Rogers Sugar Inc
TSX:RSI
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Rogers Sugar Inc
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Ladies and gentlemen, thank you for standing by, and welcome to Rogers Sugar's Third Quarter Results call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. John Holliday. Please go ahead.
Thank you, operator, and good afternoon, ladies and gentlemen. Joining me for today's conference call is our CFO, Manon Lacroix. During today's call, I will put a broader context to the business and some insight on trends and changes in the industry. Please be reminded that today's call may include forward-looking statements regarding our future operations and expectations. Such statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied today.Please also note that we may refer to some non-GAAP measures in our call. Please refer to the forward-looking disclaimers and non-GAAP measure definitions included in our public filings with the Securities Commission for more information on these items.Like every business and everyone on this call, our everyday lives and businesses have been impacted by the coronavirus pandemic. There is no analogy year or event that we can reference on how to best navigate through this ongoing global phenomena. For our part, we are fortunate that our operations are considered essential, and we take great pride in our responsibility to maintain critical food supply chains. In this uncharted territory, we have established 3 guiding principles to support our decision-making in this complex environment. Number one, the health and safety of our employees comes first. We have invested in personal protective equipment and health and safety monitoring that has ensured a safe working environment. With the benefit of our company nurses and other health professionals, we are monitoring the wellbeing of our employees daily. We have provided and will continue to provide financial security for all employees if they are exposed to health risks related to the pandemic, either inside or outside of our workplace by providing them with full employment income until they are able to obtain medical clearance to return to work. This trusting environment has given us the needed insights to provide the best possible conditions for a safe workplace. Lastly, we have limited access to our facilities to essential persons only. Although there is a cost to the extensive protection measures we have put in place, the overall outcome is best measured by the fact there has been no transmission of COVID-19 at any of our facilities and no disruption to our business. We congratulate all our employees on their collective success, thus far. We will continue to monitor and adapt to this changing environment to keep our workplace safe. Our second guiding principle is to meet forecast -- the forecast needs of our Canadian sugar customers. We believe that meeting the needs of our Canadian customers is key to maintain strong relationships and achieving long-term success for our business. Being fully aware of the short supply conditions in the U.S. that presented significant quota and high-tier sales opportunities, we made a conscious decision to focus first on protecting the forecast needs of our Canadian customers. Despite the considerable effort to forecast these demands in such an uncertain environment, we saw that our food service and selected liquid customers were facing unprecedented disruptions in their business, and by midway through the quarter, we could see they would fall well below our expectations. At this point, it was too late to pivot our production to supply other North American demands and offset the Canadian food service and liquid shortfall. While this was disappointing, we maintain that ensuring a supply to our Canadian customers is foundational to our long-term business success, and we consider this commitment part of the responsibility that comes with operating in a concentrated supplier market.Entering the fourth quarter with a gradual return to less restrictive lifestyles, we are seeing the Canadian customer volumes in the food service and liquid segments are starting to return to normal. This is an encouraging development. Additionally, at the end of the quarter, the USDA announced an additional Canadian quota volume of approximately 37,000 tonnes of sugar refined in Canada. Although protecting the forecast needs of our Canadian customers resulted in a missed opportunity in the third quarter, we are now very well positioned to sell volume against the new Canadian quota and benefit from the Canadian -- recovering Canadian market. Overall, we expect most of the third quarter shortfall to be recovered in the fourth