Premium Brands Holdings Corp
TSX:PBH
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Premium Brands Holdings Corp
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Good morning. My name is Kim, and I will be your conference operator today. At this time, I would like to welcome everyone to the Premium Brands Holdings Corporation's Fourth Quarter 2017 Earnings Conference Call. [Operator Instructions]The presenters on today's call are Will Kalutycz, CFO of Pre Brands; and George Paleologou, CEO and President of Premium Brands. Mr. Paleologou, you may begin your conference.
Thanks, Kim, and good morning, everyone. I would like to welcome you to our 2017 fourth quarter conference call. I am sure you have seen our press release this morning, updating you on our results and announcing 4 transactions. As I'm sure you'll have lots of questions, we are going to change it up a little bit today and go to Q&A right after Will's presentation. We're obviously delighted to have announced 4 acquisitions this morning, all of them of which have easily met our acquisition criteria of best-in-class management teams and operations and great products and brands that are on trend with today's consumers. I will now hand it over to Will. 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 forecasts and assumptions are subject to change, and actual results may vary. Please see our 2017 MD&A, which will be filed shortly on the SEDAR website, 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 results for the fourth quarter of 2016 were for our 14-week period as compared to a 13-week period for this past quarter. The extra week in 2016 was due to our week-spaced accounting system which occasionally results in a fiscal year having 53 weeks versus the normal 52 weeks and our fourth quarter having 14 weeks instead of the normal 13. The extra week resulted in $29.2 million of additional sales and $3.4 million of additional adjusted EBITDA in the fourth quarter of 2016. Normalizing for the extra week, our revenue for the quarter grew by $82.0 million or 16% to $585.4 million. Acquisitions accounted for $52.2 million of the increase, organic volume growth for $33.5 million and higher selling prices for $5.1 million. These increases were partially offset by an $8.8 million decrease in the translated value of our U.S.-based businesses' sales resulting from a stronger Canadian dollar on a year-over-year basis. Our organic volume growth rate was 6.7% or 7.8% if you normalize for the sales exited by our protein businesses as part of their ongoing efforts to focus their capacity on higher-margin products. Both of these rates were above our long-term targeted organic growth -- volume growth rate range of 4% to 6% and in line with our expectations for the quarter. Normalizing for the extra week, our adjusted EBITDA for the quarter increased by $5.1 million or 12.1% to $47.3 million. This improvement was largely driven by our sales growth as our margins were negatively impacted by several temporary challenges. The most significant of these were operating inefficiencies in a number of our plants, resulting from tight labor market conditions that caused higher employee turnover rates, and in some circumstances, labor shortages and supply chain disruptions. Our U.S. operations and particularly -- in particular, were significantly impacted by this issue. Our businesses are quickly adapting to the new labor environment and in response are implementing a number of initiatives that by the end of the quarter were already taking -- having a positive impact. During the quarter, we incurred $3.4 million in start-up costs for 3 projects, all of which are expected to drive future growth in our earnings and cash flows. The majority of the cost is related to the commissioning of a new Phoenix sandwich plant, which was operating at standard efficiency levels by the end of the quarter. Correspondingly, we do not expect any additional start-up costs for this project. The other 2 projects, both of which were -- both of which we expect to complete in the first half of 2018, consist of the construction of a state-of-the-art 105,000 square foot distribution and custom cutting facility in the Greater Toronto Area and the reconfiguration of production among our 3 artisan bakeries in the Vancouver Lower Mainland. Our earnings for the quarter were $17.2 million or $0.57 per share, which was down from $20.0 million or $0.67 per share in the fourth quarter of 2016. The decrease was primarily due to the extra week in 2016, our plant start-up projects and costs associated with our recent business acquisition activities. These factors were partially offset by a $3.9 million tax recovery resulting from the revaluation of the tax assets and liabilities of our U.S. entities to reflect changes in U.S. income tax rates. On an adjusted basis and normalizing for the extra week in 2016, our earnings and earnings per share were relatively flat as the benefits of our sales growth were