much of it was just maybe other categories like, I guess, the operating leverage impact and others?
Sorry, can you say that again, George?
Yes. The food distribution business, I'm just wondering -- the margins were down year-over-year, so I'm just wondering the bucket, I know Ready Seafood is in there, but maybe you could just kind of...
Yes, it's primarily -- the new GTA facility contributed a bit to that, but it's primarily Ready Seafood. And Ready, Oberto's, Concord, TMF, these businesses, all acquisitions of 2018, have a tremendous amount of seasonality in their business. And so you had Ready impacting PFD on that basis and then you also further compounded that with the lobster issue that the tariff issue with China. So both of those issues we should see reverse themselves in Q2. As I mentioned, Ready now got in place a number of initiatives that will largely mitigate the tariff issue. So that should be behind us and then also the natural seasonality will kick in, in Q2 with the positive results then.
Okay, Will. And maybe just one last one maybe for George. In your 2019 letter to shareholders, you discussed removing guidance. So I'm just wondering, is that something we could possibly expect this year at all?
Again, George, I didn't discuss removing guidance. I basically discussed the pros and cons of guidance, right? So there's no plans to remove guidance under any circumstances, but I was just basically talking about some of the pros and cons of trying to run a business for the long term and obviously having to respond to quarterly guidance.
Your next question comes from Derek Lessard with TD Securities.
I wanted to drill down a little bit further on the hamburger business in Belmont. You did call out the plant protein-based burgers as one area of strength. Just wondering what your strategy is in this area and some advantages over some of the other players we've heard about recently.
Yes, it's a very good question, Derek. As you probably know, we're probably Canada's larger burger company. We're very, very significant player in Canada and in North America as well. We -- over the past 2 or 3 years, we've launched a brand called Pure, which is actually doing well in the marketplace. You could find it at your -- at the retailer near you. These are very, very clean ingredient type of burger products. We've followed the plant protein space for a long time now, for about 10 years now because this category has been around in Europe for about 10 years. And we appreciate that there is growing demand for these type of products. And our burger platform has leveraged this know-how and its manufacturing facilities to develop some very, very good products in this segment. We do significant business in this segment. And we've spent considerable amount of time in learning about it and in trying to come up with the right products with the right ingredients that meet our brand vision and brand specification. So we're excited by it. There's some growth to it. I should also say that plant protein is a subsegment of the protein space. The protein space is very trendy these days for the comments I made earlier. Consumers are shunning refined sugar. There's way too much sugar in our diet in North America, people know that. And they're looking to find protein solutions for their snacks and for their dietary decisions. So again protein is really on trend. Plant protein is a subsegment of protein that's growing, but I should also say that, as Will mentioned earlier, seafood is growing as well. Organic is growing very quickly as well. Meat snacks are growing. I don't want you to assume that this is the only part of the protein space that is growing.
Okay. And maybe just changing gears here on acquisitions. I'm just curious to get your insight as to why -- again you mentioned this in the MD&A, but why you're seeing increased interest from larger competitors to join you guys? And maybe if you can just talk about which platforms you're seeing the most interest from?
Yes, again, Derek, good question in the sense that we are seeing more transactions and bigger transactions because we're a much more significant company in the U.S. We have 4 very, very good platforms in the U.S. today with excellent management teams. We're gaining a lot of traction in terms of listings and innovation. And just the fact that the size of the companies in the U.S. are bigger by virtue of the fact that it's 10x bigger than Canada in terms of population. So it's a natural consequence of the traction we're getting in the U.S. market.
Your next question comes from Sabahat Khan with RBC Capital Markets.
Just one on the ASF issue. Can you maybe walk us through some of your bigger business lines? And how quickly you can pass through pricing on each of them? I'm thinking, sort of, the food distribution businesses such as seafood versus sandwiches and maybe compared to your products that are sold into the retail channel. Just any directional commentary there.
