Rogers Sugar Inc

TSX:RSI

Earnings Call Transcript 2018-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Rogers Sugar's Second Quarter 2018 Results Conference Call. [Operator Instructions] Please note that this call is being recorded today, May 1, 2018, 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, President & CEO]

Thank you, operator, and good afternoon, ladies and gentlemen. Joining me for today's conference call is our CFO, Manon Lacroix. And keeping with our usual format, I will start by commenting on some of the highlights for the quarter for both our Sugar and Maple product segments. And then provide some brief updates on our key strategies. Then I will turn the conference call over to Manon who will view -- review the financials in more detail and talk briefly about the outlook for the rest of the fiscal year.At the conclusion, we will then open up the phone lines to answer any questions you might have.Starting with the Sugar segment. Compared to a very strong first half of fiscal 2017, where volumes had grown by 18,500 metric tonnes versus the same period in fiscal 2016, fiscal 28 (sic) [ 2018 ] results were flatter as expected. After a relatively good first quarter, we have seen some weakness -- volume weakness in the second quarter of the current year, though year-to-date total volume is slightly above last year.Looking at our sales results by segment, we see industrial volume was down approximately 5,900 metric tonnes for the quarter and approximately 6,900 metric tonnes year-to-date. This softer volume result stems from weaker customer demand and normal competitive activity.Consumer volumes were lower by approximately 1,200 metric tonnes and approximately 9,00 metric tonnes for the current quarter and 6 months, respectively. Less promotional activity by our retail partners underpinned the weakness.Liquid sales followed a solid first quarter result and were up by approximately 1,700 tonnes for the quarter, bringing the year-to-date volume to approximately 5,500 metric tonnes higher than the same period last year.After a strong first quarter, export sales were flat versus the prior year and approximately 2,600 metric tonnes higher year-to-date. Additional high tier U.S. sales were delivered during the quarter, but it was -- but our results were tempered somewhat by poor performance on Mexico shipments by railways in what was a challenging winter. In aggregate, we see the overall market continuing to experience low single-digit growth, consistent with recent historic results.Before providing an update on our Maple product segment, I want to take a minute to offer an update on our Taber facility. Traditionally on this call, we provide some comments on the campaign and planting intentions for the next crop. On this subject, I can share that Taber had a very long and successful campaign producing a record amount of refined sugar. Planting intentions for 2018 crop have also been agreed to with the growers during the quarter and we're set at 28,000 acres, 1,000 acres higher than the prior year.In addition, Lantic and the growers reached a new supply agreement for 2019 and 2020 crops. We're very pleased to renew this contract well in advance of the period, an outcome which provides us with the best conditions to extend export contracts and have a long-term view on sales opportunities.Lastly, I wanted to report that excellent progress has been made on the engineering solution to address our need to meet new air emission standards. During the quarter, we completed engineering work on a solution that will achieve compliance at a cost of $8 million to $10 million substantially below our original $15 million low-end target. With board approval, we will commence work on this solution with a plan to complete the work prior to the start of the 2019 campaign.Turning to the Maple product segment, I will provide an update on our integration progress and some brief comments on some of early observations. As you may recall, we have developed an -- we developed integration gains around 3 areas. Procurement, organization design, operational -- organizational design and operational excellence and sales. Integration gains in the procurement area, where we have adopted best practices, lowest cost by contracts and where possible leverage scale, were to a limited extent delayed due to the acquisition of Decacer in November of 2017.In the second quarter we began to see some benefit from this work, more significant savings will come in the second half. Integration gains related to business IT platforms and organization design were mostly implemented late in the second quarter, similar to procurement efforts, we exceeded our targets -- we saw a very little benefit in the first half of the year. Our annualized targets in this area will be met, the full extent of which will be realized in fiscal 2019.Operational excellence goals for the first half of the year have not been realized. The acquisition of Decacer in November delayed the start of our work. We do not expect to meet the targets in the second half. But with the benefit of time and comprehensive analysis of our manufacturing and supply chain, we expect to meet our original goals in fiscal 2020.On the sales and marketing front, we had some positive results with the planned addition of new customers and customer promotions, which help deliver double-digit growth.In parallel, we experienced some customer losses, which were not recovered with additional business growth. Customer losses were a result of competitive price activity and its strategic decisions related to a co-pack -- to some co-packing work.New business prospecting efforts were also challenged by sales force's planned and unplanned restructuring, which created some temporary gaps in our sales coverage. This situation is now addressed and with a fully staffed sales force that have clearly defined regional and segmental -- segmentorial responsibilities. Our view is that in the fiscal 2019, we do not see ourselves fully recovering the lost volume from the current year. But given our growth targets for FY 2019 are modest, we believe in the course of time, we will be able to get back to our original targets and enjoy modest compound growth -- annual growth of 3% as assumed in our pro forma model. Not considered in our integration gains and also impacting our fiscal 2018 result has been the impact of a policy change that requires currency hedging on sales in foreign currency. Implementing this policy resulted in a margin erosion on sales booked but not hedged by the prior owner at currency levels well in excess of current values.In conclusion, despite a significant amount of [indiscernible] and measured accomplishments, on our integration targets, we cannot help but be disappointed with the financial results achieved to-date.We remain focused on executing our plan and continuing to complement our efforts with new knowledge we have gained from operating the business and to strengthen our integration plans. Although the commercial market has initially proven to be more difficult than we originally anticipated, we continue to see lots of opportunity for growth. With a strong and fully staffed sales team and capable and efficient -- and manufacturing and supply chain, we expect to see profitable growth in the future.Commenting very briefly on our key strategies. I would like to share we are on target for operational excellence initiatives in FY 2018, relative to our sugar business. We have a very good portfolio of return on investment projects that will start to unlock value in FY 2019. Our market access strategy outlook is positive. We are actively nurturing existing agreements and continue to monitor developments on NAFTA.On the acquisition front, our efforts are largely focused on integration, as time permits we will investigate other opportunities and make assessments on any new target on the basis of fit and returns.Finally, I'm pleased to confirm the corporation declared a dividend of $0.09 per share to shareholders of record on June 30, which will be paid on July 20. The total amount payout -- the total payout is estimated to be $9.5 million.In conclusion, I would like to thank all our employees for their efforts and contributions to our second quarter and first half of fiscal 2018.I will now hand the call over to Manon to provide more details on the financials.