offset by the margin challenges discussed earlier as well as higher interest cost resulting from recent capital and acquisition-related investments. Looking forward, for fiscal 2018, we are projecting revenues of between $2.65 billion and $2.73 billion and adjusted EBITDA between $244 million and $256 million. These numbers translate, on average, into growth rates of about 22% for our sales and 31% for our adjusted EBITDA. The 2 major factors behind this growth are the acquisitions we completed in 2017 and organic sales volume growth of approximately 13%, which is, in turn, being driven by a range of factors, including our investment in additional sandwich production capacity in 2017 and the expected completion of our new state-of-the-art distribution and custom cutting facility in the Greater Toronto Area in mid-2018. These projections do not include the impact of acquisitions -- of the acquisitions we announced today nor do they include anything for possible future acquisitions. Turning to our financial position, we continued to be in very solid shape. Our senior debt-to-adjusted-EBITDA ratio was 1.9:1, while our total funded debt-to-adjusted-EBITDA ratio, which includes our subordinated convertible debentures, was 3.0:1. Both of these ratios are well below our respective long-term target ranges for them, namely at 2.5:1 to 3.0:1 range for our senior debt-to-adjusted-EBITDA ratio and 4.0:1 to 4.5:1 range for our total debt-to-adjusted-EBITDA ratio. Furthermore, we had approximately $145 million of unutilized credit capacity at the end of the quarter. Looking forward, we intend to use a portion of our excess debt capacity to fund a variety of growth initiatives, including capital projects and business acquisitions. Our capital expenditures for the quarter were $15.8 million, consisting of $11.8 million for project capital expenditures and $4 million for maintenance capital expenditures. The $3.4 million or approximately 29% of our project capital expenditures were for the expanded capacity of our U.S. sandwich plants, and $3 million or approximately 25% of our project capital expenditures were for the new Greater Toronto Area facility. In terms of corporate investments, we completed 3 transactions during the quarter, totaling $202.9 million. These included the acquisitions of 100% interest in Buddy's Kitchen, a manufacturer of artisan-quality, ready-to-eat meal solutions for airline and retail customers in the Midwestern U.S.; and Raybern Foods, a manufacturer of branded heat-and-serve sandwiches for retailers across the U.S. We also acquired a 50% interest in Shaw Bakers, a manufacturer and distributor of fresh and frozen artisan breads as well as a range of sweet and savory pastries for retailers on the West Coast of the U.S. In conjunction with the release of our fourth quarter results, we also announced the signing of definitive purchase agreements for the acquisitions of 4 companies for a combined purchase price of approximately $227 million. These consisted of, one, Concord Premium Meats, an Ontario-based manufacturer of branded and customized protein solutions for retailers and foodservice customers across Canada and whose brands include MarcAngelo, Skoulakis, Central Park Deli, Black River Angus and Connie's Kitchen; two, the Meat Factory, an Ontario-based manufacturer of cooked protein products sold primarily to retailers and foodservice customers across Canada under its proprietary Lou's Barbeque brand name; three, Country Prime Meats, a B.C.-based manufacturer of shelf stable meat snacks for primarily businesses owned by us; and finally, four, Frandon Seafood, a Quebec-based distributor of fresh and frozen seafood to foodservice and retail customers in the Greater Montréal area. Frandon will pay a key role in our C&C business's expansion into the seafood product category. Turning to dividends. During the quarter, we declared a dividend of $13.0 million or $0.42 per share, which, on an annualized basis, works out to $1.68 per share. For 2017, our free cash flow was a record $131.3 million as compared to dividends of $50.6 million, resulting in a payout ratio of 38.5%. Subsequent to the quarter, we announced a 13.1% increase in our dividend, raising it to $0.475 per share per quarter or $1.90 per share on an annual basis. This increase was based on several factors, the most significant of which was the increase in our free cash flow. I will now turn the call over to Kim for the Q&A segment. Kim?
[Operator Instructions] Your first question comes from the line of Derek Lessard from TD Securities.
Congratulations on a good year and your 4 acquisitions. Maybe if we can just talk about the tight labor market, specifically just wondering what you guys have put in place to mitigate the impact and why you think it's temporary. And maybe if you can tell us which regions of the country are most affected. And finally, how do you think about this in terms of the 8.9% to 9.7% margin guidance you put out there for 2018?