quarter. Additionally, because of the new quota volumes, we expect our margins on exports to the U.S.A. will improve. Our last guiding principle is to make every effort possible to support the extraordinary COVID-related demand from existing customers. Over the past several months, we've experienced unprecedented peaks and valleys of demand across both the sugar and maple business. Food service, duty-free and tourism sales have dampened, whilst retail sales have greatly increased. In sugar, significant consumer pantry loading resulted in a doubling of our normal requirements in 1 month and then dropped off to more normal levels. We took many extraordinary steps to meet these unprecedented and unplanned orders. We firmly believe in doing what we can to keep store shelves stocked with sugar in these stressful times is our responsibility. On the other hand, maple retail sales, which we consider to be more vulnerable to some of the economic pressures brought on by COVID, saw year-on-year volume increases nearing 50% at the onset of pandemic, whilst in the COVID environment, we continue to see double-digit year-on-year volume growth in subsequent periods. We have made many changes to meet this unplanned growth, including increased overtime working hours, purchasing additional packaging supplies, reconfiguring some of our origin destination supply chains to increase production capacity and rebalancing our manufacturing plans to respond to changes in product mix. Our team has performed extremely well in responding to the events that have arisen in both segments, while also remaining focused on executing our core business strategy. Thanks to their continued efforts, we are well positioned for a strong fourth quarter. Now moving to a couple of areas of operational focus. I want to comment on our Taber early harvest and our Maple margins. In Taber, the 2020 seeded acreage was increased from previous years, and the crop is developing well. The 30,000 contracted acres should deliver a record refined sugar production in excess of 130,000 metric tonnes. We are scheduled to start production earlier this year on September 9, which will allow us to complete the delivery of the additional shipment of 5,000 tonnes of beet sugar from the recent quota allocation. The larger crop will also allow us to ship approximately 25,000 tonnes of beet sugar against the new U.S.A. -- U.S.-Mexico-Canada trade agreement in fiscal 2021. Turning to Maple margins. We secured margin improvements on all contract renewals for the maple business during the quarter. We have adjusted pricing to recover costs and managed our profitability, all whilst maintaining customer loyalty and our market competitiveness. Due to the existing contractual obligations, the timing of these adjustments will largely impact fiscal 2021. Finally, I want to put our results into context for FY 2020. We began the fiscal year with expectations for a strong year for our combined businesses. However, in addition to the impact from COVID-19, we began the year with a nearly unprecedented 65,000 metric tonne crop loss in Taber, followed by 2 significant Canadian rail disruptions. These challenges and setbacks, our team has success -- despite these challenges and setbacks, our team has successfully offset the shortfall in Taber by developing a complex and comprehensive supply plan to support our customers as a result of their ability to respond to these events. We continue to expect to meet our projections for improved year-on-year performance in our Sugar segment, the largest contributor to our business. I want to again thank all our employees for their ongoing efforts and collaboration, especially during the current COVID-19 situation, where they have proudly demonstrated their commitment to serve our customers.Looking towards the future, we are now just a little over 30 days from the start of the 2020 beet sugar campaign and will soon be able to reconfigure our supply chains back to normal standards, lower our operating costs, return to normal export commitments to Mexico and take full advantage of the 25,000 metric tonne beet sugar quota and, finally, deliver against the balance of the 37,000 metric tonnes of recently announced Canadian refined quota. After a year that has tested the business on many levels, we are looking toward FY 2021 with great optimism. Now before turning the call back over to Manon, I want to publicly thank Manon for all her efforts and contributions to our business. We will miss her, and we wish her the best of success. On that note, we have made good progress in identifying a strong replacement for the CFO position and expect to be able to provide an update shortly. I will now hand the call over to Manon.
