Rogers Sugar Inc

TSX:RSI

Earnings Call Transcript 2018-Q4

[Operator]

Good afternoon, ladies and gentlemen, welcome to the Rogers Sugar Fourth Quarter 2018 Results Conference Call. [Operator Instructions] Please note that this call is being recorded today, November 21, 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. I will start the call by commenting on some of the highlights for the quarter and for both Sugar and our Maple segments and then provide some brief updates on our key strategies. At the conclusion of my comments, I will turn the conference call over to Manon, who will review the financials in more detail and talk briefly about the outlook for next fiscal year. We will then open up the call for your questions.Commenting on the sugar volume. We benefited from a very strong overall volumes in the fourth quarter. Our results exceeded prior year shipments by approximately 16,700 metric tonnes or plus 9%, and 25,400 metric tonnes, plus 3.6% for the quarter and the year, respectively.Looking at each segment. We saw our industrial business expand by approximately 5,400 metric tonnes for the fourth quarter. For the year, we saw a small volume increase of approximately 400 metric tonnes. Consumer shipments for the quarter were higher by approximately 1,700 metric tonnes and up by approximately 400 metric tonnes for the year. Strong promotional activity by our retail partners in the last quarter underpinned the strong performance. For the year, volume was effectively flat.Liquid volumes continue to be very strong. New customer demand and the recovery of some temporary customer losses helped us deliver plus 5,400 metric tonnes and 14,100 metric tonnes for the quarter and the year, respectively. We believe that strong demand from our existing customers, low No. 11 sugar prices as well as customer and consumer interest in natural sweeteners all contributed to lend near-term tailwinds to the segment.Export sales enjoyed a strong performance for the quarter and the year, with shipments up approximately 4,500 metric tonnes and 11,300 metric tonnes, respectively. The strong quarter resulted from accelerated shipments against contracted Mexican volume and additional high-tier opportunities. High-tier sales continue to benefit from the weak Canadian dollar and low No. 11 values. Overall, we are very pleased with the total business volume performance in the quarter and have expectations that we should continue to see similar overall volumes result in fiscal 2019.Before providing an update on the Maple segment, I wanted to take a moment to update you on our Taber facility. 2018 crop-growing conditions were again very good. Beet yield per acre are close to the last year's record. We commenced our campaign in mid-September and, to date, have experienced good storage and processing conditions. We anticipate completing the campaign in early March.As we shared last quarter, we were able to extend our contract with the beet growers for the 2019 and 2020 planting. This is well in advance of our normal negotiation pattern. As we had hoped, we are pleased to share that this extended sales marketing window has allowed us to resecure our export contracts to Mexico and extend our sales agreement with a large Western Canadian bottler for another 2 years. This is great news for our grower partners and Taber operations.On top of this positive development, we are encouraged by the newly negotiated USMCA agreement, which will add a further 9,600 metric tonnes of access for the Canadian beet sugar into the United States. We expect this new trade agreement to be ratified and in place in fiscal 2020.Turning to the Maple segment. I will provide an update on our integration progress and comment on some of the observations and our outlook for this new business. As you may recall, we had developed our integration gains around 3 areas: procurement, operational excellence and sales. Integration gains in the packaging procurement have met our initial targets, where we have adopted lowest-cost supply contracts and leveraged our scale wherever -- whenever possible. In the fourth quarter, we began to see more benefits from this translate into improved adjusted gross margins. We expect additional material incremental savings will come in fiscal 2019 as we work through existing inventories and complete more complex supplier negotiations.Targets for cost reduction for maple syrup were successful for the 2017 crop year. But as mentioned last quarter, the 2018 crop was disappointing in volume. We will -- with the experience we have gained and acquired with seasoned operations personnel, we have begun to develop a procurement model that will bring structural cost savings to the -- for maple syrup. Additional on-site storage with the leases of a fully refurbished 35,000-square-foot warehouse in Dégelis and the new warehouse and manufacturing plant to be built in Granby will reduce our cost paid to agents for interim storage. Integration gains related to business IT platforms and organizational design were largely implemented late in the second quarter. The transition to a common IT platform for 2 of our 4 bottling facilities has improved our business analysis and allowed us to centralize certain back-office functions. More importantly, we have completed a bottom-up fiscal 2019 budget and developed business tools and reporting capabilities that will allow us to better manage the business and provide greater insights. Freight variance reporting by customer, integrated sales and operational planning forecast, manufacturing cost earnings reporting are now becoming part of our business management toolkit. Process changes, such as the creation of a centralized price management function, will free up valuable sales time and provide a standardized and well-documented approach to manage margins and collect good competitive insights. Currency exposure to sales has been documented