[Manon Lacroix, VP of Finance, CFO & Secretary]

Thank you, John. I will now go over the second quarter results in more detail. I will start with the results from our core business, sugar. Adjusted gross margin for the second quarter was $22 million compared to $23.3 million for the same period last year.As John just mentioned, volume for the quarter was lower than last year, which explains the main contributing factor to decrease in adjusted gross margin.In addition, timing and sales deliveries of by-products also had a negative impact during the quarter. These 2 items also had an effect on the gross margin per metric tonne, which decreased from $137.90 per metric tonne to $134.66 per metric tonne. Another reason for the $3.24 per metric tonne decrease is the sales mix. With a reduction in consumer volume and an increase in liquid [indiscernible]. Administration and selling expenses for the quarter were $0.3 million higher than the comparable period last year due to timing.Overall, adjusted EBIT for the quarter was $13.9 million compared to $15.4 million, while adjusted EBITDA was $17.1 million versus $18.7 million for the second quarter of fiscal 2017.Year-to-date, our adjusted gross margin of $53.2 million for fiscal 2018 includes a noncash pension plan income of $1.5 million recorded in the first quarter with regards to plan amendment. Excluding this noncash income, adjusted gross margin was $51.7 million compared to $52.4 million last year.On a per metric tonne basis, the current year stood at $157.65 per metric tonne, or $153.27 per metric tonne, when the noncash pension income is excluded. This compares to $155.39 per metric tonne for the first 6 months of fiscal 2017. Decrease in adjusted gross margin and adjusted gross margin per metric tonne is mainly explained by timing in by-product revenues and some higher operating expenses, mostly incurred during the first quarter of the year.Adjusted EBIT for the first 6 months of the year was $37.7 million compared to $37 million last year. Adjusted EBITDA was $44.2 million versus $43.5 million for the comparable period last year.I will now turn to the Maple products segment. Revenues for the quarter amounted to $53 million, which was below our expectation. Adjusted gross margin was $6.6 million for the current quarter, representing 12.5% of revenue. Year-to-date, revenues and adjusted gross margin amounted to $102.1 million and $12.7 million, respectively, which includes the results from Decacer -- its acquisition on November 18, 2017. Also included in the 6 months result is an expense of $0.3 million for the fair value adjustment of the inventory, whereby finished goods acquired on the acquisition date are fair valued, which effectively represent selling value minus a small distribution profit. Excluding this accounting entry, adjusted gross margin was $13 million, representing 12.7 million -- sorry, 12.7% of revenue.During the quarter, the company transitioned 2 of its 4 bottling plants to Lantic's ERP system. This allowed us to implement some organizational changes with the centralization of certain back-office functions within Lantic structure. This resulted in $0.8 million in nonrecurring severance cost, which were included in administration and selling expenses.For the quarter and year-to-date, administration and selling expenses amounted to $2.4 million and $4.6 million, respectively, when excluding nonrecurring cost for the first 6 months and acquisition cost incurred in the first quarter relating to the Decacer acquisition.Distribution cost were $0.8 million for the second quarter and $1.7 million for the first half of the current year.Adjusted EBIT stood at $2.6 million and $4.6 million for the quarter in first half of the year. However, if we adjust for the items I just mentioned, adjusted EBITDA would stand at $4.9 million and $9.1 million, respectively.On a consolidated basis, adjusted EBIT increased by $1 million to $16.4 million for the second quarter of the current year, and by $5.3 million, $42.38 million year-to-date. Consolidated adjusted EBITDA was $22.1 million compared to $18.7 million for the second quarter last year, and $53.3 million versus $43.5 million year-to-date.Excluding the impact of the mark-to-market adjustment on the interest rate swaps, finance cost were $1.8 million and $3.5 million higher for the second quarter of this year and year-to-date, respectively. The additional financing cost for LBMT and Decacer, with La Fédération des Producteurs Acéricoles du Québec, or the FPAQ, represented an amount of $0.6 million and $1.3 million, respectively. Whereby the FPAQ offers payment terms to bottlers for the purchase of maple syrup at prime rate plus 1% interest. The remainder of the increase is due to the additional leverage compounded by an increase in interest rate.During the quarter, Rogers issued $85 million worth of the Seventh series convertible debentures, carrying a coupon of 4.75% and a conversion price of $8.85 per share, which will mature on June 30, 2025.On April 3, the company issued another $12.8 million with the exercise of the full over-allotment by the underwriters. The funds of $97.8 million in gross proceeds were used to repay on March 28, the Fifth series convertible debenture of $60 million, and the remaining funds were used