Thank you, John. Looking at the third quarter results in more detail, I will start by discussing the Sugar segment. As John mentioned, our overall domestic sales volume for the quarter was impacted by COVID-19. Consumer volume increased by approximately 5,600 metric tonnes compared to the same quarter last year due to the pantry loading movement associated with COVID-19, which was especially strong in April. Volume for the industrial and liquid segments saw a decrease of approximately 10,100 metric tonnes and 7,400 metric tonnes, respectively, versus the comparable quarter last year. The reduction was driven by lower demand in the latter part of the quarter from major customers who manufacture food products for the food service industry. In the export segment, quarter-over-quarter volumes increased by approximately 3,200 metric tonnes. As we mentioned previously, in early April, the U.S. announced the opening of a global and Canadian quota. During the third quarter, we sold approximately 5,000 metric tonnes against the global quota and approximately 500 metric tonnes under the Canadian beet quarter. This positive variance was slightly offset by a reduction in sales volume to Mexico due to planned reductions in shipments. The postponed shipments have been rolled over to fiscal 2022, allowing us to meet the needs of our domestic customers.For the Sugar segment, adjusted gross margin for the current quarter was slightly lower than the third quarter last year, largely due to the smaller crop in Taber, which led to lower by-product revenues compared to the same quarter last year. This was partially offset by lower energy costs as the juice campaign was completed in the second quarter of this year as opposed to the third quarter last year. In addition, despite the lower volumes in the quarter, adjusted gross margin per metric tonne improved by approximately $3.50 per metric tonne to $120.45 per metric tonne due to favorable sales mix driven by increased consumer and export sales and lower industrial and liquid sales. During the quarter, the company incurred approximately $2 million in additional costs associated with the COVID-19 pandemic for additional wages, protective personal equipment, sanitary supplies, social distancing measures, security and other associated costs. The remainder of the $3.1 million variation in administration and selling expenses is explained by higher employee benefits. Distribution costs were $1.7 million higher than the third quarter last year. As expected, the smaller crop in Taber added $1.4 million in distribution costs for the current quarter to reconfigure the supply chain. In addition, to be able to take advantage of the additional export volumes provided by the global quota, company incurred $0.4 million in incremental costs for a bonded warehouse in the U.S. Overall, the Sugar segment adjusted EBITDA for the quarter was $7.9 million, representing a decrease of $4.6 million versus last year's comparable quarter, mainly driven by higher administration and selling expenses and distribution costs. The adoption of IFRS 16 on the Sugar segment resulted in an increase of $0.8 million for the current quarter. Now we'll turn to the Maple products segment. The Maple products segment saw a significant increase in demand, driven by the pantry loading movements associated with the COVID-19 pandemic and growth, resulting from order replenishment from larger towns. Overall, volume was up more than 50% versus the third quarter last year and drove revenues up $16.8 million, representing an increase of approximately 37% versus the comparable period last year.Adjusted gross margin for the quarter increased slightly by $0.1 million when compared to the same quarter last year, representing a decrease of 2.8% in adjusted gross margin percentage. The majority of the increase in sales volume came from lower-margin accounts, resulting in a reduction in adjusted gross margin. In addition, labor costs increased by $0.6 million during the current quarter due to higher production volume to meet demand and some inefficiencies as a result of implementation of COVID-19 safety measures.Finally, assets acquired for the footprint optimization project and the lease at the new Granby location resulted in an increase of $0.3 million in depreciation expense. Overall, adjusted gross margin for the third quarter of fiscal 2020 amounted to $5.2 million. Administration and selling expenses were $0.5 million higher than the comparable quarter last year, mainly driven by additional employee benefits and $0.1 million in COVID-associated costs. The Maple products segment adjusted EBITDA for the third quarter amounted to $3.4 million, up $0.1 million for the comparable period last year. The adoption of IFRS 16 on the Maple products segment resulted in an increase of $0.1 million for the current quarter. Consolidated adjusted EBITDA at $14.3 million was $4.5 million lower than the third quarter last year, driven by a decrease in the sugar segment. At the beginning of the third quarter, the company acquired approximately 18,000 common shares under the 2019 normal course issuer bid for a total cash consideration of $0.1 million. A new NCIB was put in place during the quarter, which started on June 3 and the company