and appropriate risk-management strategies for customers have been implemented.After looking at our operations in more detail, we have satisfied ourselves that we have the right geographic footprint and that we can extract the most value from our business by investing in modernization, automation and specialization which, together, will lower our costs and increase our capacity to handle future growth.After sharing our plans to build a new 100,000-square-foot facility in Granby, we continue to develop a more comprehensive plan that looks across our total network. It's previously communicated the new Granby site will provide increased bulk syrup storage capacity, improved finished goods distribution capabilities and best-in-class manufacturing capabilities that will be able to support growing customer demands. Overall -- our overall manufacturing strategy is to build specialized, low-cost, high-quality production facilities with an overall objective to double our manufacturing capacity and reduce manufacturing costs and deliver industry-leading product quality.On the sales and marketing front, we continue to see overall healthy market growth at 8% on a compound annual growth rate. Our sales results for the quarter were short of our forecasted targets. Although we have been disappointed by the initial sales outcomes, we are not discouraged. As previously shared, the traditional retail private-label space continues to be the most challenging sector, but our new sales structure has improved our ability to compete by allowing us to create more strategic partnerships.Our strategy in the traditional retail maple syrup space is to grow with the right partners and not pursue aggressive shares deal. In the retail baking aisle, we were able to confirm the intention of a Canadian retailer to list our product of maple sugar and maple flakes nationally. We are filling the pipeline demand as we speak. This will create a new Lantic/Rogers-branded alternative natural sugar line extension, pack and stand up resealable pouches. We're excited to see how this new product will perform.In the ingredients segment, off an initially small base, we have grown the business by more than 50% this year. As previously mentioned in this area that we want to pursue where we can -- I'll just pause for a second. As previously mentioned, this is an area where we want to pursue where we can leverage Lantic's relationship to help us expand this category. A dedicated sales position and a national brokerage agreement with a leading U.S. ingredients supplier has begun to generate new business and has created awareness and new product development activity with major consumer packaged goods companies. We have placed our product portfolio in a broad range of processing companies. Recognizing that some end-users have long production -- product development cycles, we don't expect to have instantaneous results. Nonetheless, we are seeing strong interest and positive growth from this new -- from the new customers in this largely untapped segment.In summary, we have made good progress on many fronts. With the benefit of bottom-up budget and enterprise business management tools, we are in a position to proactively manage the business and make decisions with better insights. The sales and marketing team is now well organized and working a well-considered plan for key account growth and targeted prospecting. On the operations front, we are now transforming the business from 4 individual standalone businesses to an integrated business strategic footprint of specialized manufacturing sites. We see FY '19, or fiscal '19, continuing to be a transition year in this space. The full impact of the commercial operational business process changes should be realized in fiscal 2020 and beyond.Commenting briefly on our key overarching business strategies. I would like to share, we have delivered on our Sugar segment operational excellence initiatives with an investment in excess of $6 million. We have completed the installation of a new pouch packing line at our Toronto blending plant, thus reducing copacking cost and bringing more business flexibility. We have completed the installation of the automated palletizing station in Taber, reducing labor costs and improving reliability. We have completely redesigned our sugar decolorization process in Vancouver, lowering energy costs, reducing water usage and eliminating headcount. And finally, we have upgraded refining equipment in Montreal to lower our overall plant energy consumption. We continue to build a very good portfolio of return on investment projects, which we will prioritize and fund in future years.Our market access strategy outlook is positive. As I mentioned earlier, the renegotiation of NAFTA concluded with a new USMCA agreement, which provides us with an additional 9,600 metric tonnes of Canadian beet or Canadian-origin beet sugar to the U.S.A. and 9,600 metric tonnes of incremental sugar-containing products. We anticipate this agreement to be ratified and in place in fiscal 2020.On the acquisition front, our efforts remain largely focused on integration. However, we will continue to investigate other opportunities, 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 December 31, 2018, which will be paid out on or about January 21, 2019. The total payout is estimated at $9.5 million.In conclusion, I want to point out that our sugar results for fiscal 2018, excluding 2 years where U.S.-refined sugar quotas were open, represents the second-best year in our last 15 years of results. This is a great testament to a team that has worked hard on integration and clearly kept their eye on our core business.With that, we would like to thank our employees for their efforts and contributions to our results and for the year and on the ongoing integration efforts.I will now hand the call over to Manon to provide more detail on the financials.