to reduce Lantic's revolving credit facility.For the quarter, free cash flow amounted to $13.2 million versus $12.5 million in fiscal 2017, an increase of $0.7 million. The increase for the quarter, and it's mainly explained by the improvements in adjusted EBITDA of $2.5 million and a decrease in income taxes, partially offsetting this positive variance is higher interest base, capital expenditures and pension plan contribution.Year-to-date, free cash flow was $3.4 million higher than last year at $30.6 million, mainly for the same reason. The issuance cost of the Seventh series convertible debentures had no impact on this free cash flow as they were netted against the gross proceeds.I will now turn to the outlook for fiscal 2018. Once again, I will start with the Sugar segment. We continue to expect total volume for this year to be approximately 10,000 metric tonne higher than fiscal 2017. The main increase is expected in the liquid market segment, where we anticipate the recovery from volume loss in fiscal 2017 to high fructose corn syrup. And additional demand from existing customers to have a positive impact when compared to 2017, potentially resulting in an increase of approximately 10,000 metric tonne. We expect industrial and consumer's volume to decrease slightly.Finally, the company was able to contract additional high tier sales during the quarter, and as a result, we expect export sales to be approximately 10,000 metric tonne higher than fiscal 2017.I will now turn to the Maple products segment. Due to the disappointing result for the second quarter, and due to the operational analysis undertaken, we have revised our expectations for fiscal 2018. Our previous expectations were $18.4 million for LBMT and $4.5 million for Decacer, once prorated for the month of ownership by the company, for a total of $22.9 million. We now expect the total segment's adjusted EBITDA to amount to $19.9 million for fiscal 2018. Our expectations were lowered due to 3 main reasons. The first one pertains to sale. As part of our due diligence, additional sales volume was identified with certain new and existing customers. This additional business has materialized and has largely met our expectation. However, we had not anticipated any loss of business, which unfortunately occurred during the quarter and will impact the current fiscal year. The sales losses were due to strategic or competitive reasons. As a result, we expect adjusted EBITDA to be lowered by approximately $1 million. The second item relates to foreign exchange. The Maple products segment, as a portion of its business, that is exposed to foreign currency. For the first half of the year, the company recorded $0.5 million in realized foreign currency loss when compared to our expectations, and we anticipate this trend to continue into the second half as a result of this strengthening of the Kenyan currency versus last year. For the full year, we expect to have an impact of approximately $0.8 million, a significant portion of this foreign currency sales have now been hedged for the remainder of the year, which will mitigate our downside risk.Finally, with the acquisition of Decacer, the company purposely delayed implementation of certain operational synergies in order to perform a comprehensive analysis of the Maple products segment's operational capabilities, including the effects of the assets of Decacer. Due to the added complexity, this analysis will take longer than originally expected and will take longer to implement. As a result, limited savings were recorded thus far, and we expect further delays in realizing the operational synergies, which should be pushed to fiscal 2020.Other operational synergies, such as syrup and packaging material procurement have been revalidated and should occur, but the timing in the flow through of these synergies will be such that it will have a negative impact on the adjusted EBITDA for fiscal 2018 versus our previous expectation. As such, we expect the current year's adjusted EBITDA to be lower by approximately $0.9 million.Our expectations for fiscal 2019 were adjusted as a results of the lower adjusted EBITA expectation in fiscal 2018. We now anticipate the total Maple products segment's adjusted EBITDA to amount to $21.1 million as opposed to $20.5 million for LBMT, plus $5.1 million for Decacer for a total of $25.6 million. Sales losses that occurred in fiscal 2018 are not expected to be recouped next year as we have not adjusted our growth factor, representing approximately $0.5 million of adjusted EBITDA. As I mentioned, the operational efficiencies anticipated for fiscal 2019 will take an additional year to implement, thus resisting our current expectations for fiscal 2019.The 2018 crop has been difficult in certain regions and may put pressure on syrup cost, and therefore, we anticipate procurement of maple syrup to increase next year. Therefore, we now estimate that adjusted EBITDA should amount to $19.9 million for fiscal 2018 and $21.1 million for fiscal 2019. While this is a setback in our maple syrup diversification strategy, it in no way alters our confidence and the solid growth potential we initially identified in this industry.With that, I would like to turn the call back over to the operator for the questions session.