can again purchase up to 1.5 million shares until June 2, 2021. The free cash flow for the trailing 12 months increased by $3.4 million versus the comparable period last year. Free cash flow increased as a result of lower interest and income taxes paid due to timing and low capital spending, net of operational expense, CapEx. These positive variances were partially offset by lower adjusted EBITDA, driven by $5 million of incremental shares purchased under the share buyback program and high payments for capital leases. The company took advantage of the government payment deferral program for income taxes due to the COVID-19 pandemic, but expects a catch-up of payments prior to year-end. We are pleased to confirm the declaration of the dividend of $0.09 per common shares to shareholders of record on September 30, 2020, and payable on or about October 21, 2020. The total payout is estimated at $9.3 million. I will now turn to the outlook for the remainder of fiscal 2020. It is important to note that our outlook assumes that our plants will continue to operate fully as they have done so far during the COVID-19 pandemic. Starting with the sugar segment. Our volume expectations for fiscal 2020 should exceed fiscal 2019 by approximately 5,000 metric tonnes and should total approximately 746,000 metric tonnes. While we expect to make up most of the lower sales volume incurred in the third quarter, this represents a small increase -- decrease versus the previous estimate, largely as a result of lower industrial and liquid demand. As John mentioned, significant export opportunities are present in the fourth quarter. When combined with our export volume improvement for the current quarter, we anticipate to end the year with an increase in export volume of approximately 7,000 metric tonnes despite having reduced deliveries to Mexico earlier this year by approximately 15,000 metric tonnes. The export opportunities should come from additional non-originating refined in Canada at the quota announced at the very end of June, and from the completion of the Canadian beet sugar quota of approximately 5,000 metric tonnes announced in early April, of which approximately 4,500 metric tonnes are left to be sold.As for the domestic market, we expect a slight increase in consumer volume in the last quarter to end the fiscal year approximately 15,000 metric tonnes higher than fiscal 2019. Volumes in the industrial and liquid segments were softer-than-anticipated in the third quarter. And while we are beginning to see volumes starting to return to normal, we expect our industrial segment to decrease by approximately 20,000 metric tonnes versus fiscal 2019, while the liquid segment should be flat year-over-year. Distribution costs are expected to increase versus fiscal 2019 as we ship bulk sugar to Taber, mostly to service our domestic liquid customers, as a result of the reduced beet crop. We will wind down these shipments during the fourth quarter, given that we plan to start our 2020 beet harvest in early September. We expect costs related to the COVID-19 pandemic to lower to approximately $0.5 million in the last quarter of the fiscal year as our processes are largely in place now, and lower spending is required to maintain our procedures. Costs are largely related to maintaining health and safety supplies, dispensing measures and consulting services. Overall, despite the challenges resulting from the smaller crop in Taber, we continue to expect that the sugar segment's adjusted EBITDA will exceed fiscal 2019 results. The margin improvements from the additional volume in the consumer segment and a special U.S. export quotas, as well as the reduction in energy costs are expected to be beneficial for the current fiscal year. In addition, the financial impact from the Vancouver commissioning issues encountered in fiscal 2019 are behind us. All these elements should more than offset the additional costs expected as a result of the smaller production volume in Taber. Capital spending for the current year should amount to approximately $20 million. Now turning to the Maple products segment. We have experienced a more stable competitive environment over the past few months. And as such, we expect that adjusted gross margin rates should remain at current levels for the fourth quarter. We continue to see strong demand associated with COVID-19. And although we expect a tempering of the demand, volumes should remain stronger in the fourth quarter than the comparable period last year. We expect volume should moderate to pre COVID-19 levels when the pandemic recedes.As it is my last earnings call with the company, I would like to take this opportunity to thank our shareholders and the financial analyst community for their confidence over the years, and I would like to wish Rogers Sugar much success in the future. With that, I would like to turn the call back over to the operator for questions.
[Operator Instructions] First question will come from the line of George Doumet of Scotiabank.
I just wanted a quick clarification for your outlook on the sugar business, your EBITDA growth. Just wondering, does that include the positive benefit from IFRS? Or is it -- is that apples-to-apples there?
It includes the IFRS benefits as well.