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

Thank you, John. I will now go over the fourth quarter results in more detail. I will start with the results of our Sugar segment. Adjusted gross margin for the fourth quarter amounted to $25.8 million, an increase of $1.2 million when compared to the fourth quarter of last year. As John mentioned, our fourth quarter volume was approximately 16,700 metric tonnes above last year, which drove most of the increase in adjusted gross margin. In addition, by-products revenues were also higher. However, these 2 favorable variances were somewhat offset by lower No. 11 raw sugar values and a higher maintenance cost in Montreal and Taber. The lower No. 11 world raw sugar prices affects Taber's domestic sales, given that Lantic has negotiated a fixed Canadian dollar price with the Alberta beet sugar growers, while the price of refined sugar deliveries is directly linked to the No. 11. This price variation exposure affects approximately 10% of Lantic's sales volume and is entirely dependent on the timing of pricing by our customers.On a per metric tonne basis, adjusted gross margin stood at approximately $129 per metric tonne, a reduction of approximately $5 per metric tonne. The reduction in adjusted gross margin rate is mostly driven by the decrease in No. 11 world raw sugar price and, to a lesser extent, by the unfavorable sales mix with the strongest increases in lower-margin industrial and liquid segment. Finally, the additional maintenance cost also contributed somewhat to the reduction in adjusted gross margin.For the quarter, decrease in administration and selling costs was almost negated by the increase in distribution costs. Looking at the administration and selling costs, the fourth quarter of fiscal 2017 included $1.9 million in acquisition costs. Thus, excluding these nonrecurring costs, administration costs were $0.7 million, lower than last year, mostly due to lower employee benefits. Distribution costs were $0.5 million higher than the comparable quarter last year due to an increase in the refined sugar bulk transfers to Toronto, in part explained by the higher sales volume, compounded by an increase in freight rates. Finally, as it was the case in prior quarters, Lantic incurred additional storage costs in Taber given the size of last year's crop. Overall, adjusted EBITDA was $21.6 million, an increase of $1.7 million versus the fourth quarter fiscal 2017.For the year, adjusted gross margin of $99.7 million includes a noncash pension plan income of $1.5 million recorded in the first quarter relating to plan amendment. Excluding this noncash income, adjusted gross margin were $98.2 million, a decrease of $1.7 million when compared to last year.On a per metric tonne basis, and excluding the noncash pension plan impact, the current year stood at approximately $136 per metric tonne compared to approximately $144 per metric tonne for fiscal 2017. Similar to the quarterly results, the decrease in adjusted gross margin and adjusted gross margin rate per metric tonne is mainly explained by the lower No. 11 world raw sugar prices. In addition, the slightly unfavorable sales mix and higher maintenance cost also contributed to the decrease. Overall, No. 11 values varied between approximately $0.10 and $0.15 per pound this year compared to approximately $0.13 and $0.24 per pound in fiscal 2017.Distribution costs were $0.8 million higher than last year for the same reason as the increase for the fourth quarter. Adjusted EBITDA was $0.5 million lower than fiscal 2017 and amounted to $81.3 million.As for the Maple product segment, revenues for the quarter amounted to $50.8 million and adjusted gross margin was $7 million, representing 13.7% of revenues. For the year, revenues and adjusted gross margin amounted to $203.2 million and $26.7 million, respectively, which include the results of the Decacer since its acquisition on November 18, 2017.For the year, nonrecurring costs amounted to $0.9 million, which mainly represents severance costs relating to organizational changes done in January and are included in administration and selling expenses. For the quarter and for the year, administration and selling expenses amounted to $2.2 million and $9.4 million, respectively, excluding the nonrecurring cost and $0.7 million in acquisition cost incurred in the first quarter relating to the Decacer acquisition. Distribution cost amounted to $1.2 million and $3.9 million for the fourth quarter and the full year, respectively.Fiscal 