[Operator]

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

[George Doumet, Analyst]

I'd like to focus a little bit on the Maple products business. You guys -- appreciate the new color on the guidance -- but I'd just like to understand, as it relates to sales, I think you mentioned last quarter some competitive activity. What exactly is happening there and to whom are we losing the sales, is it U.S. based, is that local? And any comfort that you can give us on that, that, kind of, that trend won't continue, I guess, into 2019 as well.

[John Holliday, President & CEO]

Yes. I'll try to answer that. We've had a spot of competitive activity where be lost business. The number, the customer count is less than 3, and we identified that as some issues or -- in last call that we saw that. The strategic account was is -- as we said, it was a strategic decision based on their view of us as a competitor. So that was part of our portfolio. And at this juncture, we remain, sort of attentive to that issue, but there were 2 incidents that -- or 2 losses that occurred within the quarter.

[George Doumet, Analyst]

Okay. And is there a -- just maybe talk a little bit about the U.S. versus Canada. Is there any significant change in crop quality there or pricing that can, kind of alter buying behavior more towards the U.S, at least on a short-term basis?

[John Holliday, President & CEO]

If you look at the U.S., it's still -- from a supply perspective, it's a residual supplier. It represents the 20% of the total availability of maple syrup. So it's kind of confined or constrained by that fact. So you don't see material changes in the ability of U.S. to supply the U.S. market. In terms of your comments on U.S. attitude towards U.S. maple syrup, I really can't -- it would be speculative on my part at this juncture.