Yes. In general terms, 2/3 of our business would be distribution in sandwiches and those businesses have cost/plus business model. So generally speaking, they pass on price increases on a very dynamic basis. So that leaves the other 1/3. That's -- our protein businesses are in there, our meat snack businesses are in there and obviously, deli and fully cooked protein. It is about 10%, 11% of our sales, pork, today. Many years ago, it was probably closer to 50%. So it's come down a lot. As Will mentioned earlier, there is some uncertainty there as to the extent of the issue in China. The story is changed a few times out of China. They're going to be pork-deficient for the remainder of this year. We don't know how much. They'll reach out to procure pork all over the world. They have to a large extent already. But again we don't know the extent of the problem in China at this point. In overall terms, we think that we are looking at a relatively inflationary environment for all proteins because of the substitution effect. We think if pork prices double, for example, not as many consumers are going to consume as much pork and consumers will switch to other proteins like chicken, for example. So there is some uncertainty there as to what behavior will be. But as I mentioned earlier, for us, we've already passed cost increases through on a 30-day notice basis. And it's really the only part of our business that we have to give notices. And our notices usually are 30 to 90 days. In this particular case though we're going for 30 days.
Okay. And then just on -- one on the outlook for the rest of the year. As you look towards the seasonality of your sales, is there a ramp-up we should expect in some of the programs for the rest of the year, from the meat snacks, from the sandwiches programs that you've talked about in the past? Or should we expect sort of a full quarter of contribution from your new program starting in Q2?
Yes. No. Definitely ramp-up, Derek (sic) [ Sabahat ]. A lot of the initiatives, particularly in the sandwich group, are kicking in sort of mid to late second quarter. So the way we look at the balance of the year is Q2 is ramp-up, all the initiatives are pretty well in full gear for Q3, and then you should see in Q4 a little less seasonality in our business because some of the newer initiatives are less seasonal, particularly, again, in the sandwich group. But that's the way we're looking at the balance of the year.
Okay. And then just one last one for me. I guess as these programs ramp up, how should we think about margin? I guess, these programs aren't necessarily tied to, I guess, new facilities coming on, but -- rather you're servicing them out of existing facilities. So is there some sort of a margin ramp-up there as well?
Exactly, yes. That is a big factor contributing to what we see as the expansion of our margins over the course of this year is the higher contribution margin on incremental sales.
Okay. And then just one more, if I can squeeze it in. On the food distribution side, you talked a little bit about the seafood side. I guess what are you seeing on the Western Canada weakness? Does that look to be moderating at all? Or do you expect that to be a headwind for the rest of the year?
We are cautiously optimistic that it's going to be better in the second half of the year. We think Q2 will continue to be a bit of a headwind. But oil prices seem to have stabilized. General sentiment seems to stabilize a little bit. So we are cautiously optimistic on the second half of the year.
Especially with Alberta, I think, we're seeing a little bit more excitement out of the Alberta market, which has been slow in the last couple of years.
Your next question comes from David Newman with Desjardins.
If you look into your outlook for the entire year on organic volume growth, I think, you've previously flagged for around 10% in Specialty Foods. And Foodservice distribution being around 8% to 9%, if I'm correct. So you held your revenue guidance intact, but I would assume that within that, that there would be price increases embedded on the back of the African swine fever. So I'm just trying to get a sense of what you think the volume outlook might look like for the remainder of the year -- for the full year?
So our guidance is a range and those rates you quoted are in that range. So the way we looked at any inflation coming through from African swine fever is, yes, it will probably push us to the top of our range given sort of an average level of assumptions. So we didn't feel we needed to increase the range because of that. But you're absolutely right. That would be a factor that would push us towards the higher end of that range.
Okay. And you've nailed down $100 million captured out of the $135 million and my understanding is you may have Walmart in as well starting June 1. So if you kind of look out beyond that, there is another $100 million that you're kind of looking at with 7-Eleven, CoStar and those sort of guys in the c-store channel. And you did note in your press release that there is a new listings. Any color you guys can share?