Yes. Derek, let me start by saying that there is no question that the labor market in the U.S. today is extremely tight, West Coast of the U.S. even more so. I think that what you have to remember is that we're in a high-growth mode as a company in a full employment economy, mainly in the U.S., but with some issues in Canada as well. So what that means is that, obviously, our customers are facing similar issues. Our customers are coming to us all the time now looking for solutions in terms of moving or offloading their value-added activities to us. We're having some challenges with labor. But at the same time, our supply chain, in particular, has issues as well. And over the course of the last 6 months, especially in the fourth quarter, we've had to completely reassess our supply chain. Obviously, some supply chain partners are better than others in terms of dealing with these issues, and we have to realign our supply chain to make sure we have partners that can keep up. This is a difficult environment as we've -- as Will mentioned. It's an environment that we're not used to. On the plus side, we're seeing all kinds of sales opportunities, which is exciting for us. On the other side, we have to obviously find solutions, both in terms of our own operations as well as our supply chain partners. At the same time, we've accelerated our investments in automation and robotics. In some cases, we're well ahead of the game. I can give you an example of one of our companies where they've moved to a new facility that's automated with robotics, took their employee count from 72 to 32 and increased their capacity threefold. Obviously, we're accelerating the process of automation. We have to. Some of the acquisitions we announced today will provide us with some solutions as well, and they have been providing us with some solutions. For example, Country Prime Meats that Will mentioned earlier, they're, in our view, leaders in the adoption of robotics technology in their operations. So obviously, they have brought some solutions to us, and they will bring more solutions to us in the future. It's not -- these are complex issues. We are very comfortable that we are acting and reacting in an effective way to deal with them. And on the positive -- on a positive note, though, we're seeing a lot more growth opportunities because of it as our customers are facing similar issues.
Okay. And maybe just on the margin. Has that been factored into your margin guidance or assumptions?
Yes, it has, Derek, in terms of the impact we saw, the level of impact we saw in fourth quarter was -- it sort of peaked and then we saw it improving. And so we've incorporated some impact, but we have also assumed that we will continue to see improvement in the -- in our labor management situation.
Okay. Fair enough. And maybe one final one for me before I re-queue. There's been some disruption in the U.S. Northeast, where I think -- and that closure of another manufacturer's facility has some potential customers looking for some supply. Just wondering how you guys think about the supply disruption there and whether or not you think you're in a position to maybe fill some of that void and if you have the capacity to do so.
Yes. Again, Derek, I think that there has been a number of announcements recently in terms of closures of facilities. We believe that the main reason for these closures is the tightness of the labor situation there. As I mentioned earlier, it's not a lack of opportunities. We see all kinds of opportunities, whether they're related to plant closures or not. We're obviously always trying to manage the opportunity with the challenges around, realizing the opportunity. And as I mentioned, it's a complex issue. We are extremely pleased with the way Buddy's Kitchen, in particular, is evolving under our umbrella, all kinds of exciting initiatives there. Fortunately, not as many labor issues in their market. So yes, I think that there will be some opportunities present themselves to Buddy's because of that development.
Your next question comes from Leon Aghazarian from National Bank.
So on the revenue guidance, you did mention about a 13% organic volume -- organic growth guidance there on the upside. Just wondering, first of all, can you help us break that down within -- what you feel for specialty versus food distribution? I'm trying to get a sense of where the majority of that's coming from. I do believe it will be from specialty, but if you can help us quantify that a little bit. And if that -- and secondly, if that -- would there be kind of a larger contract associated with that, that does give you the comfort that you would get to a 13% organic number?
Yes. So you're absolutely right that more weighted factors the specialty group with the investments we made last year in the sandwich, and we're also sort of through most of the rationalization of the lower-margin protein business. And then on the distribution side, we still expect to exceed our 4% to 6% target in 2018, but it's going to be closer to that range because the Greater Toronto Area facility, which is going to be sort of the greater driver of the growth, won't kick in until the second half of the year.