2017 only includes approximately 8 weeks of operations following the acquisition of LBMT on August 5, 2017. Adjusted EBITDA amounted to $4.8 million and $18.6 million for the quarter and for the year, respectively, when excluding the nonrecurring costs I just mentioned. On a consolidated basis, adjusted EBITDA was just shy of the $100 million mark and closed the year at $99.9 million. This compares to $84.2 million last year.During the quarter, Rogers continued to purchase and cancel shares under the normal course issuer bid, or NCIB, that was put in place during the third quarter. In total, 400,000 shares were purchased during the fourth quarter for a total of 736,900 shares for the full year. Overall, this represents a total cash consideration of $4 million at an average price of $5.38 per share. With the current NCIB, the company may purchase to 1,500,000 common shares, and it is set to expire at the end of May 2019.For the quarter, free cash flow of $10.3 million represents an increase of $3.7 million. For the year, free cash flow was $47.8 million or $7.2 million higher than last year. The increase in adjusted EBITDA and the lower income taxes paid were positive contributing factors for both periods while the purchases under the NCIB, the increase in interest paid and the higher capital spending all contributed negatively to the free cash flow.Now the outlook for fiscal 2019. Once again, I will start with the Sugar segment. Total volume for fiscal 2018 was almost 720,000 metric tonne, and we expect our volume for next year to be comparable. We anticipate a decrease in industrial and export volume, which should be more than offset by an increase in additional liquid sales due to a continuation of growth from existing customers and new business that the company was able to secure. Although we expect export volume to decrease slightly next year, we will continue to pursue opportunistic U.S. high-tier sales and other export opportunities. The export volume expectations do not include any additional tonnage to be gained by the new U.S.-Mexico-Canada trade agreement as it is not expected to take effect before fiscal 2020.As for the Maple products segment, our fiscal 2018 results were lower than our previous forecast of $19.9 million. And as a result, we believe it is prudent to reduce next year's adjusted EBITDA forecast by approximately the same shortfall from fiscal 2018's results. As such, we anticipate the adjusted EBITDA should be approximately $21 million when excluding nonrecurring cost.As we announced last quarter, the current bottling facility in Granby will be relocated to a new facility built for purpose, which should improve production flow and allow us to install a high-capacity bottling line and maximize syrup barrel storage. Investments of approximately $4 million remain to be spent in fiscal 2019 for this purpose of a total project cost of $4.5 million. Operational savings are not expected in fiscal 2019 as the relocation may take place very late in fiscal 2019 or early in fiscal 2020. As a result of this decision, $1.1 million in nonrecurring cost should be incurred in fiscal 2019 and possibly in fiscal 2020, mostly related to double lease payments, moving costs and other nonrecurring costs. Although we have lowered our expectation for next fiscal year, out of caution, we remain optimistic on the outlook of this segment, and we continue to believe that our original integration gains are achievable, albeit over a longer time horizon.Capital spending for the Sugar segment will increase next year. It is expected that between $6.5 million and $8.5 million should be spent towards the air emission project in Taber. In fiscal 2018, $1.5 million was spent on that project. In addition to Taber air emission project, approximately $20 million, of which approximately $6 million should be spent on return on investment projects, which is comparable to fiscal 2018.Finally, the Maple products segment capital spending on the first phase of the operational excellence project should approximate $4 million, as I just mentioned. In addition, the Maple products segment is expected to spend approximately $1 million in maintenance capital expenditures for a total of approximately $5 million. Therefore, in total, Rogers' capital spending for fiscal 2019 should range between $31.5 million and $33.5 million, of which $10 million should be return on investment projects.With that, I would like to turn the call back over to the operator for the question session.