Well, again, David, I can't tell you how excited we are with all the new listings that we've got and in executing those listings. As I mentioned in my prepared comments, Oberto's has made incredible strides in terms of their innovation pipelines. They're having almost 100% success in presenting new items to their customers and getting listings for those customers. And I just can't tell you how excited we are to be working with them in terms of growing their platform and their business in the U.S. market. Another area is our fully cooked kebabs, skewers and other proteins. We've got a lot of new listings in that particular area in the U.S. You just have to remember that the size of the market in the U.S. is 10 to 11x times bigger than Canada. So a lot of times with us, our innovation gets us the listing. But we have to figure out the capacity and the way we can execute it. So lots of very, very exciting initiatives with a lot of well-known customers, some of them of which you've mentioned in your question, and we're just excited to be executing them.
Okay. So just connecting the dots and back to your organic growth question then, I would assume then if you nailed down some of these other ones outside the $135 million, that kind of gets you to the 10% organic growth on volume in Specialty Foods?
Yes, absolutely, David.
Okay. And just a couple of quick ones. The weather in -- certainly in second quarter here has been pretty sloppy. I'm not sure what's it like in the West Coast, but it's been pretty horrible in Toronto. So we've had a terrible spring. Does that weigh into your second quarter as well being a sloppy spring here in terms of weather, flooding, et cetera?
It's a little early to tell at this point, David. The real barbecue season, the real outdoor season doesn't really kick into high gear until May. So we're a week into it now. If it continued throughout the month, then it may start to become a factor. But I wouldn't say it is one today.
The other point, David, is that, again, you've commented about weather in Central Canada. Our businesses are now truly North America. And so you have to look at weather patterns across North America. The West Coast has had a great, great spring so far. And the South and the Northeast of the U.S. not bad. So you just have to look at the entire weather patterns in North America, not just one part of it.
Yes. No. For sure. And then just last one for me and it's just -- Will, I know we talked about this in the past, but your working capital has been creeping up. And you mentioned that there are some initiatives that you have underway just other than obviously the puts and takes of these programs kicking in, which is obviously evidence that there is programs kicking in because the working capital is building on inventory. But is there other things that you're focused on inventory in terms of managing it?
Yes. So I can't emphasize enough, a big part of that inventory bump is our businesses planning for this summer. It's a lot more advanced building of inventory. There's a little bit of building of inventories as well associated with the global protein situation. But yes, we feel there's -- it can always be managed better. And one of the things we are implementing now where we are directly tying our senior executives' compensation to specific metrics around working capital. And so we're trying to bring more focus to it as well to make sure that it is at an ideal level. But certainly a large part of that increase this quarter is planning for the summer.
Again, David, it's planning for the summer, as Will mention, but there's also a little bit of planning for a worse case scenario under the ASF situation as well, right? That's very significant.
Your next question comes from Stephen MacLeod with BMO Capital Markets.
I just wanted to follow up a little bit on the price increases that you've put through. You said you've put through, I guess, a 30-day price increase request or demand, I'm not sure how to phrase it. But can you talk a little bit about what you're seeing or what you're hearing? I know it's still early days, but what you're hearing in terms of the willingness to accept price increases? I mean, if you put them forward, do your customers have to take them?
Well, again, Stephen, what's happening with ASF is not new. It's not unique to us, of course. And the retailers are already seeing increased input costs in terms of some of the fresh pork cuts that they sell, right? So it's not a surprise to them in terms of what's going on in the marketplace, right? So again our business model is one that's always been dynamic when it comes to pricing. We are having very good communications with our customers. Obviously, if the situation improves, we'll pass on the decreases as well. But we have a very unique situation here. They know about it. And in some cases, some customers basically even notified us and said, what are you going to do in this situation. So again, there is nothing new here in terms of -- this is not new or unique to Premium Brands.
Okay. Yes, that makes sense. And then just in terms of the guidance. You know -- I know you've already referred to it in response to a previous questions, but what kind of leeway does the low end of guidance give you in terms of the -- if ASF is a long-drawn, out-pronounced issue?