Okay. Fair enough. And then on the specialty side, though, I mean, if you are getting a 13% volume growth on that, I mean -- and you're confident with that. So is there a larger contract associated to that? Can you speak to that a little bit or...
There -- we don't get into specifics. But in general terms, there is a large component of that growth that is sort of locked in already.
Okay. Fair enough. Would that guidance imply -- what kind of capacity utilization are we talking about at the Phoenix facility given the guidance?
Well, Again, you can't isolate one plant because part of the initiative in our sandwich group has been sort of reconfiguration of capacity around the 3 large facilities in the U.S. But the reality is our sandwich business continues to grow tremendously with the Buddy's acquisition and the Raybern's acquisition that also provided us with additional capacity. So whereas you may see some minor investments, we're in good shape well through 2018.
Okay. And if I can ask a question on the acquisition that you made today. I mean, appreciate the revenue figure there. But can you talk to us a little bit about the profitability and maybe the transaction multiple as an aggregate maybe to help us gauge where we should be looking at this?
Yes. Our plan there, Leon, is when we close the transactions, we'll provide some more guidance around that. At that point, they did announce, but they're not yet closed. And certainly, the larger transaction is still subject to Competition Bureau approval.
Okay. Yes. So the Concord 1 would be the larger one of the 4. Can you give us maybe -- so is that about half of the size of kind of the aggregate? Or what kind of range can we look at here?
There are sensitivities there with various vendors, so we're not giving much detail around the specific transactions.
Fair enough. And is it fair to say that they are within the Specialty Foods, Premium Brands margin range? Is that fair to say or...
Yes. So the 3 -- of the 4 transactions, CPM, Meat Factory and Concord will all be in the specialty food group, and the Frandon acquisition will be in the distribution group. And yes, in general terms, that's not an unreasonable assumption.
Your next question comes from Stephen MacLeod from BMO Capital Markets.
Just wanted to circle around on the labor impact a little bit more. I mean, when you think about heading into 2018, I mean, I know, Will, I think you were saying it sort of crested or peaked. Do you see this kind of lingering through the beginning half of the year and then getting better? Is that sort of what you would expect to see as 2018 unfolds?
Yes. So what's built into our model is a little bit -- like it's part of the solution is actually higher labor costs, so that's baked into the numbers through the year. In terms of the efficiencies, like George mentioned, some of the supply chain disruptions and some of the specific efficiencies and plants resulting from turnovers, that's really a sort of trailing -- peaked in Q4 and trailing down in Q1 and somewhat normalized for the balance of the year.
I think, Stephen, what you have to remember is that this is a relatively new environment. And in our case, we are known to produce very high-quality products and obviously maintain extremely high level of service to our customers. And at the same time, we manage the business for the long term. So more recently in this type of full employment environment, we've had to make a lot of decisions, which may have impacted our margins in the short term. But as Will said, we're very confident that we have put the right -- that we have -- we are putting the right fixes in place. As I mentioned earlier, part of the issues we've had came from our supply chain and because the supply chain is facing similar issues. So we're adjusting to it. We are confident, as Will said, that we have most of the solutions in place. There's a little bit of uncertainty there as to how bad the situation is going to get. But as I mentioned earlier, there's also upside associated to it because over the last few months, we've seen a record number of customers, QSR and retail approaches for solutions. So we see opportunity, and then we got to figure out some of these issues.
Okay. And is it just finding the right balance between the opportunities that you see and your own labor shortages, so to speak, just finding that mismatch or fixing that mismatch?
Well, yes. Obviously, we need to find some solutions there as well, as Will said, that some of it will come from higher wages. In some cases, during the fourth quarter, we've absorbed higher wages. We've chosen to -- not to move pricing, which, obviously, hit our margin. But again, in -- when it comes to Premium Brands, we will never sacrifice quality. We will never sacrifice service to the customer. That's our #1 priority. We're managing for the long term. It's one of the reasons we're successful, and we will find the necessary solutions, and we will make decisions in terms of pricing and et cetera accordingly. As I said, it's a different environment than we're used to.
Right. Okay, okay. No. That's very helpful. And then we also saw some prior -- some higher input costs for beef and pork. Has that abated a little bit as you head into 2018 as well?