Okay, great. And I know this year is pretty exceptional, with everything that's going on. But can you maybe help us quantify the magnitude, the margins, I guess, from a mix standpoint, the higher margins for exports versus, I guess, our current existing mix? Like, how should we think about that benefit as a mix shifts?
Yes. Well, we've typically not like shared per se, the various segments on the gross margin. And I know it's -- like you said, it's a very exceptional year. But when you're looking forward on the fourth quarter, and looking at the guidance on volume, you'd see that the 2 main areas where we see a growth in the fourth quarter is basically in consumer volume and also on the exports, and those are the biggest -- the highest margin rate. So you should expect like a benefit per metric tonne for the fourth quarter as well as on a gross margin, dollar-wise. Our volume also in the fourth quarter is expected to be higher, so that should be beneficial as well.And if you're looking at, again, this exceptional year with Taber, all the commotion about that, like most of it is behind us. And so the fourth quarter should be better.
Okay. And maybe for John, you guys gave an update on the efficiency of maple syrup last quarter. I think usually it was still ramping up. Can you give us a little bit of an update there in terms of where we are today? And yes.
Okay. So Degelis is absolutely ramping up. It did ramp up and is running very, very close to our expectations in terms of throughput and operating efficiency. We have this issue across Maple in Degelis and in the other facilities with respect to trying to get additional people staffing for the increased capacity as being challenged by a lot of the safety net programs. So we've had to leverage more overtime and staffing solutions that might otherwise have been the solutions we wouldn't want to have taken. With regards to Granby, we've moved to the new facility. We are still continuing to improve our operating efficiencies, and we are not at the levels that we want to be, but we are progressing towards those. And we are confident that we'll reach those in the coming fiscal year.
Okay, great. And one last one, if I may. Can you maybe just quantify the magnitude of the price increase that you're calling out for 2021 in Maple business?
Obviously, we've covered all additional costs and it improves our margin, but I don't want to become too specific on that subject.
Your next question comes from the line of Michael Van Aelst of TD Securities.
Yes. So just on the margins by segment. I know you don't want to give it to us, anything too specific. But are you able to tell us if export margins are higher or lower than the consumer margins?
They're pretty similar, given that it's TRQ.
Okay. All right. That's helpful. And then the mix in Maple, can you just explain that again? So I guess you're saying that consumer and the retail margins are less attractive than some of the duty-free and other exports? Or what is that?
We have several -- certain clients and certain geographies that have less attractive margins, and we've been seeing more growth in those geographies or with those clients than -- well, disproportionately versus the prior quarter. So that's what's driving down the margin percentage.
So the more -- it's more geographic than channel?
It's a combination of geography and, to a certain extent, channel. But similar customers in the same geography.
Okay. All right. And then on the sugar exports, just so I have this clear. So you have 4,500 more to go -- metric tonnes to go on the Canadian TRQ. That's -- will all that get done in the fourth quarter?
Yes.
Okay. And then how could we estimate what share you're going to get at another 36,000 to 37,000 metric tonnes. Do you know how much of that has already been shipped by a writeup?
We're able to see it. I guess, I would say you should expect we should get our fair share.
I'm sorry, I don't remember the date. When does that window close.
I believe, Manon, correct me if I'm wrong, I think it closes in December. But we won't go that way.
Yes, that's correct.
Yes. And then on USMCA. So you did say that for fiscal '21, you're expecting 25,000. Is that 25,000 more metric tonnes of exports?
In total. Those are rounded numbers. So it's 25,000 in total.
So that includes the original 10,000, plus the extra...
Plus the extra 10,000, which is in the calendar year. So we get a pro rata this year, and then we get the full benefit of it again next year. That's how we -- that's why we're able to accumulate 25,000 in this coming fiscal year. On an ongoing -- in a normal year, it will be 20,000. So we have an exceptional opportunity moving into fiscal 2021, with respect to shipping against that quota.
Okay. All right, that's good for now. And Manon, best of luck in the next phase of your career.