So our estimates at this point, Steve, are based on kind of what we've seen so far in the markets and our reasonable extrapolation of that. So if things get really crazy, then we're going to have to go back and reexamine the numbers, but it's sort of based on what's happened to date and the best outlooks as to what's going to be happening go-forward.
I think, Stephen, there's probably 10 assumptions in -- or many, many assumptions in how we estimate the impact of this crisis, right? So it's not 1 assumption, it's not 2, it's many. But what we've done is we've gone back and looked at what's happened historically in similar situations because our industry has had similar situations in the past. So that's what we're basing our projections at this time.
Right. Okay. That makes sense. And then I just wanted to clarify. You mentioned pork was 11% of sales. Just so I understand, is that a percentage -- is that your pork costs are 11% of your sales?
Yes. That's correct.
Yes. Cost divided by the sales.
Right. Okay. That's helpful. And then just finally, Will, you mentioned some of the initiatives that Ready has put into place in the market to offset some of the challenges you've seen in the lobster market. Can you just elaborate a little bit on what those are?
Yes. No. I can't. There's sort of a proprietary nature to them. But essentially, it's -- a big part of it is opening new markets and getting product into new markets. But yes, it's not something we want to share.
But they've also invested in a Canadian operation as well, Stephen.
Your next question comes from John Zamparo with CIBC.
Just a couple of housekeeping questions to start. Is it fair to assume the -- I think it was the $8.3 million impact from IFRS 16, can we assume that, that is likely going forward per quarter?
Yes. It's -- on an annual basis, it's about $31 million, John.
Okay. That's great. And then I just wanted to confirm, the previous EBITDA guidance of $320 million to $340 million, that did not include the IFRS benefit and then the current EBITDA guidance does include IFRS 16, is that right?
No, no. It's all pre-IFRS 16.
Okay. Okay. That's good. And then as a follow-up to the last question. Within the EBITDA guide, you mentioned there's a lot of assumptions as it relates to ASF and granted there's so much uncertainty here, but what's the embedded net impact of ASF in your current guidance?
We haven't disclosed that, John. It's just -- it's one of -- it's a range of factors and different scenarios and that's what's brought us to that range. So we don't have 1 specific number.
Okay. Understood. Sticking with ASF on the pricing side, can you comment on the magnitude of the dollar increase you're going to get on pricing versus cost? I mean, is it an attempt at a pure pass-through? Or do you try to get some margin expansions with these price increases?
Just a pure pass-through, John.
Okay. And then just one more ASF one, I promise. You called out the impact of a few items. I'm just -- I'm trying to get a sense of -- I'm not sure how to frame this. I guess part of the theory on ASF is that it passes through to other proteins. So have you seen so far any cost inflation on your other main proteins, in particular beef and seafood?
Beef, in general terms, has been a little bit inflationary, but nothing material. I wouldn't say there's -- the other proteins have been impacted at this point. Although there is a lot of talk out there that they will be impacted depending on the size of the problem in China, of course, right? So there's a lot of speculation right now. And I want to emphasize that a lot of it is speculation. There's a lot of misinformation and disinformation about this subject out there. And I think that people forget that as prices for pork, let's say, go up in China, there is a substitution effect there. There's a lot of demand destruction there. And people go to chicken and other proteins, right? So there's a lot of linear type of estimates out there. And so we're being cautious.
Okay. Understood. And then last one for me. Towards the end of last year and, I suppose, mid last year, you called out impact of U.S. labor rates and to a lesser extent freight. I'm just trying to get a sense of how you expect these costs to progress throughout the year.
Yes. So far, as I mentioned in the comments, freight and labor was about a $2.3 million, $2.4 million impact on the quarter. That was in line with our budget, our expectations. And that's sort of the rate we expect going throughout the year.
And, again, since we've ramped up our Phoenix plant -- our Phoenix sandwich plant, we are -- as Will mentioned in his prepared remarks, we're getting better efficiencies out of that facility and in general out of our entire sandwich platforms. So we are getting some good traction in capturing some efficiencies.