[George Doumet, Analyst]

Okay. And on the prepared remarks, John, you'd mentioned growth of 3% there onwards. I think a lot of the information in the deck or anywhere kind of points more to the mid-single digits to high single-digit growth for the industry. Just wondering can you maybe bridge us that difference?

[John Holliday, President & CEO]

The -- I think the difference, and maybe it doesn't sound like that at this juncture, is conservatism. If we look at the market results, market results have been 7%, 8%. We've seen good growth with the accounts we have, but we, obviously in view of kind of our first 6 months of experience, we didn't want to increase that initial objective of 3% compound annual growth rate.

[George Doumet, Analyst]

Okay. And just last one, if I may, kind of moving to the sugar business. Some lower margins, adjusted gross margin for the quarter. I think you called a lower by-product and also some sales mix. Can you maybe just clarify those 2 a little bit? And certainly give us a sense of how much of that is going to be ongoing, I guess for the rest of the year?

[Manon Lacroix, VP of Finance, CFO & Secretary]

Well, overall, like it's a -- by-product, like it's really climbing, like, the crops were similar this year versus last year's, so I would expect that it would even out throughout the year. And the sales mix, well, on our forecast, we're calling liquid sales to be up and consumer volumes to be slightly down. But obviously, liquid sales have a lower margin than consumers, so that could have an impact on gross margin rates.

[Operator]

Your next question comes from the line of Steve MacLeod from BMO Capital Markets.

[Stephen MacLeod, Analyst]

I just wanted to just follow-up on the question around the sales -- sort of customer losses, I guess. Do you -- is that something that was -- do you view that as a onetime in nature, or is there a shift away from -- or there are other sort of mitigating factors or determining factors that look to potentially cause further customer losses going forward?

[John Holliday, President & CEO]

It's a -- I don't think it's part of a trend or anything that you're sort of trying to suggest would be the case. It's just 2 customer losses, quite frankly. I mean, we run a sugar business, we have customer losses, and we have customer gains all the time. It's part of our normal course of business. We didn't -- we're new in this business, we lost those 2, we didn't include those in any of our outlook. And we want to be conservative on kind of our view on recovering those customers and the growth rate going forward. But it doesn't -- it's not an indication of any change in the marketplace.

[Stephen MacLeod, Analyst]

Right, okay. No, that's fair. Then you just mentioned now the potential to -- to potentially recover these customers. And when I -- you think about just EBITDA revisions for fiscal 2018 and fiscal 2019, what kind of opportunities do you see to get back to the targets of the time of the acquisition and/or move those targets higher from where they are now? I'm just curious how you view the upside versus the downside relative to the revised EBITDA targets that you have out there?

[John Holliday, President & CEO]

It's kind of time-shifted, our volume expectations, if you want to call that. So in '18, we said, no, we are not going to recover that volume, that's a position we're going to take from a kind of marketplace and sharing that with you. We'll obviously be looking for opportunities along the way. We have, as I said to you, the sales team of fully -- full complement of sales individuals now to sort of lead their prospecting process. And we'll continue to look for further growth opportunities that are out there. I would like to remind everybody on the growth side, it comes from a variety of different places. It does comes from acquiring customers, but it also comes from growth with the customers we have at the same time. So that -- we'll see some benefit from that. But think I'd like to say we're not -- we don't want to be overly aggressive. I think a conservative view is the right approach to take with the kind of short-term experience we have.

[Stephen MacLeod, Analyst]

Right, okay. No that's fair. And then you mentioned the 3% growth CAGR, and I was just thinking back, is that -- were you indicating that your EBITDA expectations indicated a 3% CAGR conservatively? Or has the 3% -- has your growth expectation come down from mid-single digit to growth to 3%?

[John Holliday, President & CEO]

No, it hasn't changed. That's what it was.

[Operator]

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

[Michael Van Aelst, Research Analyst]

So I'm just going to continue on the maple syrup first. The gap in the change of your forecast in '18 is $3 million; in '19 it's what $4.5 million or so. So why is the impact of all these factors expanding next year?

[John Holliday, President & CEO]

Next year, or in 20...

[Michael Van Aelst, Research Analyst]

Well I guess in fiscal '19, I think you said.

[John Holliday, President & CEO]

Yes, yes.