Thanks. It's been a pleasure.
Our next question will come from the line of Stephen MacLeod of BMO Capital Markets.
John, in your prepared remarks, you mentioned that you would expect to catch up on most of the Q3 weakness in Q4. Were you talking specifically around volumes? Or was that also around EBITDA. And if it's also around EBITDA, can you quantify kind of how much weaker you were at volume versus where you thought you might be?
Okay. It was with respect to volume, it's where the catch-up will be. And Manon has pointed out that our margin mix in the fourth quarter will also benefit from an improved product mix.
Okay. Okay, I see. That's great. And then you made an announcement about a COO promotion internally. And I'm just wondering -- in May. I'm just wondering if you can comment a little bit about what that new role is -- what that entails, and how you expect that evolving over time?
Okay. Yes. I'll give a quick comment on that. We did announce that role, for sure. That individual is meeting the Maple business and helping us organize and coordinate our efforts to improve the, I guess, profitability and overall performance of that business. So that's important. And the individual has also been in our organization for a period of time and has an acute, very important knowledge of our sugar business, and we will be backfilling his position with a VP sales and marketing to give us more bench strength across the organization, but also to allow that individual to obtain the insights and knowledge that Mike Walton has on the sales side. So we have -- it will put ourselves in a better position for a long-term succession planning.
Okay. Okay, that's helpful. And then I just wanted to clarify, just on the new TRQ that you announced, which was 36,000. When do you expect that to -- it sounds as though you expect it not to last through December. So would you expect that you would get your fair share sort of in Q3?
It's a pretty speculative question because I've got to estimate and guess what the competitors are doing. And seriously, I'm not in a position to do that. I think I can only kind of share that I think we'll get our fair share.
Okay, okay. And then I just -- while we're speaking of TRQs. I'm just wondering if you can clarify sort of the commentary around the last question with respect to the USMCA and the 20,000 versus 25,000, I'm not sure. Just hoping you can clarify that.
Yes. I'll try to -- it's complicated. And then maybe just the way I described it. But this year, the USMCA came into -- the new one came into effect. It's -- let's just for argument's sake, say it's a 10,000 tonne per annum quota because it came into effect in the middle of the calendar year. We essentially got access to a 50% or a pro rata amount. The other quota that existed was on a crop year, we call it a fiscal year basis, which is really like a crop year. So that will start in October. So we get the 10,000. And then we'll get a new full 10,000 tonne access to the new quota in January of 2021. So we will have the opportunity in fiscal '21 to ship 25,000 tonnes. And in the following years, it will be 20,000 tonnes per year. Does that help?
Yes, that's helpful. Yes. So the 20,000 includes the...
Pro rata portion that we're getting this year.
Yes, great. Okay. Okay, John and Manon. That's very helpful. And, Manon, I just want to also pass along my best wishes for the next stage in your career.
Thank you, Steve.
[Operator Instructions] Your next question will come from the line of Endri Leno of National Bank.
Just a couple on the maple volumes. I was wondering if you're able to estimate what was the list because of the COVID and the pantry loading in Q3.
Well, I think if you look backwards, we had been seeing kind of much, much more moderate kind of growth rates, 5%, let's just say. So if you look to the delta, you could say we saw our -- growth rate was 50% in the quarter on a volume basis. And that, clearly, if we look at it, I would say, is got a combination of pantry loading. But it also has a combination of repeat orders. So we are seeing repeat orders that are at a, I would say, currently kind of double digit, I indicated that, variance from what had been the trend. So a big bump for pantry loading and then an ongoing replenishment that's in the low double digits at this point in time. And as you can imagine, it's difficult for us to say, well, this is what we expect to happen with COVID on a long-term basis because we have never been here. And I think we communicated that COVID -- when COVID becomes not an issue in our lives, we can't expect that this current compound annual growth rate is going to continue. But we're benefiting from it. We're working hard to make sure we supply it, and it's a positive outcome for this particular venture.