Your next question comes from Rob Wells with TD.
The question about labor with the U.S. unemployment rate at 3.6%, how do you see that impacting the business over the next year or so? Do you have a big challenge there as with hiring people?
Yes. Well, again, Rob, it's a good question. This has been the case obviously for us for about a year now. A lot of our U.S. operations have had challenges with respect to accessing labor. But as I've mentioned in the earlier question, we have made some great progress with respect to efficiency and automation and coming up with programs to be able to hire people and to hold people. But the other side of the equation is actually a positive for us because we have Canadian-based operations. Our Canadian-based operations are not having as many challenges accessing labor. So we're getting a lot of opportunities right now to bid and win business that -- in the U.S. that are made -- manufactured in Canada. So there's a silver lining there as well for us.
Okay. And what do you see as the biggest challenge for the company over the next year that is within your control?
Well, again, we are very, very excited with everything that's going on in the company, Rob. I'd say, we need to manage ASF as best we can. And as we've mentioned on the call, there's a lot of uncertainty to it. We feel that we need to manage it better than everybody else. It's an industry problem. It's not a PB problem, but we need to come up with the right strategies and the right scenarios to manage it better than everybody else.
Your next question comes from Dimitry Khmelnitsky with Veritas.
What portion of the $11 million in Specialty Foods organic growth this quarter came from the new initiatives?
It's a mix, Dimitry. I don't have the specific blend. Off the top of my head, I would probably guess 50% sort of range, but the reality is a lot of the new initiatives are seasonal products and aren't kicking in until Q2. It wasn't a big driver in the quarter.
But in general terms, Dimitry, the star of the show for us is -- was meat snacks and deli. Getting a lot of traction in meat snacks and deli in the U.S. market.
I see. And just to confirm I understood it right from the prior calls. At this stage for 2019 out of the new initiatives that should contribute $135 million on an annualized basis, you expect in 2019 they will contribute somewhere around, I guess, $90 million to $100 million this year in terms of incremental growth?
That's correct, Dimitry.
I see. And the last question is, you haven't highlighted sandwiches in Specialty Foods organic growth during the quarter. And so does that suggest that sandwich business delivered less than 3% organic growth in the segment during Q1?
Yes. No. It was a situation where there were less LTOs, so it wasn't a big driver of our growth in the quarter. Because LTOs can be a very kind of choppy element in that segment of our business. And sorry, by LTOs I mean limited time offers by key customers.
Yes. A lot of the growth in that category is determined by the limited time offerings of -- and the promotions of the customer base, Dimitry, right? So there weren't very many -- again, those are usually dependent on weather patterns and other factors and they weren't that many in the quarter.
So were sandwiches substantially less than the headline organic growth than 3% organic growth for that segment during the quarter?
It was relatively flat, Dimitry, once you normalize for some of the LTO issues.
Your next question comes from Bob Gibson with PI Financial.
Will, so let me just get this clear, the guidance you're giving is pre-IFRS 16?
Correct. Yes. Everything is, yes. Both -- so the numbers we gave last year are completely comparable to the numbers we just gave.
So are you going to give us post-IFRS 16 guidance numbers?
Yes. Roughly $31 million is the annual impact of IFRS on our EBITDA.
Okay. Great. And looking below the EBITDA number, the impact of IFRS, is it pretty much smooth? Or is there anything else I should look at?
No. It's -- you can isolate the specific line items in the statement below. But overall, for the quarter, it was about a -- almost $0.04 negative impact on our EPS net. So the positive EBITDA offset by the increased accretion and amortization was a negative.
Your next question comes from Derek Lessard with TD Securities.
I just wanted to follow up on a previous questions. I mean you talked about capacity being the biggest hurdle to growth. Maybe if you could just talk about some of the initiatives you got going on there?