[Operator]

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

[George Doumet, Analyst]

Just wanted to focus on the maple syrup business. Can you maybe give us some color, maybe just the big buckets as it relates to the $1.3 million shortfall in EBITDA versus our prior expectation?

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

Yes. It's mostly driven by sales, really they were lower than expected. That's the main driver. The other buckets are slightly lower margins, the mix of products that we sold and the customer that we sold it to. And the other bucket, I would say, is FX -- a bit of a loss on FX.

[George Doumet, Analyst]

Okay. So similar to the stuff you guys called out on the prior calls?

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

Yes. There's nothing unusual that occurred.

[George Doumet, Analyst]

Okay. Great. And I guess, if you were to looking at 2019 guidance for that segment, it implies about 30% growth year-over-year. Should we think about it as a longer-term normalized kind of growth number? Or maybe is there anything specific happening next year that would maybe just give it a onetime boost?

[John Holliday, President & CEO]

Yes, I think next year probably is accelerated from normal. We're doing -- we have several pillars underneath the kind of the business plan around sales growth, around having the benefit of a full year with Decacer, which we didn't have last time. We have a price increase we announced previously, which we've embedded in these numbers as well, notional, a small price increase. That's in the sales -- sort of crop sales side. On the operational side, we still have solid plans, well-defined plans for operational savings that will come -- start to come next year. We have packaging initiatives that we benefit from in '17 and '18, and we anticipate we will continue to see some solid benefits from that in '19. So those are the structural things underneath the expectations. And then supporting that, an important aspect of that, is having now this business tool called plan bottom-up. We know what we anticipated to do, and we've got the analytical tools to analyze where the business is growing and understand where our issues are and address those in a very timely and exacting manner, which we didn't have that tool available to us in the first fiscal year.

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

And George, if I could add also. I think that we've been talking throughout the year of delays in our operational optimization that we've announced the first phase last quarter. And we're going to be relocating our plant in Granby, but we going to be moving really like towards the end of the fiscal year. So there's going to be practically no savings regarding that next year that will come the year after. So I would say that, for the next 2 years, there might be a bit more savings or growth in our pipeline. But then, like I would expect a more normalized growth going forward.

[John Holliday, President & CEO]

Yes, more market growth.

[George Doumet, Analyst]

Yes, that's helpful. And just one last one if I may. On the -- I guess, back to the legacy business. It seems to be a pretty good environment for export volumes. I guess, lower CAD, lower 11 values. So I'm just wondering why we shouldn't expect -- I guess, why we should expect lower volumes next year based on your guidance?

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

Well, our expectations are mostly, like, what we've got booked in our -- like, right now. So we're not forecasting additional sales that we don't currently have.

[John Holliday, President & CEO]

Yes. So as long as the environment remains positive, the opportunities remain available. But we haven't -- they're not solidified so we haven't booked anything.

[George Doumet, Analyst]

Okay. Just -- and quickly just -- sorry. On -- I think to Manon, you said that the CapEx, $33.5 million for 2019 total?

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

Yes. Total, yes.

[Operator]

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

[Michael Van Aelst, Research Analyst]

So I may have missed a bit of that CapEx. How much of that is maintenance?

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

There's a -- $21 million to $23 million is maintenance capital.