Yes. The cost that we saw increase for a large part were products we actually import from Europe. And we're seeing some price easing there. But more interestingly, it -- and the bigger portion of our protein costs are based in North America. And in that situation, we are cautiously optimistic that we see prices coming -- so a deflationary trend in both of those commodities. So to the extent that the euro continues to increase and there is still some tightness in European supplies, we think that will be more than offset by what's happening in North America.
Okay. That's great. And then just finally, you were pretty active in terms of M&A over the last -- between November with those 3 deals that you did and then 4 that you've announced today. Can you just talk a little bit about what the pipeline looks like for 2018?
Yes. As we mentioned in the press release, we are extremely busy. We believe that 2018 will be our busiest year yet. We still have a very robust acquisition pipeline, and we think that it will continue well into 2019.
[Operator Instructions] Your next question comes from John Zamparo from CIBC.
On the Toronto seafood facility, what kind of pace do you expect in terms of the ramp-up once it goes live? You mentioned the capacity constraints impacting Premium Foods at the moment. So can we expect that facility to basically grow from 0 to 100 as soon as it opens?
I would say 0 to 100, but we are pretty bullish on the outlook for it because, right now, our seafood operations in Ontario are just bursting at the seam and in fact was essentially to somewhat of a standstill just because of a lack of capacity. So we've got that, along with -- we've got a tremendous sales infrastructure that the team is building there that's ready to go on day 1. So yes, we're bullish. But again, it is a greenfield initiative, and it's going to take us some time to fill it.
Yes. And again, I just like to add that, obviously, we're acquisitive, and we are working on a few initiatives that will -- if completed, will help the ramp-up as well. That's always been part of our strategy, and that could mean that the facility gets to capacity sooner than we anticipate.
Okay, great. Maybe we can move to gross margin. You highlighted the 210 basis points decline in specialty. I'm wondering if you can quantify what the U.S. labor issues are as a percentage of that, roughly.
Yes. We haven't isolated the U.S. labor issue specifically. But in general terms, between the labor issue, the commodities and some of the costs in our bakery group resulting from the reconfiguration project, we're merging the 3 plants, that was about a $5 million hit in the quarter.
Okay. Is it fair to say the U.S. labor issue is the largest of those headwinds?
It, by far, is the largest of them.
Okay, understood.
I just want to say that this is isolating the labor issue, as Will mentioned. Part of the challenges we had were around inefficiencies because of issues with our supply chain. So again, if the product doesn't arrive on time, then it causes us all kinds of disruptions in our operations. So it was -- in some cases, it was messy, and the labor factor doesn't capture everything. So it was, in my view, a little bigger of an issue than the number that Will gave you.
Okay. That's helpful. I want to move to freight costs. We've seen a lot of consumer businesses impacted by higher freight costs to start the year. Is that something you guys have seen? And can you give us an idea of that -- the magnitude of that cost increase? Have you seen it?
Well, we've mentioned that, that a part of the challenges we're having are related to our supply chain, of course, which includes freight, and freight in certain circumstances has been an issue.
Okay. And last one for me, I guess a follow-up on the previous question. I think it was last quarter, you'd mentioned that you'd expected more of your acquisitions to come south of the border. All 4 today are Canadian. Is it just that's the way it bounces around sometimes? Or has valuation in the U.S. gotten a little bit above what you're comfortable paying? And appreciate any comments on valuation in the U.S.
No. I think, as you know, we're always working on acquisitions and strategic transactions. As I mentioned earlier, we have a lot in the pipeline, both in Canada and the U.S. And ultimately, we're not in control of the timing of closing. There's always 2 sides to an equation, and it just so happens that the timing of closing for this quarter, for this announcement involved acquisitions in Canada. That's all.
Yes. And if you go back to November, John, all 3 were in the U.S.
Exactly.
Your next question comes from Sabahat Khan from RBC Capital Markets.
Just kind of going back to the sandwiches discussion earlier. What is your outlook for, I guess, overall demand in the market, whether it's from your existing customers? And one of the channels at another operator in the space you mentioned is the CPG space where I don't think you have much of a presence. Can you maybe talk about growth in your end markets, where you are now? And is there any other new ones that you're potentially looking at?