Well, again, Derek, I would say just about every facility we have in the system is undergoing some sort of expansion right now. We're working really hard to find and grow capacity in the system. We have a number of plants that have expansions that are just about completed. Again, these are not major projects in general, but they're capacity expansion initiatives. Our 2 cook skewer plants have just -- they've both finished capacity expansions. We have 3 seafood plants that are either just completing major expansions as well, including a new facility by Reddi Foods to value-add lobster. Our deli meat snacks plant in Western Canada are all undergoing capacity expansions. And also a lot of the non-sandwich plants in the U.S. are going expansions -- are going through expansions as well. So there's a lot going on in -- with respect to increasing capacity in the system. As I mentioned earlier, that's part of our plan to double the size of the company over the next 5 years.
Okay. And maybe just a follow-up on that. The CapEx is running at roughly $60 million annually. Is this still a reasonable assumption for the year?
Yes. So a lot of what George talked about are smaller projects, but there are some larger projects in there, Derek, that are in the planning stages that we have not sort of finalized and, therefore, are not included in our guidance yet. But at this point, what's in our MD&A is what's approved and we're proceeding with. And -- but I would give you a heads up that there could be some bigger projects coming down the pipeline subject to going through our approval processes.
Your next question comes from Stephen MacLeod with BMO Capital Markets.
I just had one quick follow-up question. Are you able to quantify what your sales are for plant-based proteins?
I don't think we've disclosed that number, Stephen. It's in the single-digit millions of dollars. And most importantly, we've got a lot of initiatives coming to market shortly. A lot of launchings coming to market shortly. So a lot of noise in this category. And we are getting lots of inquiries about it. And as I said, we do have production capacity and expertise in the segment.
So you specifically have plant-based protein launches coming to market?
Absolutely. We have plant-based proteins burgers on the market as we speak. We've had them for quite a while now. Some under our brands, some under private label, and we have more coming to market.
[Operator Instructions] Your next question comes from David Newman with Desjardins.
Just a couple of quick follow-ups here. You called out on SG&A obviously you had increased discretionary promo spending and whatnot ahead of the launches. So if we look at SG&A just more holistically, from a 30,000-foot level, do you think this is going to level off at some point? Is this going to be the new level, but you're going to get better absorption on it? Like, how you're thinking about the SG&A?
Yes. That's a fair comment, David. The problem with the first quarter it being so slow, it doesn't take a lot of extra cost in that line to really throw the margins out. So that's one of the factors you've got going against us. So there was some increased discretionary spending in the quarter, but it wasn't huge. It was just, sort of, laying the platform for some of the new products. And like I say, the impact of that because of the lower sales dollars was more meaningful on a percentage basis.
Got it. And then just on the sandwich expansion done at Phoenix. I noticed it was -- in the filings it was said Q1 2020 now and I think it was previously Q3 2019. So anything going on there in terms of the rollover of those lines?
Yes. We ran into some issues with a supplier and the specifications around the product. And in these automated line, it's incredibly important to have consistent components going into them. So we had to work our way through that. We've worked through it now. It's all settled, but now we had to get back in the queue with the supplier. So it's just a question of the supplier had gone on to other projects. Now we're working with them. We're back in the queue. And so that should be a hard date now.
And can you leverage those learnings in terms of automation into your other plants? I mean, you must have learned quite a bit through this whole process, I would imagine.
Well. It's kind of -- automation is an interesting one. This is a sandwich automation project, so it's quite unique to sandwiches. But where we are getting a -- so there's not a lot of leverage going from that into, say, our protein businesses. But within our protein businesses, we're seeing some tremendous gains by leveraging some of our recent acquisitions. And in particular, a small company we bought up in Northern BC called Country Prime Meats and their use of robotics and automations. So we are leveraging a lot of lessons they've learnt and bringing that to our other protein plants.
And there are no further questions queued up at this time. I'll turn the call back over to George Paleologou.
Thank you, Denise. And I'd like to thank everybody for attending today. Thank you so much.
This concludes today's conference call. You may now disconnect.