[Manon Lacroix, VP of Finance, CFO & Secretary]

I think it has to do with the delays in the operational excellence synergies. It's just going to delay us into 2020. And it has an impact on '19.

[Michael Van Aelst, Research Analyst]

What gives you the confidence that you can still get those operational synergies by 2020?

[John Holliday, President & CEO]

We have -- I mean we have, we own assets today. We have a strong operational leadership team, and we've done -- we started to undertake, we haven't completed, obviously, some good analysis on what's possible and where we need to make changes to yield those sorts of benefits. So I am confident in the team we have got to be able to get there.

[Michael Van Aelst, Research Analyst]

I guess, I'm just confused or not clear on, like why there's such a long delay, because even if you started, even if you got a 6-months kind of delay, it would have still -- you still could have picked up some of them in '19, I guess. So I guess, can you just explain a little bit more the -- like, some of the factors behind the delays, and why it's being pushed out 1.5 years now?

[Manon Lacroix, VP of Finance, CFO & Secretary]

I think at the end of the day, there's a lot of moving parts and it's hard to like track one item and flow it through all the way through, let's say 2020. Ultimately, when we're looking at what we kind of expect right now, those are the numbers that we get to. And our forecast is $3 million short, as you said, and $4.5 million the second year. But overall, we still believe that we'll get there.

[Michael Van Aelst, Research Analyst]

Okay. So for 2020, you'd be forecasting something along in the lines of the $25.5 million, $26 million that you are originally assuming for fiscal '19?

[John Holliday, President & CEO]

That's correct.

[Manon Lacroix, VP of Finance, CFO & Secretary]

Well, there -- yes, we should be thereabouts, like for -- I think the big difference is the operational excellence is where like it has the biggest shift in one year over the next. So overall, in 2020, we expect to be there in that portion. It's also the issue of -- the crop in 2018 has been uneven depending on the region. And in -- it may create some additional cost, on the syrup cost. So that's why also 2019 will be impacted that something that we had not foreseen in our previous expectation.

[Michael Van Aelst, Research Analyst]

So is this something that -- is that impacts all sugar maple syrup suppliers? Or is this more specific to you guys somehow?

[John Holliday, President & CEO]

It would have -- I'll I tell you, I'll describe the crop, and then you can make your own determination from the answer I give you, in terms of the answer. What that means is the crop, it's a -- has regional kind of variances. And if you were to look at the crop, and you divide back into 3 parts, you can say there is a Western part of Québec and the crop in Western part of Québec was good to normal crop. There was crop in the middle of Québec, which was maybe average to just below average, and then we have a crop in the eastern part of Québec, which was below average. So it depends where each one of the bottlers are, and to what extent they rely on the region that I described for supply. And so I don't know if that helps you. So it isn't same everywhere. Similarly, in the United States, there were regions this year that were impacted by weather and less -- below normal yields.

[Michael Van Aelst, Research Analyst]

Right. I mean there is nothing you can do about weather variations, but as far as securing supply from the, I guess, strategic reserves, rather than directly from the process -- the producers, is there a meaningful difference in the procurement cost?

[John Holliday, President & CEO]

There could be a difference in the procurement cost, yes.

[Manon Lacroix, VP of Finance, CFO & Secretary]

I think at the end of the day, we are not concerned about supply. We know that we'll have plenty of -- we'll have the supply to supply our customers, I guess. And also we could grow our sales, but it's just that it may cost a bit more to get some of the syrup that we need.

[Michael Van Aelst, Research Analyst]

Is there any seasonality to the maple syrup profitability?

[Manon Lacroix, VP of Finance, CFO & Secretary]

No, not really. The sales are relatively flat. It's just that I guess the new crop starts in April, depending of one like you are using your syrup, it could have an impact from one year to the next midyear-- midway through the year.

[Operator]

[Operator Instructions] Next question comes from the line of Endri Leno from National Bank.

[Endri Leno, Associate]

Just a couple from me. Really one, it's on the sugar side, that when you mentioned on the sales mix and the liquid been a little bit higher than the industrial, which impacted margins in the quarter. Would it be fair to say that, since we're expecting a higher liquid for the rest of 2018, I mean we can expect a similar margin performance for the rest of the year, our gross margin as it were?