Well, I think as we mentioned previously, the business in the U.S., in particular, was built around QSR with the acquisition of Raybern's and Buddy's. We acquired a business in the retail channel, the C-store channel and the airline channels. And we are looking forward to growing our business in those 3 new channels, relatively new channels for us by leveraging our expertise and capacity to pursue these 3 channels that we hadn't pursued before. So we're really excited about the opportunities we see. We have exceptional people, exceptional operations, state-of-the-art facilities, very efficient. We think that we're best in class in that segment, and we will be able to find lots of opportunities to grow in those 3 channels. Similarly, and I don't know if we've mentioned it before, we're -- we've invested quite a bit of capital in preparing these. We call them, fresh pack trays. These are trays that include sliced meats and cheeses and sometimes some crackers or some other products, and this is just an unbelievably fast-growing business for us. We've added capacity in Columbus. We've recently added more capacity in Reno. We're already full, and we are already planning even more capacity in some of our other plants. So this is a really exciting segment for us and includes the party trays that you may find in your local store. We -- to assemble these products, you need very food-safe, very clean, very efficient facilities, and we've invested a lot of capital and effort into becoming experts in this space.
And just I guess that product that you're talking about, is that for a specific customer made to order? Is that something Premium Brands created they can offer to other customers as well?
Again, in some cases, we work with larger companies in the space, specialty companies or CPG companies to assemble with them. In some cases, SK Food is doing it for some of our own internal companies as well under their brand. As I said, it's a fast-growing category, and we are well positioned to benefit from that growth.
And then just one last one for me. As you think about for the close of 2018, what's the outlook for some of the major commodities that you're involved with? And how much of the potential, I guess, commodity price or general pricing is reflected in your 13% organic growth outlook?
Yes. So our 13% is pure volume, Saba. We assume no price increases or decreases in that. So to the extent there's a deflationary, inflationary environment, obviously that's then going to impact that number. So our general outlook for commodities, as I mentioned earlier, for the major ones in the beef and pork complexes is our assumptions around our relatively stable market, but -- so we feel that maybe there's some upside there. But similarly in poultry, we're seeing some consolidation of capacity in the U.S. So there could be a little slight negative there, and we're also watching Europe. So I think our assumption overall of the stable environment is very fair, and it stands today. And that's what built into our sales assumption.
Yes. From my perspective, and I just want to caution everybody that trade plays a very big role, and we don't know what's going to happen with trade. But our projections today around commodities would be flat to maybe down, not flat to up based on what we see out there.
I'm sorry. If I could just get one last one in there. You commented about the tax impact on the revaluation. But I guess given the new tax rate environment in the U.S., what's your outlook for your tax going forward?
Yes. So we think it -- we've -- in our MD&A, you'll see we've given some additional guidance around tax. We think about 200 to 300 basis points improvement in our tax rate as a result. But ultimately, it's going to be based on a mix of where -- what's the biggest part of the driver of our growth, the U.S. or Canada. But overall, that should be a reasonable number or range.
Your next question comes from Leon Aghazarian from National Bank.
Just 2 quick follow-ups for me. One would be on the CapEx. You did mention about $11 million, $11.8 million in project CapEx. What would be your project CapEx expectation for 2018?
Well, our guidance at this point, Leon, is really just the GTA facility and a little bit around our ERP systems. So we don't have any other major projects out there that we've announced. Now we've got some things in the works that could come out. But at this point, that's all. Then on top of that, we've got our maintenance CapEx, which, again, we've provided additional guidance in our MD&A. And just general growth CapEx, I always talk about sort of that rough $8 million to $10 million range.
So overall, if we kind of put it all together, I mean, are we looking close to like $30 million to $40 million range. Is that all right?
Based on our projects that are out there today, yes.
Yes, with the maintenance, okay. Okay. That's fair. And then one other thing is we did see a step-down on the convertible debentures on the balance sheet. So just wondering if that's a trend that we should be looking at going forward, if there's any thought in terms of redeeming some of the ones that are in the money at the moment.