I had another question on Maple that I had. I mean, you referred to the new contract that will impact margins positively in fiscal 2021. So I was wondering, is it possible to give us a bit of a breakdown in terms of what percentage of volumes in Maple are longer term and what of them are shorter term? Because I believe we've talked about before like month-to-month or quarter-to-quarter changes in prices and volumes.
The price changes we will have made will be for customers for the kind of the balance, I'll call it, this crop year. So we have a tendency to do a lot of pricing around this time because it usually is a time when we become aware of the -- one of the most important costs in the business, which is obviously maple syrup. So the changes we're making are covering from this period, say, Q1 to the end of Q4 next year. We have a few customers who will have also taken price increases with, who might have dates for adjustments that are at a later point in time, for example, in the second quarter of fiscal '21. But they will also be in effect for another 12 months. So it's probably a series of price increases with -- across a broad number of customers that are 12 months in duration, but start at different points in time, in Q1 and Q2 of fiscal '21.
Okay. So you basically contracted all or a vast majority of the maple volumes that we expect for next year? Or would there be some shorter term opportunities?
We don't act -- as we probably described before we don't enter into, in many cases, contract -- specific contract like when you do in the sugar business. But our prices have been established and set with all these customers.
Great. Next question. I mean, you also indicated in the statements, I mean, there were some increased cost on the TRQ volumes on the bonded warehouse. Were those significant enough? And would you see any step-up in those as you shift more volumes into the U.S. for the bonded warehouse?
We will not. Go ahead, Manon. You know.
Sorry, on the distribution, the nuance in the third quarter is that TRQ that got announced in early April was first come, first serve, and it needed it to be physically in the U.S. in order to -- for our each tranches to clear customs. So we needed to ship in advance and put it in a bonded warehouse. So that TRQ is behind us. And in the fourth quarter, we could ship like -- because it's only on the Canadian -- like we're especially as non-originating sugar from refiners in Canada, we could ship ongoing. And it's going to be minimal in the fourth quarter.
Directly to customers. Yes. I think the way the structure of the 187,000 metric tonne, it was a global quota. It was set up in such a way, with the tranches that a lot of people around the globe had the luxury of time to be out to deliver against it. So there was a lot of product in bonded warehouse, more -- much, much more than what's required in the market. So our unique advantage is being close to the border, was not as advantageous in that -- under that TRQ arrangement.
Okay. And perhaps one last question, from me for Manon. And best wishes on your next opportunity, Manon. But on the tax that you deferred, how much was deferred in Q3 and how much do you expect to pay in Q4 or for the full year?
Well the -- if you're looking at the fourth quarter last year, it was quite -- the pool was quite high on the payments or the income taxes. I would expect probably half of that. So roughly $6 million to $7 million in the last quarter was deferred.
Your next question will come from the line of Frederic Tremblay of Desjardins.
Walmart Canada recently announced the implementation of infrastructure development fees as well as e-commerce development fees, and some media reports are stating that other retailers will follow that. I just want to get your thoughts maybe on what you're hearing from the discussions with retailers. And maybe you talk as well on what the future margin trends may look like in the retail business.
Okay. So we, like all, I guess, customers of Walmart have received those sorts of requests. We don't have a lot of exposure to Walmart, quite frankly. But we've given them our answer, which is, we're not accepting that. So we will push back -- pushback on that front. I think you'll also see that industry associations are doing the same and challenging the ethics or the legality of some of those requests. That's happened before with other retailers, and that's our stance at this particular point in time.
Perfect. Manon, best of luck in your future path.
Thank you, Fred.
We have no further questions at this time. I'll now turn the call back over to the presenters for closing remarks.
Okay. Well, once again, thank you for your questions and your interest in our business. We look forward to seeing you and hearing from you in fourth quarter results. Take care.
Thanks, everyone.
This concludes today's conference call. You may now disconnect.