[Manon Lacroix, VP of Finance, CFO & Secretary]

Yes. We typically don't give gross margin guidance for the rest of the year. But ultimately, looking at the forecast, yes, 10,000 more of liquid sales would have an -- like somewhat of a negative impact on adjusted gross margin. And also, it's -- it combined with the fact that consumer volume will be slightly lower.

[Endri Leno, Associate]

Okay. And my other question is, it's more on the capital expenditures. You said it was $8 million to $10 million that you're planning and that was lower than the original cost. So I was wondering what has changed in there? Is that different scope of the improvements that are trying to make? Or is it different engineering firm that provided the lower cost?

[John Holliday, President & CEO]

The -- this capital spending relates to Taber. And what it is when we were looking at the Taber, we were looking at multiple solutions. We had not completed the engineering on one of them, and we weren't sure of 2 things. The cost or the feasibility of that solution, would it actually be able to meet the standards we're looking -- we're obligated to meet. And after we completed that engineering work, we tick the box, it can -- it will meet the standard. And as we went through that engineering work, we also came to the realization that it is also a lower cost solution. So we're actually fortunate on a couple of accounts it worked. And it was lower than the original anticipated investment. So we discarded some of the other solutions that were in the hopper as we weren't went relying on just one. And we're comfortable now that it will be between 8 to 10 versus 15 to 25.

[Operator]

Your next question comes from the line of Frederic Tremblay from Desjardins Capital Markets.

[Frederic Tremblay, Analyst]

Just one question for me really. It's on the -- with the delayed synergies, and I guess delayed integration of some of the acquisitions there, how does this change your -- the time line for your vision of becoming a leading natural sweetener supplier, in terms of future M&A during -- in Maple or in other sweeteners? How do you view that now that you're kind of spend a bit more time than expected on the acquisitions that you just made?

[John Holliday, President & CEO]

Okay. Well, we're, obviously the kind of first order of business for us is to get sorted with the integration and move the business to -- in the direction that we wanted to go and that we plan for it to go. So right now, our immediate attention is going to be -- be on that, and that we need to -- as we go through that path, we may not need to get to 2020 to say aha, we've got to the goals. But we need to get to a point where we're comfortable that the plans we put in place are starting to be kind tick the box. Did they work? Got the outcome? And as we start to get more confidence that we're ticking the box on activities and getting the outcome, then I think we can allow ourselves the benefit of looking at other natural sweeteners. So I can't tell you how long that delay might occur, but I never -- we never would've anticipated within the first 6 months or 9 months of the acquisition, we would say, okay, everything is done and dusted, and we're going to move on to something else. It will be pretty quick. So I can't say it's materially delayed anything in terms of timing, because we didn't have a specific time. I can also -- could say that our vision of being a leading natural sweetener supplier absolutely remains a key strategy for us or a vision for us in the future.

[Operator]

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

[Michael Van Aelst, Research Analyst]

Can you give us some color on the efficiency projects you got planned for that $6 million? And what -- when we could expect to see some returns from them?

[John Holliday, President & CEO]

Yes. We have -- there's a couple of them. Some of them are kind of directed at energy, lowering our energy cost. Let me give you -- let me see how I want to answer that question. I don't have a problem answering it. I'm just wondering if we can do it in a -- kind of succinctly. So we have a -- an opportunity to reduce third-party co-packing work. That project is going to be installed and operational in the -- this quarter. So we'll begin to benefits from that and reducing and eliminating our co-packing cost. We have energy investments that we've made that are already are starting to yield lower gigajoule per metric ton consumption on our manufacturing platform and some of our refineries. So those are kind of a couple. And we have a significant capital investment in Western Canada that will tick a bunch of boxes for us. Quite frankly, it will decrease -- lower our manufacturing cost for energy consumption and it will give us a product solution with attributes we don't currently have that we're looking forward to. And in our facility in Taber, we have done a significant investment in automation, which has lowered our manufacturing cost in the packing and warehousing area. And that just got started for the month -- for a month now.

[Operator]

There are no further questions at this time. I'll turn the call back over to Mr. Holiday.

[John Holliday, President & CEO]

Okay. Thanks everybody for your questions today. And we look forward to talking to you in the third quarter.

[Operator]

This concludes today's conference call. You may now disconnect.