Yes. We've talked about this in the past. Our convert -- debenture strategy is around ultimately -- it's an equity-based strategy, and so the large decrease or step-down that you saw was in fact conversions of our 5% convertible debentures. And yes, we do intend to redeem those in the near future. The redemption date is not until April, though, earliest we can redeem.
Your next question comes from Derek Lessard from TD Securities.
Yes. Maybe just one last one on the guidance. I was wondering how much FX or what your FX assumptions are in the 13% growth.
We used an USD 0.80. So to the extent that it's weaker than that, that's a positive for us on the translation of our U.S. businesses.
Okay. And just one final one for me. Can you just, I guess, repeat the comment you made about the Arizona operations being up to standard? And maybe just touch on some of the expansion of capacity that you've done there.
Yes. So in terms of the standard comment, the idea is when we start up a plant, it takes a while to get the workforce trained. We -- train the lines running properly. We know from our other plants what speed, what levels of efficiencies, yields, throughput those plants should be generating. So our start-up analysis, part of it is that cost differential between what it should be running at and what it is running at. And now it is running at what it should be in terms of throughput and yields. So -- and in terms of the capacity expansion, so we're in the process. We started the plant up with 6 lines. We're in the process of finalizing the installation of 7 and 8 lines. And the management team down there is just starting the process of designing the 9 and 10th lines, which will be fully automated lines, part of what George talked about in the labor solution side of things which will have a significant impact on the labor needs for those lines.
Okay. Is there an opportunity to automize (sic) [ automate ] any other plants in the -- in your network?
Well, in terms of the specific lines, it's challenging because so much of the sandwich group's business is built around customizing product solutions for customers, so the -- you've got to have rare situations where you're running very long lines to make robotics and automation work. So it is somewhat limited, but there are still opportunities.
Your next question comes from Saba Khan from RBC Capital Markets.
Just one quick follow-up. Are you able to potentially provide the split of the sales associated with those 4 acquisitions you announced this morning across your 2 segments?
We'll get that out at some point, Saba, yes. I don't have that in front of me right now.
Your next question comes from Stephen MacLeod from BMO Capital Markets.
I just had 2 quick follow-up questions. The first one is, Will, you mentioned 9 -- lines 9 and 10 in Phoenix will be fully automated. Do you get more efficiency or capacity, more production from an automated line than you do a manual line?
Yes, absolutely.
I think that's the idea, Stephen, right. As Will said, given some of the labor challenges we're seeing, we've effectively gone back to the designers of the lines, and we are doing our best to move product there that's very high volume, long runs, which we hopefully will be able to automate through robotics and automation. And this is something new that we've decided to do more recently based on some of the challenges with labor.
Okay. That's great. And does it impact the expectation that the sandwich facility can handle about USD 180 million in incremental sales. Does that number actually go up with automated lines?
Yes. Well, it's a little -- our expectation is yes, but until -- like this is all new technology, and it's all theoretical at this point. So until that plays out, we're sticking with that number.
Subject to the mix, though, as well, Stephen.
Yes. Okay, okay. That's great. And then just finally, there was just a number that, Will, you said that I didn't quite catch. I was just wondering if you could confirm what your total CapEx expectation is for 2018.
Yes. So we've got guidance on our maintenance in the MD&A. And I don't have a number in front of me, Steve, but I can give you the components. So there's the cap maintenance in the MD&A, there's the GTA project and the -- some ERP costs. Again, it's also disclosed in the MD&A. And then we usually use for smaller projects that we don't specifically isolate, roughly $8 million to $10 million a year. But having said that, like I said earlier, we are looking at a lot of different projects. But until something is finalized, the return is built, it's not built into the guidance. And similarly, it's not built into that guidance we've given you for the sales and EBITDA.
Right. Okay. And was the total number sort of in the $30 million to $40 million range?
Yes, yes. That sounds about right.
There are no further questions at this time. I now turn the call back to Mr. Paleologou.
I'd like to thank everybody for attending. Thank you very much. Back to you, Kim.
This concludes today's conference call. You may now disconnect.