[John Holliday, President & CEO]

Around $10 million is ROI.

[Michael Van Aelst, Research Analyst]

Okay. And when do you -- originally, I think it was still really quite a bit lower than that. Are you expecting to go back to a more -- a lower level of maintenance? Or is that a run rate beyond '19 as well?

[John Holliday, President & CEO]

No. We'll go back to the more normalized. Well, see, the last year or this year's history, we have the extraordinary maintenance capital next year is the Taber air emissions. So that's a one-off. That's embedded in the $31 million. And so that's the difference. I would say we haven't got a normal maybe ROI, but our ROI targets for -- are going to be closer to $6 million. So the way kind of the core business operates, the sugar business, it's $26 million ROI and $14 million maintenance. And that's kind of -- if you were to look forward, that's how I'd look at the business from the core business.

[Michael Van Aelst, Research Analyst]

Okay. All right. And then on the maple business, I think, originally, your profit longer-term EBITDA target was $25 million to $26 million. Do you still expect to be able to get there by fiscal '20? Or has that been pushed out?

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

Yes. I would say that it's been pushed out, given the flow of the...

[John Holliday, President & CEO]

Absolutely. I totally concur with Manon, it's been pushed out a little bit. But as far as do we expect to get there, the answer to that is absolutely yes. So we have the right business. We are making the pieces fit what we think it needs to -- what they need to be to be able to grow the business and run a cost-efficient operation, and we'll get there.

[Michael Van Aelst, Research Analyst]

So you're figuring you'll get there by '21 then, I guess?

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

Well, it's hard to pinpoint exactly, like, the year. But I think that we're -- we've got a lot going on that will drive the results that we are expecting.

[John Holliday, President & CEO]

All the things -- I think all the things we think we need to do to organize ourselves to be able to get to that sort of kind of an operating run rate will be done in fiscal '19 and fiscal 2020. So we're comfortable that the operational footprint will be right. We'll have the sales team well, well kind of experienced. And we'll get those growths. And the opportunities in some of the other areas of packaging savings or procurement stage savings will all be well done. So they'll be done in those 2 fiscal -- in the '19 and '20 fiscal years. So if that's the only thing we're working on, then you can say we'll be at the 25 when those are all completed because that's what we expect.

[Michael Van Aelst, Research Analyst]

Okay. On the liquids side, what's driving the strength there? Is it the low No. 11 price at this point?

[John Holliday, President & CEO]

We think it's a combination in this -- of 2 things. No. 11, yes. Currency doesn't hurt us either against high-fructose corn syrup. And in addition to that, we see -- we think some customers are interested in moving to a different labeling kind of structure, and that's helping us as well because we're seeing some conversion that may not have happened in the past.

[Michael Van Aelst, Research Analyst]

Okay. I think you also said something about you're -- so you're growing with new and existing customers. The existing customers, is that -- does that apply as well in terms of now wanting to switch to new sweeteners? Or is that -- are they just growing their total volumes?

[John Holliday, President & CEO]

I wouldn't say the existing customers are necessarily growing. I think it's more new customers coming in. And if it's existing customers, maybe customers that we lost and we've repatriated or gained back.

[Michael Van Aelst, Research Analyst]

Okay. And sorry, I -- again, I might have missed it, I haven't had the chance to read everything in the press release. But what was the reason why sales were lower for maple in the year -- and in the quarter in particular?

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

Well, we didn't lose any customers in the quarter. It was just we had forecasted growth that didn't occur.

[Operator]

And your next question comes from the line of Endri Leno from National Bank.

[Endri Leno, Associate]

Just a couple from me. First, you mentioned, John, in your prepared remarks that maple products in the baking aisle that you are filling the pipeline. Was that significant in Q4? And do you expect that to be significant over the next couple of quarters?

[John Holliday, President & CEO]

It's -- it wasn't in Q4. It is in Q1 starting to -- we're building internally our pipeline capabilities to ship, and we'll be shipping in Q1.

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

But it's -- like in the whole scheme of things, like, it's not significant. It's definitely something to be proud of and to celebrate, but it's not going to be, like, 10% sales increase as we start.

[Endri Leno, Associate]

Okay. Got it. And next question. So you mentioned the distribution expenses were a little bit higher due to the transferring in Toronto. I mean how do you expect those going into 2019?

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

This should be fairly comparable next year. It might be -- like, obviously, everybody is watching the freight rate increases. So it could be slightly higher but nothing of significance.

[Endri Leno, Associate]

Okay. And last question was more of a general commentary. If you can talk a little bit to the new quotas under the USMCA. You mentioned there is one for beet sugar, in particular Canadian, and the other one for sugar-containing products. If you can talk a little bit about those? And whether the second one directly impacts Rogers Sugar or it's more of an indirect benefit at this point?

[John Holliday, President & CEO]

So the first one, the beet sugar is direct. It's pretty obvious. We expect that, as I said, to get ratified. And we are hopeful that it will be in place for fiscal 2020. The high sugar-containing products is in addition to the existing quota that is in place today, and we do benefit from that through an allocation process -- the allocation process is not defined at this particular point in time. So it would be shared amongst ourselves, for example, and amongst others who have blending facilities for sugar-containing products.

[Operator]

And your next question comes from the line of Stephen MacLeod from BMO Capital Markets.

[Stephen MacLeod, Analyst]

I just had 2 questions that I want to follow up on. First is just with respect to the outlook for the sugar business in 2019, just with volume essentially remaining comparable on a year-over-year basis. Can you just talk a little bit about what the mixed factors are in that and how you expect adjusted gross margin per metric tonne to evolve over the year?

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

Well, it should be fairly comparable on the gross margin because the -- like, effectively, like, the industrial is going to go down. The liquid is going to go up. But those are -- typically are your lower-margin segments, so we shouldn't have a significant impact on gross margin per se.

[Stephen MacLeod, Analyst]

Okay. Okay. And then just in terms of the Maple business. John, I apologize if I missed this in your prepared remarks, but can you just talk a little bit about what you're seeing at the retail level in the maple business?

[John Holliday, President & CEO]

In terms of -- with respect to what exactly?

[Stephen MacLeod, Analyst]

With respect to pricing and competitive pressures.

[John Holliday, President & CEO]

As I think Manon mentioned, we haven't lost any business in the quarter. We know that the retail space, which we talked about before, is competitive, price competitive, in the private-label arena. But we haven't seen any material change in the competitiveness, and we haven't incurred any business changes in terms of our portfolio.

[Operator]

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

[Frederic Tremblay, Analyst]

Just on the transition in Granby, I was just wondering, I'm curious on the steps that you expect to implement to avoid any disruptions during the transition later in 2019. Will both facilities in Granby run at the same time for a while? Or what's your plan there?

[John Holliday, President & CEO]

We're going to build the one. It will be ready, and it will be -- we're going to install a new plastic line in that facility. That's a primary manufacturing sort of asset in the existing Granby facility. So the new line will be there, ready to install or ready to operate, and we will move from one to the other. So we expect it to be largely seamless.

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

And also, Frederic, it's going to be -- the 2 leases are overlapping. So we've got time to basically install, commission test, making sure that everything is fine and then start dismantling the other yield or equipment at the old location. But obviously, eventually, we'll have to locate -- to leave the premises.

[Frederic Tremblay, Analyst]

Okay. And I believe you mentioned that this project and other projects in maple will result in increased capacity over time. How should we think about your current capacity utilization and, I guess, forecasted capacity once those projects are completed?

[John Holliday, President & CEO]

We will be -- we'll essentially double our capacity and be operating somewhere just north of 1 shift to operation across the business on average.

[Operator]

We have no further questions at this time, so I will now turn the call back over to the presenters.

[John Holliday, President & CEO]

Thanks, everybody, for their questions, and we will catch up to you in the next quarterly call. Take care.

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

Thank you.

[Operator]

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